Lords Sitting of 30 January 2003

Preamble
The House met at eleven of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.
Prayers—Read by the Lord Bishop of Hereford.

Arms Control and Disarmament (Inspections) Bill [H.L.]
Read a third time, and passed, and sent to the Commons.

National Minimum Wage (Enforcement Notices) Bill [H.L.]
11.6 a.m.
Read a third time.
Clause 1 [Enforcement notices]:
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville) moved Amendment No. 1:
Page 1, line 14, at end insert—
"(2B) An enforcement notice may not impose a requirement under subsection (2) above in respect of any pay reference period ending more than 6 years before the date on which the notice is served.""
The noble Lord said: My Lords, Amendment No. 1 is grouped with Amendment No. 2. I am grateful for the all-party support we have had during the course of the Bill and I hope that we can also win all-party support for the government amendments which follow on from the debate held at Report stage. Briefly the first amendment will limit the period that an enforcement notice can cover to the period of six years before the date on which it is issued, and the second amendment is a consequential amendment to the Title.
Noble Lords may recall from our earlier debates that the Government expect few cases to go back more than three years. That is mainly because the minimum wage regulations require employers to keep pay records for only three years. In practice we expect the Revenue to find it difficult to pursue cases that go further back than that unless there were clear evidence such as payslips held by the worker and no dispute about the hours worked. We would therefore expect very few cases to go back as far as six years. In addition the Limitation Act means that all cases taken through the county courts—the great majority—can only go back for six years.
The noble Lord, Lord Razzall, asked what that meant. Briefly, the six-year limit runs back from the date when the claim is lodged with the court. In the county court, each underpayment is viewed as a separate breach. The six-year time limit runs from the date of each underpayment. So if a claim for an underpayment is not brought within six years., the worker will be time barred from bringing that claim.
Let us take a hypothetical example in which a person has had a job since 1990. The job ends in 2003 and throughout that period the worker had not received the minimum wage—on the basis that the legislation had been in force since 1990. If a claim were lodged for that person in 2003, it could only go back to 1997, six years before the claim was lodged. The arrears for the pre-1997 period could not be recovered because they occurred more than six years before the claim was lodged. On reflection the Government can agree to limit the period that enforcement notices may cover to six years, as sought by the noble Baroness, Lady Miller.
I should stress, however, that we do not propose to limit the existing rights held by individual workers. Of course, it seems very unlikely, for the reasons I have given, that more than a handful of cases will go back for more than six years. But we do not wish to rule out the possibility that individual workers might wish to take cases going back for more than six years to an employment tribunal. To do so would put workers claiming in respect of underpayments of the national minimum wage in a worse position than workers claiming in respect of other contractual underpayments. I am happy, as I said, to limit the powers held by the Government's enforcement officers. However, it seems to me that it would be wrong at the same time to limit the existing rights held by individual workers.
The Government believe that the amendment brings clarity to the situation and ensures that the rights of the worker and employer are respected. I beg to move.
Baroness Miller of Hendon: My Lords, I am most grateful to the noble Lord, Lord Sainsbury., for the courteous way in which he has dealt with my earlier amendment, particularly as we said that it would concern only a few cases. I am happy to accept the amendment that has now been produced in lieu.
Lord Razzall: My Lords, as the Minister is aware, I had concerns about the amendment tabled by the noble Baroness in Committee. I was concerned about the points that the Minister raised and that we should not be seen to take away rights from employees or ex-employees that they would otherwise have. In the light of the helpful assurances given by the Minister, I too am happy to support the amendment.
On Question, amendment agreed to.
In the Title:
Lord Sainsbury of Turville Lord Sainsbury of Turville moved Amendment No. 2:
Line 5, at end insert "; and to limit the pay reference periods in respect of which a requirement under subsection (2) of that section may be imposed"
On Question, amendment agreed to.
An amendment (privilege) made.
Lord Sainsbury of Turville: My Lords, I beg to move that the Bill do now pass.
Moved, That the Bill do now pass.—(Lord Sainsbury of Turville.)
On Question, Bill passed, and sent to the Commons.

Police (Northern Ireland) Bill [H.L.]
11.11 a.m.
Read a third time.
The Lord Privy Seal (Lord Williams of Mostyn)The Lord Privy Seal (Lord Williams of Mostyn) moved Amendment No. 1:
After Clause 3, insert the following new clause—
"CONTRACTS RELATING TO DETENTION AND ESCORT SERVICES
After section 5 of the Police (Northern Ireland) Act 2000 (c. 32) insert—
"5A CONTRACTS RELATING TO DETENTION AND ESCORT SERVICES
(1) The Board may enter into a contract with another person for the provision of services relating to the detention or escort of persons who have been arrested or are otherwise in custody.
(2) The powers of the Board under this section shall be exercised, on behalf of and in the name of the Board, by the Chief Constable.
(3) The power conferred by this section is subject to any regulations under section 40 of the 1998 Act.""
The noble and learned Lord said: My Lords, your Lordships know that I introduced an amendment on Report enabling the Chief Constable to designate any person who is an employee of the contractor, as either a detention officer or an escort officer. The purpose of this new short clause is to provide a consequential amendment to the 2000 Act to put it beyond doubt that the board can enter into a contract for the provision of such services. Your Lordships will have seen that the powers shall be exercised on behalf of the board by the Chief Constable. I beg to move.
Lord Glentoran: My Lords, perhaps I may open the Third Reading debate by making some comments. First, I shall make a negative comment. As noble Lords will know, the Government tabled some complex and complicated amendments late on Tuesday evening, which we did not receive until Wednesday morning. I thank the noble and learned Lord for making available his officials to explain those amendments to my party and myself yesterday afternoon. I also accept his personal apologies on behalf of the Northern Ireland Office for this occurrence.
However, as we now sit at 11 o'clock on a Thursday morning, I suggest that if the Government wish to table amendments late—and I understand that there are reasons—perhaps the Procedure Committee should look at the matter with a view to ruling whether, if a major part of a Bill is to be dealt with on a Thursday morning, all amendments should be made available to your Lordships by the previous Tuesday evening. That would give noble Lords the whole of the working day of Wednesday to sort out any problems.
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I humbly make that suggestion to the Government, the officials of the House and those who manage our business.
I turn to the noble and learned Lord's amendment. to which I have absolutely no objection. There are one or two issues that I am slightly nervous about and on which I should like some reassurance.
I understand that the Chief Constable has the right to decide which individuals may or may not be contracted to do certain quasi police work. However, I am slightly concerned with the words:
"Contracts relating to detention and escort services".
If that kind of work is put out for public tender by companies or corporations in the normal commercial way, it strikes me that some of the safeguards might go. The Chief Constable might be aware that a company. which is owned, run or managed by a certain group in the community, might not be the most suitable to win the contract. However, if that company returned the lowest bid, I should like reassurance that there will not be EU or other UK legislation in relation to awarding of government contracts that would interfere with the Chief Constable's right to decide from a security point of view which company would not be suitable to do the job. With those slightly nervous queries, I am content with the idea as it stands.
11.15 a.m.
Lord Molyneaux of Killead: My Lords, I agree with the noble Lord, Lord Glentoran. His point about national security, so far as contracts are concerned, is a very valid one. He will know that there is another reason why we must be very careful. That is, certain contractors and their employees would come under the most hideous pressure from what one might term as "the other side of the community".
While in another place, there were occasions when those who would be regarded as being from the same side of the community as the terrorist community were shot dead simply because they drove lorries which provided materials to work sites and so on. Of course the murderers were never traced. We must be very careful when making allowances—and, I hope, make them in a sensitive way—when spelling out how to achieve this objective.
Lord Skelmersdale: My Lords, I support my noble friend Lord Glentoran. Perhaps I may ask the noble and learned Lord whether the contracts to be let by tender will be judged on the basis not of the cheapest but on value for money. That would solve the problems both of the noble Lord on the Cross Benches and of my noble friend on the Front Bench, because clearly it would not be value for money if the potential contracting party was judged to be unsuitable by the Chief Constable or his advisers.
Lord Williams of Mostyn: My Lords, first I speak to the noble Lord's general point. I take his point that they were complicated amendments. They were available on Tuesday, but effectively there was not an

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enormous amount of time to consider them. It may well be that the Procedure Committee would wish to take a view.
As to the other aspects, essentially the noble Lords, Lord Glentoran and Lord Molyneaux, were speaking of security sensibilities and sensitivities. The noble Lord, Lord Skelmersdale, put the matter in a slightly different way. I think I can give the assurance that your Lordships are entitled to look to, because this matter is important.
There are already safeguards in place to ensure that contractors taking on work in sensitive areas are appropriately screened. This is already an issue for contracted-out cleaning services and for certain construction work. So similar considerations would apply to the contracts we are discussing here.
Your Lordships will also have noted that Clause 21(3)(d) of the Bill already makes clear that the Chief Constable can designate a person under this section only if he is satisfied that, and I go to paragraph (d),
"the contractor is a fit and proper person to supervise the carrying out of the functions for the purposes of which the person is to be designated".
There have been challenges in the past. Tinnilly and McEldulf criticised the lack of an appeal mechanism. The system was then modified and the Secretary of State can now issue a certificate that his decision to refuse a tender was made on grounds of national security, public order and/or public safety and that the decision was justified.
The noble Lord, Lord Skelmersdale, makes a valid point on value for money, which is general to all contracts that are put out to tender by the public service.
On Question, amendment agreed to.
Lord Williams of Mostyn Lord Williams of Mostyn moved Amendment No. 2:
Page 6, line 4, leave out "and (3)" and insert "to (3A)"
The noble and learned Lord said: Amendments Nos. 2 to 7, 10 to 13 and 15 to 18 are the group of which the noble Lord, Lord Glentoran, made his "reasonable" criticism. The amendments take a good deal of guiding through and cross referencing in rather a tedious way, and I am very grateful to the noble Lord for his commendation of the officials who I know took time to go through matters with him and, indeed, other noble Lords. I am personally grateful to them, as well.
I undertook at any stage of our consideration of the Bill to give careful attention to criticisms that were raised to see whether we could meet them provided they were consistent with the general scheme of the Bill. I hope that the amendments illustrate that attitude. We want to ensure appropriate protection for sensitive information—which is a public good—while ensuring that the board has access to all the information it needs, another public good, which need not necessarily be in competition with the first.
Amendment No. 16 would require the board to set up a small committee to deal with sensitive information. I take the point made previously by several noble Lords that one does not want too wide a
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dissemination of security-sensitive or personally sensitive information. We therefore propose—I hope that this is an acceptable solution—that the committee should have five members, including at least one of the chair and vice-chair, and that the board should seek to appoint a group broadly representative of the full board membership. We do not consider that we ought to be any more specific. The board is working well and developing its own continuing authority.
The point of having a small committee from a large board is to provide a mechanism whereby sensitive information can be shared with the board while keeping its circulation to a reasonable minimum. One key factor that your Lordships mentioned is that we must try to keep such information on a need-to-know basis. I know that the noble Lord, Lord Maginnis, emphasised that point in Grand Committee and I hope that then and now I have responded to his reasonable satisfaction.
Amendments Nos. 3 and 13 propose that, where the Chief Constable receives a request for information under new Section 33A or for a report under Section 59, and where, in his view, some or all of the information is sensitive, he should have the option of providing that information to the small committee, not the full board. If he were to exercise that option, he would be required to supply a summary of the information in his formal report to the full board. Amendment No. 6 deals with similar arrangements relating to inquiries under Section 60. The Chief Constable would then flag up sensitive information that he provided to the person conducting the inquiry. That person could then share sensitive information with the small committee.
New Section 59(4A), inserted by Amendment No. 3, makes clear that the Secretary of State will have the option, where a matter has been referred to him by the Chief Constable under Section 59(3), of insisting that the Chief Constable supply all or part of the information to the small committee rather than to the full board. Again, that reflects the need-to-know approach. "Sensitive information" means information the disclosure of which could put an individual in danger, or any information that could form one of the grounds of referral set out in new Section 76A(1), inserted by Clause 19.
Of course, the board would be entitled to remit any other issue to the committee if it felt that to be appropriate. It might provide a suitable closed forum for the Chief Constable to discuss sensitive issues relating to continuing investigations or operations. But we do not want to be unduly prescriptive, and I hope that we have found a sensible middle way.
I believe that the new arrangements will allow the Chief Constable and the Secretary of State greater flexibility in exercising their judgment on whether sensitive information should be shared with the board. It is already the case that the Chief Constable is not obliged to refer Section 59 or 60 requests to the Secretary of State, even when they deal with some of the issues mentioned in the grounds of referral. That is, and should be, a matter for the Chief Constable's

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judgment. So there is no change of principle here, but I hope that your Lordships will recognise that we have listened carefully to the arguments advanced in Grand Committee and on Report.
I hope that there will never be any need for the committee to be brought into action. The Chief Constable may never require that opportunity. But, as your Lordships have said previously, perhaps we ought to have a safety net just in case.
There is one further important safeguard that the noble Lord, Lord Glentoran, mentioned. Amendment No. 15 provides that it will be a criminal offence to disclose any information that the Chief Constable has identified as sensitive when sharing it with the board or the small committee. No offence will be committed where disclosure is to any of the persons or for any of the purposes listed in new subsections (5) and (6).
That replicates the arrangements that already apply to the police ombudsman under Section 63 of the 1998 Act. Again, I hope that your Lordships will feel that we have responded to legitimate concerns about not only sensitive information but any criminal sanction that may be required in case of mischief-making leaks. The remaining amendments in the group are consequential changes.
I have spent a little time on the amendments. I sympathise with all those who required hot coffee and a wet towel, because it is difficult to go through them. I hope that I have explained what we have tried to do: to strike the right balance between proper protection and proper access for the board. I commend the amendments to your Lordships. I beg to move.
Lord Glentoran: My Lords, I thank the noble and learned Lord for that explanation. He gave it extremely well, but it demonstrates the complexity of this series of amendments, which in effect create one happening—the new sub-committee.
I do not oppose the amendments. The Government have come some way to meeting my anxieties about secure and classified information and interference with the Chief Constable's operational independence. As I told the noble and learned Lord outside the Chamber, it was of considerable relief to me to learn that all those involved will be subject to the Official Secrets Acts and liable for criminal prosecution should they be found to have leaked sensitive information.
I am, however, still uneasy in several respects and want to register that. I am not happy about a whole set of assumptions that underlie the policy shifts. What the Government saw fit to legislate on in 2000 they no longer consider relevant to the situation in Northern Ireland. In 2000, they were sensibly cautious, but it is still advisable to provide for what may or may not happen. The membership of the board is not yet complete, despite what the Government say about it working well. It is working well in its present make-up. With considerable difficulties that many people do not hear about, but one or two of us do, it is managing some pretty complicated decision-making processes.
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I should be far more comfortable discussing such important changes to the structure of policing if I knew precisely with what we were dealing—in other words, if I knew the whole composition of the board and how it will be operated. So far as I understand it, the reason behind the modification to the second ground of referral is that the Government have received representations suggesting that the board would be better served by its removal.
I do not want to make a big issue of this at Third Reading, but having worked through the Bill with the noble and learned Lord, the Members of the Committee and Northern Ireland officials, some of it is aimed at improving previous police Acts and at better policing. Some of the Bill will deliver an excellent format for policing in times of peace. But there is not peace. It is a time of serious uncertainty. The Bill still takes too many risks in the changes it makes.
However, I am grateful for the way in which the Government have moved and the communication that I have had from the Minister and his officials. We shall wait and see. I sincerely hope that the committee is never needed.
11.30 a.m.
Lord Mayhew of Twysden: My Lords, not being on the Front Bench in this debate, I am grateful for having been included on the circulation list for the noble and learned Lord's amendments.
New subsection (4E) is to be inserted after subsection (4). It is germane to what the noble and learned Lord said a few minutes ago:
"If the Chief Constable supplies information to the committee under subsection (4D) he shall include a summary of it in the report to the Board".
New subsection (4F) states:
"In preparing a summary under subsection (4E) the Chief Constable shall take into account the views of the committee".
"Views" on what? It is an obscure provision. Where there is anxiety, it may relate not to the views so much as to the identity of committee members.
Lord Molyneaux of Killead: My Lords, I shall be brief. I share the view that all might not be well with this elite committee, as one might call it. What will be the method of selection of members? The noble and learned Lord the Lord Privy Seal has given us an inkling, but the process may not be so simple. At national level there would be no problem in selecting such a committee. Members would automatically be chosen from the ranks of Privy Counsellors. But we do not have that band of people in Northern Ireland to any great extent.
Is it not invidious to imply that one element of the Policing Board can be trusted and a larger element cannot? Is the thinking, for example, that the favoured few on the elite committee might have prevented the unseemly manoeuvring over the resignation of the head of Special Branch? We have been told that the reason for his resignation was withheld from the board in full. Some members may have been aware of it, but

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not everyone. The reasons were discussed recently at a British-Irish intelligence seminar, where it was revealed that the senior officer's dismissal—that is what it amounted to; it was not really a resignation—was conveyed to him by the head of MI5 acting on behalf of the Northern Ireland Office. Surely that disclosure makes a nonsense of the suggestion that even an elite segment of the board could prevent such high-level disclosures.
Lord Cooke of Islandreagh: My Lords, I congratulate the noble and learned Lord the Leader of the House on what he has done in an attempt to ensure that sensitive matters are not discussed at meetings of the board. But he has an impossible task. At this time, I do not see how a policing board could operate without referring to sensitive matters. The basic problem is that the Policing Board was set up on the assumption that we would be at peace, as the noble Lord, Lord Cilentoran, mentioned. That surely makes a nonsense of the whole arrangement. If we were at peace, everything would be all right, but we are not. We are assuming that members of a political party that, by its own declaration, is at war with the Government may become members of the Policing Board. Surely they will be bound to hear sensitive matters no matter what is done. We are setting out to do something impossible.
Lord Maginnis of Drumglass: My Lords, I apologise, particularly to the noble and learned Lord the Lord Privy Seal, for my slightly late arrival on the Bench. I would like to have heard everything that he said in introducing these amendments. Having arrived home at around midnight last night, after a day of local government business, and then left at 5 a.m. to catch a plane to come here, I was disconcerted to find so many government amendments on the Marshalled List. Although I do not have a legal mind, they appear convoluted and difficult to decipher.
Initially, I was happy to find that a point made at several stages in the passage of the Bill had been taken on board in proposed subsection (4C), which refers to,
"information the disclosure of which would be likely to put an individual in danger".
My relief was short-lived, because I then discovered that a sub-committee of the board was to be set up if the Chief Constable decided that information of particularly sensitive significance was required. I understand that all members will be bound by the Official Secrets Act. But let us be honest: if someone such as ex-prisoner, ex-murderer Gerry Kelly, who is now an Assembly Member for a Belfast constituency, became a member of the board—when Sinn Fein decides to come on to it—can anyone imagine a decision being taken to charge him with an infringement of the Official Secrets Act? In this instance, we know that the guarantee about the Official Secrets Act is not worth the paper which it is written on.
The idea that the board of 19 members will elect five of their peers to form the sub-committee is no consolation. I am being signalled to conclude. I am grateful to the noble Lord, Lord Glentoran, and I
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apologise but I have had only a short time to study the amendments. The five members of the board elected by their peers to receive this sensitive information are bound to include a Sinn Fein member. I would be sceptical to hear that it is possible to exclude Sinn Fein or anyone with a paramilitary link who can be a member of the board on the grounds that they are elected to the Northern Ireland Assembly. It would simply not be possible. So, it does not matter whether we convey the information to a committee of five members of the board, one of whom is untrustworthy, or whether we convey confidential information to the whole board. It makes not the slightest difference.
I do not want to labour the point any further. As I came here today, I determined that I would speak briefly. I have spoken at some length about my concerns that the Bill is being rushed through. It will go to another place in the minimum time and will be back with us in the minimum time for the simple reason that certain things must be put in place to facilitate Sinn Fein, which may, in late February or early March, make a decision that will be deemed to be a commitment to the peace process, to the 1998 agreement and to the Mitchell principles. It will not be that, unless we have what are now called "acts of completion". Those acts must not be gestures; there must be total disarmament by paramilitary organisations in turn. In this case, as we are catering for IRA/Sinn Fein, I am talking specifically about them. Acts of completion must be total disarmament and disbandment. We cannot any longer allow people to have one foot in the democratic camp and one in the paramilitary camp.
I say that, I hope, for the last time today. I hope that the point is getting through that the Bill is being put through in its present form by the Government simply to facilitate Sinn Fein/IRA and for no other reason. I have always wanted and have always worked in public life to move Northern Ireland forward. I have always worked for reconciliation, in the hope that our two traditions will come together and be given the opportunity to do that in a normal society. It cannot be a normal society, if we tweak the democratic processes in a way that is intended to reassure but, in fact, makes those of us who have been at the coalface for so long all the more suspicious about the Government's real intention.
11.45 a.m.
Lord Williams of Mostyn: My Lords, I am grateful for the observations that your Lordships have offered. I know that the noble Lord, Lord Maginnis of Drumglass, has doubts about Sinn Fein being on the board, but many of your Lordships wish to see the day when Sinn Fein is on the board. Many of the noble Lord's observations about Sinn Fein would lead logically to the conclusion that, if we are to have a board, we should do our utmost not to have Sinn Fein on it. The noble Lord knows that I am fond of him personally, but I must disagree profoundly with his approach.

