Lords Sitting of 16 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 Chester): The CHAIRMAN OF COMMITTEES on the Woolsack.

Renewable Energy: Tidal Lagoons
Lord Williams of Elvel Lord Williams of Elvel asked Her Majesty's Government:
Whether they have examined the technology of tidal lagoons as a useful source of renewable energy; and, if so, whether they will encourage the use of this technology.
Lord Triesman: My Lords, tidal lagoons, as with other forms of large-scale barrage, are technically feasible and are applications of available and well understood technologies. The technology has a potential to contribute to the UK's renewable energy targets and is eligible for support through the renewables obligation. The environmental impacts and economies of any proposed scheme would need to be assessed by the developers and planning authorities on a case-by-case basis.
Lord Williams of Elvel: My Lords, I am grateful for that response. I am very glad to hear that the Government feel that the technology is, first, viable and, secondly, economic. Would it not be the case that, if we went ahead with this, as the tides are more reliable than wind, we would not have to plaster our Welsh hills with these beastly windmills?
Lord Triesman: My Lords, I know that my noble friend is vigorous in ensuring that the Welsh countryside is not in any sense, in his view, damaged. However, we are looking to a mix of different sources of energy. Quite aside from tidal lagoons, there are other wave and tidal stream technologies which are becoming more advanced and in which I would assert that the United Kingdom is the leading world player. Half a dozen such schemes are being considered; they may have a rather less detrimental environmental effect.
Lord Roberts of Conwy: My Lords, I am sure that the noble Lord is aware of the fact that there is a proposal for a tidal lagoon in Swansea Bay. Is he in a position to give your Lordships any further information about the progress of that proposal?
Lord Triesman: My Lords, I am. The tidal electric scheme has been advanced and been taken through a number of stages of consideration. The only reservation that I would want to express to your Lordships this morning is that there has also been an assessment, as there has to be in the DTI, of whether the economics of
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the scheme look to be as credible as those promoting the scheme have asserted. We do not at present believe, on the basis of an independent assessment, that it is as economic. However, if it were to prove so—were we to be wrong and were tidal electric to be right—it should be a scheme that is very attractive to developers.
Baroness Miller of Chilthorne Domer: My Lords, I was surprised to hear the Minister mention detrimental effects in connection with tidal lagoons, because I believe that one of their benefits is that they do not have detrimental effects. However, he mentioned the independent assessment, as the noble Lord, Lord Sainsbury of Turville, did in our debate on 13 January. As the DTI keeps referring to the independent assessment as the only reason why it is not very keen on the technology, could that assessment now be made public?
Lord Triesman: My Lords, the reason why the assessment has not been made public—and, I believe, will not be made public—is that the issues raised in it were economically sensitive for the company involved in the scheme. It would have compromised the company's business case were it to have been published. None the less, I make the general assertion that there are real advantages in barrage technology. It is, however, also true—and the environmental specialists have made this point—that this technology tends to sterilise the floor of the sea directly underneath it. That is a balance that needs to be taken into account.
Lord Dixon-Smith: My Lords—
Lord Peston: My Lords, it would not surprise me if it were the turn of Members on this side, given that three have spoken from that side already.
I am in the tiny minority of Peers who do not find windmills unattractive; indeed, I find them quite attractive, but that is by the way. Given the fact that, as I understand it, the energy sector is privatised, I am slightly puzzled as to what the Government's role is in all this. I am sympathetic to the idea of these lagoons—but where do the Government get in? I take it that they do not propose to bear some of the costs that should fall on private enterprise.
Lord Triesman: My Lords, I do not believe that my right honourable friend the Chancellor has any view of bearing any of the costs that would fall on private enterprise. But a number of issues arise from these proposals: issues arising out of Section 36 of the Electricity Act; issues concerning Defra about anything deposited on the seabed; the issue of transport consents in navigation, on which we had a major debate during the passage of the Energy Bill; and issues relating to the lease of the Crown Estate for access to the site. All those are good and legitimate reasons why the Government assess such proposals.
Baroness O'Cathain: My Lords, the Minister left out one of the big issues—the renewable energy commitment that we have under the Kyoto agreement. He told the

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noble Lord, Lord Williams of Elvel, that tidal power was technically feasible and would contribute to renewable energy targets. When will the Government realise that nuclear power falls into both those categories?
Lord Triesman: My Lords, I had a sneaking suspicion that that question might be asked. We have not ruled out the nuclear option. Every time I say that, I know that it arouses some humour, if not passion, on Benches on both sides of your Lordships' House. The reality is that we will meet our Kyoto targets, but we have to do a great deal more to meet the targets that the Government have expressed for themselves. I want to acknowledge that straightforwardly. We want to see a mix of the available technologies, particularly those that are carbon-benign. We will be working hard on that, and this may be one of the options that will help.
The Lord Bishop of Chester: My Lords, while welcoming the possible development of tidal lagoons and other forms of renewable energy, would the Minister agree that the more fundamental priority of the Government's energy policy should be a continual downward pressure on the actual utilisation overall of energy, consistent with our economic aims?
Lord Triesman: My Lords, I certainly agree with the right reverend Prelate, and it is one of the building blocks of the architecture of government policy in the energy White Paper and elsewhere that we should try to be as energy-efficient as we possibly can. A huge amount of advice has been given on how that can be achieved. We shall certainly pursue that objective; there is no point in creating energy, by whatever route, if we waste it.
Lord Lawson of Blaby: My Lords, in the Minister's answer to the question asked by my noble friend Lady O'Cathain, he trotted out in a rather embarrassed way that the Government have not ruled out nuclear energy. When will the Government put him out of his misery and make up their mind?
Lord Triesman: My Lords, noble Lords will know that I am very seldom miserable—and I am not going to be today, either. The nuclear option remains open. Encouragement of research around both nuclear generation and decommissioning, which is the other fundamental issue, are live projects into which a great deal of public money is put. We shall most certainly want to keep all the options open. No one is insensitive to the argument that we should not allow an energy gap to appear.

Power Stations
11.8 a.m.
Lord Ezra Lord Ezra asked Her Majesty's Government:
What new power plants are under construction other than those that harness wind power.
Lord Triesman: My Lords, power stations with a total capacity of 6.9 gigawatts have received central
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government consent under Section 36 of the Electricity Act 1989, but have yet to begin construction. Of those, seven are gas-fired plants and one, with a capacity of 0.4 gigawatts, is a coal-fired gasification plant.
Lord Ezra: My Lords, I thank the noble Lord for that Answer. However, is it not a fact that according to the latest report of the Joint Energy Security of Supply Working Group, no construction has yet begun on any of those power stations, apart from those powered by wind? That is despite the fact that many consents were given, as long ago as November 2002 and will expire in November 2005. Is that not a disturbing factor, bearing in mind that the ageing coal-fired and nuclear plants will be progressively withdrawn and we could be left with a gap which wind alone cannot fill?
Lord Triesman: My Lords, the noble Lord, Lord Ezra, is right that no major power stations are currently under construction despite the fact that the consents I have described have been given. When the consents are taken up and construction work starts are commercial matters for the developer. The Government expect construction work of nearly two gigawatts of the consented capacity to start in the new year. We believe that Langage in Plymouth and Marchwood in Hampshire will come on track in the coming 12 months.
Lord Peyton of Yeovil: My Lords, the noble Lord is aware of how exceedingly grateful I am to him for his courtesy in passing on my warning to the two right honourable ladies who preside over those departments which have a passing interest in the security of electricity supply in this country? I wonder if he would be kind enough to say how they received my very well meant warning that if things go on like this they will write their names in history as being those who were primarily responsible for a decline in the available and sure supply of electricity, and all the consequences which would follow?
Lord Triesman: My Lords, I can tell the noble Lord, Lord Peyton, that they received it very well. I am not dissembling in any respect here. They were very pleased to hear from him. Indeed, so was I. It was not just Christmas spirit because, as the noble Lord knows, it occurred a little while before that. Certainly the Secretary of State, my right honourable friend Patricia Hewitt, is absolutely clear that it would be folly to close any of the options for power generation.
I have made the point several times from the Dispatch Box in your Lordships' House. I know that it is not always believed or perhaps noble Lords feel that I lack conviction about it, but I say it absolutely seriously: these options are not closed. I do not believe that any government—I am sure that the noble Lord, Lord Peyton, also thinks this—could afford to see the lights go out.
Lord Marlesford: My Lords, the Minister may say that the nuclear option has not been ruled out, but has he read

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the excellent report of the Science and Technology Committee of your Lordships' House published last week on radioactive waste management which points out that the Committee on Radioactive Waste Management looking into this, which was set up in 2002, is not due to report until July 2006, and that CORWM has the wrong terms of reference and the wrong composition? Will the Minister at least ask that committee, instead of reporting in July 2006, to accelerate its proceedings and report by the end of 2005? I hope that he considers that to be a reasonable request.
Lord Triesman: My Lords, I certainly undertake to think about that very seriously and to consider whether it might be done. As regards nuclear decommissioning, there is understandably a good deal of public concern about the handling of materials which could be very dangerous for very long periods of time. Therefore, whatever we do, we have to get right. That I know is a view shared on all sides of this House. As some newspapers have reported, we are at the moment trying to substitute radiologically and environmentally neutral materials and to ensure that we are exporting the higher level and more dangerous materials. That might make a contribution to getting the final balances right, but I give the undertaking to think hard about the proposition the noble Lord has put.
Baroness Miller of Chilthorne Domer: My Lords, in returning more closely to the Question on the Order Paper, I congratulate Defra on creating a new biomass task force to generate, as it puts it, a green power surge. However, is it not a little curious that at the same time the DTI has closed its Bioenergy Capital Grants Scheme?
Lord Triesman: My Lords, I am convinced that the whole potential of biomass will not be underplayed. We believe that it can play a fundamental role in helping the United Kingdom to achieve its Kyoto climate change obligations and ensure that we reach renewable energy targets. To that end, there is a joint DTI/National Lottery Bioenergy Capital Grants Scheme which has offered £66 million of support to 21 projects of various scales throughout the United Kingdom. The New and Renewable Energy Programme has supported very important work in this area, expanding knowledge of crops. The department is currently reviewing how it can support this to a still greater extent. Biomass plainly has a future in renewables.

