Lords Sitting of 2 December 2004

Preamble
The House met at eleven of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Manchester): The CHAIRMAN OF COMMITTEES on the Woolsack.

Message from the Queen
Lord Luce: My Lords, I have the honour to present to your Lordships a message from Her Majesty the Queen signed by her own hand. The message is as follows:
"I have received with great satisfaction the dutiful and loyal expression of your thanks for the Speech with which I opened the present Session of Parliament".

Department for International Development: Consultants
Baroness Rawlings Baroness Rawlings asked Her Majesty's Government:
What recent representations they have received regarding the amount of expenditure by the Department for International Development on external consultants.
The Lord President of the Council (Baroness Amos): My Lords, in the current parliamentary Session, which started on 23 November, there have been three Parliamentary Questions and five letters from members of the public about DfID's expenditure on consultants.
Baroness Rawlings: My Lords, I thank the Minister for that Answer. In light of the rapidly growing amounts of money spent on quangos, consultants and administration since 1997, can she inform the House whether DfID is on track to keep expenditure on administration—not on projects—to the £220 million predicted for this financial year and to the published plans of nearly £240 million for the following year? If not, what plans do the Government have to evaluate the cost-effectiveness of those administration costs?
Baroness Amos: My Lords, the percentage spent on consultants in the Department for International Development has decreased, not increased, since 1997. The figure of £697 million which was published in a recent Daily Telegraph article on consultants covers all the contracts awarded by the Department for International Development. In fact, the amount spent on consultants was only £205 million.
On the specific points raised by the noble Baroness, I have been involved with the Treasury in looking at public expenditure in the Department for International Development. In those discussions the department has made it absolutely clear that it intends to stay within its spending limits.
Baroness Northover: My Lords, will the Government set up an independent assessment of the impact of
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privatisation on poverty reduction in developing countries, on which some of these consultants have been advising, given the lack of regulation in many of those countries with which the poorest might be protected? Can she also tell me why Adam Smith International was paid £430,000 by DfID to run a public relations campaign in Tanzania to persuade the people there to accept privatisation, including the privatisation of water?
Baroness Amos: My Lords, on the point about independent assessment, the noble Baroness may be aware that my right honourable friend the Secretary of State for International Development has already set up a review to look at the issue of aid conditionality. We have also pressed the World Bank to do exactly the same. On the specific issue of the impact of privatisation on how we in DfID use consultants, that very much depends on the priorities of the developing country's government with whom we are working. We do not take a one-size-fits-all approach. I hope that the noble Baroness will accept that I shall write to her on the issue of the £430,000. I have not been briefed on that point.
Baroness Whitaker: My Lords—
Lord Davies of Coity: My Lords—
Lord Marsh: My Lords—
Lord Grocott: My Lords, let us take it one at a time. There is plenty of time. Let us try the Cross Benches first.
Lord Marsh: My Lords, much more important than the actual cost of the fees—consultants, like lawyers, are always with us—is the success ratio. Does the Minister have any indication of the extent to which contracts have been discontinued because of failure to deliver that which they were originally contracted to supply?
Baroness Amos: My Lords, I cannot answer the noble Lord's question specifically, although I shall see if I can give him an answer in writing. We do, however, ensure that we receive value for money. First, we agree with the developing country's government what they require. Then, in a very specific process, the success criteria are identified. The project is then monitored while it is being carried out, and it is evaluated at the end of the process. Different criteria are used depending on the project or programme. I shall write to the noble Lord if I can add anything further to that.
Baroness Whitaker: My Lords—
Lord Davies of Coity: My Lords—
Lord Grocott: My Lords, I hate trying to adjudicate between England and Wales. Let us hear from my noble friend Lady Whitaker.
Baroness Whitaker: My Lords, will my noble friend confirm that a vast proportion of DfID research, both

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in-house and out-house, is spent on work that has a measurable effect on reducing poverty, such as new microbicides to prevent the spread of HIV, new strains of rice, better tax collection services and many others?
Baroness Amos: My Lords, my noble friend is quite right. The amount spent by the department on research was also included in the global figure used in a recent Daily Telegraph article alleging that the overall sum was spent on external consultants.
Lord Davies of Coity: My Lords, can my noble friend the Leader of the House advise us of the amount of funds that this Government have made available to the Department for International Development as compared with that provided by the previous administration?
Baroness Amos: My Lords, my noble friend will know that the amount we spend on international development has increased substantially since 1997. I shall be very happy to write to him to give the exact figures. We have made a commitment to spend £1 billion in Africa by next year. That is a substantial increase on the amount that we inherited for international development. I sincerely hope that the party opposite will make a similar commitment in its manifesto commitments.
Lord Mackie of Benshie: My Lords, the Minister has assured us that the Government examine the value given by consultants. Can she tell us how many times consultants have been found wanting?
Baroness Amos: My Lords, this is quite a difficult question to answer, and I shall tell the noble Lord why. Success criteria are identified at the beginning of the process. Quite often, a consultant advises a developing country's government on the range of options available if that government want to go down a particular road. That government will then make a choice. They may or may not be happy with the choice they have made, but the consultant will have identified the options available to them. That is why I say that it is quite difficult to answer the question. The consultant often meets the criteria identified, but the government's feeling later in the process about the choice which they themselves have made may be quite different.
Lord Barnett: My Lords, I am curious to know how my noble friend managed to persuade the Treasury that employing all these consultants makes sense. Can she assure the House that it was not simply because she was able to say that she has reduced the number of officials? Has there ever been a comparison between the cost of doing the job in-house with her officials and the cost of employing consultants?
Baroness Amos: My Lords, we look at a range of issues. One important issue is that a range of skills are required but do not necessarily rest within the Department for International Development. The other
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issue we look at is whether officials from other departments are able to assist. We look at the poverty strategy of the developing country's government, discuss with that government their priorities and work with them on ways in which we can support those priorities.

Northern Ireland: Donations to Political Parties
11.10 a.m.
Lord Smith of Clifton Lord Smith of Clifton asked Her Majesty's Government:
Further to the Written Statement by the Lord President (Baroness Amos) on 18 November (WS 77–78), whether they will consider publishing the annual accounts of political parties in Northern Ireland without disclosing the names of major donors.
Baroness Amos: My Lords, the main Northern Ireland political parties, like other UK parties, are already required to submit an annual statement of accounts to the Electoral Commission, which publishes these statements.
However, Northern Ireland parties are not required to submit information to the Commission on the sources of their income in line with the Political Parties, Elections and Referendums Act 2000 (Disapplication of Part IV for Northern Ireland parties, etc) Order 2001.
Lord Smith of Clifton: My Lords, I thank the Lord President for her reply and I thank her too for facilitating a meeting between myself and the noble Lord, Lord Glentoran, to be briefed by her officials.
We are very concerned that there will be this two-year extension. I fear that the same argument will be deployed in two years' time. It is part of the mañanaism of Northern Ireland politics. Does the Minister not agree with me that there must be some movement towards greater transparency of party finances? Would she consider requiring donations to be published annually in £1,000 bands—from £1,000 up to whatever it is—so that there is at least some transparency in the amount of political donations?
Baroness Amos: My Lords, I say to the noble Lord, Lord Smith of Clifton, that I entirely recognise the strength of feeling on this issue. As I said to the noble Lord in consultation, we are of course committed to greater transparency with political donations, but in the current time-frame it has not been possible to move to more transparent arrangements.
On the specific proposal put by the noble Lord, Lord Smith, I shall of course take that back. The noble Lord will understand that I cannot give a commitment today, but his proposal has merit. I will take it back and of course come back to the noble Lord on it.
Lord Maginnis of Drumglass: My Lords, does the noble Baroness agree that the whole exercise of

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accountability is quite futile when a party such as Sinn Fein declares not quite single figures in terms of thousands of pounds spent on elections and we know that the figure that it declares and the figure that is accepted is less than it would spend on posters? Is there any way in which we can get beyond the stage where we have to cover up in order to persuade Sinn Fein/IRA to stay at the political table?
Baroness Amos: My Lords, I do not entirely agree with the noble Lord, Lord Maginnis. I think that the issue of accountability is important; I do not think that it is futile at all. We have to continue to work to gain greater transparency. We are seeking to have some time to enable us to consult and to do that.
I entirely recognise that there is a different context in Northern Ireland and that there is the wider question of intimidation of donors. Of course we recognise that, but we will be working with the political parties to seek to find a resolution to the matter.
Viscount Bridgeman: My Lords, on behalf of my noble friend Lord Glentoran, I join the noble Lord, Lord Smith, in expressing thanks for the meeting with the Lord President. What is the Government's intention with regard to bringing the provision of foreign and anonymous donations to political parties in Northern Ireland into line with those for the rest of the United Kingdom?
Baroness Amos: My Lords, as I said in response to the previous question from the noble Lord, Lord Maginnis, we will be consulting on the matter with political parties and other key stakeholders, including the Electoral Commission. This is not an easy issue. In previous consultations concerns have been expressed, but I think that the general view is that we need more time. In addition, negotiations on a longer-term settlement are at a sensitive stage at this moment. It would be wrong to do anything which might undermine that process.

Child Support Agency
11.15 a.m.
Lord Higgins Lord Higgins asked Her Majesty's Government:
What action they intend to take to speed up payments from the Child Support Agency.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, there have been well documented problems with the new IT system. However, three-quarters of all CSA cases are on the old system and 99 per cent of payments are made within 10 days.
Under the new system, which is where the IT problems are, 90 per cent of private cases have had maintenance assessments and the money flows. Our problem, in other
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words, is not that payments are not being made—they are but that the new computer, for various reasons that we could explore, is not yet sufficiently robust to allow us safely to migrate the old system cases on to the new system. That is where the key problem lies.
Lord Higgins: My Lords, I thank the noble Baroness for that reply, but, sadly, is it not clear that the CSA is in chaos? The chief executive has resigned: the National Audit Office reports that the situation has worsened since the 2003 reforms; of the 478,000 applications only 61,000 payments have actually been made; more than 25 per cent of payments have been wrong; and when the CSA seeks to enforce maintenance payments, it deals correctly with only 10 per cent.
The noble Baroness's reply makes it clear that the old system was working better than the new. Is this whole thing not a scandal? It is a desperate situation for the people in need of the money—lone parents—who are not being dealt with correctly by the CSA.
Baroness Hollis of Heigham: My Lords, I would not in any sense wish to be complacent about the problems that we are having with the new computer system. That is not, I fear, unusual. We had, for example, to abandon the smart benefit card that we inherited from the previous administration—the £1 billion contract—because that was unworkable.
We have a problem with the computer, but I want to emphasise that at the core of the problem is the fact that too many non-resident parents, mostly fathers, do not wish to pay. We see fathers changing their jobs, homes, bank accounts and even changing their countries, rather than choosing to pay to support their children. If they were willing to pay, the CSA would be like a building society instead of a less than efficient debt-collection agency. The reason so much depends on the computer is that we have to chase mostly men who choose not to pay and prefer other fathers to support their children for them.
The Lord Bishop of Manchester: My Lords, one accepts the difficulties that the Minister rightly underlines, but will she confirm that a total of £750 million is owed to single parents, with waiting times going up from 12 to 15 weeks last year to 15 to 22 weeks now? Does she agree that, whatever reasons there may be for this, it would be right for some kind of compensation, be it only interest on the money owed, to be paid to parents who, through no fault of their own, find themselves in great personal distress and financial hardship?
Baroness Hollis of Heigham: My Lords, I am afraid that I do not accept the figures given by the right reverend Prelate. As I say, in existing old-system cases, which are three-quarters of the cases, the money is flowing with something like 90 per cent accuracy targets to the nearest pound, and not 75 per cent as the right reverend Prelate said.

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Under the new system, where lone parents are in work, 90 per cent of maintenance payments are being made. The difficulty for us is with lone parents on benefits where the new computer benefit does not interconnect with the existing IS benefit. In that case lone parents continue to receive their full benefits, which if they include housing benefit could be £200 per week. Under the new system they are losing—I agree that it is not satisfactory—only the £10 per week disregard. So the difference for lone parents is £10 per week on their benefits, which on average, if they have one or two children and housing benefits, are around £200. I do not want to sound complacent about the matter, but the problem has been, so to speak, over-talked. Some of the figures that the right reverend Prelate has suggested are, frankly, not robust.
Lord Oakeshott of Seagrove Bay: My Lords, given the problems that there have been with EDS, the main computer contractor, would the noble Baroness, as the Minister responsible for the CSA, say that it has either the track record or the spare capacity to be involved in the national identity card?
Baroness Hollis of Heigham: My Lords, I would not dream of commenting on the capacity of EDS to bid for other contracts. At present, the system has not been robust. It is getting better; it is improving steadily. More cases are coming through; they are not coming through as quickly as we would want. I must say that EDS has changed its senior management working with us and, as a result, we are seeking to overcome the problems. As I said, I do not want to be complacent about the new computer, but most people are getting their money accurately to the nearest pound on time.
Baroness O'Cathain: My Lords, my question is tangential to that of the noble Lord, Lord Oakeshott. The Minister says that she is not complacent; I am sure that she is not, but does not this raise the whole issue of IT within government departments and the inability to make joined-up expertise available throughout government? That is not purely a government problem, as all who are involved in industry know, but is it not time to flag up that someone should really get a grip on the matter, because we have example after example over a period of 10 or 12 years in which things have gone wrong? Will the Minister use her influence to get a proper supremo with proper expertise at the heart of government to deal with IT systems?
Baroness Hollis of Heigham: My Lords, I agree with all that the noble Baroness said, apart, possibly, from her last sentence. She is absolutely right. I was reading some recent research from Oxford and Cambridge that found that only 15 per cent of major computer products are successfully delivered in both the private and public sectors. Obviously, we need to get a better grip on the matter. Part of the difficulty in this case is that it was originally a private finance initiative
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contract in which we bought a service, not a specified computer. What I have learnt from this is to buy last year's computer and then tweak it.
The Earl of Northesk: My Lords, was the CSA's new IT system subject to the full gateway review process, which is precisely what my noble friend Lady O'Cathain is asking for?
Baroness Hollis of Heigham: My Lords, it went through that gateway procedure and was given a clean bill of health.
Lord Christopher: My Lords, I warm to the Minister's earlier passion, but does she think that what she said indicates the necessity for a much closer relationship, whatever that may be, between the agency and the Inland Revenue, because all these people do not go overseas?
Baroness Hollis of Heigham: Yes, my Lords, I am happy to consider that, but the basic issue is that if the CSA was transferred to the Inland Revenue, it would have the same computer and the same staff. Most CSA recipients, especially lone parents, are not taxpayers and therefore not within the Inland Revenue frame. Many of us would regard the Inland Revenue as having its hands full with tax credits at the moment. It has certainly shown no wish to perform that work. It is not inconceivable that, in years to come, that may be a perfectly sensible move to make. However, at present, whatever happens, whether it falls under the Inland Revenue or the Department for Work and Pensions, we have, first, to bottom out the computer problem and, secondly—I cannot emphasise this enough—we must continue to build a culture of compliance so that some non-resident parents do not walk away from their responsibility and dump the care of their children on other people.
Baroness Byford: My Lords, the Minister said that the system is coping well with 90 per cent of people on benefit from the CSA. How many families are being failed by the system currently? How quickly are they dealt with and how?
Baroness Hollis of Heigham: My Lords, forgive me, I said private cases. The CSA has 1.3 million cases, which involve 2.5 million adults. Three-quarters of those cases are on the old system and the money is flowing well and satisfactorily there—most Members of Parliament tell me how much better it is than even a few years ago. A quarter of the caseload, about 350,000, are on the new system. Of those, 25 per cent are what we call private cases in which she is in work and he is in work. In those cases, 90 per cent of the money is flowing. The rest are cases in which the lone parent is on benefit, and that is where we are getting only 50 or 60 per cent success rates because of the problem with the interface between the computers.
What I was trying to say in response to the right reverend Prelate was that those lone parents are being denied the £10 that they would gain from being under the new system compared to the old. Their benefit

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money, which can range from £150 to £200 a week, according to their housing circumstances, continues to flow. So the people who are losing out now are those lone parents who are on the new system, who are not getting a £10 premium.

Iran: Human Rights
11.24 a.m.
Lord Clarke of Hampstead Lord Clarke of Hampstead asked Her Majesty's Government:
Whether improvement of Iran's human rights record has been removed as an element of the diplomatic agreement with the EU3 group (United Kingdom, Germany and France) on Iran's nuclear weapons development programme.
The Minister of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, the focus of the recent agreement is Iran's nuclear programme. The agreement does not refer to all elements of our dialogue with Iran, nor all of our concerns about Iranian policy. We continue to have serious concerns about human rights and regularly raise them with the Iranian authorities. The United Kingdom and other European Union governments co-sponsored the resolution on human rights in Iran adopted by the Third Committee of the United Nations General Assembly on 17 November.
Lord Clarke of Hampstead: My Lords, I thank my noble friend for her helpful answer. Does she agree with the conclusions that appear on the EU website about its serious concern about serious violations of human rights? In 2002, 2003 and as recently as October of this year, the Iranian regime promised to do certain things about human rights, but violations continue to take place.
Further, does my noble friend believe that it is right for this country or the European Union to enter trade agreements with a government who systematically murder hundreds of their people? In particular, I ask her about two children, Kaveh Habibi-Nejad, a 14 year-old boy flogged to death for eating in public during Ramadan and Atefeh Rajabi, a 16 year-old girl publicly hanged for what they call an act incompatible with chastity. Will my noble friend ask the Iranian authorities what justification they have for carrying out such wicked atrocities?
Baroness Symons of Vernham Dean: My Lords, on the question about the EU website, it is because we agree with so much of what our colleagues elsewhere in the European Union are saying that we supported the General Assembly resolution to which I referred in my initial Answer. My noble friend will also be interested to know that, with our support, on 24 November the European Union called on the Iranian authorities to express concern at the increasing number of arrests and incidence of harassment of journalists and non-governmental organisations activists, as well as the Christian and Bahá'í communities.
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However, my noble friend is especially exercised by the question of the execution of juveniles. I myself have raised some of these cases with the Iranian authorities. The deeply disturbing case of the young girl of 16 who was executed in public is an appalling example of the dispatch of a child in horrendous circumstances. I have also raised the case of a 13 year-old allegedly sentenced to death by stoning for incest. We have been told that she will not be executed and that she and her brother have been transferred to welfare organisations. So I am aware of those abuses of human rights and I and my colleagues raise them with the Iranian authorities.
Lord Howell of Guildford: My Lords, does the Minister agree that there will be a lot of sympathy with the points raised by the noble Lord, Lord Clarke of Hampstead, about those revolting practices? Does she recall that, on Monday, I asked her whether the Iranian undertaking to suspend uranium enrichment, which was part of the deal under the diplomatic agreement with the EU foreign ministers, had any time limit? She replied that the aim was to provide longterm objectives. Since then, we have heard from Tehran that in fact the agreement is purely temporary. That does not sound very long term at all. Can she explain the discrepancy? What is the right story here?
Baroness Symons of Vernham Dean: My Lords, first, I hope that I made clear that I not only have sympathy with but support the points raised by my noble friend about the particular practices that he adduced to your Lordships.
On the agreement that we have reached, which the noble Lord said is claimed to be a temporary arrangement by the Iranians, if he reads the terms of the agreement, he will see that it mentions sustaining the suspension of those activities. The agreement that we reached on Monday through the International Atomic Energy Agency involves the suspension of the activities that have given cause for concern while negotiations on a long-term agreement are under way. The negotiations on that long-term agreement will begin within the next few weeks—I think that the timescale is the first couple of weeks of December—and it is that long-term agreement that will provide the objective guarantees. Monday's agreement will stay in place until the long-term agreement can be put in place through negotiation.
Lord Phillips of Sudbury: My Lords, how far have the entirely desirable efforts that we have made to encourage the Iranian Government to continue with their human rights improvements been indirectly prejudiced by the United States' human rights failings in Iraq? I am thinking of Abu Ghraib and of the Guantanamo Bay concentration camp.
Baroness Symons of Vernham Dean: My Lords, I have no reason to think that there is a direct read-across, although I am aware that countries that have shortcomings in their practice of human rights try to reach for an argument that may help them, by adducing the difficulties in Abu Ghraib and, indeed, Guantanamo to which the noble Lord alludes. There

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is an important point: we are by no means setting aside our concerns—the United Kingdom's concerns and the European Union's concerns—about human rights because of Monday's agreement. We have made it clear that our relations with Iran can develop only if Iran takes action to address general political concerns, which must include concerns over human rights.
Lord Hannay of Chiswick: My Lords, does the Minister agree that the best way to proceed from the temporary suspension to which the Iranians have agreed is to take up rapidly the recommendation in the UN panel report that a general moratorium on all enrichment and reprocessing of a new kind should be applied worldwide? A system should be put in place to enable countries with civil nuclear regimes that are properly covered by safeguards to get their supplies at a reasonable market rate and without any possible interruption. That offers a way forward that is more solid than the one on which we are at present.
Baroness Symons of Vernham Dean: My Lords, I agree with the noble Lord, Lord Hannay of Chiswick, that the United Kingdom Government must seriously address questions relating to non-proliferation, which we will promote when we can. I have a slight concern about the general way in which the noble Lord framed his question. There are countries of concern that are not covered by specific agreements, and the noble Lord will remember that it was part of our concern with Iran that we should not force a situation in which Iran would decide to withdraw altogether from the non-proliferation treaty.
Our first concern is to draw others into the nonproliferation treaty, but, if we can make additional requirements of those who wish to turn away from the difficult issue of the spread of nuclear capability, we will do what we can.

Liaison Committee
  Privileges
    Procedure of the House

      Refreshment
      11.33 a.m.
      The Chairman of Committees (Lord Brabazon of Tara): My Lords, I beg to move the four Motions standing in my name on the Order Paper.
      Liaison Committee
      Moved, That a Select Committee be appointed to advise the House on the resources required for Select Committee work and to allocate resources between Select Committees; to review the Select Committee work of the House; to consider requests for ad hoc committees
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      and report to the House with recommendations; to ensure effective co-ordination between the two Houses; and to consider the availability of Lords to serve on committees;
      That, as proposed by the Committee of Selection, the following Lords together with the Chairman of Committees be named of the committee:

      B. Amos (Lord President),

      L. Geddes,

      B. Hayman,

      L. Kimball,

      L. McNally,

      L. Moser,

      B. Pitkeathley,

      B. Scott of Needham Market,

      L. Strathclyde,

      L. Williamson of Horton;

      That the committee have leave to report from time to time;
      That the committee have power to appoint specialist advisers.
      Privileges
      Moved, That a Committee for Privileges be appointed and that, as proposed by the Committee of Selection, the following Lords together with the Chairman of Committees and any four Lords of Appeal be named of the Committee:

      B. Amos (Lord President),

      L. Brooke of Sutton Mandeville,

      L. Browne-Wilkinson,

      L. Carlisle of Bucklow,

      L. Cope of Berkeley,

      L. Graham of Edmonton,

      L. Grocott,

      L. Mackay of Clashfern,

      L. McNally,

      L. Marsh,

      L. Merlyn-Rees,

      L. Roper,

      L. Strabolgi,

      L. Strathclyde,

      L. Williamson of Horton;

      That the committee have power to appoint sub-committees and that such sub-committees have power to appoint their own chairmen;
      That the committee have power to co-opt any Lord for the purposes of serving on any sub-committee.
      Procedure of the House
      Moved, That the Select Committee on Procedure of the House be appointed and that, as proposed by the Committee of Selection, the following Lords together with the Chairman of Committees be named of the committee:

      L. Addington,

      L. Alderdice,

      B. Amos (Lord President),

      B. Blatch,

      V. Bledisloe,

      L. Brooke of Sutton Mandeville,

      V. Brookeborough,

      L. Burnham,

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      L. Cope of Berkeley,

      B. David,

      L. Donaldson of Lymington,

      L. Dubs,

      L. Falconer of Thoroton (Lord Chancellor),

      L. Geddes,

      L. Grenfell,

      L. Grocott,

      L. Hoyle,

      L. Jopling,

      L. Kimball,

      L. McNally,

      L. Roper,

      L. Snape,

      L. Strathclyde,

      B. Symons of Vernham Dean,

      L. Wakeham,

      B. Warnock,

      L. Williams of Elvel,

      L. Williamson of Horton.

      Refreshment
      Moved, That a Select Committee be appointed to advise on the refreshment services provided for the House, within financial limits approved by the House Committee;
      That, as proposed by the Committee of Selection, the following Lords be named of the committee;

      L. Borrie,

      L. Davies of Oldham,

      L. Denham,

      B. Fookes (Chairman),

      B. Gould of Potternewton,

      B. Harris of Richmond,

      L. Palmer,

      L. Redesdale,

      B. Rendell of Babergh,

      Ly. Saltoun of Abernethy,

      B. Strange,

      L. Wade of Chorlton;

      That the committee have leave to report from time to time.—(The Chairman of Committees.)
      On Question, Motion agreed to.

      House Committee
      The Chairman of Committees: My Lords, I beg to move the Motion standing in my name on the Order Paper.
      The report informs the House about developments in the security of the Parliamentary Estate and, in particular, the appointment of a new security co-ordinator. The Speaker of the House of Commons and I will shortly interview suitable candidates. The responsibilities of the new post are set out in the report; I should also emphasise that Black Rod will continue to hold executive responsibility for the security of this House.
      The second part of the report proposes the creation of a freedom of information advisory panel and is, I hope, self-explanatory.
      Moved, That the 2nd Report from the Select Committee be agreed to (HL Paper 196, Session 2003–04)—(The Chairman of Committees.).
      The report can be found at: http://www. publications.parliament.uk/pa/ld200304/ldselect/ldhouse/196/196.pdf.
      On Question, Motion agreed to.

      Sexual Equality (EUC Report)
      11.34 a.m.
      Lord Williamson of Horton Lord Williamson of Horton rose to move, That this House takes note of the report of the European Union Committee, Sexual Equality in Access to Goods and Services (27th Report, Session 2003–04, HL Paper 165).
      The noble Lord said: My Lords, the report concerns an important proposal from the European Commission to extend European Union gender discrimination legislation with regard to the supply of and access to goods and services. It is a broad objective that we share in principle and in the interests of British citizens, notably when they are in other member states. It relates essentially to commercial transactions for remuneration.
      United Kingdom sex discrimination legislation, notably the Sex Discrimination Act 1975, already largely covers the ground. In important respects, it is more comprehensive in its scope and in its reference to goods, facilities and services. The original Commission proposal of November 2003, however, which was the subject of the Select Committee's examination and report, had one important difference from the United Kingdom's sex discrimination legislation. It concerns the criterion for premiums and benefits for some insurance and related financial services. Any differentiation by gender would have been prohibited by article 4 of the Commission's proposal of November 2003, but it is specifically permitted by the United Kingdom's Sex Discrimination Act, if it can be justified as reasonable. That difference, which is of some commercial importance, gave rise to a large volume of submissions and evidence to our sub-committee.
      I shall deal with the main questions that arise on the Commission's proposal of November 2003, notably its scope and exclusions; the question of article 4 and the specific issues of motor insurance and annuities; the monitoring of any exceptions to the principle of equal access and the value of continued research; and the commercial opportunities for British insurers arising from a deepening of the single European market in insurance and related financial services.
      First, it is essential that I bring the House up to date on the positive developments that have taken place. There has been a large measure of agreement between the recommendations made by the Select Committee and the negotiating position taken by the United Kingdom Government, with considerable success, in Brussels. That can be seen in the Government's response to our report, which we welcome.
      As a result of the position taken by the Select Committee, by the United Kingdom Government and other governments and by the financial services

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      industry, the Commission has revised its proposal. The prospects of an agreement at European Union level that would take account of the practical problems that arose from the original article 4 but would preserve the other advantages of the proposal seem to be good. In so far as the Select Committee contributed to that result, it is to be welcomed. If it were not in bad taste and at a bad time to say it, one might say that the Commission and the Government had shot our fox.
      There are some issues that none the less arise from the Commission's proposal and, to some degree, the revised proposal. The Commission's proposal is a draft directive that requires consultation with the European Parliament and a unanimous decision by the Council of Ministers. I make the point because I was struck by the fact that, although there are in the UK many strong views about unanimity and qualified majority voting, in cases where unanimity applies and is important, there are sometimes few references to it.
      The sub-committee examined the need for and the scope of the Commission proposal. We believe that the proposal will have a limited impact in the United Kingdom, in the light of our existing legislation and the revision of article 4 of the proposal. It could be of greater value in some other member states, including the new member states, although the Commission's evidence was mainly anecdotal.
      There are some significant exclusions from the proposal, notably education, media and advertising and, indirectly, single-sex sporting activities, single-sex voluntary activities and private clubs and religious organisations. We agreed with the Government that the exclusion of education avoids a potential and undesirable distinction between private and public sector education. We also accepted that there could be difficulties in drafting legislation relating to the sexes in media and advertising, in particular because of the difficulty of any draft which might infringe the freedom of the media under the European Convention on Human Rights.
      It should, however, be stressed that the Commission indicated that it has decided to adopt a step-by-step approach so that some of those issues may come back again later. But, overall, we have accepted the exclusions. In relation to health, which is not excluded, we recognise that, in due course, the question of whether for this purpose the National Health Service should be considered a service for remuneration may ultimately be decided by the Court.
      I come now to the question of differentiation by gender in setting some insurance premiums, particularly motor insurance for newly qualified drivers, and in annuities. The approach of the Select Committee stems from the need to reconcile the commitment to extending the principles of equality, which we endorse, with the practicalities of application in a fair and reasonable manner.
      It will be clear from our report that where we have accepted for objective reasons some differentiation by gender, we have done so in a restrictive manner and subject to external monitoring to ensure that the factual
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      basis continues to be correct and justified. Contrary to the impression that may have been given in some comments, our report is not just a carte blanche for gender differentiation in insurance and annuities. It is limited, subject to the continuation of objective differences and, in our recommendation, subject to monitoring.
      When I commented at the time of the issue of the report, I said that in time gender can and should be taken out of most calculations for car insurance premiums. But when companies set premiums for newly qualified drivers, gender matters. These and younger drivers have not bad time to build up a record of claims, accidents and driving performance. The evidence that we received showed that the average claims cost of males between 17 and 19 years old was about 60 per cent higher than that of corresponding females, although the difference, of course, decreases steadily over a lifetime of driving.
      Over a recent five-year period, males committed more than 85 per cent of serious driving offences. That is why, in the UK, motor insurance premiums for young women are justifiably lower. If we were not to take account of gender, younger women would have to pay perhaps 10 to 30 per cent more for their motor insurance, which would be a harsh penalty to impose on women. It is worth noting that most car drivers in the European Union pay premiums that take some account of gender—in France, Germany, Italy, Spain, Belgium, Austria and Ireland.
      The Government have negotiated the continuation of some justified differentiation by gender. In their reply to the report, they stress that for insurance pricing to be fair to consumers, relevant risk factors must be taken into account, including age and gender when appropriate. The evidence given by the Equal Opportunities Commission was also important. The committee agreed with its broad guiding principle, which is reflected in our recommendations.
      I turn now to annuities, for which the UK market is the biggest in Europe. The substantive issue is the difference in the longevity of men and women. Because women in general live longer than men, premiums for term life assurance are lower for women. But when an annuity converts a lump sum into regular payments from a given age over the remaining life of the policy holder, a female annuity holder will typically receive less than a male because the assumption is that she will receive the sum for longer.
      At birth, a female's life expectancy is just over four years more than that of a man. At age 50, it was about 3.6 years more in 2002. Surprisingly, the figures going back over a century show that the difference in life expectancy—for example, at age 45, in favour of a female—is greater now than it was in 1901.
      We examined a great deal of evidence on that matter and were satisfied that gender should be allowed—I quote from the report—"for the time being" as a relevant factor in calculating premiums and benefits for life assurance and annuities. However, we recommended more research on the relevance of gender and we made