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The committee is a small committee of five members. We have tried to meet the concerns ventilated earlier, which I recognise as justified. There is no barrier to anyone being on that small committee except that no one can get on it without having the support of his or her fellow board members. One of the members will be the chairman, and the committee may also include the vice-chairman and three others.
It is not a question of favouritism, to address the question put by the noble Lord, Lord Molyneaux of Killead. We want to ensure that the smallest sensible number of people has access to the most sensitive information. That is not unreasonable, is it? It is a general principle. The noble and learned Lord, Lord Mayhew of Twysden, will know as well as I that not every matter goes to every Cabinet member. Sometimes, it is appropriate to have a small sub-group or sub-committee to deal with particular matters. I had thought that your Lordships would commend us on having done our best to meet the concerns that were expressed. It seems practical and reasonable to have a small group in those circumstances.
The noble and learned Lord, Lord Mayhew of Twysden, asked about how the committee would take account of views. The Chief Constable and that small committee would want to discuss the nature and format of the summary, including the views of the small committee on how much information it is appropriate to share more widely. That is why that provision is included. The criminal sanction for disclosure is in the Bill and is not to be found in other legislation.
The provision can be made to work. In the nature of things, it is bound to be a compromise; I commend it to your Lordships as a reasonable and rational one.
On Question, amendment agreed to.
Lord Williams of Mostyn Lord Williams of Mostyn moved Amendments Nos. 3 and 4:
Page 6, line 12, leave out subsection (3) and insert—
"(3) In subsection (4) for the words from "in order to" to the end substitute "for either or both of the purposes mentioned in subsection (4A)."
(3A) After subsection (4) insert—
"(4A) The purposes are—

(a) exempting the Chief Constable from the obligation to report to the Board information which, in the opinion of the Secretary of State, ought not to be disclosed on any of the grounds mentioned in section 76A(1);

(b) imposing on the Chief Constable an obligation to supply any such information to the committee constituted by the Board under paragraph 24(1A) of Schedule 1.

(4B) Subsection (4D) applies if—

(a) a requirement to submit a report has been made under subsection (1);

(b) the Chief Constable has not referred the requirement to the Secretary of State under subsection (3);

(c) the Chief Constable is of the opinion that a report in compliance with the requirement would include information of a kind mentioned in paragraph (a) or (b) of subsection (4C).

(4C) The information is—
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(a)information the disclosure of which would be likely to put an individual in danger, or

(b) information which ought not to be disclosed on any of the grounds mentioned in section 76A(1).

(4D) The Chief Constable may, instead of including the information in the report to the Board, supply it to the committee constituted by the Board under paragraph 24(1A) of Schedule 1.
(4E) If the Chief Constable supplies information to the committee under subsection (4D) he shall include a summary of it in the report to the Board.
(4F) In preparing a summary under subsection (4E) the Chief Constable shall take into account the views of the committee.
(4G) Subsection (4H) applies if—

(a) the Chief Constable supplies information to the committee under subsection (4D), or

(b) the Chief Constable includes information in a report to the Board and is of the opinion that the information is information of a kind mentioned in paragraph (a) or (b) of subsection (4C).

(4H) The Chief Constable must—

(a) inform the Secretary of State that the information has been included in a report to the Board or supplied to the committee;

(b) inform the Secretary of State and the recipient of the information that, in his opinion, the information is information of a kind mentioned in paragraph (a) or (b) of subsection (4C).""

Page 6, line 13, leave out "(3)" and insert "(3A)"
On Question, amendments agreed to.
Clause 9 [Inquiries by Board]:
Lord Williams of Mostyn Lord Williams of Mostyn moved Amendments Nos. 5 to 7:
Page 6, line 25, leave out "and (3)" and insert "to (3A)"
Page 6, line 33, at end insert—
"(3A) After subsection (10) insert—
"(10A) Subsection (10B) applies if the Chief Constable supplies to a person conducting an inquiry under this section any information which in the opinion of the Chief Constable is—

(a) information the disclosure of which would be likely to put an individual in danger, or

(b) information which ought not to be disclosed on any of the grounds mentioned in section 76A(1).

(10B) The Chief Constable must—

(a) inform the Secretary of State and the Board that the information has been supplied to the person conducting the inquiry;

(b) inform the Secretary of State, the Board and the person conducting the inquiry that, in his opinion, the information is information of a kind mentioned in paragraph (a) or (b) of subsection (10A).""

Page 6, line 34, leave out "(3)" and insert "(3A)"
On Question, amendments agreed to.
Clause 10 [Approval of proposals relating to inquiries by Board]:
Lord Maginnis of Drumglass Lord Maginnis of Drumglass moved Amendment No. 8:
Leave out Clause 10.
The noble Lord said: My Lords, Amendment No. 8 is a simple amendment, and noble Lords will not want me to go on at any length about it. I have already said, at every stage, that it is nonsensical to suggest, along

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with all the other changes that have been made, that as few as eight members from a board of 19 should have the absolute right to demand an inquiry.
If, as we are told by the noble and learned Lord the Lord Privy Seal, the board will be a responsible board, it would not be unreasonable to expect that at least 50 per cent-plus of its members would be needed to decide that an inquiry was necessary. I have been at the coalface for 30 years, and I know the nature of terrorism and the way in which terrorists and their political acolytes operate. We should not create a position in which, through undue pressure amounting even to intimidation, independent members of the board could be influenced or find themselves with no alternative but to go along with pressure from Sinn Fein. We should not condone or assist such a process. We should stick with the original figure of 10, on the basis that we expect that much of the work of the board will be done by mutual agreement. We should not allow a situation in which a caucus of less than 50 per cent can decide the board's direction.
This is such a petty approach to the work of the board that I feel that it is necessary to seek the opinion of your Lordships' House. I beg to move.
Lord Glentoran: My Lords, I support the noble Lord, Lord Maginnis, on this issue. It is the one remaining issue—I do not want to pre-empt anything that might arise later—that I believe is a serious mistake in the Bill. There is no reason whatever for it. Those who have been pressing to reduce this quorate number from 10 to eight members—less than 50 per cent—are totally unreasonable and must have mischievous reasons for wanting to do so.
Northern Ireland is a small place. People know each other well. They take their responsibilities seriously. There is no reason whatever—on any occasion, for any specific topic—why at least 10 of the 19 members of the Northern Ireland Policing Board should not be expected to be present and voting, as I believe the Bill states, on matters such as those related to in Clause 10.
I strongly believe that it is utterly wrong of the Government to reduce the number of members to a figure that is less than 50 per cent, and which requires a majority of five—something like 30 per cent. The board would fall into a category where political cliques could gang up and achieve measures which it would not want. I support the amendment.
Baroness Park of Monmouth: My Lords, I strongly support Amendment No. 8 because I believe that it is essential to build in as many safeguards as possible to protect the ability of the police to function at all, but especially in the field of counter-terrorism should Sinn Fein/IRA join the Policing Board in the foreseeable future.
The agenda of Sinn Fein/IRA has always been to destroy the police in their present form. They have openly said so and openly campaigned against people entering the Catholic 50 per cent. Gerry Adams said, when the people of Omagh appealed to him to free witnesses to speak, that he would never do that since he did not recognise British courts or British justice.
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The Northern Ireland Office, in its last performance report published in autumn 2002, quotes two of its main objectives as being to build and,
"sustain confidence in the police service"
and to,
"narrow the gap in confidence in policing and policing arrangements between the two main communities … while maintaining the overall level of public service".
They are admiral objectives, but I do not think that they will be attained in a hurry.
The Northern Ireland Office survey showed that 66 per cent of Protestants and 75 per cent of Catholics thought that the Policing Board was doing a good job. As the noble and learned Lord knows, I agree with that. With the establishment of the DPPs, they hoped that matters would get even better.
Surely, there is something to be said for giving the Policing Board, as at present composed, time to settle and consolidate rather than pressing on for purely political reasons to enable Sinn Fein/IRA to enter a body where their very presence will instantly strike a blow at the public confidence, which we are seeking, in a police entity, penetrated from within, by the very terrorists that it is attempting to police.
There must be time for Sinn Fein to demonstrate that it is no longer a Siamese twin of the IRA. It has not yet done so. To bring Sinn Fein/IRA into the Policing Board will utterly destroy the confidence of the public and the police themselves. I know that the noble and learned Lord will say that that is not what we are discussing today, but we are. This is the last chance we have to create safeguards. It is relevant that the NIO report covering the period 2001 to September 2002 records an overall increase in major security incidents and an increase in violence against the person. The latest report from the noble Lord, Lord Carlile of Berriew, on the operation of the Terrorism Act 2000 records that,
"there remains a significant supply of weaponry available to paramilitaries of all persuasions, that there has been an increase in incidents involving bombs to the 1987–89 level, that the police need to remain flexible to meet changes in the patterns of terrorist-related crime, and that the continuing danger of intimidation of those called for jury service justifies the continued scheduling of offences".
Incidentally, the report notes, which people often forget, that an analogous system has obtained for some time in the Republic of Ireland. The report also recommends the retention of the Diplock courts. It states:
"It remains clear without any evidence or abatement that the paramilitary organisations still exercise very significant influence over communities. On both sides of the divide there is a clear danger of intimidation within living and working neighbourhoods".
It is not yet the time to implement the Patten report in full. Northern Ireland is not at peace. There must be time to consolidate and the Policing Board must be allowed to settle in. Sinn Fein/IRA must demonstrate that their eventual membership of the board will be justified by disarming their paramilitaries and ending their tyranny over their own people—just as the Loyalists must do.

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I am not speaking only against IRA paramilitaries, but I am suggesting that for them to play a part, through Sinn Fein, on the Policing Board would totally destroy confidence and would be a betrayal of the people.
Lord Williams of Mostyn: My Lords, this is not a matter that goes to the Policing Board or who should be on it. It simply sets the threshold for those on the board who can call for an inquiry. I shall be brief; I have said this on a number of previous occasions. This was a commitment in the Implementation Plan as long ago as 2001. It simply indicates that an inquiry could be called for as long as there is a majority of those present and voting in agreement. I shall set out the figures. Normal board meetings run at 90 per cent attendance. They are well attended. To suggest that this could be manipulated by a small group of politically motivated people is unrealistic.
I shall remind your Lordships of the safeguards—I hope for the last time. Paragraph 18 of Schedule 1 to the 2000 Act states that if the board is considering the inquiry, at least three members of the board have to make a written request. The chairman, no later than three working days after the day on which he receives the request, has to call the meeting. The meeting cannot be held earlier than six days and no later than 21 working days afterwards. It is critically important that the chairman shall notify each member of the board of the date and purpose of the meeting. It is not therefore logistically possible for the scenario described in such Doomsday terms to occur. It still means that a majority of those present and voting must agree before such an inquiry could be called. There is a difference of approach here, which will not be reconciled, except following a vote.
Lord Maginnis of Drumglass: My Lords, it is particularly disappointing that, after all the changes made to procedures in Northern Ireland, all the checks and balances that are built in, all the requirements of vetting and opportunity in terms of setting up the Policing Board, the Government should now decide that they want further to politicise the procedures of the board.
The board is already politicised in so far as membership is concerned. I shall not go into that issue in detail, but it does not take great imagination to understand what happens when the various political parties are asked to nominate their members to the board. That aspect of politicising policing—that is what we are doing—is further enhanced by removing that simple democratic process. Whatever the promises made by government, whether at Weston Park or anywhere else, they were in this respect wrong and undemocratic.
I shall seek to test the opinion of the House. During the Committee and Report stages some noble Lords voiced at least passing concern about equality in the treatment of the two traditions and of various political parties—not only mine—which have sought to behave
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traditionally in a democratic way. I hope that those who sympathise with that concern will support me on this issue.
12.1 p.m.
On Question, Whether the said amendment (No. 8) shall be agreed to?
Their Lordships divided: Contents, 100; Not-Contents, 122.

Division No. 1

CONTENTS

Aberdare, L.

Jenkin of Roding, L.

Allenby of Megiddo, V.

Jopling, L.

Ampthill, L.

Kimball, L.

Anelay of St Johns, B.

King of Bridgwater, L.

Astor of Hever, L.

Kirkham, L.

Attlee, E.

Lane of Horsell, L.

Beaumont of Whitley, L.

Liverpool, E.

Biffen, L.

Lucas, L.

Blaker, L.

Luke, L.

Blatch, B.

Lyell, L.

Boothroyd, B.

MacGregor of Pulham Market,

Bowness, L.

L.

Brooke of Sutton Mandeville, L.

Maginnis of Drumglass, L.

Brougham and Vaux, L.

[Teller]

Bumham, L.

Marlesford, L.

Buscombe, B.

Mayhew of Twysden, L.

Campbell of Alloway, L.

Miller of Hendon, B.

Carlisle of Bucklow, L.

Molyneaux of Killead, L.

Carnegy of Lour, B.

Montrose, D.

Carrington, L.

Mowbray and Stourton, L.

Chalker of Wallasey, B.

Murton of Lindisfarne, L.

Cooke of Islandreagh, L.

Newton of Braintree, L.

Cope of Berkeley, L. [Teller]

Noakes, B.

Craig of Radley, L.

Norton of Louth, L.

Crathorne, L.

O'Cathain, B.

Crickhowell, L.

Onslow, E.

Dean of Harptree, L.

Palmer, L.

Denham, L.

Park of Monmouth, B.

Dixon-Smith, L.

Patten, L.

Dundee, E.

Peyton of Yeovil, L.

Eccles of Moulton, B.

Pilkington of Oxenford, L.

Eden of Winton, L.

Plumb, L.

Elles, B.

Powell of Bayswater, L.

Elliott of Morpeth, L.

Rawlings, B.

Elton, L.

Rees, L.

Fitt, L.

Rotherwick, L.

Flather, B.

Saltoun of Abemethy, Ly.

Fookes, B.

Seccombe, B.

Forsyth of Drumlean, L.

Shaw of Northstead, L.

Glentoran, L.

Slim, V.

Greenway, L.

Strange, B.

Hanham, B.

Thatcher, B.

Henley, L.

Trefgame, L.

Higgins, L.

Tugendhat, L.

Hodgson of Astley Abbotts, L.

Vivian, L.

Howe, E.

Waddington, L.

Howe of Aberavon, L.

Wade of Chorlton, L.

Howe of Idlicote, B.

Walpole, L.

Howell of Guildford, L.

Weatherill, L.

Hussey of North Bradley, L.

Wilcox, B.

Inge, L.

Windlesham, L.

NOT-CONTENTS

Acton, L

Archer of Sandwell, L.

Addington, L.

Ashton of Upholland, B.

Alton of Liverpool, L.

Avebury, L.

Andrews, B.

Bach, L.

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Barnett, L.

Hylton, L.

Billingharn, B.

Jones, L.

Blackstone, B.

Jordan, L.

Borrie, L.

King of West Bromwich, L.

Boston of Faversham, L.

Lea of Crondall, L.

Bradshaw, L.

Lipsey, L.

Bragg, L.

Livsey of Talgarth, L.

Brennan, L.

Lofthouse of Pontefract, L.

Brooke of Alverthorpe, L.

Macdonald of Tradeston, L.

Brookman, L.

McIntosh of Haringey, L.

Brooks of Tremorfa, L.

[Teller]

Burlison, L.

Mackenzie of Culkein, L.

Campbell-Savours, L.

Maddock, B.

Carter, L.

Mar and Kellie, E.

Chester, Bp.

Marsh, L.

Christopher, L.

Merlyn-Rees, L.

Clark of Windermere, L.

Methuen, L.

Clarke of Hampstead, L.

Miller of Chilthorne Domer, B.

Cohen of Pimlico, B.

Morgan, L.

Corbett of Castle Vale, L.

Morris of Aberavon, L.

Crawley, B.

Morris of Manchester, L.

Dahrendorf, L.

Nicol, B.

David, B.

Northover, B.

Davies of Oldham, L.

Orme, L.

Desai, L.

Patel of Blackburn, L.

Dixon, L.

Pendry, L.

Dubs, L.

Perry of Walton, L.

Elder, L.

Plant of Highfield, L.

Evans of Temple Guiting, L.

Ponsonby of Shulbrede, L.

Falconer of Thoroton, L.

Prys-Davies, L.

Farrington of Ribbleton, B.

Radice, L.

Faulkner of Worcester, L.

Ramsay of Cartvale, B.

Finlay of Llandaff, B.

Randall of St. Budeaux, L.

Fyfe of Fairfield, L.

Rea, L.

Gale, B.

Richard, L.

Gavron, L.

Rodgers of Quarry Bank, L.

Gibson of Market Rasen, B.

Rogers of Riverside, L.

Gladwin of Clee, L.

Roper, L.

Golding, B.

Scotland of Asthal, B.

Goldsmith, L.

Scott of Needham Market, B.

Goodhart, L.

Sharp of Guildford, B.

Gordon of Strathblane, L.

Shutt of Greetland, L.

Goudie, B.

Simon, V.

Greaves, L.

Smith of Clifton, L.

Grocott, L [Teller]

Stern, B.

Hardy of Wath, L.

Strabolgi, L.

Harris of Richmond, B.

Temple-Morris, L.

Harrison, L.

Thomas of Gresford, L.

Hilton of Eggardon, B.

Thomas of Walliswood, B.

Hogg of Cumbernauld, L.

Tomlinson, L.

Hollisof Heigham, B.

Tope, L.

Howarth of Breckland, B.

TordofT, L.

Howells of St. Davids, B.

Whitty, L.

Howie of Troon, L.

Wilkins, B.

Hoyle, L.

Williams of Elvel, L.

Hughes of Woodside, L.

Williams of Mostyn, L. (Lord

Hunt of Chesterton, L.

Privy Seat)

Hunt of Kings Heath, L.

Williamson of Horton, L.