Army Restructuring: Scottish Regiments
11.15 a.m.
Lord Monro of Langholm Lord Monro of Langholm asked Her Majesty's Government:
What is the future of the Scottish regiments.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Bach): My Lords, the House will know that there will be an announcement in another place this
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afternoon on how the Army, including the Infantry, should be restructured to reflect the strategic priorities of today's world. Without intending any discourtesy at all to the noble Lord, he with his great parliamentary experience will know that I cannot pre-empt that announcement. I will, of course, repeat the Secretary of State's Statement and attempt to answer your Lordships' questions in a few hours' time.
Lord Monro of Langholm: My Lords, while I appreciate the noble Lord's difficulties, the Statement is long overdue. Does he realise that in the fine history of the British Infantry this is a very black day indeed? Does he realise that this matter is causing fury everywhere, and particularly in Scotland? If the rumours are right that we shall lose four battalions, and 19 others will be affected, how can the noble Lord possibly justify that at a time of gross over-commitment and the rise in terrorism?
Lord Bach: My Lords, I of course understand the noble Lord's strong feelings, and the strong feelings of other noble Lords, on this matter. I respect those greatly. However, the wider transformation of the Army that will be announced later today, and which I believe was mentioned by the Chief of the General Staff on the "Today" programme this morning—the noble Lord may have heard that—goes much wider than the Infantry and much wider than the Scottish Infantry. While I absolutely understand and respect the noble Lord's concerns, I hope that he will be patient and wait until I repeat the Secretary of State's Statement in two hours' time.
Viscount Tenby: My Lords, without prejudging the Statement to be made later today, is the noble Lord in a position to tell the House in general terms what the recruitment record of the six Scottish regiments has been in recent years compared with the recruitment record of some regiments which are rumoured to be for the axe?
Lord Bach: My Lords, I cannot give the noble Viscount the precise figures at this stage save to say that there has been something of a recruitment problem with the Scottish regiments.
Lord Hogg of Cumbernauld: My Lords, does my noble friend accept from me that the concerns expressed by the noble Lord, Lord Monro of Langholm, have a great deal of validity and that there is a lot of concern in Scotland? However, does he further accept from me that there is respect in Scotland for the professionalism and the excellence with which the Armed Forces pursue their duties, and that what comes out of today's Statement must be an expression of the need to reinforce that professionalism in order that they may discharge the very difficult tasks which we as a nation set for them?
Lord Bach: My Lords, I am grateful to my noble friend. He knows that the respect he feels for the

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British Armed Forces is shared unanimously in this House. I am sure that will come across when we discuss the Statement being made in another place.
Lord Garden: My Lords, when we discuss that Statement will the Minister help us by telling us what the gap between operational tours has been for the Scottish regiments—say over the past five years—as compared with the desirable target of 24 months?
Lord Bach: My Lords, I am extremely grateful to the noble Lord for giving me advance warning of a question I might face in two hours' time.
Lord Astor of Hever: My Lords, the Minister mentioned a recruitment problem in Scotland. Does he agree that part of that problem was caused by the MoD putting a freeze on recruitment earlier this year?
Lord Bach: No, my Lords, I do not agree.
The Earl of Mar and Kellie: My Lords, despite defence being a reserved matter, should not the United Kingdom Government have formally consulted the Scottish Parliament about the proposed changes to the Scottish natural heritage?
Lord Bach: My Lords, I do not know what consultation did or did not take place with the Scottish Parliament. I know that a great deal of consultation has taken place with the Scottish regiments, which may be the ones affected.

NHS Dental Contract
11.20 a.m.
Baroness Gardner of Parkes Baroness Gardner of Parkes asked Her Majesty's Government:
When they expect discussions on the new National Health Service dental contract with the British Dental Association to resume.
Baroness Andrews: My Lords, we have been holding discussions on contractual guidance for over a year with the leadership of the British Dental Association. The BDA has made a valuable contribution, and we were surprised by its decision to suspend discussions.
Baroness Gardner of Parkes: My Lords, I thank the Minister for her Answer. Is it not a fact that at the beginning of those discussions—which, as the Minister said, have gone on for over a year—dentists were led to believe that the new contract would give them more time for patient care and preventive dentistry, but that recent discussions have been on a completely different basis? Would it not be better for patients to have immediate access to a basic NHS service to meet their dental health provisions and for the Government to
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drop the current pretence of providing a fully comprehensive National Health Service, which they are not delivering and are unable to deliver?
Baroness Andrews: My Lords, no one will understand better than the noble Baroness how important it is that we strike a balance between the interests of patients and the interests of dentists in the new contract. After all, these are the first major reforms of the NHS for over 50 years. We believe that New Ways of Working, which is expressed in the emphasis that we are putting in the contract on prevention, and widening access for NHS patients—which is the real challenge that we have, because of the problems that we face—are compatible. That is what the discussions have been about. Dentists seem to agree with us as we are finding, and the National Audit Office report showed, that they are joining the personal dental services contracts in increasing numbers. We believe that we have got the balance right.
In any case, additional time will be freed up for dentists above and beyond the need to commit 95 per cent of their time to NHS patients. In terms of the basic contracts, I understand what the noble Baroness is saying, but we do not believe that a core service is sufficient to meet the dental needs of the nation. We do not want to narrow options down; we want to expand and improve the NHS dental service.
Lord Hunt of Kings Heath: My Lords, does my noble friend agree that there is no reason why dentists cannot provide NHS services to the people of this country? In fact, many millions of people do enjoy NHS services at the moment. Speedy agreement and implementation of the contract provides an optimum way of extending NHS services throughout the country.
Baroness Andrews: My Lords, I entirely agree. We have shown on the basis of the evidence from the personal dental service pilots that when you move to a more preventive service, which does not enforce recall at unnecessary intervals and which does not enforce unnecessary treatment, dentists have more time, and with that time they will be able to make more provision for NHS dental patients. In addition, we have put £59 million extra into dentistry this year to develop the service, and we intend to put an extra £250 million a year over the next three years.
Lord Addington: My Lords, would it not help everyone if the Government were able to make a list available to all patients letting them know exactly what treatment is and is not available under the NHS under any new contract?
Baroness Andrews: Yes, my Lords, that is a fair point. One of the problems with the traditional structure of the NHS is that no one was absolutely sure what was covered by NHS charges and what was covered by private charges. Indeed, that was picked up on recently by the Office of Fair Trading. The review of patient charges, under the charge of Harry Cayton, is looking at that; it

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is potentially looking at banding and is certainly looking at making it more transparent. We expect to be able to make an announcement soon.
Lord Chan: My Lords, are there any lessons of good practice to be learnt from primary care trusts in areas of disadvantage, where the NHS has offered dentists a personal dental service contract in order to meet the needs of people with poor dental hygiene and care?
Baroness Andrews: My Lords, that is one of the most optimistic developments. We have seen the development of PCTs and the personal dental services in areas of high need. We are putting some of the strategies in place, for example, the idea of recruiting overseas dentists. We will be targeting areas where dental waiting lists are long and where services are not so good. Some 29 or 30 Polish dentists are going to start work in the south-west of the country soon to help to meet demand in those areas.
Lord Ackner: My Lords, can the noble Baroness tell the House whether patients will have a clearly defined list of what treatment is and is not available on the NHS?
Baroness Andrews: My Lords, in the new arrangements for patient charges we are hoping to make those differences very clear, so that no patient will be under any illusion what the NHS covers and what private costs will cover.
Lord Colwyn: My Lords, leaving aside the moral issue that in India there is one dentist to every 36,000 people, and in the UK there is one dentist to every 2,000 people, will the Minister confirm how many dentists are expected to be recruited from India and whether they will be offered the same pay and conditions as all foreign dentists and not used as cheap labour?
Baroness Andrews: My Lords, I very much hope that I can give the noble Lord that assurance. When we have been looking overseas to see from where we might draw additional help, we have been looking to countries where there are surplus dentists. I take the ethical point very seriously, but the discussions we have had with the Indian High Commission have convinced us that this is perfectly appropriate. I understand that we have had some 1,200 expressions of interest from India. I cannot give the noble Lord any more details on that, but we know that they will be offered open work permits. We expect that many will return to the country of origin, and they will be offered the same conditions of service as any other dentist in the UK.
Baroness Masham of Ilton: My Lords, will dentists coming from countries such as Poland have a language test? In dentistry one needs to understand what patients are trying to say. Some people coming from Poland have a language problem.
Baroness Andrews: My Lords, dentists coming from EU countries, whether Poland, Spain or Germany, will be carefully selected. They will be subject to a
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robust induction programme, which I am sure will include language. I shall write to the noble Baroness to give her more details if she would like that.
Earl Howe: My Lords, I hope that the noble Baroness will not think this an unfair observation, but should the Government not now take responsibility for the fact that dentists are leaving the NHS in their droves? That obliges very many patients to go private when they otherwise might not have done. Will the Minister take a clear message to her right honourable friend that on no account must NHS dentistry be allowed to collapse altogether, which many people now fear, and that the Government must act to restore the confidence of dentists as soon as possible?
Baroness Andrews: My Lords, I do not believe that NHS dentists are leaving in droves, although I understand that dentists want to ensure that they have a contract that enables them to practise in their best interests as well as those of patients. We are seeing increasing numbers of dentists coming forward to take up the PDS contract. We are hopeful that the balance of preventive work that dentists want to do—the original reforms were certainly popular—will convince and keep dentists in the NHS. We intend to make the NHS dental service, with extra resources and with extra staffing, a better service than we have had in the past.
Lord Elton: My Lords, how many dentists are there in the National Health Service, and how many would be required to provide the service that the Government feel that they should give to the public?
Baroness Andrews: My Lords, although I may have to correct this in writing, I believe that there are 19,000 dentists in the NHS. I believe that the latest estimates, which were for 2001, were that we were short of about 1,800 dentists. We aim to recruit the equivalent of 1,000 dentists by October next year, which is why we are looking overseas for some of those dentists and why we are putting additional money into creating additional capacity—for example, by giving dentists who are working on mixed contracts more NHS work and helping to recruit people who wish to return to the profession.
Baroness Gardner of Parkes: My Lords, I do not accept the Minister's statement that this is the first reform in dentistry; it is a matter of how one looks at it. There have been many reforms over the years and the last new contract was, I think, in 1991. Is it not correct that under the new contract the original proposal was to give dentists more time for preventive work, as the Minister said, but new targets have now been imposed whereby the dentist must carry out 90 per cent of the courses of treatment that he carried out before and at least 5 per cent of those must be on new patients? Is it not the case that unless the dentist matches those requirements, which means no less

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work—still on the treadmill as he was in the past—the promised guaranteed income for three years will not apply?
Baroness Andrews: My Lords, when I referred to reform I was talking about a much more significant reform in terms of the structure of payments in relation to the traditional ways in which dentists have been paid and getting away from the treadmill of "drill and fill" and unnecessary recalls and so on. That is what I meant.
Regarding the noble Baroness's second point, we all have to understand that when we make an income guarantee over three years we must be able to quantify what the NHS gets for that, because we have serious under-capacity in NHS dentistry. That is why over the past year, as discussions have proceeded, this matter has come into the frame in a more focused way. I believe that as a result of that we will obtain value for money; dentists will know what they are able to and want to do; and essentially NHS patients will have better access to NHS care. Surely, that is what we all want to see.