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      quite clear that if the gap between male and female longevity were to disappear, insurance premiums and benefits should be rapidly adjusted.
      I know that some Members of your Lordships' House may not agree with the report. But in view of the limits that we put on our recommendations, that difference may not be quite as substantial as it may at first appear.
      To that extent, our recommendations, the Government's position and the revised Commission proposals run quite closely in line. I should add that we wished to see more formal monitoring, which is our recommendation at paragraph 10.19, but that is something that the Government have not accepted. They consider that the cost of such monitoring would not justify the benefit. Instead, the Government seek to rely on the work of a working group, covering government representatives and other interests, which is the subject of a Commission declaration in the Council minutes.
      It is unlikely that the directive will be formally adopted before 2005, but the long time and the substantial volume of work devoted to the Commission's first proposal has been very worth while. We shall now have a result that is acceptable to the Government and broadly reflects the approach of our own Sex Discrimination Act 1975. I commend the report to the House.
      Moved, That this House takes note of the report of the European Union Committee, Sexual Equality in Access to Goods and Services (27th Report, Session 2003–04, HL Paper 165).—(Lord Williamson of Horton.)
      11.46 a.m.
      Baroness Royall of Blaisdon: My Lords, I welcome this debate on the report on Sexual Equality in Access to Goods and Services. While I am a newcomer to your Lordships' House, I am long acquainted with the excellent work of the European Union Committee and its scrutiny of European legislation.
      I also very much welcome the proposal for a directive tackling sex discrimination in the provision of goods and services. As is the case in so much EU legislation, it was made in response to a request from the European Council. Its primary purpose is to ensure the implementation of the fundamental principle of equal treatment between men and women, which is of primary importance for a fair society.
      As the noble Lord, Lord Williamson of Horton, pointed out, some people are frustrated by the pragmatic position that has been agreed by the committee, the Government and the Equal Opportunities Commission. Perfectionists may argue that there should be no deviation from the principle of equal treatment between men and women. However, while I fervently believe in the principle, I acknowledge that it cannot be achieved overnight in the real world.
      The long journey towards equal treatment began when the principle was enshrined by the Treaty of Rome. We have not yet reached our destination, but amendments to the treaties followed by legislation and
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      case law have taken us a long way towards it. In the UK, we now have relatively comprehensive legislation in that area, and I celebrate that.
      I was interested to learn from Professor McColgan's evidence to the committee that the proposed directive will help to fill some of the gaps in our legislation. In addition, without the catalyst of EU legislation, real discussions about ending gender difference in insurance and annuities simply would not have begun.
      It is right that the Commission should have made a radical proposal, but it is also right that practicalities should be considered in the member states. That is not because I wish to cosy up to the insurance industry; quite the contrary. I deplore its intransigent position, its unwillingness to adapt and to embrace change and the way in which it has used the media seemingly to whip up fears.
      I accept the pragmatic position of the European Union Committee because that is the best way ultimately to achieve equal treatment for men and women. Yes, insurance companies will be able to depart from the principle of equal treatment, but only in strictly limited circumstances where up-to-date, relevant actuarial data indicate that there are very clear gender differences at risk. I am confident that with socio-economic change and careful monitoring of risk assessment and insurance practices in this area, within a few years the insurance companies will have to change because they will have to reflect the new realities.
      As usual, I was saddened and frustrated by the way in which this directive was dealt with by both the press and the industry. Indeed, I seem to spend too much of my life being sad and frustrated because of tabloid treatment of the European Union.
      "EU bans ads for girl-only lodgers",
      said the Sun.
      "The 'Girl wanted to share flat' adverts which fill the accommodation to let columns are to be outlawed by Brussels'',
      said the Daily Mail. Even worse, the press has evoked fears of vulnerable women by alleging that, "hostels for battered women will be forced to take in men as well as women".
      In fact, "Girl wanted to share flat" ads are not to be "outlawed by Brussels", and they never were. More important, there is no chance, and there never has been, that hostels for abused women will be "forced to take in men". I am sure it is right, as the report points out, that the wording should be strengthened for the sake of clarity, but it is utterly wrong and disingenuous to state, as some have done in another place, that this directive will mean, "less accommodation on the market and more women worried about safety".
      The recommendations made in the report certainly improve the draft directive, and that is one of the purposes of scrutiny. We are particularly fortunate to have a European Union Committee that works in such a serious and effective way. While I am a strong supporter of the European Union, my support is not blind and uncritical. I recognise that in the past not all European legislation has been proportionate, and it could be argued that it has not always respected the principle of

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      subsidiarity. The enhanced role for national parliaments under the constitutional treaty and their greater involvement in European decision making would, I am confident, help to avoid unnecessary legislation.
      I also recognise that sometimes, as in the case of the proposed directive on sexual equality in access to goods and services, the rationale for the proposal is sound, but the consultation and analysis is sometimes inadequate and the text frequently sloppy. The Commission is vastly improving its consultation efforts, but clearly there is more to be done. I have to say, however, that draft Bills in our national legislative system are often imperfect and this House expends much time and effort in improving UK legislation. The fact that the directive, when ultimately agreed by the Council, will be rather different from the proposed directive is demonstrable proof that the decision-making powers of the European Union are quite properly firmly in the hands of the Council and the European Parliament, both of which are democratically accountable.
      The European legislative process is undoubtedly complex, but it is becoming more transparent. I have to say that this contrasts sharply with the practices of insurance companies and actuaries. The committee itself expressed concern about the apparent lack of transparency in actuarial practices and the difficulty for non-specialists in understanding the basis on which actuarial decisions are made. Many witnesses shared this concern. Indeed, as a layperson and a consumer, I was struck by three points in relation to insurance companies.
      First, their methods of calculation are opaque. They do not explain the basis on which their decisions are taken and their communications are unintelligible. Secondly, they seem unwilling to embrace any change, even when it might enable them to shape and better take advantage of developments in relation to the single European market in insurance and financial services. Thirdly, while it is clear that for the moment gender should continue to be used as a factor in life insurance and pensions, I wonder to what extent the industry really is willing to adhere to the principle of equal treatment and depart from it only in limited circumstances.
      Like other noble Lords, I received a briefing note from the Association of British Insurers which said, among other things, that,
      "much now depends on the way the Government chooses to transpose the directive".
      That is absolutely correct and I urge my noble friend on the Front Bench to ensure that "limited circumstances" really does mean limited circumstances. As a member of the Merits of Statutory Instruments Committee, I will certainly take an interest in future statutory instruments.
      The subject of annuities is complex and I am no expert. Having read the evidence to the European Union Committee and the research undertaken by the Equal Opportunities Commission, I realise that at present there would be little advantage to most men and women in
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      changing the basis on which life assurance and annuities are calculated. I also realise, as the report points out, that it would be inappropriate to use this directive as a mechanism for dealing with the very real problem of inadequate female pensions. However, as tomorrow is Carers Rights Day, I take this opportunity to highlight the fact that one of the reasons that women's average retirement incomes are just 57 per cent of that of men is because they are more likely to have caring responsibilities and therefore either to work part-time or to be absent from the labour market for long periods. Action must be taken to right these wrongs, but clearly we must use different tools.
      In relation to life assurance and annuities, it is clear that much more independent work needs to be done on the assessment of risk factors when calculating premiums and benefits so that the principle of equal treatment can be achieved. It must be possible to take more account of risk factors, especially if the difference in lifestyle between men and women continues to lessen, and the gap between male and female longevity narrows. Why should an unmarried woman who smokes and lives in Wales, who statistically will be dead by the age of 73, pay higher premiums than a man?
      The issue that received most press coverage when the proposal was adopted was that of motor insurance. We were urged to believe that the intention of the "meddlesome" Commission was to increase motor insurance for all women, whereas of course the real intention was to take sex out of the equation so that neither men nor women who drive safely should lose out. I accept that, for the moment, gender should still be considered for very young drivers where there is irrefutable evidence that most young men do not drive as safely as young women. However, past the age of 35, why should men who drive safely be penalised for their gender and why should bad women drivers be rewarded with lower premiums?
      In conclusion, I warmly welcome this report from the European Union Committee as well as the proposed directive on sexual equality in access to goods and services. The latter is an important step in opening up the single market in insurance and financial services, and in achieving equal treatment for men and women across the 25 member states of the European Union. Where insurance and actuarial calculations are concerned, it is clear that at present there should be provisions for insurance companies to depart from the principle of equal treatment but, as I said earlier, only in strictly limited circumstances. Again, I urge my noble friend the Minister to ensure that the circumstances are truly limited.
      Finally, I would specifically ask my noble friend for her assurance that the Government will consider favourably the recommendation made by both the Equal Opportunities Commission and the European Union Committee that independent monitoring should be undertaken in accordance with the principles of this directive, and in order to provide reassurance for consumers.
      11.58 a.m.
      Lord Lester of Herne Hill: My Lords, I am grateful to the noble Lord, Lord Williamson of Horton, for the fair-minded way in which he has introduced this report. I welcome the new equality directive as an important advance in securing equality of opportunity in access to goods and services across the European Union. I am particularly glad that I shall be followed later in the debate by the noble Baroness, Lady Howe of Idlicote, who, as a distinguished former deputy chair of the Equal Opportunities Commission, has unrivalled experience, commitment and knowledge in this area.
      I shall focus on only one issue, which is the controversial issue of the actuarial exception. The right to equal treatment free of sex or race discrimination is a fundamental right. As an individual right, it cannot be undermined or negatived by broad assumptions or generalisations. But what may be true of a group may not be true of a significant number of individuals in that group. It is also a basic principle that equality of opportunity and treatment applies equally to both sexes, whether it happens to favour one sex or the other.
      Discrimination is often the result of the discriminator's belief, whether accurate or inaccurate, that members of the group to which the victim of discrimination belongs share or are more likely to possess some characteristic, or are more likely to behave in a particular way. That includes, for example, having accidents as drivers or having a different rate of mortality. An employer may believe that women with children are unreliable employees, or that women are unable to lift heavy loads. For these reasons, the employer may refuse to employ a woman who has applied for a job involving heavy lifting. Such treatment is unlawful sex discrimination. It is based on a stereotype of women, which may or may not be true of women as a group but which it is unlawful for an employer to assume to be true of an individual woman on the ground of her sex. The same is true—or ought to be true—of providers of services, including insurers.
      Forty years ago it was not unlawful to discriminate in insurance or in the provision of goods or services on a racial basis. When I was teaching insurance law, I personally saw an underwriting guide from a major insurance company advising that black drivers should be charged higher premiums for motor insurance. That was made unlawful without any actuarial exception in 1968 and again in 1976.
      There is an actuarial exception in Section 45 of the Sex Discrimination Act 1975, for which I was partly responsible. It was inserted in deference to insurers. Thirty years later, it is outmoded and should be repealed. I agree with the EOC that it is contrary to principle. I therefore do not understand its position when that is applied to this directive.
      In accordance with the principle of equality, Article 4 of the directive as originally drafted prohibited the use of sex as a factor in the calculations of premiums and benefits for the purpose of insurance and related financial services. The European Commission rightly
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      noted in its report that equal treatment for women and men is a fundamental right to which the freedom to set tariffs must be subordinated. It pointed out that separating men and women into separate pools is discriminatory. It leads to an unjustified difference of treatment, resulting in disadvantage for one sex or the other, and should be prohibited.
      The Commission's original proposal also rightly concluded that,
      "differences in treatment based on actuarial factors directly related to sex are not compatible with the principle of equal treatment and should be abolished".
      The Commission correctly pointed out that this position is in line with the ruling of the European Court of Justice in the Coloroll case. In that case the European Court held that different contributions for men and women to an occupational pension scheme are discriminatory.
      The United States Supreme Court also ruled, as long ago as 1978, in the Manhart case that a requirement that female employees make larger contributions to a pension fund than male employees was unlawful sex discrimination. In its words:
      "It is now well recognized that employment decisions cannot be predicated on mere 'stereotyped' impressions about the characteristics of males or females … This case does not, however, involve a fictional difference between men and women. It involves a generalization that the parties accept as unquestionably true: Women, as a class, do live longer than men … It is equally true, however, that all individuals in the respective classes do not share the characteristic that differentiates the average class representatives. Many women do not live as long as the average man and many men outlive the average women. The question"—
      said the Supreme Court—
      "therefore, is whether the existence or non-existence of 'discrimination' is to be determined by a comparison of class characteristics or individual characteristics".
      It continued:
      "If height is required for a job, a tall woman may not be refused employment merely because, on the average, women are too short. Even a true generalization about the class is an insufficient reason for disqualifying an individual to whom the generalization does not apply".
      The court went on:
      "That proposition is of critical importance in this case because there is no assurance that any individual woman working for the Department will actually fit the generalization on which the Department's policy is based. Many of those individuals will not live as long as the average mart".
      The court observed:
      "Actuarial studies could unquestionably identify differences in life expectancy based on race or national origin, as well as sex. But a statute that was designed to make race irrelevant in the employment market could not reasonably be construed to permit a take-home pay differential based on a racial classification".
      The same applies, does it not, to the present directive if it is to be compatible with the principle of equality, which is a general principle of European law? If the directive is designed to prohibit sex discrimination outside the labour market, it is wrong in principle for it to include exceptions which allow discrimination based on sex. That is not a question of being a perfectionist, as the noble Baroness, Lady Royall, described it.

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      It is unfortunate that the case law is not mentioned or discussed in the committee's report. It is also unfortunate that Sub-Committee E on Law and Institutions was not involved in the scrutiny. The absence of discussion of legal principle weakens the cogency of the report. There is a real risk that the actuarial exception is incompatible with European law.
      The insurers argue that they do not believe that the use of gender in insurance calculations should be regarded as discriminatory where such gender differentiation could be shown to be objectively justified. But, in principle, as a matter of law, it is not and should not be possible to justify direct discrimination, whether on grounds of race or sex.
      I agree with Professor McColgan that,
      "it should be no more acceptable for insurers to use gender as a basis for assessment on grounds of rationality than it would be for them to differentiate on the basis of race, even if a rational basis for that differentiation could be statistically justified".
      The EOC's approach—which, as I have said, is inconsistent if it wants to get rid of Section 45—represents what the report calls "striking a balance" by allowing insurance companies to depart from the principle of equal gender treatment in the strictly limited circumstances that the noble Lord, Lord Williamson, has reminded us of. The compromise upon which the Council of Ministers has now reached political agreement—no doubt with leadership from this Government and with a significant abstention by the German Government—will cause confusion and may be difficult to implement in practice. Even the view of the Association of British Insurers is that the compromise text represents a "convoluted outcome".
      There are practical alternatives to the gender profiling which the directive will protect. The Commission, in its evidence to your Lordships' committee, cited a number of countries where gender considerations are not taken into account in the determination of motor insurance levels. It pointed out that it is only really in the UK and Ireland—which have the same insurance and insurers effectively—and in France that insurers have expressed any concern at all about the application of the directive in this area.
      I find it disappointing—and I am embarrassed to say this because my noble friend Lady Thomas, who will be winding up the debate for my party, was a member of the committee, and her commitment to equality for women is well known—that in its report the committee did not support the Commission's original principled position. It is even more disappointing that the Commission altered its position on Article 4—nobbled by the insurance industry and the British Government in order to obtain unanimous agreement on the directive as a whole at the October council meeting. I respectfully dissent.
      12.9 p.m.
      Baroness Greengross: My Lords, it was a privilege to serve on the sub-committee headed by our excellent chairman, the noble Lord, Lord Williamson. I am also a vice-chair of the All-Party Group on Equalities. In that respect I have had the privilege of working closely
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      with the noble Lord, Lord Lester. After listening to the noble Lord, Lord Lester, and the noble Baroness, Lady Royall, it is obvious that my ambivalence in the task that we were set—which was to consider these issues—was somewhat obvious, especially as I have campaigned for equal treatment and equality over many years and the subject is very important to me.
      However, I believe that the aim of equality measures is, and must always be, to improve the situation of a minority or a group of people that is treated unfairly. The result of measures to eliminate inequality must be better than if those measures were not introduced. I start from there, as did, I believe, other members of our committee, and our extremely pragmatic conclusions are based on that premise.
      It is worth noting, as the noble Lord, Lord Williamson, said, that UK sex equality legislation already exceeds in scope most of what the EU draft directive seeks to address, and it will not be brought down to the level of the draft directive if that becomes accepted in law. The committee took a great deal of evidence and considered it very carefully, as was our role. The evidence revealed the extreme complexity of these issues. They are not as straightforward as they seem and as many of us, wearing our other hats and campaigning for equality of treatment, would have one believe.
      It was a difficult decision for all of us. That is why our key recommendation was that,
      "insurance companies should only be allowed to depart from the principle of equal gender treatment in strictly limited circumstances, where the assessment of risk can be shown to have been objectively based on accurate, up-to-date and relevant actuarial data, clearly indicating significant risks that are directly related to gender".
      In our view, that is the case here.
      In financial services, notably insurance, we are dealing only with commercial transactions and risk is the basis of the contract. We came to the conclusion that the financial services industry itself must always make the case for any continued gender differential. However, life expectancy differences are narrowing. We concluded that more research and consultation is needed before changes ought to be made and that continued monitoring must be part of the agreement.
      Our ambivalence is obvious also in our conclusion on upholding differential treatment, which is less enthusiastic than that of the Government. However, when there is no difference—that is, when life expectancy becomes the same for men and women—then the differential treatment must disappear immediately. The insurance industry has to be held to that. Our recommendation is conditional and for the time being only. It is very sad that the Government have not responded by saying that they would monitor this.
      Our feeling is that the Equal Opportunities Commission is the prime organisation able to take this on board. If it cannot, then perhaps the FSA or the Office for National Statistics could provide that information very quickly. I also agree that transparency is essential. However, even without formal monitoring, those of us

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      who campaign for equality will not let the issue go in the event that the circumstances and actuarial data change. It will not disappear from view as a policy issue.
      The paper produced by the Equal Opportunities Commission and the Pensions Policy Institute—in which I declare an interest as its president—concluded that the argument on unisex annuities has not been made conclusively, that annuity rates for men could decrease by up to 13 per cent, and that joint life annuity rates for men could decrease by 4 per cent. Unisex annuity rates would help only a minority of pensioners. More than three times as many pensioners receiving an annuity, including wives and widows dependent on their husbands' annuities, could receive a lower income, not a higher one. That made us think again.
      On motor insurance, the committee felt that the industry should work towards a situation in which young drivers, particularly male drivers, could be risk assessed on the basis of their driving records over an initial period of a few years. That would change the need to use gender as it is currently used, where young men are automatically assessed as a very high risk simply because they happen to be young men. So we are some way towards agreeing with the noble Lord, Lord Lester, on that.
      On positive action, it is important to note that, in the EU negotiations since our report was published, the Government have secured that,
      "the principle of equal treatment shall not prevent … measures to prevent or compensate for disadvantages linked to sex".
      That is very important. Overall, the committee felt that, at present and for the time being only, on the basis of objective data, we should continue to differentiate between the sexes. However, that must be monitored transparently; change must be effected immediately when the situation changes; and the overall advantages must outweigh the disadvantages to the consumer the ordinary person who must always be the subject of our main concern.
      12.16 p.m.
      Lord Harrison: My Lords, I take the opportunity to thank the noble Lord, Lord Williamson of Horton, for his masterly exposition of our report and for his superb stewardship of our sub-committee in his period as chairman. I also welcome the noble Baroness, Lady Thomas of Walliswood, as she takes up his duties. She will be reinforced by our excellent secretariat, which has played an outstanding role in forging this report.
      We have the report before us. We also have the benefit of the Government's response. Perhaps we have similar conclusions but with different emphases. We acknowledged the need for the directive and the common interest of the European Union in introducing legislation to extend the principles of anti-sex discrimination into commercial transactions. We emphasised the need for increased monitoring of the directive when it comes into play and of the marketplace in which these businesses exist. We also emphasised the need for the swift implementation of non-discrimination when, for instance, the facts change—for example, when male and
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      female life expectancy patterns change, impacting on the annuity market and the products deriving from it—and when supporting arguments are undermined by research or social change. I have in mind, in particular, the motor insurance industry.
      Our report foresees a middle path of promise and practice. In it, we declare that we support the introduction of such legislation so long as it can be shown to be necessary, soundly based, proportionate and consistent with the principles of competence and subsidiarity. In passing, it is interesting to note that the anti-sex discrimination legislation passed a generation ago by Lady Castle—I have in mind the Equal Pay Act 1970 and the SDA 1975—was more wide-ranging and broadly based than the relatively modest proposals in this draft directive. Not all that emerges from Brussels is as radical and revolutionary as it is sometimes portrayed, and so wilfully misrepresented, as the noble Baroness, Lady Royall, pointed out.
      Indeed, it is a further finding of our report that our understanding and our intelligence of these commercial markets, where gender dictates and influences the products marketed, is woefully inadequate, not only across the single European market as a whole but frequently, too, here in the single marketplace of the four countries comprising the United Kingdom. For these reasons, our report is peppered throughout with calls for greater research by the Commission and by the industries involved into deepening our understanding of the relevant markets. Let me give two examples.
      I do not think we knew enough about the functioning of the motor insurance market across the now 25 member states of the European Union with respect to pricing policies as they are modified by considerations of gender. Our researches show, for instance, that France had a unisex approach to computing insurance, but it then appeared that it was mono-sex, in the sense that the greater risk of the two sexes was applied universally to both sexes.
      When we received the witness from the Commission, it was the first time that we heard a wholly different view about how the insurance market might be informed when she used the word "solidarity", a word infrequently heard in your Lordships' House. In other words, perhaps touching on some of the elements from the speech of the noble Lord, Lord Lester of Herne Hill, the insurance market could be operated by solidarity, evening out the risk of those who have different risk potential.
      My second example is the impact on the pensions and annuities markets, which currently discriminate on the grounds of sex in establishing premiums and benefits. We have little sense of either the broader picture of this market throughout Europe, nor of its smaller detailed parts. We badly need more profound research into and analysis of all these areas.
      It is for the self-same reasons of rigour that we, unlike the Government, I believe, have suggested greater monitoring of these commercial markets to ensure that where residual sex discrimination remains it must be cogently justified, at least on a short-term basis. We prefer independent monitoring of both the markets and the directive, when it comes into play, at

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      member state level—in Britain's case, the Equal Opportunities Commission—co-ordinated across the EU by the Commission. Ministers, however, were lukewarm, preferring a working group in Brussels made up of the industry and other interest groups. It remains to be seen which of the methods will more greatly favour the consumer, whose champions we on the committee seek to be.
      We insist, too, perhaps more urgently than the Government, on greater transparency of the market and its players. Too many brochures and too much literature are produced by pension firms and insurance companies that are frequently unsatisfactory. I also have in mind transparency with regard to the calculation of insurance risk. Some of us want to do the sums ourselves, to check the arithmetic of firms which all too often shroud themselves in opaqueness of reasoning, paucity of evidence and obscurity of language, wrapped up in the body armour of commercial confidentiality.
      I give one example from the motor insurance industry to illustrate some of these points. Sex is clearly used as a major—if not the major—criterion for assessing risk and calculating premiums, and the statistics show, as colleagues have mentioned, that young men, newly qualified as drivers, have more accidents and incidents than young women. The facts, therefore, support some continuation of this discrimination. But many other factors contribute to the risk assessment of drivers of which, surely, the soundest is the history of claims, or no claims, that each individual makes. I was of the opinion in the committee, although this was not included in our final report, that a three-year period should mark the phase-out of discrimination in premiums on the grounds of sex. Surely in three years an individual has built up a sufficient history upon which true risk assessment can be accurately calculated.
      My abiding impression gained from listening to the industry is that a mantle of complacency has fallen upon it. Too few players in the market seem keen to review ancient criteria and ancient practices and to put into the market new products whose underlying risk is based on up-to-date market intelligence and an appreciation of changing lifestyles in modern Britain. I hope that I am wrong about this, but I fear not.
      Three other matters of concern are thrown up indirectly by our report. First—and this follows from my remarks on car insurance premiums, and my being a father of two university students, aged 22 and 19—can nothing be done about the wickedly high premiums levied on new drivers? In many ways, we should be encouraging young people to drive and gain practical experience of that imperative skill at a time when their minds are blotting paper and are best framed to absorb these crucial skills.
      Secondly, the very poor and inadequate pensions and annuities for women need further reflection. They still reflect a world in which the men in a partnership are the sole breadwinners.
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      My third and final comment concerns the insurance and pensions industries and the associated financial markets. They boast of their efficiency within the United Kingdom, but I fear that they are not taking advantage of the single European market of 15 member states—now swollen to 25—from which they would benefit in terms of profits and wages to their workers. Doing so would also benefit the consumers in that wider market of 480 million people and lead to increased competitiveness between the industries along the lines of the Lisbon strategy. There is a complacency which ought to be brushed away, and I hope that, in part, this report will encourage a greater examination of the opportunities for British industry in this respect.
      12.28 p.m.
      Lord Colwyn: My Lords, I, too, thank the noble Lord, Lord Williamson of Horton, for his expert chairing of the committee, our Clerk, Gordon Baker, our researcher, Oriel Petry, and Melanie Moore, who did much of their secretarial work. It was impossible to know what the chairman would leave out of his speech for the rest of us to deal with—in this case, not very much. I am grateful to him for his comprehensive coverage of the inquiry.
      Listening to the speeches of the noble Baroness, Lady Royall, and the noble Lord, Lord Lester, I wish that we had heard from them at an earlier stage. Perhaps, on reflection, I would have come away even more muddled than I am now.
      I spend much of my time involved with healthcare issues. The directive was about the,
      "access to and supply of goods and services".
      Services are defined in Article 50 of the treaty as those which are "normally provided for remuneration". The directive does not refer specifically to healthcare services, but they have been included in the broad scope of the document.
      Certainly, I am not aware of any gender discrimination in the NHS, but of course there are situations where men and women are treated differently. Certain medical conditions are sometimes targeted for extra resources. But the Department of Health made it clear that it did not wish to open up the possibility of patients of one sex claiming that equal resources were not allocated to conditions specific to the other sex. It seems totally unacceptable that NHS services, which might include cervical screening, prostate cancer risk management and treatment related to gender-specific cancers and breast screening, might be challenged.
      Gender discrimination issues might also be associated with patient-choice decisions. The department confirmed its commitment to making NHS services more responsive to patients' personal preferences, which could include choosing the gender of clinicians, but it might not always be feasible for those services to meet personal preferences.
      The committee recommended that the health services provided by the public sector should be excluded from the directive, and that a commonsense approach be used over gender-specific treatment and the reasonable rights of patients to choose their

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      medical practitioner. Much of the press commentary on the report centred on the insurance implications of men and women drivers. Most of the speeches today have dealt with that. I was glad to hear from the noble Lord, Lord Harrison, who became our expert on the matter during the committee.
      Our report reflected the findings that the EU proposals might lead to anomalies and inconsistencies. It is possible that in time gender could be taken out of car-insurance calculations for premiums but that when companies set premiums for newly qualified drivers—with no track record—gender would be a relevant actuarial factor that should remain.
      The cost of insurance cover for women would be likely to increase by 10 per cent to 30 per cent. There might be some reduction for younger men, but the industry said that it would expect to see an overall increase in cost because insurers would be taking the risk that they write more cover for higher-risk men. If the directive were implemented, would not the result be a significant premium increase for many women, who would be penalised by subsidising the premiums for more risky male drivers, by the very law designed to help them?
      We considered the effect of the proposed law on advertisements for same-sex flatmates and the letting of accommodation. The rule would make it an offence for homeowners to stipulate whether they wanted men or women when letting rooms or accommodation. I have listened to the speech of the noble Baroness, Lady Royall; I would be delighted if I had misunderstood it. This is further unacceptable legislation that would mean less accommodation on the market and many women worried about their safety. The National Landlords Association said that the matter was fundamental to people, and that they should be allowed to choose with whom they share their living space. The association said:
      "It raises issues of privacy and decency. It would be quite wrong to remove the right to stipulate whether people are seeking a male or female tenant or lodger in all circumstances".
      We agreed that specific exemptions should be made to cover the right of those letting rooms in private accommodation, especially where facilities are shared, to stipulate the sex of tenants or lodgers. We also recommended that exemptions be made to enable refuges for victims of domestic violence to be reserved for persons of one sex.
      I have no intention of going into the complex detail of annuities. For some reason that I still do not understand, I found myself often leading the questions to experts on annuities, to the extent that I have now changed my own pension arrangements. The UK annuity market is different from those of other member states, and the special circumstances of its unique compulsory nature must be considered.
      The committee was concerned about the evidence of inadequate female pensions and did not see the directive as a solution. If men and women are offered the same monthly income for the same purchase price, men will be discriminated against, as on average they will receive less back over their lifetimes. If providers
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      could not use gender as a calculation, they would have to price conservatively by assuming that the annuitant's mortality was closer to the female average. That would mean that females would be unlikely to receive higher rates while men would receive lower annual rates.
      In conclusion I shall paraphrase the committee's recommendation 10.2, already referred to by the noble Lord, Lord Harrison. Although it is in the common interest of the EU to introduce legislation that attempts to extend the principles of anti-sex discrimination, we can support it only if it can be shown to be necessary and soundly based, proportionate and consistent with the principles of competence and subsidiarity. Would not that be more easily described as the application of good common sense to an unacceptable level of EU regulation?
      12.35 p.m.
      Baroness Howe of Idlicote: My Lords, the chairman, my noble friend Lord Williamson, and the other authors of the report have examined the question of sexual equality in these areas in considerable detail. The depth and open-mindedness with which they have examined the proposals in this important draft directive is, I am sure, appreciated by noble Lords.
      However, I am disappointed that neither the Select Committee nor the Government are yet convinced that the principle and practice of equal opportunities should now be extended to the areas that still remain, 30 years after our own Sex Discrimination Act 1975—I repeat, 30 years—outside our domestic equal opportunity laws. Of course, the directive sought to include many of those areas.
      There are many questions that I would like to address and on which I have much enjoyed hearing other noble Lords' remarks. However, I shall try to confine my remarks to just two areas of discrimination that the directive sought to remedy. Going back to first principles, there were many areas, now covered by the Equal Pay Act 1970 and the Sex Discrimination Act 1975, where, originally, concerns were expressed with considerable strength at the costs involved. The view was prevalent, for example, that equal employment opportunities would mean huge costs for industry when young women left for childbearing.
      Happily, however, the landmark Sex Discrimination Act 1975 had set out the basic principle that a person's gender should no longer be a criterion governing decisions in employment, education or the provision of "goods, facilities and services". I hardly need to remind noble Lords that it was not too long before that original concern subsided. Employers came to recognise the bottom-line benefits that they gained by including the talents, experience and expertise of the other 50 per cent of the population in the pool of potential employees.
      But, yes, certain exceptions were included in the 1975 legislation. One such was in respect of retirement age. Interestingly, as we began our work at the Equal Opportunities Commission, the quantity of complaints from both sexes that we received about unequal retirement dates remains engraved on my