Resolved in the negative, and amendment disagreed to accordingly.
12.11 p.m.
Clause 11 [Investigations into current police practices and policies]:
Lord Williams of Mostyn Lord Williams of Mostyn moved Amendment No. 9:
Page 7 line 34, after "investigation," insert—
"(aa) his reasons for making that decision,"
The noble and learned Lord said: My Lords, the amendment explains itself. The noble Lord, Lord Glentoran, brought forward an amendment on Report which I promised to look at and possibly redraft. I hope that this amendment satisfies the noble Lord.
However, before formally moving the amendment, I should explain that when I said the ombudsman would have the power to deal with various complaints against designated civilians, including contracted-out staff, "as soon as commencement occurred", I was wrong. It is "when the appropriate regulations are brought forward". I formally correct that. I beg to move.
On Question, amendment agreed to.
Lord Williams of Mostyn Lord Williams of Mostyn moved Amendments Nos. 10 to 12:
Page 8, leave out lines 15 and 16 and insert "is information of a kind mentioned in paragraph (a) or (b) of subsection (4)."
Page 8, line 21, leave out from "information" to end of line 22 and insert "is information of a kind mentioned in paragraph (a) or (b) of subsection (4)."
Page 8, line 22, at end insert—
"(4) The information referred to in subsections (2) and (31) is —

(a) information the disclosure of which would be likely to put an individual in danger;

(b) information which ought not to be disclosed on any of the grounds mentioned in section 76A(1).""

On Question, amendments agreed to.
Clause 17 [Provision of information to Board]:
Lord Williams of Mostyn Lord Williams of Mostyn moved Amendment No. 13:
Page 10, line 19, at end insert—
"(3) Subsection (4) applies if the Chief Constable is of the opinion that information which he would otherwise be required to supply to the Board under subsection (1) is information the disclosure of which would be likely to put an individual in danger.
(4) The Chief Constable may, instead of supplying the information to the Board, supply it to the committee constituted by the Board under paragraph 24(1A) of Schedule 1.
(5) Subsection (6) applies if the Chief Constable supplies the Board or the committee with information which in his opinion is—

(a) information the disclosure of which would be likely to put an individual in danger, or

(b) information which ought not to be disclosed on any of the grounds mentioned in section 76A(1).

(6) The Chief Constable must—

(a) inform the Secretary of State that the information has been supplied to the Board or the committee;

(b) inform the Secretary of State and the recipient of the information that, in his opinion, the information is information of a kind mentioned in paragraph (a) or (b) of subsection (5)."

n Question, amendment agreed to.
Lord Glentoran Lord Glentoran moved Amendment No. 14:
After Clause 17, insert the following new clause
"APPOINTMENTS TO THE POLICE SERVICE OF NORTHERN IRELAND
The Secretary of State may, at the request of a majority of the Policing Board, and acting on the recommendation of the Chief Constable, by order —

(a) permit the Chief Constable to appoint to the Police Service of Northern Ireland persons of any rank from other constabularies within the United Kingdom as he deems appropriate; and

(b) permit the Chief Constable, as he deems appropriate, in making an appointment under paragraph (a), to exempt those persons from such entry procedures as are normally applicable to direct appointees to the Police Service of Northern Ireland."

The noble Lord said: My Lords, the amendment represents another attempt to allow the Chief Constable to appoint to the Police Service of Northern Ireland persons of any rank. At the moment there are problems with the number of serving officers. The Chief Constable has quite significant gaps in his force, about which I know he is concerned.
I can be very brief because I am seeking only reassurance. I understand that, as the law stands, the Chief Constable can do what my amendment seeks he should be able to do. Section 98(1) of the Police Act 1996 states:
"The chief officer of a police force in England or Wales may, on the application of the chief officer of a police force in Scotland or the chief constable of the Royal Ulster Constabulary, provide constables or other assistance for the purpose of enabling the Scottish force or the Royal Ulster Constabulary to meet any special demand on its resources".
If that provision still stands—and I have no reason to believe that it does not—I shall have no more to say. But, as we are at Third Reading, if it does not stand I shall be in a slightly embarrassing situation. I beg to move.
12.15 p.m.
Lord Williams of Mostyn: My Lords, the amendment is defective. Paragraph (a) would allow the Chief Constable to appoint to the Police Service of Northern Ireland persons of any rank. Under the 2000 Act, appointments at assistant chief constable level and above are not for the Chief Constable but for the Policing Board. I am obliged to point out that defect in the amendment.
More fundamentally—and this goes to the heart of the matter—if the amendment is agreed to, the Secretary of State would be able to appoint police officers of any rank. I have dealt with that point.
I hope I can reassure your Lordships—particularly the noble Lord, Lord Glentoran—that the amendment is not necessary. Police officers from other United Kingdom police services of the rank of sergeant and above are not subject to the 50:50 requirement, which applies only to entrants at trainee—that is, constable—level. So, subject to the usual constraints, the Chief Constable can make as many appointments as he likes of sergeants, inspectors, and so on up to
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chief superintendent, from other United Kingdom police services. And, as I said, the Policing Board may do likewise in respect of senior officers.
The noble Lord, Lord Glentoran, is right, Section 98 of the 1996 Act still provides for secondment—but on a short-term basis only. I believe that meets the noble Lord's point because it is the possible short-term gap that he seeks to identify and fill. So I am able to give him that reassurance. I am only able to give it because he asked a specific question—it had not been in my mind earlier—and I give it on the basis of the material provided to me.
Let me reiterate the last point that I made. If the Chief Constable and the Policing Board wanted to vary the 50:50 provisions we would give such a request serious consideration. But the noble Lord has put his finger on the fact that this is already dealt with in the point that he has researched.
Lord Glentoran: My Lords, I thank the noble and learned Lord for that answer. Will he ensure that his officials make it clear to the Chief Constable and others that the section in the Police Act 1996 is available for their use? On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Glentoran Lord Glentoran moved Amendment No. 14A:
After Clause 17, insert the following new clause—
"APPOINTMENTS TO THE POLICE SERVICE OF NORTHERN IRELAND (NO. 2)
In the event that—

(a) the Chief Constable is unable to appoint his required number of police trainees or police support staff, or

(b) the number of serving officers is below that intended at the time of consideration,

the Secretary of State shall, at the request of a majority of the Policing Board and acting on the recommendation of the Chief Constable, make an order to suspend the provisions of section 46 of the Police (Northern Ireland) Act 2000 (c. 32) for a maximum period of six months."
The noble Lord said: My Lords, Amendment No. 14A brings us back to a similar problem. I am still concerned that, for all the wrong reasons, the 50:50 provision is not working. I have no regrets about making it clear that my party still supports Patten and the 50:50 provision, but what we cannot support is a situation where recruitment into the PSNI, in line with Patten and the Government's legislation, is hijacked by none other than the IRA.
My officials told me yesterday, and the noble and learned Lord made it clear at Report stage, that recruitment of Catholics and Protestants on the 50:50 basis was going quite well in the early stages. But it is early days. The force is seriously short of able bodied men and women and, more importantly, the philosophy of bringing the force up to somewhere approaching the 50:50 requirement—which is good—has been hijacked by Sinn Fein/IRA.
I have tried, through a number of amendments—this is the last one—to persuade the Government to take on board in their legislation an amendment which

1267
could be used as a tool. Ultimately, all noble Lords in the Chamber know very clearly that this is more about politics, negotiations and deals than about producing a necessary set of amendments to the 2000 Act.
If the Government feel inclined to accept the amendment, it may never become necessary to use it, but it would be another tool in the armoury of Her Majesty's Government. It is my feeling that Her Majesty's Government have so far been fairly short of tools, or ploys. They played most of their cards rather early in the day and are significantly short of them. On that basis, I beg to move.
Lord Maginnis of Drumglass: My Lords, I support the view expressed by the noble Lord, Lord Glentoran. I do not believe that Patten is infallible and that every last word of the report is beyond reproach or question. In relation to other noble Lords, I have been in Parliament a comparatively short time, but during those 20 years I have never come across an instance of any report—even one by a Royal Commission—being accepted in its entirety. Indeed, if we arrived at the stage where we felt obliged to accept a report in its entirety, however commissioned, that would be damaging to the democratic process. The need for objective debate on the effects of the Patten report is important.
In introducing the amendment, the noble Lord, Lord Glentoran, has highlighted the fact that, whatever its intention, it has not worked out in terms of numbers in the Police Service of Northern Ireland. Far more people than intended—people of huge experience—have left the police service: some, sadly, disillusioned, others recognising that they were at a stage of life when they could not turn their backs on the opportunity to avail themselves of a compensation package. Whatever the cause, we have arrived at a situation where Northern Ireland is seriously under-policed—to the extent, as I pointed out on Report, that we no longer demand that applicants must meet a certain physical standard. It is the first time that I have ever been aware of applicants to any security force, police or military, not being required to meet such a standard prior to acceptance.
When I raised this matter on Report, the noble and learned Lord pointed out that there was a physical aspect to the training once a recruit arrived at a depot. The noble and learned Lord must worry, as I do, that if applicants are recruited to the Police Service of Northern Ireland on the understanding that the physical requirements are not defined and that they do not have to meet a certain standard, if a greater standard is then expected during training, they may well have genuine cause for complaint and may question the system in court.
We should continue to maintain the standards, and not be handicapped by the 50:50 provision. Although I cannot say on this occasion that I speak for every Unionist in Northern Ireland, recognising the need for as much equality in the police service as can be achieved, certainly equality of opportunity, I have not been very vocal in my opposition to the 50:50 provision. However, I believe that it should have been
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implemented in an entirely different way; that there should have been certain parameters within which that proviso should have been brought to bear. That said, if we are reaching a stage where to all intents and purposes we are making a laughing-stock of recruitment to the Police Service of Northern Ireland, it is not unreasonable that for short periods—in this case the implication is a period of six months at any one time—we should be able to set aside the provision in the Patten report in order to maintain the level of recruitment that will lead to the level of policing that the people of Northern Ireland expect. I commend. the amendment to the House.
Lord Brooke of Sutton Mandeville: My Lords, in the context of the reference to "police support staff" in my noble friend's amendment, the noble and learned Lord the Lord Privy Seal will recall an exchange about support staff on Report (at col. 874). The noble and learned Lord's reply is set out in col. 877. My noble kinsman Lord Brookeborough intervened to say that there was a difference of opinion as to when the Chief Constable had made his remarks about support staff. In the absence of my noble kinsman, I merely want to know whether the difference of opinion regarding the facts has been resolved in the interim in a bilateral discussion about which I know nothing. The point is germane to the issue of police support staff recruitment.
Lord Hylton: My Lords, I have declared my support twice already during debates on the Bill for the principle of 50:50 recruitment. However, today, I ask the noble and learned Lord the Leader of the House whether he would consider a slight modification of the principle—possibly to produce a 42:42:16 ratio. The 16 is intended to cover people who are atheists, agnostics or adherents of various minority religions outside the broad Catholic and Protestant traditions of the country. Some slight modification of that kind would be much better than suspending the operation of the main principle, as is suggested in the amendment.
Lord Fitt: My Lords, I feel compelled to support the amendment. It is honest and realistic, and takes into account all the circumstances in Northern Ireland. I do not believe that it represents an attack on the Patten report or an attempt to undermine its recommendations.
I have had many reservations about the 50:50 provision. I do not believe it to be realistic. It seems to generate the belief that there are many Catholics in Northern Ireland who want to join the new police service. I do not believe that to be the case. Not every individual wants to become a policeman. Given the history of Northern Ireland and the dangers under which policemen have to live, it is highly unlikely that there will be a great influx of Catholics into the PSNI.
The amendment suggests that if there is not a sufficient number of Catholics wanting to join the police force in Northern Ireland to make it possible to meet the 50:50 requirement, the Chief Constable could say that the force could take other people who are not

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of the Catholic faith. By the way, I have said repeatedly that this is not about Catholics and Protestants; it is about nationalists and unionists. People are not going to join or be rejected from the police force on account of their religion; it is because of what their political allegiance is likely to be.
If there is not a great influx of nationalists wanting to join the PSNI, the police force will be undermanned. We do not have sufficient numbers in the police force at the moment. Looking to the future, it will be necessary to have a police force that is able to deal adequately with all the circumstances in Northern Ireland. We need a higher level of policing than any other part of the United Kingdom.
The amendment is not a Tory or Unionist attack on Patten. I am neither, but I have lived all my life in Northern Ireland. I foresee great difficulties in restricting recruitment in Northern Ireland until there are a sufficient number of Catholics—or nationalists—wanting to join the police force. If the necessary figure is not arrived at and we do not have the numbers that we expect, when the Chief Constable determines what he believes to be the necessary complement of his force to engage with all the possibilities of what may happen in Northern Ireland he should have the right to depart from the principles laid down in Patten.
12.30 p.m.
Lord Williams of Mostyn: My Lords, I shall deal with one or two misconceptions. We dealt with fitness on Report. I made it plain that the physical competence test will not be applied to applicants in the current recruitment competition, but I hope that I also made it plain that all trainees will be required to pass the test before they are attested. In other words, there is no reduction in the standard of physical competence required of police officers. Trainees are simply given more time to reach the required standard.
Of course there is intimidation. Gerry Kelly has already been referred to. On 26th September 2002, he said:
"I am making it directly clear now that there should be no intimidation or threats against new recruits".
On 25th September, on the Radio Ulster 3 p.m. news, he said,
"we have made it clear in the past and we make it directly clearer now, there should be no intimidation or threats against any recruits involved here".
I do not think he could have put that plainer.
The issue of support staff was resolved. The Chief Constable's remarks were made after his first 100 days in service, but the campaign to which he referred had been in the spring and summer of 2002, before Grafton started work. The noble Viscount was good enough to say that I was right and that he had misunderstood the situation.
The noble Lord, Lord Hylton, spoke of Roman Catholics and Protestants. I remind your Lordships, as I think I said on Report, that Section 46 of the 2000 Act says:
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"one half shall be persons who are treated as Roman Catholic; and
one half shall be persons who are not so treated".
The Act does not speak of Roman Catholics and Protestants.
Is 50:50 working? If it were not to work, do we need a change in the law? The answer to the first question is yes and the answer to the second question is no. We have had a very good response to the police recruitment campaigns. The appointment of sufficient qualified candidates to fill the police training college is at a level around 50 per cent above that envisaged by Patten. Grafton Recruitment was appointed only in September 2002. It deals with civilians and has produced enough candidates to meet the requirements.
On the second question, Section 46(3) of the 2000 Act already gives the Secretary of State the power to make a set-aside order. Section 46(2) says:
"The Secretary of State may, after consultation with the Board and the Chief Constable, by order amend subsection (1)"—
that is the 50:50 provision—
"in its application to the making of appointments under section 39".
Before making such an order, he has to consult the Policing Board and the Chief Constable. The discretionary power is already there, so the amendment is not needed. In any event, we are doing well. Something optimistic is happening. We ought to rejoice.
Lord Glentoran: My Lords, I thank the noble and learned Lord for that response. I had half expected that he would assure me that the amendment was not required and I am delighted that it is not.
On Report we spoke about the intolerable conditions at the Garnerville training centre. Your Lordships will be delighted to know that I read yesterday that a new training centre has gone to the top of the list of priorities of the Policing Board and the Chief Constable and they are urgently moving to try to find something. I am not sure whether the noble and learned Lord had something to do with that, but he is smiling. If he did, I thank him and his officials for taking action.
I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Williams of Mostyn Lord Williams of Mostyn moved Amendments Nos. 15 and 16:
Before Clause 19, insert the following new clause—
"RESTRICTION ON DISCLOSURE OF INFORMATION
After section 74 of the Police (Northern Ireland) Act 2000 (c. 32) insert—
"74A RESTRICTION ON DISCLOSURE OF INFORMATION
(1) This section applies if information is supplied in the circumstances mentioned in subsection (2), (3) or (4).
(2) The circumstances are that—

(a) the information is supplied by the Chief Constable to a person conducting an inquiry under section 60;

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(b) the person has been appointed under section 60(9) to conduct the inquiry;

(c) the Chief Constable informs the person that, in his opinion, the information is information of a kind mentioned in section 60(10A)(a) or (b).

(3) The circumstances are that—

(a) the information is supplied by the Chief Constable under section 33A or 59 to the Board or the committee constituted by the Board under paragraph 24(1A) of Schedule 1;

(b) the Chief Constable informs the Board or the committee under section 33A(6) or 59(4H) that, in his opinion, the information is information of a kind mentioned in section 33A(5)(a) or (b) or section 59(4C)(a) or (b).

(4) The circumstances are that—

(a) the information is supplied by a person conducting an inquiry under section 60 to the committee constituted by the Board under paragraph 24(1A) of Schedule 1;

(b) the information was supplied to the person conducting the inquiry in the circumstances mentioned in subsection (2).

(5) If information is supplied in the circumstances mentioned in subsection (2), the information must not be disclosed by the person who is conducting or has conducted the inquiry or by a person who is or has been a member of staff of the Board except—

(a) to a member of the staff of the Board who is assisting in the conduct of the inquiry;

(b) to the Secretary of State;

(c) to the Chief Constable;

(d) to the Ombudsman in connection with an investigation under section 60A of the 1998 Act;

(e) to the committee constituted by the Board under paragraph 24(1A) of Schedule 1;

(f) for the purposes of any criminal, civil or disciplinary proceedings;

(g) in the form of a summary or other general statement made by the person the terms of which have been agreed with the Chief Constable.

(6) If information is supplied in the circumstances mentioned in subsection (3) or (4), the information must not be disclosed by a person who is or has been a member of the Board or a member of the staff of the Board except—

(a) in the case of information supplied to the Board, to a member of the Board or a member of the staff of the Board;

(b) in the case of information supplied to the committee constituted by the Board under paragraph 24(1A) of Schedule 1, to a member of the committee or a member of staff of the Board who provides services to the committee;

(c) to the Secretary of State;

(d) to the Chief Constable;

(e) to the Ombudsman in connection with an investigation under section 60A of the 1998 Act;

(f) for the purposes of any criminal, civil or disciplinary proceedings;

(g) in the form of a summary or other general statement made by the Board the terms of which have been agreed with the Chief Constable.

(7) Any person who discloses information in contravention of this section shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 5 on the standard scale.
(8) In this section "member of the staff of the Board" means—

(a) a person employed by the Board under paragraph 13(1) of Schedule 1;

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(b) a person employed in the civil service who provides assistance for the Board in pursuance of arrangements made under paragraph 13(2) of Schedule 1.""

Before Clause 19, insert the following new clause—
"SPECIAL COMMITTEE OF THE BOARD
(1) Paragraph 24 of Schedule 1 to the Police (Northern Ireland) Act 2000 (c. 32) (committees of the Board) is amended as set out in subsections (2) and (3).
(2) In sub-paragraph (1) after "The Board may" insert ", subject to sub-paragraphs (IA) and (1B)".
(3) After sub-paragraph (1) insert—
"(1A) The Board shall constitute a committee of 5 of its members for the purpose of—

(a) handling information supplied to it by the Chief Constable under section 33A or 59;

(b) performing such other functions of the Board as may be delegated to it by the Board.

(1B) The members of the committee constituted under subparagraph (1A)—

(a) shall be appointed by the Board;

(b) shall include the chairman or vice-chairman of the Board (or both of them);

(c) shall as far as practicable be representative of the Board.