Business
11.31 a.m.
Lord Grocott: My Lords, my noble friend Lord Bach has already referred to the fact that there will be a Statement on defence later today. For clarity, that Statement will take place after the Second Reading of the Public Services Ombudsman (Wales) Bill, and it will be entitled, "Future infantry structure".

Public Services Ombudsman (Wales) Bill [H.L.]
11.32 a.m.
Lord Evans of Temple Guiting: My Lords, I beg to move that this Bill be now read a second time.
The legislation that currently provides for three separate ombudsmen is out of date. The three offices are the Commission for Local Administration in Wales, the Health Service Commissioner for Wales and the Welsh Administration Ombudsman. The current legislation does not allow the ombudsmen to deliver the efficient and effective service to which people in Wales are entitled.
The legislation was enacted at a time when it was assumed that a particular service would be the particular, or even exclusive, responsibility of local or central government or the National Health Service. But that is no longer true. There is increasing emphasis now on the provision of services for people through partnerships between different public bodies. In the fields of health and social care, for example, a person's case may be dealt with by a health body working together with a local authority's social services department. But if that person is not happy with some
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aspect of a service provided, it may not be easy to identify which of several public bodies is responsible and, therefore, to which ombudsman a complaint should be submitted. We need to remedy that.
However, differences in the legislation applying to each office inhibit the development of a coherent and effective ombudsman's service in Wales that reflects the ways in which public sector service delivery is evolving. The Bill will address that and will allow a properly integrated ombudsman's service to be created.
I shall explain briefly how this Bill has been carefully developed over the past two years. In March 2001, the then Secretary of State for Wales and the Assembly's First Minister jointly announced that there would be a review of public sector ombudsmen services in Wales. Their provisional view was that all of the offices in Wales should be held by the same person. This reflected a recommendation made by the National Assembly Advisory Group in 1998. In December 2002 the Wales Office, working jointly with the Welsh Assembly Government, published Ombudsmen's Services In Wales: Time for change?, a consultation on the principle of bringing these offices together into a unified service led by one person.
That proposal received unanimous support from a wide range of consultees. It was also endorsed by all parties in the Assembly in plenary debate. So, in October 2003, a second round of consultation on the detailed powers and jurisdiction of the new office, entitled A Public Services Ombudsman for Wales: Powers and Jurisdiction, was initiated. I have both documents here and I shall arrange for every noble Lord who takes part in this debate to receive copies of them before the next stage of the Bill.
Meanwhile, as an interim step to achieving the longer term objective of a unified office, the Regulatory Reform (Local Commissioner for Wales) Order 2004 removed a restriction in the Local Government Act 1974, the effect of which was to prevent one person simultaneously holding the three existing offices in Wales. As a result, Mr Adam Peat holds those three offices now.
But as I have said, to create a properly integrated office, the legislation applicable to the three offices needs to be rationalised and brought together into a coherent whole if the benefits of a unified office are to be achieved. That is what the Bill seeks to achieve. It will bring together the offices of the Commission for Local Administration in Wales, colloquially known as the local government ombudsman, the Health Service Commissioner for Wales, the Welsh Administration Ombudsman and filially, when established in 2005, the Social Housing Ombudsman for Wales into a unified jurisdiction led by one person—the Public Services Ombudsman for Wales.
We believe that the Bill's effect will be cost neutral; this is a Bill about creating a coherent jurisdiction, administered by a team which is already working increasingly effectively together, but which now needs the backing of a sound legislative framework. The Bill will provide a modern, flexible and accessible service

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for members of the public who wish to complain about most public service providers operating in relation to Wales.
I said "most public service providers", because services delivered under the auspices of the UK Government—for example, social security—will remain subject to the jurisdiction of the Parliamentary Commissioner. But that is an exception to the general principle that, in respect of public services on which people rely in their daily lives, the new ombudsman's office will provide a single channel for receipt and investigation of complaints.
So, local government, within which we include community councils, health bodies, the Assembly itself, and its sponsored public bodies, will all be within, or may be brought within, the new ombudsman's jurisdiction. The Bill provides powers for the National Assembly to amend the list of bodies within the ombudsman's jurisdiction, to reflect changes in the structures of government in Wales. The Bill gives the ombudsman important powers of investigation in his own right, but it also allows him to seek to resolve disputes between complainants and the relevant public bodies without the need for a formal investigation. This is a new provision for Welsh ombudsmen, but it is one that I hope your Lordships will welcome.
The Bill also provides powers to permit the ombudsman to work jointly with other ombudsmen, including the Parliamentary Commissioner and the Health Service Commissioner for England, for the investigation of cross-jurisdictional or cross-border complaints. As noble Lords will know, cross-border provision of services, particularly in health, is not at all uncommon between Wales and England. The Government have sought to facilitate joint ombudsman investigations to cover precisely that situation.
I give notice now that the Government may wish to table a limited number of amendments. We want to consider, in particular, whether the Bill can be improved by express provision to ensure that, in health and social care, the ombudsman can look across the scene at complaints about the consequences of decisions made by social care professionals who are working alongside clinical colleagues. The Bill may also require minor drafting changes. Naturally, I will keep the House informed of that and give the House as much notice as possible of any changes to be made.
I look forward to listening to noble Lords' views on the Bill. If the Bill is enacted, Wales will have a first-class ombudsman service, fit for the 21st century. It is an aspiration that we can all share. I undertake to give the most careful consideration to suggestions for improving the Bill. I would welcome suggestions from all sides of the House.
Moved, That the Bill be now read a second time.—(Lord Evans of Temple Guiting.)
11.41 a.m.
Lord Roberts of Conwy: My Lords, I am sure that the whole House is grateful to the Minister for presenting this Bill, which has come before us so soon after the Queen's Speech. It was anticipated when we
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approved the order on 16 September this year. I expressed then the hope that the Government would find time for the Bill in due course. They have acted promptly, and here we are with the Bill at the start of the new Session.
My first impression is that it is a good Bill, well assembled and well drafted; but I note what the noble Lord said about tabling government amendments. Having delivered that plaudit I must remind myself that it is the constitutional duty of the Opposition to oppose and criticise the Bill if we suspect that it falls short of our highest aspirations.
As I said when the order was debated, we welcome the proposal to rationalise ombudsman services in Wales and to provide a unified service by abolishing the Commission for Local Administration in Wales and the offices of Welsh Administration Ombudsman, the Health Service Commissioner and the Social Housing Ombudsman for Wales, bringing all their functions under the banner of the Public Services Ombudsman. The holder of that office will be appointed by the Crown on the recommendation of the Secretary of State, and totally independent of all bodies subject to his or her jurisdiction. Whether the Assembly should have a role in the appointment process will, I am sure, be discussed at a later stage.
I welcome the fact that advantage has been taken in the Bill to unify the powers and jurisdictions, which previously were varied and whose scope is now uniformly and clearly defined. The ombudsman can investigate a complaint of "injustice or hardship", maladministration or service failure, or an alleged breach of a local authority's code of conduct by an elected member or an employee. The Bill is also clear in its description of the parameters within which the ombudsman can act. Again, we shall look closely at those parameters in Committee.
One would have thought that there would be immediate financial savings from such an amalgamation of functions, but paragraphs 113 and 114 of the Explanatory Notes suggest otherwise. They refer to initial set-up costs and funding being provided by the Assembly and,
"a modest increase in resources",
being required to deal with the manpower effects of the Bill's implementation. I am sure that noble Lords will wish to know in due course what those extra initial costs amount to and what savings are anticipated later.
We have been told that two of the offices—the Welsh Administration Ombudsman and the Health Service Commissioner for Wales—have not been particularly onerous in the past. Again, I quote the Wales Office consultative paper on the order:
"In practice, these offices together demand only a very modest time commitment with, on a pro-rata basis, an equally modest salary".
That is perhaps surprising, considering the extent of their jurisdiction. The administration ombudsman could consider complaints of maladministration against the Assembly and many of its sponsored public

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bodies—a euphemism for the Assembly quangos. The health service ombudsman could investigate complaints relating to the provision of services by the NHS and associated bodies. Those services have been subject to much public criticism. So, prima facie, there has been considerable scope for complaint in both spheres, but the public may not have fully understood the extent of their right to complain, the relevance of ombudsmen's services and the consequences of a finding in favour of the complainant.
Possibly there have been occasions when ombudsmen's decisions and recommendations have been disregarded by the guilty authorities, and aggrieved persons simply ignored. I have known that to happen, but I am told that it has not occurred in the past five years. That is to devalue the ombudsman's role and create an intolerable situation. I hope that the Bill and the stronger ombudsman will prevent such occurrences. It is to be hoped that the Bill will improve the public's understanding of their rights and bring the ombudsman's services and possible remedies closer to the people. We certainly hope that there will be no diminution of ombudsman activity when the new unified service comes into operation.
As the Minister said, at least the principle underlying the Bill has its antecedents in a recommendation made to the Secretary of State for Wales as far back as 1998, when the National Advisory Group recommended amalgamation of ombudsmen services. Since then, there has been extensive consultation and a variety of papers and discussions. We are grateful for the Minister's promise to supply us with copies of those documents. In my experience, it is not easy to get hold of such documents: they should be readily available in the Printed Paper Office or the Library when we are involved in the provision of primary legislation related to those matters. The fault, I hasten to add, does not lie with our servicing bodies in this House, which do their level best to get hold of such material. I suspect that there is, and has been, a hold-up at the Assembly end. I have made the point and shall not hammer it further, but simply say that it is crucial that all relevant public Assembly documents are available to us while this Parliament has responsibility for scrutinising primary legislation applicable to Wales.
The ultimate justification for the Bill and the provision of a unified ombudsman service is that times have changed since the establishment of the separate ombudsmen services under different Acts of Parliament, and there is now more emphasis on joined-up services, provided through partnerships between public bodies.
As the Wales Office consultation paper on the order pointed out:
"An individual citizen may therefore have dealings with several different public bodies in relation to a particular case. It follows that if an individual is dissatisfied about some aspect of a service provided, it may not be easy to identify … to which ombudsman to submit a complaint".
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Ombudsmen services are first and foremost for the benefit of complainants and it is right that their interests should be the primary concern throughout the Bill. This we shall test at various stages in Committee.
There is an element of expediency behind the Bill. We understand that three of the offices referred to were due to fall vacant last year, thus providing an ideal moment for amalgamation. That amalgamation has now taken place, and the function of the Bill is to regularise and define the position statutorily. We welcome the Bill and shall give it a fair wind.
We look forward to the later stages of the Bill, when we shall probe some of the detail in the hope that we, like the Government, can improve upon it.
11.51 a.m.
Lord Prys-Davies: My Lords, I shall not burden the House with a long speech, but I want to say that I warmly welcome the Bill, which has been so helpfully explained by my noble friend on the Front Bench. Perhaps I may also add a word of thanks to my noble friend for arranging the meeting held on Tuesday last in the famous Gladstone Room with the Wales Office Minister, the National Assembly Minister and the Assembly lawyers and officials. All the trouble they took and the help that they gave was greatly appreciated.
The meeting also provided an opportunity to put points to both Ministers for them to answer, and possibly to consider further. But I fully support the point made by the noble Lord, Lord Roberts of Conwy, that all the documents relating to legislation to come before this House which affect Wales and the Assembly should be available in our Library.
Although the subject of the Bill may lack glamour, it makes up for it in importance. We live in an imperfect world, and the Bill will help a great many people. I am not well up on the number of complaints which are received annually by the three existing commissioners. Perhaps the Minister can give the House some idea of the total number of complaints received last year and the percentage that were found to be justified.
But let us look to the future. By establishing a unified and integrated ombudsman service in place of the three separate existing services, the Bill will ensure that all complaints, in whichever service they arise, will be investigated in the light of the same principles and the same standards. I believe that the benefit of this reform far outweighs the marginal loss of the specialism of the existing separate services which will inevitably arise and that that more than justifies the small additional costs of setting up the office.
We know that the Bill has the full concurrence of the National Assembly and all the political parties in the Assembly. For me, that is a highly important consideration. I confess that I would find it very difficult indeed to support an amendment which was not acceptable to the Assembly Government.
Having said that, I also agree that it would be pretty remarkable if any department or the Assembly had managed to produce a Bill, let alone one of some

