Lords Sitting of 14 March 2003

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

Microchips
11.6 a.m.
Lord Wade of Chorltonrose to move, That this House takes note of the report of the Science and Technology Committee, Chips for Everything: Britain's opportunities in a key global market (2nd Report, HL Paper 13).
The noble Lord said: My Lords, it gives me great pleasure to present to noble Lords the report of the Science and Technology Select Committee, Chips for Everything, on the future of microprocessing. The world has seen the dramatic impact of this new technology, which is only some 50 years old and has now created one of the largest industries in the world. It employs many thousands of people throughout the world and has created much wealth and opportunity in recent years. We have now looked at the industry and identified some of the opportunities that it presents for the UK, particularly for our own industry and wealth creation.
I am aware that we are presenting the report before having received the Government's response to it, which is not the usual procedure. But we felt that it was important to bring before your Lordships' House the findings of the report and to open discussion on the issues before the Government presented their response. So there is no criticism of the Government for not responding to the report before we debated it. Unusually, our report made recommendations not just to the Government but to industry, particularly the finance industry. We deal not only with issues relating to the manufacture of microchips but the importance of having a financial structure that allows new ideas to come forward and be promoted, to be funded and to prosper.
I thank the Select Committee under the chairmanship of the noble Lord, Lord Oxburgh, for allowing me to chair the sub-committee. We had some splendid Select Committee members, to whom I am extremely grateful for their work and effort in producing this interesting report, which I hope noble Lords will find readable. The sub-committee also comprised some co-opted members. I am particularly grateful for the time, effort and work that they contributed to support the report. A wide range of experts from all aspects of the industry assisted us by giving evidence. We are grateful to them for their time and effort. I was particularly pleased to have the help of our specialist adviser, Professor Steve Furber, of the University of Manchester Department of Computer Science, whom I am delighted to see is in the House
1570
today. Our Clerk, Roger Morgan, was of enormous assistance, and I am extremely grateful for the personal help that he gave me.
I shall outline some of the issues that occurred to me as we went through the report. I do not have a scientific background but I have now learnt more about the industry than I ever thought I needed to know. It was a great eye-opener to be introduced to something that, on the surface, was extremely complicated, but, as we took evidence, started to emerge as an interesting picture of how the technology develops, its opportunities and structure, which leads us a long way towards learning lessons for other aspects of new technologies and ideas that we develop in our country.
The process started with a presentation to the Select Committee by Professor John Enderby of the Royal Society, who presented the concept that the basis of CMOS technology—the present method of manufacturing computer chips—had doubled its capacity every 18 months for around 40 years now. He explained Moore's law. Mr Moore, a co-founder of Intel, made a speech in 1965 predicting that over the next 20 years computer speed would probably double some every 18 months because of the technology to create more transistors on one silicon chip. That has continued for much longer than Mr Moore suggested. The improvement of the ability to make smaller and smaller components to create microchips has continued at such a pace that now a piece of silicon as big as a thumbnail contains many millions of transistors, each with its own significant characteristics and ability to take part in calculations that we now learn are so enormously quick.
Professor Enderby also made the point that as things were made increasingly smaller their characteristics changed, and that scientists could now see the limits to which miniaturisation would continue. He said that once those limits were reached, CMOS technology could not continue to create greater computer speeds and capacity. Scientists estimate a time of 10 to 15 years. The reason why that barrier will be reached is that, as we make the components smaller and smaller, they come down to atoms. One of Ole presenters, Dr Cowburn, made the point to us that a twentieth of a fruitcake is still a piece of fruitcake but a thousandth of a fruitcake is a currant. As we come down to a smaller and smaller unit, its characteristics change. As those characteristics change, they no longer apply the same capacity as they do when they are a little larger.
Dr Cowburn made the point that the continuing development of Moore's law would reach a barrier, which would mean that, in order to continue the development of computer technology, we would need to develop other devices. He presented to us the fact that, in the UK, there was a certain amount of research going on throughout the research departments but that they were not sufficiently co-ordinated or focused for the UK to take advantage of new developments created in those research activities. He put it to us that it would be interesting to investigate the various activities to see how they could be better co-ordinated, so that the UK could take full advantage of any new

1571
developments in the devices that we might be working on. That was the basis of our inquiry. We were considering what are known as alternative chip technologies.
As we considered that, the first thing that struck us was the fact that, in the UK, we no longer have any major chip-manufacturing capacity. The largest manufacturer in the world is Intel, and most of its chips are made in the Far East. We were developers of chip technology 20 or 30 years ago, but we no longer have the size of industry capable of putting large investments into that area. It now costs about 2 billion dollars to develop a chip-manufacturing capacity. We were given information that, in the next 10 or 20 years, the cost could rise to hundreds of billions of dollars—a staggering figure—and that our industry was not likely to be geared up to such development.
We had strengths in nanotechnology, however. It is an important aspect of the development of new technologies, lithography and metrology. We were impressed by the National Physical Laboratory, where a great deal of excellent work is being done on metrology, which is the measurement of physical activities. It is important to have precise measurement technologies for those small particles, which are, as I said, only atoms thick. We saw incredible experiments being carried out there. We were pleased that, following our report, which suggested that it had probably not fully utilised the commercial potential of what it was doing, the laboratory opened up contacts in the United States and in Europe with other organisations to develop the work done at the laboratory.
As we considered that aspect, we concluded that, although it was important for government closely to monitor work on new devices, that was probably not the most important thing for the development of the UK economy. As noble Lords can imagine, we may manufacture the devices—the small components—but computers must be assembled, given information and told how to work and give the answers. We must decide how to put the question in and get the answer out. All that comes under the heading of design and architecture. In the UK, we have tremendous, diverse skills in that area. We are at the forefront of the design of many important microchips. The company ARM produces three-quarters of the microchips that go into mobile telephones; it does not make them, but it designs them. We identified a large number of skills that could be utilised.
That moved us away from considering how the UK could get new devices to considering how we could use our skills to play an important role in the worldwide industry and get involved in the design and architecture of new computers. We spent more and more time on that area, as our investigation developed.
I shall give the House a taste of what, we learnt, is possible with new technologies. In our report, it comes under the heading "Networking and applications". We went to California, where we were introduced to a company that had been established by bringing
1572
together the city of San Francisco, the universities in California and a large group from industry. Together, they deposited some 200 million dollars into a pot.
Subsequently the group decided to bring in a research team and gave it the challenge of producing a new and small sensor. Within two years, it developed a substance called "smart dust". A piece of smart dust is about the size of the end of my little finger. It can be scattered over a wide area—in fact, it was scattered from an aeroplane flying over San Francisco. As the smart dust lay on the ground, it pulled in energy and communicated using wireless technology. The smart dust sensed a whole range of matter in the locality. It can do only one task at a time, but the possibilities for it to do more than one is enormous. It can sense how noise changes in an area or how pollution in the atmosphere changes.
That type of system, using small microchip technologies, to create an understanding of a much wider environment resulted in the next stage of development. It identified a change in the use of computing—namely, "ambient" computing. In using a computer, a person would no longer merely sit in front of it and work. The facilities of the computer would be managed on their own. A network of information would be created. Therefore, there could be a number of ambient computers in the Chamber that could identify many different aspects about us.
A toilet bowl has been developed which will automatically test a person's health whenever it is used. Noble Lords may laugh—but, by God, we may need it one day. That creates a completely different picture of how the role of computing in our lives will change. It will come from our ability to understand design and architecture and how the tremendous technology which has evolved during the past 50 years can be utilised.
Technological advances will move us from being the manager of our computer to a situation in which the computer has a life of its own and will develop its own activities from which we shall then benefit. That will need a change in attitude, which will come from succeeding generations, and from technological development, in which we are already major leaders.
I turn to the next important stage. In order for those developments to occur, we do not need only the technological development, we need the business and financial structure that will encourage and understand the new technologies. The knowledge and involvement of the financial and industrial world with these new technological opportunities differed greatly between the UK and the US. In America, it is impressive how closely business and industry work together. There is an understanding already, within the financial, venture capital, manufacturing and industrial world, of what is taking place in new technology. Therefore, it is not a sudden shock when a new entrepreneur knocks on the door and says that he has an idea that will change the world.
We should like to see a much closer relationship between finance, industry, research and technology. We should like the Government to take initiatives to

1573
create centres of excellence where these areas can be pulled together. We would like more positive steps to be taken in understanding how nanotechnologies, the centres being created, and the role of the regional development agencies in creating regional systems, can suddenly make a big impact on how the various activities can he brought together.
My time is up. During the debate noble Lords will hear from more expert members of the committee. They will help your Lordships to understand more fundamentally the technology involved. The message with which I should like to end is that I came to the report knowing little about what was involved. Listening to experts, listening to industry and studying the whole concept of how these technologies will change our lives, we should be making an enormous mistake if, as a nation, we did not realise the importance of these developments. The microchip industry will be one of the great industries of the coming century. It will create opportunities and benefits to people in all types of fields which no one dreamt of—and which no one is dreaming about now. Most of what will happen is beyond our comprehension. But that makes it more exciting and more important.
As I have sat in this House during the years, I have been most concerned at the resistance, in many areas, against new technologies, new opportunities and new developments. The excitement of the future has not been embraced, but continually it has been said that the past must be maintained.
I do not believe that. Everything is driven by innovation, excitement, investment and the ability of people to face the future with great confidence. I am not worried. I am excited. I hope that we shall embrace it and that the Government, industry and the financial world will be able to come together and grasp these opportunities. I beg to move.
Moved. That this House takes note of the report of the Science and Technology Committee, chips for Everything: Britain's opportunities in a key global market (2nd Report, HL. Paper 13).—(Lord Wade of Chorlton.)
11.26 a.m.
Lord Hunt of Chesterton: My Lords, it is a pleasure to follow the noble Lord, Lord Wade, who gave an excellent description of science and technology. I shall riot attempt to rival that, but will focus on some of the broader issues that emerged in this important report. The report concerns a key aspect of government policy for our whole future economy and our lives—very intimately, as implied by the noble Lord, Lord Wade—as well as our science and technology.
My qualifications are that I made my own radio set when I was 15 years-old. Subsequently, I did a few other things and I set up a small company. Therefore, I know a little about running a company. I ran a government agency and I was president of the Institute of Mathematics and its Applications, which is an important part of this issue.
Microchips are a remarkable application of physics—quantum and classical physics. In fact, the current solid state physics community continues to
1574
quote a paper written by my grandfather in 1906 on waves propagating through inhomogeneous media. Therefore, the science is not all up to date and basic physics is part of that. The subject also involves manufacturing, technology and electrical engineering. As the noble Lord, Lord Wade, implied, there are limitless opportunities for the application of microchip technology connected to society—for measuring, information handling and applying the data to information and control processes.
The question addressed by the committee was how to ensure the future strength of UK science and technology research into chip technology and how to promote effective application by UK industry. I should like to emphasise and amplify some of the major points of the report. We were impressed by the science and technology commitment of the Government. They have invested considerably during the past few years. Any comments I make are made within that context.
The summary emphasises that the optimum route map for the future is not clear. It is therefore essential not necessarily to pick particular winners or particular strategies now, but to ensure a strong science and technology research effort to cover all the main possible avenues. Therefore, it is necessary to have a flexible and innovative approach by government and industry to the exploitation and developments as they occur.
Paragraph 7.25 of the report states that computing technology requires the close working of electrical engineering, computer science and physics. In future, medicine and many more disciplines will be involved. It was recognised that universities and institutions co-ordinate some of these aspects but not all of them. The co-ordination is not as effective as it should be and, in particular, is not as effective as it should be across the country. That is why some of the particular suggestions of institutes around the country are so important. New specialist institutes at universities may be required. They will require strong leadership and industrial involvement.
I hope that the Minister will recall his remarks in an earlier debate on his White Paper on science and technology, when it was pointed out—and he endorsed it—that practical applications stimulate fundamental research as much as vice versa. In other words, as one slightly disaffected industrialist commented, the academics need to listen to the industry just as much as the scientists need to preach about their results to industry.
Interdisciplinary working is a major feature and interdisciplinary centres will be as exciting in this field as I have seen in the past 10 years in climate change. Interestingly, climate change was such a success because it began from the top with a 45-minute speech from Mrs Thatcher at the United Nations. We do not suggest that Tony Blair should talk for 45 minutes on microchips, but Mrs Thatcher's speech had a big impact on the drive for a co-ordinated UK role. Leadership at the top is therefore essential!, recognising that this is at the heart of the future of science and technology and its application in the UK.

1575
The evidence given by the officials from the DTI and the OST indicated that they recognise that priority but are only gingerly pushing a top-down agenda in the Engineering and Physical Research Council, indicated on page 5 of the evidence.
Evidence was also given about the importance of international comparisons and collaboration. It is essential that when we establish large projects—as I hope we will in this area—they should be reviewed and co-ordinated internationally. In some areas of funding by research councils, concern has been expressed by both UK and even European colleagues as to whether there is as effective an international critiquing as is required. That is important.
Another way to ensure that policies and opportunities for developing the science and technology in this field are kept continually under review is to devolve a wide range of societies and industry; for example, industry through the Foresight initiative. I hope that the Minister will endorse the recent House of Commons Select Committee recommendation of last July that more effort should be made by research councils and government to encourage and consult scientific societies, with their extensive membership, about new policies and about the critical issues of providing training and sufficient manpower.
As regards manpower, it is clear in Chapter 9 that there is a problem about the requisite number of well-trained, top-class mathematicians and physicists. The committee heard strong evidence from Sir Robin Saxby about the problem. He almost threw up his hands during evidence, as can be seen in the report.
However, a new government report by Professor Adrian Smith focuses on mathematical education in schools. It is good news that the new Secretary of State studied mathematics at Cambridge—if only for one year—and that he realises the critical need for mathematics education for everyone. It is probably the only part of the school curriculum that requires logical thinking—now that we have dropped Latin. The key to software writing is abstract and logical thinking, an aspect of mathematics that is as important as computing numbers.
My second main theme concerns the recommendations (a) and (p) in the summary: that the Government need to use their own procurement intelligently to promote the microchip industry and develop more world-beating products. As the evidence on pages 6 to 10 of the report show, the committee had considerable difficulty in extracting a strategic view from our DTI officials about how the Government should be a major player. They mainly emphasised their role in helping UK industry with trade promotion and developing links with large overseas companies.
I hope that the Minister will recognise that with government expenditure of perhaps £100 billion a year on the NHS and £25 billion of defence, there is huge scope for innovative chip technology in communications, energy, transport systems and
1576
biotechnology. Yesterday's New York Herald Tribune, which I recommend noble Lords to read, reported that the Italian clothing company Benetton sees the advantage of putting a rice-grain size microchip in all its latest clothes. If it sees the advantage of that, for whatever its purposes, surely the NHS will find similar applications for many of its critical medical supplies that need tracking and replacing—the reason why Benetton is taking this action. Will the Minister be using the Office of Government Commerce, which guides the Government's procurement—we did not know about the office when we wrote the report—to use UK technology as effectively as possible?

In the recent issue of Science in Parliament, a professor at University College London regretted the absence of large government industrial laboratories, such as exist in the United States and Japan. They are unlikely to emerge in the near future, so the purchasing and stimulation policy by government is the main tool available to Her Majesty's Government in this field. Is the Minister aware that there are no scientific or engineering representatives on the board of the Office of Government Commerce? Surely that is an oversight.
The report in paragraphs 10.12 to 10.20 emphasises the importance of setting up small companies to exploit new technology. I have a little experience in that field with colleagues in Cambridge. Our small company of software consultants, set up 17 years ago, is still going strong. That experience has confirmed the opinion of many industrialists who approached me when I was running a government agency that the UK Government could do considerably more to help small businesses grow through contracts and trade promotion; for example, as other countries do by using government web pages to publicise approved contractors. Is the statement of the DTI on page 7 of the evidence to be implemented? It states:
"The kind of recommendations that we are likely to make in this area [small companies] say if you want to get small or new companies started up on an exploitation area, you need not only to do the research, you also need to support them while they experiment with whether or not they can build this new kind of device in reasonable quantities, quality, reliability, price and so on and get to the point where a potential user or employer or customer says, 'Okay, it looks as if you can solve my problem.""
I do not want to sound critical because I believe that the UK has a flourishing science, engineering and business culture supported by a forward-looking Government. I see that because I often visit the Continent and I think that the UK is the place to be. But given the huge, once-in-a-lifetime investments now going into the public services, it is essential that they are used to maximum effect to build up world-class UK research and industry in this vital area of technology.
11.37 a.m.
The Earl of Erroll: My Lords, I thank the noble Lord, Lord Wade of Chorlton, and the Science and Technology Committee for a thorough and fascinating report. I cannot contribute a huge amount, but I want to comment on a couple of points from

1577
personal experience. Although I do not come from the microchip design world, for most of my life I have written software and developed software systems and database management. I often tried to persuade clients to wait for Moore's law to take effect. I tried not to offer everything they wanted tomorrow, but to produce something useful in the real world and wait for technology to catch up six months later when they could have the next 20 per cent and move their targets forward.
I have experience of developing new applications. I have therefore been involved with people who put "risk money" into producing something for the marketplace which may or may not succeed. One of the problems is attracting money to such applications, because they can be highly unattractive. It can often be more profitable to take something that has been developed, the risk therefore having been taken, pick up the business or IPR cheaply and then make money out of producing the product.
I discovered that different skills are involved in producing a marketable product which will generate money and original green-field or blue-sky development. I do not know whether the law has changed, but when I was head of development at GiroVend, working on smart cards, we were not allowed to capitalise all the software and programming work that we did. That did not help at all. I was given the job because the previous holder who had been there for two years had undertaken a great deal of research, spending a couple of million pounds, without producing a product. The board said that they could not afford that for much longer and I came along and we produced a product a year later because of a different remit. In industry, it is difficult to justify the funding of blue-sky development, particularly when someone else comes along and benefits from your work.
Many of the problems come down to money—an issue on which I wish to comment—and Chapters 7 and 8 of the report are very interesting in that regard. I also learnt a great deal from the rest of the report.
As the noble Lord, Lord Hunt of Chesterton, said, the initiative to bring together different disciplines is very important. Some people are very good at focusing on one area, but to produce something useful from their efforts very often necessitates bringing different disciplines together. The memorandum by British Airways made an interesting comment on that issue in the report.
There are some interesting ideas in Chapter 8. The report states that we should beware of creating new organisations. That is a relevant factor. We must be careful about creating new empires which absorb more money on administration than ends up at the sharp end.
Another difficulty is that where you have people with what might be called "conventional" wisdom reviewing new ideas—even if that wisdom is only a few years old—because the boundaries of science are always being pushed forward, you can end up in a position where some new, very innovative ideas are not funded.
1578
It is interesting to note how few new ideas are being picked up and pushed forward. The comment in Chapter 8.16 that,
"There is scepticism in some circles that microelectronic system design is a valid academic research topic",
illustrates the state of mind that can exist. These matters of opinion can inhibit further research.
Chapters 7 and 8 deal with funding. I know from personal experience in the past that this is important on an industry basis. I was talking to someone yesterday about the problems of the stock market funding projects. Companies are desperate to keep their share prices up, particularly when there is a downturn in the economy. They have to achieve quick wins and therefore investment in longer-term research may well be abandoned.
It is not in the interest of a board to be vulnerable to a take-over, where its members will probably be heaved out and a new lot come in and benefit from what they have done in the past. Vulnerability to a volatile market can inhibit investment in research.
I do not know how to get round the problem; I merely point it out as one of the challenges that we face. I hugely respect those companies which take the longer-term view and continue to fund development through a bad period. It is a view which is not fashionable at the moment in many sections of industry.
I wish to comment on the issue of applying for EU funding. I have been involved in a couple of ventures where we have spoken about such funding. In both cases we said, "Oh God, it is far too complicated. We have to join with all these other countries, it is quite costly and there is no certainty that you will get anything. Basically, big companies can fund that kind of venture, but if you are a small company forget it". I do not know whether or not that is right, but it is an image that is out there. I suspect that there is a large amount of truth in it. You have to know your way around Brussels and its bureaucracy to decide whether or not it is worth going for framework moneys.
I shall refer also to procurement. I declare an interest as a partner in a procurement consultancy. We are advising some local government people on the e-procurement targets for 2005. One of the problems of going into large-scale government procurement is that there is a danger of inhibiting the growth of SMEs and microbusinesses. Many innovative ideas come out of very small businesses, and it may be only one genius producing them. I am not talking about academics and universities. A great deal is done by people working outside that framework and we must be very careful that we do not kill them off.
My final comment takes me back to the 1960s, when my parents were discussing the brain drain. This issue relates to Chapter 9 and concerns salaries and so on. Ultimately, most of us work to have some kind of a lifestyle. We may have a family dependent on our income. We may be a two-income family, but every bit of income is desperately important these days. When taxes rise too high people are attracted to going abroad to lower-tax regimes. The danger of what is happening