On Question, amendments agreed to.
Clause 19 [Disclosure of information and holding of inquiries]:
Lord Williams of Mostyn Lord Williams of Mostyn moved Amendments Nos. 17 and 18:
Page 11, line 9, leave out from second "information" to end of line 11.
Page 11, line 18, leave out from first "matter" to end of line 19.
On Question, amendments agreed to.
Lord Glentoran Lord Glentoran moved Amendment No. 19:
Page 11, line 21, at end insert—
"( ) Where it appears to the Chief Constable that the disclosure of information under section 59 or the holding of an inquiry under section 60 would be likely to prejudice the prevention or detection of crime or the apprehension or prosecution of offenders, he may refer any such request to Her Majesty's Inspector of Constabulary."
The noble Lord said: My Lords, this is another attempt to solve in advance any problems that might arise out of the Chief Constable not wishing to give information to the Policing Board for the reasons stated in the amendment. These are the most important and crunchy two or three lines that are wrong in the Bill.
We have all spoken to the issue a number of times. The noble and learned Lord graciously spoke to me before we came into the Chamber. I understand that he has some positive news for me. I beg to move.
Lord Mayhew of Twysden: My Lords, if there is some positive news to come, that will be further cause to rejoice. I do not wish to postpone unduly the time at which noble Lords can indulge in it. However, I want to allude to the time spent in Committee and on Report dealing with the removal by Clause 19 of one of the grounds that the 2000 Act allowed the Chief Constable to rest upon when deciding that the board's request for a report on a certain matter would be

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inappropriate because it would involve making public information that would be prejudicial either to the detection or prevention of crime or to the apprehension or conviction of an offender.
That ground was accorded to the Chief Constable in the 2000 Act and is taken away by Clause 19 of this Bill. We have spent a great deal of time trying to elicit the reason for the change. It is important that the reason should be made clear, because suspicion is never far below the surface in Northern Ireland. If the perception is held that there is some undisclosed reason why a provision so recently accorded in government legislation is being removed two years later, confidence in the arrangements for which the Bill is responsible will be undermined. I know the noble and learned Lord will not want that to be the case.
We have asked why the change is being made. The debate has assumed an almost theological character. The noble and learned Lord has wrapped himself in the cloak of what I might call the book of Patten. He said that Patten required this measure and that, even if it did not, another text called the Implementation Plan, which we understand to have been written not later than July 2001, foretells it. Because it was foretold, the change has to be made so that the scripture may be fulfilled.
On the other hand, my noble friend Lord Glentoran spoke to this insight—that it must be wrong to force a Chief Constable who believes that it would be prejudicial on the grounds given to make the information public, or, at least, to give it to the board. There has been no movement on that matter. This is not the time for close textual analysis or, indeed, for any analysis, but I record my respectful opinion that Patten does not require the Government to make the change. If it did require that, how come the Government did not make it in 2000, but legislated as they did?
I cannot conceal my opinion that there are grounds for considerable suspicion here, which will certainly be held in Northern Ireland. I speak diffidently in the presence of those who come from that Province, but a suspicion will certainly be held, and it will centre on the idea that the change has been asked for from a certain quarter. That quarter would be Sinn Fein. We should know whether it has been asked for, or not. I would not regard it as self-evidently wrong that it should be accorded if it had been asked for from any quarter, but we should know if it has been.
That is why my noble friend's amendment should be supported. It is a clever middle way that enables the Government to get round the problem. I hope that they do what they have declined to do so far—namely, clear up any suspicion.
Lord Maginnis of Drumglass: My Lords, I cannot articulate with the authority of the noble and learned Lord, Lord Mayhew, the points that he has just made. From a practical point of view, I can underpin what he said by indicating that there are three specific
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circumstances in which the absence will be felt of the fourth condition on which the Chief Constable can refuse to give information.
In Northern Ireland, we are in the process of setting up a criminal assets bureau under the leadership of Assistant Chief Constable McQuillan. The bureau will work particularly closely with the Police Service of Northern Ireland. Its work may not yield results overnight; in other words, it will be engaged in a slow and laborious process. If the Chief Constable is, by virtue of demands for information, obliged to reveal information that is part of an ongoing inquiry of the bureau, we might as well not set the bureau up in the first place. It would be a question of forfeiting vital and important information that may make Northern Ireland a much safer place in the long run.
We will not build a peaceful and lawful society overnight. It will require a huge amount of hard work by a lot of people, who must have confidence that the authorities in Northern Ireland—be they the police, the criminal assets bureau or whatever—are absolutely and totally committed, without any hindrance, to helping them to achieve their aims.
Directly in line with the police service's responsibility to the public is the sort of activity in Northern Ireland that we saw illustrated in a programme a couple of nights ago, which dealt with loyalist criminality. Drugs and prostitution were used to create huge wealth for a small group of quite evil people in the loyalist community. Of course, I wish that the situation was different, but we cannot ignore the fact that there is still illegal politically motivated activity being carried out by loyalists, the Real IRA and that other bunch—
Noble Lords: The Continuity IRA.
Lord Maginnis of Drumglass: Yes, My Lords, the Continuity IRA. In any of those cases, the Chief Constable has not only a responsibility but a professional duty to protect information that would hinder the protection or prevention of any of the forms of crime that I mentioned. For that reason, it is incumbent on government to give serious consideration to the amendment, and to put back the fourth of the four conditions that previously governed the Chief Constable's ability to give or withhold information.
12.45 p.m.
Lord Hylton: My Lords, I take advantage of the last amendment in the list to ask the noble and learned Lord whether he can give any indication today when the complex legislation that governs policing in Northern Ireland is likely to be consolidated. If he cannot reply to that now, he might write to me. It might be helpful to practitioners and people who must interpret statutes if consolidation could take place fairly soon.
Lord Williams of Mostyn: My Lords, I am only sorry that the noble and learned Lord, Lord Brightman, is

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not in his place, because he constantly makes that plea. I sympathise with it, but the difficulty with consolidation is that there is then the overwhelming temptation, not in the Northern Ireland Office but in departments that some of us can remember, to have another Bill, which means that one has to have another consolidation. However, I take the noble Lord's point, not least because of the intricate amendments to which the noble Lord, Lord Glentoran, referred.
I cannot usefully do anything further by way of explaining the Government's position. We have spent a good deal of time on it. The noble and learned Lord, Lord Mayhew, says that I refer to the book of Patten, and I would not want to tease him by saying that he is referring to the book of Apocrypha. However, I respectfully agree that neither of them has to have the status of holy writ.
I have tried to take on board the serious debate and discussions that we had in Grand Committee and on Report. I never thought that there were not serious issues to consider. As I have said before, Section 59 of the 2000 Act contains the mechanism whereby the Chief Constable and the board can come to a compromise. In other words. the Chief Constable is supposed to respond in one month, but with the caveat allowing a longer period, which may be agreed between the Chief Constable and the board.
What we have done—and I hope that noble Lords will agree that we have made genuine efforts to meet concerns—is to go back to Section 27 of the 2000 Act. I did not have the opportunity to mention the present state of affairs to all your Lordships but I mentioned it to the noble Lord, Lord Glentoran. Section 27(1)(a) provides that the Secretary of State can issue a code of practice on conduct by the board with regard to any of its functions. I hope to have picked up the spirit of the amendment and the spirit of what your Lordships have said. We propose to provide through the code of practice that if the board and the Chief Constable cannot agree in the circumstances which I defined a moment or two ago, and where the Chief Constable's concerns relate to the impact of a particular timescale on the police's ability to prevent or detect crime, the board can refer the matter to Her Majesty's Inspectorate of Constabulary for his advice. The board would be able to take account of the recommendation in finally determining the deadline.
I hope that your Lordships will consider that at least we have attempted to meet concerns. I hope that your Lordships therefore will not insist upon the amendment
Lord Glentoran: My Lords, I thank the noble and learned Lord for that response which certainly goes some way to relieve my concerns. Time in these matters can always be extremely helpful provided the facility to use it is available. The amendment the Government made to the Bill opens yet another avenue to the Chief Constable if he feels strongly about the matter of divulging sensitive information. He now has two or three avenues open to him. There are various ways in which he can waste or spend time in a positive way.
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That can be valuable as, while that time is being wasted, the information is being protected. That is extremely helpful.
I thank all noble Lords for their contributions. I thank those who supported the amendments I tabled. I thank the noble and learned Lord the Lord Privy Seal for his patience and for his consideration of the matters that have been debated. I also thank the officials. The Bill has been seriously argued and debated over several days. I hope that we shall be judged to have done a good job in your Lordships' House in editing, amending and scrutinising a serious and complicated Bill. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Smith of Clifton: My Lords, before the noble and learned Lord moves the Motion that the Bill do now pass, I should say how much we on these Benches appreciated his patience and skill in taking the Bill through all its stages. It is a complicated Bill and a number of noble Lords raised serious concerns. I thank the noble and learned Lord's officials for the helpful guidance they provided.
Lord Maginnis of Drumglass: My Lords, it is appropriate, in so far as this Bill is concerned with a Northern Ireland issue, that I should join the noble Lords who have thanked the noble and learned Lord, Lord Williams of Mostyn. I certainly admire, and have benefited from, his courtesy. I am not sure that I am as full of praise for his skill as the noble Lord, Lord Smith of Clifton. I had hoped that his undoubted skill would have enabled some changes to be made. However, that is a matter for another time and another place. The noble and learned Lord has been most courteous, as always. For that I am grateful.
An amendment (privilege) made.
Lord Williams of Mostyn: My Lords, I beg to move that the Bill do now pass.
I am grateful to all noble Lords who have taken part in debates on the Bill. We have done our work properly. The Grand Committee was of great benefit to all of us in enabling us to ventilate the issues. I am grateful for all the kind comments that noble Lords have made, but in particular for the well justified plaudits for the officials in the Northern Ireland Office who work under tremendous pressure. I do not refer to pressure exerted by noble Lords but to that often exerted by events.
Moved, That the Bill do now pass.—(Lord Williams of Mostyn.)
On Question, Bill passed, and sent to the Commons.
Baroness Farrington of Ribbleton: My Lords, I beg to move that the House do now adjourn during pleasure.
Moved accordingly, and, on Question. Motion agreed to.
[The Sitting was suspended from 12.55 to 2 p.m. for Judicial Business and to 3 p.m. for Public Business.]

Hospitals: Emergency Readmissions
Lord Astor of Heverasked Her Majesty's Government:
What proposals they have to address the increasing number of elderly patients who are readmitted to hospital within a month of being discharged.
The Parliamentary Under-Secretary of State, Department of Health (Lord Hunt of Kings Heath): My Lords, information collected over the past few years suggests that the rate of emergency readmissions has remained stable. The National Service Framework for Older People will improve the quality of hospital care for older people. Better quality of treatment in hospital, and better support for patients when they have returned home, should result in a lower rate of patients being readmitted as an emergency.
Lord Astor of Hever: My Lords, despite the Minister's response, all the statistics show the percentage of emergency readmissions rising, and rising fast. The Government have already announced the incentive of hefty fines for local authorities as regards the delayed discharge of patients. When will that be introduced for NHS trusts?
Lord Hunt of Kings Heath: My Lords, I do not agree with the noble Lord's assessment of the figures. The truth is that they bib and bob around. For instance, in quarter four of 1997–98, the figure for readmissions for over-75s was 7.1 per cent. In the same quarter of 2001–02, the figure was 7.2 per cent. There are variations over that four to five-year period.
The delayed discharge Bill, which the House is debating at the moment, has been brought forward to provide the right incentives for local authorities and the NHS to get their act together, so that quick assessments take place with ample notice to local authorities. That should enable proper planning, proper discharge procedures and more support available for people to go back into the community.
Baroness Barker: My Lords, is the Minister aware that in evidence given to the Select Committee on Health last year it became apparent that older people discharged from hospital on a Friday were three times more likely than those discharged between Mondays and Thursdays to undergo emergency readmission? In view of that can he explain why, under the delayed discharge Bill, the Government will compel older people to be discharged at weekends?
Lord Hunt of Kings Heath: My Lords, the point about the delayed discharge Bill is that older people stuck unnecessarily in hospital can become institutionalised. The outcome for them can be very negative. That is why we have brought the Bill
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forward. The intention is that local authorities will be informed far quicker than often they are now that an older person will require assessment. That will enable proper assessments to take place. As a result of those proper assessments, more facilities and support can be made available in the community. The noble Baroness will know that we have also intimated that we will transfer £100 million in a full year to help local authorities to put those services into place.
Baroness Noakes: My Lords, is it not true that the delayed discharges fines Bill will provide a massive incentive for NHS trusts to discharge elderly patients early, because it is in their financial interests to start collecting fines from local authorities?
Lord Hunt of Kings Heath: No, my Lords, it is not a fines Bill. It is an incentives Bill.
Noble Lords: Oh!
Lord Hunt of Kings Heath: Oh yes, my Lords. The incentives will be there to encourage both the NHS and local government to do better than they do now. We are transferring £100 million in a full year. That is the estimated cost to local authorities of dealing with the average figure of 5,000 older people whose discharges are delayed at the moment because local authorities have not got their act together.
So far as perverse incentives are concerned, I do not agree with the noble Baroness. It cannot be in the interests of the NHS to discharge people before they should be discharged.
Baroness Pitkeathley: My Lords, will my noble friend confirm that the readmission of elderly people to hospital is often a result of the breakdown of the carers—of the families who look after them? Will he therefore confirm that he will continue to encourage local authorities and social services departments to provide extra services to help those carers?
Lord Hunt of Kings Heath: My Lords, I certainly agree that it is very important that we continue the progress in providing greater support to carers. We will do that. The noble Baroness will know that amendments made in another place to the delayed discharges Bill have reassured the carers' association as to its position under the legislation.
Baroness O'Cathain: My Lords, in support of the comments made by the noble Baroness, Lady Pitkeathley, I want to ask the Minister whether any study has been done about the effect on elderly patients brought back into their own homes from the security of hospital. From feeling that no matter what happens to them they will be looked after, they suddenly have an emotional response and do not feel secure at home any longer. Therefore, is any counselling service available to those elderly people to make them feel better once they are reintegrated in their own homes?
Lord Hunt of Kings Heath: My Lords, the noble Baroness has raised an important point. Clearly, if as

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a result of the assessment it is considered better for an older person to go back into their own home, it is important that the right services are available. In the first few days when it is particularly difficult, it is also important that all due support is given. As regards research, we have the National Centre for Health Outcomes Development, which is looking into the issue of readmissions at the moment. I hope that that will provide more information. We have also made available £2 million for further research into older people's services. We are inviting bids at the moment in that area.
Lord Campbell of Alloway: My Lords—
Baroness Warnock: My Lords—
Noble Lords: Cross Bench!
Baroness Warnock: My Lords, in the light of the Minister's last answer, which was very sympathetic towards older people returning home, is he aware that it is in the last degree unlikely that older people returning from hospital on a Friday—that has been mentioned as a problem—will be able to get any help at all on a Saturday or Sunday? Perhaps the Minister could assure us that that will be looked into.
Lord Hunt of Kings Heath: My Lords, I certainly understand that point. The criticisms that are often made of current discharge procedures are: first, that the NHS is very late in notifying local authorities that a particular patient is ready for discharge; secondly, that discharge then takes place very rapidly; and thirdly, that the proper community support services are not available. The delayed discharge Bill, in which there is clearly a great deal of interest, ensures: first, that the local authority gets due notification; secondly, that an assessment and care package has to be made and put in place within three days; and thirdly, that 24-hour notice is given of discharge. The point that the noble Baroness raises about Saturdays and Sundays and the preparedness of agencies to give support is very well taken.
The Lord Bishop of Hereford: My Lords, will the Minister say whether many readmissions are due to clinical misjudgment that has led to premature discharge from hospital? If that is the case, what can be done to improve the quality of clinical judgment?
Lord Hunt of Kings Heath: My Lords, the simple answer is that we do not know that. That is why the research by the National Centre for Health Outcomes Development to which I referred will be helpful in trying to pinpoint some of the causes. There is no doubt that part of dealing with the issue is to improve the quality and standards of care for older people in hospital. It is with that that the National Service Framework for Older People is concerned. If at the same time as improving care for older people in hospital we can improve the whole process of
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discharge procedures and after-care support, I believe that we shall be able to make an appreciable improvement in the current problem.

Israel
3.9 p.m.
Lord Blaker Lord Blaker asked Her Majesty's Government:
Whether they expect to make any change in policy towards Israel in light of the result of the election there.
Baroness Crawley: My Lords, preliminary results show that the Likud Party won the most votes in the election. Mr Sharon will be invited to try to form a new government. We may not know the final make-up of the new government for some weeks. We want to work closely in the search for peace with the new Israeli Government, whatever the composition. In particular, we shall be looking for them to engage with the Palestinians and the international community on the implementation of the quartet road map within the time framework set out by President Bush on 24th June.
Lord Blaker: My Lords, I am grateful to the noble Baroness for that reply, and especially for her reference to the work of the quartet. Es she aware that in his State of the Union speech two days ago, President Bush devoted only one short sentence to relations between Israel and the Palestinians? When the Prime Minister meets President Bush tomorrow, will he urge him to pay more attention to removing the suspicions of so many of the Arab countries that this matter is not of interest to the United States and that the United States tends to be less than impartial in its relations between the two sides? Would it not be a useful start if President Bush were to publish his road map for peace in the Middle East and if the Prime Minister did his best to discourage some of the senior advisers to President Bush from their belief that the removal of President Saddam Hussein by force would make the solution to the Israel-Palestinian problem easier?
Baroness Crawley: My Lords, I very much agree with the noble Lord, Lord Blaker, that the road map should be published as soon as possible. I am assured that the Middle East peace process will be part of the discussions that the Prime Minister will take part in with President Bush when he meets him this week. As the noble Lord will know from his experience in these matters, the United States has taken a great interest in the road map, which is the confidence-building process that is crucial to finding a negotiated settlement.
Lord Janner of Braunstone: My Lords, does my noble friend agree that she and I spent some 18 years opposing the elected government of this country and trying to get rid of them? If we recognise that Israel has elected its government, perhaps it would be right to bid

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them welcome and say that we will do all we can to advance the cause of peace which is so necessary for not only the Israelis but the Palestinians.
Baroness Crawley: Yes, my Lords, I agree with my noble friend that we will work closely with the new Israeli Government. It will be some weeks before we know the final outcome of the negotiations to form that government, but we will work closely with them on that road to peace.
Lord Wallace of Saltaire: My Lords, can we have every confidence that the Government will continue to push forward with their efforts to engage the Palestinian authorities as well as the Israelis in continuing peace discussions? Will the Government please make it clear again to the new Israeli Government, as they did to the old one, that banning travel rather than assisting authoritative Palestinian representatives to come to multilateral peace conferences does not help?
Baroness Crawley: Yes, my Lords, I agree with the noble Lord. We regretted the ban on travel for the Palestinian representatives to the London conference on Palestinian reforms. We want the Palestinian authorities to take very seriously the reforms that they signed up to at that conference. There is a new Palestinian commitment to work on its constitution. We expect an agreed outline in the next few days on work in progress on that constitution. As a result of the Palestinian reform conference, hosted by my right honourable friend the Foreign Secretary in London earlier this month, we have a clear commitment to finalising preparations for free, fair and open elections. It has to be said that there was recognition of the work of the Palestinian authorities on financial accountability, which the Finance Minister has been working extremely hard to improve.
Lord Clinton-Davis: My Lords, which countries in the Middle East have free elections? Will the Prime Minister seek talks with the leader of the Likud Party and also the Labour Party, because they are members of the same International?
Baroness Crawley: My Lords, I cannot roll off the top of my head all the countries around the globe that have free and fair elections. In the Middle East, of course, Israel comes to mind. However, the British Government will work with all parties to negotiate a peace settlement.
Lord Howell of Guildford: My Lords, the noble Baroness's replies to these questions have been welcome and positive. However, does she agree that while the matter of forming a new government in Israel is entirely a matter for the Israeli people, it would be good to see emerge some kind of centrally inclined coalition, including statesmen such as Shimon Peres?
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That would prepare the way for taking the opportunities for peace that should arise as a consequence of changes in Iraq.
Baroness Crawley: My Lords, I agree very much with the noble Lord that we should not involve ourselves in the agreed final make-up of the new Israeli Government—that is a matter for the Israeli people and their representatives. But whoever becomes the new Israeli Government must give a signal to the international community that they are serious about going down the route of a negotiated peace settlement. As a famous Member of this House and a former Prime Minister used to say, there is no alternative.