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      memory. Men complained bitterly that they had to work five years longer than women; women complained that they were not allowed to work up to 75 years and thereby earn a higher retirement pension.
      So where are we now? Retirement age for women is well on its way to a legally required equalisation with that of men—ironically, at a time when demographic trends indicate a predominately ageing population, which makes it increasingly unlikely that any fixed age for employee retirement will make sense. But, so long as there remains any retirement date, it will soon be the same for both sexes.
      Yet, most perversely, as the noble Lord, Lord Harrison, pointed out, as more and more women rise to executive positions, as a result of which they will want to make extra provision for their retirement, this country still apparently thinks that they should be satisfied with lesser pensions and annuities than received by men with the same employment entitlements. That is based on the increasingly squalid argument that women live a little longer than men. I hope, however, that the noble Lord, Lord Lester, the architect of so much that is good on the equal opportunities front in this country, has laid that point to rest. As some witnesses pointed out, too, it would be at least as relevant to take a view on where an individual lived or on their lifestyle, as on the sex of a person receiving an annuity or pension.
      The Select Committee was rightly critical of the lack of transparency about how insurance industry figures justifying this difference were arrived at. But we need to remember, too, that however good the intentions—and we may differ in our views about that—built-in sexually discriminating assumptions may still exist and distort how the figures are arrived at. I have in mind here the practice which the EOC unearthed early on: a general rule existed that no credit facilities were granted to those in part-time employment, however high the part-time worker's salary. This was seen, under the new law, as unlawful indirect discrimination, as the vast majority of part-time workers were, and still are, women.
      My second illustration, and where I am glad to see the Select Committee was almost as sceptical as I am, and as others are, of the insurance industry's arguments, is in the field of motor insurance. If ever there was an area where the sex of an individual was irrelevant, I would have thought that it was this one. In this case, of course, the argument is that it is the woman driver who gains from the current situation. Women are said to be safer drivers, especially young women compared with young men, therefore it is argued the premium women are charged should be lower. But can it really still be justifiable to depart from the principle of equal treatment of the sexes here? Would it not be far more sensible, let alone more just, to spread the risk evenly from the start and put the premium up substantially for any individual, male or female, when and if there was evidence of dangerous driving?
      I am sure that we shall return frequently to these issues. We have heard how far the negotiations have gone—but this is an issue which will not lie down. My
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      hope certainly had been for some "jam today", and a real step forward, with the directive, on every issue of equal opportunities, not only in the UK but throughout Europe. I am afraid that I am not quite as brave as the noble Lord, Lord Lester of Herne Hill, but if we cannot move immediately to "jam today", "jam tomorrow" would be my preferred option.
      The Select Committee has made plain its belief that research, not least on longevity, and genuine independent monitoring of relevant actuarial data used, to which noble Lords have referred, are essential. The EOC's latest briefing also points to the need,
      "for an independent regulatory regime in place to provide reassurance"—
      to consumers. We must hope that the Government will change their mind and see the importance of this, not least if they are to keep faith with their own belief in genuine equal opportunities.
      12.43 p.m.
      Baroness Thomas of Walliswood: My Lords, it is always difficult to wind up a debate when a piece of work has been done largely in one's absence and one is following one of the greatest experts on the subject, who is present in your Lordships' House. However, I shall try to return to the subject of the report.
      I joined the committee at the last evidence-taking session. We had before us Ms Pavan-Woolfe, who is quite as determined and fierce a fighter for equality as my noble friend Lord Lester, who has been my mentor for many years on these subjects and whose record is irreproachable. She stated quite categorically that life insurance should be offered on the same terms to men and women, but acknowledged that the result would be that the risk would be carried by the pool of insured people and that men would therefore have to pay more and women would be able to pay less for a similar product. That is the disbenefit to which the noble Baroness, Lady Greengross, referred. It was something that had a good deal of influence on the committee's thinking.
      Ms Pavan-Woolfe made a further point—that, in effect, what should happen is that each person should be given life insurance on the basis of their lifestyle as well as all the other things relevant to the individual person. The noble Baroness, Lady Royall, made that point in her opening remarks. That would be the ideal. In an ideal world—and I believe that is a world in which Ms Pavan-Woolfe would find herself very comfortable—men and women would all be working, and working at the sort of job that enabled them to save for a pension. Then they could be treated completely equally and judged on the value of the work that they were doing, their lifestyle, their attitude to their life, their ordinary levels of sickness, and any other considerations that might be taken into account. But that is not the world in which we live.
      One thing that the EOC has put before us very clearly in its various recently issued papers on that subject is that even now women do not live in that world. Even if they get management jobs—and of course many of the do—their work will be interrupted, mostly by pregnancy

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      and other caring aspects of their life. In my own case, no sooner had my own children flown the nest than I began to be involved in the care of my mother. Most women of my generation, with the fairly wide gaps between the age of the mother and the eldest child, found themselves in that position.
      These matters are not easy to determine in absolute terms. It is wrong that insurance companies should use sex as "the" determinant. The report would clearly not agree with that; it refers to sex as simply one determinant with regard to life insurance, annuities and car insurance and not necessarily as the defining determinant. Until men and women have equal employment lives, it is difficult to take sex out of consideration when providing insurance. I suppose that it could be done. However, my mentor, Ms Pavan-Woolfe, clearly indicated where the costs would fall.
      The matter of insurance for drivers is a relatively simple one. We take a pretty robust attitude to that; we say that the sex bias should be got rid of as soon as possible. The only exception to that should be when insuring young drivers of whose expertise and safety one knows nothing. In those cases, one might say that the statistics show that in general women are safer drivers than men, so until there is a record of each person's driving it might be permissible to allow sex to determine the rate of insurance. Obviously, after a record becomes available, the only thing that ought to determine the rate of insurance is whether a driver has been safe, as well as the size of the motor, the expense involved in case of an accident, and so on.
      The report is clear on that matter, although there is a dispute—which we have heard in your Lordships' House today—about the attitude that the committee should have taken to life insurance. But even in that regard, the committee says that as soon we know that people's life expectancy—which represents the basic input into life insurance—is the same, the sooner we shall be able to get rid of the problem. It is a great shame that the Government have not acceded to the committee's request to introduce a system to monitor these issues on a rolling basis to see where the inequalities of insurers' current policies lie.
      As the noble Lord, Lord Harrison, so kindly said, I will be taking over this committee, if I may put it like that, as its chair. From my several attendances at meetings chaired by the noble Lord, Lord Williamson, I know what a hard act I have to follow. Because of his background, he is extraordinarily knowledgeable about the workings of the Community, and I will have to run very hard indeed to catch up. However, I am sure that other members of the Committee will be able to help me, and, as they have said, the support and assistance of our excellent staff will be available to me as it is to them. I look forward very much to the next report that we write.
      12.50 p.m.
      Baroness Morris of Bolton: My Lords, first, I apologise for not being present at the beginning of the debate. I was taken aback by the speed with which your Lordships so enthusiastically began.
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      I thank the noble Lord, Lord Williamson of Horton, for facilitating this debate today, and for chairing the committee that undertook such a detailed examination of this EU directive. I find it immensely encouraging, at a time when we are often warned of the reams of directives and regulations that come flooding over from Brussels to infiltrate our domestic legislation, to see an EU directive that has been so painstakingly and conscientiously examined. It was obvious from the content of the report that the committee has been rigorous in scrutinising the technicalities of this directive and the implications that it holds for the UK, both for consumers and for industry.
      We on these Benches are firmly behind the promotion of sexual equality. As some noble Lords may be aware, I have spent considerable time during my career channelling my energies into encouraging and supporting equal opportunities and standards for women, not merely in the workplace but in all aspects of life. At home, I am known for my motto, which is taken from one of my favourite pieces of graffiti on a wall in New York, "women who seek equality with men lack ambition".
      I was therefore extremely encouraged to read at the beginning of this report that the UK is one of the most progressive EU states in its legislation for, and attitude towards, removing sexual discrimination. This is a fact of which we should all be immensely proud. It is clear from the content of the report that the directive will therefore be of little practical benefit in terms of redressing sexual inequality in the UK. We are fortunate to have the Sex Discrimination Act 1975, which is much broader legislation than the rather narrow remit of this directive, and which has served as an admirable harrier to inequality for over 25 years.
      I was struck by the comments in the report that there was little evidence of consistent sexual discrimination in terms of access to goods and services, and the evidence that they did have was for the most part "anecdotal". There is some question about the benefits gained by implementing a directive into our already comprehensive legislation if evidence is neither "substantiated" nor "quantified". We must look carefully at what wrongs we are trying to redress.
      We are considering today a very circumscribed form of sexual discrimination; discrimination in access to goods and services. We should consider the directive in terms of necessity, practicality, proportionality and consistency. In this vein, I support the conclusions that the committee reached on education, health and housing. I have a wholehearted belief in providing and facilitating single-sex services in those areas. We must be aware of the law of unexpected consequences whereby, in hoping to promote equality, the end product is detrimental for those who currently benefit from such services.
      I am thinking in particular of the wonderful work that single-sex refuges provide for victims of domestic violence, as mentioned by the noble Baroness, Lady Royall, and of some of the work carried out in our clubs and institutions. Until two years ago, I was a director of the Bolton Lads' and Girls' Club, which is one of the largest youth clubs in this country. We

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      have a large Asian population in Bolton, and we realised that a number of young Asian women were not coming to our club. We carried out some research, and we discovered that they were not coming because their fathers did not want them to come, so on Sundays we now have girls-only clubs for young Asian women. It is terribly important that that work carries on. The effects on women in those circumstances, were they to be opened to men, would be disastrous.
      It is important to understand that those who provide health and education services are professionals who should be trusted to know how best to provide their services in the interests of both men and women. I was shocked and appalled by the mention in the committee's report of complaints made or cases brought against hospitals for not splitting their funds 50:50 between male and female health services. There is no justification for forcing a hospital to spend the same amount on cervical cancer as prostate cancer. It is up to the professionals who run the hospital to make such a judgment, and I do not believe that there is any case for claiming sexual discrimination should funds not be equally distributed, which was rightly pointed out by my noble friend Lord Colwyn.
      I now move onto the implications of the directive, in particular Article 4, on our financial services industry. There seems to be a great danger of damaging both consumers and the industry itself should the directive be implemented in its current form. I will disappoint the noble Baroness, Lady Howe of Idlicote, by repeating that it is well known and widely borne out by the multitude of statistics quoted in the report that women live longer than men. If we accept that fact, it is surely right that those who provide life insurance and annuities take sex into consideration when calculating premiums and annuity payments.
      Again, if we return to the law of unintended consequences, it seems extremely important to emphasise that as most families rely on annuities from the male in the family, to remove sexual differentiation in terms of annuities payments would actually be detrimental to women and to all families as a whole, since male annuity rates would obviously fall in order to compensate for having equal rates for both. The noble Baroness, Lady Greengross, expressed that so well. We must again look to utility and practicality.
      There is no point in preaching the principle of equality when it leaves all consumers worse off. In the case of annuities, the issue should be considered all the more carefully. After the victories on the Pensions Bill in your Lordships' House a few weeks ago, we know that the Government may well be looking again at the unique situation in Britain where the purchasing of annuities at 75 is compulsory. After my noble friend Lord Higgins won three victories here in your Lordships' House to remove compulsory annuitisation, it is apparent that many people have deep reservations about the annuities policy in this country and that the Opposition have forced the Government to have a major rethink on this issue.
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      I take the same common-sense approach on motor insurance as that adopted by the committee. The statistics are blatant in highlighting the fact that young men are more dangerous drivers than young women and should therefore have higher premiums. To deny that and remove the differentiation in terms of sex would lead to higher premiums for all as the industry struggled to adjust to the new system. It is interesting to wonder whether the motor insurance industry will be attacked next for discriminating on age in offering cheaper insurance for older drivers. One could take the principle of equality to such an extreme, but it would not be in the interests of the industry, consumers or road users.
      The overwhelming impression one gets from the report is that the European Commission has undertaken little consultation. In terms of the fact that the insurance industries are unique and differ from state to state, it is vital that there is thorough consultation before the directive is implemented. Although we are looking to protect consumers and ensure that they are not discriminated against, we must not end up righting a negligible wrong at the expense of our native industries. It is clear that there has been little cost-benefit analysis for our insurance companies. The issue is proportionality and we must be sure that the ends justify the means.
      I congratulate the chairman, all the members of the committee and the secretariat on the report. Having found out at a very late stage that I would have to speak today, I was grateful and I must say relieved to find that the report, which I picked up only last night, was extremely thorough, concise, easily digestible and pragmatic. I am pleased to say that we agree with many of the conclusions and recommendations which have been reached, and can only thank the noble Lord and his committee for all their assiduous hard work and good common sense.
      1.1 p.m.
      The Minister of State, Home Office (Baroness Scotland of Asthal): My Lords, I too owe the noble Lord, Lord Williamson, an apology, as I too was caught out and not in my place. I hope that he will not take it ill that both the Government and Her Majesty's loyal Opposition were not here to welcome this sterling piece of work. In time, I hope that he will come to forgive me.
      I am very grateful to have the opportunity of the debate to listen to the views that noble Lords have expressed on these important issues. I would especially like to pay tribute to the European Union Committee's detailed work on the directive. I wholeheartedly agree with everything said by the noble Baroness, Lady Morris, whom I welcome to her place. I think that it is the first time that she has appeared on the Front Bench, and if her speech was an example of to what we shall be treated, we will all welcome that very much. I agree with her about the good sense demonstrated in the report.
      I thank the noble Lord, Lord Williamson, who opened the debate so eloquently, and all the members of his sub-committee, particularly the noble Baronesses,

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      Lady Greengross and Lady Thomas of Walliswood, my noble friend Lord Harrison, and the noble Lord, Lord Colwyn, who all spoke today. I also thank my noble friend Lady Royall. Bearing in mind her sterling work in the European Commission, I think her support very valuable. However, I am sad to cause the noble Lord, Lord Lester, any disappointment. The intellectual purity of his argument is, as always, seductive; in this House, we have long valued his wise words, drawn from a wealth of knowledge and experience. However, as his noble friend Lady Thomas of Walliswood made plain, that purity must always be set alongside the practical effect that the directive has. As the EOC has demonstrated in its research, one has to look at the longterm benefits that we wish to see on the issue. I was particularly taken by the comment made by the noble Baroness, Lady Greengross, that when we look to see the change we want, we must look to see the advantage derived from it.
      As noble Lords know, the inquiry conducted by the European Union Committee has been very much welcomed by the Government. We have been grateful for the contribution that it has made to the negotiations in Brussels, which have been conducted over a relatively short space of time for such a complex directive. As we said from the outset, the Government welcomed the draft directive and its aim to expand equal treatment to goods and services across the whole of the enlarged EU.
      The noble Baronesses, Lady Morris and Lady Howe, mentioned that our national Sex Discrimination Act has worked well for nearly 30 years, and we firmly believe that the directive, when formally adopted, will be instrumental in developing sex discrimination legislation throughout Europe in a similar way to ours. I want to say to the noble Baroness, Lady Howe, that the directive provides us with jam today. Perhaps it is not quite so thickly spread as she would like, or of quite the flavour that she finds the most pleasing, but we should not ignore the fact that it is jam none the less.
      As the noble Lord, Lord Williamson, said, the Government have already substantially presented our position in response to the report of the committee. As he was kind enough to indicate, the Government agree with most of its recommendations. That is especially welcome on issues such as: the exclusion of education, which must be outside scope both to maintain the principle of subsidiarity and to protect our single-sex schools; the importance of enabling the renting of a room in a person's own home; the continued provision of single-sex shelters for victims of sex-related violence to be permitted under the directive; and allowing positive action to benefit men or women as required by circumstances. That was ably outlined by the noble Lord, Lord Colwyn, when he talked about the challenges that we have to face in the health service, in terms of difficult decisions that must be made.
      The committee rightly made much of the potential impact of the directive on life insurance, annuities and motor insurance. That area of the directive has been
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      the main focus of debate during the negotiations and represents perhaps the most significant challenge in industry practice and implementation. It is therefore welcome that more than half of the committee's recommendations concern those issues.
      The text which the committee examined is not the same text discussed at the Employment Council on 4 October. Negotiations on the text of the directive were continuing in parallel with the committee's work, which incidentally was a real bonus for our negotiators in Brussels. The text that received political agreement by 24 of the 25 member states at the October Employment Council will, your Lordships will find, meet many of the committee's concerns.
      Some member states have relatively small insurance sectors and a heavy emphasis on social insurance provided through the state. The noble Lord, Lord Lester, referred to the difference of approach. Others, such as the United Kingdom, have a greater emphasis on private pension provision and a thriving insurance sector. The UK insurance industry is the largest in Europe and the third largest in the world. It is an important contributor to the economy, a major employer and a significant source of overseas earnings. Whether we are looking at health insurance, life insurance, pension annuities or motor insurance, the directive has potentially significant impacts on not only the insurance industry, but consumers and pensioners.
      The text that has emerged gives an option to member states not to apply the principle of equal treatment in setting insurance premiums and benefits where the use of sex is a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data. It is not a time-limited opt-out, but a genuine recognition that a "one size fits all" solution is not always the right way forward, and that there are important differences between member states in existing practice.
      Lord Lester of Herne Hill: My Lords, the Minister has been kind enough to refer to my purity, which is not something that my friends would normally describe as my best-known quality. My speech depended on my view of the law, not my purity. I have argued that this exception is unlawful. Does the Minister disagree with that view and, particularly, does she disagree with my comments about race and gender? If young black drivers had a worse accident record than young white drivers, she would agree, as would the Government, that that should be unlawful. What is the difference between race and gender when it relates to relying on accurate actuarial calculations which involve generalisations that discriminate against individuals? What is the difference? If she accepts that it is wrong for race, why is it not wrong for gender and why is that not unlawful under European law?
      Baroness Scotland of Asthal: My Lords, the Government's view is that the directive, as currently structured, complies with discrimination law and, indeed, with the ECHR. That is a view which has been held for a significant time. I understand the point made by the noble Lord and would be happy to write to him in detail regarding why we came to that view. The

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      nature of the noble Lord's question would involve us in a long debate and today is not, perhaps, the time for that. However, I take the noble Lord's point. We do not agree with him on that issue. The issue of race deals with a whole section of people; the issue of women and men is one where the discrimination laws have been cast slightly differently, as the noble Lord well knows. I also appreciate that the noble Lord said that there should be no such differentiation in our law and that sex discrimination and race discrimination should be put on precisely the same footing. That, too, is a debate for another day.
      Returning to the issues that we have been debating today, my noble friend Lord Harrison made a powerful speech about the importance of avoiding complacency in the insurance industry and said that there must be rigour and control. I very much take on board my noble friend's comments. The Commission has also listened to the concerns of the industry, which were shared by your Lordships' committee, that the Commission should engage in full consultation with representatives of UK insurers and actuaries and corresponding national bodies in other EU member states to look further at the impact of the likely consequences of removing sex from the equation. A working party will be established which will include representatives of the governments of each member state, of the insurance and related financial services sector, European consumer bodies and bodies for the promotion of equal treatment. I can assure your Lordships that we will be vigorous in that working party. It will examine how to implement the insurance provisions and look at the quality and availability of the data relevant to the use of sex as a factor in pricing insurance premiums and benefits.
      It would be wrong to deduce that the Government have simply bought into the insurance industry's arguments or missed an opportunity to extend anti-discrimination legislation to all forms of insurance annuity. I would reassure noble Lords, many of whom have raised this matter, that we have not ruled out during that process looking at the recommendation about monitoring the price-setting of gender. That is an issue which we will continue to take into account.
      The committee expressed views about unisex premiums for experienced drivers. It is an excellent principle that good drivers who make few claims should be rewarded with lower insurance premiums. I know that my noble friend Lord Harrison has said much regarding that. A good driving record is reflected in premiums through no-claims discounts of up to 60 per cent, which apply irrespective of gender or age. In practice, premium rates for male and female drivers tend to be equalised at around the age of 30. Legislation to enforce a practice that has been adopted voluntarily by the market would seem unnecessary. It would impede competition among companies who specialise in different client groups.
      In addition, the Government note the committee's recommendation for independent monitoring of the use made of sex-based factors by insurers and suppliers
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      of related services. As I have tried to make clear, we will continue to look at that matter vigorously.
      I had hoped to assist your Lordships regarding implementation, as the noble Lord, Lord Williamson, mentioned that. We believe, as my noble friend Lady Royall so ably said, that the onus will be on the insurance industry to ensure that its practices are defensible. Are they using up to date mortality tables? Do the accident statistics back up the differences in premiums? I can assure your Lordships that the UK insurance industry is in a much better state in terms of the relevance and availability of such data than many other member states.
      These are early days in terms of implementation. There are three years before this directive comes into effect and we shall, of course, consult widely. The Government have argued strongly during these negotiations for the continued use of sex-based differences in insurance where they are fair to consumers. We will adopt the same approach during the implementation phase of the directive. I should tell the noble Baroness, Lady Thomas of Walliswood, that I am certain that in her chairmanship of the committee, she will apply the rigour that has been applied by the noble Lord, Lord Williamson, she will ensure that the Government are kept on their toes and that no stone will be left unturned. I would expect nothing less of her. I also welcome the vigour and energy that the noble Baroness, Lady Morris, brings to this issue—and her passion, because it is a passion that is shared by many noble Lords, not least by me.
      Once again, I thank your Lordships' committee for its very useful inquiry. It has been extremely helpful to the Government in their negotiations on this important and complex directive. The agreement that has been reached is a sensible and, as the noble Baroness, Lady Morris, said, pragmatic compromise which we worked hard to achieve. The Government are looking forward to sharing their experience of the Sex Discrimination Act and our expertise on insurance issues with our colleagues in other member states. We are confident that what will come from this directive across Europe will be better than the present position.
      1.18 p.m.
      Lord Williamson of Horton: My Lords, I thank all Members who have participated in this good debate. That includes those who have spent hours and hours reading the report. It includes the noble Baroness, Lady Morris of Bolton, who was thrown in at the deep end yesterday, but who, perhaps I may say, showed a remarkable capacity to swim. I also thank the noble Baroness, Lady Scotland, for the Government's reply. I particularly thank those who disagreed with the committee's report. I would have been disappointed if, in a big debate on such an important issue, everyone had agreed with it. It is good that the House is clearly alive and well. So, thank you to everyone, and to our Clerk and our researcher for the report itself.
      On Question, Motion agreed to.

      Regulatory State
      1.20 p.m.
      Lord Norton of Louth Lord Norton of Louth rose to move, That this House takes note of the report of the Select Committee on the Constitution, The Regulatory State: Ensuring its Accountability (6th Report, Session 2003–04, HL Paper 68).
      The noble Lord said: My Lords, I have pleasure in moving the Motion standing in my name on the Order Paper. The inquiry by the Constitution Committee into the accountability of government-appointed regulators is, as the Government have acknowledged, the first comprehensive inquiry into the subject. The inquiry drew on evidence from a wide range of bodies, including regulators, consumer bodies and those subject to regulation. The committee is grateful to all those who gave evidence, as well as to our specialist adviser, Mr Peter Vass, Director of the Centre for the Study of Regulated Industries.
      Regulation is now a major feature of the British state. As nationalised industries have been put in the public sector, regulators have been introduced in order to protect the consumer and to encourage competition. As Tom Winsor, the then Rail Regulator, put it in a lecture to the Centre for the Study of Regulated Industries, companies in the private sector are regulated in the public interest. The regulation is undertaken not by government directly but for political, economic and practical reasons, independent regulators operating at arm's length from government.
      As is apparent from what I have said, and as we stressed in the report, regulation is a means to an end and not an end in itself. As we say in paragraph 4:
      "We question the apparent assumption that the present level of regulation, let alone an even greater extension of quasi-Governmental powers, should remain a permanent feature of our polity".
      As we go on to say:
      "We have to resist the danger of regulatory creep. Many judge that regulatory burdens are increasing, sometimes unnecessarily. This regulatory tendency has to be checked, and the best means is effective accountability. Necessary, and cost-effective, regulation can then be properly identified; unnecessary regulation can, and should, be removed".
      Our report provides an analysis of the existing regulatory regime and makes a series of recommendations on how regulators can be rendered more accountable. Our purpose has been to look at the nature of regulation, rather than focus on particular regulators. There have been some very dynamic and innovative regulators. Our concern is not with the individuals but rather with the corpus of regulatory activity. Regulators now exercise considerable statutory powers. They impact upon the regulated bodies and, through them, on the consumer. The costs of regulation and especially regulatory compliance can be considerable.
      We now have regulation on such a scale that it is possible to refer to the regulatory state or, perhaps more accurately, the regulatory sub-state as part of our constitutional arrangements. Accountability is
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      crucial, but a fundamental question arises on the accountability of regulators. They are appointed by government and implement policy goals set for them, but they operate independently of government. To whom, then, are they accountable and how? And are the means of accountability adequate?
      We identified multiple accountabilities on the part of regulators and different levels of accountability. Regulators are accountable to Ministers, the courts and Parliament as well as to consumers, consumer bodies, regulated companies and the people as a whole. We identified three key elements of accountability in terms of the duty to explain, exposure to scrutiny, and the possibility of independent review.
      We believe that there is considerable scope for improvement in ensuring accountability. There are, we record, some mechanisms in place and we welcome the improvements made in recent years. There has been greater transparency, we commend the move towards boards, and we welcome the Government's acceptance of the Better Regulation Task Force's recommendation that regulators should produce regulatory impact assessments on all new major policies and initiatives.
      Despite the welcome advances, we believe that far more needs to be done to increase accountability to the various bodies I mentioned and in the forms that I outlined. We make a total of 24 for improving accountability. These are listed on pages 8 to 11 of the report. In its response to the committee's report, the Government concede the importance of the issue and that regulators' independence must be accompanied by an effective framework of accountability. This, they say in paragraph 4, is,
      "a fundamental requirement of regulatory certainty, providing incentives for optimal decision-making, and maintaining the credibility of the regulatory framework".
      They go on to accept many of our recommendations and we are grateful to the Government for their acceptance or, in various cases, endorsement of most of our recommendations.
      However, the Government have not accepted all of our recommendations, including the most significant. Essentially, we see a need for ensuring greater coherence in regulatory accountability. The OECD has in recent years placed considerable emphasis on the need for member states to manage the regulatory state as a whole and to provide an appropriate institutional framework. There is also a trend toward permitting appeals on the merits of the case. The Communications Act 2003, for example, incorporated a European directive which allowed appeals on the merits of the case. This, we were told, could be traced to Article 6 of the European Convention on Human Rights. These developments, we believe, reinforce the case we make for greater consistency.
      The three principal recommendations we make in order to achieve this are the establishment of a lead government department to ensure a "whole of government" view of regulation; the appointment of a parliamentary committee to scrutinise the regulatory state; and allowing appeals by regulated bodies to be considered on the merits of the case.
      The Government's response is that one size does not fit all. It is certainly true that regulatory bodies need to be crafted to deal with the particular needs of the case, but that does not mean that we should avoid creating the means for effective oversight of regulation as a particular activity.
      Although the Government have responded to the specific recommendations we make, they have not really engaged with the thrust of our analysis and the intellectual basis for our recommendations. There are already various mechanisms available for calling individual regulatory bodies to account. What is missing is the means to ensure accountability of the regulatory state. What regulators do individually can be scrutinised and challenged—though the means for doing so are sometimes imperfect—but the totality of what regulators do is not subject to coherent and consistent scrutiny. The regulatory state has grown in recent years but we have not kept pace by putting in place the means to develop and discuss the principles that should underpin that development. How far are we prepared to see the regulatory state grow and what shape should it take?
      The Government, in responding to our report, have looked at the regulatory state as the sum of its parts. The result is, I believe, a missed opportunity. If we are to ensure accountability of the regulatory state, we need to be clear as to the principles that should govern regulation and we need to have bodies in place that can cover the whole of the regulatory state. There needs to be a mechanism both for a "whole of government" view and a "whole of Parliament" view of regulation.
      At the moment, both are lacking. Within government, responsibility for regulation is spread across several departments. Identifying a specific responsibility for regulation within government is difficult, not just for us but it appears the Government as well. When the committee invited evidence from a Minister, one was initially nominated but then it was switched to another. In the event, we heard from the Minister of State for Energy, E-Commerce and Postal Services. According to the Government's response to the report, the DTI and the Treasury provide a joint team for considering crosscutting regulatory issues. For issues where the DTI has a significant cross-cutting and sector responsibility, according to the response,
      "the DTI will co-ordinate and communicate on behalf of Government".
      I have checked the current list of ministerial responsibilities. There is no Minister in the DTI with a specific responsibility for regulation. A Parliamentary Under-Secretary in the Treasury has deregulation among her long list of responsibilities—it comes at the very end. A Parliamentary Under-Secretary in the Office of the Deputy Prime Minister has regulatory reform in his list of responsibilities. When the committee's report was put down for debate, the Minister initially listed to reply was the noble Baroness, Lady Ashton, from the Department for Constitutional Affairs, but the task of responding has fallen to the noble Lord, Lord Triesman,
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      who speaks at the Dispatch Box for the DTI. I was going to wonder where the officials in the Box came from, but there are none. I recount this to illustrate the point.
      If the Government are to exercise any oversight of regulation, there needs to be a lead department with very clear responsibility for oversight and co-ordination. Otherwise, the danger is that the regulatory state will expand and do so in a misshapen fashion, neither of which is desirable, but both of which may otherwise be unavoidable.
      Central to ensuring accountability to the public is the institution of Parliament. Consumer bodies may be set up to speak for consumers—though, as we identify, ensuring that they do speak for consumers is problematic—but only Parliament can speak for the people. Parliament has committees for calling particular regulators to account. The appropriate departmental Select Committee can scrutinise regulatory bodies coming under the sponsoring department. The Public Accounts Committee in the other place can cover a range of regulators, although not quite all. The Financial Services Authority and the Civil Aviation Authority are not within its remit. However, no one parliamentary body can examine the regulatory regime as such in the United Kingdom. We can examine the particular parts but we have no means of examining the whole. We recommend that a committee—ideally a Joint Committee—be established for this purpose.
      In their response, the Government recognise that this is a matter for Parliament, but they add:
      "The House Authorities will need to consider carefully what additional scrutiny would be achieved over and above that of the Departmental Select Committees and the NAO (where this applies)".
      That sentence rather gives the game away. There is no appreciation of the need to look at regulation as a whole. If there is to be any degree of effective oversight or control over the extent and shape of regulation, then we need to have coherence in terms of accountability to both government and Parliament.
      For reasons of time, I shall not develop the other themes in the report. Other Members may wish to pursue those. I wish to close by posing four questions to the Minister that derive from our report. First, following from what I have just said, who precisely within government, at ministerial level, is actually responsible for regulation and what plans are there to review the situation in respect of a lead department? If there are no plans, why not? I have already dealt with the answer given in the Government's response to the committee report and so we now need to go beyond that.
      Secondly, what plans are there to ensure greater transparency in respect of the co-ordination that does take place within government? Can the Minister tell us more about the Panel for Regulatory Accountability, chaired by the Prime Minister, which is referred to in paragraph 22 of the Government's response?
      Thirdly, can the Minister explain more fully than is done in the Government's response why the FSA and the Civil Aviation Authority should not come within the scope of the NAO? The Government rest their