1579
in the taxation area in Britain is that it could well create another 1960s brain drain situation, where foreign universities, academic establishments and industries could pick up our brightest brains extremely easily. It is very easy to move around in a global economy and to communicate with people in the rest of the world—I also have businesses abroad which I run over the Internet—and if we go to a high-tax economy we will see the brain drain starting again. We should be very careful about that.
11.45 a.m.
Lord Freeman: My Lords, I am sure that all noble Lords will join the noble Earl in congratulating my noble friend Lord Wade on both his speech and his chairmanship of the committee. The energy, enthusiasm and clarity that he brought to his excellent speech is much to be commended. He reminds me very much of the David Attenborough of the microchip industry.
My contribution will concentrate specifically on Chapter 10 of the report. I am not a scientist; I am a businessman. When the Minister replies to the debate, I shall be interested to learn what is the Government's approach to the recommendations in regard to trying to improve the exploitation of innovative technological ideas in the commercial world, which is what Chapter 10 is essentially about.
Although the recommendations are specific to the microprocessing industry, they are of general relevance to the exploitation of high technology in British industry. I shall refer not only to spin-outs from universities but to start-up projects in the private sector of industry.
There is clear evidence in the report that in the field of information technology we are not doing enough in this country to exploit innovative ideas. We are not doing badly, but we could do better. I suspect that the Government share that general conclusion, which is one of the reasons for the announcement of recent initiatives, about which we shall doubtless hear more from the Minister in due course.
I draw your Lordships' attention to the conclusions reached by the Association of Technology Entrepreneurs, a body consisting of young entrepreneurs involved principally in start-ups rather than spin-outs from universities. The association's general conclusion, and the evidence it presents to the world, is that it is very difficult to raise funding and that sometimes it is difficult to get the right managerial support for initiatives. I shall come later to one or two of the report's recommendations in that regard.
In this country there is no shortage of good innovative ideas in the fields of microprocessing and high technology. We have some of the best research universities in the world. There is no shortage of capital in the United Kingdom, although there is a funding gap for the development of young companies. There is no shortage of management or entrepreneurial skills in the United Kingdom, but somehow these great skills do not come together as well as they should to exploit high technology.
1580
As my noble friend Lord Wade clearly explained, these various assets—money, ideas and management skills—come together in Silicon Valley in the United States, where the community seems to coalesce extremely well. The academics, the entrepreneurs and the financiers talk to each other; they are proximate to each other; they live in each other's houses. But this does not seem to happen as well in this country.
Incidentally, in France it happens in a way similar to the United States, although it is structurally different. At the very senior levels of government, politics, business and industry, there is a much closer communication and networking between senior people. That does not seem to happen to the same extent in this country.
We are still risk averse in this country towards new ideas and their exploitation. We are afraid of failure. The noble Lord, Lord Wade, drew our attention to the fact that, in the United States, trying an idea but genuinely failing—not because of fraud or malpractice, but simply because the idea turns out to be inapplicable—is not a cause for self-blame or blame by the community as a whole. I am pleased with the recent legislation introduced by the Government in an attempt to decriminalise in the minds of many people the problems of insolvent companies and bankrupt individuals. Very often, such events occur for genuine reasons and are merely a case of bad luck or bad judgment. They are not criminal matters.
For every 10 ideas coming out of a major university such as Oxford or Cambridge, or Imperial College, only one or two may be outstanding successes. The rest may be dogs; they may be failures. We have to employ the same approach to risk-taking in exploiting new ideas as exists in the academic world.
Three specific problems need to be addressed. The first is the cultural gap to which I have alluded—the gap between the experience, knowledge and practice in our universities and the business community. We need to take more initiatives to bring our universities and the business world closer together. The Government have announced the higher education and innovation fund, which sounds excellent in theory. It would be helpful to know a little more about how, for non-research-intensive universities, the fund can be made to encourage the exploitation of new ideas and bridge the gap between universities and the business world.
The second is the funding gap. The committee heard evidence from a number of individuals that there seems to be a gap between ideas, particularly in universities, which are financed in the early stage by university challenge funds or perhaps by the friends and families of academics, and the point when venture capitalists begin to take an interest—for example, when the project needs £10 million or £20 million. A gap exists, between a funding level of about half a million pounds and the £10 million funding level, where there does not seem to be sufficient institutional interest in backing new ideas. That is certainly the case in the microprocessing industry.
I believe that the solution is to try to bring the public sector—possibly through regional development agencies, as suggested by the noble Lord, Lord

1581
Wade—together with the universities and with the venture capital industry, in order to pool their knowledge and experience, but also to pool the risk. We need some lateral thinking on how to solve the problem of how we encourage young entrepreneurs, both spinning out from universities and starting up new companies.
Finally, there is a problem that we heard repeated several times in evidence which may be termed the management advisory gap. If we are to exploit new ideas, in terms of newly formed companies, we need skills that are not usually found in universities: marketing, finance, and strategic planning; a chairman will be needed, and sometimes a chief executive. Very often, researchers coming from universities who want to follow their own ideas in a company that they have founded might not have those skills. For new start-ups outside universities, similar skills are needed, and are sometimes impossible to obtain.
Therefore, perhaps at the regional level, we need to build up a network of people who could help to develop new high-tech ideas. They may be semi-retired or retired and may have specific expertise that they are willing to contribute to new companies.
In replying, will the Minister be kind enough to indicate whether the recommendation in paragraph 10.20 of the report is to be accepted? It is a brief recommendation. It may be helpful to the Minister and to the House if I repeat it:
"we recommend that the DTI should consult Universities UK, the British Venture Capital Association, the CBI and the Institute of Directors to ascertain: the nature and extent of the funding gap identified by a number of our witnesses; the lack of suitable managerial skills available to new high-technology companies; and such companies' other support needs".
I believe that the report contains correct conclusions and recommendations. I look forward to the Minister's comments.
11.55 a.m.
Lord Mitchell: My Lords, I, too, thank the noble Lord, Lord Wade of Chorlton, for introducing the debate. It was a privilege to be part of the sub-committee investigating the micro-processing industry, an experience made even better by the sometimes deft, sometimes forceful way in which our chairman steered us to completing this excellent report.
There were many distinguished scientists on the sub-committee. We visited many eminent people operating in this specialist field. Your Lordships will understand that there were many times when the scientists were drawn into esoteric debates which they relished; but it was always the noble Lord, Lord Wade, who dragged us back to reality. His focus was always on the taxpayer and the customer: if you cannot sell it, then what is the point?
I also extend my thanks to fellow noble Lords on the sub-committee. We got to know each other well and worked hard together. I certainly learnt a lot and enjoyed working with talented and experienced colleagues.
1582
My friends say of me that, if you cut my veins, I will bleed zeros and ones. There is some truth in that. I started work in what was then called the data processing industry in 1967. In those days we had hard-wired accounting machines, used punch cards and were amazed when the first 32k computer was produced for the commercial market. Those machines were fitted into air-conditioned machine rooms and were permanently attended by computer technicians.
Yesterday, in a Select Committee meeting, I sat next to my noble friend Lord Winston, who is the proud owner of the latest and very beautiful Apple laptop. This machine contains a hard disk with a 60 gigabyte capacity. On such memories, users can store music, film clips, computer aided design and research documents—a far cry from the 1960s when every byte of memory was precious. We have come a long way.
I wish to address two areas of the Chips for Everything report that particularly interest me: the skills need and the financing need. I drive a pretty fancy car. It will surprise no one who knows me that it is full of every kind of gadget known to mankind. GPS navigation not only talks to me but ensures that I never get lost. I can dial a telephone number by speaking to the car. Any fault is instantly notified. Tyre pressures are automatically monitored. The vehicle has CD, television and a telephone. I pay my congestion charge from my car's console and I receive SMS texts from my children. All this, noble Lords will be relieved to hear, is before I move even an inch.
I tell this anecdote because it is just one example of where technology is going and its implications for the workforce of tomorrow. The car engineer will no longer be a mechanic in dirty overalls with a spanner. In future, he will have to understand how the electronics system of the car works. That provides huge challenges.
In our investigations we were constantly struck by the worries that the UK has at every level, and by the scarcity of talent, particularly in our universities. Universities have found it hard to match the high salaries that industry pays to IT professionals. although I suspect that after the dotcom boom the problem has somewhat eased. Nevertheless, we need to address certain defects. We need to understand why there has been a decline in maths, physics and engineering in schools and universities. We also need to address the question of why girls are not attracted into this sector.
In our schools we are beginning to make great progress in familiarising children with IT. I declare an interest as a trustee of the eLearning Foundation whose remit it is to ensure that all schoolchildren have a laptop computer on a 24/7 basis. We believe that this will contribute to making our children computer literate and hope that it will kindle interest in computing itself.
As regards higher education, there was particular concern at the difficulties universities are having in recruiting and retaining researchers. We recommend that the Government consult universities and industry about ways of making an exchange of staff between

1583
sectors more straightforward and commonplace. Salary differentials also need to be addressed. We feel that much could be done to encourage engineers to have a greater understanding of business. Even a basic understanding of accounting, marketing and law would be very useful in helping engineers to get a feel for the wider world.
Finally, we ask the Government to continue to make it easier for talented foreigners with key skills to be able to bring their families to the UK. One can only be awestruck, in Silicon Valley, by the number of people of Asian background who work in the IT industry or who are students in the Californian universities. Recruiting from abroad is not quite the talent rape often portrayed in the media. In these difficult days, for example, Indian IT specialists in Silicon Valley have been returning to their own country, using the skills acquired in the US to set up businesses in the exploding Indian IT industry. The UK could easily replicate this. We need these talented people. We should continue to remove the barriers to their coming here and contributing to our IT industry.
Britain has made great strides in its desire to become a leader in the IT field. I express my thanks to the Minister for his passionate commitment to science and technology and, most of all, for upping the science budget. At last the tide is turning. I thank also the Secretary of State, my right honourable friend Patricia Hewitt. It is hugely reassuring to have the DTI led by someone who understands IT and understands what our business needs.
Forty per cent of the European market for electronic systems and semi-conductor design is based in the UK. The situation in our country is not gloomy, but it could be much better. IT requires innovative talents and entrepreneurial skills, and we are pretty good at that. In 2000, for example, our universities provided 200 business spin-offs in the IT sector, up from 70 the previous year. Research funding does not necessarily have spin-offs as an objective; it is nevertheless a fact that we produce one spin-off for every 8 million dollars of research funding. The figure in the US is 50 million dollars. So we are pretty efficient at that.
The Economist Intelligence Unit has the UK right at the top of countries which are the choice of entrepreneurs. It is important to make the UK even more attractive by reducing red tape and, if I can beat an old hobby horse, making planning permissions much simpler. My noble friend the Minister said something to our sub-committee that truly struck home. Quoting from a comment he had heard in Silicon Valley, he said that we in this country talk about success and failure; in Silicon Valley, they talk about success and learning experience.
I am delighted that the Enterprise Act 2002 has gone some way to redressing the stigma of failure. Like the noble Lord, Lord Freeman, I think that bankruptcy, though not to be encouraged, is on course to no longer being classified as the mark of Cain. But I must make a special and heartfelt plea: can we please improve the treatment of share options?
1584
Venture capital growth in the UK has been impressive by any standards. We are clearly the leaders in Europe. To the layman, venture capital is the provision of seed capital, but the reality is that VCs tend to avoid this area. They like bigger investments, they prefer to minimise their risk and they prefer management buy-outs. That is the way they do things at present.
One issue that keeps coming to the forefront is intellectual property and how our universities handle it. I have one personal recommendation to make. We could do with a central body of highly skilled lawyers and IT professionals to advise our universities and prevent all the existing inconsistencies.
I wish to talk about two British success stories not referred to in the paper. The first is the British games industry. True, it is not about microprocessor development and it is seldom talked about, but its growth has been truly amazing. The UK is the third largest producer of IT games in the world, which, as any parent will know, are compulsive for any child. The games industry has a turnover of £1.1 billion and employs 6,000 people. It earns half a billion pounds in exports, exceeding TV and film and soon projected to go higher than the music business. The industry has developed without the benefits of any House of Lords inquiry and with little government investment. It does not require geographic clusters or any form of government intervention. It has just grown. But it now faces considerable problems. This is still a cottage industry which multinationals are entering; it needs to develop its own management skills.
The second success story is Symbian. Symbian is a spin-out of Psion, which noble Lords will know as one of the British pioneers of the PDA market. Psion was successful in this highly competitive market but lost ground to Palm, Blackberry, Sony, Compaq and the rest. But instead of folding its tent. Psion set up Symbian as a provider of software to the third generation of mobile telephony.
Symbian is a wonderful British example. Today it is owned by many of its customers—Nokia, Motorola, Ericsson, Sony and Siemens, as well as by Psion itself. Symbian licenses its software at 5 dollars a share. Its royalty revenue doubled last year. As 3G takes off, Symbian's revenue is posed for astronomic growth. Symbian. like ARM, is a pointer as to how the UK IT industry can develop.
I conclude with an observation. We are making great progress in the UK. IT is out of fashion and, for me, that is a good thing. The hype of two years ago led to unrealistic expectations and then to great disappointment. But this industry is inexorable. The technology in front of us will continue to change all our lives. The industry is now the biggest in the world, and it is still in its infancy.
12.6 p.m.
Lord Patel: My Lords, I, too, congratulate the noble Lord, Lord Wade of Chorlton, and thank him for his brilliant chairmanship that motivated all of us who were privileged to be members of the inquiry. He

1585
conducted the inquiry with not only great efficiency but a great deal of humour and bonhomie. I would also like to thank most sincerely our specialist adviser, Professor Steve Furber, a scientist at the leading edge of the developments which are the subject of today's debate. He is a truly international authority, and was very patient when it came to dealing with the likes of me, with virtually no understanding of the complexities of the technologies involved. I also thank our Clerk, Mr. Roger Morgan, who worked very hard. The result shows in the quality of the report. But I have another message for him: I am expecting more and better from him, but more of that on another occasion.
When we started the inquiry, the assumption was that CMOS technology will soon run its course—that Moore's law would not continue beyond the next decade. Even Gordon Moore, the creator of Moore's law, agreed in a recent speech in San Francisco that his guiding principle will probably only hold true for another decade. But he also threw down a gauntlet. He said that no exponential is for ever, adding, "Your job is to delay for ever".
Innovations have reduced the size of chips and added more capabilities in a smaller area for less money. The one dollar it cost to buy a single transistor in 1968 could now buy 50 million. In 1971, a microprocessor had 2,300 transistors. By 2005, Intel intends to produce chips with 1 billion transistors. The challenge, Gordon Moore says, is to solve the problem of power leakage and the need to reduce heat levels. It may be that these problems will be solved and Moore's law will last beyond the next decade.
At the beginning of our inquiry we were given evidence that developments in nanotechnology, molecular electronics, autonomic computing and quantum computing will be the next big thing in microprocessors—the next grand challenge. But it became clear, as the inquiry progressed, that the technologies are not yet ready to replace the conventional silicon.
CMOS technology still has a lot to offer, particularly, as the report states, in exploiting the technology for system on chip design. I believe that it is in this area, particularly in its potential in medical diagnostics, disease and treatment monitoring devices, that its promise is greatest.
Despite our initial lead in the micro-electronics industry, the UK has lost out because we did not invest enough over the long term in large-scale research facilities, as did Belgium with IMEC, let alone the United States of America. We have a good record on investing in big science, but not in big technology. We need to learn from the past, for we must not fail in microsystems or nanotechnology.
The report's recommendations focus on the creation of a national institute for system on chip design, the establishment of a national programme for design and architecture, sustained long-term investment, recognition of the multi-disciplinary nature of the technologies and the need for funding and research councils to take positive steps to recognise that, particularly in the assessment of grants.
1586
We need to be aware of existing facilities for system level integration and how they could contribute to the overall national strategy. The proposed national task force to take that forward would be an important initiative.
Some of the areas of potential development excite me greatly as a doctor. The report mentions that reaching the practical limits of CMOS miniaturisation does not mean that the technology reaches the end of its useful life. It will remain the mainstay of supporting many new and improved applications and advances in chip design and architecture. As an example, the report mentions the remote-sensing wirelessly networked smart dust that CITRIS in California has developed, which the noble Lord, Lord Wade, so graphically described.
I shall concentrate on future applications for biomedical systems, which is one of the most exciting and profitable areas for the future. This country is a leader in bioscience and biotechnology. We clearly have strengths in micro-electronics and system on chip design. Both areas need to be harnessed further with long-term sustained investment. Today I refer only to areas of possible benefit in biomedical systems.
Pages 40 and 41 of the report refer to some of the possible developments. I shall enlarge further. Biochips have rich potential for micro-electronic chips in medical healthcare and even in environmental monitoring and diagnostics. Professor Kevin Warwick's famous experiments on implanting chips into his nervous system show how technology can be used directly. We recently heard about the work at Washington University on brain implants, with a chip interpreting neural signals and mimicking the behaviour of the hippocampus. Ingestible diagnostics is another example of the use of microtechnology, as we heard on a recent visit to the Institute for System Level Integration at the Alba Centre in Livingston. Miniature ingestible cameras that take images of the inside of the gut as they travel through the digestive tract allow for more extensive investigation of diseases of the gut than is possible with conventional endoscopy. Data are compressed and communicated through wireless data links. Such technology is at the first stage of trial now.
Combining physical and chemical sensors is an even more exciting possibility. Devices could monitor pH, oxygen and temperature as they pass through the body. The potential of such applications for medicine appears endless: tissue-embedded chips that monitor levels of metabolism; embedded chips that monitor levels of substances such as glucose and adjust levels of insulin accordingly; chips that constantly monitor blood pressure to provide information that allows for better control of blood pressure, reducing the risk of heart attacks or cerebral haemorrhage.
The prospect of combining gene chips and micro-electronics is even more exciting. A previous report on genetic databases, following an inquiry chaired by the noble Lord, Lord Oxburgh., highlighted the great potential of the developing sciences of pharmacogenetics and proteonics. Biochips that

1587
monitor the action of drugs would lead to better individualised drug treatment. Chips that monitor the changes in levels of proteins, as expressed by genes, would be able to identify early the likelihood of developing diseases and monitor the action of designer drugs to control the disease developing further. There are huge implications for most degenerative diseases. That territory is not unfamiliar to your Lordships.
There are other applications in the area of cancers and chronic mental illness. DNA diagnostics is another area that could produce quicker diagnosis, having great impact on the management of conditions such as methicillin-resistant staphylococcus aureus infection—better known as MRSA—and meningitis. The potential of this technology for supporting developments in telemedicine is another exciting area. I could go on. The list is endless.
The United Kingdom has a number of centres of excellence in small-scale microfabrication. We also have strengths in micro-electronic design, bioscience and biotechnology. We have the potential to achieve technological breakthroughs. We now need firm, long-term and sustained investment in research in these highly interdisciplinary technologies. That is the grand challenge. For once, the United Kingdom could be the leader. We must not fail.
12.16 p.m
Lord Oxburgh: My Lords, I, too, congratulate the noble Lord, Lord Wade, on his truly splendid speech. I pay tribute to his dextrous and forthright leadership of our committee. He steered the inquiry most skilfully. His knack of rapidly striking to the heart of the matter saved us much labour. We had many opportunities to observe and learn from his savoir faire and aplomb and his ability to deal with any eventuality, nowhere better than in California, when, most properly introducing himself as a Member of your Lordships' House, he elicited the reply from an incredulous lady, "And I'm Princess Di".
I also place on record my gratitude and appreciation to Professor Steve Furber, our outstanding special adviser and to him and our Clerk, Roger Morgan, for an exceptionally readable report.
There will be many contenders for the title of most influential invention of the 20th century, but undoubtedly one of the most serious claims will be that of the transistor etched on a silicon microchip. In essence, the purpose of the inquiry was to see whether there are future opportunities in the microchip industry that the UK could exploit if strategic action is taken today.
The chip industry is certainly here to stay. Besides revolutionising practically every device of everyday life, it has transformed the computer industry and affected every industrial and commercial process. The effect on research has been one of massive empowerment. For example, without the microchip, the advances that astound us in modern medicine, and which we are beginning to take for granted, would not have happened.
1588
The noble Lord, Lord Wade, has clearly outlined why the astonishing achievements of the chip industry in improving performance and reducing cost cannot continue indefinitely. They probably cannot continue more than another eight years or a decade at the most. It is not only a problem of the building bricks of chips—atoms—not allowing us to go to finer size. As anyone who has owned a laptop knows, the machine gets hot. As more and more transistors are packed into a smaller volume, which is the main point of miniaturisation, the local heating effect is proportionally greater, hot transistors perform less well, and may even burn out. All that tells us that the story of the last quarter of a century—declining unit costs and size, coupled with improved performance—has come to an end.
That raises the intriguing question of what, if anything, comes next. There are several intriguing possibilities that might allow future devices to be still smaller and faster. For the present, however, they are no more than demonstrations of principle. Excellent work is being done on that in universities and in other institutions. In universities, that work is largely supported by research councils, and it is right that that situation should continue, but it needs to be carefully watched. The councils are well placed to spot early breakthroughs and decide whether additional funding or co- ordination should be provided. That will definitely require the research councils to be more proactive than in the past.
There are two other important considerations for the future. The first is the overwhelming market hold of existing microchip technology—the so-called CMOS, or complementary metal oxide semiconductor technology. That technology has been outstandingly successful, and the massive investment in facilities to produce CMOS-based chips means that it would be extraordinarily difficult for any new technology to displace CMOS. Any successor technology would have to offer significant improvements in performance or cost. Given that low cost is generally driven by volume, it seems that a new technology would first make its appearance, at best, in specialised applications in which performance was paramount and cost was the secondary consideration. It would spread beyond that if, and only if, it truly offered new opportunities at a reasonable cost.
The second consideration, as the report points out, is that there is still immense scope for incremental improvement of the importance of CMOS-based chips. The limitations, of which the noble Lord. Lord Wade, and other noble Lords, have spoken earlier, relate only to the physics of miniaturisation. However, as the noble Lord, Lord Wade, also said, there is still scope to improve the way in which devices are arranged and interconnected on chips and how they distribute and manage the various tasks that they are given. That is the so-called chip architecture, which is a discipline in which the UK has a strong international position from both a commercial and academic point of view. It is here that our committee saw a strength on which it was well worth building.