Meat Imports
3.17 p.m.
Lord Livsey of Talgarth Lord Livsey of Talgarth asked Her Majesty's Government:
When they intend to publish the first annual report on combating the illegal imports of animal products required by Section 17 of the Animal Health Act 2002, and whether they will publish the service level agreement between Her Majesty's Customs and Excise and the Department for Environment, Food and Rural Affairs on the detection of smuggled imports.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty): My Lords, Section 17 of the Animal Health Act 2002 came into effect on 14th January 2003. The first annual review of import controls covering the financial year 2002–03 is being collated and will be laid before Parliament as soon as possible after the end of the financial year.
Lord Livsey of Talgarth: My Lords, when will the risk assessment be completed and published? Will the Minister's department publish the statistics as a baseline for comparison in future years on this vexed question?
Lord Whitty: My Lords, the risk assessment that was commissioned in the autumn has produced its preliminary results and is in the process of being quality controlled and peer reviewed. It raises some complex questions and does not, of itself, yield a baseline. Nevertheless, the risk assessment, which should be published within a month, will give us information on which to judge the effectiveness or otherwise of import control systems and internal disease control systems thereafter.
Lord Crickhowell: My Lords, in the absence of an annual report or a completed assessment, does the Minister believe that there is now effective control of illegal importers?
Lord Whitty: My Lords, there will never be 100 per cent effective control. The measures that we have

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taken in terms of carrying out checks, raising awareness, increasing resources and co-ordinating intelligence should make for a more effective system of control over imports in personal luggage and on the commercial side. But there will never be 100 per cent success in controlling all imports—no country in the world can achieve that.
Baroness Howarth of Breckland: My Lords, while I accept the Minister's answer. does he agree that the Meat Hygiene, Service has made a huge impact on some of these areas?
Lord Whitty: Yes, my Lords. That underlines the importance of the Meat Hygiene Service not only at ports but in operating internal checks on internal movements further down the food chain. The risk assessment will show, in broad terms, that there is a problem of imported meat, but only a very small proportion of that will be contaminated, and only a very small proportion of that contaminated meat is likely to get into livestock. The risk of it then getting into livestock more generally and then into the food chain is substantially greater. Therefore, internal disease controls on farms, between farms, at market and down the food chain are vital.
The Lord Bishop of Hereford: My Lords, will the Minister accept my thanks for what DEFRA has already done in trying to raise awareness of this problem and in controlling illegal meat imports? However, does he agree that the general perception of travellers entering this country is that very little is still being done—that is, it is easy to enter this country without seeing such a poster or being subjected to a check? Will he urge the department to increase dramatically the amount of work that goes into this vital precaution?
Lord Whitty: My Lords, I accept that anecdotally a large number of travellers seem not to see the posters that are there. A total of 26,000 posters have been established in airports, agencies and places of embarkation. A further wave of posters will follow on 1st February, incorporating the new rules and, it is hoped, being displayed to better effect for travellers. But the use of posters forms only part of the deterrence. The Government are also taking care of the rest of the deterrents—that is, issues concerning the number of checks, resources, co-ordination and so on. Those will be brought together in a few months' time when Customs and Excise takes over the co-ordinating role in dealing with illegal food imports.
The Duke of Montrose: My Lords, can the Minister say whether the wording which is proposed to be used on landing cards with regard to animal products has been agreed with the carriers, and when those cards are likely to be introduced?
Lord Whitty: My Lords, a decision has not yet been made on landing cards. The system involving those cards applies only to non-EU travellers coming into
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the country, who account for less than 14 per cent of all people who land at UK airports. We are examining the possibility of including that information, but it will not deal with the bulk of people who enter the country. Therefore, if we go down that road, it will form only a very minor part of the total information system.
The Earl of Selborne: My Lords, can the Minister say whether the European food authority will be able to make a positive contribution towards the reduction of imports of' illegal meat into the European Union and therefore into the United Kingdom?
Lord Whitty: My Lords, the main activity of the European food authority will be to focus on the provision of food to consumers. Therefore, it will coordinate European national controls at that end of the food chain rather than at the fresh meat import end. Nevertheless, it will pull together some expertise, which will help in the detection and early identification of the risk of disease.

Lottery Funds Merger
3.22 p.m.
Lord Phillips of Sudbury Lord Phillips of Sudbury asked Her Majesty's Government:
Whether in the event of a merger of the Community Fund with the New Opportunities Fund they will protect the independence, devolved structure and funding of the Community Fund.
The Minister of State, Department for Culture, Media and Sport (Baroness Blackstone): My Lords, the Government have not taken a decision on a possible merger. However, our commitment to maintain until 2009 the share of lottery funds going to charitable good causes will hold for any new body. The independence of lottery distributors in making decisions on individual grants would also be preserved. No decisions have been made on the structure of any new distributor, but we acknowledged in our recent review of lottery funding the importance of local decision-making.
Lord Phillips of Sudbury: My Lords, I am grateful to the noble Baroness for her reply. Can she give the House an assurance? There is one general concern in the charity and voluntary sector and two particular anxieties. The general concern is that the notion for the merger is driven more by the Whitehall instinct for control than anything else. The two particular concerns are: first, that the present highly devolved and applicant-sensitive grant-making procedures might be centralised; and, secondly, that the often imaginative and bold grant-making decisions and policies of the Community Fund might be sanitised. Will the noble Baroness comment on those anxieties?
Baroness Blackstone: My Lords, I say, first, to the noble Lord, Lord Phillips, that this has nothing to do with Whitehall control. It is about trying to find the

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most effective form of lottery distribution. On the two specific points about which he says there is concern in the voluntary sector, perhaps I can give him the reassurance that, before any merger occurs, further discussions will take place with all the interested parties, including the voluntary sector. It is the Government's intention to ensure that there is no sanitisation, as the noble Lord puts it, but that there is an independent system for deciding on the many hundreds of bids that are received from the thousands of organisations in the charitable sector which currently receive lottery grants.
Baroness Buscombe: My Lords, will the Minister confirm that the implementation of such a merger would require primary legislation?
Baroness Blackstone: My Lords, I can confirm that primary legislation would be required for a full merger. But it would be possible to bring together the two existing distributors from an administrative point of view so that they could be co-located, their boards could be merged and they could share a common administration, pending legislation.
Baroness Pitkeathley: My Lords, as chair of the New Opportunities Fund, I declare an interest in this Question. Is my noble friend aware that the New Opportunities Fund gives almost as much money to the voluntary and community sectors as does the Community Fund? Is she also aware that it shares the concern of our colleagues in the Community Fund and, indeed, in the wider voluntary sector about the maintenance and independence of that funding stream? However, does she agree that the potential benefits of such a merger might include making lottery funding more accessible, more visible and more flexible, and that the aim of any such merger must be to make more lottery funding available to more disadvantaged individuals and communities across the United Kingdom in the most effective and efficient way possible?
Baroness Blackstone: My Lords, I can confirm that about 40 per cent of NOF funding goes to the voluntary sector. I believe that the purpose of considering a merger is to try to build on the strengths of both bodies and to form a new organisation which provides a fresh and streamlined funding source for communities with the minimum amount of bureaucracy and reduced spending on overheads.
Baroness Howe of Idlicote: My Lords, will the Minister confirm that any grants given by any new body—if the two bodies are to be merged—will cover the full costs, including the overheads, of the activity being funded and that support and advice will be made available throughout the period of the projects undertaken?
Baroness Blackstone: My Lords, I cannot confirm the details of what the new arrangements might be for
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funding particular projects. However, I can say that discussions will take place with the voluntary sector and its views will, of course, be taken into account. I am absolutely sure that the lottery distributor—whether the two distributors merge or stay separate—will continue to want to give the type of advice to which the noble Baroness has just referred.

Business: Statement in the Commons
3.27 p.m.
Lord Gilbert: My Lords, can my noble and learned friend the Leader of the House cast any light on the fact that this House is not to take the Statement made earlier in another place about the order of the two new aircraft carriers? They are, after all, to be the two biggest ships ever built in this country. They will do a great deal for unemployment in parts of the country that badly need help in that respect. They will maintain greatly needed design skills in this country, and they will add immensely to our forces' extension projection capability to an extent that we have never seen before.
Lord Williams of Mostyn: My Lords, the only knowledge that I have is that the Statement would have been offered in the usual way, and it is a matter for the Opposition parties to come to their own conclusion.
Lord Cope of Berkeley: My Lords, the Government can of course make a Statement if they wish to do so. But also, as the noble and learned Lord the Leader of the House said, the Opposition and the other parties are given the opportunity to insist on a Statement, should they wish to do so. Sometimes, as the House knows, we do. I entirely agree that this is an extremely important order for the reasons that the noble Lord set out. However, at the same time, it is a matter upon which we felt we should like to reflect so that we can consider the details in a way that is not possible in response to a Statement, and that thereafter your Lordships may wish to discuss the matter.
Lord Chalfont: My Lords, does the noble and learned Lord agree that the prime contractorship for the building of these two new aircraft carriers is one of the most important procurement decisions for the Armed Forces and for employment in this country that has been taken for many, many years? Is it not strange that Members of your Lordships' House should have to read in the newspapers what Members of another place are hearing today?
Lord Williams of Mostyn: My Lords, self-evidently it is an important order. I think that that is why the noble Lord, Lord Cope, said that, on behalf of his party, he wanted to reflect on it and possibly come back to it when there is more opportunity than is offered today to reflect on the background and the intricacies of such an important matter.
Lord Roper: My Lords, if I may, I should like to add that we have considered this matter very carefully.

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Like the noble Lord, Lord Gilbert, we understand the importance of the Statement. As the noble Lord, Lord Cope, said, however, we believe that this is a matter on which we should reflect and to which we should return when we have an opportunity to discuss it in greater detail.

Mergers: EUC Report
3.30 p.m.
Lord Grenfell Lord Grenfell rose to move, That this House takes note of the report of the European Union Committee on the Review of the EC Merger Regulation (32nd Report, HL Paper 165, Session 2001–02).
The noble Lord said: My Lords, I rise in my capacity as the chairman of Sub-Committee A, as I was at the time that we conducted the inquiry and published, in July 2002, the report which is before your Lordships' House this afternoon. I very much regret that your Lordships have had to wait so long for an opportunity to debate it. In my new capacity as chairman of the European Union Select Committee, I am hopeful that the recommendation contained in our recently published report on the scrutiny of European legislation—that the debating of Select Committee reports not be so long delayed—is really taken to heart by the usual channels. I am very sorry that a further and eleventh-hour delay in the scheduling of this particular debate inconvenienced a number of noble Lords and deprived us of the participation of two of the greatest experts in the House on this issue. I think that that is a great shame.
I am. however, delighted that the noble Lord, Lord Brittan of Spennithorne, is participating today. As the Competition Commissioner from 1989 to 1992, he did a great deal to develop and expand the European competition policy as the final stages of the single market were being put in place. We much look forward to hearing what he has to say.
This inquiry was prompted by the publication, in December 2001, of the Commission's Green Paper reviewing the European Community's Merger Regulation—the ECMR. The purpose of the Green Paper was to launch a broad debate on how the ECMR was working, and it proposed a wide range of possible ways to improve the merger regime. Our report was a response to Commissioner Monti's desire to gather views from all interested quarters. We were delighted to have this opportunity to contribute once again to the long-evolving debate on the merger regulation as we have done over the years both immediately prior to its adoption in 1989 and on two subsequent occasions (in 1992 and 1996) before this latest inquiry and report.
I am extremely grateful to members of the subcommittee who put a great deal of hard work, time and effort into the inquiry and the deliberation on the draft report which was so brilliantly prepared by our clerk, Dr Richard McLean, to whom we are greatly indebted. Our warm thanks go also to Dr Richard Whish and Miss Jennifer Halliday of King's College
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London who served as our indispensable specialist advisers through a three-month inquiry of particular complexity.
As we note in paragraph 21 of the report, the merger regulation has become one of the cornerstones of EC competition law and many witnesses—from the business community to the regulators—told us how highly they regarded the regulation and what a success its operation had been. The committee recognises the good work of the Commission in applying the ECMR, and we endorse the Department of Trade and Industry's view, as offered to us in oral evidence, that the Commission has,
"responded with great success to the huge challenge of enforcing the Regulation vigorously but fairly, despite an exponential increase in the case-load".
The latter point is borne out in the footnote on page 31 of our report, which shows the number of notifications to the Commission increasing from 12, in 1990. to 340, in 2001.
That said, one has to acknowledge that not all is sweetness and light. We shared the view of the many witnesses who expressed disappointment that the Green Paper devoted only limited attention to the important issue of due process and the checks and balances to the Commission's decision-making procedures. Of course, these issues go beyond the rules set out in the ECM R itself and concern the Commission's internal administrative practices for handling cases and the role of the Community courts.
Meanwhile, the Commission has been the subject of some serious criticism, and witnesses drew attention to shortcomings in the ECMR system which were causing increasing concern. Some had already been borne out by the judgment, on 6th June 2002, of the Court of First Instance in the Airtours/First choice case which, while our inquiry was still in progress, overturned the Commission's decision to block the merger. Then, three months later, within the space of just one week, the court overturned two more Commission decisions: Sehneider/Legrand and Tetra Laval/Sidel. I should add in parenthesis, however, that one should bear in mind, before accusing the Commission and its Merger Task Force, as some have, of being too big for their boots, that it has blocked only 18 out of almost 2,100 of the mergers it has examined since given its powers of control in 1990.
That said, and in light of these recent reverses in court, our committee was, I think, in retrospect, right to have considered it important that the broad review of the Green Paper be taken as art opportunity to assess all of the ECMR procedures. Obviously, the committee could not address all of them ourselves in our inquiry, so we focused on what we considered the three essential issues, which were jurisdictional, substantive and procedural. Late last year, when Commissioner Mario Monti completed his review and the full Commission, on 11th December, adopted his recommended package of reforms, we found that many if not most of our own recommendations were in line with the conclusions that he himself had eventually reached after considering the extensive advice he had invited from many quarters.
What, then, were our own recommendations? I will certainly not weary your Lordships with a long recital of them. For convenience's sake, they are set out in summary form in Part 6 of our Report, at pages 51–52. As noble Lords will hear, I suspect, from the Minister—the noble Lord, Lord Sainsbury, who will be replying this afternoon—the committee's position on all the major issues appeared very close to that of the Government as stated in their own response to the Green Paper and in their response to our report. Indeed, there are reflections of our common position on some of the issues in the Enterprise Act which the noble Lord skilfully guided through this House. We look forward to hearing his reply to this debate.
Meanwhile, permit me to select just a few of the conclusions and recommendations which find particular resonance in the Commission's latest package of reforms.
Although we dealt with jurisdictional issues first in our inquiry, we were in no doubt from the start that the top priority for reform was the need to ensure greater objectivity and fairness and greater efficiency in the ECMR process. The grounds on which the Commission suffered those three recent reverses in the court suggest that we were not wrong to place such emphasis on due process. In your committee's view, the many concerns about due process would be best addressed by improving the procedural safeguards in the current system, in particular enhancing the internal checks and balances in the ECMR regime. Efforts to ensure an effective system of due process cannot, in the committee's view, be limited solely to trying to obtain speedier judicial review or a greater role for the courts.
Our report strongly recommends that any case reaching Phase II should be subjected to a measure of independent thinking through the introduction of the so-called "second pair of eyes". In practice, that means that the Commission should divide responsibility for the consideration of cases in Phase I and Phase II. Appointment of a review panel is one of the Commission's own new recommendations. We believe that that is a step in the right direction.
We also concluded that the objectivity of the Commission's proceedings would be further enhanced if the hearing officer's report was fully reasoned and contained a comprehensive explanation of his or her conclusions. The Government agreed with that, and we are very happy to note that the Commission recommends increasing the hearing officer's support staff, presumably with this among other improvements in mind.
We were particularly insistent that the Commission strengthen its overall capacity for economic analysis in merger cases. There has been, according to many of our witnesses, a tendency in the merger task force to rely too much on narrow legal points or untested theories instead of on hard economic evidence. We recommended that the Commission appoint a chief economist, and we are pleased to see that the Commission's package of recommended reforms includes the creation of a chief competition economist in the directorate-general.
We note with interest provisions in the package for merging parties to have an earlier opportunity—for example, before the statement of objection is issued—to review the content of the Commission's files pertaining to the deal that they wish to make and any third-party submissions on the impact on competition.
In our inquiry we were much impressed by evidence strongly suggesting that by conducting the oral hearing before the statement of objections, the issues involved in the case would be out on the table earlier, which would be to everyone's benefit. That is reflected in our recommendation summarised in paragraph 299. It would allow the hearing officer to summarise the situation after the oral hearing, identifying the competition problems and their possible solutions. Drawing on that, the merger task force would then be able to come up with a statement of objections amounting to a draft decision which could act as the framework for remedy negotiations. That would be fairer to the parties concerned and a more logical and orderly way of proceeding.
I turn now to jurisdictional issues. They are covered in paragraphs 32 to 97 with our recommendations summarised in paragraphs 275 to 285. Once again I shall not abuse your Lordships' patience by itemising them, but I shall say a word about those that are related to important new measures now proposed by the Commission.
As we saw it, the key jurisdictional issue was how best to amend the regulation to minimise the problems associated with multiple filings while ensuring that mergers that could significantly affect competition in a distinctive market within a member state are examined at national level. That is to say, mergers must be examined by the regulatory body that is best placed to ensure the maintenance of effective competition. We agreed that no single measure would achieve that, and that a workable package of measures had to be devised.
As an important component of that package, and to clarify the issue of who has jurisdiction over which mergers, we supported the Green Paper's proposal to move to a simpler system whereby the Commission would have jurisdiction over all mergers that are subject to three or more national filings—the so-called "three-plus rule". That change, we felt, would provide greater certainty to businesses as it would reduce the instances where companies are required to file with a multiplicity of national competition authorities. We felt that the three-plus rule would serve better if it were mandatory, thus lessening the risk of so-called forum shopping. The Government feel that it should be optional—one of the rare instances where our recommendations and the Government's response part company.
The Commission package proposes a simplified system for the referral of cases by the Commission to member states and vice versa, an idea that we ourselves advanced by means of a simplification of Articles 9 and 22 of the regulation. The Commission's changes are clearly designed at least in part to make the one-stop shop in Brussels available in more cases, but