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      response on the fact that they are special cases, but the arguments advanced in paragraphs 52 and 53 of the response appear to be undermined by the content of paragraph 54, which states that, in respect of ex-post examination of its finances, the FSA is formally accountable to the Treasury. The Treasury can commission value-for-money reviews and has the option of appointing the NAO to conduct such a study. The CAA is a public corporation and is subject to independent external audit by auditors appointed by the Secretary of State. None of that strikes me as a compelling argument for refuting the contention that the NAO should have access to all regulatory bodies—quite the reverse.
      Finally, what is the argument in principle against establishing an appeals procedure for independent regulators who operate at arm's length from government and who do not fall under the jurisdiction of the Competition Commission or the Competition Appeal Tribunal? The Government, in their response at paragraph 72, appear to rest their case on the fact that a single body would be inappropriate but they do not consider whether more than one body would be able to deliver on what is an important principle, and one that it appears is being recognised in European jurisprudence.
      I believe that, by bringing the issue of the accountability of the regulatory state on to the political agenda, the committee's report enables Parliament—and the Government—to address an issue that requires to be addressed and to be addressed quickly. I look forward to the debate and to the Minister's reply. I beg to move.
      Moved, That this House takes note of the report of the Select Committee on the Constitution, The Regulatory State: Ensuring its Accountability (6th Report, Session 2003–04, HL Paper 68).—(Lord Norton of Louth.)
      1.33 p.m.
      Lord Holme of Cheltenham: My Lords, I am delighted that time has finally been found to debate this important report and prime time, too. At least, I think that is what it is called; on any other day of the week, it would be called "lunchtime".
      It is a particular pleasure to follow the noble Lord, Lord Norton, because The Regulatory State—our penultimate report—was produced by the Constitution Committee during his chairmanship. As a member of the committee who has now had the honour to succeed him, perhaps I may say how much we all owe to his intellectual leadership as the first, and therefore the formative, chairman of this relatively new committee. The British constitution is rather like a woodland nymph—much admired but notoriously elusive and difficult to grasp. We have been lucky to have not only a hands-on chairman but a hands-on-keyboard chairman. Our reports have borne every imprint of both his scholarship and his authorial talents. The committee and the whole House are grateful to him, and personally I thank him warmly.
      Turning to the report, there were originally some sceptics who wondered what regulation had to do with the constitution. I fear that they have no sense of
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      political and social history because, over the past 50 years in this country, we have seen a massive transfer of powers, which would once have been thought to be in the sphere of government or the state, to independent regulators. In part, that is because the idea of the omnipotent state is in retreat everywhere before the forces of the market. Command and control, let alone ownership, by government is not the powerful paradigm for organising society that it once was.
      Yet, even as government shrink their sphere of influence and operation—I should say parenthetically that they do not seem to do very much about shrinking the size of their operations and the numbers in the Civil Service, but at least their theoretical sphere of influence shrinks—the demand for an expression of the public interest to lay alongside the force of the market place remains and, indeed, strengthens.
      At its economic purest, the public interest is to sustain competition and prevent abuse of market power. But, in a complex world, other political priorities—civil and social, environmental and ethical—inevitably intrude, and they are often fuelled (I think we should accept this in Parliament) by parliamentary demands that "something should be done". It is too easy for governments faced by demands that something should be done to set up yet another regulator.
      So I do not think that our description of the sum of these historic developments as the "regulatory state" goes too far. It is clear that important constitutional issues do arise: the rights both of the citizen and of the "regulatee"; the trend to co-regulation and self-regulation; and the relationship between regulators and Ministers and their sponsoring departments.
      Perhaps I may say, again in parenthesis, that one reassuring feature that we observed from the extensive evidence we took is how little evidence there is of day-to-day interference in the work of regulators by Ministers and their civil servants. Nevertheless, it is an issue which may arise, and does arise, from time to time.
      There is the deeply constitutional issue of due process and the right of appeal from decisions made, as the noble Lord, Lord Norton, has already mentioned. There are issues which are perhaps less constitutional but are nevertheless important, such as whether it is better to have individual super-regulators or collective board-type regulation. As noble Lords will note, on the whole we come down in favour of the second. Above all, there is the issue of the accountability of these powerful regulators. I want to address myself particularly to the issue of accountability.
      The Hansard Society Commission on Scrutiny, chaired by the noble Lord, Lord Newton, concluded I am sure that it is right—that in our parliamentary democracy Parliament itself should be the apex of accountability. How fit for purpose are we in Parliament to ensure public accountability? After all, these regulators are almost invariably our creation and so, like Frankenstein, it might be argued that we have some responsibility for them.

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      As we heard in evidence, what is needed is effective parliamentary scrutiny. The front line for that is, and should be, departmental Select Committees. But we should ask ourselves: are they adequately staffed and resourced for this important role? As your Lordships will have read, we recommended that their terms of reference should be expanded to consider and react to regulators' annual reports and published RIAs.
      One problem relating to Select Committee scrutiny of regulators is that often there is too much random populism—whatever issue of constituency or local personal significance comes up for a Member—and too little systematic scrutiny of the way that the regulator is doing its job. We recommended that a clear cycle should be observed by all regulators and their departmental Select Committees. We also recommended the publication of an annual report—it is hoped in a fairly common format—and then, shortly thereafter, a thorough and deep examination of performance against clear objectives within the departmental Select Committee.
      It is particularly necessary to have careful scrutiny of any additional powers that are added or accreted to a regulation in the course of operation. Without that there is the danger of what is called, rather unattractively, regulatory creep. There is certainly an imminent danger that regulators will find themselves with multiple objectives and without any clear hierarchy to guide them on the priorities in decision making. As well as trying to improve the way in which the departmental Select Committees do their jobs in that respect, we need consistent access by the National Audit Office to all regulatory bodies, including the FSA. It would be good to have confirmation from the Minister that that is the Government's intention.
      First, we recommend that our new Joint Committee, as the noble Lord, Lord Norton, said, should ensure that there is no duplication or overlap and that every regulator established has a clear hierarchy of objectives under which to do the job. It is not for us to say whether it will be a Joint Committee, but we believe that a Joint Committee might do the job best. It would need to he properly resourced like the departmental Select Committees.
      Secondly, there should be identification and sharing of good practice around Whitehall. Thirdly, there must be a check on whether regulation is indeed in conformance not just with the Better Regulation Task Force—which has produced principles under the chairmanship of the noble Lord, Lord Haskins, which deserve to be followed—but also with the OECD checklist for regulation. We must also ensure that all appointments to regulators are made within the Nolan principles amendment that such a committee can keep an eye on RIAs and ensure that parliamentary attention is given to any add-on powers of the kind I have described.
      In summary, there is a big job to be done. There may be various ways of doing it—we do not necessarily need another Select Committee—but I believe that from time to time Parliament needs systematically to take a whole-of-regulation view.
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      Speaking of the whole of regulation, like the noble Lord, Lord Norton, I should like to press the Minister on the Government's rather disappointing response to their own organisation—a matter which they can do something about that. They can always say to Parliament, "You decide how you want to organise yourself in terms of parliamentary committees", but I thought that their response was unduly negative. The Government should explicitly accept the overall responsibility and accountability for regulatory policy and the regulatory framework within which individual regulators work. That would be so much easier if there were some organisational expression in Whitehall so that a whole-of-government approach could be taken by the lead department—probably the Cabinet Office—which could assume the role by expanding the remit of its RIA unit. In turn, the Government could have a more holistic response to the work of the Better Regulation Task Force—which, after the noble Lord, Lord Haskins, has been so well chaired by David Arculus.
      If the Government were to take the more focused and co-ordinated view of regulation that we are urging on them, they would be able to mirror better the work of the parliamentary accountability regime that we are proposing. In his reply, perhaps the Minister could say more about the Government's reasoning on that.
      The object of this is to ensure that the regulatory state does not grow like Topsy; that regulators are removed when their jobs are done; that regulation is appropriate, transparent and proportionate; that Parliament remains where it should be, at the apex of accountability, ensuring that we create only bodies that are fit for the purpose; and that those purposes are necessary and achieved properly.
      1.44 p.m.
      Lord MacGregor of Pulham Market: My Lords, this is an important topic of increasing relevance. It was a great pleasure to participate in what my noble friend Lord Norton rightly referred to as the first major study of the subject. Like the noble Lord, Lord Holme, I pay tribute to my noble friend for his chairmanship of the Constitution Committee during the time that I have been a member. He has marshalled, and enabled us to marshal, the arguments that have led to conclusions which I believe, in every case, were unanimous despite the many vantage points from which we all come.
      With great skill, my noble friend has played a huge part in writing the report. In rereading the report over the past few days I have been struck by how well it is written. I did not write it. Both this and the previous reports were written by my noble friend, who has played such a significant part in our work. I am very happy to pay that tribute to him.
      The study was massive and intensive. Therefore, perhaps it is not surprising that I shall stress some of the same points made by the two previous speakers. The need for regulation, independent from government, has been with us for a long time. Some time ago, I read a book by one of my former special advisers, Sir Christopher Foster, who also gave evidence to us—he has undertaken much academic

      589
      work in this area—called Privatisation, Public Ownership and the Control of Public Monopoly. He spent a great deal of the earlier part of the book talking about how regulation, often difficult and controversial, was developed during the 19th century; for example, in response to the monopolies in rail and so on.
      The subject has been with us for a very long time. It was particularly important in the 1980s and 1990s, in the Conservative governments in which I played a part, when there was great emphasis on privatisation. The spotlight was put on the importance of regulators in the formation of monopolies which were then moved into the private sector. It is not just in the economics sphere, with particular reference to former monopolies, that independent regulation and independent regulators now play a big part in our lives.
      From the consumer point of view, we have the Financial Services Authority, much of whose work is carried out on behalf of consumers. On health and safety, we have not only the Health and Safety Executive, but also a huge range of regulators. The same goes for the environmental area.
      The huge number of independent regulators that we have now and the importance attached to them was brought home to us by the huge amount of evidence that we received and the great deal of interest taken in the subject. All that means that regulators are undertaking tasks laid down by Parliament, but at arm's length from government. As the noble Lord, Lord Holme, indicated, in the past many of them would have been performed by government, with Ministers answerable to Parliament, often on a daily basis. That direct involvement of Parliament and Ministers has been removed in so many areas.
      Therefore, this review is timely and, inevitably, had to be limited in scope. We focused mainly on regulators of an economic nature and considered them from the point of view of government and Parliament, the producers and providers of the goods and services and the consumers of them. I believe that the importance attached to our inquiry was shown by the massive response that we received. The evidence is a goldmine of information for those interested in the issue of regulation. My one disappointment is that there was very little media attention in the report, perhaps because the subject is so complex. I hope that it will be an important point of reference for all concerned and a checklist for continued development and action.
      I cannot cover the whole subject, as we could not in the report. One area to which we briefly referred, but did not follow up, was regulatory creep. That area will probably justify a further study. We certainly need to monitor how regulatory creep is taking place and how much of the growth of regulatory bodies has added to the expansion of bureaucracy and has increased the number of what, effectively, are civil servants. On the part of government, particularly this Government, whenever there is concern about an issue, there has been a temptation to set up a new regulatory body, hence demonstrating action.
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      I was interested to note that the Secretary of State for Health is now cutting back a number of the quangos that this Government have set up as part of the current cutting-costs exercise. So there is an issue about how much control there is over the costs of regulatory bodies. Today we read in the Times—I am indebted to the noble Lord, Lord Oakeshott, for revealing this—about the premises that the regulator for the NHS foundation trusts is now taking. I do not see why that regulatory body has to be in Westminster. The Minister's answer as to why it should be there was that this is a decision for the executive chairman. In the past it would have been a decision, in terms of government, that would have been looked at by Parliament and the PAC. There is an area of regulatory creep in this case with a huge new body of expanding numbers and costs which are outwith our normal processes of accountability.
      Let us remember that these regulatory bodies are financed either by the public purse directly through taxation or by the levy and charges that are statutorily imposed, which for businesses are another form of taxation that is eventually paid for by the consumers. So the running of the regulators and their costs is a legitimate cause for public and parliamentary concern. I shall have more to say about that in a moment.
      Accountability was one of our key themes. I recognise that the Government have made considerable progress in many respects, which we have acknowledged in the report: the move away from a singular regulatory person to separating the role of chairman and chief executive and to having non-executive boards; the new individual appeal mechanisms which have been set up; and the involvement much more of consumers' organisations. Some of the Better Regulation Task Force's work has considerably contributed to this—a matter we pick up in our report.
      This progress is demonstrated by the fact that many of our 24 recommendations have been accepted by the Government. I intend to comment briefly on only one—regulatory impact assessments. The important point here is not only all that the Government are doing in having these impact assessments before legislation is brought before the House, but also their having retrospective impact assessments over a period of years afterwards as to whether what has happened has actually met those original regulatory impact assessments.
      The four areas where, however, we are still at odds and where I wish to comment specifically, are ones that have already been touched on by noble Lords before me. I want first to refer to what we described as recommendation 11, which is box 10 in the Government's response. That is the recommendation for a lead department to be responsible for promoting effective regulation in practice. We suggested logically that the Cabinet Office should assume this role.
      I fully accept, as the Government pointed out in their rather lukewarm response to this recommendation, that they are right to say that these departments—and they refer to the DTI and the Treasury—should jointly take the lead in formulating economic regulatory policy and

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      ensuring that the regulatory framework is fit for the purpose. However, I think that there is a role beyond that; to look at regulation as a whole. In that respect I was disappointed in the Government's response.
      I give an example of a Bill that came before us in the previous Session, the Higher Education Bill. I, with others, was responsible for putting forward an amendment relating to OFFA, the Office for Fair Access, saying that there should be an appeal mechanism for the decisions of that body because in—I would think—rare circumstances those decisions could have major impacts on an individual university. It was only when I referred to the fact that we were making recommendations for appeal mechanisms in our report and that in another Bill, the Pensions Bill, there was an appeal mechanism for establishing the new regulator—two new regulators in two Bills—that the Government graciously gave way and the noble Baroness, Lady Ashton, accepted the recommendation. However, it should not have been necessary for this House to do that. There should be a government department that insists on appeal mechanisms every time a new regulator is set up.
      I turn to our recommendation 16, which was in box 15—or perhaps it was box 16; never mind—in the Government's response. This is the recommendation to which reference has already been made about setting up a separate Select Committee in the House. The Government are right to say that this is a matter for the House authorities, but the Government can always give a steer. I have to say that here too they were decidedly lukewarm. I was going to draw attention to the same point as my noble friend Lord Norton; that is, that the House authorities will need to consider carefully what additional scrutiny would be achieved over and above that of the departmental Select Committees and the NAOs.
      There was a pretty clear indication that the Government do not think that this provision is necessary. However, I should like to spend some time indicating why I think it is important. I have to say that all regulatory bodies that came before us stressed that their authority—and these are the regulators speaking—derived from the original legislation, and all of them talked about the importance of scrutiny by individual Select Committees.
      Hence, it is essential that Parliament regularly scrutinises the overall regulatory climate and the developments and progress of the issues surrounding individual regulators. Various consumer and producer bodies drew this to our attention. It was equally clear from their evidence that they thought that Parliament currently deals with this in a way that is spasmodic and which does not always work well.
      Those of us with long experience of Select Committees know why it is not perhaps the most effective method of parliamentary scrutiny. Parliamentary Select Committees vary in their quality, attendance and the continuity of membership. They have a lot to do. For a departmental Select Committee, the work of an individual regulator and dealing with
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      an annual report is unlikely to have much priority. To put the matter in a different way to the noble Lord, Lord Holme: it is rarely politically sexy.
      To look at the regulatory systems as a whole needs continuity, interest, expertise and an ability to take an overall view which goes way beyond individual departments. The point I was making about overall cost could never be explored on an individual departmental basis. Hence, I believe that our Joint Committee recommendation was the right way forward. The Government could give a steer in that regard; I shall be interested in the Minister's response.
      I turn next to the box that refers to the fact that the NAO should have access consistently to all regulatory bodies and of course the SFA and the CAA are outwith the NAO position. I have to say that the Government's response was pretty weak. They said that,
      "there are important differences between the regulatory bodies that explain why the NAO does not carry out value-for-money audits of the FSA and CAA in the same way as for the other sector regulators … in the case of the FSA, Parliament legislated for it in the year 2000".
      Government and Parliament set up those bodies, so they are statutory to all those whose businesses and lives they can so deeply affect. Their charges are effectively a tax. I do not believe that Parliament can scrutinise effectively their cost effectiveness, value-for-money and so on, unless they have a mechanism such as that for the NAO which would enable the evidence to be thoroughly examined and the reports given to Parliament. The game, as my noble friend Lord Norton suggested, was given away in the Government's response in paragraph 54 where they said:
      "With regard to the ex post examination of its finances, the FSA is formally accountable to the Treasury".
      If it is accountable to the Treasury, it should also be accountable to Parliament. I therefore believe that it is important that bodies such as these should be subject to the NAO scrutiny.
      The Government in their response also relied on these original statutes for the NAO. That was reminiscent of the reliance on the original statute in setting up the Parliamentary Ombudsman when there was pressure for the Parliamentary Ombudsman to be able to investigate the Government Actuary's department in the Equitable Life case. Now the Government have given way. I think that the time will come when they will have to give way on this too. They should grasp it now.
      Finally, I refer to the appeal mechanism and the various recommendations we made. Here, too, I acknowledge that the Government have made considerable progress. They have introduced appeals mechanisms in setting up a number of new regulators. However, I believe that they are wrong to dismiss our recommendations here so firmly. First, our evidence showed strong demand for such a system by those who were subject to regulation without an adequate appeal system at present. We have listed those in the report. We stress too that the situation is now dynamic, with EU

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      influence coming to hear, with the Government having their own DTI inquiries into regulation and so on. So, I believe that the demand has intensified.
      Secondly, there is the inadequacy of the current checks on which the Government relied. We all know that the judicial review process is not a satisfactory substitute for a proper appeal on merit, because it cannot even entertain that sort of argument. We also know and saw from the evidence that parliamentary scrutiny does not provide an appeals mechanism. All the objections that the Government made in their responses—the scope for delay, additional cost and so on—were adequately dealt with in our report, which also dealt with the issue of frivolous complaints. We were talking about those areas of regulation where there are gaps and no adequate mechanisms at present. We did not argue for a huge new system immediately but for a,
      "move towards allowing appeals based on the merits of the case",
      and that that should be introduced over time and accorded to all those who are subject to regulation. I am a little encouraged that, in their response, the Government, after being dismissive, concluded with this modification:
      "However, as evidenced by the Government's introduction of an appeal on the merits by way of a review against code modification decisions made by Ofgem, the Government does keep the system of appeal under review".
      In acknowledging all that the Government have done, I believe that they should go further with that appeals process. I encourage the Minister to move a little further in that direction in his response today.
      2.1 p.m.
      The Earl of Northesk: My Lords, I, too, pay tribute to my noble friend Lord Norton and the Constitution Committee for the production of this report. Its substance is both timely and illuminating.
      I begin by saying that, at least in part, I come to this debate in my capacity as a member of the House's Merits of Statutory Instruments Committee, which interest, if it he such, I declare. I should also stress that my remarks represent my personal views, not those of the committee as a whole. To be fair, our work lies somewhat on the margins of the thrust of the report. Be that as it may, our experience during the past year or so is relevant, especially in the context of one of the central recommendations of the report, namely:
      "A dedicated parliamentary committee should be established to scrutinise the regulatory state".
      Indeed, like all noble Lords who have spoken so far, I am disappointed by the Government's lukewarm response to that.
      I freely confess that I approached the work of the Merits Committee, chaired so ably by the noble Lord, Lord Hunt of Kings Heath, with a certain amount of dread. Many within Parliament, let alone among the wider public, see statutory instruments and the regulations that they encompass to all intents and purposes as muscles that envelop the flesh of statute, or as an impenetrable fog. Moreover, the unstoppable tide and growth of regulation is the stuff of nightmares.
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      In the event, I have found service on the committee to be far more stimulating, perhaps even rewarding, than I might have anticipated. It may be a little early to assess our usefulness and effectiveness properly. Nevertheless, there are fertile shoots, suggesting that we are beginning to have an effect in promoting better and more transparent regulation. What is important is that, with the Joint Committee on Statutory Instruments, the Delegated Powers and Regulatory Reform Committee and now the Merits Committee, the parliamentary framework for scrutinising regulation is well established and reasonably robust. The not inconsiderable niggle of the absence of power to amend defective instruments remains but, generally speaking, the framework is performing tolerably well.
      In addition, its evolution over the years represents a recognisable trend, acceded to and accepted by successive governments, towards improved and more coherent oversight. Logically, therefore, a move towards a dedicated parliamentary committee specifically tasked with the scrutiny of the regulatory state is merely an extension of that trend.
      There are other, more urgent reasons why that might be needed. It is important to bear in mind the Constitution Committee's definition of the regulatory state:
      "Regulators are appointed in order to be at arm's length from Government in fulfilling their functions. Though created by statute and appointed by ministers, they exist essentially as independent agents".
      As things stand, leaving aside the role played by ad hoc Select Committee inquiries and so on, the existing framework is confined to regulation that is subject to parliamentary proceedings and which is in the main, but not exclusively, promulgated by government departments. That fact is reflected in the text of the report, which states:
      "As with Government, Parliament lacks the mechanism for consistent and coherent scrutiny of regulation".
      It is also as well to remember that we are dealing with a relatively new phenomenon. As my noble friend Lord Norton argued in his lecture at University College in September, the regulatory state comprises more than the sum of its parts. Its emergence represents a major change to our constitutional arrangements. Moreover, as the report states, regulators are notable now not only for their number but for their powers. Those include imposing penalties, levying fines and creating secondary legislation—a point already emphasised by my noble friend Lord Norton.
      At the same time, we need to pay due heed to the comparatively recent development of the establishment of sectoral super-regulators, such as the Financial Services Authority and Ofcom. Here, in passing, I speculate whether the FSA's new regime for financial advice, introduced yesterday, has received an appropriate level of scrutiny.
      In other words, the establishment of a dedicated parliamentary committee can be justified both in the particular and the general: the particular on the basis that no specific mechanism exists to oversee that legislative competence is exercised by regulators beyond the reach of Parliament; and the general because, as the report

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      makes abundantly clear, no mechanism exists to scrutinise the regulatory state as an integral whole. What matters is not that adequate provision should be made for post hoc scrutiny of regulatory failure—in great part, that facility already exists and is operating reasonably well—but that mechanisms are put in place to offer cohesive and coherent oversight, partly to establish best practice throughout the regulatory regime and partly to guarantee, so far as possible, meaningful accountability and transparency across its full extent.
      As the noble Lord, Lord Holme, observed, the report also addresses issues of independence and accountability. Here, I do not dissent from the view of the committee that the evidence suggests that whatever level of independence has been granted by Parliament, Ministers have generally sought to maintain that independence and that it is secured in the substantive role of the regulatory body in question.
      In other words, operationally, the regulatory state really stands at arm's-length from government. That may well be so but, like it or not, the regulatory state relies on the ethos of the government of the day for its very existence. To that extent, it has a vested interest in sustaining concepts of fat government. It is in terms "in hock" to the administration that gives it being. By the same token, the government of the day, in so far as they perceive regulation to be always a public good, have a vested interest in augmenting the regulatory state. In effect, the relationship is symbiotic.
      As my noble friend Lord MacGregor pointed out, the growth in the number of regulatory bodies was initially driven in great part by the policy imperatives of the various privatisations of the 1980s and onwards. In the context of metamorphosing state monopolies into meaningful competition in the private sector, it was innately understood that the ultimate aim of a regulator, if it was to be deemed to have been successful, should be to regulate itself out of existence.
      I recognise the report's observations about self-regulation and co-regulation. However, and notwithstanding the Government's acceptance of Recommendation 13, that view seems to carry rather less force under the current administration than previously. I was especially struck by an article by Tom Utley in last week's Daily Telegraph. He echoes the thrust of the remarks of the noble Lord, Lord Holme. He states:
      "After seven years of this Government, the size of the Civil Service is now equal to the population of Sheffield … the bureaucracy in Whitehall alone now costs each household in the country £850 a year. Every day since 1997, 15 new regulations have come into force, with armies of regulators and inspectors appointed to see that they are obeyed … For every job lost in the private sector last year, two were 'created' in the public sector".
      As my noble friend Lord MacGregor of Pulham Market suggested, the regulatory state represents a sizeable chunk of that bloated bureaucracy. To compound matters, nearly every measure announced in the gracious Speech envisages an even greater expansion of the hordes of regulators under whom we labour. With the best will in the world, that does not give the impression of an Administration that,
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      whatever their rhetoric, understand neither the need to constrain bureaucracy nor the ways to deliver such constraint.
      Tom Utley's conclusions may not be to the taste of some:
      "Seven years on, we must all come to terms with the fact that the expansion of Britain's bureaucracy under Labour is not an unintended by-product of the party's yearning for 'social justice'. It is a deliberate policy in its own right—an end in itself … At the rate we are going, there will soon be enough public servants in every constituency, dependent for their livelihoods on the taxpayers' largesse, to tip the electoral balance in favour of the party of bureaucracy and big government".
      I cannot help feeling that those remarks have a ring of truth, especially in the sense in which the Government, in contrast to the view of my noble friend Lord Norton of Louth, seem to perceive bureaucracy and the regulatory state as an end in itself, rather than a means to an end. It has become the mechanism of choice for micro-managing our daily lives. A more cynical mind than mine might be tempted to conclude that it is akin to a form of gerrymandering of the electoral landscape by stealth. Moreover, it feeds into the remarks that I made earlier this week about the current Administration's apparent willingness to use and manipulate the hidden wiring of the constitution for their own ends. I wonder whether Peter Hennessy, had he written his admirable book on the subject in current circumstances, might not have added a chapter to explain the constitutional role of the regulatory state.
      Like the committee, I question the apparent assumption that the present level of regulation—let alone an even greater extension of quasi-governmental powers—should remain a permanent feature of our polity. Be that as it may, the regulatory state is a reality. Like it or not, it appears that, in policy, the current Administration are wedded to growing it further. That being so, it is essential that there should be a whole of government view of regulation and, hence, of the accountability of regulators to citizens and Parliament. A dedicated parliamentary committee, together with a lead department of government, are the most appropriate and sensible mechanisms to deliver that and to ensure that both the actuality and the ethos of the regulatory state are subject to effective oversight. We must ensure that the regulatory state as a whole, as well as government policy towards it, is held properly to account.
      2.12 p.m.
      Lord Dahrendorf: My Lords, your Lordships' House is often praised for the quality of the reports that it produces—rightly so. The report on the regulatory state is no exception. Even among House of Lords reports, it stands out for its systematic character, the thoroughness of its argument and the comprehensiveness of the evidence gathered. I hope that the noble Lord, Lord Norton of Louth, will not take it amiss if, as one academic to another, I suggest that his report could almost be submitted to a research assessment exercise and earn its author valuable points in the eternal quest for funds for academic research.
      The two main lessons that I learnt from the report are, first, that lifting the heavy hand of government and replacing it with regulation and independent

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      regulators does not necessarily free people to do their own thing without hindrance or encumbrance. Regulation can be a burden, as paragraph 80 of the report says. Secondly, whereas one knew whom to call to account and how to do it, when the state acted through an elected government, accountability is much more complex in the regulatory state. It is in that latter connection that I want to make two small points.
      The first is almost tangential to the present report but would warrant a separate debate which, as chairman of the Select Committee on Delegated Powers and Regulatory Reform, I hope to initiate in due course. The report refers, notably in chapter 8 but also elsewhere, to what it calls,
      "the 'whole of Government' view of regulation".
      There are strong recommendations designed to improve co-ordination within government. The noble Lord, Lord Norton of Louth, repeated them, as have others who have spoken. At one point, in paragraph 7, reference is made to the Government's concern with regulatory reform. The report says that it,
      "has been high on the agenda".
      It also says:
      "So, for example, regulatory reform orders have been introduced".
      Those are references to the Regulatory Reform Act 2001, an Act that is due—indeed, overdue—for review. In fact, a ministerial commitment was given to such a review in 2004. The Minister responsible, Ms Ruth Kelly, told the Select Committee on Delegated Powers and Regulatory Reform that work on the review would begin in summer 2005.
      The point that I want to make today is that the Regulatory Reform Act has unfortunately failed to provide the kind of co-ordination that the Constitution Committee seeks. Regulatory reform orders, in particular, have become at times simply an alternative form of legislation for departments that failed to get a slot in the gracious Speech. They are a form of legislation that receives significantly less parliamentary scrutiny than normal Bills. It could be argued in some cases that what was intended to be less or, at any rate, better regulation has in fact become less scrutinised legislation.
      There is a strong case for Parliament to have a thorough look at the Regulatory Reform Act and its consequences. If and when we undertake such an appraisal, there will be many details to consider. Two major issues that will and should preoccupy us will be, first, clearer criteria for the appropriateness of regulation as against proper legislation and, secondly, the precise role of Parliament in ensuring accountability of the instruments of the regulatory state.
      My other point is, in a sense, related. It has to do with parliamentary scrutiny of the regulatory state and refers primarily to chapter 10 of the Constitution Committee report. I agree with the statement that Parliament is crucial to ensuring accountability. I also accept that, in practice, the process of scrutiny must be led by Select Committees. The report tells us that some work better
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      than others, which is not surprising. It proceeds to recommend a new dedicated parliamentary committee to scrutinise the regulatory state, which would preferably be a Joint Committee of both Houses. That has been one of the main subjects of our debate this afternoon.
      Despite what has been called the Government's lukewarm response to that recommendation, there is much to be said for it and even more to be said for the analysis behind it. However, it is important that Select Committees in this area—old or new—should not be separated from Parliament as a whole. Once a Select Committee becomes too expert in its field, there is a risk of what one might call unintended collusion between the scrutineers and their objects. Worse still, if, as is the case with respect to regulatory reform orders, the Select Committees of either House have the right to reject regulatory reform orders without Parliament getting into the act at all and, indeed, are the only bodies able to suggest amendments, they become a substitute for Parliament rather than an instrument of it.
      Provision should therefore be made for Select Committees concerned with regulation—with the regulatory state—to turn to Parliament as a whole and allow debate reflecting the views of citizens, of the public at large. The report that we are debating was written because there is a real risk that the regulatory state, against the intentions of its inventors, becomes a less democratic state than the governmental state that it is intended to replace. I commend the report as an extremely useful antidote to that threat and hope that it will be widely recognised as such, not least by the Government.
      2.21 p.m.
      Lord Blackwell: My Lords, like other noble Lords I welcome this excellent report and pay tribute to its author and the members of the committee. I bring to the debate a range of experience and, I should add, the associated conflict from being a director of a number of regulated businesses and a board member of a regulator. I therefore stress that my views are my own and not those of other organisations.
      I strongly support the underlying analysis in the report that the role of regulators, while crucially important and unavoidable, needs to be kept strictly within bounds and within a framework of accountability in order to resist the tendency for regulatory creep of the kind to which my noble friends Lord MacGregor and Lord Northesk paid attention.
      It is a mistake to assume that market imperfection, which is the normal starting point for regulation, can always be solved by active regulators trying to shape markets in a different and supposedly better way. The truth is that regulators rarely have the information, the understanding or the mechanisms to replicate market solutions. Indeed, the danger is that they end up continually expanding the scope and complexity of their interventions as they seek further interventions in order to make up for the deficiencies in the actions that they have already taken.