1589
In other words, although the density of transistors on chips may not increase much, their performance will get much better through improved architecture. As the noble Lord. Lord Wade, said, that in turn opens new possibilities and new possible uses. These will be of broadly two kinds. First, we shall almost certainly see progressively more user-friendly electronic devices, which will themselves take on and manage some of the problems that today we find so irritating and tiresome. They will be in wireless communication with each other, and they will themselves manage problems of mutual compatibility. We will be able to decide on how we want to communicate with them—by word of mouth, by keyboard, or by other gestures, such as writing. Whether the machines are laptops, printers, telephones, cameras, organisers or other bits of technology that we may have round us, they will manage the complexity of their interrelations and their interface with the user. That simplification means that the so-called "digital divide"—the real concern that some of the population may be disenfranchised because they are not computer literate—will almost certainly be solved by the technology.
The second way in which chip technology will pervade our lives is embraced by the unhelpful term "ambient computing". As several noble Lords have pointed Out, it will be possible for small chip-based devices, to be cheaply incorporated into manufactured goods. As so-called "smart dust", they may be distributed around the home or the wider environment and they will be designed to record and transmit particular kinds of information. The scope for clever and imaginative new applications that require sophisticated and economical chip architecture is almost unlimited. For example, it should be possible to build sensors into the mechanical components of aircraft or other safety-critical structures, which would automatically warn of fatigue or risk of failure. Equally, it should be possible to monitor the external environment, cheaply and reliably, for a wide range of purposes, which might range from domestic security to sensing pollutants in the atmosphere or water.
The noble Lord, Lord Patel, drew attention to the development at Livingston of the "smart pill", which has no therapeutic properties but may carry a small camera or chemical sensors that can transmit information continuously during its possibly unhappy passage through the body. People are already working on chip-based artificial eyes to bring sight to the blind. The only limits are those set by our imagination.
So what is standing in our way? The answer, surprisingly, might be not all that much—at least, not all that much that is very expensive. When our committee visited California, the venture capitalists said that, from the point of view of taxation, general economics and the availability of new ideas, they viewed the UK as an attractive country in which to invest. They seemed to perceive this country as more attractive than did our own venture capital industry. However, we should do certain things, which are spelled out in the report.
1590
I endorse and support the point made by my noble friend the Earl of Erroll, in connection with EU funding. There seemed to be a strong indication that the chip industry and related industries in the UK were benefiting much less from EU funding than their competitors in other countries. My own experience of working on EU funding for nearly 15 years was that the initial threshold that one had to cross in order to gain entry was high; one had to establish personal contacts. After that, however, it became very easy. Once, for example, when I was having difficulty with a submission that I was making, I spoke to the manager of the programme in Brussels. I explained that my application was ready but that I had not had time to translate it into the second community language, which was required at that time. He said, "Oh, don't bother, just let us have it and say that the second language is to follow". It is still waiting to follow.
Many exciting ideas that may lead to important new products are likely to emerge from universities, if we can tap them. In the report, we spell out some of the things that need to be done. I wish to make an additional point, based on my own experience at Imperial College, although it is not a new idea. We should make more use of technology scouts—trusted people who have a broad-based understanding of technology and its potential applications, who work in universities, and whose job is to keep abreast of what is happening in the labs. They are in a position to spot likely prospects and either to steer the inventor in the direction of help that may be needed in starting a business or, alternatively, they might, with the inventor's permission, bring the discovery to the attention of those who might take over the initiative, develop it further, license it or exploit it in other ways.
At Imperial, we had a dozen or so people acting as technology scouts, although some of them did other things as well. In at least one case, simply in the process of building a nucleus of complex experimental equipment, a research group unwittingly solved an engineering problem that had been bothering one section of industry for some time. That was spotted and exploited by the scouts. It was something that the scientists could not possibly have known. Clearly, for it to be worthwhile for a university to have its own team of scouts, it has to be reasonably large and have a fair amount of research going on. In that case. the scouting can pay for itself. For smaller institutions or those with a more limited range of research, the research councils might employ people on a regional basis to do the job. It is essential, however, that they enjoy the confidence of the researchers.
In conclusion, there is a great deal of mileage left in CMOS technology. It is unlikely to be overtaken by a pervasive successor technology in the near future and it might well continue for decades. However, the UK has real strengths in chip architecture and there are major opportunities for us. How well we exploit those will depend on maintaining a favourable business environment in the UK, ensuring that we have an effective means of capturing the benefits of university research and ensuring that new enterprises can flourish.
12.31 p.m.
Lord Methuen: My Lords, from these Benches it gives me great pleasure to congratulate the noble Lord, Lord Wade of Chorlton, on introducing this debate on his report on the future of microprocessing. He was a very able chairman contending with a highly technical subject which initially was well above our heads. I, too, thank Professor Steve Furber for keeping us on track, and our Clerk, Roger Morgan, for all the help and assistance he gave us. I found it an especially interesting inquiry on which to serve, having been involved with the computer industry since 1967. We had a most interesting series of visits to Silicon Valley, IMEC in Flanders, and to the NPL. I am glad to hear from the noble Lord, Lord Wade, that the NPL is being more proactive in promoting its skills.
I should like to give some historical perspective to the debate from my 40 years in industry. I first came into contact with the semiconductor industry when I was a graduate apprentice with GEC in Coventry in the mid-1950s. GEC had a pilot semiconductor plant producing germanium transistors, and I believe that the reject rate was 95 per cent. If you compare that with the latest chips with more than 40 million transistors, every one of which must work, you get an idea of how things have moved on. If the same reject rate applied to those chips, there would not be many good ones.
I subsequently joined the Westinghouse Brake and Signal Company in 1957 at a time when it was bringing into production what was, I think, the first transistorised remote control system for railways. It was designed to use the minimum number of transistors because they were so expensive, each costing about £7.50, in 1957—perhaps £100 each in today's money. The whole piece of equipment, which occupied a six-foot high by 30-inch wide cabinet, would now occupy only a fraction of the space and facilities available on a current system-on-a-chip microchip.
As a last example, in 1968 IBM had a process control computer system called the 1800. One could buy a 128 kilobyte (core) memory upgrade for this machine. The cost? It was £64,000—perhaps over half a million pounds in today's money. Compare that with the 64 megabyte memory chips now available which cost a few tens of pence. That is what Moore's Law has given us in practical terms, with chips in every conceivable piece of equipment—domestic, industrial, aerospace, medical and so on.
That was yesterday. Today we are at a crossroads. We do not know in which direction the new embryonic nano-technologies will take the microchip industry. As other speakers have said, there is no clear indication yet of which technologies will become the future leaders. We had glimpses during our visit to Silicon Valley of quantum computing and spintronics, among other contenders, both of which are still in their infancy. Quantum computing will certainly lead to a complete revolution in the style of computing.
The International Technology Roadmap for Semiconductors shows a number of potential blocks to the further propagation of Moore's Law. Hence we
1592
shall have to make better use of the semiconductor chip technology that we already have. That involves solving the design and transmission problems associated with increased parallelism in complex systems, and the provision of better software enabling the user more easily to benefit from such systems.
However, that is not the end of the story. The existing CMOS technology is quite sufficient for many humdrum applications where plenty of power is available and computational speed is not the be all and end all of the application. It is the extremes which are driving the research and development. At one extreme are very large computers for weather forecasting, simulation, nuclear physics, geophysics and the like; at the other are the handheld systems such as mobile phones and other portable equipment where low power consumption and specialised computational capability are critical. However, CMOS technology will continue to be the mainstay of the electronics industry for many years to come.
The noble Lord, Lord Wade, referred to "smart dust", and the noble Lord, Lord Mitchell, to his car. The point here is that microprocessor systems will become so integrated into our lives that we are not even aware that we are using computers. In the past, computer use involved punching cards and typing. When I first entered the industry we had to have experts and everything had to be in the right column on the card. The change in user interfaces and the switch to Windows, for example, have been major factors in increasing computer literacy. Children today are much more capable than the average adult of using equipment such as video recorders. That demonstrates the need to produce better interfaces, one of the major areas of development. The latest microchips are making it much easier to produce those interfaces.
What will be the UK's role in the new technologies? It would cost about £300 billion or more to build a fabrication facility to make the next generation chips employing 10 to 20 nanometre linear structures, and it is dubious whether those facilities could be financially viable. Certainly it seems that the UK would not be a contender for such a facility. Our strengths lie in the architectural and system design of the chips where we have a significant presence with world-leading firms such as ARM. The design of the new chips with 40 million or more transistors requires immense effort in design simulation and validation and the devising of test strategies for the production processes. In view of the large numbers of transistors on the chip, and to achieve an acceptable yield, the chips need to be configurable on test to minimise rejection due to faulty transistors. The strategies to achieve that place even more onerous demands on the designers as the dimensions decrease.
The UK should support a single national research institute similar to IMEC in Flanders. Recently, many members of the committee visited the Institute for System Level Integration at the Alba Centre, Livingston, in Scotland. That institute, which teaches graduates system-on-a-chip design, goes some way to meeting the criteria for a national institute. However, it was disappointing to note that the majority of its

1593
students were from overseas. We need to increase the uptake of such courses by UK students if we are to gain benefit from such a national centre of excellence.
One of the UK's basic weaknesses is in the exploitation of our strengths. As others have said, that is not helped by the reluctance of our venture capitalists to fund high-tech enterprises where they do not or are unwilling to understand the technology. That is compounded by the unwillingness to take a long-term view on research and development. It was an eye-opener to visit the IBM Almaden Laboratory in California where they were looking for a return on basic research in 10 to 15 years. That should be compared with UK industry's general reluctance to invest in research.
I urge the Government to take note of our recommendations in the report. We need to take a co-ordinated and integrated approach to our research and development, avoiding wasteful duplication. This is where the RDAs can play a large part in enabling and facilitating university and industry co-operation.
Finally. I urge the Government to accept the necessity for long-term funding implicit with keeping the UK at the forefront of microprocessor developments. The UK has huge talents in this field; do not let us waste them.
12.40 p.m.
Lord Hodgson of Astley Abbotts: My Lords, this has been a truly fascinating debate on a truly fascinating subject. I begin by congratulating my noble friend Lord Wade not just on his chairmanship but also on the witty and able way in which he introduced the debate. Above all, I was encouraged by his peroration about enthusiasm. Enthusiasm is a virtue which we need more of in this country—enthusiasm for new ideas and new approaches. An American friend of mine, when asked to summarise the difference between the US and the UK towards innovation, said, "The trouble with you is that in Britain new ideas are guilty until proved innocent. In the US we regard new ideas as innocent until proved guilty". What the noble Lord had to say on that point was absolutely critical as a background to our debate.
I also congratulate all noble Lords who sat on the committee on producing a report which is informative, readable and commendably to the point. It has been a pleasure to listen to their contributions.
The significance of this policy area is that it brings together three strands that are hugely exciting and important to the future prosperity of this country: first, the likely direction of future developments in the information and communication technology market—particularly post-CMOS, and before the end of CMOS—from improved design and architecture; secondly, and absolutely critically, how strategically a middle-ranking economic power such as the United Kingdom, with an economy one-tenth of the size of that of the United States, can maximise the economic benefits from these developments; and, thirdly, what practical steps can be taken, or, equally importantly, avoided by the Government to enhance the achievement of that strategy.
1594
I must declare an interest. My career has been spent in the City where I focused on what is now known as the private equity industry. It was previously known as the venture and development capital industry. I have sat on management committees of both high and low-tech investment funds and I remain an investor in several private equity funds focused on the technology sector.
Fundamental to success in this policy area is an acceptance of a realistic analysis of this country's economic position. We surely cannot hope to advance on all fronts. To do so would be to risk spreading ourselves too thinly and achieving nothing. The figures in the report on comparative research and development spending in the United States as compared with Europe as a whole, let alone the UK on its own, make sobering reading. Sir Robin Saxby's remarks in paragraph 8.31 on the dangers of searching for what he calls another "Great White Hope" have a terrible ring of truth about them. The report's recommendations as regards the need for focus must, therefore, deserve serious attention.
It is important to take a hard look at what we, the British, are good at. We are good inventors. We are good entrepreneurs at every level, from the toolmaker in Birmingham who sets up on his own to the research scientist pursuing his ideas in a university science park. What we are perhaps less good at, or perhaps less interested in, are the techniques and processes of developing and redeveloping and particularly mass producing. This is evidenced by the fact that although UK patent applications continue to run at a high level, British productivity increases remain below what we should be achieving. Successive governments of both political persuasions have found that to be a very difficult nut to crack.
It was the noble Lord, Lord Dahrendorf, who wrote some years ago:
"Economic performance and cultural values are linked …an effective economic strategy for Britain will probably have to begin in the cultural sphere".
The economic reforms introduced particularly by my noble friend Lady Thatcher, but also generally during 18 years of Conservative government, did much to remove rigidities in the British economy. Equally importantly, they began to change attitudes towards entrepreneurship and wealth creation, but there is still much to do. I am afraid that recent attitudes towards and remarks about that critical issue by senior government Ministers give cause for concern. I understand that they have a Left Wing of their party to placate, but no one can wish to see the country return to the stagnation and decline of the 1970s.
The Minister and I have exchanged views in the past about the difference in concept between companies which are world class and companies which are national champions. I believe that we need to encourage world-class British companies in as many sectors as possible, but I see no role for national champions. The political framework is a poor one in which to make and follow through the tough but delicate decisions such a concept demands. So it is encouraging to see that the report recommends that

1595
research funding should continue to be made available primarily through independent but accountable bodies such as the research councils.
It was, however, interesting to see the difference the report draws in paragraphs 7.16 and 7.17 between responsive mode programmes and managed programmes. Although it is obvious that not all research can or should go through a managed programme, it surely is important that even at the front end of innovation the available resources are not spread too thinly. Equally important must be the need to avoid overlap and duplication and to encourage collaboration, including collaboration at a transnational level, as the noble Lord, Lord Hunt of Chesterton, pointed out, wherever possible. Parochialism can play no part in the world of design and information technology. As the report points out, research councils must have an important role to play here.
An industry where the United Kingdom has done particularly well in the world is the pharmaceutical industry which has some of the characteristics of the design and information technology industry. One wonders if there are any read-across lessons to be learnt, particularly as regards the role of broad and focused research, but also more generally as regards the linkage between the research laboratory and the market-place.
In IT, as in all industry and commerce, the key to our future success is the recruiting and retaining of high-quality staff. The report's remarks on that at paragraphs 9.9 and 9.15 are extremely pertinent, especially in relation to the UK's established strengths in design and architecture. In that connection there are other actions which the Government should be considering very carefully. The first of these is the draft EU directive on temporary agency workers. This industry is one in which subcontractors, who are entrepreneurs in the most direct sense of that word, are a permanent part of the scene. The directive, if implemented in its present form, may well have the effect of fossilising the structure to the very great competitive disadvantage of the United Kingdom. At the very least, member states must have the option of exempting higher skilled technical and professional agency workers from the provisions of the directive.
The second is the IR35 tax regime which affects as many as 100,000 consultants, many of whom work in the IT industry. It is a sly measure which is having a bad effect on the industry generally. Contracting out of functions is now a legitimate and growing practice in all industries. This backhanded approach will undoubtedly continue to drive people abroad—people whose skills are vitally needed in this country—and no industry is more mobile than the IT industry.
Those of your Lordships who took part in the proceedings last year on the Enterprise Bill will recall the balance that was sought to be struck between unavoidable bankruptcy as a learning experience and deliberate bankruptcy as a fraud on creditors,
1596
themselves often small businessmen. It is good to see that the committee feels in paragraph 10.9 that the right balance was in the end achieved.
The provisions of the new Enterprise Act take me back to the issue of world-class companies. To succeed in the IT field, companies have to be world class. To be world class, they need scale so they have the depth of Financial and managerial resources to expand beyond the narrow confines of their domestic markets. It will be important that the competition provisions of the new Enterprise Act do not inhibit the emergence of such companies by preventing them achieving a substantial market share within the United Kingdom. In this field in particular, there are no national boundaries—competition is worldwide. If the competition authorities here choose to measure on the narrow basis of the UK market alone, it will be a huge inhibition to potentially successful firms in this field.
I turn briefly to the issue of funding, which was dealt with most ably by my noble friend Lord Freeman and referred to by a number of other noble Lords, including the noble Lord, Lord Mitchell. The report refers in paragraph 10.20 to the role of the venture capital industry in providing funding and other support. There is a difficult issue of timescales in that regard. In order to continue to fundraise, investment management companies must show a track record of successful realisations of their investments. A typical fund will have a seven-year life with realisations beginning after about three or four years. Such a timescale does not sit happily with the needs of a start-up company. It is true that during the late 1990s the technology boom saw a number of the early stage funds perform extremely well, but those were exceptional times. Now that a grimmer reality has returned and pension fund trustees, for example, contemplate funding gaps, the appetite for risk will have diminished but the readiness to fund a company through the several rounds of financing required will also have been reduced.
One solution for the early rounds of funding is to be provided by groups of private individuals, many of whom will be experienced and successful entrepreneurs in the IT field. That has the added advantage of giving the investee company access to practical managerial support, of the type referred to by my noble friend Lord Freeman, and pure funding. In that connection, the enterprise investment scheme (EIS) tax reliefs are critical. I urge the Minister to ensure that the Inland Revenue continues to take a positive and open-minded approach to applying the scheme rules, which has not always been the case in the past.
The report points out at 10.21 that there is much, as a major purchaser, that the Government can do on their own in terms of helping the development of the sector. Last Friday, I took the opportunity of a long train journey to read the report and its accompanying appendices. Before leaving Euston, I opened my Financial Times and saw on the front page the headline:
"Computer groups fire opening shot in battle for share of £5bn NHS upgrade".

1597
The article contained evidence that with proper encouragement from the Government, there are opportunities for smaller and more innovative British companies to become involved. The report also hints at the agonies that new small vulnerable companies go through in trying to link with the Government. I have seen that at first hand as a trustee of funds. Finding a way through the bureaucratic maze, decisions on commercial matters that are promised for a certain date but are repeatedly postponed for no obvious reason and delays in payments leading to fresh encounters with the bureaucratic maze represent a nightmare for the smaller vulnerable start-up company. If the new taskforce recommended in paragraph 7.8 can help, its establishment will be a worthwhile step.
I conclude as I began by saying that this is a worthwhile and interesting report. I hope that the Government will study its recommendations carefully. In my view, the Government's primary role is as an enabler: to encourage a proper balance between wide-ranging and focused research; to avoid duplication, overlap and reinvention of the wheel; to provide a financial framework that encourages collaboration and investment, especially by those with hands-on experience in the industry; to ensure a flexible, well-trained domestic labour market; and to use government purchasing power wherever possible to foster British entrepreneurialism and commercial drive.
The right approach and the right answers will surely reap rich rewards for the United Kingdom. I look forward to hearing the Minister's reaction to this excellent report on an industry which, despite its huge size, is, as the noble Lord, Lord Mitchell, pointed out, still only in its infancy.
12.54 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I join other noble Lords in welcoming the report of the Science and Technology Select Committee on microprocessing and I congratulate the noble Lord, Lord Wade, on an outstanding report. It is already proving to be extremely useful and is stimulating some valuable thinking in the DTI and the OST. I cannot honestly give detailed answers to the report at this stage because we have not yet finalised our response but perhaps I can give some indications of our thinking. I add, as the Under-Secretary of State for Science and Innovation, that it is a pleasure to speak in a debate on science—this is one of the few occasions on which I have had an opportunity to do so. It was a pleasure to hear from the noble Lords, Lord Wade, Lord Patel, Lord Methuen and Lord Oxburgh, who gave brilliant surveys of technological developments in the field.
The Government support many of the findings and recommendations in the Select Committee's report. We recognise the importance of this global industry and the key role that the UK plays in it. In particular, we agree that initiatives in the ICT arena are needed if the UK is to capitalise on future opportunities.
1598
However, before addressing the need for new initiatives, it is important to understand the basis of the Government's current strategy. The key elements of this strategy are, first, to exploit the existing skills and investment in silicon technology and to explore how that may benefit other sectors and generate new markets through microtechnology and nanotechnology. A second element is to support the future needs of our existing design strengths through basic and applied research; and the third is to cover the wide range of possible materials and design issues through a widespread network of university facilities and national research laboratories. That involves researching what comes after silicon.
The UK has considerable expertise in silicon design and we must ensure that that skills base is maintained, embracing all of the possible ways in which that technology might develop. We should bear in mind that silicon will not stop working when Moore's law does. For example, at the moment there is considerable commercial exploitation of microtechnology in silicon, not as integrated circuits but as micro-scale or nano-scale sensors and instruments. That in turn is driving experimentation using the techniques pioneered in silicon for other materials, such as glass and ceramics, for applications as far removed as miniature chemical processing plants called micro-reactors.
A successful strategy also needs to take into account the characteristics of our "new style computer industry". That is an industry in which there is far closer integration between hardware design, software and manufacturing than ever before. Government interaction with the industry needs to reflect that. That has influenced initiatives such as the information Age Partnership, which meets regularly under the chair of the Secretary of State and has a wide-ranging membership which encompasses telecommunications and content and service companies as well as design and hardware interests.
Within that work discussions are ongoing, led by Intellect—the ICT trade association—to agree the future requirements of the entire ICT arena. There is considerable interest in areas such as modelling and complexity, which would cover many of the needs of future design work in integrated circuits, regardless of the underlying materials, and be of wider application to modelling future complex IT systems.
Microprocessor design and architecture is an area where government spending on basic research can have a big impact. EPSRC, in particular, has a broad research portfolio underpinning the sector, totalling some £120 million, of which £40 million is in collaboration with industry. However, we, too, note that in recent years that area has become less well represented in EPSRC's overall portfolio. Steps are being taken to address that by raising the overall skills level in the area through initiatives such as Faraday Partnerships and an engineering doctorate programme for "system on a chip" technologies.