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interestingly it has abandoned its earlier proposal in the Green Paper, and thus implicitly our recommendation, that it should take jurisdiction in every case where the three-plus-one rule would normally apply.
I turn to the third of our three main concerns, the substantive test. That is dealt with in Part 4 of our report in paragraphs 98–161 and our conclusions and recommendations are summarised in paragraphs 289–290. We were impressed by the arguments for having the Commission switch from the dominance test to the substantial lessening of competition test, commonly known as the SLC test as applied in the US, Canada and a number of other jurisdictions. Some of our witnesses claimed that only semantics distinguished the two tests, and that a switch from one to the other would produce no fundamental change in how the ECMR functioned. We accepted that there were similarities between the two tests and that in many cases their application may give the same result. However there seemed to be broad agreement that the SLC test is in many ways better in theory, and that if one were today drafting the regulation from scratch, one would probably adopt the SLC test.
We accepted, however, that a change in the test should not be made lightly. There would inevitably be short-term disruptive consequences. We remained persuaded that the longer-term interest would be better served by a switch. Given that the Enterprise Act replaces the existing United Kingdom public interest test with one based on SLC, it is not surprising that we and the Government are at one in wanting to see the switch made at the European level.
We set out our reasons for recommending a switch in six bullet points appearing in paragraph 160. Time does not permit me to elaborate, but I suggest that they are clear enough. At the heart of our argument lies the conviction that any merger that substantially lessens competition should be investigated, and that the SLC provides a better basis on which to assess such cases than the dominance test, even though it can be argued that today the dominance test could fairly be described as "dominance plus".
When we met with Commissioner Monti he told us that he had not yet reached any conclusion on this issue and might not do so during the time available to him for the review of the Green Paper. In the end he reached a conclusion, which was to retain the dominance test. However, it seems that it will be redefined to extend to situations in which,
"the combined entity holds the economic power to influence appreciably and sustainably the parameters of competition, … or appreciably to foreclose competition".
Some are suggesting that that wording could be read as extending the reach of the ECMR further than the SLC test. Time will tell.
The Committee was extremely sceptical of the necessity or desirability of introducing into the text of the ECMR provisions setting out an explicit efficiency defence. We felt that if there were a significant reduction in competition in a market, there would be very little incentive or reason for the company to pass
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on any efficiencies to the consumer. The Government have taken a rather different view, believing that efficiency considerations can be relevant under the rubric of clearly defined customer benefits. However, the Government appear to agree with us that where there are doubts that benefits will materialise as a natural consequence of a merger, and within a reasonable timeframe, the efficiency defence should fall. We note that the Commission wishes to consider efficiencies in its assessments with certain provisos that are similar to those adopted by the Government. I am afraid that we remain sceptical.
Let me close with one specific plea that we on the committee wished to express strongly. The ECMR and its effective, equitable and transparent implementation is far too important to be jeopardised by resource constraints. We urge member states—this is the final recommendation in our report—to agree the provision of the necessary new posts; otherwise, all the advice that has been tendered to the Commission and the Commission's own generally commendable recent proposals to improve this vitally and increasingly important regulatory system will have been in vain.
I have covered much less than the totality of our findings and recommendations in this long and fairly complex report, but doubtless others will fill in some of the gaps. I greatly look forward to the debate. I beg to move.
Moved, That this House takes note of the report of the European Union Committee on the Review of the EC Merger Regulation (32nd Report, HL Paper 165, Session 2001 –02).—(Lord Grenfell.)
3.48 p.m.
Lord Brittan of Spennithorne: My Lords, I warmly welcome the debate and congratulate the authors of the report on the way in which their conclusions are argued and on the care that they have taken in considering this extremely important subject. I also welcome the debate because, in spite of the kind invitation to give evidence to the committee, unfortunately I was unable to do so due to absence overseas.
Much has happened since the committee deliberated. There has been further criticism by the Court of Justice of the handling of particular cases, and most notably last December the Commission put forward its own reform proposals. That has not rendered the report or the debate less valuable because the Commission's proposals are still being considered, although there have been firm announcements on some points such as the appointment of an independent economist, as recommended by the committee.
When I arrived at the Commission as the commissioner responsible for competition, it was by no means clear that the merger regulation would be enacted. It had been the subject of debate for some 16 years. The noble Lord, Lord Hannay, who at the time was the permanent representative in Brussels, however, immediately assured me that by the end of

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the year it would be agreed. That was the first of many examples of his prescience that I encountered—and it indeed proved to be the case.
As one can imagine, it is all the more gratifying to me that so many years later the noble Lord, Lord Grenfell, and his committee have felt able to commend the regulation and how it has operated in paragraph 21 of the report.
In considering the faults, the problems and the desirable reforms, the noble Lord was absolutely right to lay stress on the enormous increase in cases that have occurred—an increase that is far greater than we could have envisaged at the time that the regulation was passed. However, as part of the bargain between the Commission and the member states for approving the regulation, we insisted that the Commission should be adequately staffed with people who could handle issues of this kind. It was impossible to predict the explosion from three to over 340 cases that occurred in a decade.
The handling of cases has been criticised by the court in recent times and condemned by others for arrogance. I suspect that that was in large part caused by the sheer pressure of the workload. Therefore, I strongly support the conclusion of the committee, referred to by the noble Lord, Lord Grenfell, that adequate resources must be provided for this work. It is a priority. It is, indeed, a service to industry in the European Union.
The report is full of other detailed recommendations. I want to focus on two main issues. The first is the question of the support for switching the tests from the dominant position to the substantial lessening of competition test. Despite reading the report carefully and participating in numerous debates on this issue here, but mostly in the United States, I do not believe that the committee has made that case out. The report includes a very fair and full analysis of the pros and cons, but the conclusion it ultimately put forward—if one reads it carefully—is on the narrowest of grounds.
The report refers to serious and considered arguments on both sides. In fact, the most vociferous calls for change have come from the other side of the Atlantic, from the American business community, which is furious that the Commission dared to reach a different conclusion from the American authorities in the Honeywell case. Those who have spoken in that sense have been motivated by not only a desire that we should accede to the American test, but also a desire to make it easier for companies to push mergers through.
The reality is that the difference of opinion that occurs in cases where the two tests are applied is almost always caused not by the difference in the test but by the difference in the application of the test to the facts. Indeed, paragraph 102 of your Lordships' committee states:
"Some witnesses, such as Dr William Bishop, Chairman of Lexecon Limited, thought that there was 'very little difference in practice between the two tests'. He did not see 'major differences' between SLC and dominance in the way that the latter had been developed and applied by the Commission. The Government said
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that a change from dominance to SLC would not be 'a fundamental change' to how the ECMR functioned. The Confederation of British Industry accepted that 'real differences' between the tests were 'difficult to pin down"'.
There is a very good reason for thinking that if the change were made the result would be the exact opposite of what some of the American critics would wish and that more transactions would be prohibited.
Therefore, the argument is a narrow one. I think sufficient weight has to be given to the fact that a considerable jurisprudence has evolved applying the dominance test and that if a change were to be made that jurisprudence would be lost and the precedents would disappear. Unless, therefore, a substantial gain is to be achieved by a change in the test, that in itself is a ground for not making such a change. As all seem agreed that the differences are narrow and the results difficult to predict—and probably not in the direction that the advocates of change would wish—I feel that the case for change has not been made out.
Nor am I convinced by the argument that if the same test is applied in all jurisdictions there would be a gain in uniformity and a propensity for fewer clashes. As is said in paragraph 123,
"even if the same substantive test were applied across the different jurisdictions, the way in which the test was applied could give different results. For the CBI, harmonising the legal test in the legislation would not 'in and of itself lead to a more consistent approach' because, however the test was phrased. the regulators would retain 'a broad margin of discretion"'.
As one would expect, in the American cases there are often divisions of opinion between different judges and different regulators applying the same test but coming to a different conclusion on the facts of a specific case.
It is also important to point out that, in practice, the two tests have moved closer together. That is stated in the report. The reason for that is largely because of how the Commission has developed the doctrine of collective dominance. Indeed, paragraph 138 specifically accepts the fact that the two tests have moved together.
So, if one considers all that—the limited difference between the tests, the fact that they have increasingly converged and the last of the jurisprudence under the existing test—it is difficult to see a reason for change. Indeed, the only reasons for change given in the report are three specific examples where it might be difficult to apply the collective dominance test and a desire to distinguish the tests under the merger regulation from the tests applied under Article 82 with regard to the abuse of a dominant position.
The argument that it is difficult to apply the merger regulations unless one changes the test, has, I think been rendered less cogent—and will be rendered still less cogent when the Commission adopts measures, as it says it will, that deal with vertical mergers and conglomerates. These will tackle the concept of oligopolistic market dominance and reflect the experience acquired through the examination of over 2,000 cases. So, I think that the argument founded upon the three specific examples is not sufficient for a change.

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As to the argument that there should be a distinction between the tests applied under the merger regulation and the tests applied under Article 82, I find no real evidence that there has been confusion because the language of the two is similar. I do not find that a reason for change either. Therefore, I would go along with the Commission's rather than the committee's conclusions on that point.
I shall say word on the efficiencies defence. The report is very cool on that issue. As the noble Lord, Lord Grenfell, has indicated, it is considerably chillier than the Government. I was extremely reluctant to accept arguments in favour of such a test at the time of the introduction of the merger regulation. The reason for that was very simple. It seemed to me that—at a time when many people wanted the merger regulation to be used to apply industrial policy rather than competition policy—explicitly to include an efficiency test would be an open invitation for protectionist tendencies to gain force.
On the other hand, the Government are right to say that efficiencies are not absolutely irrelevant. The latest Commission position is reasonable: it has promised to grant particular attention to the positive effect of a merger that at first glance would appear a threat to competition; but concrete and sufficient proof will be requested from the companies and a positive effect on consumers will have to be demonstrated. The Commission said that a green light to the creation of monopoly or quasi-monopoly was unlikely. In other words, there would be a hard row to hoe for those who wanted to run an efficiencies defence.
The other question to which I shall refer is that of checks and balances. The committee recommends that responsibility for consideration of phases I and II should be divided between two separate teams of officials. As I understand it, after phase I, the first team would leave and the phase II officials would enter. That proposal was made because the committee thought that a switch to a judicial-based system would be premature and too radical, but that, on the other hand, something had to be done to deal with the objections to the Commission acting as prosecutor, judge and jury in merger cases.
I should like to be somewhat less cautious and take the argument head-on. I do not favour going down the American route of requiring a judicial determination before a merger can be banned. That would certainly import considerable delays to the decision-making process and not have the effect favoured by those that advocate it. The desire to avoid delays would lead to exactly the same process of negotiation over remedies that takes place today. Moreover, it would give the courts the task of taking the decisions, as opposed to reviewing them—a role that does not fit well with the basic distribution of functions between the institutions that has been central to the EU's operation.
It is therefore understandable that the Commission does not want to go down that route and instead suggested as a way to deal with the problem the creation of a peer review panel to scrutinise the
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investigating team's conclusion with a fresh pair of eyes. As I understand that proposal. that is not quite the same as the committee's proposal for the substitution of a new team, because the Commission does not envisage that the old team would disappear, it would merely be subject to the additional scrutiny of a fresh pair of eyes.
Whether such a system will satisfy the Commission's critics will depend heavily on the precise way in which it is set up and then operates. The panel must be of high standing, with full access to the file and considerable transparency in its operations, if it is to win the confidence of critics. Even so, it is in my view unlikely to be considered sufficiently independent if it consists solely of senior Commission officials.
One way to strengthen what is proposed and make the scrutiny of the merger taskforce's operations appear more robust would be to include one genuinely independent person on each panel—someone who is not a Commission official. I hope that that suggestion can be seriously considered during current discussions.
I conclude by once again warmly commending the report. I remember Jacques Delors once telling me— although we often had our disagreements, we often met to discuss them—that reports of the House of Lords represented by far the best analysis and critique of Commission proposals in the European Union. This report can only enhance support for that opinion.
4.4 p.m.
Lord Hannay of Chiswick: My Lords, I begin by paying tribute to the noble Lord, Lord Grenfell, for introducing the debate and chairing Sub-Committee A during the production of the report. He chaired the committee with great determination, patience and skill, and managed to squeeze out the report before the summer holiday. That is all the more reason to regret that it has taken us well into the New Year to get around to debating it.
It is also a pleasure to follow the speech of the noble Lord, Lord Brittan of Spennithorne. As he reminded the House, he and I had some dealings when the regulation was being adopted. It was my duty from time to time to go to express the deep regret of the British Government that he was taking an especially tough line on some piece of state aid. I am glad to say that he always gave me a fair hearing; I am equally glad to say that he was always firm.
This debate is taking place at an important stage in the evolution of the European Union's competition policy—in particular, of its arrangements for dealing with mergers. The Commission has now completed its analysis of the responses to its Green Paper on the reform of those arrangements, of which the report that we are debating forms part. It has revealed its thinking and the member states will shortly begin consideration of changes to the basic regulation on mergers arising from the whole complex and lengthy process.
I hope that it will not be considered unduly self-congratulatory if, as a member of the sub-committee that drafted the report before us, I point out that many of the ideas that the Commission has now decided to

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pursue figure prominently in that report. Perhaps that is not too surprising, because the dialogue that the subcommittee was able to have with Commissioner Monti when we visited Brussels showed just how much common ground there was between us. Even if it is not surprising, it is a cause for satisfaction.
When one plunges into the wood of the merger regulation, it is all too easy rapidly to lose sight of anything but the technical trees, each one lovingly analysed by a host of legal and economic experts whose daily task it is to work in the field. But it is important to remember at every stage just how vital a part of the single market is an effective, objective and smoothly functioning merger regulation. I doubt whether many would now deny that without such a regulation, the single market would be lacking an essential component. National competition authorities have their role to play, but the degree of integration now reached by the European single market makes a central, regulatory authority for mergers a necessity, not an optional extra.
How well, then, are the present arrangements functioning? Although the apocalyptic conclusions drawn by some commentators from recent European Court cases that found against the Commission are often wide of the mark, there have been rather too many such cases to be able to dismiss them as of marginal significance. So the honest answer to the question is probably not far from that of the curate's reply to the Bishop on the quality of his breakfast egg: "Good in parts, my Lord".
The Commission provides a speed of service that is the envy of companies in other parts of the world, including the United States. It has built up a body of case law that enables companies contemplating mergers to proceed with a fair degree of confidence as to what will be acceptable and what will not. The benefits of the EU's competition policy to consumers and to the effective functioning of the market have been real—albeit intangible and not easy to quantify.
However, time and experience have shown up weaknesses and it is now necessary that they be remedied, not just swept under the carpet. Many arise within the Commission itself and are of an organisational nature, which the Commission itself can remedy without much involvement by the member states. The appointment of a chief competition economist, properly staffed to ensure that economic considerations are as carefully analysed at every stage of the process as are legal considerations, is one such measure.
Another is to ensure that during the second, critical phase of any merger review, the work of the reviewer is considered by a second, independent panel of experts not hitherto involved in the process. A third is to give hearings officers more resources and to make their work more transparent. A fourth is to issue guidelines on the scope for and limits of an efficiencies defence of a merger.
Many of those proposals, supported by the subcommittee, have been accepted by the Commission, but, regrettably, it has not gone the whole way by
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accepting a second phase review by a second group of examiners. I welcome the Government's intention, set out in their Explanatory Memorandum, which this House has just received, to press this point in the forthcoming legislative process on amendments to the regulation. The Commission should in any case be encouraged to implement the procedural changes that it has accepted without more ado and without waiting for the adoption of an amended regulation. If they require additional resources, as they certainly will, I express the hope, as did others, that the budgetary authorities—shorthand for the British and other governments—will not take too stingy an approach.
On wider issues requiring a more direct response by the member states, and perhaps some amendment to the basic regulation, the introduction of provisions for a limited stopping of the clock makes sense. So, too, does the clarification of the rules for transferring cases between the national competition authorities and the Commission. But I regret that the Commission seems to be turning its face against any radical change in what is called the "substantive test" to be applied to merger cases. Despite the fact that some of the problems in recent court cases seem to result from the lengths to which the Commission has gone to stretch the existing notion of a dominant position. it appears to think that minor changes to the notion of dominance will suffice. It is, thus, setting aside the compelling arguments for moving to a substantive test based on the alternative notion of a significant lessening of competition (SLC) test.
The main argument for such a switch in the substantive test is not just that the SLC test is widely applied internationally—for instance, in the USA, Canada, Japan and New Zealand, as well as nationally in the Enterprise Act that we passed in the last Session—although there would be benefits from the application of a global standard. Rather, the real argument is that the SLC test has a more obvious and common-sense relevance; it is wider in its scope and thus more likely to catch the broadest number of anticompetitive features of proposed mergers. In that respect, I agree with the noble Lord, Lord Brittan. in thinking that the US advocates of the test as being more restrictive might have a nasty shock if it were applied. The SLC also seems to bring economic factors more directly into play.
There are arguments against such a switch: it will create confusion and a lack of continuity for European businesses contemplating mergers. But I hazard a guess that, even if the European Union follows the Commission in sticking to a dominance test on this occasion, it will not be long before we are all back again examining the case for the EU to switch to the SLC test. That will not be a disaster but an opportunity missed.
I very much agree with the Commission's resistance of the arguments advanced in favour of handing over the final determination of all negative merger cases to the courts, as in the United States. That would put at risk one of the chief merits of the European Union system—its relative expeditiousness and the certainty of the timetable that a company faces. It would also tip

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the balance back towards the legal considerations in respect of mergers, just when we are trying to tilt it towards economic considerations. However many promises were made of speeding up European judicial procedures—and it is good that the Commission will try to ensure that the present appeals procedures work more rapidly—I have little confidence that sending all negative merger determinations to a two-tier legal system. which is already struggling with its existing workload, would do other than create uncertainty and delay. Those are two factors that European businesses could well do without.
In conclusion, I hope that our debate will send to the Commission a general message of firm support for its vital work on competition policy, tempered by a strong desire to see the earliest possible introduction of reforms designed to make the system more flexible, transparent and objective. No aspect of the European Union brings its citizens more benefits and value than the single market. A competition policy that works well is a necessary part of that single market.
4.14 p.m.
Lord St John of Bletso: My Lords, I, too, have been greatly privileged to serve under the able chairmanship of the noble Lord, Lord Grenfell, on Sub-Committee A in this, my second term. The timing of this inquiry was opportune in the light of the Airtours case, which effectively expedited many of the sought-after reforms in the EC Green Paper. I should at the outset declare an interest as a consultant to Merrill Lynch, which is not mentioned in the report. I thank our specialist advisers, Professor Whish and Dr Jennifer Halladay, for their able stewardship and expert knowledge of this complicated subject.
The noble Lord, Lord Grenfell, has given us an admirable overview of the main findings of our report. I shall I ouch on two key issues: enforcement, which all noble Lords have mentioned, and the need for a universal substantive test. One of my concerns throughout the inquiry was the fact that the Commission has tended to act on referrals as investigator, prosecutor and judge, and that there has been inadequate separation of responsibilities and insufficient checks and balances on the Commission's decision-making process.
As the noble Lord, Lord Grenfell, mentioned, following the publication of our report, the European Commission suffered three consecutive defeats in the European Court of First Instance in the cases of Airtours, Schneider and Laval. The court used unusually harsh language in concluding that the Commission had failed to satisfy its burden of proof and had variedly failed to take into account the evidence, had drawn speculative conclusions from selective hits of evidence, and, in the Schneider case, had failed to protect the parties' rights by failing to give them the opportunity to respond to, and defend themselves against, specific allegations. If one reads those decisions, taking into account how the Commission has in the past rebutted its critics by bragging that a merger had never been overturned by the courts, there is an inference that the Commission
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was smug and arrogant. There was, therefore, much collective cheer by practitioners, in particular, following those judgments.
Having said that, there is much respect and appreciation of the Commission's work in applying the EC Merger Regulation to the ever-burgeoning numbers of referrals. The critics have been constructive in the consultation process. It is noteworthy that over 40 per cent of the submissions to the consultation on the Commission's Green Paper on merger reform came from the United States. I, therefore, warmly welcomed the comprehensive package of reforms of EU merger controls that the Competition Commissioner, Mario Monti, announced last month. I welcomed, in particular, plans for the European Commission to improve its scrutiny of takeovers by listening more to companies involved in the deals. I hope that the Commissioner's business-friendly words will be matched by the Commission's actions. To quote Commissioner Mario Monti:
"Merger control is not about blocking mergers. It is about ensuring consumers continue to benefit from sufficient innovation, choice and competitive prices".
The proposals addressed another recommendation in our report; namely, the need for a chief economist to bolster the Commission's expertise. It was accepted that the Commission's level of in-house economics expertise was weak and that more legal certainty should be given in setting out clear economics-based guidelines, mirroring the US merger guidelines.
I also support the move to create a peer review panel composed of experienced officials to review cases at key points during the inquiry and, in a way, act as devil's advocate. That certainly goes a long way towards addressing my concern that officials were acting as investigators, prosecutors and judges in the merger control process. I also welcome the move towards more transparency whereby merging firms will be able to review the Commission's file and third party submissions to the inquiry. That is a good move and will give the merging parties more of a chance to discuss their case with senior Commission management. The reforms are all welcome, if not a bit overdue. However, they still leave concerns over the accountability and competence of the Commission.
The question of how the merger will foster or impede efficiency is a black hole in the European merger regulation. I was alarmed to read in a recent KPMG report that over 82 per cent of cross-border mergers involving the United Kingdom and other member states had unfortunately failed to deliver value. The reasons for that include the lack of understanding and consistency in commercial and financial due diligence, which stems from cultural differences as well as corporate governance inconsistencies.
My final point relates to the substantive issue. The Commission was pulled up by the Court of First Instance in the Airtours case, particularly over the way in which it interpreted and applied the concept of collective dominance, under which a number of firms with significant market share can be regarded as