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45 clauses and seven schedules such as we have before us, which did not stimulate discussions and amendments designed to improve it. Even a good Bill can be made better. I am sure that in the course of this short debate today we shall hear a number of very interesting suggestions as to how the Bill can be improved. I am also sure that our Minister is a listening Minister.
I very much hope that the Wales Office Minister will study in detail the Hansard report of this debate and possibly bring forward amendments additional to the ones that the Assembly has in mind. I found it disquieting that the ombudsman should be appointed for a fixed term of 10 years. I am not sure whether that matter can be looked at again.
I also found it surprising that the opportunity has not been taken to give power to the ombudsman to order the payment of damages by an offending authority where the aggrieved citizen has suffered an injustice or hardship as a consequence of maladministration. That point was made very powerfully by the noble Lord, Lord Carlile of Berriew, at the meeting in the Gladstone Room.
I understand from the Welsh Assembly officials that the public authorities that were consulted on this proposal were totally opposed to it. Well, they would be, but I venture to suggest that on this particular issue the Assembly Government were possibly too readily impressed by the response of the public authorities.
I now want to mention briefly two issues which have not been touched on. They both relate to the making of a complaint. After all, the making of a complaint is the start of the procedure.
Clause 5(1) clearly states that the complaint must be in writing. That assumes a degree of articulacy, but some people find it very difficult to put a complaint in writing. Can the Minister confirm whether the ombudsman will have discretion to investigate a complaint which is not in writing? It seems to me that he may have such a discretion when the complaint is referred to him under Clause 2(3). I should welcome guidance from the Minister on that point.
Then there is the separate, and in my view more difficult, issue of the reluctance of an aggrieved person to make a complaint because he or she is afraid of upsetting people to whom he or she may well have to look for services in the future. What can be done about that? I recall that this issue was raised by the late Richard Crossman almost 40 years ago when he was in charge of the DHSS. I well recall Crossman stressing, with conviction and his usual vigour, that a way must be found to surmount that difficulty. The problem has not gone away. Only last week, I heard from a friend of mine of the unwillingness of a relative to lodge a complaint of maladministration because she feared the consequences later on in her life. What can the new ombudsman do about that? I very much hope that he will pay very careful attention to the problem when drawing up the guidance under Clause 31. I believe that Clause 31 has great potential and I hope that the ombudsman will address such problems through Clause 31.
This is a good Bill. I welcome it. But it could be made even better.
12.1 p.m.
Lord Roberts of Llandudno: My Lords, I am privileged to follow those who have such a wealth of experience in these matters. Following our debate on 16 September, I am delighted to take part in this discussion today.
The Assembly and this Parliament have already given a general welcome to the integration of the three services, and to the fact that one person will hold the position of public service ombudsman for Wales. He will be empowered to look into so many aspects of possible maladministration—a one-stop shop where people can come to have their complaints dealt with, knowing that they are on the right line and following the right procedure.
When the details of the Bill are examined later, I am sure that a number of questions will he raised. One that has already been mentioned is the appointment of one public service ombudsman for Wales. At the moment it is a Crown appointment. With increasing emphasis on devolution and democratic appointments, is this not an opportunity for the Government to allow the Assembly to make the appointment? The Welsh Assembly already appoints the Children's Commissioner for Wales, so would it not be possible for it to make this appointment as well? There may be an argument against that, but we shall wait to see what can be done and how.
The latest local government report states that 183 allegations were made in the past year, 85 of which were successful. There were 180 allegations made to the Health Service Ombudsman. Those numbers are quite substantial. Can the Minister tell the House whether the staffing arrangements will be financially neutral when the sums are added up and whether the present staff will be sufficient to cope with the large number of allegations that need to be dealt with?
The noble Lord, Lord Prys-Davies, referred to the length of appointment. I am sure that we will discuss whether 10 years is too long and whether the term could be shorter. Would it be possible to extend the term, if required?
In a meeting held the other day, I believe the noble Lord, Lord Carlile of Berriew, mentioned compensation and the awards that should follow from some maladministration appeals. Will the ombudsman now have the power to demand such compensation?
Finally, what is the procedure for an appeal against the ombudsman's decision? Suppose there is unhappiness and people are dissatisfied with what the ombudsman has decided. Where does the appeal lie? Will it be an expensive judicial review that may possibly be totally beyond the means of many people, or will there be another way in which people who feel that matters have not been dealt with to their satisfaction can seek redress?
I am a new arrival in the House, speaking at the birth of a new Bill. I know that mighty oaks from little acorns grow. I am sure that we shall have plenty of time to deliberate the Bill in the future.
12.5 p.m.
Lord Rowlands: My Lords, like all those who have spoken in the debate, I support the Bill for two reasons. First, for the reasons set out by the Minister, it is a practical, pragmatic, sensible reorganisation of the ombudsman services in Wales.
My second reason for supporting the Bill is that it is a further step in developing the legislative partnership between the Assembly and Westminster. It was my pleasure to serve under my noble friend Lord Richard on what is now popularly known as the Richard commission. That commission considered the further possible powers that the Assembly might take. One area that was explored was how to expand the legislative competence of the Assembly, even within the terms of the original Government of Wales Act and how the capacity of the Assembly to deal with legislation could accommodate those changes and expanded competencies. Within the existing structures, within the capacity of the Assembly as it stands at the moment with no additional Members and within the ability of the Assembly to deal with legislation, the commission looked closely at whether it could expand the legislative competencies of the Assembly.
In Chapter 13, paragraph 15, a recommendation was made, after some debate, that the UK Government would commit themselves to framing Bills to bestow upon the Assembly the widest possible legislative competence within the devolved areas. I strongly supported, and still do, that approach to legislation in a post-devolution world: that this House and this Parliament should draft legislation—Bills and provisions—relating to Wales to maximise the legislative competence of the Assembly. The commission considered that point in some detail.
Therefore, I find myself applying what I call the Richard test. Does the Bill before this House, or Parliament, containing Wales-only clauses, or a Welsh-only Bill, like this one, pass the Richard test? Is it framed in such a way as to maximise the legislative competence of the National Assembly? I find that this Bill passes the test. When looking at some of the provisions in the Bill, I see an attempt to allow the Assembly subsequent power to amend and alter the provisions in the Bill in the light of experience.
Clause 10(2), for example, will allow the Assembly to add, alter to remove matters that fall within the ombudsman's jurisdiction. It will enable the Assembly to alter Schedule 2 to the Bill, which makes provision for excluded matters. The Assembly will have that important area of legislative competence as a result of the passing of the Bill.
I find pleasure in Clause 27(2), which gives the Assembly powers by order to amend Schedule 3 by adding or removing the listed authorities. However, absolutely correctly, one restriction is placed on that competence in Clause 28(1), which provides that the Assembly cannot remove itself from the jurisdiction of the ombudsman. I am sure that we would all agree that that should not be a possibility.
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In Clause 41 the Assembly will have the power to modify the application of the Bill in respect of complaints against former family health service providers and others listed in that provision. That very useful and additional competence will be bestowed upon the Assembly. There is a sort of "catch-all" clause in Clause 42 which empowers the Assembly to amend, repeal or revoke any enactment that is consequential upon the Bill.
So, if one looks through the structure of the Bill and applies my Richard test of whether the framework of the legislation offers the Assembly the opportunity to expand its competencies, I find generally that the Bill passes that test.
Some discussion took place within the Richard commission about this matter. Parliament has traditionally been squeamish, and rightly so—and as a long-standing parliamentarian, I share that view—about passing legislation giving sweeping powers of secondary legislation to the Executive. Rightly, both Houses have jealously tried to guard against that. That does not apply in today's post-devolution system, and the Bill allows the Assembly to amend the legislation further if, in the light of experience, it feels it needs to do so.
The power will not be given to the Executive but to a democratically elected National Assembly. The provisions have very elaborate procedures for scrutiny of secondary legislation, which in my view provide sufficient safeguards. There is power, for example, to amend statutory instruments, which the House of Commons does not. So I think that Parliament's traditional squeamishness in granting these wider powers of secondary legislation does not apply.
However, there is one aspect of the Bill which I hope my noble friend will look at. We are bestowing competencies on the Assembly to amend or alter the ombudsman's powers at some subsequent stage or to remove or add to the list of authorities that he can investigate. I think that the ombudsman's agreement should be obtained before exercising such a power. I do not see such a provision in the Bill.
In other words, if, for example, the Assembly comes forward at a future date with a proposal to alter or amend the listed authorities, surely that should be after consultation with and the agreement of the ombudsman. He or she should be a party to any such proposal. I see a reference to people having to be consulted. I believe that there should be specific provision after consultation to obtain agreement from the ombudsman if one intends to amend or alter his powers. I cannot see that on the face of the Bill. Therefore, I ask the Minister to think about that as a possible amendment.
I have another area for possible amendment. The Secretary of State has the right to appoint the ombudsman but he has to consult the National Assembly if the ombudsman is dismissed. In the Bill at present the Secretary of State does not have to consult the National Assembly on the appointment of the ombudsman. That is a rather curious anomaly. If one has to consult the National Assembly on dismissing the person concerned, surely there should be a provision for consulting the Assembly on the appointment itself.