It is clear that if the UK is to remain at the forefront of research in innovative systems, it will need a significant and sustained investment in order to

1599
maintain a critical mass of activity. The exact form that that should take will require much thought—whether it should be a virtual or a single centre or a major programme and what exactly it should cover. The report's reference to the e-science programme is particularly relevant. Faced with a similar situation, it was recognised that the research councils would be unable to fund the required level of activity from existing baselines and therefore additional resources were sought during the spending reviews of 2000 and 2002. Consequently, discussions are currently taking place regarding how best to address the issue of innovative microprocessing in future spending reviews.
At the same time, materials research offers the prospect of taking integrated circuits into materials other than silicon with radically different design constraints. Technologies such as printing with conducting plastics—the so-called "plastronics"—and many developments in nanotechnology are examples of that.
We are carrying out basic research across a broad range of new materials applicable to this field. The EPSRC International Review of Materials, which reported in March 2002, recognised the international competitiveness of the work at places such as the Semiconductor Facility at Sheffield University and the centres of excellence at Birmingham and Cambridge Universities.
The £9 million research programme launched last year on quantum information processing is another example of the exciting research into unconventional post-silicon processing. In that context, we believe that it is right to support a broad research portfolio in materials because now is not the moment to place all our bets on a single emerging technology. I was glad that my noble friend Lord Hunt and the noble Earl, Lord Erroll, supported that point. However, I agree with the noble Lord, Lord Oxburgh, that if one technology begins to emerge as the winner, then research councils need to be quick to respond.
We are currently considering what other initiatives are needed to support industry across the board as part of the DTI's Innovation Review. I am looking at further support in the area of nanotechnology to help industry in work relating to both awareness of what this field can offer and the applied research that will help to realise its potential.
An evaluation is currently being made of a centre, working in collaboration with other centres of expertise around the country, which would give industry a world-class focus for this important work, as well as avoiding the fragmentation of the science base. That would facilitate the exploitation of equivalent centres overseas on an equitable basis and improve access to European funds by industry.
We fully endorse the need to encourage radical approaches, and a number of schemes operated by EPSRC are intended to do just that. For example, EPSRC platform grants are allowing key research groups to take a more strategic view of their research
1600
and engage in more adventurous "high risk, high return" activities. EPSRC is also developing the concept of portfolio partnerships with our world-leading teams to provide a five-year funding envelope which they can deploy flexibly across a programme of research. Having said all that, it must be noted that the current downturn in the electronics sector has inhibited many companies from engaging with the science base. Many government-funded activities are therefore geared towards underpinning the move out of recession.
The shortage of skilled people is a particularly acute problem in this industry, and a number of initiatives are now underway to address that, starting in schools with the Science and Engineering Ambassadors scheme. In response to the Roberts review recommendations, the Government have committed themselves to creating 1,000 new academic fellowships to facilitate the progress of contract research staff into academic posts. We have already announced the funding of a post-doctoral salary increase of £4,0000 per annum by 2005–06.
The noble Earl, Lord Erroll, raised the question of salaries. I do not believe that we are now seeing a brain drain; in fact, there is some evidence of a brain gain. I agree that salaries are a key issue here, but I believe that it is a matter of salary levels rather than tax. It is our belief that salaries should reflect labour market pressures, although the mechanism for identifying areas to be targeted for an increase is still under consideration.
The noble Lord, Lord Freeman, raised the question of exploitation. I believe that today the climate on knowledge transfer, in particular, is very different from that of 10 or even five years ago. A number of schemes, such as University Challenge, science enterprise centres and HEIF, the Higher Education Innovation Fund, have done much to bring about changes in the culture in this area. I believe that the culture was probably changing 10 or 15 years ago, but in the past five years those schemes have provided a major boost.
The figures that we now have from HEFCE's Higher Education Business Interaction Survey suggests that that is right. The figures for the second year of the survey in 2002 show that there were a total of 248 spin-out companies in 2001–02 compared with 204 from 1998 to 2000 and 70 per year on average in the previous five years. Therefore, there has been a major cultural change. The total number of patents filed increased from 594 in 1996–97 to 1,515 in 2000–01. As my noble friend Lord Mitchell said, UK universities are now identifying one spin-out for every £12 million of research expenditure, and that compares very favourably with the US figure of £53 million. However, I agree that we can still do more and we shall continue to support that trend with extra money under SR2002.
The noble Lord also raised the question of the role of the non-research-intensive universities, which I regard as extremely important. The new money that we are receiving under SR2002 will maintain what we

1601
put into research-intensive universities. But the additional money will be focused on non-research-intensive universities because we believe that there is another agenda for them, working particularly with SMEs on a regional basis, which is extremely important.
The noble Earl, Lord Erroll, and the noble Lord, Lord Oxburgh, raised the question of European funding. The Government accept that UK industry's participation in EU programmes has been at a relatively low level. However, in terms of our overall performance in framework programmes, we are probably the major beneficiary and we certainly get far more out of it than we put in. But we are considering seriously the question of the industrial dimension, and I believe that we need to review programmes such as EUREKA to see whether we should put more resources into them.
I turn to one or two specific points raised by noble Lords. The noble Lord. Lord Wade, raised a number of questions about the conditions for the industry in this country. It should be said that we have the best venture capital industry in Europe and that today we have far closer contact with hi-tech businesses than we have had in the past.
The Government have also done much work in supporting clusters and encouraging regional networks. I believe that the setting up of regional science and industry councils, where the way was led by the North West, is an important initiative in that respect. I hope that the innovation report on which we are now working will give a further thrust to those efforts. But I believe it is extremely important to get right the regional networks between universities and industry on a regional basis.
The noble Lord, Lord Hunt, raised the question of government procurement. I prefer to think of that in terms of the intelligent customer function and getting government departments to do what commercial companies do naturally. That involves supporting their suppliers in terms of innovation on the basis that if their suppliers are more innovative, that will help their own competitive advantage. We also have SMART awards and the SBRI scheme, modelled on the US SBRI scheme, which support small hi-tech businesses in their early days when they are trying to carry out more R&D.
The noble Earl, Lord Erroll, also raised the question of financing R&D in companies. We introduced the R&D tax credit, first, for small companies and then for large companies. I believe the noble Earl will find that at present the R&D tax credit, which gives cash payments to small businesses when they are not paying tax, is proving extremely popular again, as a way of supporting small hi-tech companies in their early days.
The noble Lord, Lord Freeman, raised the question of networks and clusters. I believe it should be said that we do not live in a country where there is only one cluster — Cambridge. I say that as a Cambridge man. Equally, Oxford now has a very dynamic cluster of hi-tech businesses. In the ICT field, Bristol is very strong. London is now proving to have quite a strong biotech
1602
industry with more than 90 companies in England and that number is growing rapidly. But other parts of the country, such as Manchester and York, are also very dynamic. Recently I was in Plymouth where there is a new science park that has enormously interesting hi-tech businesses.
Clusters of hi-tech businesses are rapidly changing the situation in this country. We should not consider that we are doing badly. A recent Deloitte and Touche survey of the top 500 fastest growing hi-tech businesses in Europe found that 150 were in the UK.
The noble Lord also asked about the recommendation in paragraph 10.20. We in the DTI and in the Treasury have had a series of consultations with industry, with the venture capital industry, with hi-tech businesses and with the equity industry on the subject. In order to help we have made a series of major tax changes. We are looking at this point again as part of the innovation report. I hope that something will follow from that.
The noble Lord, Lord Mitchell, raised the issue of attracting talent from abroad. We have made it easier, but if there are further things that we should do I would like to hear about them. I believe that the battle for talent across the world will be one of the most important battles that we shall fight on the economic front. It constantly has to be made clear that a number of countries, such as Canada, are now openly targeting the best scientists from other parts of the world. 'We need to ensure that our scientists and engineers are paid enough so that they are not tempted to take up such offers.
I agree with the noble Lord, Lord Mitchell, about the success of the British computer games industry. It is a great success. It is now under pressure and there may be something to be learned from the support, for example, that the South Korean Government provide to their industry in terms of a centre of expertise.
The noble Lord, Lord Patel, raised the issue of multidisciplinarity. We have taken many steps in that direction; in particular we have brought together the research councils under Research Councils UK. in order to encourage multidisciplinary work. In SR2000 the three major projects that we supported, which were in genomics, e-science and basic technology, were all cross-research council programmes to encourage multidisciplinarity. I also agree with the noble Lord, Lord Patel, that bio-engineering and biochips are enormously important areas that we support.
The noble Lord, Lord Oxburgh, raised the issue of technology scouts in universities. I think that HEIF has enabled many more universities to do that kind of work and it is one of the exciting developments in this country.
I agree with the noble Lord, Lord Hodgson, about the need to avoid the next great white hope. In the past a mistake that we in this country have made is to hope that one technological thrust in one area will be the saviour of all. Such a matter has always involved large sums of money that means that politicians become involved in commercial decisions, which absolutely is not the right way to proceed. I am sure that we would

1603
agree on that point. However, I do not believe that that should stop one making certain that in a wide range of technologies there is a clear strategy for moving forward.
I also agree that one of the important science policy decisions is to get the balance right between responsive mode funding and directive research funding. I think that in the past, perhaps in the ICT area, we have erred in going too much towards the responsive mode funding which means that we have not built the centres of excellence because everything has been accomplished on small grants. We are putting that right.
The noble Lord, Lord Hodgson, spoke of IR35. I am not sure that it is totally relevant to this debate, but I point out once again that IR35 is simply a matter of how the rules are applied for determining whether people are self-employed or employed by a company. All that IR35 says is that the fact that one sets up a company does not in any way detract from the normal application of the rules. That is a sensible and fair tax decision and one that we stand by.
Finally, I make an important point about the work of the Government. We believe that the Institute for System Level Integration, based on the Alba campus at Livingstone in Scotland, has been a great success and has much expertise relevant to the committee's recommendations. In preparing the Government's response to the report we shall take into account the Institute for System Level Integration experience and build that into our plans.
The Select Committee's report is a very useful and stimulating contribution to an important debate. I hope that our response will show 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 those who have taken part in the debate. I believe that there are many opportunities for UK industry and the computer chip business. The Government recognise the importance of the sector and are determined to provide the best possible conditions for it to grow and to flourish. This area is one of competitive advantage and we need to build on our strengths.
1.15 p.m.
Lord Wade of Chorlton: My Lords, I thank the Minister for the encouraging comments about our report. We look forward to receiving the Government's response. All the members of the Select Committee are willing, and most of us are able, to work with the Government if they desire to bring about some of the ideas.
I also thank my noble friend Lord Hodgson for his support for our report and for his helpful comments. I thank the noble Earl, Lord Erroll, for taking part in the debate. It is pleasant to see someone who is not a member of the Select Committee, and who had no need to speak, showing enthusiasm for it. We are grateful to him. I also thank all members of the Select Committee who made such excellent speeches. They
1604
covered different parts of the report which brought together a comprehensive review of its contents. I thank you all very much indeed.
On Question, Motion agreed to.

Environmental Regulation and Agriculture
1.17 p.m.
The Earl of Selbornerose to move, That this House takes note of the report of the European Union Committee on Environmental Regulation and Agriculture (36th Report, HL Paper 186, Session 2001–02).
The noble Earl said: My Lords, the subject of environmental regulation and agriculture is one on which some clear thinking is required. It is an area that in the past has often proved contentious and difficult to implement. A clear idea of the objectives that regulations seek to achieve is needed. There needs to be an understanding of the practicalities and there needs to be a determination of the most likely route to reconcile the two issues.
I hope that the report before the House today makes a contribution towards emphasising the need for long-term planning on how we can best achieve implementation of EU regulations in the UK so far as they impact on agriculture. I should declare an interest as a farmer. I thank our specialist adviser, Professor Bill Day and our Clerk, Mr Tom Radice who gave great assistance to Sub-Committee D.
Environmental regulation must apply to all industries and to agriculture, which manages 70 per cent or more of the land in the United Kingdom. They cannot and should not be exempt. The report recognises the need for agriculture to conform. It seeks to advise on how best the objectives of EU environmental regulation can he achieved, recognising some of the realities of the farming industry and how it differs from other industries. Farmers are not what are described as small and medium-sized enterprises (SMEs); they are often one-man bands with the office work carried out in the evenings or through part-time help from the wife.
It goes without saying—in no way is this relevant to whether it should conform to regulations—that the agricultural industry is under severe financial pressure. One should take that point into account because it will be more effective to implement regulations where they do not adversely or unnecessarily impact on the commercial viability of the business that is already under pressure.
There is an extensive list of EU environmental legislation both in existence and in the pipeline. I refer your Lordships to pages 110 to 118 of our report, containing the memorandum from the Department for Environment, Food and Rural Affairs—nine pages of regulation, which is quite a lot. Our record of implementation of EU environmental legislation is not impressive. The Better Regulation Task Force, when chaired by the noble Lord, Lord Haskins, drew attention to that two or three years ago. He

1605
characterised our response as often being too late for early discussion of regulations as they are developed, a reluctance to anticipate outcomes, and invariably having to catch up later on missed opportunities with little input from commercial operators whose job it is to reconcile their business with the regulations.
An example is the Integrated Pollution Prevention and Control Directive. The United Kingdom was initially opposed to the inclusion of intensive animal units in the IPPC directive. Animal units are clearly very different from usual industrial plant. We nevertheless later accepted that the rest of Europe was right and that they should be included. The result was that we came to the matter late. Undoubtedly, the fact that we had to implement the directive in a bit of hurry meant that we did so in a way totally unsuited to the nature of the industry. Even large intensive units do not have large personnel departments. They are unaccustomed to the complexity of information required for IPPC designed for large factory units.
I have no doubt that had the operators of intensive animal units—which, after all, must be regulated and have special characteristics in their impact on the environment and must be regulated—become involved early on, we would have reached a different solution that achieved precisely the same objectives more effectively and in a more user-friendly way. The lesson from the IPPC is: anticipate two, three or four years before the regulation comes into force and involve the stakeholder—in this, case intensive agricultural units—sooner rather than later, preferably in the earliest stages. I repeat that the objectives of the IPPC are perfectly laudable in reducing environmental impact; it is simply that the model for its delivery has been totally inappropriate.
I have given an example from the agricultural sector. I could cite other instances, both inside and outside the sector, of inappropriate delivery mechanisms. The classification of farm wastes has now caught up with us. On the disposal of ozone-depleting substances, your Lordships will remember the fiasco over decommissioning refrigerators. We had not anticipated the need to have commercial plant in place, and the directive had been around for a long time before we ultimately put the commercial infrastructure in place. The same is true of tyres, a matter still unresolved, where we have failed to match commercial realities with environmental imperatives.
Returning to farms, we have ineffectively tried to address the matter of plastic sheeting for 10 or 15 years. Farmers are still totally puzzled as to what they are supposed to with plastic sheeting if they cannot burn it, bury it or dispose of it in any other way.
So we must anticipate such issues five to 10 years ahead of enforcement, if possible, and must understand that government and regulatory authorities must have working links with the relevant industry to align good commercial sense and practice.
The example of countries such as Belgium, Denmark and the Netherlands in respect of the nitrates directive is salutary. It dates back some time but, recognising the impact of nitrate leaching, those
1606
three countries introduced a concept of nutrient budgeting that meant that when the directive was eventually imposed their farmers appeared to find the legislation less burdensome because they were already reconciled to the concept. That is an example of an excellent initiative leading the way to effective implementation and to alignment of commercial and environmental signals.
Our report suggests a new approach to implementing environmental regulations, not just in the sense of aligning commercial and environmental priorities but because of the nature of pollution and the regulations on the horizon or already with us. For example, the framework directive on water deals with diffuse pollution, which is different from end-of-pipe pollution where it is easy to determine who is the polluter and put in place appropriate enforcement measures. Diffuse pollution impacts on wildlife, water aquafers and the atmosphere and by its nature is impossible to trace. The framework directive will have to deal with leakages to soil, air and water. Ammonia is one such source. The incidence of micro-bacteria in water leading to pollution of bathing or drinking water is one issue that must be thought through in the context of best agricultural practice.
Under pillar II of the common agricultural policy, we can operate transitional arrangements to help to promote an infrastructure that produces commercial opportunities. I hasten to add that I do not suggest that we use subsidies to reward people for obeying the law, but simply that in such cases as those of refrigerators or plastics on farms, transitional pump-priming to align the market with environmental imperatives makes good sense and allows enforcement of the regulation to be more effective. That will be the case with diffuse pollution, where design of buildings or agricultural systems may well help water companies or catchment areas more effectively to hit their targets.
We must promote the partnership approach. In the report, we give credit to both the Department for Environment, Food and Rural Affairs and the Environment Agency for promoting just such a concept. They now recognise the need to involve stakeholders. That did not happen sufficiently early in the days of the Ministry of Agriculture, Fisheries and Food and negotiations did not involve the agencies as much as they should have—certainly not the farmers. There is talk of developing a risk-based approach to regulation, setting appropriate targets and promoting self-regulation where appropriate—ultimately, of course, backed up by enforcement. We welcome that approach and seek to give it greater momentum.
We were especially impressed by the evidence of Mr Ross Finnie, the Scottish Minister for Environment and Rural Development. The Scottish Executive set up an agricultural and environmental working group to examine the impact of environmental issues on farming and food processors over the next five to 10 years—precisely the right timescale, we felt. The aim of the group, which reported last June, was to identify the priority issues and consider ways to address them that, would he good for the environment and good for business. The report

1607
addressed considerations such as how to interface with farmers, with some practical suggestions on delivery of advice and guidance, training, hill farm planning, commercial initiatives and the like.
The evidence section of our report, pages 91 to 93, summarises current and future legislation that impacts on Scotland and Scottish farmers. It is a clear and user-friendly analysis of the issues that Scottish farmers and other land managers will need to address over the next 10 years or so. We commend that approach and recognise that DEFRA does also. It has a greater problem simply because we have a much wider divergence of farming practices, habitats and environmental issues.
In a sense, that demonstrates the need to think in regional terms. I hope that the Scottish Executive will not mind my saying that it is effectively dealing with the issue on a regional level. While commending the DEFRA farm focus division, we would like to see its national approach pushed out to the regions. Each of the five or six DEFRA regions should have its own farm focus division and group of stakeholders from farming and food processing who could meet water catchment managers, nature conservation agencies and the Environment Agency regional branch to discuss the agenda and proposals that might be appropriate for the region. Transitional support will sometimes be needed to build up capacity and to encourage new approaches to old problems. There should be opportunities from the second pillar, although the funding of that in proportion to the whole is not as high as the sub-committee would like.
We discussed with DEFRA how the data that it and agencies hold could be assembled most effectively and offered to farmers to support whole-farm or whole-parish planning, which is the key to delivering successful environmental management. We heard of difficulties from the agencies in accessing data held by the Government. We urgently need a common platform and a user-friendly system so that farmers could, subject to confidentiality constraints, when putting together their own farm and business plans, make full use of the welter of data generated by the Water Catchment Authority, the Environment Agency, local authorities, nature conservation agencies and local bio-diversity action plans. All those bodies, appropriately, advise land managers. Farmers suffer from a surfeit of advice. It would help if they could access advice in a user-friendly way through one portal.
The committee was alarmed by DEFRA's forecast that it might take up to 10 years to achieve—a timescale that we thought unrealistic, to say the least. But I was encouraged by Annex A of the Government's response. It talks of a provisional timetable stretching to 2005, which is more realistic. If that means that by 2005 we shall have a common platform we will be greatly encouraged.
1608
I conclude with a quotation from the Institute for European Environmental Policy, which is found on page 156 of the written evidence of our report:
"In our view there are strong arguments for a programme of advance planning over a five to 10 year period, to prepare for meeting EU environmental standards effectively and with minimum burden on the farming sector. Within such a framework, farmers would receive a clear message about the requirements that they will need to meet in future, to guide them in their short and medium term planning and investment decisions. Individual farm plans assessing and interpreting environmental impacts could be prepared to assist in this process".
That is precisely the message that the report seeks to spell out. I am pleased that the Government, in their response, have warmly welcomed the report. I hope that DEFRA will be able to lead the way in Europe in reconciling environmental requirements with commercial realities on the farm. I beg to move.
Moved, That this House takes note of the report of the European Union Committee on Environmental Regulation and Agriculture (36th Report, HL Paper 186, Session 2001–02).—(The Earl of Selborne. )
1.34 p.m.
Lord Carter: My Lords, I congratulate the Select Committee on producing a thoughtful and well argued report. The importance of the subject was put succinctly by the chairman of the committee, the noble Earl, Lord Selborne, who, in the first oral evidence session, quoted from an article in Environment Action published in February 2002:
"Laws introduced over the next few years alone, which include agricultural waste regulations, could cost farms £25–40 million and involve 200,000 Agency inspections".
As the noble Earl said, at a time when farming is under the most severe economic pressure that any of us can remember, the importance of lifting the burden of cumbersome, impractical and ill-thought-out regulations cannot be over-estimated. The report makes some important practical recommendations in that respect.
As someone who spent some 40 years advising farmers before joining the Government in 1997, I agree thoroughly with the idea of whole-farm planning. The report points out correctly that environmental and management systems require the linking together of business and environmental advice. That was music to my ears, as it echoes a theme that I have argued for many years. However, I admit to a wry smile when I read in the report about the pressing need to recreate the best features of the former National Agricultural Advisory Service (NAAS) and the Agricultural Development and Advisory Service (ADAS). It was exactly the loss of those features that many of us feared when ADAS was privatised.
With reference to accessible and local advice, I was delighted to see in the Government's response to the report, at paragraph 27, that,
"the Environment Agency is currently considering the feasibility of setting up a network of agricultural inspectors to work with farmers. The vast majority of a farmer's contact would be with his local inspector, with specialists only brought in when their expertise was required".