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      While I recognise that, as the report states, there are undoubtedly some areas of monopoly or public service that cannot have a simple or even a complex market solution, the presumption should be that the best outcome for regulators, wherever possible, is to promote effective and fair competition, and to leave competitive forces to deliver consumer benefits.
      The danger of over-regulation is that it becomes the enemy of innovation and entrepreneurship. For businesses in heavily regulated industries, there is a risk that meeting regulatory requirements will start to override responding to markets and customers. The independent judgment within those businesses of what is appropriate becomes subsidiary to satisfying what the regulator has prescribed. From that, there is a risk that industries converge around the lowest common denominator of meeting what is laid down by the regulators.
      Competition can then become blocked by the cosiness of living within a regulatory framework. With that lack of competitive forces comes a blunting of the forces of innovation and response to customer needs.
      Paradoxically, while regulation is sometimes intended to increase the responsibilities of boards and companies, it can often, if taken too far, mean that boards and management take less responsibility for their actions rather than more. Instead of making, and having to make, independent judgments about what is an appropriate balance of risks and benefits, they can simply satisfy themselves that they are meeting the prescriptions that the regulators have handed down: "If it meets the regulators' requirements, it must be all right". That is not a healthy way for such decisions to be made.
      Yet, despite those dangers, there are natural tendencies for regulators to respond to the pressure for action and intervention by becoming more active and continually expanding their role and scope. One such pressure on regulators is to do something about risk. If they are to be held accountable for the consequences of risk exposure, it is always in the interests of regulators to try to impose regulations and intervene in ways that apparently reduce the risk to consumers.
      However, risk reductions inevitably carry associated costs that can be easily overlooked. We are in danger of creating a tendency where the desire to remove all risk from society can mean that the only safe consumers are those who consume no goods and no services because of the costs that are imposed on providing them. We have to be careful of regulators' natural tendency to respond to pressures to grow and increase their scope of interest—the regulatory creep to which I referred earlier.
      Of course, the formal regulators listed in the report are not the only source of that regulatory burden. As we know, through Parliament, thousands of new regulations are added annually which touch every aspect of our social and business life. A more general issue, beyond those touched on in the report, is the stopping or rolling back of such regulatory legislation
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      by means of sunset clauses or other mechanisms that have been proposed. But that goes beyond the scope of this debate.
      Returning to regulatory bodies, I agree with the report's conclusion that it is essential to provide proper counterbalances to forces that cause regulators to try to increase their scope and influence, forcing them to justify their role and ensuring that they are accountable for the power that they wield.
      I therefore support a number of the recommendations in the report. In particular, I support the tendency, which I acknowledge has been a government intent, to move towards having independent boards on regulators which have a cross-section of experience and perspectives and can provide a proper challenge to the executive, hold the executive to account to justify their decisions, and in some cases provide a dose of common sense away from the specialists who are involved in that area every day of their lives.
      I also endorse the recommendation that regulators should hold public meetings around a published plan where they explain their actions and are exposed to questions and scrutiny from the world at large. I also agree that it is important that there should be an obligation on regulators to provide reasoned arguments for their decisions, with scope for appeal and review by independent legal processes where that can be satisfactorily provided.
      A number of noble Lords have touched on the role of Parliament. While there is clearly an important role for parliamentary scrutiny, I have some concerns about over-extending that role, and for the same reasons as it was right in the first place to remove ministerial control and intervention over regulators. It is essential that regulators do what is right based on calm, objective and factual analysis of the evidence before them. We should not have regulation, or the response to regulatory legislation, determined by the weight of public or popular opinion.
      I believe that Parliament should set the legal framework. However, if parliamentary committees and Parliament itself get too involved in reviewing the way in which regulators operate, there is a risk that pressure will be put on regulators to adopt more populist rather than independent and well reasoned views. After all, parliamentary committees are made up of politicians, often with their parliamentary party in the majority, and sometimes may serve with a view to pursuing political aims and publicity. We do not ask Parliament to sit in judgment on court decisions in either criminal or civil cases for exactly the same reason. Therefore, we need to be careful that pressure of that kind does not become unduly involved in regulatory decisions which should have a similar basis of reason and law.
      However, parliamentary committees should be used to scrutinise the scope, resources and budgets of regulators in order to exert pressure against the tendency towards regulatory creep which I described earlier. I believe that there should be continuing pressure on all regulators to freeze or, indeed, reduce their resources over time, while any increase in resources for regulatory

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      bodies should be specifically challenged and approved by Parliament. I also believe that it would be valuable to appoint a standing regulatory review body, perhaps reporting to the kind of specialist committee that has been described, whose job would be to assist the effectiveness of regulators and report to Parliament on whether they have struck the right balance of intervention versus withdrawal from the areas of the market in which they are tasked to intervene.
      If we do not provide those pressures to contain regulators, the risk is that, as other noble Lords have described, they will become ever more powerful, ever more intrusive and ever more costly impositions on the wealth-creating activities of the economy.
      I believe that we need to aim for a small state, not a large state. I do not have the confidence expressed by the noble Lord, Lord Holme, that the tide in government is going in that direction. I fear that in many ways we are still heading towards a large state. Public spending is one physical manifestation of that, but at least that is out in the open so that it can be seen and reviewed, and it has its consequences in explicit taxation. The danger is that regulatory creep and the expanding role of regulators will become the uncontrolled and unacceptable frontier by which an ever larger and more powerful state destroys the very foundations of a free and independent democracy. The recommendations of this committee are a useful start in addressing that crucial issue, although I believe that a lot more work still needs to be done.
      2.33 p.m.
      Lord Elton: My Lords, the report and this debate cover a huge field. Many have gone ahead of me with their sharp sickles and I come behind as the gleaner. However, I shall start by joining others in thanking my noble friend Lord Norton of Louth for leading us through what was really a very complicated inquiry in which the danger was that everything was so diffuse and diverse that we could come to no conclusion. My noble friend expertly brought us to several trenchant conclusions which have been forcefully endorsed in your Lordships' Chamber this afternoon.
      It is a vast field, and I had not realised quite how vast it is until I began to look at some of the figures. For instance, the Financial Services Authority employs 3,000 people with an annual budget this year in excess of that recorded in the evidence in our book which covered the previous year of £215.1 million. The number employed by those regulators whom I was able to telephone yesterday, 11 of them, produced a payroll of 26,069 people. The volume of material that they produce is ever growing, as evidenced by my noble friend Lord Northesk. So we are looking at something which is, in a sense, a parallel state. Indeed, our report is fitly called The Regulatory State and rightly asks whether it is properly held to account. At present, the answer to that question has to be a pretty equivocal one because the conclusion is that this work has to be done and must be done better.
      As I say, I come as a humble gleaner at the end of the reapers and will point to only one or two things, points in effect drawn to my attention by looking at the
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      other activity that has overlapped with our own and which came to light only after our report was produced, in the form of the DTI report, produced in conjunction with the Treasury and published last July, Consumer Representation in Regulated Industries, and the National Audit Office comparison of Energywatch and Postwatch.
      Starting with that, it is clear that a principal requirement of any regulatory system is to protect the consumer. A healthy consumer means a healthy market, while a healthy market should mean healthy producers. We have to have regulators either because markets are inefficient or monopolies exist. However, consumer interest should bind very hard on producers through the agency of the regulators. In the original statutes setting up most of these bodies, it is notable that consumer interest did not actually have priority.
      The DTI report suggests that consumer representatives within regulated organisations are not actually doing as good a job as they should. It states that they,
      "may become unduly reactive, responding to the regulator's agenda or work programme. There is scope for greater focus on issues which will affect consumers in the future, or which are not at present a high priority for the regulator".
      If that is the tendency of government thinking, it may be necessary to start recruiting a different sort of consumer representative. I say that because these are major commercial questions that are being addressed and not the response to individual complaints en masse, which is a large part of the customary job of consumer organisations. The report goes on to say that consumer bodies should address themselves to,
      "the underlying causes of market failure".
      Underlying our main concerns, I have a lesser but none the less relevant concern that the nature of the representation of the consumer interest in regulatory bodies is changing, or it is the intention of the Government to change it. Looking at the intentions of government, I turn next to the frustration which both my noble friend and members of the committee felt at the difficulty of coming across any fixed point in government which has the authority to answer our concerns or to voice future intended policy. In that context it is interesting to note the announcement in paragraph 11 of the report:
      "The Department for Trade and Industry (DTI) and HM Treasury (HMT) will continue to work with the consumer bodies to take forward the key findings in this report".
      So they have a proactive role on the agenda. If there is no focus at present, it seems to me that that ought to be it, and that a standing committee of the two departments should be set up and be answerable within government for this area of policy. It should comprise the people who fill the Box when the Minister has to reply. For the record, since it is not evident through print, I should point out that the Box is now tenanted; it has had a fluctuating tenancy over the past hour or so. That is comforting to us but, I suspect, most of all to the Minister who is to answer the debate.
      I was interested in the anxiety expressed by my noble friend Lord Blackwell about parliamentary supervision. However, I am concerned about the way, if I understood

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      him right, he intended to meet that anxiety by seeking to avoid expert Select Committees getting into a professional cosy with the regulated bodies by setting up some third party in between. We have enough parties here already. We have invented a quasi-government and a huge quasi-Civil Service of the vast numbers I have mentioned outside Parliament. It is at arm's length; it is there to do something that the Government have to ensure is done. The Government ought to be answerable—and it is to Parliament that they should answer.
      A Joint Select Committee of both Houses would reduce the number of supervisory bodies by getting both Houses to act together. I can assure my noble friend that membership of these bodies is not particularly constant. Members of the other place come and go involuntarily and we rotate voluntarily—and some of us may be rotated out of this place inconsequentially as well. So there is no danger of that kind of cosiness being bred up. I thoroughly endorse the conclusions to which my noble friend has so ably led us.
      2.41 p.m.
      Lord Roper: My Lords, I follow many others in congratulating the committee on such an excellent report. As has been said, it is not only excellent in content but it is also a joy to read—which is not always true of all the reports of your Lordships' House. It is not only a good report but, together with the oral and written evidence, it is an extraordinary basic document for the study of this subject. I am particularly pleased to see that the oral and written evidence is included as a CD Rom, together with the full report. It is a particularly good and helpful idea.
      As has been said, the role of regulators is one of the most difficult questions in a democratic market society. The interface between the economic and the political mechanisms is a central question of political economy. As we heard from the noble Lord, Lord Blackwell, this is a continuing debate at a serious level, and it should continue to be so. It is almost the essence of politics in our societies.
      As has been said also, there is the question of the accountability of the regulators. "Who regulates the regulators?" goes back to one of the classic questions of political science. We need to examine this issue, and the committee has helped us enormously by pointing out the problems.
      One question which has not been addressed—perhaps the Constitution Committee will be able to come back to it—is how the Freedom of Information Act will affect the role of the regulators. How much further information will there be? Will that ensure that they will become more answerable and more easily accountable in the future than they have been in the past? It is a point that we may wish to consider.
      To have an overview of the problems of regulation set out in one place will be extraordinarily valuable. Like others, I congratulate the noble Lord, Lord Norton of Louth, not only on his role in leading his committee to produce the report, but on what he
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      has done in developing the work of the Constitutional Committee over the past few years. It has shown the value of developing such a committee in the House. Indeed, when we consider further Select Committees as discussed in the report, this one certainly has been a useful addition to the range of committees in the House. Indeed, the report has shown the value of Parliament having an opportunity to consider this particular problem.
      As others have done, I turn now to the Government's response to the document. Although one always looks at the matters with which the Government do not agree, it is important to say that the report is good because the Government have agreed with a large number of the issues in the report and have made rather positive statements about them.
      But there are three points—to which reference has already been made but to which I must turn—where the Government disagree with the proposals in the various boxes. I refer, first, to one which has been referred to only in passing in the debate so far—that is, box 13 at page 14 of the Government's response. The recommendation of the committee was that regulators should have a statutory duty to have regard to the principles of good regulation and effective accountability. In response, the Government said that they did not see the general case to ensure the principles of good regulation in statute; that it ought to be looked at on a case-by-case basis.
      The Government may have a point, but it seems to me that at some stage there may be a case for re-examining the committee's position that an overall responsibility should be built into a statute. We may need at some stage to consider a statute dealing with regulation in general into which something of this kind could be included. I shall return to that point at a later stage.
      The second issue, which was referred to in some detail by the noble Lord, Lord MacGregor of Pulham Market, is the question of the National Audit Office's access to all of' the regulators. I regret that I have not had a chance to discuss this with my noble friend Lord Sharman. He, of course, had a good deal of experience in dealing with the issue in his own report. The precedent of the problems of the National Audit Office's access to the BBC is interesting when considering the questions of the FSA and the CAA, which have been set out so well. I feel that the answers that the Government provide as to why there should not be NAO coverage—and therefore the opportunity for PAC scrutiny—of the FSA and CAA are not powerfully argued.
      I turn, thirdly, to the Government's comments on boxes 18,19 and 20, the three sets of recommendations dealing with appeals. As someone who has not studied the evidence in detail, I find this a particularly difficult issue. I am not persuaded by what I have heard. No doubt I may be persuaded by the noble Lord, Lord Triesman, when he replies to the debate, but I am not yet persuaded of the Government's case for rejecting the recommendations of the committee. This is an issue to which we will need to return to examine the situation. As has been pointed out, it is interesting

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      that in a number of recent cases the Government have accepted rights of appeal. Again, one may want to look at that matter from an overview position as well as on a case-by-case basis.
      I turn finally to the recommendations in paragraphs 199 and 200 which deal with parliamentary scrutiny. Obviously the House should consider these matters; they are issues with which we have considerable difficulties. It will be for the Liaison Committee of the House ultimately to consider the balance between requirements and resources in looking at further Select Committees. Certainly, by showing the issues that need to be considered, the report itself makes a very good case for further parliamentary consideration of the issue. As with the Joint Committee on Human Rights, there is a case for this being a committee which could usefully have representation from both Houses.
      However, given what one knows about the pressures on Peers and others in staffing Select Committees, I am not yet convinced—this is something that we will need to explore—whether we need a Standing Select Committee sitting permanently or whether this is something that could be reviewed, let us say, on a quadrennial basis, where a Select Committee every four years could look at the matter.
      Let me give a parallel. In the legislation dealing with the discipline of the Armed Forces, there is the quadrennial Armed Forces Discipline Act. Whenever the Bill comes to the House of Commons, instead of being considered by a Standing Committee it is considered first by a Select Committee, which looks at the range of problems linked to service discipline. It is particularly useful every four years to have an overview of the set of related problems.
      It may well be that the two Houses will find that there are resources for a Standing Joint Committee dealing with the question of regulators but, if that were found to be difficult, at least one alternative—which might be much better than not having a committee at all—would be to look at a solution parallel to what is done in the case of Armed Forces discipline so that every four years there could be an overview of the kind described in the report.
      I am not persuaded one way or the other on this issue, but I thought it worthwhile to air the range of options that might be considered when looking at the question of further Select Committees.
      In closing, I repeat my congratulations to the committee on having served this House—and not only this House, but the nation—so well by providing such a useful study of it. I give my thanks to the noble Lord, Lord Norton of Louth, for all that he has done and my good wishes to my noble friend Lord Holme of Cheltenham as he takes up the challenge of chairing this committee.
      2.50 p.m.
      Baroness Noakes: My Lords, I must start by adding my congratulations to my noble friend Lord Norton of Louth and the whole of his committee. This is a
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      thoughtful and thought-provoking report and, as many noble Lords have said, it was extremely well written and a joy to read. I found some of the charts in the appendices at the back of the report particularly illuminating and I am sure that they will become set reading for politics students the length and breadth of the land, not merely for those on the course taught by my noble friend.
      If I have a criticism of the report, it is that it does not stand firmly enough against the regulatory state. In paragraph 4, it questions the level of regulation, but the rest of the report largely accepts the fact of the regulatory state. Paragraph 157 includes the recommendation that the move towards self-regulation should be encouraged and co-regulation should, where appropriate, be used as a preliminary to it. But I suggest that the report would have been more powerful if it had mounted a more robust challenge to the regulatory state itself. Modifying the regulatory state by self-regulation or a bit of co-regulation will never be enough to reverse the enormous expansion of regulation that we have experienced. I am not suggesting that there should be no regulation: some regulation will always be necessary. But I believe that we should be aiming for the bare minimum and should not accept it as a way of life.
      I believe that the regulatory state, as we now know it, is largely an invention of this Government since 1997. It seems to be the default policy of the Government. My noble friend Lord Northesk pointed out that government and regulators have come to reflect each other. We now have fat government being mirrored by fat regulators. The Government have created several large and powerful regulators since 1997. We have the Financial Services Authority, Ofgem, Ofcom, the Food Standards Agency and, more recently, the Pensions Regulator and the Office of Fair Access. In addition, there are several statutory schemes of regulation such as those for private detectives and others under the Private Security Industry Act 2001. So we can see regulation as being part of the philosophy of new Labour. We can see that because the Government are also applying it in the public sector: we only have to look at the NHS, which is littered with regulators and inspectors. For example, the Heath and Social Care (Community Health and Standards) Act 2003 created three further big regulators: the Independent Regulator for Foundation Trusts, the Commission for Healthcare Audit and Inspection and the Commission for Social Care Inspection. It is perhaps illuminating to note that two of those bodies have chosen to change the names given to them by statute and rename themselves with names that sound somewhat less regulatory.
      The Audit Commission, which started life under a Conservative government as a mere local authority auditor, now states in its strategic plan:
      "Strategic regulation is central to our strategy".
      I have been unable to locate the statutory basis for that strategic regulation concept, which has a new Labour ring to it. It seems to have been invented by the current chairman of the Audit Commission, who was appointed by this Government.

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      My noble friend Lord MacGregor reminded us that regulation is not a new phenomenon. Indeed, it was part of the way in which we conducted ourselves when we were in government. But, at that stage, regulation was largely a part of our programme of privatisation of those unwieldy and inefficient parts of the public sector that had been shielded from competition. Those regulatory schemes were designed because competition was absent and our aim was for those regulators to do themselves out of a job wherever possible. They should have been trying to achieve competition, not to be a long-term alternative to competition. But regulation under this Government has become a new part of the regular involvement of the state in business life. In some ways, it has become an alternative to nationalisation.
      If we look at energy regulation, for example, that started alongside energy privatisation where no competition existed. It is very clear to anybody who pays energy bills now that there is considerable competition. But Offer and Ofgas, which looked after the electricity and gas industries respectively, did not manage to do themselves out of a job and the Government, under the Utilities Act 2000, replaced them with Ofgem. It is interesting to note that Ofgem has more staff than the Department of Energy had in the pre-privatisation days. That says something about how regulation is potentially more intrusive in the lives of citizens and of those running businesses than simple government involvement.
      The creation of Ofgem has some other interesting features. Ofgem is now much more a creature of Government than the previous regulators were. The DTI can, and does, give directions on social and environmental matters which can impose the costs of meeting social objectives on the regulated industry and therefore on consumers, often in a very non-transparent way.
      The promotion of competition, which was at the heart of creation of these regulators, remains one of Ofgem's duties, but in practice the Enterprise Act 2002 has transferred much of the responsibility to the Competition Commission and the Office of Fair Trading; that is, to the generic authorities responsible for those areas. Now, Ofgem to a very large extent operates as an arm of the energy policy group of the DTI, which I am sure is convenient for the DTI because it means that it is paid for by licence fees collected by Ofgem rather than by taxpayers' money.
      In the Financial Services Authority we find another embodiment of the regulatory state. It is a very extensive body, as my noble friend Lord Elton pointed out. The FSA took over the functions of many self-regulatory bodies, as well as some functions that were already carried out by the state. But its statutory objectives do not include the promotion of competition which, in our view, is a major weakness. That lack of being rooted in competition leads to a tendency to over-regulate: my noble friend Lord Blackwell referred to that phenomenon.
      In the FSA we can see where regulatory burdens on business and the structure of regulation overlap. The FSA's rules affect thousands of small businesses—
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      independent financial advisers—who struggle under the weight of its rule book. The rule book is available online but is said to reach 9 feet if it is printed out. Many people believe that the proportionality of the FSA's regulatory regime is, at the very least, questionable. It is a very large body that has intruded itself into the activities of many businesses in a massive way.
      A specific issue addressed in the report to which I would like to turn is the appointment of regulators or, more usually nowadays, the chairmen of their boards. The report says that Ministers should continue to appoint regulators. I agree with that in principle, because it should be part of ministerial responsibility, but I am concerned to ensure that appointments are made entirely on merit. In her latest report, the Commissioner for Public Appointments felt it necessary to highlight four departments which involved their Ministers in the short or long-listing stages when appointments were being considered. That, at the very least, puts a very large question mark over the independence of the resulting appointees. I do not think that the Nolan rules envisaged that.
      If that is not satisfactorily dealt with in the opinion of the Commissioner for Public Appointments, I suggest that an independent appointments commission may be necessary in time. It was found to be necessary in the National Health Service, where the appointments made were regarded as being not demonstrably independent. That may be a direction of travel that is necessary for other regulators.
      It may sound as if I am disagreeing with the Constitution Committee's report, but, in practice, we agree with a very large part of it. We agree, for example, that the NAO's access should extend to the FSA, that there should be legal duties to publish accounts and that those should show real reductions in the cost of regulation. We think there should be a statutory duty to have regard to the principles of good regulatory practice and that there should be better ex-post analysis of regulatory impact assessments. These matters have all been referred to by other noble Lords, particularly the noble Lord, Lord Roper, and my noble friend Lord MacGregor.
      We agree that if we have to have this extensive and intrusive regulatory state, it should be accompanied by proper accountability mechanisms. I think that all noble Lords who have spoken agree on this. It is above my pay grade to say whether having a Joint Committee of both Houses is the right answer. The noble Lords, Lord Roper and Lord Dahrendorf, had particularly interesting comments on the mechanism for achieving the right degree of scrutiny.
      We would add to the Constitution Committee's report a real regret that regulation has become one of the defining principles of the Government's policies. We also regret that regulatory bodies have become agents of social policy, while the role of competition has been downgraded.
      As my noble friend Lord Blackwell said, we believe in a smaller state. Regulation is a back-door method of increasing the length of the arm of the state, which is why we believe it should be resisted in principle.
      3.2 p.m.
      Lord Triesman: My Lords, I thank all noble Lords who have taken part in a debate which, perhaps unsurprisingly, has been very wide-ranging. I say "unsurprisingly", because the point has been made by many noble Lords that regulation has very extensive scope, and many issues have been touched on. However, I confess that there are always matters, even in a broad scope, that turn out to be a bit surprising. I congratulate the noble Earl, Lord Northesk, on his confidence that the civil servants now in such large numbers and spread throughout the country are all natural Labour voters. I had not considered that possibility, or that their voting tendencies might not be spread among all parties.
      I am very glad to have the opportunity of responding to the debate on behalf of the Government and to congratulate, as many noble Lords have, the noble Lord, Lord Norton of Louth, on his chairmanship of the Constitution Committee and its report. It is a comprehensive and valuable inquiry, by any standards, and the subject matter, as I think everyone would agree, is of the greatest importance to the economy, the business community and customers of essential services. As such, the Government welcome and agree with many of the items in the committee's report and with parts of its analysis. It is a very valuable contribution to the development of thinking on regulatory accountability.
      I have also read the CRI lecture of the noble Lord, Lord Norton, Who Regulates the Regulators?, published by Bath University, and the Parliamentary Affairs paper in October, Regulating the Regulatory State. Even if the noble Lord, Lord Dahrendorf, is right that you could not submit the committee report for the research assessment exercise, as one who has had to do so in my time, I am pretty sure that the other papers most certainly can be.
      The key points that have been made are that while the Government have accepted a great many of the recommendations, they have not accepted what are said to be the most significant ones. I think that I am quoting the noble Lord, Lord Norton, accurately, in referring to the recommendations which embody the intellectual thrust. The noble Lord, Lord Holme, was concerned about those same issues, as were other noble Lords, including the noble Lord, Lord MacGregor. It has been said that we need to improve accountability in a much more thorough way and that we need to deal with the other issues about how that accountability is to be expressed and how people might accumulate rights of appeal, and so on.
      I want to set out the Government's response to the report in a few moments. First, I should like to put the issues of regulation and accountability in context. Part of that context is that which the noble Lord, Lord Dahrendorf, mentioned—the operation of the Regulatory Reform Act 2001 and the necessity for review. I think that we probably all agree about having a review—the only question is when. I, too, understand that it will take place in mid-2005.
      On regulation, I should like to focus on the examples provided by the key sectoral regulators for utilities. These regulators were brought into being by statute in order to
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      provide important safeguards in crucial sectors where there were natural monopolies, dominance, information asymmetry or some combination of all those elements. The dangers of predatory behaviour by incumbents—foreclosure, monopoly pricing and other consumer detriment—had to be guarded against. Whatever is said about the growth of regulation in recent years, those were the guiding principles which were plainly behind what the previous government did, and I think it as well that we acknowledge that.
      At the same time, it is essential to keep it in mind that the regulated companies usually operate within the private sector. They need to attract investment, as well as to respond to the emergence of competition. The noble Lord, Lord Blackwell, made some of those very points with regard to the nature of business and the interests of business in this respect. They are not, as businesses, wholly immune from the market. It is right to emphasise that their customers are the crucial factor in this and should guide much of our thinking. I do not accept the point of the noble Lord, Lord Blackwell, that boards tend to take less responsibility in these circumstances; I do not think that passivity is one of their hallmarks. For the most part, they have been pretty rigorous.
      The independence of regulators provides the certainty necessary for businesses to operate and prosper in a regulated market. That includes the key independence from political interference in their day-to-day working and their decision making.
      As the committee's report mentions, regulators have been established at different times and in different ways, but they share a basic model: a sector-specific regulator charged with a responsibility to operate under a hierarchy of statutory duties to achieve a range of public policy objectives. The statutory nature of each regulator's duties, coupled with their independence from government, underpins the successful operation of the regulatory framework.
      Accountability is essential for those who hold public office, and in the context of this debate, it is a necessary adjunct to the pursuit of better, more effective regulation. But the word "accountability" is open to different interpretations, as, from the excellent drafting of the report, I know the noble Lord, Lord Norton, recognises. In the most common usage, it can imply being answerable to a person or a body in some higher authority, perhaps holding powers to censure, rebuke or penalise. It can describe the way in which the functions are undertaken, the processes used and the openness with which policies are developed and decisions taken, which we usually refer to as transparency. Accountability can also mean the processes that exist to review, amend or overturn decisions, such as those vested in a higher court. It has had all those meanings in today's debate.
      All those elements of accountability are relevant to the debate on the regulatory frameworks, and all have been considered by the committee in the course of its report. A key point that I will leave in your Lordships' thoughts is that any process of accountability in the case of regulators needs to ensure that the fundamental issue of the independence of the regulators is not compromised by what is proposed.