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The noble Lord who has just spoken made a reference to how that appointment should be made. That area should be explored. However the appointment is made, I think that there should be a process of consultation between the Assembly and the Secretary of State, albeit that the Assembly itself is going to be subject to the ombudsman's jurisdiction.
Therefore, I very much welcome the Bill. I think that it is part and parcel of a further development in the evolution of the legislative partnership. We have already seen precedents within this Parliament for framework legislation. The health legislation that came before both Houses two or three years ago was framework legislation that has given the Assembly considerable legislative competence. The Education Acts since devolution also expand the legislative competence of the National Assembly. This Bill will also do so. I therefore warmly welcome it.
12.14 p.m.
Lord Livsey of Talgarth: My Lords, I, too, thoroughly welcome the Bill. I should like to pay tribute to the noble Lord, Lord Rowlands. I did not hear his maiden speech, but I read it in some detail. His speech was typical of him, showing a great social conscience and care for people. I believe that he has addressed this legislation in the same way. We must ensure that people are treated fairly and have the fundamental right to redress.
This has been a useful debate. However, before commenting on it, I should like to put forward a number of principles that I hope and trust are embodied in the Bill. They seem to be, but I think that we may secure even better legislation by amending the Bill in Committee. It is vital to protect the independence of the ombudsman from the government machinery. The issue of the appointment system used to select the ombudsman and whether he should serve a 10-year term is contentious. We will almost certainly pay attention to how the matter can be refined in some way.
As for the length of tenure, the post should not be a type of sinecure. The person should be there for a reasonable but not excessive length of time. As for integrating the existing ombudsmen—the local commissioner in Wales, the health service commissioner and the social housing ombudsman—it must be right to integrate those three bodies into one. We have heard from the Minister that all of that has been considered.
The related issues, including local government, the NHS and housing, are all very important public sector issues in Wales. What concerns me very much is that, when investigating allegations, the ombudsman must have the ability to expedite cases rapidly, effectively, efficiently and transparently. Although that is a difficult set of objectives, I believe that, in the public interest, they must be met.
The system of administration, in particular, must be very good and not bogged down in bureaucracy. The ombudsman must be fair and close to the people and receive support from all sections of society. Everyone must have confidence in him. That has not always been the case in the past—and I am being constructively
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critical here. The constituency MPs, of whom I was one, sometimes took good cases to the local commissioner but the commissioner refused to investigate them for very technical reasons.
I often encountered that unsatisfactory situation. Some of the cases were outwith the commissioner's remit due to sometimes arcane restrictions, at times causing the complainant and myself much grief. I think that most constituency MPs have suffered that kind of frustration. Sometimes there were long delays. That supports some of the comments noble Lords have made about the staffing needed to support the ombudsman for Wales. I believe that people's rights must not in future be sidelined. Given those aspirations, how does the Bill measure up? There are, of course—though I shall not go into them now—the cross-border issues in the health service which affect all of us who live near the border. There may, for example, be complaints from Welsh patients attending hospitals in Shrewsbury or Hereford. The Bill provides for arrangements to cover that issue, but it is a matter of great concern to those who are affected.
The Parliamentary Commissioner will be responsible for a huge number of complaints about the public services. But we have to remember that a whole raft of public services outside the Assembly—in social security, pensions and many other matters—also are investigated by the Parliamentary Commissioner. The problems in the health sector and cross-border issues surfaced in relation to Alder Hey Hospital in Liverpool and what happened to children in Bristol Hospital.
The contributions that we have heard today have been extremely supportive of the Bill, but have also defined issues that I am sure will be converted into amendments during the Bill's passage. We had an excellent briefing the other day, but it is important that we are able to view the Explanatory Notes earlier. The public also need information about the ombudsman and how to make a complaint.
The noble Lord, Lord Prys-Davies, made some important points. In particular, he asked how many cases the ombudsman can deal with in a limited time. Richard Crossman, when he was a Minister, addressed the whole problem of people's unwillingness to lodge complaints. That must be clarified. We support the Bill, although I give notice now that the noble Baroness, Lady Finlay, and I will table an amendment to limit the tenure of the ombudsman to seven years, rather than 10. We can have a useful debate about that but, on the whole, the Bill takes us forward. As the noble Lord, Lord Rowlands, said, it passes the Richard test: it will improve accountability for the Assembly to legislate in an area for which it will have total competence.
12.22 p.m.
Lord Evans of Temple Guiting: My Lords, I warmly thank those noble Lords who have taken part in the debate. The Bill has been well received, although it appears that there will be one or two issues for us to discuss in Committee. One of those is the tenure of the position: whether it should be 10 years or less.

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As I said at the beginning of our debate, we are keen to listen and to improve the Bill if necessary. My noble friend Lord Prys-Davies, in welcoming the Bill, said that it is a very good Bill but that it can be improved. That is what we want and we will rely on the help of all your Lordships to ensure that, at the end of the day, we have the best possible Bill.
I shall now attempt to answer some of the questions that have been asked. Second Reading is significant because we are laying out the boundaries and parameters for Committee. I thank the noble Lord, Lord Roberts of Conwy, for his welcome for the Bill. He successfully attempted to find criticisms of the Bill—as he said, he is in opposition and must oppose—but it was absolutely clear from his generous comments that, on the whole, he welcomes the Bill. He asked about savings and additional costs as a result of the Bill. I am told that the proposal is cost-neutral and that there are minimal extra costs. However the question in his mind and mine is: what do we mean by "minimal costs"? I undertake to come back to the noble Lord on that point.
He also asked about the extent of public awareness of ombudsmen's services in Wales. One reason for creating the unified office is to allow for a more proactive approach to publicising a coherent set of services. Your Lordships may also want to note that Clause 32 places obligations on listed bodies to publicise the fact that they are subject to the ombudsman's jurisdiction.
The noble Lord, Lord Roberts, and a number of other Peers, also asked why the consultation was not made available to the House, either in the Library or to individual Peers. That is a very good point. There may have been an oversight. I accept the principle that if we are considering legislation coming from the Assembly, we must see all the documents. Officials will ensure that we do not make that mistake in future. In apologising for that, I accept that that point is well made. We will ensure that that does not happen again.
My noble friend Lord Prys-Davies, in welcoming the Bill, asked several questions about the complaints that the ombudsman has received and how many were upheld. In a way, the noble Lord, Lord Roberts of Llandudno, has answered many of those points because he gave us some of the statistics, but I have all of them in front of me. I will just cite one and then pass the note to my noble friend after the debate. The Health Service Commissioner received 209 complaints; completed 11 investigations; upheld five; partially upheld three; and dismissed the remaining three.
My noble friend Lord Prys-Davies and other Peers asked about the 10-year fixed appointment. A 10-year period will allow for stability of office, yet allow a regular injection of new blood to reinvigorate the office. Not having to seek renewable appointments protects the office from any perception that its independence could be compromised. That is the answer that I am giving today. I see from the expressions on various noble Lords' faces that that may not be wholly satisfactory; and I am sure that we will return to the matter in Committee.
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My noble friend also asked: why are there no enforcement powers for the ombudsman's recommendations? That follows from existing arrangements. The only ombudsman's recommendations that have been legally enforceable are in Northern Ireland, where different considerations apply. No doubt we will return to that matter, but your Lordships will be aware that legal enforcement of ombudsman's recommendations would be an extremely radical move.
My noble friend also asked: why does the Bill require complaints to the ombudsman to be made in writing? He asked whether that does not disadvantage someone who, for whatever reason, is unable to write and whether there is scope for some discretion on the ombudsman's part. Clause 5(1)(a) indeed requires complaints to be made in writing. That reflects existing law, but Clause 2(4) allows the ombudsman to investigate a complaint even if the requirements of Clause 5(1) have not been met, provided that the ombudsman thinks it reasonable to do so. For example, if a disabled person is unable to submit a written complaint, it will still be open to the ombudsman, if he thinks it reasonable in the circumstances, to dispense with the requirement and investigate the matter anyway.
Finally, my noble friend Lord Prys-Davies asked: what can be done to facilitate complaints from persons who are afraid of upsetting the authorities about whom they are complaining? The ombudsman will be sensitive to such issues, but it is also right that the ombudsman must act fairly to the complainant and the listed authority concerned. My noble friend is correct: the ombudsman has a wide power to issue guidance to listed authorities under Clause 30. However, that provision relates to good administrative practice by listed authorities. The ombudsman can use the supplementary powers in paragraph 21 of Schedule 1, if he or she wishes to issue public guidance on how the ombudsman intends to approach investigations.
The noble Lord, Lord Roberts of Llandudno, asked why it was a Crown appointment, not an Assembly appointment. The brief and, I hope, convincing answer is that making it a Crown appointment reinforces the status of the office and its independence from government. The noble Lord also asked whether the ombudsman for Wales would have sufficient staff. The PSOW is accountable for delivering the functions of the office, which means that it must be properly resourced. The Assembly must fund the office, but, if it is minded not to agree an estimate of expenses, it must consult the Secretary of State and lay the estimate, as amended, before the Assembly. That important control prevents the Assembly limiting investigations through underfunding.
The noble Lord also asked whether there could be an appeal against the ombudsman's decisions. The ombudsman's decisions are subject to judicial review in the normal way. It must be said that it is likely that the courts will not intervene lightly in a decision properly taken by the ombudsman. Legal aid is available, if the relevant means and merits tests are met.

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My noble friend Lord Rowlands made an interesting contribution. I think that it was the noble Lord, Lord Livsey of Talgarth, who paid tribute to my noble friend's excellent maiden speech the other day. I join the noble Lord, Lord Livsey of Talgarth, in acknowledging it. My noble friend made some interesting points, and I am sure that we will return to them in Committee. He asked why there was no requirement for the Assembly to consult the ombudsman on proposals to add or remove persons from his jurisdiction. Clause 27(4) provides that the Assembly,
"must consult such persons as it thinks appropriate"
before making such an order. The ombudsman would be an appropriate person, and the Assembly is therefore obliged to consult the ombudsman before making such an order.
The noble Lord, Lord Roberts of Llandudno, also asked about the need to consult the National Assembly before appointing the ombudsman. We will consider that. In practice, appointments procedures for recruiting the ombudsman will be run by Assembly officials on behalf of the Secretary of State. In the longer term, splitting the Assembly between its executive and legislative elements, as the Richard report recommends, would allow for the possibility of the National Assembly advising Her Majesty on the appointment.
The noble Lord, Lord Livsey of Talgarth, asked several questions and made it clear that there were issues to which he would return in Committee. With the noble Baroness, Lady Finlay of Llandaff, who could not be present today—I think that she is in Holland—he will table amendments. The noble Lord expressed concern about the way in which the Bill would operate in cross-border situations. The consultation and co-operation powers and duties in Clause 24 are designed to ensure that the new ombudsman can and will work effectively and seamlessly with other ombudsmen or commissioners with an interest in the case, whether they are in Wales, England or even Scotland.
I hope that I have dealt with most of the questions that have been asked. Obviously, there will be an opportunity in Committee to discuss the points that need further attention.
On Question, Bill read a second time, and committed to a Grand Committee.