1609
If the proposed agricultural inspectors could be called district officers we would neatly be back to the days of the old NAAS. In agricultural policy what goes around certainly comes around.
There is a strong public-interest argument in support of the view expressed in the report that environmental advice should be free. Of course a polluter should pay for acts of pollution. But how much better it would be to provide accessible, local free advice to prevent the pollution in the first place. The NFU in its briefing for the debate makes some cogent points. It particularly emphasises the need for agricultural proofing of the proposed regulations. It also stresses the importance of ensuring that farmers and growers have a sense of ownership of the environmental agenda. Such a sense of ownership is riot likely to be forthcoming when farmers are thinking of signing up to the new entry-level agri-environmental scheme without knowing whether long-term funding has been secured for the duration of the five-year agreement. I understand that the Government have committed funds of £150 million for the first year, 2005–06. But there is no clear indication of the funding after the first year. Can the Minister explain what is intended to happen after the first year of the scheme?
With the proposed move to cross-compliance resulting from the mid-term review of the CAP, it is essential that the regulatory burden associated with cross-compliance is not further increased. It is alarming that apparently the European Commission could add regulations to the existing 38 in four categories if it so wished. That does not sit easily with the Government's declared, welcome theme throughout their response to the report of transparency and proportionality and their declared objective of achieving the desired outcome in the least burdensome way.
The OECD environmental performance review published in November 2002 pointed out that welcome progress had been made in the UK since its previous review in 1994. But, not surprisingly, it emphasises that there is still much to do. It makes the valuable recommendation that environmental concerns should be integrated with economic and social decision-making. Such a holistic approach sits well with the recommendations in the Select Committee report regarding whole-farm business and environmental advice. It would read across to the whole rural economy, in the context of social decision making.
It is clear from the report and the OECD review that, although a good start has been made, there is still a long way to go to get the right balance between ensuring proper protection and enhancement of the environment and avoiding overloading farmers with burdensome and impractical regulation. It might be worth pointing out that, in their spare time after dealing with cross-compliance, environmental and animal welfare regulations, country stewardship and all the rest, farmers still have the job of producing 75 per cent of the nation's temperate food. That fact is sometimes overlooked by the most enthusiastic proponents of environmental protection. The farmer's main job is to produce food, which is why the
1610
practicality of environmental regulation is so important. The recommendations in the report underline that importance.
1.40 p.m.
Lord Walpole: My Lords, I thank the Chairman, the noble Earl, Lord Selborne; our Clerk, Tom Radice; and our adviser, Professor Bill Day, for the report. I also thank our secretary, Marilyn Byatt, for kindly keeping us supplied with papers—up to the last minute yesterday, in my case.
I also declare an interest as a retired farmer who, for the last 20 years of farming, farmed with a management plan devised under a Manpower Services Commission scheme in 1980. It had a mission statement of environmental objectives and encouraged those who worked on the estate, including outside contractors, to understand and follow those objectives. I know that, at the beginning, my farm manager and several neighbours were sceptical, but soon they were enthusiastic, and so were our barn owls. We started with a single pair, and we now know, through our involvement with the British Trust for Ornithology, of seven nesting sites within five miles of the original nesting site. I am also a supporter of LEAF, Linking Environment And Farming.
Today, I shall examine the report from a farmer's point of view and ask whether the Government can persuade farmers to be more environmentally friendly. That will be even more important when the proposed changes in the EU common agricultural policy come in and farmers' income is largely dependent on environmental considerations.
No doubt farmers will receive monitoring visits from various organisations. It is essential that those visits are co-ordinated, otherwise far too much time will be spent going over the same points again and again. As the noble Earl, Lord Selborne, pointed out, many farms are one-man bands. If he is sitting in an office being asked things time and time again by someone from the Ministry or even the "Department of Whatever", the farmer is not working. The Government should give us back the Agricultural Development Advisory Service, the best service that the Ministry of Agriculture ever gave. It was free.
In most cases, the Environment Agency will need to be the lead monitor, and it is imperative that it has access to all the information that it needs, such as the integrated administration and control system, which, at the moment, it does not. I understand from the Government's response that that is on the way. The Environment Agency's booklet Best Farming Practices: Profiting from a good environment is well illustrated, succinct, readable and helpful, whereas we were told firmly in the Committee that the information put out by DEFRA was not read by many farmers, and, if it was read, it was not fully understood. That was a quotation; it was not I who said it. We were disappointed to hear that it might take DEFRA 10 years to reach the stage at which all the systems that we sought would be up and running.

1611
Some landlords, especially the National Trust, take the forthcoming legislation seriously and are organising meetings for their tenants and appointing staff with special responsibility for helping tenants with environmental problems at no cost to the tenants. That is highly laudable, and I urge more institutional and private landlords to do the same.
The Committee visited Mr Andy Drake's two neighbouring farms at East Knoyle in Wiltshire. There had been a considerable amount of rain in the previous few days, which accentuated the problems of that 300-acre dairy farm with 250 milking cows and 100 followers. The soils are silty clay and lie wet for long periods of the year. They drain directly into the River Stour, a tributary of the Hampshire Avon, which is a good reason for not polluting it in any way. The farm buildings on the higher farm included the milking parlour and stood on the top of the hill overlooking the Stour Valley.
The main risks were spillage from the slurry lagoon, seepage from the silage clamp and spillage of fuel oil. Cures were suggested by Mr Drake's advisers. The fuel problem was cured by bunding the tanks and taking extra care. The spillage from the slurry lagoon was dramatically reduced by taking the rainwater out of the slurry stream and diverting it down a renovated and improved ditch. The silage seepage was alleviated by adding a further barrier on the downhill side of the clamp. The costs of carrying out the work were small, but the improvement was dramatic.
On the lower farm, a demonstration had been set up by, among others, the Maize Growers Association to raise awareness of the environmental risks of dairy farming. Farmers were shown areas where environmental damage had occurred and some alternative husbandry practices that could be adopted. The use of earlier varieties of maize allows earlier harvest, which should reduce soil compaction. Subsoiling and ploughing were therefore possible after the maize harvest to improve soil structure. The introduction of winter wheat to be used as silage into the rotation produced another forage crop and helped the farmer to do cultivations at a more sensible time. The conclusion is that, when planning for the future, farmers must put environmental priorities far higher up the list. The solutions may be the best from a financial point of view as well.
Another topical problem that we met at the farm was that of old tyres. Traditionally, farmers have used them to hold down silage clamps. Andy Drake was no exception; he had hundreds of them. However, there comes a time when even old tyres used on silage clamps become too old and damaged for further use. How can he get rid of them? I am open to suggestions from the Minister.
In spite of the overcast weather and rain the day before, our visit was worthwhile. It is important for committees of the House to see these things at first hand and to get their boots dirty.
1612
There are a few other environmental problems to which I would like to draw the Minister's attention. Global warming is now an accepted fact. The sea will rise and cause coastal flooding; winters will become wetter and warmer; and summers will become dryer and hotter. We must take that into account, when considering the long-term environmental problems in agriculture. We must consider different varieties of crop, and we will have to create environmental corridors, for instance, for the cold-loving flora and fauna to move northwards. Such corridors on a small scale are essential, when fields are large, for joining together areas of woodland and meadow. That is why roadside verges are vital to our wildlife. There are serious problems on our smaller rural roads. Verges are being destroyed by large vehicles passing each other, articulated lorries cutting corners and tractors and similar vehicles with double or over-sized tyres driving down lanes that were designed for a horse and cart.
Will the Minister discuss that with his colleagues in the Department for Transport?
Finally, I welcome the response of the Government to the report, especially paragraph 35 about the Environment Agency and IACS, and their remarks in paragraph 42 about joined-up government. I, too, suspect, as did the noble Earl, Lord Selborne, that Annex A means that DEFRA hopes to achieve in five years what it told the committee would take 10. I, too, feel that that is a little slow.
Finally, will fridge mountains and tyre mountains be followed by farmer mountains?
1.50 p.m.
Lord Crickhowell: My Lords, it is a pleasure to follow the noble Lord, Lord Walpole. He said that we should get out and about and look at farms. I do not have to go far from my home in Wales to see my neighbour's farm. It is one in which the occupant thinks that the way to get rid of plastic scrap is to spread it over his hedges and that it is a suitable occupation for a Welsh farmer to collect a large number of old motor cars and leave them on his fields.
Noble Lords need to be reminded of the point made by my noble friend Lord Selborne. We are dealing with small businesses and some which simply do not have a modern approach to management. Therefore, we must measure our response to take account of that.
Once again, it is an enormous pleasure to thank my noble friend Lord Selborne for introducing a Sub-Committee D report and for his masterly chairing of our committee. I also want to thank our special adviser, Professor Bill Day, and our clerk, Tom Radice, who made our task easy and a pleasure.
I shall concentrate on very few points in the report—in particular, points listed on page 9, Box 1. The first point is the early involvement of all stakeholders during the development of legislation. In that connection, my noble friend spoke about IPPC and intensive animal units. I was reminded of a visit that I paid as chairman of the National Rivers Authority to my opposite number in the Po Valley,

1613
which was illustrative of the point that he made about different national approaches; namely, how, if these matters are approached early in a comprehensive way, an effective system can be produced.
In the Po Valley there are a large number of pigs. We visited one pig unit which had a sewage treatment works which could have dealt with the sewage from a town with a population of 80,000 people. The next-door village had no sewage treatment works at all. Indeed, I was informed that the city of Milan depended on a sewage treatment works which was largely installed by the monks in the Middle Ages. However, in the Po Valley it was appreciated that by far the greatest pollution hazard was the output of piggeries and intensive milk units. The problem was tackled extremely effectively. No one argued that it was uneconomic or impossible for farmers to do.
Therefore, early involvement of the stakeholders is needed. Box 1 also refers to the importance of the collaborative process of potential regulators interacting with the would-be regulated and non-governmental organisations. The report says that the regulatory agencies—the Environment Agency, the Scottish Environment Protection Agency and English Nature and its counterparts—have a crucial role in developing more flexible and user-friendly approaches.
I emphasise the need for flexible and user-friendly approaches. One of the first jobs carried out by the National Rivers Authority was the serious problem of point-source pollution from agricultural units. A tough line was taken and, when necessary, prosecutions were made. Above all, we realised that to be effective it was important to gain the co-operation of farmers. The way to do that was to work closely with them and to gain their confidence.
By the combination of being prepared to be tough when people failed and polluted and, at the same time, helping them in a friendly and flexible way, considerable success was achieved. The Environment Agency has been developing similar approaches since.
I want to press the point made in paragraph 19 of the report about the need for joined-up action by government departments and agencies. There were certainly suggestions from a number of witnesses that the different interests within DEFRA and the principal agencies were not operating in a joined-up fashion and promoting environmentally-friendly agricultural practices. Mr Taylor, the DEFRA witness, said,
"I think it is probably right that we are not yet operating in a joined-up way as we would like to".
I welcome the indications in the response of the Government that they recognise the problem and seek to do something about it.
My noble friend Lord Selborne said that we had been impressed by the approach adopted in Scotland. He said that it is easier in Scotland, partly for geographic reasons—they may object to his suggestion that it is a regional approach. During my time as Secretary of State for Wales, I found that we had real advantages over England. That was partly because I
1614
was the Minister responsible for all aspects of policy and the officials all answered to me, but it was also due to the scale of the operation. We all knew each other and met each other frequently. There was a degree of co-operation which is possible in Scotland and Wales but far more difficult in England, and far more difficult for DEFRA. Therefore, I understand the problems.
Certainly, we were impressed by the Scots, as we were impressed by the activities of the National Trust. There is no doubt that the National Trust has made enormous efforts to inform, educate and help the farmers for whom it has responsibility. It showed what could be done by a sensible approach to these matters.
I turn to page 11, paragraph 28 of the report and the question of whole-farm environmental management and regulation. The chief executive of the Environment Agency stated:
"Overall what we would like to see is an environmental farm management system which would encourage farmers to take a systematic approach to their environmental management and could form a platform on which they could demonstrate environmental performance, which would allow them to have a much more systematic approach to each of the regimes which they did have to comply with and minimise duplication of paperwork, duplication of systems and duplication of basic requirements across the farm".
That is central to everything in the report. To have that kind of approach, as stated in paragraph 35, we must have access to information, and efficient ways of handling and managing it are crucial to an integrated approach to environmental regulation. I therefore turn to the point referred to by a number of noble Lords who have spoken, the question of the IT policies of the department. In particular, I refer to the evidence section on page 125, where the exchange that I had with the DEFRA witness is set out and the now notorious admission that it might take 10 years before we have the parts of the policy coming together.
I am afraid that I challenged the unfortunate witness with a challenge I once heard made in a Cabinet Committee by my noble friend Lady Thatcher when she was Prime Minister: "You mean it's going to take longer than the two world wars combined. We achieved quite a lot in the way of scientific and technical progress in each of those world wars. I don't think that is acceptable". I do not think it is acceptable in this context either. I am chairman of a company in IT management. We see a Government energetically implementing and financing change in central and local government across the field and I welcome that. Changes are taking place on a timescale which makes such an approach nonsensical.
Yes, of course I understand that one should not attempt to put everything in place at once in an all-embracing package. That is a way to disaster, as has been proved on so many occasions. However, one must be prepared to put the bits and pieces together pretty fast. I read the Government's response. I welcome their acceptance of our recommendation, but I did not read their conclusion in the same way as some of my noble friends. I believe they say that an important part of the package will be together by 2005, but I do not believe they are saying that the kind of

1615
comprehensive working arrangements that we believe ought to exist will exist by 2005. I believe that that is left up in the air.
I conclude by re-emphasising that this is a fundamental point if we are to have the kind of arrangements working in the way that they ought to work. A 10-year programme, even an accelerated one as set out in the Government's response, is still not acceptable. I hope that those who are responsible in the wider context—in the Cabinet Office and elsewhere—for the development of the Government's IT policy will be examining this matter and helping and assisting DETR to develop a programme that meets the needs of the environment and agriculture and that we finally get some sensible and acceptable arrangements.
2.2 p.m.
The Earl of Erroll: My Lords, this interesting and thorough report is most welcome from the noble Earl, Lord Selborne, and the Select Committee. I was delighted to see that the Government have accepted all its recommendations. I am speaking in the debate because I am married to a farmer. During the mid-1970s and early 1980s, I also wrote software mainly for the agricultural market. I know about that theoretically, even if some of it went to France. Recently, I have been trying to help my wife overcome her technophobic attitude and adopt a technophillic attitude. She has taken to it like a duck to water. She finds e-mail brilliant because she can track where things are. She often looks for information on the website to help her with the business and she gets most annoyed by what is not available. I shall return to that matter later.
When reading the report, I was most struck by regulations and regulators, which are causing many problems in business life. The Government accepted recommendation (a), that formal regulation should be avoided wherever possible. On the other hand, how does one know where one stands if there is no formal regulation? I agree that one should not have formal regulation, but I think back to January when a health and safety inspector wandered on to the farm uninvited. He spotted a gamekeeper riding a quad-bike, walked up to him and said, "Where's your helmet?". He slapped an enforcement notice on him for that. He then asked, "Where's your certificate of training on the quad-bike?", and the gamekeeper said, "I've been riding it for ages". He slapped another enforcement notice on him for that and gave him two weeks to produce it. The gamekeeper said, "Hang on, I'm in the middle of the shooting season and I can't go off just now and leave the pheasants to die of natural causes", so he was given a month's extension to the end of February.
I have no idea whether that was within the inspector's powers and nor does my wife or anyone else. You dare not question it because if you get a bad reputation you will be blacklisted and they will be down on you like a ton of bricks—and you know it. There is a terrible moral blackmail. So where do you
1616
go to find out whether the person is acting ultra vires or not? In a few instances, government inspectors have developed a reputation for acting a little arbitrarily, which I have seen in other areas too.
I turn to communication and the question of where one stands. The other day I looked around the kitchen and at the many 2ft high piles of bumf which needed reading—2ft high because they fall over after that. On the top of one I noticed various pieces of paper such as the Water Code; the Green Code; Part 3 of the Food and Environment Protection Act 1985; Health and Safety at Work etc. Act; the Soil Code; the Air Code; Statutory Instrument 2001 No. 3966; and an environmental impact assessment and guidelines on new regulations from 1st February 2002. And that was just what my wife happened to have lying around ready to hand.
I am not sure that my wife has had time to read those documents. People forget that when farmers are busy complying with EU environmental regulations and so forth, as there is not enough income in doing that, they are out there doing other things as well. Some people are also putting something back into the community, working for charities and so forth.
On farming, my wife must be au fait with all the rules of the countryside stewardship scheme; and she also has couple of cottages so must know about property and tenancy rules and the environmental health issues involved. An inspector marched in the other day to check them—again we had no idea whether he was acting ultra vires. She has to know about planning rules because land registration is currently a big issue. There is a squabble about a bit of land on the edge of our farm and the issue is complicated and must be dealt with quickly.
As regards footpaths, we had someone wandering around the place, drawing lines on maps and disagreeing with earlier maps we have. She has to know about employment rules and the health and safety at work regulations. If noble Lords have a VDU, I hope they have made sure that their farm secretaries who occasionally come in are complying with the regulations. As regards equipment, she must have all the correct certificates and insurance cover, which may no longer be valid. You therefore have to ensure that all the insurances are correct and that you are covered against all the various issues and that correct inspections are carried out. I shall not go into the rest of the requirements because I do not want to talk for too long.
Farmers are probably trying to make an additional income, so they may have another business to run on the side and they must know about all the issues relating to that, too. My wife is also a trustee of a couple of organisations, so she has to know about trustee rules, regulations and laws. We had something from the Charity Commission about that the other day.
In addition, you have to check the figures supplied by all your expensive advisers who may have been filling in your IACS forms, charging you and giving you agronomy advice, because sometimes they get it

1617
wrong. Last year, my wife was accidentally advised to spray twice, which was unnecessary, and she spotted it, not the agronomist.
The IACS forms that I have been helping her with—sometimes up until two and three o'clock in the morning—are a nightmare. This kind of burden should not be placed on small farmers, big farmers or anyone else until there are proper systems in place. We should not expect them to fill in these forms. If they get things wrong, they will be penalised. My wife believes that if she gets one of her IACS areas wrong, she will lose all of her area subsidy or whatever it is that she gets. I do not know whether that is true, but it seems to be a totally penal system, which is quite wrong.
How do you communicate these requirements to people? Some people are dyslexic. My eldest son is very dyslexic—he has a scribe to help him with his exams—and my wife is not a particularly fast reader. It is difficult for people who do not absorb information easily to wade through these documents. If you have a short-term visual memory problem, which some people have, you will not absorb all the information properly and quickly.
Perhaps you should look at other ways of doing it. This is where IT comes in, because you can communicate in various ways simultaneously. You can use sound, you can use the written word and you can link matters properly in a consistent way. You can follow threads of thought without being constrained to the thoughts that a person puts on paper.
I am concerned about the way in which information is communicated. I was intrigued by the excellent aims of the Head of Farm Focus Division. In paragraph 171 he states that there is,
"scope for making better use of the information we have, reducing the number of contacts, liberating farmers' energy and creativity for business and social purposes rather than for compliance with bureaucratic processes".
Later in the report, both the Head of Farm Focus Division and the Director of the Environmental Protection Strategy avoid questions on the water framework directive. Why? Because they are not experts on it. At paragraph 185, the chairman of the committee sensibly said,
"The trouble is that farmers are expected to be experts, you see".
That is very significant.
On the next page, in response to the noble Lord, Lord Crickhowell, he states:
"It would be nice to think that we could give clear, unambiguous guidance to farmers in particular cases, but I think that this is actually quite risky".
If the experts bring out these things we shall be sending in enforcement people—who, potentially, could bankrupt small businesses—who cannot give proper advice because they know it is impossible to meet the requirements. How on earth will a farmer—whose educational standards may be very high, too high or too low—understand the communication? How on earth will he get it right?
1618
I come from the IT world. I have written a great deal of software and developed many systems. There is a great deal of potential for communicating this information electronically using the Internet. Many people now have access to the Internet and communicating in this way will become more and more common. The concern about exclusion will become a nonsense because technology will have by-passed it in the next year or so.
All websites will have to comply with the new EU directive by April this year and will have to be accessible by the disabled. I am sure that the Government will comply with that directive, just as they will comply with the e-government 2005 directive from Europe that government services must be delivered electronically by 2005. But what is this 10-year period everyone is talking about? The Government have a duty to that extent.
Certainly local government must comply by 2005. I declare an interest in that I am a part of consultancies which are trying to help local government to hit its e-procurement 2005 targets, which are posing many problems. You cannot set unrealistic targets for other people and not adhere to them yourself.
My general feeling is that something should be done about the situation. When I was writing programs, if I had taken 10 years to sort them out I would have been out on my ear. I had to deliver something that was useable within six months to a year or people would get fed up. I would not have kept any of my clients.
The Government should not penalise small business people trying to have a life. Many of these regulations and directives and other requirements are doing that. You should not regulate until the regulations cart be easily understood and the information is easily accessible and communicable. The information should be available electronically, because that is the way the world is moving and it would be delivered in more easily understandable form.
We must make sure that the unintended consequences are handled in a sensible way. Reference has been made to the polythene problems and so on, and I know that the disposal of pesticide containers will pose problems. There have to be sensible and practical solutions to such problems at zero cost to the farmer.
I have a general worry about the way that business life is going. We seem to have about 17 people in various organisations, agencies and government telling one poor person at the coal face who is trying to get a business going, trying to run a business or trying to pay taxes, what to do. That will be unsustainable in the long run.
2.13 p.m.
Lord Plumb: My Lords, I welcome the opportunity to comment on this timely report by the Select Committee. It is a pleasure to follow the noble Earl, Lord Erroll. He echoed the views of many hundreds of farmers throughout the country. In that connection, I remember the occasion when my IACS form came into the office. As I was abroad, I was unable to sign it so