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collectively having market power, as opposed to single firm dominance, where a firm has a market share of 40 per cent or more and acts in a way that infringes the EU treaty. The Commission failed in Airtours to establish that, with the merger, the firm would act in a way that could be seen as constituting collective dominance. The Court of First Instance regarded its analysis as highly speculative. That has been clarified by the EU Court now, and we can proceed on that basis.
Despite the far-reaching reforms, the Commission has decided to continue using the dominance test as the merger competition test. In our inquiry, most of our witnesses were in broad agreement that the SLC test was better in theory—I notice that the noble Lord, Lord Brittan of Spennithorne, disagrees with me—and was a more economically based test than the dominance test. We did not have the wisdom of the noble Lord, but, as outlined in paragraph 160 of our report, some witnesses,
"were concerned about the implications of a change in terms of the uncertainty it would cause and the unpredictability of how the new test would be applied".
It was felt that a move in Europe to SLC would have short-term disruptive consequences.
I disagree fundamentally with that approach and support the view of Mr Vickers. In a speech at the joint conference held by the International Bar Association and the European Commission in November in Brussels, he pointed out that the word "dominance" has different meanings. He referred to Humpty Dumpty and Through the Looking Glass and claimed that the dominance test reduced legal certainty. Furthermore, from a practitioner's point of view and from a company's point of view, the position is complicated by the fact that some member states, such as Ireland and, following the recent reforms under the Enterprise Act 2002, the United Kingdom, have changed to the SLC as they reform their merger laws, while the Commission continues with the dominance test by shoring up the gap. In brief, the risk for Europe is that we have differing merger standards, thus undoing the benefits of consistency and certainty.
Although I still have several reservations about the reform of the EU Merger Regulation, there is no doubt that we are moving in the right direction. We are moving in the right direction to ensure transparency, checks and balances, and speed and efficiency. I am often concerned that our Select Committee reports and sub-committee reports are rarely read and rarely get much coverage in the broadsheets, and I was delighted to hear the comments made by the noble Lord, Lord Brittan of Spennithorne, about the praise from Jacques Delors. However, this inquiry has raised many important questions, several of which have, thankfully, recently been addressed.
4.25 p.m.
Baroness Sharp of Guildford: My Lords, I join others in paying tribute to the noble Lord, Lord Grenfell, and declare that I am wearing two hats today. I was a
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member of the committee when the report was drawn up, but I speak today from the Liberal Democrat Front Bench, partly with a Liberal Democrat hat on.
As the noble Lord, Lord Hannay of Chiswick, said, EU competition policy has emerged in the past 20 years as part of the bedrock of the single market. Merger policy, which has shorter roots—the merger regulation came into effect only in 1989—has become a vital part of competition policy. When the merger regulation was introduced, it was agreed that there would be regular reviews of how it worked. The Green Paper, which was the impetus for our report, was, in its way, a routine part of that review process. It raised several questions about difficulties and wrinkles in the way in which the regulation worked, suggested ways in which it might be revised and asked for views on those suggestions. In some senses, what we covered in the review was part of the routine process of monitoring and review.
Some of the issues that were covered were, in a way, commonsense proposals to tighten up procedures. On the whole, the jurisdictional issues that we dealt with—in particular, how to cope with multiple filings, given the substantial increase in the number of applications—were fairly routine. There was also the question of whether we should stop the clock on procedures, to enable the initial phase 1 and phase 2 investigative procedures to be given more time in complex cases. They were routine issues, and the proposals that were made were relatively commonsense proposals. I am pleased that, in that sense, the Commission took note of our views. On the whole, the developments on those lines are sensible.
I shall talk about two of the more substantive issues that emerged in the report. There was the question of shifting from the dominance test to the substantial lessening of competition; and there was the issue of due process and whether the Commission, in acting as prosecutor, judge and jury, allowed for a fair hearing. On the latter point, we on these Benches endorse the committee's conclusion that the shift to the US system, in which cases are dealt with judicially, would be a major step. It would not be necessary and would not be welcome. We endorse the committee's proposals, and, to some extent, the Commission has gone along with them.
There are ways of strengthening current procedures. The procedures needed to be more obviously objective. It was proposed to separate phases 1 and 2, and to strengthen the role of the hearing officer. Indeed, like the Commission, we should have liked to go along with the committee's proposals to have a separate review of phases 1 and 2. However, in the event, we are pleased that the Commission has gone as far as it has in proposing independent members of panels. Perhaps it has not gone as far as we might have wanted, but it is a move in the right direction.
I turn to the issue of the substantive test. I shifted my stance during the course of the committee hearings. I began by feeling strongly that the dominance test had been applied; that there was little difference between the concept of collective dominance and the

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substantial lessening of competition in relation to oligopoly; that the two could come together; and. that there was the great advantage of an established body of case law.
I changed my mind during the inquiry. I should like to explain why, and how ultimately I came down firmly in favour of the substantial lessening of competition. To economists, the case for mergers is known as the "market for managerial control". A firm can be seen as a collection of physical assets, human capital, goodwill and so forth. If a group of managers do not make the most of those assets, and that is reflected in their market capitalisation, they may be challenged in the market by another group of managers who believe that better use could be made of those assets. Thus, there are take-overs and mergers. Essentially, the case for non-interference is that the market knows best and should be allowed to decide which group of managers can make the best use of those assets.
However, a substantial body of literature now suggests that mergers do not always perform as the market predicts. In the late 1970s, the economist Ronald Meeks, wrote a seminal study on how a series of mergers worked out—or rather, how badly a series of mergers worked out. The book is entitled Disappointing Marriages. Since that time there have been a substantial number of academic studies on post-merger developments.
One of the people who addressed the hearings was Professor John Kay. I should like to quote from his evidence. He said:
"there are quite a lot of academic studies of the performance of mergers—really of several different kinds. There is looking at stock market impact; to what extent do mergers add value to the combined companies; comparisons of pre and post merger; costs and profitability: to what extent are mergers followed by disposals which are often at least an indication that this has not been very successful; and then just asking people, 'Do you think this merger has succeeded?', and the overall tenor of that quite large literature is really pretty negative. The disagreement is more whether the consequences are neutral or negative rather than how positive they are".
The dominant market structures that we face today are structures of oligopoly—competition among the few. In many ways, where there is oligopoly, there is often intense competition. One has only to look at the intense competition between Tesco and Sainsburys, the two main supermarkets within an area. But oligopoly also poses problems for monopoly control. That is seen most regularly with oil companies, the large oil companies competing intensely with each other. Yet, by a process of osmosis, prices always go up and go down at the same time. That is partly because the companies are watching each other intensely. The whole structure of oligopoly encourages what is sometimes called implicit collusion. There is no question of explicit collusion, but there is a degree of implicit collusion.
However, oligopoly has posed to all anti-trust authorities—whether they be British, American or indeed now European —a very real problem. It could be suggested that during the past 20 to 25 years there has been in Britain a shift away from national
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oligopoly. Many of the firms that we dealt with, such as GEC and ICL, were national companies and in the 1980s they became European companies. Perhaps, to an increasing extent, at that point we were faced with European oligopoly.
In the 1990s, a huge number of trans-national mergers took place and the word "globalisation" is often applied to that. Glaxo, a British company, became GlaxoWellcome. Still a British company, it finally became GlaxoSmithKline, a huge multinational company. AstraZeneca and ABB, formed in the 1980s, are large European multinationals.
One of the problems that has arisen with the push towards globalisation is that one has seen—ABB illustrates the point well—a move from family management to the development of managerial capitalism, with professional managers and perhaps accountants going in and taking over. One of the results has been the emergence of large international conglomerates in which the assets of companies are being traded around, rather in the manner of a game of Monopoly—casino capitalism. Thus, we have seen the emergence of huge companies such as Enron, TXU Energy, and so forth, who are trading assets around.
Those companies have turnovers which are often well in advance of the turnover of some small national states; namely, countries such as Estonia or Lithuania. Clearly, there are dangers. Those huge companies wield considerable political influence. The offer of foreign direct investment can mean that those companies have considerable influence on national governments. Therefore, it is of vital importance that we have within the European Union a strong measure by which we can, to some extent, hold those companies to account.
The noble Lord, Lord Brittan, said that there was by no means agreement, but those pushing for the term "substantial lessening in competition" were largely the aggrieved American partners who were fed-up at the decision made as regards GEC/Honey-well. It is clear from the evidence of the economists and those involved in the regulatory framework that they substantially endorse that view. Perhaps I may quote from Derek Morris, who felt strongly that the "substantial lessening in competition" was an important concept and a better concept than that of "collective dominance".
He said:
"imagine a set of incumbent firms in the market, perhaps a market in which there has not been any great innovation, and a new entrant appears with new technology, new ideas, new products, and it really threatens the existing companies, so one of them buys it out. It may be a very small company. It may just involve buying this particular computer specialist or whatever. It is almost impossible to apply the concept of dominance, and yet it could very effectively and substantially lessen the competition that would appear in that market. Indeed, you could have a series of such innovative entrants emerging and the incumbents just picking them off one at a time. Of course they will want themselves to develop the innovation of the new company, but their incentive to do it is very much less because to some extent they would be losing out from their pre-existing operations".

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That picks up the concept of what the economists call "contestable competition"; that what we are concerned about is the dynamics; that there is the ability for new companies to come into the market and to make their mark.
In his evidence to the Committee, John Vickers stated:
"I see the prime purpose of merger policy as to act as that basic safeguard against competitive market processes being undermined. If one takes that view, there is a sense in which one gets there in one go if one has the test in terms of substantial lessening of competition".
We on these Benches are highly sceptical about mergers and we back the SLC test because it is tougher. We believe that governments, whether at national or European level, should be tough about mergers. We are worried about the emergence of giant international companies and the power and influence they can wield.
It is vital that at the supra-national European level we have effective competition policies, including effective merger control. We are very sceptical on these Benches as to how much benefit derives from mergers. We generally take the view that competition has increased, is increasing, and should be diminished. The tougher the controls exercised, the better.
4.42 p.m.
Baroness Miller of Hendon: My Lords, I declare a former interest by reminding noble Lords of my membership of the Monopolies and Mergers Commission—now the Competition Commission—from which I resigned immediately on my elevation to your Lordships' House because of the obvious conflict of interests that could have arisen.
Having said that, I, too, thank the noble Lord, Lord Grenfell, for his presentation of his committee's report. I also congratulate the committee on the comprehensive way in which it has studied the many problems in regard to mergers within EC law, as well as on its mastery of the alphabet soup of acronyms that issues from EC jargon.
So far five very distinguished noble Lords have spoken. Four served on the committee, one as the chairman and the other three as members, and the fifth, my noble friend Lord Brittan, was not on the committee but his experience and expertise speak for themselves so he did not need to be. I make the point merely because the Minister and I are the only two speakers who were not involved in this. I find it daunting following all of those speakers, knowing very well that I shall be overtaken in due course by the Minister. That is why I am particularly grateful for the useful glossary included in the report.
The inquiry was particularly timely, coming at a moment when the Commission was facing what the Financial Times described as,
"a barrage of criticism from governments, companies and judges".
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The report that came before the European Court had rendered a judgment in two cases striking down decisions of the Commission. The committee had already completed taking evidence when a first devastating judgment was given against the Commission in the Airtours/First Choice merger case in June 2002. I wonder whether any of the committee's recommendations would have been even more vigorous than they are—indeed, whether they would have been any different—had it been able to take those judgments into account. I do not in any sense criticise the committee for what it did not and could not possibly have known, what The Times described as,
"the gung ho approach to merger controls",
of the Commission.
The European Court described the merger task force's handling of the Airtours case as,
"not being based on cogent evidence and being vitiated by a series of errors of assessment".
The Commission's response to this devastating judgment was not contrition, but a sign posted in the merger task force's Brussels' office which stated: "Merger Task Force versus the World".
This arrogant attitude was presumably supported by the Competition Commissioner, Professor Monti, who claimed that the Airtours judgment simply showed that Brussels was subject to effective external scrutiny. However, by the time the two further adverse judgments were rendered against his department he had adopted a more contrite attitude.
After admitting that the Commission had in these three cases suffered "unprecedented criticism"— which in some regimes might have resulted in his resignation—Professor Monti told the European Commission/IBA conference on EU merger control that:
"I believe that, in a certain time. with hindsight. we will say that these judgments, no matter how painful, came at a right moment. Indeed there are no doubt lessons to be learned from these judgments; in particular that the Court of First Instance is holding us to a very high standard of proof".
Let me say in passing that, in exercising a powerful quasi-judicial function, the Commission should not have needed the Court to remind it of the elementary duty of being held to a very high standard of proof.
Turning to the substance of the Commission's proposals. it seems that it is in favour of an approach that uses the market dominance test in deciding about a proposed merger, as many noble Lords have mentioned. Quite rightly, your Lordships' Select Committee takes the view that the so-called SLC test— that is, the substantial lessening of competition test—is the more appropriate criterion and one which will inevitably lead to more consistency in its decisions. Again, other nobles Lords have made that point.
That is also the view of witnesses who gave evidence to the committee, such as the TUC and Professor Kay. It is also the view of the Government and most European competition experts. Not only does the test conform to the test applied in the United States; it is also in accordance with the views of the Director-General of Fair Trading, who attacked the dominance

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test with a favourite quotation of mine. I thought my quotation would be fresh but the noble Lord on the Cross-Benches half used it earlier. It states:
"'When I use a word', Humpty Dumpty said, 'It means just what I choose it to mean, neither more nor less"'.
That is the classic definition of a subjective test, when what is required—especially in view of the dismal record of the merger task force—is an entirely objective one that can be measured by something other than a flawed opinion or a philosophical approach. Despite the overwhelming support for the purely objective SLC test from all around the world, the best that Professor Monti can propose is a kind of offer—one could call it a grudging offer—to clarify the meaning of "dominance".
It was suggested that applying the SLC test might lead to more applications being made to the Commission, but I cannot see why it should, because applications would be based on more clearly defined facts rather than on opinions. It might also concentrate the minds of the Commission on not shooting at everything in sight in a kind of Pavlovian reaction to every large merger that comes before it.
As regards a philosophical approach, I hope that your Lordships will forgive me if I digress for a moment to tell you about my own personal experience in Europe. When I expanded my successful United Kingdom mail order business into Germany, I was immediately assailed by two cases alleging that I was guilty of unfair competition. Me! Unfair competition! Noble Lords know that I would not be involved with that.
In one case it was said that I was charging too much for my goods, whereas in the other case, which came before the Kartellamt—the competition court— on exactly the same day, I was accused of unfairly competing because I was charging too little. Both cases were heard in the same court on the same day. I had to fight no fewer than 18 separate law suits before I could convince the German courts and competitors that I was there to stay, with a better mousetrap that I had built, and that I was not unfair to the consumer or to the competitor. Your Lordships will therefore understand why I view the EC's approach, with its sometimes rigid attitude to competition, with some scepticism.
The Commission is discussing procedures intended to save parties from having to make multiple applications to member states, and it is acknowledged that the current rules under Article 1(3) of the EC treaty are extremely complex and cumbersome.
The suggestion is that the new so-called "three plus" rule should be imposed—that is, when a filing is necessary in three or more member states, the Commission should have jurisdiction. Despite the fact that the committee embraces this idea, I personally— I stress that this is a personal view—have reservations for two reasons: first, because, as the Select Committee points out:
"It is possible for international transactions to affect purely national markets; in those circumstances such transactions were often better dealt with by the relevant National Competition Authority".
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Secondly, I personally doubt whether three states should be the criterion when the EL currently has 15 states, and will soon have 25. With such a multiplicity of states—some of them less commercially sophisticated than others, to put it politely, and some only recently emerging from bureaucratic regimes—applications might have to be made in circumstances where it would be simpler only to apply in those countries where the merger was actually relevant.
A higher number than three might be better. But, as ever, I defer to the committee's view, and that of the Commission, that three-plus is the correct level. I hope, however, that the level will be kept under review when it is seen how it operates in practice, since it is obvious that the greater number of applications that have to be referred to the Commission instead of the individual national committees, the greater might be the degree of interference in commercial transactions by the Commission instead of by the states that are actually involved.
The other reason for limiting the extent of EC interference in mergers is the principle of subsidiarity which the former Prime Minister, John Major, established for the benefit of the United Kingdom at the time of the Maastricht Treaty.
There may be occasions when a merger with cross-border implications is nevertheless of real concern to just one state. Let us suppose that an international airline is in serious difficulty, and suppose that the solution is either merger with another airline or for a "White Knight" to come to its rescue. This is a case where the national competition authority could be the sole judge, able to make a speedy decision rather than going through the cumbersome procedures of. the Commission, which could cause such delay that the struggling company could collapse, thereby reducing the market by one business in any case.
It would not be right simply to substitute interference from Brussels with interference from Whitehall—which is why it is right that we should have a strong Competition Commission operating in this country. The matter of the composition of the merger task force also comes into question after the debacle of the three adverse judgments. These three judgments, in the words of an article in the Financial Times of October 28th last, have:
"Laid bare a long-standing deficiency of the Merger Task Force: the lack of economic expertise".
Professor Monti is himself an economist, and it is reported in the same article that he wants to bolster the Commission's economic expertise by appointing a chief economist and several junior economists. The committee states in its report that,
"the Commission should certainly strengthen its overall capacity for economic analysis in merger cases".
I noted that, in introducing the debate, the noble Lord, Lord Grenfell, highlighted that part of the report.
Of course it is important to start the merger task force with economists and with whatever expertise it currently requires from its employees, but I suggest that it might not do any harm if some experienced business people or industrialists were involved. I mean