Army Restructuring
12.35 p.m.
Lord Bach: My Lords, with the permission of the House, I shall repeat a Statement being made as I speak by my right honourable friend the Secretary of State for Defence in another place. The Statement is as follows:
"With permission, Mr Speaker, I would like to make a Statement about the future structure of the Army.
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"I announced in July a rebalancing of the Army designed to make it better able to meet the challenges and threats of the 21st century. The changes I announced then reflect the need both to complement our existing heavy and light weight capabilities with new medium weight forces; and to ensure that the Army is equipped, trained and organised to meet the demands of multiple, concurrent and—above all—expeditionary operations across the full spectrum of military tasks.
"Reductions in heavy armour, heavy artillery and the infantry will be accompanied by an increase in the number of key specialists without whom the Army cannot deploy on operations. Our objective therefore is to develop a more deployable, agile and flexible force.
"Since July, the Army has been engaged—under the leadership of the Chief of the General Staff, General Sir Mike Jackson—in detailed work on how the changes should be implemented. I will now set out to the House the results of the Army's deliberations.
"The future Army structure is underpinned by two complementary changes. The first is the move towards a more balanced force organised around two armoured brigades, three mechanised brigades, a light and an air assault brigade, in addition, of course, to the Royal Marines Commando Brigade. We are moving ahead quickly with the changes required to put this in place.
"19 Mechanised Brigade, based in Catterick, will start its conversion to a light brigade in January. The brigade will be ready for deployment on operations if required in the first half of 2006, when it will serve as the contingent NATO response force.
"4th Armoured Brigade, based in Germany, will convert to a mechanised brigade in 2006, and the other brigades will adopt their new structures in a similar time-frame. The key foundations on which the future Army structure is to be built will be in place by 2008.
"But it is important to emphasise that we cannot use the front line soldiers if they cannot be deployed and sustained on operations because we lack sufficient supporting forces. In parallel, therefore, we are moving ahead with the second element of the reorganisation: making the Army more robust and resilient, able to sustain the enduring expeditionary operations that have become commonplace in recent years.
"The overriding requirement is to make significant enhancements to the key specialist capabilities—communications, engineers, logisticians, intelligence experts and other key capabilities. At the same time, we want to make fighting units—including the infantry—more robust by ensuring they have adequate numbers.
"This is an ambitious programme of change, which will take several years to complete. It is more far-reaching in its impact on the Army than Options far change in 1991. Virtually every Army unit establishment has been examined, and 10,000 posts

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redistributed. We still have further work to do in establishing all the new arrangements. However, enhancements we have already decided on include the creation of a new commando engineer regiment; a new port and maritime unit; an additional strategic communications unit; and a new logistic support regiment for each deployable brigade. We are also creating a number of new sub-units for surveillance and target acquisition, bomb disposal and vehicle maintenance capabilities.
"These are new capabilities—not cuts. They are being backed up by an impressive re-equipment programme, introducing new communications equipment such as Bowman and Falcon, enhanced intelligence collection assets such as the Watchkeeper unmanned aerial vehicle and Soothsayer electronic warfare capability, modern vehicles such as the Panther armoured reconnaissance vehicle and, looking further ahead, the ambitious FRES armoured fighting vehicle programme which will modernise the armoured vehicle fleet and be the basis of the medium-weight capability.
"These enhancements will directly improve the ability of the Army to deploy, support and sustain itself on the range of operations that we envisage. That can be achieved only as the result of the planned reduction by four in the number of infantry battalions, which will release about 2,400 posts for redeployment across the force structure.
"It is to the changes to the infantry that I now turn. I know that this is an emotive subject. I entirely understand the importance to morale, esprit de corps and operational effectiveness of regimental traditions.
"But we need to consider these changes to the infantry in the wider context of rebalancing the Army and the opportunity it affords to reallocate manpower to those areas that current and future operations require us to develop.
"Very few of our regiments and corps exist today in the same form that they existed in the past. There has been a recurrent process of change and regeneration over the past 150 years. In the last decade for example, under the previous government, Options for Change represented the first attempt to reshape our Armed Forces to reflect the post-Cold War era.
"Each change, designed to make the Army more relevant to the prevailing strategic context, was passionately opposed at the time. But on each occasion new organisations were created, fostering military renown while developing their own traditions and reputations to engender loyalty and camaraderie. That remains the guiding principle.
"We are able to reduce the size of the infantry because of the reduction in the requirement for permanently committed forces to support the Police Service of Northern Ireland, which flows from the encouraging progress towards a lasting settlement in the Province; and the decision by the Army Board that the infantry arms plot—the mechanism by which units routinely move location and change role every few
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years—no longer represents the best way to deliver operational capability. In future, battalions will be fixed by role and largely by location.
"This requires that we find a new means of providing variety of experience and posting for individuals to sustain the operational flexibility for which our infantry units are rightly famed. In future, that will be provided through individual posting. The only means of doing that within the framework of the regimental structure is by having regiments of more than one battalion.
"Let me emphasise that this is not a revolutionary concept. The Army Board took a decision as long ago as 1962 to establish large regiments. Nearly half the infantry is already organised in this way and operates extremely effectively. Multi-battalion regiments will allow individuals to move between battalions while at the same time maintaining the sense of regimental identity that is so critical to the Army's ethos and fighting effectiveness.
"Those who argue against ending the Arms Plot need to explain why. Ending it will ensure that we get far more military capability out of the resources we have. Of the 40 battalions in the current order of battle, as many as 11 are likely during any 12-month period to move location or re-role. At any one time, as many as seven may be unavailable for operations. This is simply not efficient. The logic is undeniable: at the end of this process, many more, if not all, of the future 36 infantry battalions will actually be available for operations.
"Phasing out the Arms Plot will mean that the infantry is able to offer much greater stability for soldiers and their families. It will also allow career development for both soldiers and officers to be much more carefully planned, while keeping the variety, opportunity and challenge of new roles and locations open to all soldiers within large regiments. It will give greater brigade cohesion by maintaining units within formations.
"There has been a wide-ranging and detailed consultation exercise, with the infantry being invited to express their views on how the restructuring should be implemented. I am also grateful to the many honourable Members who have played their part in representing the interests of their local regiments.
"The Army has concluded that the only prudent basis on which to make decisions is one that has regard to the long-term sustainability and effectiveness of the battalions concerned, based on an analysis of historic manning statistics, regional demographics and future manning predictions.
"But it has also rightly tempered this with a recognition of the need to take account of regional and geographic representation. That is why for example, we are looking to Scotland for only one reduction; and why the Royal Irish Regiment has been exempted from consideration.

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"The Army also considered the Gurkha battalions but concluded that, given the requirement to sustain the Brunei garrison and their excellent manning record, they should not face any reduction.
"It also took account of the ceremonial duties required of the five battalions of the Foot Guards. It concluded that these justified the status quo in relation to both the number and organisation of these battalions. In considering the Foot Guards, the Army took the view that any change to titles or structure would ultimately affect their ability to sustain the ceremonial roles which are so important to the fabric of our national life. Their existing structure already provides the geographical stability which we are looking to achieve elsewhere.
"Against this background, I have decided, as recommended by the Army, that the first three battalions should be reduced as follows. One battalion will be taken from the Scottish Division. The Royal Scots and the King's Own Scottish Borderers will merge. This and the other four battalions—including the Black Watch—will become part of a new large regiment, to be called the Royal Regiment of Scotland. The identities of the antecedent regiments will be preserved in a variety of ways, not least by including them prominently in the battalion titles of the new regiment. So, for example, the 1st Battalion the Royal Highland Fusiliers will become the Royal Highland Fusiliers (2nd Battalion the Royal Regiment of Scotland).
"One battalion will be taken from the area west of the Pennines. The King's Own Royal Border Regiment, the King's Regiment and the Queen's Lancashire Regiment will amalgamate to form two new battalions within the new King's, Lancashire and Border Regiment.
"One battalion will be taken from the Prince of Wales's Division in the south of England. This will be achieved by merging the antecedent components of the Royal Gloucester, Berkshire and Wiltshire Regiment with, in the case of the Glosters, the Devonshire and Dorsetshire Regiment, which will then merge with the Light Infantry, and, in the case of the Duke of Edinburgh's Royal Regiment, with the Princess of Wales's Royal Regiment.
"In considering how the fourth reduction should be made I have taken into account the need for additional specialist enabling support which will underpin our future expeditionary capability.
"Critical to our prosecution of the war against terror are our Special Forces. We were able to announce some improvements to our Special Forces in July. We are also looking at the broader arrangements through which the Armed Forces provide support to Special Forces operations. One option that has emerged in this continuing work is the creation of a tri-service "Ranger" unit, which would be dedicated to Special Forces support. I have decided that it would be appropriate to develop such a unit over the next few years, which would take its place alongside the other enhancements to specialist support elements of the Army.
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"The fourth infantry battalion reduction will therefore be found by removing the 1st Battalion the Parachute Regiment from the infantry structure, and using its highly trained manpower as the core of a new, tri-service ranger unit.
"The changes that I have announced today mean that the infantry will now, with the exception—for the reasons that I have already outlined—of the Foot Guards and the Royal Irish Regiment, be organised into large regiments. The seven existing multi-battalion regiments will continue. In addition to the changes I have already announced, the Royal Welch Fusiliers and the Royal Regiment of Wales will combine as the Royal Welsh. They will be known respectively as 1st Battalion the Royal Welsh (the Royal Welch Fusiliers) and 2nd Battalion the Royal Welsh (the Royal Regiment of Wales). The Staffordshire Regiment, the Cheshire Regiment and the Worcester and Sherwood Foresters will combine as the Mercian Regiment, and be known as 1st Battalion the Mercian Regiment (Cheshires), 2nd Battalion the Mercian Regiment (Worcesters and Foresters) and 3rd Battalion the Mercian Regiment (Staffords). And the Duke of Wellington's Regiment, the Prince of Wales's Own Regiment and the Green Howards will come together to form the Yorkshire Regiment and be known as 1st Battalion the Yorkshire Regiment (Prince of Wales's Own), 2nd Battalion the Yorkshire Regiment (Green Howards) and 3rd Battalion the Yorkshire Regiment (Duke of Wellington's).
"The move to larger, multi-battalion regiments is the only sustainable way in which to structure the infantry for the long term. In implementing the new system the Army will ensure that the regimental traditions, heritages, cultures and local connections will live on in the new arrangements. Golden threads of identity will be preserved within any new uniform; for example, by the retention of accoutrements, such as the Black Watch hackle. The new battalions will continue to recruit in the areas of their original constituent elements. Regional recruiting will remain in the bedrock of the British infantry.
"Nor will there be any diminution in the role of the Territorial Army and the Reserves. The TA will in future be more closely integrated with the Regular Army for both training and operations. Each of the 14 TA infantry battalions will be part of a regular parent regiment, one per regular regiment with the exception of the Royal Regiment of Scotland which will have two, and the Guards Division which will have one affiliated TA battalion. The TA is also to be rebalanced to support large-scale operations and home defence, as well as remaining capable of reinforcing regular units deploying on enduring operations. It will remain broadly the same size as today, but with a structure that is more capable and relevant to future operations. Complementing the changes to the Regulars, these changes will provide more TA manpower for specialist areas, including intelligence, engineers, the Military Provost Service and Attack Helicopter support teams.