1619
my wife did so. There was some trouble; my wife's signature was not accepted and eventually I had to provide my own—but when the cheque came, it was made out to my wife. Had I had the courage, I would have sent it back, but I was not in the position to do so.
I declare an interest as an environmentally friendly farmer. I hope to return to that activity this evening if the Minister replies adequately and quickly at the end of the debate. I am, therefore, committed to farming under the rules of the countryside stewardship scheme. Contrary to the views of one or two speakers, I welcome the support that I have received from DEFRA, and that from FWAG, which first considered the scheme that we are now operating—I hope successfully.
In welcoming the report, I congratulate its chairman, my noble friend Lord Selborne. He has done an excellent job in terms of presentation and in keeping together his committee—backed by a good team and loyal staff. As we know only too well, farmers are critical of yet more regulations. My noble friend's report makes the claim—a point picked up by the noble Lord, Lord Carter—that laws introduced over the next few years alone, which will include agricultural waste regulations, could cost farmers between £25 million and £40 million. The point is made that this could involve 200,000 agency inspections. The mind boggles. The cost of fallen stock, animal disposal, the nitrate directive and many other factors mean huge costs.
To apply the regulations right across the rural areas of the European Union—where there is such a variety of landscapes, villages, forests and farmland—and at the same time bring about adequate reform in the common agricultural policy, with which we all agree, to support a more environmentally friendly approach and implement environmentally measures that fit into the CAP, amounts to a formidable task. This will succeed only if agriculture remains the major interface between people and environmental issues, and if agriculture is sufficiently profitable to enable investment or reinvestment. Farmers also have a duty as stewards of many of our natural resources. It is therefore a question of balancing all those interests.
The report recognises that farming is a business, which can succeed only if it is competitive as regards our colleagues in the rest of the EU. It cannot do that given the gap in currency values that we have experienced in the past few years. It makes life extremely difficult in terms of competing, particularly in the field of exports. I cannot over-emphasise the importance of harmonisation if the measures set out in the report are accredited in each of the member states.
There is, as the report fully recognises, a wind of change blowing across rural landscapes. I believe that most farmers have become resigned to accepting that change from the subsidies that they have known over a period of years to environmental support is coming. But if it leads to more expensive bureaucracy, it will fail. That point is referred to in paragraph 41 of the Government's response to the report, which states:
1620
"Defra will ensure that it is developing something that will be of benefit to industry and not cause additional unnecessary bureaucracy. It will test each phase carefully with farmers and others who are affected".
I hope that, in replying, the noble Lord, Lord Whitty, will give absolute confirmation that that is the real intention.
There is nothing new in what we are doing. We have been involved in this for some time. Bodies such as FWAG, Linking Environment and Farming (LEAF), the AONBs which operate throughout the country—I often say that areas of outstanding natural beauty are also areas of man-made beauty—and many other farming organisations are preparing the way for change.
In 1996, Commissioner Fischler asked me to chair a conference in Cork where over 500 representatives from different organisations from the whole of the European Union, local authorities, and so on, came together to look at future rural development. We produced a 10-point plan, and as I read the report of the committee, I reread my report of the Cork declaration. They fit together extremely well; they are fully compatible on matters related to sustainable rural development, diversification, subsidiarity, simplification and finance, as well as management, research and programming for rural development for each region.
I believe that Britain is setting the rest of Europe a fine example, particularly through bodies such as LEAF. I was pleased to hear the noble Lord, Lord Walpole, support LEAF earlier. Some 15 per cent of cultivated land is represented by LEAF members. There are 44 demonstration farms right across the country. Some of them have been going for 12 years, so the lead has been set in that direction. The focus is to develop a system of farming, realistic and achievable for the majority of farmers to reconnect with the end customer. LEAF is also involved in other countries in Europe. It can demonstrate its environmental credentials in the quality assurance scheme it is working on at present, linking in with the little red tractor on quality standards.
Much of this report was written before the most recent proposals on CAP reform were published by the European Commission. Of particular importance are, as the noble Lord, Lord Carter, said, proposals on cross-compliance and the introduction of decoupled payments.
Environmental regulations are one of the four categories with which compliance will be compulsory. In their current form, the regulations allow the Commission to add significant environmental burdens to agriculture and horticulture. I hope, therefore, that the Minister can give us an assurance that the Government will remain vigilant and ensure that any cross-compliance regime is compatible with the need to retain a competitive and sustainable agricultural industry in the United Kingdom. The potential for the regulations to create unfair competition for UK producers is significant and must be resisted in order to become energy-efficient and environmentally acceptable.

1621
I repeat that agricultural and rural development can succeed only if they remain the main interface between the people and an environment which, overall, is viable and profitable.
2.23 p.m.
Lord Livsey of Talgarth: My Lords, it is a privilege and pleasure to follow the noble Lord, Lord Plumb, who has had such a distinguished career in the farming industry and, indeed, the European Parliament. I remember the Cork declaration very clearly and agree it was an excellent document, which paved the way for the future.
I congratulate the chair of our committee, the noble Earl, Lord Selborne, as well as members of the committee, the Clerk, Tom Radice, and his staff. I was not a member of the committee when the environmental regulations and agriculture report was produced, so I can look at it fairly objectively, from the outside looking in.
On the inside flyleaf of the report are 45 acronyms. One of them is EMS. To me that means the monetary system of the European Community—but no, it means environmental management standards in this case. GAP is an unfortunate acronym, as it describes something praiseworthy. There is also GIS and MAGIC, which is apparently multi-agency geographic information for the countryside. The flyleaf of the document encapsulates the problem. Each of those acronyms needs to be explained.
Like other noble Lords, I greatly appreciate the whole-farm approach espoused by the report and its recommendations. The core recommendations are on risk-based approaches, partnerships between regulators and regulated, whole-farm planning, which goes with the whole-farm approach, and government support for transition into new regulations, together with matters concerning barriers to information exchange.
The report says that of the 50 environmental legislative items coming in, 20—two fifths—will impact on agriculture. How can the environmental goals in farming he achieved without some enforcement? Yet that causes the problems that have already been mentioned.
The environmental issues within EU legislation address air quality, chemicals, land quality, water quality and waste and packaging. We already have four EU directives that impact on agriculture—the Water Framework Directive, the Integrated Pollution Prevention and Control Directive, the Nitrates Directive and the Waste Framework Directive. The increasing burdens on farmers were mentioned by the noble Lords, Lord Carter and Lord Plumb. The chief executive of the Environment Agency—the noble Baroness, Lady Young—has stated that smarter, less cumbersome regulations need to be brought in. I agree. The noble Baroness has called for the adoption of environmental management as standard, with a single framework to help farmers manage environmental input.
1622
The problem is the approach that is needed. As the noble Lord, Lord Plumb, said, the changes for environmental controls are statutory. There are two possible approaches. We can use a carrot to encourage compliance or we can use a stick approach. Many aspects of that approach have been mentioned in the debate, so I shall not go into it.
Diffuse pollution has been highlighted as a major problem, as I know from my experience as a former farm manager and smallholder. Engaging stakeholders early in formulating EU environmental legislation is particularly important. We might get practical results from that. The integrated framework for farm planning in that respect becomes more and more crucial.
A number of organisations have got in touch with the committee about the report. Page 7 of the report refers to the scope for implementing regulations in a user-friendly manner. That is extremely important. Indeed, opportunities for mitigating regulatory burdens through measures such as pollution prevention are, again, extremely important. The case for greater self-regulation in return for more targeted external regulation, while still complying with environmental obligations prescribed in EU legislation, is also extremely important.
The Environment Agency advocated expansion of funding for agricultural environmental schemes, which is extremely important and endorses the whole-farm approach. The NFU has said that it wants a competitive and sustainable agricultural industry; indeed, it is that organisation's duty to aim for that, but it is extremely difficult to achieve at present. The DEFRA report, Farming and Food: A Sustainable Future, also underlined some of the important points, calling,
"for subsidies to be redirected from producing crops to protecting the environment".
What kind of delivery system will be put in place for that?
The Curry report states:
"We believe that farming and the food industry is on an unsustainable course in economic terms, and it is also unsustainable environmentally".
That is a real crisis statement of the first order. The situation must be overcome, and it represents an enormous challenge. The major challenge will be to discover how we go about it. I am pleased that the government response accepts all the committee's recommendations.
In conclusion, the European Union Committee report maps out a sound environmental and farming future. It is good that the Government accept the recommendations, but I believe that they have a challenge. No lead has been given on economic incentives for farmers who carry out what is required in the rural environment. The Government are strong in aspirations but weak on the delivery and support system networks, which do not exist as they once did. The noble Lord, Lord Carter, referred to NAS and ADAS and to the fact that they were free at the time of delivery. The challenge then was to produce enough

1623
food for the country; now it is to produce it in an environmentally friendly way. Surely, that is a challenge equal to the one we had in the past.
We need whole-farm plans and environmental and economic targets that produce sustainable outcomes for farming families and the environment, with a value placed on the goods. That can be produced only through an integrated system of universities and colleges, staff and students and an advice network with advisers in the field. A headmaster told me recently not to worry, because 98 per cent of his students were environmentally conscious. The next generation will be in a position to deliver those objectives.
2.34 p.m.
Baroness Byford: My Lords, I thank my noble friend Lord Selborne and his committee for producing an excellent, thoughtful and detailed report.
The committee proposed a clear set of principles, recognising the importance of the relationship between environmental and agricultural policy in the context of current negotiations on the enlargement of the European Union and the mid-term review of the common agricultural policy. We are grateful to the committee for its excellent work. The eight recommendations in the executive summary speak for themselves. The first recommendation was on the need for a new risk-based approach to farming regulation which makes full use of self-regulation and avoids formal regulation wherever possible. Noble Lords have already touched on that issue.
In its briefing report, the NFU also recognised the need for a new approach to regulation. Such an approach must include an assessment of whether the environmental objectives sought really have to be pursued within a regulatory framework at all. The NFU endorses the recommendation that, as noble Lords have said, stakeholders must be engaged at the earliest possible stage in the development of EU legislation. In addition, the NFU recommends that the process of "agricultural proofing" must be engaged from the outset to ensure relevance and proportionality.
Many noble Lords said that agriculture's problems with environmental regulation arise not only from the regulation design process but more often from interpretation and implementation at member-state level. As noble Lords said, codes of good agricultural practice to help farmers deliver environmental objectives should be user friendly. Advice and encouragement should be the first step to ensuring a successful outcome.
In turning to some of the specific evidence given to the committee, I draw noble Lords' attention to the cost of regulation. The fact that I am the fourth speaker to mention the issue should demonstrate to the Minister how important it is. The chairman has referred to the Environment Action publication of February 2002. The leading article stated:
"Laws introduced in the next few years alone, which include agricultural waste regulations, could cost farms between £25–40 million and involve 200,000 Agency inspections".
1624
That is a huge burden, and one must again ask whether it is really necessary.
The cost of the IPPC regulations was raised with me again just two days ago in an informal meeting with egg and poultry producers. The regulations will add significant costs to the industry at the very time when cheaper chicken meat is flooding into UK markets, and that includes imports from countries that do not bear many of our regulatory burdens. As the Minister will be aware, infected substandard chicken meat has been arriving in the UK and is a great concern. I therefore have a few questions for him. Who decides on the scale of costs placed on UK business? Is it DEFRA or the Environment Agency? If it is neither of those, who is it? Are the costs checked?
One or two noble Lords mentioned the issue of regulation for which our country is not prepared. Noble Lords have also cited the dumping of fridges, electrical goods, tyres and plastic sheeting. Decommissioned cars are becoming a huge problem in our countryside. In less than four weeks, on 1st April, I think, we will also be hit by the fallen stock directive. In a debate last week, I asked the Minister to say a little about proposals for coping with the fallen stock directive. He was unable to address the issue then, but I hope that he can do so today.
In the Better Regulation Task Force publication of November 2002 entitled Environmental Regulations and Farmers, the noble Lord, Lord Haskins, recognised that farmers have been subject in recent years to a considerable increase in regulatory obligations. The report highlighted the number of regulations governing environmental and food safety and those dealing with animal welfare. He also acknowledged that the public expect British farmers to produce food to high standards, but he found no evidence that the consumer was prepared to pay a premium for food produced to meet those higher standards.
The balance of which noble Lords have spoken is hugely important as regards regulation. It is against that background that we must continue to ensure that new regulations do not put UK farmers at a financial disadvantage. If we fail to do so, we shall end up by exporting not only our farming industry but also our food industry and will become totally dependent on imports, thus wrecking our balance of payments and failing to look after our countryside.
In the 2000 report of the noble Lord, Lord Haskins, the committee found a lack of co-operation between officials involved in developing environmental and agricultural policies, a failure by government and farming representatives to engage sufficiently early in European policy development and poor communication between policy makers and those who regulate. The noble Lord, Lord Haskins, pointed that out in 2000 and here we are over two years later still saying the same thing. I hope that the Minister will give some encouraging messages as regards progress that has been made on that matter.
In their response to the Select Committee report, the Government stated—as, indeed, my noble friend Lord Plumb said—that DEFRA would develop something

1625
which would be of benefit to the industry and not cause additional unnecessary bureaucracy. On reading through the Government's response, I was glad to see that they were supportive of many of the committee's recommendations. However, I have one or two reservations. What disappoints me most is that some changes are to be implemented some time in the future. Some will be implemented this year but some will be implemented next year, some the year after and, as my noble friend Lord Crickhowell, said, some are to be implemented nearly 10 years hence. That is simply not good enough. The noble Lord, Lord Haskins, pointed out back in 2000 the need for urgency. I wonder how far we have moved forward on those issues. I understand that it takes time to put procedures in place. But with farming in its present crisis, the one thing that we do not have is a great deal of time. My noble friend Lord Crickhowell expressed his dismay at the delay in the system, particularly on the IT side. I share that dismay. I believe that all noble Lords find that unacceptable in this day and age when IT systems are developing so quickly.
Finally, I urge the Government to remain vigilant and to ensure that any cross-compliance regime that is introduced is compatible with the need to retain competitive and sustainable agriculture. A balance has to be struck between the farming industry and those who have to work the land and between NGOs and those who want to conserve and preserve our countryside, as we all do. A balance obviously has to be struck between what the Government have to do formally and what they can do on a voluntary basis.
As my noble friend Lord Selborne said very specifically in his clear opening speech, clear thinking is needed now. The objectives that we are trying to achieve must be established and practical measures must he adopted. As I say, we need a partnership between farming, industry and all of us as individuals, but we also need to press forward with great urgency. I again thank my noble friend Lord Selborne and all those who worked so hard and contributed to this excellent report.
2.44 p.m.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty): My Lords, I thank the noble Earl, Lord Selborne, the other members of the committee and those who contributed to the debate. As has been said, the Government's general response to the report is very much in favour of the objectives that it recommends. In that sense I believe that we all look to the same outcome.
There has been a fair degree of consensus in the debate. Underlying some of the comments—I refer to the noble Baroness, Lady Byford, and the noble Earl, Lord Erroll, in particular—is an emphasis on something that we cannot perhaps avoid. The fact is that we are changing the nature of support for farming across Europe as a whole. There are negotiating arguments about how far and how fast that should be done, but it is changing, as the noble Lord, Lord Plumb, said, to environmental outcomes rather than
1626
production outcomes. Either way, that involves large sums of taxpayers' money and regulations about the application of that money. To that extent, agriculture will always have slightly more regulation in one sense than other industries. It also cannot escape society's general concern, which applies to so many other industries, about the environment, safety and the welfare of workers and consumers, which has already hit many industries.
The issue is not whether one can avoid regulation, because we cannot. However, as the noble Lord, Lord Livsey, said, we will look at alternatives to regulation, such as economic instruments and so on. Much of the regulation is already in the pipeline. Our discussion is about how we deliver that regulation. Nor—this is perhaps even more controversial—can we entirely avoid the costs to the agriculture sector of that regulation. Many other industries already absorb their externalities in terms of pollution costs, for example, which agriculture does not as yet do to a large extent. We want to do so in a way that is compatible with production and the environment. A cost is nevertheless involved. The question is: how can we ensure that the industry absorbs that cost in a way that does not make it uncompetitive? It would be foolish to suggest that we could avoid it.
The noble Baroness has previously challenged me to explain the position with regard to fallen stock. That is not quite central to the report but it is symptomatic. There is a new regulation: it may be unwelcome but it is based on good environmental, safety and disease considerations. Anyway, we have it. It involves a system to which the industry will have to adapt. The Government have proposed that we put our existing resources at the disposal of a national collection scheme. Those resources largely relate to OTMS. The scheme is already in place. We may be prepared to put in a little more in terms of directing a new scheme; the devolved Administrations have also said so.
At the end of the day, some of that cost will fall on farming. The reason why we have not, so close to the deadline, got a proper disposal system up and running is because farming—or its representatives—has resisted the view that it should contribute towards that cost. Frankly, in other sectors, the industry would have to bear all of that cost. The industry does not have a sensible approach in that regard or others. If we all do strongly what the report suggests—that we should engage stakeholders early in the processes of drawing up the regulation and of sorting out how to implement it—some of the problems can be avoided. Some of the proposals could become much more user-friendly in that process. We accept that recommendation. At the end of the day, if we have a complete stand-off between the industry and the Government, we will not achieve the best way of dealing with the regulations.
The background to this issue involves the difficulties of the farming industry and of making adjustments to the new requirements. The Curry commission and the Government's response to it set out clearly that we must make substantial changes. The Curry commission and the Government fully endorsed the

1627
overall recommendations of the report from the noble Lord, Lord Haskins, and the Better Regulation Task Force, which contained some of the report's recommendations.
In particular, we consider that the multiplicity of directorates, inspections, different agencies and different sets of regulations with which farmers have to deal, as alluded to by the noble Lord, Lord Plumb, my noble friend Lord Carter and the noble Earl, Lord Erroll, is one of the problems. Sometimes they are contradictory, and sometimes regulation in one area will cause a problem of failure to meet the regulatory outcome in another. Therefore, the whole-farm approach—taking the totality of the farm and regulating that—will not only make life easier for the farmer in having to deal with far fewer sets of regulators, it will also maximise the environmental, safety and other outputs.
However, it is difficult to get from here to there. There is a great deal of inherited regulation and a great many inherited relationships and inherited attitudes. Our farmers need advice in order to get through the labyrinth. I take the point that in the earlier era of ADAS and so on there may have been more structured advice. But, ultimately, through negotiation and discussion with farmers, the system must change. We believe that if we can move to a whole-farm approach, both in planning production and in regulating that production, then that is where we should all be aiming.
Clearly, the fact that farmers are largely small businesses aggravates the situation of multiplicity of contacts. However, it does not alter the fact that farmers must do many different things with the land. That can have different impacts on other parts of the countryside and on society as a whole. Therefore, we need to bring together those different aspects in a compatible way and we need to assess where the greatest risks lie.
The first and second recommendations of the committee relate to that. They concern risk-based regulation in terms of both the regulation itself and the way that the regulation is enforced. A risk-based approach is an important ingredient of that, but it requires a mutual trust between the regulator and the regulated which is often absent. There are problems on both sides in that respect. However, if we are to have an overall farmers' environmental management procedure and if the EMSF—to add another set of letters to the acronyms of the noble Lord, Lord Livsey—which the NFU and the Environment Agency are currently engaged in delivering, is to work, then there must be a system of mutual trust so that we can understand how the matter can best be approached.
If we establish that, then voluntary activities and other approaches will help to deliver the outcome that the regulation seeks to achieve. The Government also strongly support the concept of working together, which, in effect, is the basis of the third recommendation.
1628
The fourth recommendation is that we build a new approach to environmental regulation around whole-farm plans and whole-farm management systems. As I said, that is our overall objective. The EMSF will provide farmers with a straightforward tool so that they can demonstrate compliance with various aspects of the various forms of regulation to the satisfaction of the different regulators.
The Environment Agency can also use those data in order to take a more holistic approach. It can simplify the bureaucracy and the administration by putting in place standard procedures, standard registration and standard application structures. As the noble Earl, Lord Erroll, said, IT greatly helps that possibility. We certainly want to meet the deadline of 2005 in all our services. Of course, take-up is not necessarily the same as offering the service. Nevertheless, the more farmers who are engaged in that and the more robust our systems by that time, the more effective it will be. Therefore, we shall build the EMSF. That part of the regulation is already being pulled together and forms a substantial part of the environmental regulation of farmers.
I turn to the Health and Safety Executive side of the issue. The self-assessment system that it is introducing for farmers and elements of the new agri-environment scheme, to which my noble friend Lord Carter referred, will also help to provide the building blocks for whole-farm self-assessment and therefore whole-farm regulation.
To my noble friend Lord Carter I say that from this year the new agri-environment scheme will be piloted and should be introduced in full, subject to the pilots, in 2005–06. An allocation of European-matched funds has been made to ensure that that happens.
My noble friend tempts me to commit the Chancellor of the Exchequer to ensuring that the same or higher level of finance is there in the future. I fear that I am not in a position to do that. However, farmers who enter the scheme are in a contractual arrangement and the Government abide by their contractual arrangements. Following Curry and following our sustainable food and farming strategy, I hope that it is clear that the strategy that we have adopted has a central theme relating to the agri-environment schemes so that one can make certain presumptions. Beyond that I shall not commit the Chancellor of the Exchequer.
The fifth recommendation of the Select Committee is about farmers' skills. That relates to new skills that they have to acquire over and above the traditional and more modern farming skills that most of them have already. That includes business skills and IT skills. It is important not only that we help them to develop such skills, but also to adapt the systems so that it is easier to use the technology that we are bringing on stream.
It is important that the agencies use the same approach. If a farmer provides to any government agency certain information, subject to the normal data protection laws, that should be available to other

1629
agencies. Therefore, we accept the report's sixth recommendation that the barriers to information exchange should largely be removed.
We are already taking steps to enable effective data sharing, while working with farmers and with the farming unions to determine to what extent information is acceptable to them and how they can best use it. We are also drafting a regulatory reform order for the release of agricultural census and survey data to the Health and Safety Executive, to the Food Standards Agency and to some of the DEFRA agencies where under current legislation there are legal barriers to exchanging information. That is being dealt with in a cautious way but as rapidly as possible. We are being cautious because the issue of commercial confidence needs to be incorporated.
It will take time to put all those regulatory changes in place. However, we accept the seventh and eighth recommendations that timescales for development should be reduced as much as possible. I have referred to the activity under the general auspices of the Environment Agency. The other big element which is subsidy related, relates to the RPA—the Rural Payments Agency—which deals with all the IACS arrangements. There again we are rationalising the information required for the whole range of IACS payments and we are helping farmers by providing them with a digital up-to-date map of their holdings and a basic form and map that they can fill in so that they do not have to re-invent the wheel every year, or in some cases every quarter. That is an important step forward. The Rural Development Programme IT strategy should be completed by 2005 and the electronic files will be immediately accessible on line.
Underlying many comments not only about information but also about policy and enforcement is the fact that there should be more joined-up government between the various government agencies. That is a clear aim for the Government. We have established a DEFRA-chaired steering group for the regulation of agriculture which started last year and we are bringing together a common strategy with consistently better policy and enforcement practice. On the basis of the Better Regulation Task Force, on the basis of the Curry commission recommendations and on the basis of what has been tackled by the Select Committee in its report, the Government are implementing a more efficient, a more user-friendly system of regulation of agriculture to help farmers to cope with that and to manage their production systems in line with that. We also have a strategy to introduce risk-based environmental regulation across all sectors, but particularly focused on agriculture. We also have a strategy for joined-up government to tackle that.