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      The Government have taken major steps to reform and improve regulation, including the 2001 Act. The Better Regulation Task Force, on which I was proud to serve under the chairmanship of my noble friend Lord Haskins, was set up in September 1997. It has accountability and transparency as two of its five principles of good regulation. However, I remind the House that, important as those two are, the other three are not unimportant either. There is also proportionality, consistency and targeting. The Government have reformed regulation of the electricity and gas markets, the postal services market, the telecommunications and broadcasting market, the water industry, and the financial services markets, with all five of those principles in mind. They were all major initiatives, reflecting the importance of those sectors, and the Government's desire not only for deregulation, but for better, more effective regulation. I hope that those observations will serve as an acknowledgment and appreciation of the complex task which faced the committee in dealing with this complex subject, and the importance that I and the Government attach to it.
      In the response to the report, the Government have set out a number of ways in which sectoral regulators are held to account. These include parliamentary scrutiny by Select Committees. The noble Lord, Lord Holme, and others have made the point that it is absolutely right that the Select Committee should have that role. The noble Lord, Lord Roper, also made that point. There are also the appeals to the Competition Commission and the Competition Appeals Tribunal, and judicial review. Whatever the expense or difficulty, judicial review remains a route, and it is right to mention it. There are transparency arrangements, notably regulatory impact assessments; corporate governance; and consumer representation. I promise the noble Lord, Lord Elton, that I shall return to that last matter. Many of those processes have been revised and enhanced by government in the course of the work that I mentioned to review and improve the regulatory framework.
      The committee made 24 recommendations in its report, in the areas of the overall regulatory framework, exposure to scrutiny, and independent review and improving appeals. The Government have accepted many of these recommendations without reservation. However, in publishing the Government's response, the committee noted that there were proposals that had not been fully accepted, and mentioned those concerning leadership within government, audit and the appeals process. The committee anticipated a more detailed explanation of the Government's position on these issues. I have been invited to provide more detail today, and I shall return to those points. The noble Lord, Lord Norton, emphasised them in the lecture published by Bath University, to which I referred and which has had wide circulation in academic and other communities. The noble Earl, Lord Northesk, also urged us to consider that set of developments.
      The committee's recommendation 11 called for a much stronger communication of the "whole of Government" view of regulation. It recommended that
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      the Government should appoint a lead department to be responsible for promoting effective regulation in practice, thereby co-ordinating the various roles currently played by a number of departments, including the Treasury, the DTI, the Cabinet Office and the office of the Prime Minister. The committee went on to recommend that the Cabinet Office would most logically assume that role, possibly by expanding the remit of the Regulatory Impact Unit.
      The Government have made it plain that we agree with the importance of communicating regulatory principles and policies to the independent regulators and to a wider audience. If that needs restating today, I most certainly do so. We believe that effective communication of those principles and policies contributes to increased transparency and the reduction of regulatory uncertainty. The noble Lord, Lord MacGregor, appealed for exactly that in his comments. We recognise the value of ensuring greater consistency between regulatory policies, when that is appropriate, and of clarifying the lines of accountability between government and regulators. Consequently, we are committed to communicating effectively the "whole of Government" view of regulation, and agree with the committee that it is an objective of key importance.
      The committee's report recognised that the wide number of forms which regulation takes can lead to a very broad definition of regulation. If I may say so—although perhaps it is a rather personal and injudicious comment—I have sometimes thought that the breadth of the definitions of regulation were so wide as to encompass almost everything. That includes the one provided by the Better Regulation Task Force. It was hard to think of what would not count as "regulation"—hence some of the difficulties in the task that we are considering.
      Regulatory principles and policies need to be considered firmly in the context of the relevant market and policy areas. That is the starting point of the Government's response. It should be clear that detailed policy on regulation of the gas and electricity markets, for example, cannot and should not be divorced from wider responsibility for policy on energy matters generally. In the same way, detailed policy on regulation of the water industry or regulation of broadcasting needs to be considered alongside the wider policy on those issues in the relevant departments. Regulation, particularly economic regulation of individual sectors through independent regulators, requires specific knowledge of each sector. That is common ground, I suspect. That knowledge and responsibility is vested in the relevant Ministers and departments. It is crucial that responsibility and authority should not be diluted and disseminated by adding an additional layer of bureaucracy, with the attendant prospect of loss of coherence and clarity which that could entail.
      I here recall two other principles of the "better regulations" mission—the principles of proportionality and targeting. The noble Lord, Lord Norton, introduced in the report and his excellent opening speech the

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      question of regulation and regulatory creep. Almost all noble Lords have referred to that problem when the extent of regulation currently manifest has been discussed. However, significant efforts have been made through legislation to set sunset clauses, to try to claw back areas from regulation and to ensure, for example, that if new regulation is arriving in one place, there is corresponding reduction of regulatory burdens in other places. I believe that the noble Lord, Lord Elton, was appealing for exactly that. I believe—and I hope that all noble Lords would agree—that the dangers of creating new layers are dangers that we should not ignore.
      As a brief aside, I remember that once, in my trade union experience, there was a recognition that the union's executive had established a very large number of committees to oversee everything. It therefore established a committee to abolish committees; that committee was retained, and we created two others to monitor its work. I have always used that as a precaution in my own thinking about future developments.
      Co-ordination between different policy areas is a matter for clear allocation of responsibility for crosscutting work, and for co-ordination of efforts to disseminate and achieve best practice. The Cabinet Office Regulatory Impact Unit has a role in promoting a better regulation agenda across government, including a focus on bearing down on the burden of regulation. We fully support that role, and the Cabinet Office advises on those matters. Of course, we need to identify and spread best practice, and to assess key policy issues which are common across a number of regulated sectors. That is the function of the Treasury and DTI, through their joint work programme on cross-cutting regulatory issues.
      The joint team, drawn from both departments, ensures that policy-making across the different regulatory sectors can be joined up, and can reflect innovation and evolving best practice. Again, that takes place within the better regulation framework established by the Cabinet Office. I was asked which Minister had general responsibility; it is Ruth Kelly, as I suspect noble Lords may know, though I emphasise that the Better Regulation Task Force remains independent.
      The Government believe that the Treasury and the DTI should jointly lead in formulating economic regulation policy and in ensuring that the regulatory framework is fit for purpose. That reflects their broader responsibilities; the Treasury and the DTI have a joint target to increase United Kingdom productivity, and economic regulation plays an important part in working towards that objective. The DTI will co-ordinate and communicate on behalf of government on issues where the DTI has a significant cross-cutting and sector responsibility.
      These arrangements deliver the objective of co-ordination and communication. Care is taken to avoid division of authority from responsibility. There may he some interesting questions to take up in the suggestion made by the noble Lord, Lord Roper, about a quinquennial look at these matters. I have added a year to what he said; I apologise. I will think
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      that through and perhaps come back to the noble Lord and others on another occasion. The issue of Select Committees is plainly a matter for Parliament.
      The second recommendation of the committee is that the NAO should have access consistently to all regulatory bodies, including the Financial Services Authority. The Government value the vital functions discharged by the National Audit Office in monitoring value for money and financial control in spending public money. The Government believe that regulators should always ensure value for money and accountability for expenditure, which should be embedded in their processes and their thinking.
      We need to recognise that there are significant differences between the regulators and the ways in which they are constituted. That has an effect on the way in which they are held accountable for their cost-effectiveness. Some sectoral regulators, such as Ofgem, Ofwat, Ofcom, and others were set up by legislation in such a way as to bring them within the scope of audit by the NAO. I do not think, with great respect to the noble Lord, Lord MacGregor, that it is a weak response to say that others are set up in different ways.
      The noble Lord, Lord Norton, asked a question about this. Other bodies, such as the FSA and the Civil Aviation Authority, have different constitutions. The FSA is a private company limited by guarantee, and it is directly financed by the industry. The relevant audit requirements are those applicable under company law. It is worth noting that the FSA has no financial relationship with government or Parliament, and it is not to be regarded as acting on behalf of the Crown; it does not. That is a distinct difference from other regulators which are either non-ministerial government departments or are partly funded by public money.
      There are mechanisms in place to ensure that the FSA expenditure is reasonable. The FSA has to have regard to the need to use its resources in the most efficient and economic way. It is required to consult on that and to set its pricing in advance. The FSA provides information on the costs of regulatory authorities in overseas jurisdictions in its annual report, and it holds an annual public meeting to consider that report.
      The matter of ex-post examination of its finances means that the FSA is formally accountable to the Treasury. I answer the question put by one or two noble Lords; Treasury Ministers are accountable to Parliament in exercising their powers in relation to the reports that they receive. A similar position exists for the Civil Aviation Authority. I will write to any noble Lord who wants to go through the distinctions between that and the FSA. In determining and setting charges, all these bodies are accountable through mechanisms that are discernable. All of them reflect what I would describe as a targeted approach.
      The committee recommended that appeals should provide an opportunity for the regulated to have their objections reviewed on the merits of the case, subject only to the condition that the appeal body should have the clear ability and power to identify and penalise appeals designed to frustrate equitable regulation. We

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      support the aim of the recommendation, to ensure that appeals mechanisms are targeted and dealt with in a timely fashion to maximise regulatory certainty and minimise regulatory burdens.
      However, there are already effective appeals mechanisms, and the Government are not convinced of the benefits of further extending a general right to appeal all decisions on the merits. The consequences seem to be that almost all decisions, particularly decisions on pricing, are likely to be appealed. We would run into problems that could be elaborated at great length, but can be put fairly simply. The processes themselves would begin to take so long that price-sensitive decisions of fundamental importance would take too long to get out into the marketplace and have a real and sensible impact in that marketplace. The decisions taken and the regulators' authority in taking decisions would be weakened, although I do take the point that has been made by the noble Lord, Lord MacGregor, about OFFA. It is occasionally possible that the nature of a decision would be of such fundamental and devastating impact if it was got wrong that it would be churlish to say the least to leave it without any sort of right of appeal.
      The Government do not see the merit of a single body, a regulatory appeals tribunal, with a remit to consider appeals against the decisions of this extensive set of independent regulators. They are diverse, and there needs to be a proper and diverse response. The route of appeal, whether by judicial review or review on the merits of appeal as a way of re-hearing must be proportionate in all cases to the specific circumstances and the type of decision that the regulator is taking.
      The relationship between the regulators and the relevant consumer bodies is an important point that was raised by the noble Lord, Lord Elton. I have also re-read the report that he mentioned. Some consumer bodies are very effective indeed, and the meetings that they hold are very effective, and everyone says so. Others are less so. The report indicates a number of ways in which that performance could be improved and the money spent more effectively. We have accepted that today, and it needs further work.
      I have been asked specifically about the regulatory accountability body that is chaired by the Prime Minister. It is a prior hurdle for clearance before Cabinet and Cabinet committee considerations. The formation of the committee was announced in the Budget Statement of 17 March 2004 as a new measure for strengthening scrutiny of major regulatory proposals. In its forward plan it is looking at the implementation of all major regulatory proposals to ensure that there are compensating deregulatory measures so that there is no unnecessary growth in regulation. The panel for regulatory accountability assesses impact for all significant proposals to ensure that business views have been taken into account. I have already said that the Minister responsible for this area is Ruth Kelly.
      The Freedom of Information Act applies to relevant regulatory bodies in the same way as government departments. It provides greater transparency, but it
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      needs to strike a balance between the right to know and the important matters of commercial confidentiality. Not all regulators are non-ministerial government departments, and therefore not all fall within the means of the Act.
      In the course of this debate, a number of points have been made, and I will go though them all and write to noble Lords if I have not addressed them specifically. I claim on behalf of the Government, perhaps contrary to the points made by the noble Baroness, Lady Noakes, that the mechanisms that have appeared for regulation started some time ago, as has been said, and they increased considerably during the period in which there was a movement from nationalised to privatised industries. The point that strikes me most forcefully is that as that process took place those who were affected by it welcomed and came to rely on the independence of the regulators from politicians and from the day to day impact of political affairs. It is hardly surprising in that light that more people wanted to see regulation conducted in that way, having seen the benefits of starting it in that way.
      We consistently seek to produce by message and deed uniformity not for its own sake, but in order to make sure that people understand where they are. We seek to ensure that initiative is not stifled, and that best practice is shared. We seek to maintain relevant, appropriate and proportionate regulatory frameworks that meet the needs of individual regulated markets and most essentially their consumers. We will continue to study this report to see whether there are other areas in it that could also be elaborated or taken on as they are. In that, I express my gratitude for the report.
      3.29 p.m.
      Lord Norton of Louth: My Lords, this has been an interesting and very worthwhile debate. I am grateful to all those who have spoken, especially members of the Constitution Committee for their kind comments; I thank them for their support during my chairmanship of the committee, which has been a stimulating and thoroughly enjoyable experience. I very much welcomed the comments in the debate and the breadth of support for the recommendations embodied in the committee's report. The debate demonstrates the importance of engaging in critical examination of regulation in this country. We need to stand back and look at the regulatory regime as a whole, not simply at its individual parts.
      I am very grateful to the noble Lord, Lord Triesman, for his reply, and I congratulate him on having undertaken rigorous homework. I want to respond to him on one or two of his points. Co-ordination and identifying a clear lead department does not necessarily involve extra bureaucracy; it could lead to a reduction. On other points that we raised, he developed the Government's published response. Although he made a plausible case, he has not persuaded us on those points. The House will return to those matters that affect government.
      As has been stressed, the report seeks action not only by the Government but also by Parliament. I welcome the support expressed in the debate for a

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      parliamentary committee, which I hope has been heard by the relevant authorities. It is something that we need to pursue; again, I am sure that we will do so.
      On Question, Motion agreed to.

      World Trade Organisation (EUC Report)
      3.31 p.m.
      Lord Radice Lord Radice rose to move, That this House takes note of the report of the European Union Committee, The World Trade Organisation: the role of the EU post-Cancun (16th Report, Session 2003–04, HL Paper 104).
      The noble Lord said: My Lords, in producing the report we took evidence, both written and oral, from a wide range of witnesses. We went to Brussels where, among others, we saw Pascal Lamy, who was then Trade Commissioner. We also met ambassadors representing a number of key countries in the Doha round at the World Trade Organisation in Geneva. The Secretary of State for Trade and Industry gave evidence to our committee. On behalf of my committee, I thank all our witnesses. We are also grateful to our specialist advisers, Christopher Roberts and Matthew Cocks. I also thank our Clerk, Judith Brooke, for her exceptional contribution, and our European adviser, Charlotte Granville-West, for her help.
      As chairman, I thank my colleagues on the sub-committee for their help and constructive contribution to its work. I thank the Government for their helpful response to our report; they agreed with almost everything that we said. Lastly but not least, I look forward very sincerely to the maiden speech of the noble Lord, Lord Vallance of Tummel.
      It is a good moment to debate our report on the Doha round. The framework document on the basic principles and modalities was agreed on 1 August. We now have a newly elected US Administration, although not yet a new US trade representative, as Robert Zoellick is still in place. We now have a new European Commission and a new Trade Commissioner, Peter Mandelson. Technical negotiations have been under way in Geneva.
      The main purpose of our report, which was published on 16 June, was to set out what was required to get the Doha round back on track after the sad and rather disastrous collapse of the Cancun meeting in September 2003. We brought to our report and to the inquiry a strong belief in the view that measures to promote further trade liberalisation were good things. We believe that the removal of trade barriers leads to faster economic growth and more employment. Further trade liberalisation allows economies to specialise in what they do best. That does not mean that one country's gain is another's loss. Two countries trading with each other can both be better off. In other words, it can be and very often is a win-win game.
      We do not believe that there is necessarily a conflict between trade liberalisation and other important policy objectives, such as development and poverty reduction. On the contrary, the opening up of markets has enabled developing countries such as China and India to expand and compete more effectively in world
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      markets. In our report, we applaud the work of GATT and its successor organisation, the WTO, in creating a more open market system. In a box on page 11, which I recommend to noble Lords, we note the beneficial impact of international trade on world economic growth.
      We therefore believe that it is very much in the interests of the European Union in general and the UK in particular to bring the Doha round to a successful conclusion. The UK has derived great advantage from an open trading system. It is also in the interests of the EU that the Doha round should succeed, as its other countries also stand to gain a great deal from the expansion of trade. We often forget that some of the major economies of the EU trade at a percentage of their GDP in a greater way than we do.
      Despite occasional differences, the United Kingdom benefits from being part of the combined power of the EU in trade negotiations, in our opinion. After all, the EU is one of the two biggest players inside the World Trade Organisation, so it is vital that it takes a view that is useful to us—advantageous to the UK—and good for the world. Our remarks are addressed to ensuring that the EU plays its full part in getting the Doha round back on track—that was our first priority and—bringing the Doha negotiations to a successful conclusion. Our key proposals are that the EU should make a firm commitment to reform its agricultural sector, including removing all agricultural subsidies by a specified date, improving market access for agricultural imports into the EU, and reforming the sugar support system.
      That is what the EU has to do, but we point out that it is not the only party to carry responsibility for the success of the Doha round and its agricultural side. The United States and the leaders of the G20 and the G90— the groups of the more advanced developing countries and of the less developed countries—have to play their part as well. For example, the United States, Canada and Australia need to make equivalent commitments to removing agricultural export subsidies, while the leaders of the G20 should agree to further market opening, especially to agricultural products from the less developed countries. Incidentally, that is further evidence of the fact that open trade is helpful in reducing poverty.
      If the EU makes concessions on agriculture, it is very well placed to press for the greatest possible liberalisation of trade in services and goods, and for so-called trade facilitation such as cutting red tape at borders. I am glad to say that the 1 August agreement on principles, made possible by the joint initiative of Pascal Lamy and Robert Zoellick, very closely followed the lines of our own proposals. I do not claim that we were the major influence on that, but I note that we said the right things. I also note that the Doha round is back on track.
      The question is what happens now? There has been some progress since 1 August. My personal view is that the appointment of Peter Mandelson as trade commissioner is good news, because he is very well equipped to do the job. We await the appointment of a new US trade representative, although there have been useful technical talks at Geneva. However—and this is

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      a serious point—we need to get a move on if we are to make substantial progress by the main ministerial meeting in December 2005 in Hong Kong. If the Doha round is to be brought to a successful conclusion by 2006, we do not want another ill-prepared ministerial meeting, such as Cancun, when all the concessions were left to the last possible moment. We do not wish for that, because we saw what happened at Cancun. Maybe there is a case for a mini-ministerial meeting, as some people describe it—a small-scale ministerial meeting where political decisions are made. That could take place earlier, perhaps in the spring.
      In conclusion, it is time for us to move on from fine principles and fine proposals into serious negotiation, because it is essential for the world that the Doha round succeeds. If it fails, governments and their peoples all over the world stand to lose—not least the poorest. If it succeeds, there will be much to gain for all of us. Expansion will benefit the whole world community, including the UK and the EU. There is much at stake. We must ensure that the Doha round succeeds. I beg to move.
      Moved, That this House takes note of the report of the European Union Committee, The World Trade Organization: the role of the EU post-Cancun (16th Report, Session 2003–04, HL Paper 104).—(Lord Radice.)
      3.41 p.m.
      Lord Marlesford: My Lords, it was a fascinating experience to sit on Sub-Committee A and examine the problems of the WTO and the prospects of success for the Doha round. It was also an enjoyable experience, because we had the most distinguished chairmanship of the noble Lord, Lord Radice, who kept us stimulated and in good order. As the noble Lord has said, we had the most excellent support staff, both in terms of special advisers and our Clerk.
      When we published our report, it looked as if Doha might disappear. In a sense, it was rescued at the eleventh hour and, as the noble Lord has told us, we hope that it will come to a successful conclusion by the end of next year or in 2006. That is still by no means certain. The collapse in Cancun was particularly unfortunate and sad, regarding the way in which, in a misguided manner, many of the NGOs celebrated that collapse. Better negotiation procedures could have made better progress. Part of that was mechanical and bureaucratic, but much of it was political. The most important lesson that I learned from examining the problems of the WTO was how enormously political the subject is.
      Indeed, free trade versus protectionism was probably, with the possible exception of Ireland, the subject that took up most of the debating time in your Lordships' House throughout most of the 19th century. Many of today's problems are directly rooted in what happened at that time. Therefore, I make no apology for focusing my brief remarks primarily on agriculture. Although it is not particularly relevant to the scale of the matters that we are considering, I declare an interest as a medium-sized farmer in Suffolk.
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      Before I return to the 19th century, I cannot resist sharing with your Lordships a story that I read with fascination in a book, The History of the Caribbean by Dr Eric Williams. I do not know whether any noble Lords have read that, but he was a former Prime Minister of Trinidad and Tobago and a great scholar. It is relevant to the issue of sugar, which, as the noble Lord has said, is again one of the big problems. In 1786, a Frenchman, Monsieur Archard, began cultivation of sugar beet on his estate near Berlin. The King of Prussia provided some finance for both a factory and for the experiments. At that time, the sugar lobby was the biggest single lobby in the House of Commons. Indeed, it is said that that lobby was bigger than any single lobby there has ever been since. As a result of rumours of Monsieur Archard's operations, Dr Williams tells us that the British Government offered Monsieur Archard a bribe of £30,000—in the money of the time—to say that his experiments had failed. He rejected it indignantly, with the results of which we are all aware.
      Taking up the thread of British agricultural protection, we must cast our minds back to 1815, when the infamous Corn Laws were passed to prevent the collapse in agricultural prices that was expected to follow the end of the Napoleonic wars. Actually, they were quite successful. The price of wheat—not adjusting for inflation—in the 1820s reached a level that was not reached again until the 1950s.
      The Anti-Corn Law League was based primarily on the problems of the Lancashire textile industry, which was seen to be suffering from agricultural protection. It took the Irish potato famine of 1845 for a former Leader of my party, Sir Robert Peel, to persuade Parliament to repeal the Corn Laws. It cost him his job and split my party for years. The history of these matters is most relevant to today's discussions. Following the American civil war, the railways were built and there was a huge influx of cheap grain from America into Europe. That resulted in an agricultural depression that started in the 1870s and continued until the First World War. There was then a period of some hope up to the early 1920s but that was followed by the great agricultural depression of the 1930s which lasted until the Second World War. Then came a golden age for British agriculture, ushered in under the Labour Government of the day by the heroic figure of Tom Williams, the Minister of Agriculture. It was a period of agricultural prosperity, which lasted for some 40 years.
      Another historical example comes from agriculture in the Soviet Union. The three years of total shambles which followed the Bolshevik revolution forced Lenin to introduce his New Economic Policy, giving the hitherto disliked kulaks, the richer peasant farmers, the job of feeding the country. They performed well until Stalin arrived, with his policy of collectivisation followed by the "liquidation of the kulaks as a class", and resulted in the great famines of the 1930s.
      Why does one talk about such matters today? Even today agriculture in the new Russia has made remarkably little progress. There has been much glasnost in Russia, but perestroika has not been a great success.

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      Some of us are deeply worried about the direction in which Russia is now moving. It is able to afford to move in that direction only because of the high price of oil.
      The need to reform the CAP has been discussed almost since its invention. However, we must not forget that the EU was founded for agricultural protection. The original marriage contract between France and Germany encouraged German industry to open its markets in France. In return, Germany would ensure that through the CAP French agriculture was protected.
      Agricultural protection was justified for five reasons. The first is that agriculture forms a deep part of the culture of most countries. The second is the obvious one of feeding a domestic population. The third is the need to be able to do so at a time of possible wartime blockade. The fourth is employment and the number of people who derive their living from agriculture. The fifth—with my particular interest in conservation, I see this as still important—is the contribution which agriculture makes to the protection of the countryside for its own sake. The countryside in almost all developed countries, certainly in Europe, is manmade and it depends largely on agriculture. The prospects for agriculture depend on the weather, on harvests and on prices.
      Agricultural employment in the EU 15 is still some 4 per cent of total employment. In Greece and Portugal, it is still over 10 per cent. In France, it is down to 4 per cent from 13 per cent in 1970. In Italy, it is 5 per cent, down from 20 per cent. In Germany, it is down to 2.5 per cent from 9 per cent. In Britain, it is now only 1.4 per cent. That is another example of the way in which Britain has the benefit of a restructured industry. That is due largely to the remarkable revolutionary policies of the government of my noble friend Lady Thatcher. They made changes in this country which have yet to be made in some of the other main European countries.
      Some of the new entrants have considerable agricultural populations. In Poland, some 20 per cent of people are employed in agriculture. The subsidies are considerable. I do not have time to give the figures, but the current agricultural recession makes it more sensitive and difficult as prices of most of the main products have fallen considerably.
      Agricultural protection exists not only in Britain. The USA is a major protector and one hopes that now President Bush has been elected for a second term he will be subject to fewer protectionist pressures than John Kerry would have been in a first term. Japan, too, is a supreme example of agricultural protection. When the Select Committee visited Geneva and the WTO, we asked the Japanese delegates what had happened as a result of the Uruguay round which had required Japan to open up to imports of rice. Noble Lords may know that rice was once sold in the duty-free shops in Los Angeles. After the Uruguay agreement, politicians in the Japanese parliament said, "Not one grain of rice must enter the country". We were told that some 30,000 tonnes of rice entered Japan and that it is still in the warehouses. That is the kind of obstacle which must be overcome.
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      The WTO and the Doha round is crucial, but if that does not work out, bilateral, trilateral and regional deals will encourage free trade, or the breaking down of protectionism. But there are other ways of doing so. The entry of China to the WTO is of world-wide importance. China will be the source of a huge volume of low-cost, high-quality, high-tech goods. But, equally, as China becomes more prosperous, its population of 1 billion will become a valuable market for the rest of the world.
      China has accumulated enormous reserves of foreign currency, currently some 550 billion dollars. China is starting to invest this money overseas. Last month, the Central Bank of China authorised one of the state-owned oil companies to spend 1 billion dollars buying a large oil field in Oman. I can foresee that trade will develop further through such outsourcing on a global scale. Japan also has large balances of foreign currency with which to do the same.
      In conclusion, of course we want the Doha round to succeed and the multilateral route is the preferred one. However, I believe that in a global economy protectionism will gradually be eroded by the initiatives of those for whom it is an obstacle.
      3.56 p.m.
      The Lord Bishop of Manchester: My Lords, I, too, am grateful to the noble Lord, Lord Radice, for his eloquent opening speech in this take-note debate on the significant report of the committee he chaired on a subject that is immensely important. I, too, look forward to the maiden speech of the noble Lord, Lord Valiance of Tummel.
      I am reminded of my days as rector of St Thomas's Church, Salisbury, and of the occasions when we hosted some grand services. On one such occasion, as the procession of greatly bewigged and much-robed dignitaries moved through the church, I noticed, as did astonished members of the congregation, that a small mouse had joined the procession immediately in front of me. With suitable dignity, the mouse continued up the length of the aisle, retaining an admirable processional symmetry and going forward at exactly the right pace until, near the chancel, it turned off towards an empty seat. That week the local newspaper had the headline, "Stately mouse takes a pew", while another article noted the appropriateness of the grand and great being eclipsed by the vulnerable and small.
      That is how it should be in matters concerning world trade and nations that are vulnerable and small. Sadly, grand-sounding organisations, conferences and committees, for all their good intentions, often create policies that can work against the very people and countries they set out to support. That is why this debate is so timely and why I want to speak initially not about the European Union Committee on the World Trade Organisation but about a person who is being ill-served by international policy.
      Kofi is a Ghanaian. He works 12 hours a day in a quarry breaking rocks to make gravel. It is the only way he can earn enough to provide for his family. He used to own a tomato farm, making a living growing

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      and selling tomatoes. The local markets where he used to sell his produce are now full of cheap imports from the European Union. Farming, for Kofi, and for other tomato, rice and poultry farmers in Ghana, and indeed for poor farmers across the developing world, is no longer viable.
      It is one of many stories that demonstrate the danger of forcing poor countries to liberalise their economies. In the 1980s, Ghana, in return for loans, was forced by the international financial institutions to do just that—to open its markets and remove government help for industry and farming. Ghana is no longer allowed to limit the amount of imports that enter the country; nor is it allowed to help poor farmers like Kofi.
      The impact of these policies being forced on poor countries is obviously devastating not only for individuals like Kofi but also for whole communities. Governments of poor countries have had taken away from them the means to intervene in their own economies in order to tackle poverty.
      That is why members of the Trade Justice Movement, including Christian Aid, are calling for trade justice. Trade liberalisation is neither the best nor the only option for developing countries to work their way out of poverty. The governments of poor countries must be given the right to intervene in their own economies in the interests of the poorest and to give help and support to their own farmers and industries. It is only by helping industries and farmers to establish themselves that they will then be able to compete with international products.
      I shall now give an example of where this type of intervention has benefited an economy—the economy of Mozambique. The noble Lord, Lord Marlesford, mentioned sugar. Mozambique is a country ravaged by civil war and devastated by floods and, indeed, is one of the poorest countries in the world. A policy by the Government there to help the sugar industry has resulted in the creation of 25,000 jobs and has attracted foreign investment from South African and Mauritian sugar companies. Mozambique was able to persuade the World Bank to allow it to regulate the price of imported sugar, and that has enabled the sugar industry—plantations and factories—to establish itself, provide employment and help local communities to tackle poverty.
      But, sadly, I have to say that Mozambique is an exception. The commitment of the International Monetary Fund, the World Bank and the World Trade Organisation to free trade and liberalisation means that poor countries are forced to accept policies that prevent them intervening positively in their own economies.
      Her Majesty's Government have a vital part to play in ensuring that there is trade justice across the world and that trade is a means by which poor countries can work their own way out of poverty. Prior to the ministerial meeting of the World Trade Organisation in December 2005, a number of issues for negotiation would, if they go wrong, further limit the freedom of poor countries to manage their economies and would force upon them greater, and unwelcome, liberalisation.
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      I hope the Minister will agree that the Government must call for the European Union's negotiating position on these issues to be one that promotes the right of poor countries to protect and support their industries, for there are some real worries about these forthcoming negotiations. For example, there is much concern about non-agricultural market access. In its current form, what is essentially an agreement to open markets to manufactured goods poses a real threat to industrialisation that has taken place in poor countries. Christian Aid is one organisation that believes that opening markets further to manufactured goods from rich countries will undercut local industry.
      Another concern is about agreements on services. Poor countries are being forced to accept the privatisation of public services, which has not resulted in universal and affordable provision. Yet a further concern is World Trade Organisation procedures. The ability of poor countries to negotiate effectively in their own interests is hampered by current WTO procedures. There must be reform so that the supposed equality of "one member, one vote" becomes a reality.
      Trade should be a means by which poor countries can work their own way out of poverty. They are being prevented from doing so because free trade and liberalisation are being forced upon them. For Kofi, and millions of people like him, trade liberalisation has cost him his livelihood. Therefore, the European Union must not further this liberalisation agenda in the WTO, and it must recognise that government intervention in an economy can increase the prospect of long-term economic development for poor countries.
      Next year, as your Lordships know, Her Majesty's Government will hold the presidencies of the G8 and the European Union, and, as I have already mentioned, the WTO ministerial meeting will take place in December next year. That provides a unique opportunity for the Government to champion trade justice. Certainly Christian Aid, with the Trade Justice Movement, will be campaigning throughout next year for trade justice.
      So I urge the Government to take this opportunity to make real progress in tackling the poverty that still blights our world. I hope that there will be further opportunities for debate next year to assess what progress has been made. But, for the moment, it is time for me to take my pew!
      4.6 p.m.
      Lord Vallance of Tummel: My Lords, it was always going to be difficult for me to follow the right reverend Prelate the Bishop of Manchester. He, quite properly, is ensconced on the spiritual side of your Lordships' House, whereas with a lifetime of a business and commerce background, am rather rooted on the temporal. I do not think that there will be any differences between us in our objective of supporting developing countries but I think, as we shall see, that we have rather different opinions on how to achieve that objective.
      First, I declare an interest as chairman of the European Services Forum. This is a Brussels-based organisation of services, companies and trade