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"TA establishments will be organised to accommodate those personnel who may not be able to deploy in support of a large-scale operation. TA establishments will also be sufficiently robust to take account of personnel undergoing individual training. The final arrangements will be the subject of further announcements in due course.
"As part of our work on the future Army structure, we have also examined the requirement for Army musicians. On the basis of recommendations made by the Army, it has been decided that there should be a reduction from two to one in the number of bands per division of line infantry and to reduce the number of Royal Armoured Corps bands from four to two. We will also be reducing the band of the Light Division by 14 posts to bring it into line with the rest of the line infantry.
"We will be trying to ensure that individuals affected by these changes are provided with the chance to retrain and re-role to take on new tasks. But the changes in the infantry and bandsmen that I have announced today will require a limited redundancy programme. The scheme will be carefully targeted at the small number of infantry personnel and Army musicians who, for whatever reason, are unsuited to be retrained and employed elsewhere in the Army. It will be designed to ensure that we maintain a balanced rank and age structure and are able to continue recruiting. Not to do so could impact on military effectiveness by creating promotion blockages. We anticipate that around 400 personnel will be affected. Details of terms and conditions will be set out in the new year.
"But, and let me be clear about this, a redundancy programme does not mean that career opportunities in the Army will be reduced. The Army will continue at around its current size. At around 102,000 strong, it will continue to require over 11,000 new recruits every year, and offer a wide range of high-quality employment and training opportunities.
"I have never failed to be impressed by the Army's professionalism, courage and determination to succeed. It is a body of men and women of whom the nation is justifiably very proud. I know that the whole House will want to join me in paying tribute to them. I am convinced—and so is the Army—that the transformation that we have set in hand is the right course for the future. The new army structure will deliver an Army fit for the challenges of the 21st century. It will preserve the vital traditions and ethos, and it will improve the lives of soldiers and their families. I commend it to the House".
My Lords, that concludes the Statement.
12.55 p.m.
Lord Astor of Hever: My Lords, to be contemplating cuts to the infantry at a time of international instability, with the threat of terrorist attacks at home on top of unsustainable operational overstretch defies logic and all the lessons of history. So what is the Government's response? Cut the infantry. This is a sad
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day. Some of our most famous regiments have been killed off. Those regiments have given outstanding service to our country and we owe them very much. I am happy to join the Minister in paying tribute to the Army's professionalism, courage and determination to succeed.
What will happen when the next important commitment comes along? How will the Army cope if we are faced with another firemen's strike or a crisis like that of foot and mouth? Ministers try to persuade themselves that the Army supports these cuts. But senior officers have expressed serious concerns to me and to other members of the Opposition Front Bench team that a cut in the number of battalions will seriously reduce the Army's ability to meet any new threats. This is being forced on the Army by the Treasury which will not fund our Armed Forces at the proper level, both in manpower and equipment, to undertake the ever-growing tasks the Prime Minister lays upon them.
What has happened since 1998 to convince the Government not only to reverse the SDR plans, but to introduce further cuts? It appears that someone here has been reading the wrong intelligence dossier, yet again. The CIA has warned that the security situation in Iraq is deteriorating. The Americans have increased their garrison in that country by some 15,000, and the MoD now tells us that our troops will remain there until 2008.
We are being pressed to increase our commitment to Afghanistan. We still have Kosovo, Bosnia, the Falkland Islands, Cyprus and Northern Ireland. And the Government's own White Paper anticipates that around the world, these obligations will increase. While we are reducing our infantry, the Americans and the Australians are increasing theirs. The infantryman is, and will remain, the most important battle and peace-winning component of our defence capability.
Clearly rotation intervals are too short. So what is the Government's response? Reduce the number of regiments available for rotation. The tour gap between operations is meant to be 24 months; currently, it is averaging out at nine months for the infantry. The King's Own Scottish Borderers had no leave after finishing in the Gulf and going to Northern Ireland.
These cuts cannot, for the most part, be ones that the Chief of the General Staff would willingly choose. Only last month, General Sir Mike Jackson said:
"I would much prefer increasing the size of the Army but that is simply not on offer".
The Army's endorsement appears to be forced, with the qualification,
"best we could hope for in the circumstances".
Such qualified acceptance is then spun by Ministers into:
"These proposals are of course fully supported by the Service Chiefs".
We are pleased that the Gurkhas have been saved and that there will not be any reduction in the role or size of the TA. We agree that there is a need for our

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Armed Forces to be more usable, and we will support the Government on ending the arms plot. We must have stability for the families. But we do not see the linkage between ending arms plotting and reducing the number of regiments
May I now ask the Minister some questions? Will these changes still go ahead if troops are not able to be withdrawn from Northern Ireland? What contingency plans are in place to ensure that troops will be made available should the security situation deteriorate once again?
Ministers have said that the infantry manpower freed up by these cuts will be re-allocated to logistical and engineer units or as intelligence specialists. Exactly how will that be achieved?
The Statement mentions new uniforms. Will the MoD be paying for these, particularly as a new service-dress uniform is being introduced in three years' time? A particular concern has been expressed to us in regard to young officers and NCOs and the cost of replacing their mess dress.
Finally, can the Minister confirm that these infantry cuts are merely the first stage of further cuts if the Treasury demands more savings?
In thanking the Minister for repeating the Statement, I invite him to go back to his colleagues and tell them that these cuts are simply not acceptable.
1.1 p.m.
Lord Redesdale: My Lords, the Minister may be surprised to learn that we welcome some of the underlying themes within the Statement—particularly if they are successful in making the MoD and the Army more effective.
The concept of regiments having one or more battalions makes operational sense. As the Statement points out, more than 11 battalions are, at any time, moving, relocating or re-roling, which must be unacceptable in today's Army. It is one of the reasons that the Army has so many difficulties with recruiting and retention, which is the major cause and result of overstretch.
The Statement mentions the issue of families. The sight of soldiers returning from Iraq—particularly the Black Watch—has brought home to us all the pressure that Army families are under at the moment. Obviously in the larger regiments it will be individuals moving around rather than units, and it is to be hoped that this will stop some of the dislocation in family life.
The Statement also refers to the size of the Army. The real issue for us is not how the Army is made up but, to a large degree, its size. Without soldiers on the ground there will be a real issue in meeting the many commitments that have been undertaken. Is the reduced size that the Army is looking to over the next year a reflection of its manned strength? In other words, will the reduction in the size of the Army reflect the reality in the Army at the moment—which is that it is running under its manned capacity?
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I ask the same question in regard to the Territorial Army. I apologise for being a couple of minutes late entering the Chamber. I was looking outside for a copy of the Statement, which I could not find. It states that the Territorial Army,
"will remain broadly the same size as today but with a structure that is more capable and relevant to future operations".
The phrase "the same size" raises questions. Does it mean the same size as its manned strength at the moment or its establishment strength? Obviously if the Minister is saying that the Territorial Army will be reduced to its present manned strength, that means there will be a cut in its establishment strength.
There has been a great deal of lobbying—I know the Minister will have been lobbied—but that process has come to an end. The interesting aspect of the Statement was the loss of the 1st Battalion the Parachute Regiment and its re-roling as a ranger unit. We will follow this development with great interest. We understand that the role of the special forces is vital, but they cannot—although it seems to be almost accepted wisdom in the press now—compensate for large numbers of troops in theatre.
1.5 p.m.
Lord Bach: My Lords, I am grateful to both noble Lords for what they have had to say. I am slightly disappointed—if not entirely surprised—by the reaction of the noble Lord, Lord Astor of Hever, who speaks for the Official Opposition but who also has a deep personal attachment to the Armed Forces. In doing what he has no doubt been ordered to do, he makes the Conservative Party look as though it believes that the Army is some kind of museum piece.
That is very disappointing indeed because Conservative governments in the past, under some Secretaries of State who are now Members of this House, were quite prepared to amalgamate regiments where it was necessary and proper to do so because that was the way in which the Army had to go.
I repeat, the infantry changes are an important part of the changes to the Army generally. It is essential that the Army changes to meet the demands of current and future operations and we must not have an army which fights the battles of yesterday. If the opportunity is not grasped now, it is our view—and the Army's view—that its war-fighting capability could be significantly threatened.
Progress in Northern Ireland has enabled the reinvestment of about 3,000 posts across the Army, especially in those trades which are in great demand. The noble Lord asked a proper question about how we will be able to place more engineers, more logisticians, more intelligence operators. These people—"key enablers" as they are described in modern parlance—are absolutely crucial if we are to continue to deliver a robust expeditionary war-fighting capability. Of the 3,000 posts that will come from progress in Northern Ireland, 2,400 will go as engineers, logisticians and intelligence operators—key enablers—to the various brigades, divisions and regiments where there have