Several points were made by noble Lords, but most of them fall within those broad areas. I concur that problems with the regulation of tyres, plastics and refrigerators—and all the other problems that have emerged—largely reflect a lack of engagement with stakeholders at an early stage and a lack of consideration of the particular problems of farm
1630
businesses in complying with general regulation. As part of our reform of the system, we are attempting to tackle such problems.
Finally, the noble Earl, and others, challenged us about the 10-year period, to which reference was made during the course of the inquiry. The noble Lord, Lord Crickhowell, was especially ferocious on the matter both in the committee and in the Chamber. Let me make clear that if we were dealing sequentially with all those matters, it would take 10 years. If we can deal with many of them in parallel, bring them together, engage stakeholders and succeed in achieving joined-up government, it could take a lot less time than that. The timescale for the big chunks of rationalisation, such as those of the Rural Payments Agency and the Environment Agency, is indeed 2005—two years.
Ten years is an unacceptable timescale to me and my ministerial colleagues. If we are to transform not only the system of regulation but the relationship between farmers and government agencies, we need a much shorter timescale. I shall not provide an alternative date today, but I sympathise and agree with the view that 10 years is far too long and that, after the delivery of those two big chunks in 2005, we should get much closer to delivering the totality.
Lord Crickhowell: My Lords, I am grateful to the Minister for giving way. I have just reread the evidence and see that I apologised to the Minister's officials for being quite so ferocious and said that the ferocity was of course directed at Ministers. I am deeply grateful for the fact that that ferocity has produced a much more encouraging and optimistic response from the Minister and we look forward to real progress being made.
Lord Whitty: My Lords, I am grateful for that. It is not that my officials are incapable of absorbing such ferocity, but it is not always their fault. Ministers must take responsibility, and we made clear to the officials and agencies concerned that the timescale that we are considering is considerably shorter than may have been implied in that evidence session.
I am grateful to the noble Earl, the committee and all noble Lords who participated in the debate. There is much work for us to do, but we are determined to deliver the objectives sought by the Select Committee.
Baroness Byford: My Lords, before the Minister sits down, perhaps I may respond. I think that he earlier inferred that I suggested that we should avoid regulation. If I have misunderstood what he said, or if he misunderstood what I said, I clarify that I do not think that we should avoid regulation. I was trying to say in that context that regulation should apply across all member states and that some member states interpret it differently. I should hate the record to be incorrect.
Lord Whitty: My Lords, I apologise if I gave the impression that the noble Baroness was a complete opponent of regulation. I occasionally receive the impression that some regulations irritate her a little.
3.4 p.m.
The Earl of Selborne: My Lords, I should not want for a moment to detain my noble friend Lord Plumb from his environmentally friendly farming—or, indeed any other Member of the House—for a moment more than necessary, but I thank the Minister for his positive and helpful response. Even my rather dubious noble friends Lord Crickhowell and Lady Byford have been persuaded that the 10-year timescale is as unacceptable to the Minister as it was to the committee. I must say that we shall carefully monitor how quickly the impressive proposals are implemented. I thank all those who participated in the debate.
On Question, Motion agreed to.

Equality Bill [H.L.]
3.4 p.m.
Lord Lester of Herne Hill: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Lord Lester of Herne Hill.)
On Question, Motion agreed to.
House in Committee accordingly.
[THE CHAIRMAN OF COMMITTEES in the Chair.]
Clauses 1 to 5 agreed to.
Clause 6 [Protected areas of activity]:
Lord Borrie moved Amendment No. 1:
Page 5, line 14, leave out paragraph (f).
The noble Lord said: I shall speak also to Amendment No. 8, with which Amendment No. 1 is appropriately grouped. Both amendments stand in my name and that of the noble Lord, Lord Henley. When I first studied the provisions of the Bill concerning members' clubs, I noticed the exemption for single-sex clubs. It is welcome. As a matter of principle, I believe it wrong for the law to intervene in how people choose to associate with others in their social lives.
I notice that the wording used to define single-sex clubs is similar to that used in the Race Relations Act 1976 to define clubs for single-ethnic or single-national groups. They are allowable as an exemption to the main rules prohibiting race discrimination so long as the exclusivity is not based on colour. The Bill repeats the exemption allowed in 1976 for single-ethnic or single-national clubs exclusively open to people of one such group. It also adds an exemption for clubs catering for single-religious groups in respect of the new provisions in this Bill prohibiting discrimination on religious grounds.
My concerns about those provisions and the reasons why my amendments seek to delete them are threefold. First, if it is thought appropriate to exempt single-sex, single-ethnic or single-religious group clubs from anti-discrimination laws, why not clubs confined to particular age groups or people of particular sexual
1632
orientation; for example, pensioners' lunch clubs, youth clubs or gay clubs? Does not the logic of the Bill suggest that those clubs, too, should be exempt from the anti-discrimination provisions, which cover much broader areas than they have done heretofore?
My second concern is that, because the wording used to define single-sex clubs is borrowed from Section 26 of the Race Relations Act on single-ethnic group clubs, we have a complicated set of words that is difficult to interpret. Instead of just referring to, "an organisation which restricts membership to persons of one sex", it refers to,
"the principle purpose of which is to enable the benefits of membership to be enjoyed by persons of one sex".
It states that to determine the principal purpose, regard is to be paid to the essential character of the association, all relevant circumstances and whether the affairs of the association are so conducted that persons enjoying membership benefits are of one sex.
During the Committee stage of the Sex Discrimination Bill introduced by my noble friend Lord Faulkner, I pointed out the problem of the Garrick Club, of which I was a member and still am. Its objects or purposes, which were stated when it was founded in 1831, are concerned with drama and literature, but, as is well known, membership is limited to men only. In that debate, the noble Lord, Lord Lester of Herne Hill, accepted the difficulty that I had pointed out—his words are reported at col. 1252 of Hansard for 8th May last year—and produced a clearer form of words in an amendment that was tabled on Report. Now he has gone back to the more problematic wording that appears in the present Bill.
I have a third and final concern about the provisions dealing with private members' clubs. Although single-sex clubs are, as the noble Lord said at Second Reading, intended to be and, subject to what I have just said, are exempt from sex discrimination laws, a male club that allows women into any form of membership—for example, associate membership—must grant them the same rights to facilities or services in the club as men. Paragraph 41(1)(c) of the relevant schedule makes it clear that that general right to facilities or services applies even to non-members—that is, guests.
Last year, during the passage of his Bill, my noble friend Lord Faulkner of Worcester gave us the facts about working men's clubs that belonged to the Club and Institute Union. He pointed out that the largest proportion of such clubs—60 per cent or 1,612 clubs—allow women to join but with a different class of membership and a lower subscription. Members of those clubs, as distinct from the national executive of the CIU, appear not to want women to have full and equal rights with the men. That might be because they want to preserve one of the bars in the club for men-only drinking. Is that so terrible that we legislators must introduce a law against it?
I apologise to those who were here for the discussions on my noble friend's Bill last year for repeating myself, but I must ask again what moral or other right we have, as legislators, to impose equality

1633
by law, contrary to the wishes of the members of a free society or club. As we all know, clubs of all kinds have, over the years, changed their attitudes, especially to membership for women, although not all have done so, including the college in Oxford that apparently wishes to remain women-only. Over the years, clubs of most kinds throughout the country have changed their attitudes and are multi-sex. That position should be allowed to evolve in accordance with the wishes of the members of the clubs concerned. The freedom for people to associate or not to associate as they choose should not be subverted by an over-eager attempt to involve the law in enforcing so-called correct attitudes to our fellow human beings.
I recognise that there may be a case for bringing within the scope of anti-discrimination law clubs that have such a huge membership that they virtually provide a public facility. I think, for example, of a golf club that may be the only such facility in an extensive area. The Bill will apply to all clubs of every kind, including those with a membership as small as 25. I have not, however, tabled an amendment to fix a higher membership number. As I have several objections to the provisions relating to clubs, I prefer to seek to leave out of the Bill all coverage of members' clubs. That is what the amendments do. I beg to move.
3.15 p.m.
Lord Henley: I support the noble Lord, Lord Borrie, in moving Amendment No. 1. I am not sure whether I should declare an interest because as the noble Lord, Lord Borrie, explained, the Bill does not affect single-sex clubs. I am a member of a number of single-sex clubs. However, the Bill affects other clubs. As the noble Lord made clear, he was speaking not only for single-sex clubs, but also pensioners' clubs, gay clubs and a whole host of others, all of which might be affected.
I do not believe that there is anything that I can add to the points made by the noble Lord, Lord Borrie. I rise merely because during Second Reading of the Licensing Bill, the noble Lord, Lord Faulkner of Worcester, pursued the line that he pursued with his Sex Discrimination (Amendment) Bill. He tried to imply that there were relatively few noble Lords of the same mind as the noble Lord, Lord Borrie, and that there was general support around the Chamber for his own ideas about enforcing equality in clubs.
As the noble Lord will remember, a number of noble Lords—not only myself and the noble Lord, Lord Borrie—opposed what he was trying to do in the Sex Discrimination (Amendment) Bill and what the noble Lord. Lord Lester of Herne Hill, is doing now. For that reason, I felt it appropriate to add my name to that of the noble Lord, Lord Borrie, and to give the amendment my support. I shall continue to do so as he and the noble Lord, Lord Lester, make this and further attempts to bring what they consider to be equality to
1634
an area in which, as the noble Lord, Lord Borrie, puts it, it is not really appropriate for Parliament to intervene.
Lord Faulkner of Worcester: I shall speak briefly. We have been over this ground a number of times. As both noble Lords who have just spoken said, this issue was covered at great length during the passage of my Sex Discrimination (Amendment) Bill in the last Session. The noble Lord, Lord Lester, had a debate on equality in the last Session also. Indeed, there were a number of debates during the passage of the Licensing Bill, in so far as that Bill applies to the governance of private members' clubs.
I shall make three points. The first is in response to the noble Lord, Lord Henley. For him to give the impression that there is somehow a well of support among Members of the Committee for the continuation of discrimination in private members' clubs is extraordinary, given that the official Opposition in the shape of the noble Baroness, Lady Buscombe, the Liberal Democrat Front Bench in the shape of the noble Lord, Lord Redesdale, and my noble friend Lady Scotland speaking for the Government, all indicated that they want to see a change in the law and that it applied—
Lord Henley: I thank the noble Lord for giving way. From my experience both on the Front Bench and the Back Benches over 25 years in this House, l have found that when all three Front Benches agree they are normally completely and utterly wrong.
Lord Faulkner of Worcester: On this occasion it is hard to say that they were wrong. I think that the number of Members of the Committee who have spoken in the same manner as he and my noble friend Lord Borrie can be counted on the fingers of one hand. All I would say about this amendment and the issue in general is that since I raised the issue in my Private Member's Bill and it has continued to be in front of your Lordships, I have continued to receive letters and e-mails from men and women who regard the continuation of discriminatory practices in private members' clubs as quite unacceptable. I continue to receive examples of outrageous behaviour in which women are discriminated against in the governance of clubs, in the access to facilities and so forth.
I shall not go into those now because it is late and it is Friday afternoon. Those examples are well-known to your Lordships. I can put them on the record again if that is required.
I should like to pose a question to my noble friend Lord Borrie—presumably he will be replying to this debate. What is there that is different about his argument relating to sex discrimination in private members' clubs that does not apply with equal force to race discrimination in private members' clubs? Is he proposing that there should be a repeal of the race relations legislation as far as it affects private members' clubs with 25 or more members, in the same way as he is proposing in the case of sex discrimination? Taking on board the argument that

1635
private members' clubs are, in some way, an extension of one's home and that one should have the right to associate, surely, the logic of that is that you should, if you want to, exclude from membership of clubs people who are perhaps Jewish or black or of Asian origin.
I would be astonished if my noble friend took that view, but the logic of what he says about the way in which people pick and choose who can take part in clubs applies in equal measure. I am sure that the Committee will not want to accept the amendment. However, it is important that we debate it and that the Committee shows itself in favour of the principle contained in the admirable Bill introduced by the noble Lord, Lord Lester.
Baroness Buscombe: I rise briefly on behalf of Her Majesty's Opposition to respond to the amendment. I repeat what I have already said in this House with regard to the issue. We believe that where individuals of both sexes are invited to be members of a private club, they should enjoy that membership on equal terms.
I want to ask a question that is perhaps best put to the noble Lord, Lord Lester of Herne Hill. I have no doubt that he will want to speak briefly in relation to the amendment. It relates to associate membership. The noble Lord, Lord Borrie, stated that the Bill would allow women, if they are accepted into membership of a club even as associates, to be entitled to the same facilities as men. It is important that we are clear about that.
There is probably a question over what constitutes an associate. Normally one thinks of associate membership as entitling an individual to a reduced membership fee, with reduced rights or access to facilities. My initial response would be that the right to associate membership should be offered to both men and women on equal terms. I hope that the noble Lord, Lord Lester, will clarify that.
Finally, I entirely concur with everything said by the noble Lord, Lord Faulkner of Worcester, in relation to other types of discrimination. We are focusing on single-sex clubs and single-ethnic or religious-group clubs being exempted from the Bill. The issue is important and I am pleased that we have another opportunity to debate it, but we cannot support the amendments.
Lord Addington: I want to register the view that I find most offensive the idea of having a bastardised membership of these groups.
Lord Lester of Herne Hill: Perhaps it would be helpful if I dealt with some of the questions that have been raised. I begin by pointing out that the effect of the noble Lord's amendment would be to remove the management of all clubs from the scope of the Bill. That would have a surprising consequence, which I doubt he intends: that colour bars, which have been forbidden since 1976 in all clubs of more than 25 members, would suddenly become lawful. That was a real vice in the early 1970s when working men's clubs,
1636
of which there were more than 1 million members throughout the country, maintained colour bars against members and associate members. For that reason, the Race Relations Act 1976 dealt with the matter. Although that is the effect of the amendment, I am sure that it cannot be the noble Lord's intention to repeal that important remedial provision.
Secondly, in answer to the noble Baroness, Lady Buscombe, who knows that I would much rather refer to her as Senator Buscombe, in Schedule 2, paragraph 41(1)(a), and the definition of "associate" in paragraph 41(4) on page 89, it is the intention to include a prohibited discrimination against associates as well as members.
Thirdly, before dealing with the specific points raised by the noble Lords, Lord Borrie and Lord Henley, I should like to address the issue of principle they have raised—that is, whether it is right for legislation to enter the private sphere.
The noble Lord, Lord Borrie, was a distinguished member of the Equal Opportunities Commission in its early glory days from 1977 onwards. He therefore will know, in particular, that both the Race Relations Act and the Sex Discrimination Act did and do rightly interfere in the private sphere. I remind the noble Lord that those statutes deal with race and gender discrimination in the sale or letting of private houses and flats, with the exception of small dwellings with shared accommodation. They deal with access to private partnerships—for example, to a partnership of a GP's surgery. They deal with trade union branches, which are really private clubs in legal form. They deal with private schools of any size. They deal with barristers' chambers, I am glad to say, of any size. And they deal with members' clubs of more than 25 members in relation to colour bars.
Speaking as one of the midwives of the legislation, I see no objection in principle for legislation to command equal treatment without discrimination on a forbidden ground. That is mainly because—although these bodies are private, some of them are as powerful as any public authority—it is unconscionable and unfair to treat any individual human being less favourably than another human being on arbitrary grounds. That is why this country, the United States and the democracies of the Commonwealth have found it necessary to interfere through legislation in this way, provided that there are exemptions for personal privacy and freedom of choice where necessary.
We have tried in the Bill to balance correctly the command of equal treatment without discrimination with concern for other rights and freedoms. We have sought to do that, first, with the Garrick Club exception. Like other noble Lords I declare an interest—or, in this case, lack of interest— as a former member of the Garrick Club. I resigned when 80 per cent of the members made it quite clear that they would never see a woman member in their lifetime. I felt that it was a fine club but not one that I could any longer feel comfortable staying in. So I have now a former interest and a present lack of interest.

1637
In paragraph 43 of Schedule 2 we seek to exclude single-sex members' clubs. The way in which we have set about doing that would not harm the Garrick Club in any way provided that its members, as the noble Lord, Lord Borrie, indicated, have rules that refer to drama, the law and literature as principal objects of the club. Provided they make clear in their rules—which would require nothing more than a simple rules amendment—that it is a club the principal purpose of which is to give benefits to men, which is clearly the case, the fact that the men are thought to come from the law, literature, the theatre, advertising or commerce. as they tend now to be, will not in any way bring it within the scope of the Bill. If the principal purpose is single sex, then, just as in the case of a single-sex school. it will be entirely outside the scope of the Bill.
Similarly, we have included in paragraph 42 exceptions for racial and religious groups, other than in respect of colour bars. We believe that we have excluded—but we may have got it wrong and I shall think about it—for example, a gay or lesbian club under the positive action provisions in paragraph 46. I shall look at that issue again. We certainly did not intend, of course, to forbid, for example, an old-age pensioners' club from excluding young people. All those are areas of sensible personal choice about which no one could possibly worry—any more than one would about a mothers' union, a parents' union or a group of that kind. That is the intention. I should like to consider the detailed criticisms made by the noble Lord, Lord Borrie, to make quite sure that we have not intruded into those areas in that way.
But, so far as principle is concerned, I cannot for the life of me see—provided we exclude single-sex clubs—any way in which, these days, the provisions on the management of members' clubs ought to be excluded from the Bill in their totality. I very much hope, therefore, that the noble Lord, Lord Borrie, will not press his amendment.
3.30 p.m.
The Parliamentary Secretary, Lord Chancellor's Department (Baroness Scotland of Asthal): First, perhaps I may apologise for not having taken part in the debate at Second Reading. I agree with the remark made by my noble friend Lord McIntosh at Second Reading that this is not a run-of-the-mill Private Member's Bill. I agree with him that it will make a continuing, valued and worthwhile contribution to the debate on the issues covered by it.
The Government share the desire of the noble Lord, Lord Lester, and other noble Lords for greater equality of opportunity for all. Our difference lies in the approach, as we do not believe that the time has come for comprehensive reform of the law as proposed by the noble Lord, Lord Lester. Therefore, we cannot support the Bill generally. However, perhaps I may make a few comments on the matters currently under discussion.
We agree with the inclusion of the provision on clubs in the Bill in so far as it relates to protection against discrimination on grounds of race, sex or
1638
disability. It accords in principle with the Government's announced intention to include provisions in the draft disability Bill to be published later this year to cover membership of larger private clubs in the Disability Discrimination Act 1995. Racial discrimination has been prohibited, as the noble Lord, Lord Lester, made clear, in such private clubs since the coming into force of the Race Relations Act 1976. I understand that another Bill dealing with sex discrimination in private clubs has been introduced in another place and is due to receive its Second Reading today. It has the full support of the Government and I wish it well. While I cannot give any assurance about future legislative plans, if that Bill does not make progress we shall he keeping the situation of private clubs and sex discrimination under review.
Perhaps I may say at this point—because I do not intend to interfere further in Committee—that we are taking a different, but measured, approach to achieving our joint aims in this field. In due course, the terms and conditions that we shall explore will come before the House.
Lord Borrie: A number of most interesting points have been raised. I gladly welcome all the contributions that have been made. I particularly welcome the willingness of the noble Lord, Lord Lester, to look further at provisions in the Bill to see whether old people's clubs, youth clubs and the like would be exempt from anti-discrimination laws.
In that respect, I noted that my noble friend the Minister said that the Government were in favour of anti-discrimination laws in relation to race, religious affiliation and sex as applied to clubs. However, she did not refer to—
Lord Lester of Herne Hill: Will the noble Lord give way? The Minister referred to race, sex and disability.
Lord Borrie: I thank the noble Lord for assisting on that point. I note that she did not refer to the other matters of age, sexual orientation and so forth referred to in the Bill. Subject to that, I welcome the noble Lord's remarks about looking again at the comprehensive logic of his Bill, as to where the anti-discrimination laws should apply in relation to clubs, and where there should be exemptions—as he has provided for in relation to single-sex clubs, single ethnic or national group clubs and single religious group clubs. Beyond that, I say to both the noble Lord, Lord Lester, and my noble friend Lord Faulkner of Worcester that it is important to make a distinction between what one considers to be unfair as well as morally and ethically wrong and where the law should intervene. I say, as anybody would in this House—and, one hopes, in most places elsewhere—that one dislikes and is against the application, in private members' clubs or elsewhere, of discrimination on grounds of sex or race and, most obviously, colour, as indicated in the Race Relations Act 1976. Subject to that, it is important to know where to draw the line.
The noble Lord, Lord Lester, referred to several areas of private activity which are already covered by the law, and I do not want to alter that. He gave the