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no disrespect to economists, and certainly not to any economists who may be present, but George Bernard Shaw once said
"If all the economists in the world were laid end to end, they would not reach a conclusion".
It would do no harm if the task force included some successful business people and industrialists—people who have been out in the world and have created some wealth, and who have established or run businesses, and not merely people who have failed and are seeking a less demanding position—ones who, in the classic American phrase, know what it is like to meet a payroll every week or every month.
On 25th October 2002, Professor Monti suggested that the wheels of justice might be speeded up by creating a special competition court within the European Court of Justice. Far be it from me to suggest that the criticism that he recently received from the ECJ had anything to do with that particular idea. However, the idea would load more cost on to the EC. It would probably result in insistence by each of the 15 EC members—soon to be increased to 25—appointing their own competition judge and having the decisions translated into all of their national languages.
I spoke earlier of the philosophical aspects of the regulation of mergers. There is, not for the first time, a vast difference in approach between the United Kingdom and the rest of Europe. In the rest of Europe, the test of a merger can be prohibited only if it creates or strengthens a dominant position. That means that if a company is already in a dominant position, a permanent lid is put on further expansion.
The Select Committee has produced a massive and carefully reasoned report and has made no fewer than 31 recommendations to your Lordships. It is not necessary for every Member of this House to agree with every one of those recommendations for me to say, nevertheless, that the report has provided us with a great deal of food for thought and a great deal of common sense.
I can only hope that Her Majesty's Government will take the report to heart and, more importantly, will ensure that it is also given serious consideration by Brussels, which has to remember that its task is simply to ensure that there is a fair and free market in the EC.
4.57 p.m.
Lord Sainsbury of Turville: My Lords, I join other noble Lords in welcoming the report of the European Union Committee on the review of the EC Merger Regulation and I congratulate the committee and the noble Lord, Lord Grenfell, on producing an outstanding and extremely effective report. We have had an excellent debate.
The Government support the great majority of the findings and recommendations in the Select Committee's report. The committee's position on all the major issues is very close to the Government's own. We agree in particular with the report's assessment of the priority issues for the review: improving the system of internal checks and balances; changing the
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substantive test at the heart of the regime to one of "substantial lessening of competition"; and implementing a simpler, more predictable system of deciding jurisdiction based on the principle that mergers should be examined by the authority best placed to do so. Our own response to the European Commission's Green Paper focused on those three key areas.
As the House will be aware, the European Commission recently published its proposals for amendments to the merger regulation itself, which will come before the European Council for consideration in due course. I know that it considered the Select Committee's report in drawing up its proposals, and in this sense the Select Committee report has already had a very successful impact. It may be that having an impact on the Commission's view is a more satisfying outcome even than early debates on the report. The report has been extremely effective and many of its considerations have been taken on board.
I emphasise that in our view the EC Merger Regulation is a success story. I was pleased to hear the intervention of the noble Lord, Lord Brittan. He was the Commissioner responsible for competition matters when the regulation was first brought into force. He is to be congratulated on introducing a regulation which, in the 12 years since it came into force, has become embedded as one of the cornerstones of European competition law.
The Commission has responded with great success to the huge challenge of enforcing the regulation rigorously but fairly, despite an exponential increase in its caseload. As the noble Lord, Lord Grenfell, reminded us, in 1990 there were only 12 mergers notified under the regulation; in 2001 there were more than 300. I make the point because I believe that it is important to keep the system's fundamental strengths in mind when considering possible improvements to it. Having said that, the system's strengths do not mean that there is no room for improvement.
As I said earlier, we attach priority to three key issues, as did the committee. First. priority must be given to the possibility of improving the checks and balances in the EC Merger Regulation system. The results of our consultation of key UK stakeholders and the wider debate on the Green Paper indicated that this was clearly the main issue of concern to those using the ECM R system.
The European Commission has announced a number of changes to its internal working methods to address some of these concerns. We welcome its appointment of a chief economist, which should improve the quality of the economic analysis in merger cases. I would say to the noble Baroness, Lady Miller, that economic analysis is key to these cases. A high level of expertise is essential to getting them right, even if we do not always feel that the people involved understand the problems of business as we should like them to.
We welcome, too, the decision to appoint a panel to review individual cases, which should go some way to ensuring that the Commission's analysis of mergers is

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subject to robust scrutiny. We do, however, believe that there are further steps that the Commission could and should consider taking to maintain confidence in the system.
Secondly, we believe there is a clear need to reconsider the way in which jurisdiction over mergers is divided between the Commission on the one hand and the member states on the other. This is not a turf war; the question is simply whether changes to the current arrangements could improve the chances of merger cases being considered by the competition authority best placed to do the job without compromising clarity and certainty for business. We are studying carefully the Commission's proposed amendments to the relevant articles of the merger regulation and will want to ensure that they provide a rapid, predictable and effective mechanism for allocating cases to the most appropriate competition authority.
Thirdly. there is the question of the substantive test used in the assessment of mergers, which has played a prominent role in the debate. The Enterprise Act will introduce a competition test for the new UK merger regime based on the concept of a substantial lessening of competition—or SLC. We see benefits in a move to SLC in the EC Merger Regulation from the current substantive test, which is based on the different concept of "dominance". We are disappointed that, although the Commission has sought to clarify the way in which the substantive test is applied, it has not taken the opportunity to introduce an SLC test into the regulation, despite support for its introduction from a great number of respondents to the Green Paper.
An SLC test has been selected for the new UK merger regime for good reasons. It is not correct to say, as the noble Lord, Lord Brittan, said, that it is simply a question of American pressure.
Lord Britton of Spennithorne: My Lords, I did not say that.
Lord Sainsbury of Turville: My Lords, I take the point that the noble Lord did not say that the UK one was selected for that reason.
Lord Brittan of Spennithorne: My Lords, I said that the loudest voices arguing for it were the Americans', not that that was why it was introduced by the present Government or why the committee came down in its favour.
Lord Sainsbury of Turville: My Lords, I accept the noble Lord's point. I want to make it clear that there are substantial arguments, from an economist's point of view, in selecting these tests, and that they are independent from the arguments of others who may want to support that view.
We believe that the test is fundamentally better adapted to merger control than is "dominance". Its advantages lie primarily in the fact that it is more directly grounded in economic principles, thus
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providing the UK competition authorities with greater flexibility to deal with all forms of anti-competitive mergers. I agree with the noble Lord. Lord Hannay, that the introduction of SLC at European level would therefore be an important strengthening of the European competition regime.
The most important benefit, as the noble Baroness, Lady Sharp, said, would be to plug potential gaps in the dominance test in a straightforward way. That would minimise the risk of any anti-competitive mergers slipping through the Commission's net. I agree with the noble Lords, Lord 13rittan and Lord Hannay, that it would not be less restrictive. It would also bring the ECMR into line with other key international merger regimes, including that of the United States, which can only be of benefit as the importance of international co-operation in competition enforcement increases. We agree with the noble Lord, Lord St John of Bletso, that that would not lead to substantial disruption.
Such a change would not amount to a radical overhaul of the ECMR system. The current system is basically a sound one, and a move to SLC would in all probability not alter the way in which the Commission goes about its job in the great majority of cases. However, adopting SLC could bring real benefits in analysing certain types of merger. We will therefore continue to argue the case for the introduction of SLC in a revised merger regulation.
The coming months will be important in shaping the new regulation. We will be consulting stakeholders closely on the Commission's latest publications and will continue press for changes to the regulation to address UK priorities during the ongoing negotiations.
The noble Lord, Lord Grenfell, raised the question of member state jurisdiction. The Commission originally proposed in its Green Paper a system whereby mergers subject to three or more national filings would fall to the ECMR regime. The noble Baroness, Lady Miller, is incorrect to refer to the three-plus test, as the Commission has moved away from it in its revised proposals. It has made a new set of proposals, which it believes will simplify the way in which cases can be allocated to a competition authority and then, if necessary, transferred between member states and the Commission. based on amendments to articles 9 and 22 of the ECMR, including their use at a pre-notification stage. We want to consider the proposals carefully to ensure that they achieve the desired results.
Under the new proposals, the parties would approach the Commission during pre-notification discussions and request that the matter be dealt with either by them or the member states. The Commission would then work with the concerned member states before considering whether to apply a new pre-notification referral mechanism to the case. That mechanism mirrors the one in place in articles 9 and 22 but sets strict time limits in which decisions must be taken on where the case should be handled. We look forward to working with other member states during

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the negotiating phase to ensure that the mechanism leads to cases being dealt with by the best placed authorities.
The noble Lords, Lord Grenfell and Lord Brittan, raised the question whether the European merger process should include an efficiency defence. The Commission's recently published proposals make clear its view that the current regulations provide a sufficient legal basis for efficiencies to be taken into consideration. We welcome the recent publication of draft guidance on how efficiencies would be considered by the Commission.
Efficiency considerations can have a part to play in merger analysis. In a minority of cases, efficiencies may flow from a merger that actually reduces competition. A restrictive approach needs to be taken in consideration of such efficiencies, and we need to take a tough line on the issue. To be relevant to merger analysis, efficiencies must be likely to be passed on to consumers, be expected to be delivered in a reasonable time frame, and be unlikely to be achieved in the absence of a merger.
The noble Lords, Lord Brittan and Lord Hannay, raised the question of accountability. We have already made clear that we see merit in the introduction of a second pair of eyes in the ECMR system, and are pleased that the Commission has announced that it will establish review panels to consider individual cases as part of the process. However, we agree with the noble Baroness, Lady Sharp, that second case teams considering individual mergers would be even better. The ECMR system of administrative authorisation rather than judicial authorisation is appropriate and proportionate for mergers, but again there is room for improvement.
The noble Lord, Lord Grenfell, expressed concern at the Commission's resource constraints. The Government made clear in their response to the Select Committee's report that it is essential that the necessary resources are provided to maintain the effective equitable and transparent implementation of the ECM R. The Government agree that the Commission should therefore give careful consideration to the question of whether procedural improvements following the ECMR review will require the provision of additional resources to the Competition Directorate-General.
In closing, I say again that we believe that the EC merger regime has functioned very well in the vast majority of cases. Its one-stop shop approach has been a key strength and a benefit to business. In 2001 the European Commission received notification of 335 mergers, 299 of which were cleared speedily without any competition concerns needing to be addressed. Indeed, since the regime's inception in 1990 only 18 notified mergers have been prohibited.
The three recent decisions by the Court of First Instance overturning aspects of the European Commission's decisions on certain mergers are unfortunate but I do not think they mean that the whole system is inherently flawed. The review provides
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an opportunity to take stock and to improve some of the areas which it has been argued constitute weaknesses in the current system. The Government will continue to press the Commission on those areas which we have identified as important for the review: better checks and balances; improvements to the process of determining jurisdiction; and the introduction of a test based on the concept of substantial lessening of competition.
The coming months will be important in shaping the changes to the EC merger regulation and we shall be working closely with the European Commission and other member states to ensure that our priorities are reflected. We believe that the introduction of an SLC test would be an important strengthening of the European competition regime. We want a merger regime that is transparent and based on sound economic principles so that businesses can conduct their activities within a clear framework.
The Select Committee's report is a very useful contribution to the ongoing debate and our response to it illustrates how much agreement there is between the Government and the committee. The Government are grateful to all those who took part in the preparation of the report and to all those who have taken part in the debate.
5.12 p.m.
Lord Grenfell: My Lords, I thank all those who took part in the debate from both the Front and the Back Benches for their excellent contributions to what was a most interesting and well informed discussion on this important issue. I particularly appreciate the Minister's thoughtful and encouraging reply.
I wish to take up briefly two points. The noble Lord, Lord Hannay, is surely right to say that the argument over the substantive test is by no means over. It will certainly come back. My own view on that—if I may reinforce it—is that as the Commission reinforces its economic capability to look at mergers, it is likely that the dominance test will move towards the SLC in everything but name, and that it is only a question of time before this change takes place and we shall eventually move, as I hope, to the SLC.
I was interested in the point raised by the noble Lord, Lord Brittan, on the loss of jurisprudence. We recognised in our discussions that there certainly would be a short-term loss of certainty. But we also feel strongly that that can be compensated for if the Commission issues clear guidelines on how it intends to interpret an SLC test, if there is one. We believe that that would remove much of the uncertainty and compensate for a loss of jurisprudence.
The noble Baroness, Lady Miller of Hendon, suggested that it was too late for us to take Airtours into account. However, Airtours had given evidence to us so we were able to incorporate that into our conclusions. But it is a matter of record that Commissioner Monti came into his job just five days before the Airtours decision was given in court. He got rather a "bum rap", as the Americans would say, when he was hit over the head by the media for that result. I

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have known him a long time. Frankly, I consider him one of the least arrogant international civil servants that I have ever come across. I refer to subsequent cases which he lost in the courts. However, everything that we, had heard from him prior to that indicated that he was fully aware of the relevant problems and had a great determination to set things straight.
I end simply by commending the report to your Lordships' House and also to the Government as they enter the negotiations in which we wish them well. It looks as though they have some good material and the right attitude as they go into the negotiations in the Council.
On Question, Motion agreed to.

Regulatory Reform (Credit Unions) Order 2003
5.16 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey rose to move, That the draft regulatory reform order laid before the House on 16th December 2002 be approved [6th Report from the Regulatory Reform Committee].
The noble Lord said: My Lords, the Government support the valuable role that credit unions play in tackling financial exclusion and widening access to affordable credit. Their ethos of thrift and self-help, together with their ability to offer savings and affordable credit, particularly for those with modest means, have enabled them to extend the availability of basic financial services to parts of our society that are often ignored by other providers. I believe that this order will play a part in strengthening the position of credit unions into the future. This order also supports this Government's commitment to regulatory reform and reducing the burdens that firms face in financial and retail markets.
The order is designed to increase the operational flexibility of credit unions. I shall briefly outline the three separate proposals by which the order seeks to achieve this increased flexibility. First, it will allow credit unions to charge fees to their members for providing ancillary services. Existing legislation does not prevent credit unions from offering ancillary services to their members. However, there is an absence of explicit powers for them to charge for such services. The order will give legal certainty that credit unions can charge for certain ancillary services, such as direct debit and money transmission services.
We believe that the ability to recover costs of ancillary services will encourage more credit unions to offer such services—currently where they are offered, credit unions tend to spread the costs of providing this service across the whole membership. Greater provision of these services will increase choice for credit union members. I should also make clear that the order will only permit credit unions to charge a fee to cover the cost of providing the service in question; credit unions will not be able to make a profit from providing ancillary services.
Secondly, the order increases the range of combinations of common bonds. There is a requirement on credit union members to meet a specific qualification to be eligible to join and therefore form what is called a common bond. The legislation sets out some permitted common bond qualifications. The list has grown over the years and this amendment would facilitate certain combinations of common bonds that are currently not permitted. For example, it would allow credit unions to admit members linked by association (for example, belonging to the same organisation or living in the same neighbourhood) and certain other permitted qualifications. To give a precise example, the order would allow a credit union with a common bond based on membership at a particular church or place of worship to join forces and merge with one which served the local borough or community. The proposal allows new credit unions or credit unions which wish to merge to adopt a wider common bond of membership.
Finally, the order will also allow action to be taken against persons using the name "credit union" inappropriately. The 1979 Act sets out the rules governing the use of the name "credit union" which have never been brought into force because they would have had unintended consequences. For example, it would have prevented US credit unions from representing themselves at conferences or conventions in the United Kingdom without facing the risk of prosecution. The order aims to remove those unintended consequences so that provisions can be brought into force to protect the use of the name "credit union" and thereby protect the reputation of the movement.
The impetus for the order came from a package of seven deregulatory measures that the Treasury brought forward to complement the Financial Services Authority's new regulatory regime for credit unions, introduced on 2nd July 2002. The Treasury consulted widely on the seven proposals and received significant—in fact, almost unanimous— support for them. Four of the seven proposals have already been implemented through the Financial Services Authority's rule-making powers. The order is necessary to bring into force the remaining three proposals.
The Select Committee on Delegated Powers and Regulatory Reform concluded that, within the meaning of the Regulatory Reform Act 2001, the proposals would reduce the burdens that the Treasury had identified, maintain necessary protections, not prevent the continuing exercise of existing rights and freedoms, and achieve a fair balance. I thank the members of the committee for the time that they spent scrutinising the proposals, and for recommending the order to the House. I confirm that the order conforms with the European Convention on Human Rights.
The relevant committee in another place also considered that the proposals reduced burdens, and the order was unanimously approved there. I commend the order to the House.
Moved, That the draft regulatory reform order laid before the House on 16th December 2002 be approved [6th Report from the Regulatory Reform Committee].—(Lord McIntosh of Haringey.)
5.21 p.m.
Baroness Wilcox: My Lords, I thank the Minister for his detailed description of this proposal for the order. New to the Front Bench as a shadow Treasury spokesman, I now have my first opportunity to respond to a proposal for a draft regulatory reform, so I am delighted to speak on credit unions, a subject that I know well and on which I am passionately keen.
While chairman of the National Consumer Council, whose job it is to represent consumers with a special brief to represent the voice of the disadvantaged consumer, I was privileged to lead its campaign in the 1990s to encourage the formation of credit unions. We wanted to popularise them in this country as a means of saving and loans, particularly for people on very low incomes who often had no access to credit, other than loan sharks who charged huge interest rates that they often could not meet, which caused misery and despair.
I am heartened to note that between 650 and 700 credit unions are registered in Britain. Last year, membership exceeded 325,000 people. The Conservative Party wishes to do all it can to encourage valid credit unions and the self-help service that they mutually provide. Therefore, along with the Select Committee on Delegated Powers and Regulatory Reform of this House and the Select Committee on Regulatory Reform in another place, we want to support the order.
As we understand it—the Minister described it so well—the order will enable credit unions to charge for the provision of services such as bill payments on a cost-recovery basis. It will increase the range of combinations of the common bonds, and will establish appropriate regulation on the use of the name "credit union", thereby enabling action to be taken against persons using the name inappropriately. We, and I especially, support the regulatory reform.
5.24 p.m.
Lord Newby: My Lords, I begin by welcoming the noble Baroness, Lady Wilcox, to Treasury debates. We look forward to many further speeches from her on similar occasions. I join her and the Minister in underscoring our support for the good work undertaken by credit unions. Recent publicity about the levels of interest charged on loans to extremely vulnerable members of society by bodies other than credit unions has demonstrated how difficult it is in many cases for those who do not have bank accounts and credit cards to get credit on a fair basis. The credit unions offer an alternative that is more satisfactory in virtually every way.
I have watched at some distance the attempts to create a credit union in Lambeth. From that, I know that creating one is extremely difficult. The rules are
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complicated, and the requirements strict and inflexible. Although that is sensible and good in many respects, when one gets into the financial affairs of people, there is always a risk that those who are unscrupulous will try to take advantage of it. At present, however, the balance is almost too heavily weighted towards prudence. The changes, especially the first two and possibly in the range of combinations allowed within the meaning of "credit union'', will be welcomed by people who are trying to fit their group of people who want to form a credit union into a "credit union" straitjacket.
I have only one question for the Minister. I know that the FSA and the Treasury have looked at slightly loosening the straitjacket, and several measures that he mentioned will be very welcome. However, I wonder whether the order is the end of the process? Is there a sense that the balance is now right, or will the FSA keep the question under review? Despite the ever-increasing proportion of the population that has access to conventional bank accounts and credit, credit unions will clearly continue to play a major part for the vulnerable and poorer sections of society well into the future. I would welcome any comment that he might have about whether the order is the end of the process, or whether there may be a further look to see whether it might be even more straightforward to set up such estimable organisations.
5.27 p.m.
Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords for the way in which they received the order. I am particularly glad that the noble Baroness, Lady Wilcox, is on the Opposition Front Bench dealing with Treasury questions. She may be new to that position but she certainly knows more about credit unions, I should think, than anyone else in the House. Her support for the order is very welcome.
I was trying to cut down on what I was saying so I did not go into the four aspects of the regulation of credit unions which were dealt with last year using the rule-making powers of the Financial Services Authority. Those were: allowing credit unions to borrow money from existing sources other than authorised banks and other credit unions; allowing credit unions to differentiate between certain accounts by paying dividends at different rates and to pay dividends more than once a year; changing the minimum coverage requirements for fidelity bonds; and allowing credit unions to offer up accounts that may be held in the name of more than one member. Those are significant reductions which the FSA was able to do off its own bat, so to speak, without requiring parliamentary approval.
My point in response to the noble Lord, Lord Newby, is that credit unions have not yet started to take up the changes that were made last July. That does not mean that those changes are not welcome and will not be taken up, but credit unions must change their own rules first. The Association of British Credit Unions and other promoting bodies are encouraging them to do that. That means that we perhaps need a short pause to allow all of the seven deregulatory

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measures to take effect before we introduce further changes. We do not really want a permanent revolution, in the Trotskyite sense, in the credit union movement.
We do not see this approach as the end of the process. We will continue to talk to the movement to see whether we can help it. If the group of people from Lambeth to whom the noble Lord, Lord Newby, referred would like to write to the Treasury about the matter, I am sure that that could be taken into account in any coming round of further deregulation. The noble Lord and the noble Baroness, Lady Wilcox,
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were entirely right to say that these credit unions provide something that is particularly important in these days, when loan sharks are only too common. One only has to read otherwise reputable newspapers to see the sort of offers that are being made. Even with the rules about advertising credit, some people are still clearly exploiting the vulnerable, and credit unions can help to prevent that. On that basis, I commend the order to the House.
On Question, Motion agreed to.
House adjourned at half-past five o'clock.