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      associations right across Europe, with a particular interest in matters of trade and, indeed, in the Doha round. It was established in 1998, at the request of the European Commission, at a time when the noble Lord, Lord Brittan of Spennithorne, was Trade Commissioner.
      I very much welcome the European Union Committee's report and congratulate the members and authors on a clear and very balanced analysis and set of recommendations, some of which turned out to be quite prescient. To my mind there is perhaps only one ingredient missing: that is the need for the protagonists of further trade liberalisation to set out clearly and actively to market the true benefits of successful completion of the Doha round for developing countries. After all, this is billed as a development agenda. In the past we have sometimes allowed those NGOs that are sceptical of, or antagonistic towards, globalisation and further trade liberalisation to outgun us in the matter of presentation. Post-Cancun, that is no longer a feasible option.
      One thing that I have learnt over the years is that it is often a virtue and sometimes a necessity to state the obvious and to keep on repeating it. So I make no apologies this afternoon in underscoring what I believe are the key presentational points that need to be repeated and repeated.
      First, and foremost, as the committee's report makes clear, and as the noble Lord, Lord Radice, stressed, the liberalisation of trade is not a zero sum game. It is twice blessed. It can benefit those countries that open up their markets and it can benefit those that trade in such markets. All participating countries stand to gain if it is properly done.
      Secondly, liberalisation—the opening up of markets—does not imply either privatisation or deregulation. Opponents of liberalisation tend to conflate and confuse those three, whether wilfully or not. But there is nothing, for example, in the General Agreement on Trade in Services—the GATS—which requires a service, now provided by the public sector, to be privatised, although governments can clearly do so if they wish. Nor is there anything in the current debate in GATS on domestic regulation to suggest that governments should be restricted in their ability to regulate in the interests of consumers, health and safety, the environment or whatever. Far from it, responsible companies providing services to developing countries want to do so in a properly regulated environment.
      Thirdly, and with respect to the noble Lord, Lord Marlesford, we must put history behind us and settle the arguments on agriculture once and for all and move on. All too often the amount of time and effort spent on debates in this area are in inverse proportion to their economic significance. In their own interests, let alone those of developing countries, the European Union and the United States must be more flexible in their forthcoming negotiations in this area.
      Fourthly, we should obviously concentrate on those areas where there is most to be gained. Objectively, that is on the services sectors, which make up roughly 70 per cent of the GDP of developed countries, rising to 50 per cent of the GDP of developing counties, and about
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      60 per cent of foreign direct investment, yet only some 20 per cent of trade. The fact is that, by comparison with goods, only modest steps have been taken so far to liberalise trade and services. Indeed, the World Bank in its Global Economic Prospects report of 2002, calculated, on what they say are conservative estimates, that by opening services markets, developing countries could increase income by nearly 900 billion dollars a year. That is some four and a half times greater than the gains from further liberalising trade in goods.
      Fifthly, that substantial prize is not just something dreamt up by theoretical economists, but supported by practical examples in developing countries which have opened up their markets of their own accord—autonomously, to use the jargon. I can give just three examples, small but indicative, in the sectors of transport, telecommunications and finance: Chilean exports of fruit and fish increased markedly post-liberalisation once exporters had access to a wider choice of shipping with proper refrigeration—quite simple when one thinks about it; in the Philippines the number of telephone lines post-liberalisation rose from 1 million to 6.5 million in a mere five years; and in Mauritius the acceptance of offshore investment funds generated benefits of around 2.5 per cent in GDP. There is nothing surprising in all that. Indeed, when one thinks about it, a defining characteristic of a developed country is its pervasive and up-to-date services infrastructure of transport, utilities, telecommunications, financial and legal services, retail, tourism and so on.
      We owe it not just to ourselves in the UK, but to developing countries around the world, to state our case for liberalisation clearly and convincingly, in every sector, and to press for a successful conclusion of the Doha round.
      Incidentally, as a postscript, from personal experience in this area, we stand a far better chance of achieving that aim as a member of the European Union—actively influencing and fashioning the European trade agenda—than ever we could as a trade-dependent nation acting on its own, just one of 150 voices.
      4.14 p.m.
      The Earl of Sandwich: My Lords, it is a great privilege to congratulate the noble Lord on his authoritative speech. The famous name of Tummel almost tempts me into song, because the noble Lord is evidently at his best when he is walking high up in the Perthshire hills and taking the high road.
      However, in a distinguished career, the noble Lord has not escaped the controversies of public and private ownership—as the chairman of BT, at the CBI, Mobil and, as he mentioned, the European Services Forum, and in many other frontline positions. As we have heard today, he has to tread a difficult path between liberalisation and corporate responsibility. On these subjects we all look forward sincerely to hearing him again, and many times, in the future.
      This report contains a rich repository of evidence from most of the protagonists at Cancun and it keeps up the momentum, not to say the morale, which is needed to relaunch the Doha round in 2005. Some of it is now getting out of date and it is unfortunate that,

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      owing to the timetable, it is nearly a year since the first witnesses were called. But that is not the committee's fault. The committee, the Clerks and advisers deserve every congratulation.
      From the outset, the report reaffirms the importance of trade liberalisation. I recognise that as a general principle, although my emphasis may be different from that of the committee. I should declare an interest as a trustee of Christian Aid, which is part of the Fairtrade Foundation and the Trade Justice Movement, which has been one of the active NGOs involved in lobbying for the poorest developing countries.
      I was pleased to see that the NGOs have been consulted on that subject in some detail, partly because of their expertise but also because they informally represent some of the least developed countries, which are never at the table. They do not have enough people to go round. I fully accept the point about NGO transparency in paragraph 185, but I was surprised that none of the individual embassies from those countries was asked to comment.
      I am not sure whether they feel "twice blessed", in the words of the noble Lord, Lord Vallance. The history so far of liberalisation in Africa, the Caribbean and the Pacific is not a happy one. Even countries now quoted as successful economies—and the noble Lord gave some interesting examples—such as Ghana, Uganda and Mozambique, have been hit hard by successive waves of structural adjustment and other IMF-enforced programmes. As the right reverend Prelate said, with falling commodity prices they are finding it impossible to trade successfully under the terms and conditions expected of them.
      In spite of the comments in the report, the NGOs which belong to the trade justice campaign are only too well aware of the need for trade liberalisation in its broadest sense. They are concerned about the betrayal of principles already worked out on the multilateral stage by European Union negotiators who seem bent on representing their own agenda for the sake of results. There is no doubt that world trade negotiations have been agonisingly slow, and may well get slower.
      At this point I should like to ask the Minister: what attitude will the UK now adopt towards the next round in relation to the EU, remembering that one lesson from Cancun was that certain members states—against the UK's advice—distanced themselves too far from a common position which eventually had to be withdrawn? Will the Government take an even closer interest this time and remind member states of their common obligations to developing countries under various agreements at Copenhagen, Laeken, Lome and more recently Cotonou?
      Last week in the debate on the gracious Speech, I tried to re-emphasise the section of the Cotonou agreement of 2000 which sets out the objectives of poverty eradication and sustainable development. Under Article 1 it states:
      "The partnership shall be centred on the objective of reducing and eventually eradicating poverty consistent with the objectives of sustainable development and the gradual integration of the ACP countries into the world economy".
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      The following year, the Laeken declaration of 2001 described the EU as:
      "A power seeking to set globalisation within a moral framework, in other words to anchor it in solidarity and sustainable development".
      It was a disappointment to me that the report did not refer to those objectives. They explain why globalised and liberalised trade may not, in itself, be in the interests of the more vulnerable developing countries. Obviously, the agenda of the G20 and the G90 cannot be the same. The committee recognises that, but its instinct was to see the NGOs as culprits, rather than to recognise the real difficulties of those countries.
      Cotonou states that there should be a,
      "coherent support framework for the development strategies adopted by each ACP State".
      That means that sovereignty is a hallmark of any trade agreement. As the right reverend Prelate said, every country has, in theory, the right to accept or not to accept a new agreement. The important concept of special and differential treatment under Article 24, although formally proposed by the ACP countries, seems to have slipped down the EU agenda.
      The "Everything But Arms" agreement has been helpful to some, but it has not been taken up because of its strict rules of origin criteria and because it is confined to the LDCs. However, I am glad to see the report, in paragraphs 89 to 110, reflecting some of the concerns that NGOs have about the EPAs and their reintroduction of the discredited Singapore issues, as I mentioned last week. At paragraph 109, the committee concludes that,
      "the bilateral route can add value as long as it does not replace multilateral negotiations".
      That seems fair.
      It was also a relief to see the committee's strong support at paragraph 157 for the removal of EU export subsidies, which have been mentioned. I hope that the Minister can give us some reassurance that the Government are pressing for that, given that the timetable may have slipped. Although it may appear to be a mantra for campaigners, slow progress in CAP reform has, at times, held up the entire process of WTO negotiations.
      It was a pleasure to hear the DTI and DfID giving evidence together on Tuesday, but I wonder whether joined-up government will stretch to a new policy for the poorest countries. For example, what will happen if some countries prefer not to have EPAs and to fall back on the present GSP arrangements? Will the European Union recognise that universality cannot apply to all EPAs, when there is already provision for special treatment for LDCs? What alternatives will be offered to ACP countries unwilling or unable to find common ground? Can they return to the relative safety of the revised GSP? Will there be transitional assistance for some producers? Will that assistance have to come out of the aid budget?
      There are many ways of getting round WTO compatibility, if the central principles enshrined in EU agreements are followed. Once again, I thank the committee for keeping these important matters alive.
      4.24 p.m.
      Lord Judd: My Lords, the noble Lord, Lord Vallance of Tummel, is to be congratulated on a particularly effective maiden speech. It is clear that authority and power will be brought to future deliberations on this and other subjects in the House. At the outset, I should declare an interest, in the sense that I am a past director of Oxfam. As such, I am a member of what, I suppose, could be described as a club, the "Friends of Oxfam".
      My noble friend Lord Radice and his colleagues have produced a very interesting and challenging report. I join with those who have expressed appreciation. In his introduction, my noble friend said that it was time to get a move on. I thoroughly applaud that sentiment.
      The noble Lord, Lord Marlesford, for whom I always have a particular affection—we came into this House at the same time—has given us a historical survey with some charm and delight. He also brought home the point that the EU's purpose and foundation was about agriculture and the CAP: we should never underestimate the significance of that. As someone deeply committed to the European Union and to our membership of the European Union, I find myself among those who say that the future of the EU simply cannot be based on the significance of the CAP. If there is a certain route to disaster for the European Union, it is to remain committed in that direction.
      The position of the Government on overseas aid and development matters is strong and enviable. As a former Minister with responsibility for overseas development, this is the first time in my experience that this country has a Chancellor who has made overseas development one of his personal priorities in public policy and one of the issues by which he wants to be judged. It is very much part of his political profile. I am glad therefore that we are now committed to meeting the target of 0.7 per cent of GNP, even though I feel that the date by which the target is to be fulfilled is not all that ambitious. If we take aid and development seriously, trade and, indeed, debt issues are obviously central to an effective strategy.
      I, too, would like to start by saying a word or two about agriculture because it will be pivotal to any success of the next Doha round. I turn, first, therefore, to some challenging realities. The present rules of global trade, whatever is intended, in effect leave millions of farmers in poverty while greatly promoting the interests of the big agricultural enterprises and corporations. Most farmers around the world are among the poorest rural poor—some 1.2 billion people. They still struggle to exist on a dollar or less a day. Nearly 75 per cent of the workforce in the poorest countries depends on agriculture to eke out any kind of living.
      While big agricultural corporations do well, very many poor farmers face ruin without access to land, water, credit, roads, transport, schools and healthcare. Of course, even in rich countries such as the UK, support for agriculture is heavily weighted in favour of the big farmers, while family farmers receive relatively little support and find it very difficult to compete.
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      However, that is no accident. Rich and powerful countries have deliberately slanted the rules of agricultural trade in favour of the big farmers, inevitably at the expense of small farmers, all over the world. Global trade policies still allow the European Union and the United States to spend billions of dollars on subsidising their wealthiest farmers, encouraging overproduction and the dumping of cheap surpluses.
      Dumping pushes prices so low that it devastates the poorer farmers. In 2002, the US Government spent more than 3 billion dollars subsidising their cotton farmers. That amount is almost double the total US aid provided for the whole of sub-Saharan Africa.
      The rich world lectures the nations of the poor world on the need to eliminate subsidies from their economic systems, but continues to spend 1 billion dollars a day subsidising its own agricultural enterprises. That is frankly immoral and undermines all commitment to development. The right reverend Prelate the Bishop of Manchester powerfully illustrated the issue.
      Against that background, the position of the United Kingdom Government in the European Union is certainly commendably progressive in their determination to reform the CAP. A comprehensive ban on agricultural subsidies is essential to end the cycle of overproduction and disastrous export dumping. However, currently the European Union negotiations indicate that export subsidies will not be eliminated for at least another 10 years. Our Government should be encouraged to toughen up still further their negotiating position and press for immediate reform, as advocated by the Treasury, and call for a unilateral commitment—if need be—to get rid of the pernicious subsidy system. The European Union has talked about the right of developing countries to protect their vulnerable farming sectors, but talk is not enough. Practical and effective proposals are urgently required.
      More generally on trade issues, there has been much advocacy of the virtue of level playing fields, but too many players are simply not fit enough to play on those fields. I suggest that it is naïve, cynical or both to believe that if our commitment to enduring development is genuine, we do not have to have special arrangements tailor-made to ensure that all players can reach a point at which any prospect of a fair game becomes possible.
      I have no doubt that trade can potentially bring enormous benefits to third world countries. However, the economic partnerships presently envisaged between the European Union and ACP countries are not a convincing model. As the executive secretary of the UN Economic Commission for Africa put it in the Financial Times on 23 November:
      "Another challenges lies in the Economic Partnerships Agreement negotiations between African countries and the EU. Studies on the proposed EPAs suggest that if African countries agree to equivalent reciprocity for commitments by the EU, it will be the EU that gains economically, with Africa suffering significant costs. If the EU were to abandon the idea of symmetry in the final agreements to accept 'non-reciprocity', it would demonstrate a commitment to a new, pro-development approach to trade".
      That is a challenge indeed.

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      As the right reverend Prelate has argued, it is essential that the European Union does not push for inappropriate liberalisation of public services. There should invariably be impact assessments of liberalisation proposals so that the likely real and specific net impact of what is proposed can be determined. While I carefully noted the argument of the noble Lord, Lord Vallance of Tummel, personally I remain convinced that caution is especially important about making an overly dogmatic commitment to the privatisation of public services and infrastructure and to untrammelled outside investment in the process. Subsequently, if that happens, the tenets of liberal economics can too easily be mobilised to inhibit sensible initiatives by the country concerned.
      As we begin to take a second look at our own recent infatuation with such policies in the United Kingdom, it would be ridiculous to be associated with a pigheaded insistence that developing countries, with the danger of far more dire consequences, make all the same mistakes. The day of a recommitment to the rational virtues of a mixed economy is coming. We should encourage the European Union to recognise this in its approach to trade policy.
      Meanwhile, the European Union should convincingly open up its own markets for exports of goods and services from developing countries. Non-agricultural market access quotas end, I understand, on the 31st of this month. It would be deplorable if these were to be replaced by additional tariffs or other barriers to trade for the developing world.
      It is, on the other hand, encouraging that the United Kingdom Government favour technical assistance for poorer countries in their participation in making trade policy. This deserves all possible support and should be urged on the European Union as a whole. Maximum possible transparency in decision making is an imperative.
      I conclude with two wider thoughts. First, in this age of liberal economics we tend to forget that Adam Smith brought forward his ideas in the context of a strong, ethical system, to which he was committed. Liberal economics without strong ethics can become a nightmare—we have seen that in parts of the former Soviet empire—and we need to be very cautious about what we are doing in the wider world.
      Finally, we have spent a great deal of time agonising about the dangers of global insecurity and terrorism. After a lifetime of working in these areas and international affairs, I have come to one firm conclusion: that terrorism and the cynical manipulators who use it to advance their objectives operate most successfully when there is a climate of ambivalence in large sections of the population—an ambivalence as to whether or not they are living in a just world.
      Therefore—while I take second place to no one in the argument about the importance of the redistribution of wealth and resources more fairly in the world and fairer access to the riches of the world—we fool ourselves if we do not realise that one of the issues is redistribution of power in the world. What matters therefore is not only how we provide technical assistance to the governments
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      of the third world in preparing for the negotiations at Doha which is important and I support it—but how far the agenda at Doha is the agenda of the majority of the world's population and not the agenda only of the rich club members, however sophisticatedly presented, to which the majority of humankind is asked to respond.
      4.38 p.m.
      Lord Cobbold: My Lords, I add my congratulations to the noble Lord, Lord Vallance, on an excellent and authoritative maiden speech. I am sure that his experience will be of great value to the House in the years to come. I offer him a big welcome and many congratulations.
      I speak as a member of the sub-committee but as one who has not been a member for long and for whom work on the report we are considering today was a new and fascinating experience. In that context, I echo the words of the noble Lords, Lord Radice and Lord Marlesford, by saying how impressed I have been by the seemingly effortless professionalism of our support team. I both thank and congratulate them.
      As has been said, our report has, to some extent, been overtaken by events. We started our work a year or so ago in an atmosphere of gloom following the failure of the Cancun meeting. It seemed doubtful that the Doha agenda could be saved. Our report, published in June, stated that,
      "the EU must put the failure of Cancun behind it and work for agreement by the end of July 2004 on a framework for negotiations in order to secure a successful outcome to the Doha Round by early 2006".
      Happily, it turned out that the WTO General Council meeting on 31 July reached agreement:
      "To complete the Doha Work Programme fully and to conclude successfully the negotiations launched at Doha".
      The derailed train was thus put back on the track. That this happened at all must not be attributed to any great extent to our report but very largely to the efforts of Pascal Lamy, the EU Trade Commissioner, and his opposite number in the US, Bob Zoellick. Both those gentlemen were due to be moved from their present positions by the end of this year, following the presidential election in the United States and the new Commission in Brussels. They were therefore keen to leave their mark positively, which they did.
      Pascal Lamy was one of the most interesting witnesses we interviewed. Among other things, he stressed the importance of the new G20 group of emerging economies, which includes China, India and Brazil. This group has growing and powerful economic interests in common, which increasingly differ from those of the G90 group of less developed countries. This process will make it easier for the problems of the G90, the less developed countries, to be assessed. We heard from the right reverend Prelate and from the noble Earl, Lord Sandwich, about the difficulties that individual developing countries have in working in the area of trade liberalisation. Certainly, the WTO has a huge resonsibility to treat those problems very carefully and with careful discrimination between individual participants. This separation of the G20 and the G90 will be a beneficial factor.

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      We questioned M. Lamy on the adequacy of organisation of the WTO itself. He felt that there was considerable room for improvement. For example, he felt that the director-general who is:
      "presently … a sort of chief clerk with no power at all",
      should have more authority and greater status. It seems to me that Pascal Lamy would be an excellent candidate to be the next director-general. The future structure of the WTO is being considered by a WTO consultative committee under the leadership of Peter Sutherland, who was also one of our witnesses, but it has yet to report. We await the report with interest.
      Our report and its recommendations have been well covered by the noble Lord, Lord Radice. As I said, the post-Cancun clouds that surrounded our deliberations were blown away at the council meeting in July and the Doha round is now back on track. Pascal Lamy has passed the torch to Peter Mandelson and we will watch with great interest how Peter Mandelson takes negotiations through to the next stage.
      4.43 p.m.
      Lord Lea of Crondall: My Lords, I was a member of Sub-Committee A when it made its first report on the collapse of the Seattle meeting of the WTO in November 1999. We produced a report on it in June 2000. It may be said that some of the analysis is rather similar but the plates, tectonic or otherwise, have been moving and it is useful to make that five-year comparison.
      Before doing so, I would also like to congratulate the noble Lord, Lord Valiance, on his excellent maiden speech and take the opportunity of saying that I am a member of the Parliament Choir, which BP supports. Putting the Parliament Choir on the permanent London choir scene has been very much appreciated. In this House, he will find that all-party groups—including that for ski-ing, which masquerades as the United Kingdom All-Party Group on Switzerland, and other similar groups—are worth investigating.
      The noble Lord made another point that I wish to pick up. Everyone says that parking the Singapore issues is a good idea. I am not so sure. I think that trade is now a subset of investment in a way that has not been recognised in this debate or in the report. The proportion of world trade in and out of Africa has fallen from 5 per cent to 2 per cent. Foreign direct investment into Africa has fallen to 1 per cent of the world's FDI, and Africa has 10 per cent of the world's population.
      The great engine of growth and the biggest changes in India, China and Brazil are to do with domestic generated savings becoming profitable investments but also because multinational corporations want to be there. In the case of BT, the great debate in which some of my trade union colleagues have been involved about offshoring and globalisation are relevant. As a former trade union official who still has close links with the trade unions, I believe that one has to have more joint information and consultation bodies in the global corporations. That will remove at least some of the cultural misunderstandings that can arise when
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      people in totally different situations say that they are not accepting something without figuring out where the possible benefits may go. The benefits have to be shared.
      I recently chaired a conference for the IPU with the UK's oil and gas companies operating in Bolivia, the second biggest field in Latin America and worth 500 billion dollars. The difficulty that the multinationals have in going to the Altiplano and laying gas pipes anywhere near where people live in conditions of very great poverty is a challenge. We have to follow the audit trail and follow the flow of funds. In that regard, there is also a connection between the dismal performance of some parts of the world in getting FDI and their performance on governance, rule of law, and so on.
      As vice-chairman of the Africa All-Party Parliamentary Group, I may have got this a bit out of perspective, but one tends to get bees in one's bonnet. I think that this is central to the next 10 years. Clearly, it would now be correct to say that we have to put Doha to bed, without Singapore, which is short for the wider rules governing direct investment.
      I was a member of the United Nations Commission on Transnational Corporations from 1975 to 1979. As the trade union member, I went to New York four times a year. We nearly drew up a world code of practice—a world set of rules—on the operation of multinational corporations. The code was eventually blocked by Moscow and Washington together. Moscow could not swallow the idea that a global corporation was a viable concept. Washington's position would now be called unilateralism versus multilateralism: why should they, as the most powerful country in the world, the imperial leader, agree? Unilateralism was good enough for everyone else, surely. That approach is now more explicit in the Bush doctrine, but I think it has always been lurking around in Washington.
      On the five-year comparison, I have noticed a trend over the past five years regarding how we have viewed the debate about regionalism. Regionalism can take the form of the European Union, Mercosur or the African Union, and I should like to mention the different sort of animals there. But it is all very mixed up in people's thinking and it can also take the form of sub-optimal deals between particular advanced blocs and other LDC blocs. That is a slightly different question.
      We must increase the negotiating competence of LDCs, the best examples of which are in Latin America and Africa. There must be an enormous connection between the negotiating competence of African Union countries and their competence in other matters such as security, and standards of accountancy, prisons and governance. It sounds ambitious, perhaps ludicrously so, but a bigger, holistic agenda is needed. At the same time, we must narrow the agenda in the immediate future. However, those questions can be properly addressed only on a broad canvas.
      I wish to speak about China and the sort of animal that it is. A couple of years ago I gave a lecture at a trade union conference in Bangalore. People there were beginning to realise that it was in their interests to

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      have investment policies that were open to the rest of the world. Trade unions wanted to have more links. They were beginning to ask, if they did not consider how those changes related to their own freedom of association and the role of workers' organisations, what would be their solution when China started to become the big world leader.
      That is the question that we are looking at today. I do not know the answer, but there are interesting cases. Let us take, for example, the explosion in textile export rates from China. Many poorer countries, such as Mauritius, have built up a textile industry on the basis of quotas from the USA and Europe; therefore they cannot withstand the competitive onslaught from China. China's share of the 350 billion dollar global trade in textiles could more than double, from 25 per cent to 50 per cent, once quotas are eliminated. But many smaller producers in Asia, the Caribbean and Africa fear extinction, with the loss of 28 million jobs.
      The question of how to think through the negotiating leverage of groups of less developed countries is urgent; otherwise, there will be further polarisation of investment. There will be investment in Africa only once there is confidence that sustainability is possible. That is why perhaps we should help to build sustainability. If it comes from the European Union, it will not be perceived as neo-colonialism as easily as it would if it came only from Britain and France or from the multinational companies.
      The key word must be "transparency". It is an overworked word; however, in the past 10 years, 500 billion dollars have disappeared in Nigeria without an audit trail. Is it not partly the responsibility of corporations, as well as the result of corruption in Nigeria? I am sure that such questions will become more central to the agenda for transparency of TNCs as we proceed.
      I agree with the remarks of the noble Lord, Lord Cobbold, about Pascal Lamy. Lamy's comments on the management structure and negotiating procedures of the WTO were spot on. I have been an admirer—a friend, in some ways—of Pascal Lamy since the 1970s, when we worked with Jacques Delors on a report on economic and social concepts in the European Union. He is very French, yet very different from the stereotypical Frenchman when it comes to world trade. The commitment to a significant reduction in the agricultural share of the EU budget is clearly there. I agree with the noble Lord, Lord Cobbold, that he would make an excellent successor as the director-general.
      4.55 p.m.
      Lord Beaumont of Whitley: My Lords, I must apologise to the noble Lord, Lord Radice, that I was unable to be here from the very beginning of his speech. I am not as nimble on my feet as I was when I was the Liberal president of his old constituency, known as Chester Lee. I congratulate him on and thank him for his work on this report, and all other noble Lords who have worked on the committee. It is
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      with a slightly heavy heart that I find it necessary to criticise it. I feared at one moment that I might be the only person to do so; however, I should have known, as a member of the inferior clergy, that the superior clergy would also join in the attack, and that there would also be a very worthwhile contribution from the noble Lord, Lord Judd, with all his experience.
      I do not believe that the mouse of the right reverend Prelate the Bishop of Manchester would have done very well in my parish when I was very young, when I owned in Hong Kong, somewhat against my will, a rather mad poodle. It used to escape from where it was meant to be pent up and come rushing into the church, right up the aisle, to lick my nose where I was leading prayers at the altar. Probably it would have devoured a mouse quite easily as it passed.
      I must criticise the classical arguments for free trade, still employed long after they have ceased to be valid. In paragraph 3 of chapter 1 of this report, I read that:
      "Free Trade allows countries to specialise in what they do best".
      Now that capital flits freely about the globe, as it did not in the days of Ricardo, who believes that that is really what happens?
      What really happens is that, since the established objective of free trade is to produce goods as cheaply as possible, it achieves it by a race to pay as little as possible to the workers. That is one of the primary causes of the admitted phenomenon of the rich getting richer and the poor getting poorer all over the world, both internationally and intranationally. Likewise, for the same reason, the race to cut costs results in a race to have the least care of the environment. It is quite clear, for instance, that the present administration in the United States knows that and does not care.
      In paragraphs 7 and 8 of chapter 1, the committee takes on board some of the criticisms of free trade and attempts to rebut them. It is my belief that the committee fails in this. For instance, it says that the argument for food security, which would mean strong protection of home agricultural industries, harks back to a period of naval blockades and supply shortages, which the committee claims have disappeared. I hope that the committee is right, but I see nothing in the state of the world today that would lead me to bet on it. That is one of the factors—another being the problem of air miles and its effect on climate change—which leads me and my party to believe that a country should do its best to feed itself.
      Another is the issue of animal welfare. Your Lordships will know that I campaign for the welfare of battery hens and ducks. I know of hardly anyone who denies that those methods of agriculture are cruel in the extreme. Yet any attempt to cure that cruelty is met with the argument that, if we are not cruel, other people will be, and will flood our country with cheaper imports. That is directly the result of free trade. Of course, I agree that we should not subsidise food exports, but I am sure that we should be free to tax cheap imports, which are almost always the fruit of cruelty and deficient environmental protection. I therefore believe that the Doha mandate is manifestly wrong in at least half of what it says.