1639
examples of private partnerships, private lettings, trade union branches and educational provision by private schools. These are all facilities available to the public, so far as they can afford private schools. Trade union branches can never be regarded as merely private clubs because they have such an important impact on employment opportunities.
Lord Lester of Herne Hill: I am grateful to the noble Lord for giving way again. It is not right to say that a barrister's set of chambers, which might have only 10 barristers, is included in the Bill because they provide facilities for the public. The Sex Discrimination and Race Relations Acts quite rightly forbid my chambers from discriminating against pupils, would-be pupils, tenants or members of staff. We are a tiny organisation; we are private in every sense of the word—we are like an extended family—but we are covered by the law.
Lord Borrie: The noble Lord's chambers are not purely a social club. Their function is most important to the public, and they deal with pupils and clients. Such organisations are quite different from social clubs, on which I have concentrated in talking about my desire for them to be excluded from discrimination laws. I said that as a matter of principle, because I believe that in their social lives, people should be free to associate, or not, with other people on whatever grounds they choose. Even there—and I say this especially to my noble friend Lord Faulkner of Worcester—I am not sure where the line should be drawn. If we were to take a political consensus in the country now, it would be clearer than in the 1970s; a colour bar would be regarded as so objectionable that I see no particular reason why the law should not apply even in relation to private clubs, whether they have more or fewer than 25 members. That is my answer to my noble friend. One does not need to put the clock back.
Lord Faulkner of Worcester: Is not the point about the application of the Race Relations Act to private members' clubs in the 1970s that it anticipated and assisted a change in mood? As the noble Lord, Lord Lester, said, the practice, particularly in working men's clubs, of applying a colour bar was so outrageous that the law needed changing. With this Bill and this issue, we are saying that it is the duty of legislators to anticipate enlightened changes in approach. In a few years' time people will see sex discrimination as being as outrageous as the application of a colour bar was in the 1970s.
Lord Borrie: Quite simply, whereas I see every objection to a colour bar or racial discrimination in a private member's club or in a more public place, I do not see the same objection—and I should be surprised if my noble friend did—to the desire of certain men in working men's clubs to drink with other men and to exclude women from that bar. We should not legislate to change people's behaviour in that regard. As legislators, we must have high regard for legislation.
1640
To introduce it simply because we want people's behaviour to change is not necessarily justified. It might have been justified in 1976 for the reasons that have been mentioned. However, it would not be justified today to extend that further. That is why I have tabled the amendment for discussion.
However, I want to read what has been said in Hansard and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 agreed to.
Clauses 7 to 37 agreed to.
Clause 38 [The Equality Commission]
Lord Ashley of Stoke moved Amendment No. 2:
Page 29, line 36, at end insert—
"(10) Any order made by virtue of subsection (8) shall provide for the functions specified in subsection (8)(b) to be exercisable by the Commission through a disability rights committee of the Equality Commission."
The noble Lord said: The amendment is coupled with Amendment No. 9. I am proposing these amendments together with the noble Lord, Lord Rix, who regrets that he is unable to be here today, and with the support of the Disability Rights Commission. I intend to speak briefly, because there are many amendments to be dealt with and this is not the occasion for long speeches.
The structure that I am proposing is vital to the future of any single body that the Government may create. Although my noble friend the Minister has kindly come along to explain the Government's point of view rather than to participate actively in the debate, I should like her and the rest of the Government to know that our comments on this Bill are markers for the Government. We are confident that they will be taken into account and carefully considered. We would like to see them in legislative form. There has been a great deal of discussion about the possible creation of a single body—not necessarily a single equality body, but something similar. The Government are not yet committed to that, but if it comes about, we are anxious that the structure should be right, so that there is no obfuscation, no confusion and no diminution of the rights of the various organisations that currently represent various people, including disabled people.
I appreciate the willingness of the noble Lord, Lord Lester, to do all he can to assist disabled people and to help those of us who take a particular interest in the subject. The Committee may recall that on Second Reading I mentioned the need for a federal structure as the best and most efficient method of organisation for any new equality body. The Disability Rights Commission has consulted 1,000 disability groups and individuals and held seminars. They wanted a federal structure. The commission also said that research on foreign single equality bodies showed that in some cases disability was not taken centrally into account and that the strand-specific structures are best.
Such a federal structure would consist of an umbrella body focusing on the cross-cutting issues of shared concern with, crucially, specialist units

1641
linked to appointed committees that would have responsibility for individual strands. My amendments would provide for a disability rights committee with executive powers and a disability commissioner, who would be chair of the committee. Ideally, the chairman would be disabled.
The representatives of each group to be covered by the new body would be able to determine the policies that affected them, while contributing to wider cross-strand and general equality policies. These arrangements should help all the strands but have particular importance for disabled people who for many years have fought to ensure that their experience feeds directly into policymaking, resulting in their greater representation in all aspects of public life and the structure of the Disability Rights Commission.
I hope that the noble Lord, Lord Lester, will look favourably on these amendments, which I commend to the House. I beg to move.
3.45 p.m.
Baroness Wilkins: I strongly support the amendments, which would ensure that the expertise of commissioners with specific knowledge of disabilities would not be jeopardised or lost in a future equality commission. They would ensure that disabled people continued to have the ability to create and take forward policies specific to the needs of disabled people.
Lord Addington: I would hope that my noble friend could incorporate this approach into the Bill, for the simple reason that disabled people tend to be better than others at empathising with other types of disability and knowing about the changes that need to he made. Unfortunately, experience tells me that we need people in those positions who know what it is like to be unable to do something regarded as normal. The Bill would be improved, if not by these particular measures, then by something very like them.
Lord Lester of Herne Hill: Ever since Gladstone's time, Liberals have been in favour of federalism, as I am myself. I am also sympathetic to the amendments. for special reasons, but I want to begin on a cautionary note.
The Government are wise and sensible in seeking to move towards a single equality commission. The Joint Select Committee on Human Rights of which the noble Baroness, Lady Prashar, and I are both members, will publish a report next week that gives our views on a human rights and an equality commission. That will have some relevance to the issues we are discussing.
The danger of an approach that labels a series of commissioners with particular responsibility and a committee structure of a rigid kind is that one loses the benefits of cohesion in having a single commission. At the same time, one needs a single commission that combines the expertise, special skills and insights of the different strands with which it seeks to deal. The institutional architecture of any equality commission requires the benefits of cohesion combined with the benefits of specialist expertise.
1642
I am indebted to the noble Lord, Lord Ashley of Stoke, who referred to the desirability of the chairman of the DRC being disabled. One must be careful about that notion, for several reasons. First, as Mr Bert Massey, who chairs the DRC, once pointed out to me, the mere fact that one is blind does riot mean that one is any better than someone with normal vision at understanding other forms of disability. In other words, unless all the mental and physical disabilities were embraced in one person. that person would not necessarily comprehend all the problems. A race commissioner, a gay or lesbian commissioner, a commissioner dealing with age discrimination and a commissioner dealing with religious discrimination would all have to be separately designated a rigid committee structure, which would weaken the cohesion.
Lord Ashley of Stoke: The noble Lord makes a legitimate point. However, will he bear in mind that a person with a specific disability necessarily moves along with other disabled people because of a common general interest? It is almost as if there were a federal type of communication between disabled people. It is far more likely that a blind person, for example, will know about deafness, paralysis and so on than a person with no disability because that person will tend to congregate with other disabled people in various social or economic circumstances. Consequently, a blind person is not necessarily isolated from other disabilities. In fact, he or she will be very much in touch with those disabilities.
Lord Lester of Herne Hill: I fully agree and did not mean to suggest to the contrary. What I was seeking to do was simply to explain that there are limits to giving labels to different parts of an equality commission in a very rigid way. That would tend to lose the whole point of having an equality commission. However. I also recognise that, in the case of disability discrimination, there are compelling reasons for accepting these amendments. The Disability Rights Commission has only recently been established and has not yet been able to use its powers as the other commissions have. There are also special problems associated with disability that require special treatment.
The most important reason of all is that it is very important that all groups which are vulnerable under the different strands of discrimination should unite together and make common cause, if I may say so, to persuade the Government to raise their game by having a single equality commission and a single equality Act. That seems to me a very small price to pay for a federal link of the type proposed by the noble Lord, Lord Ashley of Stoke, and others who have spoken. That seems to me a perfectly sensible way forward. If it can unite everyone, then it seems highly desirable.
We made special provision in the Bill by providing that the Disability Rights Commission could not in any event become part of an equality commission within less than three years after the Bill comes into force, which would effectively mean five years from now. That is a different approach, and I see no reason why one could not have those arrangements.

1643
The Bill deliberately does not give a lot of detail about the internal structure of the commission. That is because it is very important, as I have tried to explain, that there should be a unified principle of a single commission rather than complex arguments about the detail. I am anxious that the Bill, if it were accepted by the Government, should not unnecessarily fetter any future commission in its freedom to establish itself in an appropriate way and at an appropriate time. In other words, I would not wish it to be supposed that I was favouring a strand-specific approach that could—to mix my metaphor—balkanise the entire commission into a series of disjointed, separate and compartmentalised commissioners, committees and so on. That would lose the entire thrust of what we are seeking to do. I am comforted to see that the noble Baroness, Lady Prashar, is nodding affirmatively. She has much more experience than I do, as does the noble Baroness, Lady Greengross. Having said all of that, I certainly accept these amendments.
Baroness Scotland of Asthal: I assure my noble friend Lord Ashley that the Government are represented in the Bill's passage purely so that we can listen very carefully to everything that is said. We will take it into consideration.
On Question, amendment agreed to.
Clause 38, as amended, agreed to.
Clauses 39 to 47 agreed to.
Clause 48 [Matters referred to a tribunal]:
Lord Lester of Herne Hill moved Amendment No. 3:
Page 36, line 7, leave out "if" and insert "except where"
The noble Lord said: This is a purely technical amendment to correct a mistake. As currently drafted, Clause 48(1) states:
"Where a provision of this Act provides for any matter to be referred to a tribunal, the matter is to be referred to an employment tribunal if the matter falls within sections 49, 50 or 51".
The very opposite should be the case. It should state,
"except where the matter falls within sections 49, 50 or 51",
in which case it is not dealt with by an employment tribunal at all. As I say, this is a technical amendment to rectify that mistake. I beg to move.
On Question, amendment agreed to.
Clause 48, as amended, agreed to.
Clauses 49 to 92 agreed to.
Clause 93 [Regulations and orders]:
Lord Lester of Herne Hill moved Amendment No. 4:
Page 67, line 4, leave out "25 or 28" and insert "4(5)(a), 25, 28 or 93(2)(a)"
The noble Lord said: This amendment seeks to implement the recommendations of the Select Committee on Delegated Powers and Regulatory Reform in its ninth report of 2002–03. The change means that the delegated powers of the Secretary of State to make further provisions concerning the definition of disability would be subject to the affirmative procedure. The Secretary of State already has similar delegated powers under the Disability
1644
Discrimination Act. Further, where the Secretary of State makes any other adaptations, amendments or repeals in consequence of the Equality Act, that would also be subject to the affirmative procedure. The amendment seeks to meet the concerns of the Delegated Powers Committee as expressed in its recent report on Henry VIII powers. I beg to move.
On Question, amendment agreed to.
Clause 93, as amended, agreed to.
Clause 94 agreed to.
Schedule 1 [Definitions relating to meaning of disability]:
Baroness Wilkins moved Amendment No. 5:
Page 68, line 5, leave out from first "illness" to end of line.
The noble Baroness said: In moving Amendment No. 5, I wish to speak also to Amendments Nos. 6 and 7 with which it is grouped and which stand in my name.
These amendments seek to widen the definition of disability in the Bill to give greater protection to people with mental illness. The Bill of the noble Lord, Lord Lester, replicates the definition of disability laid down in the Disability Discrimination Act 1995 which has been found to face people with mental health problems with extra hurdles in meeting the definition of disability. MIND has found that in particular the conditions of depression, eating disorders and schizophrenia are inadequately or inappropriately covered by the Disability Discrimination Act definition.
Amendments addressing MIND's concerns were passed with the full support of your Lordships' House during the debate on the Private Member's Bill of the noble Lord, Lord Ashley, last year (Hansard, 6th March, 2002, cols. 346–354). Since then these changes to the definition have been officially accepted by the Disability Rights Commission in its first review of the Disability Discrimination Act 1995.
Amendment No. 5 seeks to remove an unnecessary qualification from the definition of disability that any mental impairment must be clinically well recognised in order to meet the definition. Problems of mental health run on a spectrum of behaviour from mere "character traits" to a range of disorders from depression, manic depression, personality disorders through to schizophrenia. In practice, the boundaries may be blurred. There is also controversy about what constitutes clinical illness. In tribunal cases, medical reports can disagree, with different psychiatrists making different diagnoses of the same person or making a diagnosis that blurs the distinction between different disorders. The extra requirement that the illness be clinically well recognised imposes an extra legal hurdle for people with mental health problems which is not applied to people with physical impairments, thereby giving less protection from discrimination on grounds of disability.
The purpose of Amendment No. 6 is to give people with short-term but severe depression protection from discrimination. To qualify as disabled for the purposes of the DDA, the claimant must have an "impairment" which has a,
"long term adverse effect on normal day to day activities".
"Long term" is defined to be a past period of at least 12 months or the likelihood that the period will he 12 months. Recurrent conditions are also covered by the DDA.
Those provisions cause real problems for people with depression. First, for many people, depression may be severe but relatively short lived. Secondly, it can be very difficult to diagnose whether it is likely to be an underlying recurrent condition. Thirdly, discrimination against people who have had a period of short-term depression is commonplace.
Reports from the employment tribunals show that to be a consistent problem. In one case, the applicant took five months' sick leave for depression and was on medication for more than a year. The tribunal recognised the depression as an impairment but was still not satisfied that the effect of the applicant's impairment had a long-term effect as it had not lasted for at least 12 months, and the case was dismissed.
The purpose of Amendment No. 7, the last amendment in this group, is to improve the coverage of mental health conditions within the definition of disability by including activities that are most likely to be severely affected for people with eating disorders, depression, anxiety disorders and schizophrenia. In order to come within the definition of "disability" under the DDA and consequently under the Bill of the noble Lord, Lord Lester, a person must be adversely affected in carrying out one of a list of,
"normal day to day activities".
That list was framed with physical impairments in mind and contains six physical activities but only two mental ones. The effects of mental health problems do not fit readily into those categories and some do not fit at all.
A person's perceptions may be distorted such that they misinterpret colleagues' behaviour, for example by understanding what is said but perceiving hostility, criticism or mistrust where there is none. A person who is severely depressed and/or suicidal may be able to carry out any of the specified activities but still not be able to function in a workplace at that time. A person may be experiencing withdrawal, paranoia, anxiety or depression to the extent that they cannot communicate effectively. If the definition of disability is better to protect people with mental health problems from discrimination, the list of day-to-day activities needs to include the ability to care for oneself, the ability to communicate and interact with other people and the ability to perceive reality.
Discrimination on mental health grounds is a serious problem in the UK and discrimination in employment is one of the biggest problems facing people with a history of mental ill-health. They have the highest rate of unemployment among people with long-term health problems, with only around 19 per cent in employment, compared with 47 per cent of people with all long-term health problems. In a survey by MIND. more than one-third of respondents reported that they had lost their jobs as a result of their psychiatric history, while 38 per cent had been harassed, intimidated or teased at work, 69 per cent
1646
had been put off from applying for jobs because of their psychiatric history and around half concealed their psychiatric history for fear of losing their jobs.
There is strong evidence that the current definition of disability in the DDA, which has been replicated in the Bill of the noble Lord, Lord Lester, provides inadequate protection for people with mental health problems. In a survey of 210 cases in which employment tribunals decided that the applicant did not meet the definition of disability the DRC legal team found that people with mental illness formed the largest category to be excluded by the definition.
I do hope that the noble Lord, Lord Lester, will be able to accept the amendments and provide people with mental health problems with the same protection from discrimination as presently exist for people who are physically impaired. I beg to move.
4 p.m.
Lord Ashley of Stoke: I support the amendments for the reasons put forward by the noble Baroness, Lady Wilkins. I do so also because in all kinds of legislation the problem of definition bedevils people with mental illness. There is no clear definition, and those people are neglected and ignored time and time again. The issue of definition is crucial.
I believe that if any one group of people requires legislation, it is those with mental illness. They are the most misunderstood people in the world. It is a most complex issue. Therefore, I briefly and warmly endorse the amendments proposed by the noble Baroness, Lady Wilkins, and I hope that the noble Lord, Lord Lester, will accept them.
Lord Lester of Herne Hill: I am grateful to both the noble Baroness, Lady Wilkins, and the noble Lord, Lord Ashley of Stoke. I am particularly grateful to the noble Baroness, Lady Wilkins, for the very clear and comprehensive way that she explained the object and purpose of the amendments.
One further point was raised in the very helpful briefing provided by MIND, to which I am also grateful. A comparative survey of 11 countries with disability discrimination laws showed that the United Kingdom Disability Discrimination Act is the most disadvantageous for people with mental health problems. It appears that the Irish and Australian federal laws, for example, specify a condition, illness or disease which affects a person's thought process, perception or reality, emotions or judgment, or which results in disturbed behaviour. The Americans with Disabilities Act 1990, upon which the UK Act was based, has apparently been amplified in regulations and guidance to ensure that mental health problems are fully covered.
On careful reflection and on listening to the speeches that have been made today, I have no doubt that the definitions in the Bill are too narrow. Therefore, from our perspective, the amendments are most welcome.
Baroness Wilkins: I am most grateful to the noble Lord.
On Question, amendment agreed to.
Baroness Wilkins moved Amendments Nos. 6 and 7:
Page 68, line 17, at end insert "; or
(d) it is a mental impairment consisting of, or resulting from, depression and it has lasted, or is likely to last, at least 3 months."
Page 69, line 8, at end insert—
"(i) ability to care for oneself;
(j) ability to communicate and interact with other people;
(k) ability to perceive reality."
On Question, amendments agreed to.
Schedule 1, as amended, agreed to.
Schedule 2 [Protected areas of activity]:
[Amendment No. 8 not moved.]
Schedule 2 agreed to.
Schedule 3 agreed to.
Schedule 4 [The Equality Commission]:
Lord Ashley of Stoke moved Amendment No. 9:
Page 103, line 27, at end insert—
"(4) One of the commissioners is to be appointed as disability rights commissioner, and that person is to be chairman of the Commission's disability rights committee."
On Question, amendment agreed to.
Lord Borrie moved Amendment No. 10:
Page 104, line 10, leave out paragraph (d) and insert—
"(d) that he suffers from incapacity or has engaged in misbehaviour."
The noble Lord said: Last year the chairman of the Commission for Racial Equality, having pleaded guilty to a charge of threatening behaviour, resigned his post and was given a £120,000 pay-off. That caused some controversy, but he could not have been dismissed from his post because, unusually for legislation providing for public appointments, there was no provision in the Race Relations Act 1976 for dismissal for misbehaviour.
Paragraph 2(7) in Schedule 4 to the Bill promoted by the noble Lord, Lord Lester, provides for any member of the equality commission to be removed from office if he has been convicted of a criminal offence or is,
"unable or unfit to carry out his functions".
My amendment is a probing amendment to ask the noble Lord, Lord Lester, why he has chosen that form of words, instead of the words "incapacity or misbehaviour" which for years have been used, as he will know, for circuit judges in the Courts Act 1971, and appears again and again in more recent legislation; for example, the Utilities Act 2000 and the Enterprise Act 2002.
In July 1994 the then Lord Chancellor, the noble and learned Lord, Lord Mackay of Clashfern, said that in this context misbehaviour could include a conviction for drink/driving, any offence involving violence, dishonesty or moral turpitude, behaviour likely to cause offence on religious or racial grounds or that amounts to sexual
1648
harassment. "Incapacity or misbehaviour" is a well tried, well used legislative basis for dismissal. Is the choice of words of the noble Lord better? I beg to move.
Lord Lester of Herne Hill: I am grateful to the noble Lord, Lord Borrie, for raising this issue. Perhaps I may explain the position. There is nothing between us in terms of what we seek to achieve. It is purely a choice of language. As the noble Lord has said, as it stands the Schedule 4 power to remove commissioners includes a number of justifications for removing a commissioner that one hopes will not arise in reality. One is that,
"the commissioner has without reasonable excuse failed to discharge his functions for a continuous period of three months",

secondly, that,
"he has been convicted of a criminal offence",
thirdly, that he has been made bankrupt and, fourthly, that,
"he is unable or unfit to carry out his functions".
The relevant provisions of the Sex Discrimination Act 1975 and the Race Relations Act 1976 allow the Secretary of State to terminate the appointment of a commissioner if he is satisfied that the commissioner,
"is by reason of physical or mental illness, or for any other reason, incapable of carrying out his duties".
The provision in the Disability Rights Commission Act 1999 is wider than that. It allows the Secretary of State to terminate the appointment of a commissioner if satisfied that,
"he is otherwise unable or unfit to carry out his functions as a commissioner".
We have decided to mirror the wider power of removal from the disability rights legislation rather than the narrower powers in the race and sex discrimination legislation. The amendment of the noble Lord would substitute the words,
"suffers from incapacity or has engaged in misbehaviour".
We say that the amendment is unnecessary because the word "unfit" would plainly encompass misbehaviour. Incapacity has a specific legal meaning that is narrower than "unable or unfit". We therefore believe that the matters with which the amendment is intended to deal are already covered and that there is a precedent for that in the Disability Discrimination Act 1995, which we have followed.
There is no difference of policy or principle between us, it is purely a matter of semantics and how we go about it, so I hope that the noble Lord will not feel it necessary to press his amendment.
4.15 p.m.
Lord Borrie: I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Schedule 4 agreed to.
Schedules 5 to 8 agreed to.
House resumed: Bill reported with amendments.
House adjourned at seventeen minutes past four o'clock.