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      I do not expect this Government to take a stand against the insidious influence of received wisdom. Of course the Liberal Democrats are slaves to their past and to the need in the 19th century to win urban votes with cheap food. I would like to think, looking at the history of the Conservative Party, that they might at least stand up and be counted. I think of that wonderful passage in Disraeli's biography of Lord George Bentick when he recounts the passage of the Corn Laws and the vote of the squires behind Peel, as all the people who had served him and whom he had served trooped into the Lobby against him.
      I suspect that it will be left, as usual, to the Green Party to stand up for decent values. While thanking the Committee for the work that it has done, I rather hope that the case that it has put forward will fall by the wayside.
      5 p.m.
      Lord Hannay of Chiswick: My Lords, one of the pleasures of speaking fairly late is that I have the opportunity to congratulate the noble Lord, Lord Vallance of Tummel, on his maiden speech. I thought it was entirely excellent and followed very well in the tradition of Cobden, Peel and Gladstone. I agreed with every word of it.
      The timing of this debate throws some light on the discussion recently held in this House on the report of the Procedure Committee. The report referred to on the Order Paper was, as the noble Lord, Lord Radice, pointed out, produced by your Lordships in June to boost the chances of a successful outcome to the rather fraught negotiations going on in Geneva following the debacle of the Cancun ministerial meeting in autumn 2003. Fortunately those negotiations were successfully concluded in August 2004, and the Doha development round is now back on the rails, albeit without this House having had its say. The report remains topical because it addresses not only the tactical situation that arose following Cancun, but also the substantive issues that will need to be resolved if the round is to be successfully concluded, as it needs to be, in the interests both of developing and developed economies and of the globalised world economy. That topicality owes more to luck than to good judgment.
      One thread running through the report is the crucial role played by the European Union in multilateral trade negotiations. It is crucial because of its impact on the framework for international trade, which remains a driver of economic growth worldwide, and its impact on the prosperity of the Union's own citizens. In this field at least, Europe speaks with a single voice and punches its weight. I pay tribute, along with others, to the outgoing member of the Commission responsible for trade policy, Pascal Lamy, whose energy, skill and imagination contributed so much to the launching of the Doha round, and to its recent rescue from the doldrums. In this House and in this country we are often critical of the Commission; I hope that we can also give credit where credit is due.
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      Peter Mandelson now takes over the task of bringing the Doha round to a successful conclusion. I hope that he will rise to that challenge and fix as a firm target a conclusion date not later than 2006 for achieving it. If the role of the European Union is prominent, it is no longer as predominant as it once was, when previous multilateral trade negotiations were more or less fixed up behind closed doors by the European Union, the United States, Japan and Canada. Whether their approach was ever desirable, it is no longer possible. A group of important developing country players, led by Brazil, China, India and South Africa, known as the G20 has emerged, and is playing an increasingly influential role. Behind them is another group of smaller developing countries, the G90, whose voice also must be heard. Given that this round is explicitly directed towards the developing countries, and given the poor past record of the industrialised world of implementing concessions towards developing countries—textiles and agriculture were good examples of that failure—that is how it has to be.
      Therefore, I share many of the views of those who have spoken about the developing countries, and of the right reverend Prelate, but I fundamentally disagree with his prescription. I can think of no more poisoned gift that we could convey to developing countries than the protectionism that we invented.
      The large developing economies represented in the G20, which are now expanding rapidly, have responsibilities as well as influence, and a contribution to make as well as benefits to gain from the further liberalisation of world trade rules. I hope that they will rise to that challenge in the rest of the round.
      Agricultural trade is a key element of the round. Whenever agriculture is mentioned, the spotlight inevitably falls on the common agricultural policy. For far too long, the European Union was inclined to concede in trade negotiations on agriculture as little as it could possibly get away with. The damage done to developing countries by its trade-distorting subsidies is not in doubt, but the decisions taken in 2003 to break the link between the level of production and the level of subsidy offer an opportunity to get away from that bad pattern. The commitment given by the European Union this summer to accept the full phasing out of trade-distorting subsidies by a certain date or dates means that that opportunity must now be seized.
      We must, however, avoid giving the impression that the European Union alone is responsible for all the wrongs in the agricultural sector; it is not. The United States has in recent years greatly increased its subsidies. As the noble Lord, Lord Marlesford, reminded us, Japan has a rice regime that is indefensible. All that needs to be on the table if there is to be an equitable sharing of the burden of change.
      The full resumption of the Doha round agreed in August has come at a price. That price was the dropping from it of three of the four issues known as the Singapore issues—trade facilitation, barriers in government procurement, investment, and competition policy issues. Only trade facilitation has survived. It was

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      right to make that sacrifice. The developing countries were suffering from negotiation overload and were not ready to grapple with the complexities of those issues.
      We really need to avoid two traps, however. The first is to allow those issues to disappear permanently from the WTO agenda. The second is to accept that the Singapore issues would have exclusively benefited the developed countries at the expense of the developing countries. The developing countries stand to gain as much as anyone else from greater transparency, predictability and the rule of law in government procurement, investment and competition policy. In the last resort, it is their economies that suffer from the lack of those elements. The World Trade Organisation should therefore not give up on the Singapore issues, but simply take a pause. It may be necessary and desirable at some time for those who are ready to move ahead on them to do so, before it is feasible to think in terms of universal commitments.
      A great deal is said and written about the supposed conflict between bilateral or regional trade agreements and multilateral ones, such as those being negotiated in the WTO. Our report does not consider that there is necessarily any conflict between those two methods of achieving freer and fairer trade. The world trading scene lives and can continue to live with both. However, it is important not to allow limited amounts of negotiating skills and political back-up to be directed away from the WTO at this crucial stage in the Doha negotiations. The case for an all-out effort to conclude the Doha round is indisputable, and it should be given overall priority until it is achieved.
      I have two final points. There is much debate about the relevance and health of the transatlantic relationship. Trade policy is an area where the inevitability of friction between the two sides of the Atlantic is as clear as the necessity to work together to achieve common objectives. Bringing the Doha round to a successful conclusion is certainly in our common interest on both sides of the Atlantic. It is an integral part of any agenda designed to make the world a more prosperous and secure place. That was one of the findings of the UN Secretary-General's high-level panel on threats, challenge and change published earlier this week. I hope that the Minister will be able to tell us that that will be an essential and prominent part of the Government's objectives, and that they will pursue it through the G8 and EU presidencies that the UK will hold in 2005.
      Secondly, we really must learn the lessons of Cancun. Huge ministerial meetings of the type that the World Trade Organisation is condemned to hold from time to time—the next will be in Hong Kong in a year's time—are unwieldy animals, prone to end in deadlock if they are not well prepared and well managed. That was what happened at Cancun and, before that, at Seattle. It must not be allowed to happen again. There should be thorough preparation, identification of the most sensitive issues and identification of the possible solutions to them. Then there needs to be a willingness to go into extra time to achieve a result—as there was not at Cancun.
      5.10 p.m.
      Lord Taverne: My Lords, I begin by referring to the maiden speech made by my noble friend Lord Valiance of Tummel. There are not many people in this House who have his industrial experience. Certainly, on our Benches there are unfortunately very few. But it is particularly rare to hear a speech of such quality, because many industrialists are appointed but not heard. The noble Lord, Lord Vallance, is a most eloquent speaker and it is not any disrespect to the quality of the other speeches in this debate to say that his, in my view—and many will agree—was the outstanding speech of the debate.
      I should also thank the chairman for his skilful and genial chairmanship of our committee, which is, perhaps, one reason why our deliberations were all sweetness and light. There was no dissent within it—indeed, we also agreed with other institutions. We agree with the Commission; the Commission agrees with us; we agree with the Government; and, it seems, that the Government agree with us. It was particularly encouraging to discover that after the disaster of Cancun that all the parties seem to have come to their senses and the prospects look fairly reasonable at the moment.
      We are mainly concerned with the stand of the European Union. Those who want the Doha round to succeed and are concerned with the attitude of the EU should note the benefit that membership brings, as my noble friend Lord Valiance pointed out, by having one negotiator on behalf of the Union as a whole. Can you imagine what sort of concessions would be made by Europe on agricultural policy if all the members of the EU negotiated separately? One would never achieve any agreement or concessions—and those concessions are important.
      It is also worth noting that the committee was wholly behind the WTO and the free trade process. That brings me to the speeches of the right reverend Prelate the Bishop of Manchester and that of the noble Earl, Lord Sandwich. Of course, we completely agree with the comments of the right reverend Prelate regarding the ruinous effect of European subsidies. It is a scandal, as he said. As the noble Lord, Lord Judd, pointed out, it is intolerable. Although it is a scandal that we hope will be remedied in the course of the negotiations, it is no answer to suggest that those countries should now have the right, as the noble Lord said, to intervene in their own economies. In practice, that would mean the pursuit of protectionist policies which would be totally against our experience in the world generally.
      For example, Taiwan opened its borders and has become one of the prosperous countries of Asia. Look at the contrast between South Korea and North Korea. At one stage in 1950, the standard of living in North Korea was far higher than that of South Korea. Look at the contrast between the two now. Look at the experience of Singapore. Look at the experience of India, which followed a policy of protectionism and achieved only a low rate of growth. Since that country liberalised trade, its rate of growth has taken off.

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      The noble Lord, Lord Beaumont, said that free trade simply leads to greater inequality, but that is totally contrary to the statistics that have been collected by the World Bank and by other international organisations. Recently, there have been a number of books written about international trade, which demonstrate that clearly—Martin Wolf's book, an excellent book by Philip Le Grain and a book by Mr Baghwati. There is no case against free trade and it is a mistake for policies to he pursued which take that line.
      It is worth mentioning the nature of the opposition to free trade and to the WTO. I am afraid that some of the NGOs played less than a constructive part, as many of our witnesses testified, at Cancun in advising the larger group of newcomers who came to the negotiation for the first time. Who are the campaigners who demonstrate against the WTO? They are a motley crew. They are trade unionists protecting their own industries against the lower paid workers of poor countries, linking arms with NGOs who are dedicated to relieving poverty in the world.
      Lord Lea of Crondall: My Lords, I am grateful to the noble Lord, Lord Taverne, for giving way. Is that his considered view of the role that international trade unionists are playing on trade and development? If it is not, should he not choose his words with a little more care?
      Lord Taverne: My Lords, I stand corrected. I stand in a white sheet. I was pointing out that these trade unionists were protesting about the competition from workers in poorer countries and there is no question that they were very evident at Seattle. That does not represent the trade union movement as a whole, because the movement in this country has an extremely good record in seeking to help the developing world.
      However, it is an extraordinary collection when Churches are protesting against Third World debt side by side with anarchists, vegans with meat importers, and pacifists with militant anti-capitalists. The driving forces behind the campaign are, unfortunately, the green NGOs and the aid NGOs, many of them motivated by the best motives. It was they who celebrated when the Cancun negotiations broke down.
      It is worth noting that these demonstrators have much more support in rich countries than they have in poor countries. A world-wide poll was recently carried out by the Pew Global Attitude Survey among 38,000 people in 44 countries. It showed that in the developing countries there was much more support for international investment and integration. For example, in Uganda and Vietnam, two countries which received a substantial amount of foreign investment, those who thought that growing economic integration was "very good" for their country was 56 per cent and 64 per cent respectively. Only 28 per cent thought so in the Unites States and in Europe. The anti-globalisation protestors were approved of by 35 per cent in rich countries, but only by 28 per cent in Africa.
      Indeed, the anti-free-trade protestors do not help those they claim to help. What is wrong with free trade is that there is not enough of it. Lack of access to the
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      agricultural markets of Europe for the developing countries is a scandal, as many people have rightly declared. So are the export subsidies for European and American farmers. The trouble with the WTO is that it is not powerful enough. And what is the positive message of the protestors? There is not one.
      The core of the movement represents an emotional reaction against power, authority and technology; us against them. Seattle, which started it all, was in the words of a star of the protesting movement. Naomi Klein,
      "the moment when the rabble of the real world crashed the experts-only club where our collective fate is determined".
      And what is the message from the Port Alegre Forum? It is that we should put people before profits and that we need more power to the people. Ultimately, it amounts to a slogan which was evident in Genoa, saying simply, "Capitalism should be replaced by something nicer".
      I want to make one other point. Our report referred to the non-tariff barriers to trade—for example, regulatory requirements—but did not go into that. I want to give one example which I fear will prove to be very serious in the future. As a result of pressure from some of the same NGOs which oppose the WTO, the regulatory system in Europe for genetically modified crops provides no benefit and already causes serious damage to the developing countries.
      The European regulations regulate the process, not the product. As a result, products which are virtually identical and equally safe are treated differently. Added to that irrationality, regulations for labelling and traceability go far beyond the requirement to ensure consumer choice. The requirements for traceability, for example, will mean that exporters to Europe will have to maintain separate grain elevators and separate freight wagons, barges and drying and processing facilities. Exports will become uneconomic and will drive GM products out of the European market altogether. Not only are these regulations a recipe for trade war between the European Union and the United States, in which the European Union will be wholly in the wrong, but the consequences for the third world are far more serious.
      China is now the leading country in the development of GM crops for developing countries. Its motto has been: let a thousand GM crops bloom. It has developed more than 141 types of GM crops, of which 65 are already in field trials, and they could make an enormous contribution to the agriculture of the developing world. Yet hardly any commercial licences have been granted because of the effect that that would have on exports to Europe and, as the noble Lord, Lord Marlesford, pointed out, to Japan, which is also protectionist. Exports to Europe would be very adversely affected if they had any GM content.
      The European Union's oppressive regulations cast a shadow over the cultivation of crops all over the rest of the world, although these crops have an enormous contribution to make in feeding the world. The regulations are already affecting Africa, Brazil and

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      India. India has become a centre for biotechnology and may well soon overtake the United Kingdom. GM crops in India are spreading like wildfire.
      I said that there were no countervailing benefits because it is clear that these crops are safe, or at least as safe as conventional crops. That has been the verdict of every international academy of science that has ever looked at the issue. More than 70 million hectares are now farmed in 17 different countries and no evidence of damage to human health or the environment has emerged.
      Therefore, these regulations are not only a triumph of ideology over reason but they are a barrier to free trade, and they will, in time, be just as serious a threat to third-world farmers as export subsidies or the other unattractive features of the CAP.
      5.23 p.m.
      Baroness Rawlings: My Lords, first, I take this opportunity to thank the noble Lords, Lord Grenfell and Lord Radice, and the committee for all their hard work in producing this outstanding and important report, which I read with great care, interest and pleasure. It was not difficult because, like the noble Lord, Lord Taverne, I agreed with practically everything. There were more ticks all over it than one can imagine, a few question marks but no crosses.
      I defer to the wealth of knowledge on the WTO that the committee's four members have shared with us in today's debate. I also express my regret that we did not have a chance to discuss it sooner, despite what the noble Lord, Lord Radice, said in his opening speech on timing, considering that it was published in June this year. I do not believe that we have had a significant debate on this issue since last winter. I note that this was the EU Select Committee's 16th report and, believe it or not, the website shows that it is now working on its 34th. That is a big workload.
      I am sure that your Lordships will agree that it is vital that this House has the chance to consider all these committee reports as close to the publication date as possible. Indeed, we recognise that such reports are admirable and are recognised worldwide. We on these Benches have suggested that, subject always to the committee chairman's view, some debates on committee reports could, if necessary, be taken in a Grand Committee setting. That would allow for more legislation to be taken on the Floor of the Chamber. Taking some committee reports in a Grand Committee setting would also prevent it being suggested that these important debates should be subjected to a time limit—a practice, as yet informal, that seems to be creeping more widely into usage in the House. I digress on that matter of procedure.
      I add my congratulations to the many others on the very interesting and eloquent maiden speech of the noble Lord, Lord Vallance of Tummel. I was most interested to hear his views on the liberalisation of trade, coming from such an experienced background. We look forward to many more of his contributions. He will surely be a great asset to your Lordships' House.
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      This report is one of great importance. It is interesting as it lays bare the issues surrounding the European Union and the WTO, in the aftermath of Cancun, in a very clear and concise manner. I found the investigation into the change of the organisation of particular interest. It is good to see that, like the UN and NATO, the WTO is adapting and evolving both internally and externally to meet the changing membership needs and environment within it.
      It was interesting to hear, in his very good and concise speech, the views of the noble Lord, Lord Cobbold, as a member of the committee, on the development of the G20, G90 and ACP involvement.
      We have seen much development since the events last September which were described as a "farce and failure". The framework for talks agreed in Geneva at the end of July have relit the candle of genuine hope that, despite the numerous missed opportunities and collapsed deadlines, we are now on the path to a final Doha round deal—a responsibility that I am glad that Her Majesty's Government and the European Union have not shirked.
      However, the Geneva agreement still leaves much of the detail to be agreed in further negotiations. There is still a long way to go. While we commend the growing membership of the WTO, imagine 147 powers of veto, different countries all with their own agendas and pressures. That recipe can guarantee only slow progress, as reiterated by the noble Earl, Lord Sandwich. Perhaps there should be groupings such as that of the European Union to lessen the numbers. Who knows? It is impossible to please everyone. I stress here the importance of political will and the ability to compromise for the greater good. We have yet to see if the loopholes and exclusions will undermine the reinstated negotiations yet again.
      On the subject of membership. I would like to take this opportunity to welcome the steps that Russia has made towards joining the WTO. However, I find it hard to reconcile the political will to join the WTO with Putin's recent behaviour regarding Yukos and I question how that bodes for the future. How, too, do all the agreements on trade liberalisation, agreed with Pascale Lamy on 21 May, fall into line? I add my congratulations on his outstanding work. Has Her Majesty's Government had any discussions with the Russian administration about meeting the country's deadlines for membership ahead of schedule?
      The agreement of the European Union and the United States to remove agricultural export subsidies, which many noble Lords have mentioned, and to reduce other farm subsidies, is one that we welcome, as the noble Lord, Lord Radice, mentioned. As your Lordships know, the joint farm subsidies in the European Union and the United States, as stressed by the noble Lord, Lord Hannay, add up to £30 billion a year, an impact on trade that is hard to ignore.
      I fully support the view of my noble friend Lord Marlesford—who was on the committee—on subsidies, and I so enjoyed his fascinating speech which put the subject into context. These agreed reductions have obviously played a significant part in re-gathering

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      momentum for the Doha agreement and we congratulate her Majesty's Government on the part they have played in this policy shift.
      It is now six months on from the Government's response to this European Union report, and I hope that the Minister will be able to update us on progress on all the committee's recommendations. Most importantly though, can he inform the House of the dates for the negotiations on the end-date by which the export subsidies have to be removed? If not, can he tell us what discussions the Government have had with other WTO members to try to decide a date as quickly as reasonably possible? Can he assure the House that it will occur in the next year, thus working towards the new 2006 deadline for the end of the trade round?
      Can the Minister also update the House on the European Union's tabled offer on barriers to trade in services, and what substantial offers have been laid on the table by other WTO members in the sectors where the European Union has made requests?
      Returning to Russia and the promises on subsidies, I should like to raise the question of who actually polices the WTO agreement and commitments made by members. I know that it may very well be a devil's gift, but if and when the final deal is done, is the political will strong enough for members to police each other through the WTO?
      With the patience of the House, I have a final point on the issue of unfair subsidies. When I made my maiden speech in the European Parliament in 1989, it concerned problems surrounding a bid for the air traffic control equipment for an international airport that was being built in the Far East. The British company in my constituency had great difficulty competing with the two other European contenders due to the effectively legal "hidden" subsidies given to those two companies through research and development budgets. Of course ours did not win the contract. While this does not directly affect agriculture, it is an issue which overlaps once again with the political will of countries to ensure free and fair trade and illustrates the complexity of policing.
      Will the Minister assure me that he will ask his representatives to look into this matter with regard to future trade negotiations? I am sure that your Lordships will agree with me that we look forward to the UK leadership of the G8. While we welcome the Chancellor of the Exchequer's promise that the presidency next year will be the development presidency, can the Minister shed a little light on how he and the Prime Minister intend to fulfil this promise? Do they have any particular plans within these on trade? Can he assure the House that the term "development" will refer to the whole of the poor world and not just Africa to the detriment of others as deserving causes? We look forward to holding the Prime Minister to his ideals and to see if he can turn his talk on international development into substantive action.
      Finally, once again I would like to congratulate the committee on all its work on this vital issue. I thank those who have taken part in the debate today, especially the maiden speaker.
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      There is no doubt that all Members of this House wish to aid the alleviation of global poverty, particularly in a world where we continue to see the terrible consequences of regional and national conflicts.
      I welcome the statement by her Majesty's Government that the Doha development agenda remains the UK's highest trade policy objective, but we will still have a long way to go on a path strewn with many pitfalls—for example, trade justice, which was mentioned by the right reverend Prelate the Bishop of Manchester in his colourful speech.
      We have a human duty and responsibility to push for agreement, not only on the issue of trade but on all others affecting international development.
      5.34 p.m.
      The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I begin by congratulating the noble Lord, Lord Vallance, on his excellent maiden speech. Speaking for what I agree is a small group of appointed industrialists who like to make speeches, and for those such as me who have followed the noble Lord's distinguished career for many years, we were not surprised by his thoughtful contribution to the debate. His speech was authoritative, knowledgeable and practical, which are qualities that we greatly prize in this House and we look forward to many more such excellent speeches.
      I welcome the opportunity for this debate. It is in an area of high priority for the UK Government and the House of Lords EU Committee has produced an excellent report. I thank the EU Committee for this useful report and my noble friend Lord Radice for his clear exposition of the issues. Trade is important because, in our view, the responsible and equitable opening of markets worldwide is an essential plank in achieving prosperity and security for all.
      The House of Lords report provided a very constructive basis for our debate today. As your Lordships know from the response that we sent in September, we agree with many of the recommendations: the need for a successful conclusion to an ambitious round of WTO trade negotiations; the need to improve UK competitiveness in order to compete successfully in the more open markets of the future; the need to stimulate south/south trade; and the need for the UK to play a leading role in shaping the trade policy agenda in Brussels.
      However, since the publication of the report, there have been some significant developments that we also need to consider. The first is the publication of the DTI's trade and investment White Paper, Making Globalisation a Force fir Good; the second is the agreement of frameworks in Geneva at the end July; and the third is the appointment of a new Commissioner for Trade. If I may, I shall structure my comments around those three themes.
      The aim of the White Paper was to explain how we can achieve globalisation with a human face or, to put it another way, to secure both free and fair trade. For too long, as we have heard this afternoon, the debate about

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      trade has appeared to be polarised between those who believe that the market must prevail at whatever cost and those who think that globalisation is an inherent evil that will sacrifice the weak and vulnerable on the altar of corporate profit. Of course, it is not that simple. Trade liberalisation and development can go hand-in-hand. Indeed, the whole approach of the UK government to trade policy and liberalisation must be viewed in the wider context of sustainable development.
      There is widespread acceptance that freer trade promotes economic growth. What has not been recognised so widely is that trade is a driver of growth in the country that exports and in the country that imports. That is why we in the Government talk about being against mercantilism. That does not mean that we are advocating unilateral disarmament in international negotiations by opening our markets without discussion. No, that would be politically naive. It means that we advocate an approach to trade negotiations that recognises the benefits of opening both our and other markets and in which developed countries do not insist on equal, or sometimes any, reciprocal concessions from the developing world.
      If we want to be successful in export markets, we must ensure that our firms are among the most competitive and innovative in the world. The way to do that is to ensure that they are exposed to competition. Of course, when we open our markets to competition, we must accept that it can lead to shifts in market share from domestic producers to imports. We must make provision for the people whose jobs may be affected by that. It is futile to try to erect barriers to protect those sectors from competition; a more proactive response is needed. We need to be sure that working people in this country have the access to the training, the range of skills and flexibility required to move from one area of work to another.
      That is the theory of free trade; what about fair trade? In the context of the Doha negotiations, the issue of fair trade has several dimensions. One of the most important is summed up in the following question: should we expect developing countries to take on the full rigours of open markets and free trade immediately? Our answer to that question is, "No, not immediately, but yes, in the fullness of time". That is what we mean by the phrase "same destination, different speeds".
      The Government would disagree with the speeches made by the right reverend Prelate the Bishop of Manchester and the noble Lord, Lord Beaumont of Whitley. They should have a look at the countries that are successfully working their way out of poverty—countries such as China and India. The world figures for the decline in poverty show that it is almost entirely due to the new dynamism of those two countries. What is striking about those countries is the fact that they have opened their markets to free trade, with China joining the WTO. Reference was made to peasants in a particular situation. Noble Lords should go to China, visit the towns, see the factories that are opening up
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      there and see the generation of people who, not so long ago, were poverty-stricken peasants but are now beginning to get a modicum of prosperity.
      There are also the examples of the various experiments in the two kinds of policy. There is North Korea and South Korea. I talked today to a trade delegation from South Korea, which is now, I think, the eleventh biggest economy in the world. We can compare it with North Korea in a perfect experiment in the relative merits of a closed economy and an open economy. We should ask ourselves what it tells us. There are no examples of rich closed economies.
      At the same time, the Government will continue to press in the EU and with WTO members the importance of having a true development outcome to the Doha negotiations. They are focused on an effective, special and differential treatment. We will work to ensure that economic partnership agreements fulfil the development potential consistent with our trade philosophy, "same destination, different speeds".
      To my noble friend Lord Judd I say that we recognise that too often in the past low-income countries have had little say in the terms on which they received World Bank and IMF support. That is why we support developing countries in the formation of their own national strategies to reduce poverty and promote growth. I agree with my noble friend Lord Lea of Crondall that it is an extremely important issue. However, I agree fundamentally with the noble Lords, Lord Hannay of Chiswick and Lord Taverne, that it would be a poisoned chalice to support protectionism in the long term in developing countries.
      We agree that developing countries need to co-ordinate opening their markets with their wider policies for development, so-called "sequencing", especially when markets in developing countries are suffering from distortions caused by the widespread and substantial dumping of surpluses from developed countries. We agree that it is right to offer imports from such countries preferential access to EU markets. However, we must not forget that the reason we do it is to lift the level of development in those countries to the point at which they become competitive internationally, eventually on the basis of their own competitive advantage and not preferential tariffs. At that point, it is right that those countries should compete on the same basis as everyone else.
      I shall now say something about the concrete issues that we face. Cancun was a failure, and the report goes into some detail about the reasons. Thankfully, the Doha process was brought back on track in the summer, by virtue of an agreement on frameworks reached in Geneva. Those frameworks sketched out the general principles of a final package. The framework on agriculture was the most detailed and included commitments by developed countries to eliminate export subsidies. That will be an important element of a genuinely pro-development package. There is still a long way to go, not just in agriculture, and it is too early to say what a successful outcome to the Doha negotiations might include in detail or when a final agreement might be secured. However, it is clear that there is now enough

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      on the table to keep everyone interested agriculture, industrial tariffs, trade in services, trade defence and trade facilitation. We shall need to work hard as the EU to ensure that that interest remains.
      So the prospects for the coming months, and for the Doha negotiations in general, do not look as gloomy as they may have done when the report was compiled. From a UK perspective, we are clear on what we want to see in a final agreement: namely, the total elimination of agricultural export subsidies by developed countries; a significant reduction in developed country agricultural subsidies, which distort production; a significant reduction in tariffs and non-tariff barriers worldwide, both agricultural and industrial; significant liberalisation of services markets worldwide; new rules that simplify procedures for exporters and importers worldwide; a reduction in the scope for the abuse of trade defence instruments; an appropriate level of special and differential treatment for developing countries; and, finally, measures to promote south/south trade.
      The period between now and the WTO ministerial in Hong Kong next December will be crucial in establishing whether those objectives can be met. Currently, negotiations are going on in Geneva, focusing on technical matters. We will push for the EU to play an active and constructive role in that process with the aim of taking this technical work and feeding it into the ministerial.
      I have talked about our White Paper which articulates our approach to trade policy. I have also talked about the encouraging developments in Geneva over the summer and the challenges of the coming months. I now want to say something about the third development; that is, the appointment of a new commission in Brussels.
      The report rightly gives considerable attention to the European angle in trade negotiations. Of course, that is because trade policy is an area of Community competence. So, in a way, it makes no sense to talk about "UK" trade policy. What is important is the EU's trade policy and how it is negotiated on our behalf by the European Commission. To the noble Earl, Lord Sandwich, I say that we will work hard through the EU to bring the Doha development agenda to a successful conclusion.
      I must say that in the run-up to the agreement on frameworks in the summer, the Commission did a first-class job including, in particular, as many noble Lords have pointed out, the Commissioner, Pascal Lamy. Indeed, it is arguable that one of the keys to the agreement of frameworks was the letter written jointly by Commissioners Lamy and Fischer to the other WTO members in May. The letter offered the complete phase-out of agricultural export subsidies provided that that was matched by similar action by other developed countries. That was a brave move. The Commission had to deal with the scepticism of some WTO members on the one hand and the anger of some EU member states on the other. But Lamy pulled it off and the result was a framework agreement in July that went beyond the expectations of many.
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      We look forward to that trend continuing under the stewardship of the new Trade Commissioner, Peter Mandelson. He starts with a strong hand. We have frameworks in place and a firm commitment from the EU to a successful conclusion to the Doha negotiations. He will also represent 30 per cent of world GDP and 40 per cent of world trade flows.
      But he will also face challenges. He will face the challenge of keeping on board some of the more sceptical members of the WTO, some developing countries which fear that the Doha negotiations might be as unbalanced as previous trade agreements and some developed countries which would prefer to sit behind protectionist barriers rather than open themselves up to competition.
      He will face the challenge of consulting member states in a meaningful and timely manner without undermining his freedom and flexibility to negotiate with other WTO members. Of course, he needs to keep the European Parliament fully abreast of all relevant developments. Finally, he needs to ensure that "civil society", by which I mean the whole range of groups affected by the outcome of these negotiations, but not a party to them, are kept fully engaged.
      I now turn briefly to one or two of the more specific points raised in the debate. Perhaps I may say to the right reverend Prelate the Bishop of Manchester and my noble friend Lord Judd that there is nothing in the service negotiation that forces governments to privatise their public services or to prevent them regulating suppliers appropriately. It is a matter for individual governments to decide what is best for their countries, which is as it should be.
      The noble Lord, Lord Cobbold, raised the issue of the future of the WTO. We recognise the need for reform of the WTO and await the findings of the Sutherland commission with interest. However, to embark on such reform while seeking to bring the Doha negotiations to a successful conclusion would be a mistake. I think that we would risk overburdening the ongoing negotiations and place an intolerable burden on those WTO members with limited institutional capacity, those whose views need to be heard but rarely have been in the past.
      My noble friend Lord Radice asked about the mini-ministerial in the spring. We are in favour of the idea of a mini-ministerial next year, but we need to ensure that the timing is right. Too early, and the anticipated new US trade representative will not be up to speed, while too late, and the opportunity to move the negotiations forward early will be lost. We will continue to feed our ideas on this issue to the Commission.
      The noble Lord, Lord Hannay, raised the Singapore issues. We are pleased that negotiations have started on trade facilitation and we think that dropped Singapore issues would deliver benefits to developing countries. However, it is sensible to remove competition, investment and transparency in government procurement. The issues remain within the WTO mandate and we would like to see discussions on them continuing at working group level outside the Doha negotiations.

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      On the question of export subsidies and dates, an end date or dates will be agreed in future negotiations within the agricultural special session in parallel with its negotiations on other forms of export competition such as export credits and food aid.
      I think that I have covered the points on services, but they are ongoing with the delayed deadline for raised offers set for 1 May 2005. We will be encouraging the EU and other members to table substantially improved offers.
      Finally, so far as Africa is concerned, I do not think that anyone looking at the issues of development and what is happening today would disagree with the view being put forward by my right honourable friend the Prime Minister that if there is one priority in the world, it is to deal with the problems of sub-Saharan Africa. We must not neglect other areas, but given what is happening across the world, this is the one place where it is very difficult to see any real signs of hope. We need to make certain that there can be signs of hope for the future.
      In conclusion, from the UK's point of view we shall be doing all that we can to help the new commissioner to drive forward a successful conclusion to the DDA negotiations, achieving significant market liberalisation but in a way that brings real benefits to both the UK economy and to others, especially those in the developing world. And we should not forget that we have a special role to play since, from July next year, the UK will hold the Presidency of the EU. Of course this does not mean that we can dictate the agenda or determine the outcome of the DDA, but it does mean that through confident and effective stewardship, we can help to ensure that the EU takes a positive and constructive position in the WTO ministerial in Hong Kong in December 2005, which will be a key date in the Doha negotiations.
      5.54 p.m.
      Lord Radice: My Lords, we have had an extremely interesting and important debate and I thank all noble Lords for taking part. I thank my noble friend for his comprehensive reply and, above all, I congratulate the noble Lord, Lord Vallance of Tummel, on his splendid maiden speech. It was crisp and authoritative, really a model of how such speeches should be made. We look forward very much to hearing him in the future, particularly on the issues he addressed today with such authority.
      One of the key themes of the debate has been the issue of liberalisation of trade versus—I will not be unfair and call it protectionism—a feeling that globalism and freer trade bring a lot of evils with it. That is not the view we have taken in our report, and I accept that. We did hear evidence from CAFOD. Oxfam and Christian Aid and we took their views into account, as the report shows. But we did not agree with those who argue, as did the right reverend Prelate, that further trade liberalisation undermines and is bad for developing countries.
      Let me make two short points. First, in Africa, for example, a relatively small increase in trade is worth probably twice what aid and debt relief can bring with them. Secondly, who do you think will benefit by getting rid of EU export subsidies? It will be the poorer countries. So we should hesitate before we damn freer trade as being a barrier to helping the poorer countries. The contrary is true.
      But we shall return to the Doha issue in future. We hope to return to it in our Select Committee as a follow-up to the report. I hope that we will have further debates—but perhaps rather sooner following the publication of our report than happened this time.
      On Question, Motion agreed to.
      House adjourned at five minutes before six o'clock.