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been gaps. This will ensure that they are better prepared for the kind of exercise that they are likely to have to carry out.
I resent—not on the Government's behalf, because we are meant to be big enough to take it—on the Army's behalf that the noble Lord begins to challenge the prospect that somehow the Army has been forced into this step by politicians. Nothing could be further from the truth. If the noble Lord had had the opportunity of listening to the Chief of the General Staff this morning he would know that that was not so. Indeed, the very idea that this particular Chief of the General Staff could be suborned by politicians into coming up with a scheme for his army that he did not like is so ridiculous as almost to pass understanding. Of course the Army Board is absolutely in favour of this because, like all Army Boards in the past, it wants to see an army for the future and the present, not one for the day before yesterday.
That is why, with the greatest respect, I advise the noble Lord that his party can shout off today—fair enough; I understand that—but, in time, it should perhaps contemplate a little more carefully what it is that both the Army and we want. There is a need for his party to accept that change is necessary.
Beyond saying that he is in favour of the change to the Arms Plot, the noble Lord has not told us whether he is in favour of amalgamating infantry battalions into larger regiments. Of course, our case is that it follows, as night follows day, that once you get rid of the Arms Plot the only sensible thing to do is to have regiments made up of more than one battalion; to have multi-battalion regiments. You cannot get rid of the Arms Plot sensibly without doing that. I am sure the noble Lord will concede that. We are not, as the noble Lord said, "getting rid of the infantry". We are merging some infantry regiments and he will see what the net result is.
I was surprised and delighted by the general support for what we are doing from the noble Lord, Lord Redesdale. It is important to see what we are doing in the context of changes across the Army as a whole. The Army has always evolved to meet current and future challenges. While the Army cherishes its traditions, it cannot base future capability on tradition alone. It has always had a proud history of embracing necessary change. That has happened under Conservative and Labour governments. It is my regret that the present Conservative Opposition are not prepared to accept the logic of this case.
1.11 p.m.
Lord Bramall: My Lords, I thank the Minister for repeating the Statement being made in another place on the most sweeping changes to the British Army, particularly the infantry. I want to make it perfectly clear that I entirely support what the Chief of the General Staff is endeavouring to do to make regiments larger—and therefore more viable—better and more consistently manned, and more operationally
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available than many regiments may have been in the past. This could have happened, as indeed it happened to some proud regiments 40 years ago. Given the hand that he had to play, the Chief of the General Staff has probably done it as well as he possibly could.
I greatly welcome what the Minister had to say about the Territorial Army and the closer link with the regiments in the various divisions. I also noted with some amusement the weasel wording that applied to the regiment of the Scottish Division, as opposed to that which applied to the King's Division in the Yorkshire, Lancashire and Mercian regiments. But one knows it is more difficult in Scotland. Does the Minister not agree that it would have been so much easier, safer for the country, and would have caused far less pain and grief to those now concerned, if, as the noble Lord, Lord Astor of Hever, said, the Chief of the General Staff had not been forced to do this while at the same time having to remove a significant number of battalions—no fewer than four—from the order of battle?
The Minister will deny it if he can, but is it not a fact that the reason for this is that civil servants in the Treasury, with no military experience at all—nor, of course, have any members of the Cabinet—have decided that with Northern Ireland more tranquil, although still not settled, four battalions that were available to be there in emergency may no longer be required in that role? They are apparently completely oblivious of the fact that, even with those battalions, the infantry was grossly overstretched, with, in some cases, tour intervals of nine months instead of two years. Many other open-ended commitments have since arisen; for example, in Iraq, highlighted by calling up more reserves. These have more than offset any easement elsewhere. With the world as dangerous and uncertain as it is, the interventionist foreign policy of this Government needs more, not less, infantry, as well as the important signals, logistic and other support services, and the enhancements that I greatly welcome.
As a result of that very academic exercise, the Treasury has put a cap on Army manpower, which can only be breached if other important parts of the defence programme, perhaps even in other services, were to suffer. So, of course, the cut in unit numbers and finding the recruits for them was all about money, whatever the Minister of Defence may say.
Does the Minister not agree that with the British Army being weakened in this way and mucked about—if I were not in your Lordships' House, I would have used an even stronger word—in morale terms, it is about time that someone found the backbone to stand up and say that at a time like this the loss of as many as four battalions is just not on.
Finally, I shall ask the Minister a simple question. In a sense I agree about bands, because the only good military bands are big bands—50 strong, that can play out of doors, in the open air, and make an impact. But can he tell me the logic of why the Light Division

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band—which plays somewhat different music from the rest of the Army and is the only band in the division for five battalions—has to lose 14 musicians?
Lord Bach: My Lords, I thank the noble and gallant Lord for his general support of the principles behind—
Noble Lords: Oh!
Lord Bach: My Lords, I do not think that I misquote him. I think he expressed his general support for much of the philosophy behind some of the changes that are taking place. If I am wrong about that, I know he will be the first to say so.
I understand the noble and gallant Lord's concerns about the infantry, but it is the view of the executive committee of the Army Board that, in the restructuring of the Army for this century, it is important not to have too large an infantry element but to spread it out across the rest of the Army, particularly because of the need for more enablers in order to conduct expeditionary warfare. So it is a deliberate policy, supported by the Army, not to have the same number of infantrymen as there has been in the past. Its view is that such a number is not necessary at the present time, nor is it likely to be necessary in the foreseeable future. That view has been clearly expressed to us.
As regards the Light Division band, we are merely bringing it into line with the rest of the infantry, so that the band will have 35 posts rather than 49. That is the answer to the specific question on the band. The noble and gallant Lord understands better than some other noble Lords the need to get rid of the Arms Plot and, thus, the need not to have single battalion regiments. That is the crux of the infantry side of this debate. But the issue is the restructuring of the whole Army. There are 10,000 changes and 94 per cent of units are affected in some way. I took from what the noble and gallant Lord said that he generally supported the philosophy behind that.
Lord Garden: My Lords—
Lord King of Bridgwater: My Lords—
Lord Truscott: My Lords—
Lord Inge: My Lords—
Baroness Crawley: My Lords, there will be plenty of time for all noble Lords on their feet to speak. Perhaps the noble Lord, Lord King, will speak first.
Lord King of Bridgwater: My Lords, first, I apologise to the Minister because I was not here for the beginning of the Statement, although the advantage of having Statements made in both Houses is that I actually heard his right honourable friend make the Statement.
I understand the arguments about the arms plot. I know that the noble and gallant Lord has continuously supported this approach. As an infantryman myself, I
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have never had much difficulty with the concept of larger regiments. I also welcome what he said about the Ghurkhas, which is profoundly right. But I regard this as the way not to handle a reorganisation that could have a lot of merit behind it. There are things that one does not do. One does not reorganise when there is a war going on. Nobody has any excuse for not recognising the sensitivity of the infantry. I had the same problem with Options for Change. Options for Change was frozen completely, pushed completely aside, because we had a war at the time. The trouble that the Government have had over the Black Watch proves to them how unwise it was to launch it at this time, and I am sure that they understand.
Secondly, one does not reorganise if there are good merits for it when Treasury pressure is obviously driving a considerable part of the exercise. We were listening to the Statement going splendidly on the logic of larger regiments, and then we suddenly started getting into the bandsmen. There are some 400 redundancies in general and then we get the most pathetic of items, an announcement about the loss of 14 bandsmen in the Light Division. I am afraid that really blew the Government's cover on that.
We all heard the Chief of the General Staff talking this morning about overstretch. I was very surprised to hear him say that there was no overstretch in the infantry and that it was only in specialised sections. At the present time, with the likelihood of increased commitments in Iraq and possibly in Afghanistan, the Government's commitment in Bosnia to 13 battle groups under the European Union, the uncertainties of the future, the commitments to homeland defence under some arrangement or other involving TA personnel, it seems incredible that the Government are proposing to cut the numbers they intended to have in the Army.
The weasel word that I heard was "rebalancing". The Government are very careful with their vocabulary, and we are "rebalancing" the TA. I am deeply suspicious about what that means.
With every government Statement, I have learnt that you need to go away, read it very carefully, have the time to consider it in more depth and listen to one or two other people telling you what it means. I am delighted that we will have a defence debate on 17 January, when we will have ample opportunity to explore very much more fully, when we are much better informed, what the Government have actually been saying today.
Lord Bach: My Lords, I am grateful to the noble Lord, who speaks with vast experience, and I hesitate to disagree with him. He says that this is not the right time. There is never a right time for making announcements of this importance, but we have to move ahead. It is critical that the Army does not get left behind. That is why the Secretary of State has said what he did today and in July.
I shall deal with only one other point that the noble Lord raised today—I, too, look forward to the debate on 17 January. I know that the noble Lord is surprised

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at what the Chief of the General Staff said on the radio this morning about the commitment of the infantry. I understand that 20 per cent of the infantry is on tour at present. That figure has not been picked out of the air; it is the right figure. It is because of that, plus the reduction in the Northern Ireland requirement—which we should be pleased about—and the increased efficiency that everyone seems to agree will result from ending the Arms Plot, that we are in a position to make this announcement today.
Lord Morris of Aberavon: My Lords, I welcome and support the broad thrust of the Minister's case for the proposals on the capability and flexibility within the larger regiment. The Secretary of State recently met a delegation comprising myself, the noble Lord, Lord Crickhowell, and my noble friend Lord Tenby on the name, future and headquarters of the Royal Welch Fusiliers. While I very much welcome the decision to retain the Royal Welch Fusiliers, I express my very grave disappointment that the Government's decision on name is, as I understand it, wholly different from their decision on the regiments of Scotland and, indeed, inconsistent with their argument on the Guards. As the Minister said a moment ago, their title and structure were taken into account.
I ask the Minister to reconsider the matter. We stress the importance of history and, perhaps much more important, the very good record of recruitment of the Royal Welch Fusiliers. I fail to understand the distinction between the Royal Highland Fusiliers (2nd Battalion of the Royal Regiment of Scotland) and why we could not have our name put first, with "lst Battalion of the Regiment of Wales" put after it. It is important for historical and recruitment purposes.
Lord Bach: My Lords, the noble and learned Lord makes his point in a very convincing way. I will take his point away but, as he knows, I cannot promise that there will be any change after these decisions. It has taken a long time to come to a final view. However, we are convinced that the important ethos of the regiments to which the noble and learned Lord referred will survive. He need have no fears about that.
Lord Garden: My Lords, the Minister has had the best part of two hours' notice of the question I am about to ask. When we look at overstretch, it is no good taking a snapshot and saying this morning that 20 per cent is away. Does the Minister agree that we have to consider the issue over a period of time? The Army objective of a 24-month interval for units between operational tours is quite clear. Can he assure the House that when all of this is implemented, in three years' time, which will give the changes enough time to go through, there will be 24 months between intervals for all units in the Army?
Lord Bach: My Lords, I am very grateful to the noble Lord for having given me notice of an important question. I cannot give him that guarantee, and he would not expect me to, but we are working towards
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that. The Chief of the General Staff said that the average across the Army—I shall come on to the differences—is about 24 months. Of course, some have done better than that and some have done worse. Indeed, some of the infantry have done worse, which I think was the purpose of the noble Lord's question. Not all the Scottish regiments have done worse, although some certainly have.
The Army has been very busy in recent months, but the changes I have described today will, we believe, enhance our deployability and not diminish it. I have not succeeded in getting across to everyone in the House the point that by getting rid of the Arms Plot, there will be more, not fewer, infantry battalions available for deployment. At the moment, there are many fewer than the 40 because of the re-roling and the moving that has to take place. Once we have got rid of the Arms Plot, many, many more battalions will be available for deployment. As a consequence, it should be easier for the 24-month gap to be maintained.
Lord Inge: My Lords, I thank the Minister for his comments. I support the enhancements, which, except for the ranger battalion, have been mentioned before in this House. I support the improvements to command and control, logistics, engineers and the ranger battalion.
Although I am sad to see my regiment change its name, I am not fighting to keep the Arms Plot. In many ways, I welcome those changes. But the Minister must have been talking to different people from those I have talked to. The infantry, the Chief of the General Staff and the people I have spoken to have made it quite clear that losing three battalions was a hard choice that had to be made to allow the enhancements to take place. The enhancements were, in their view, more important than the three battalions. If you said to them that more money was available and asked to have their three battalions, I am absolutely clear what their answer would be.
Lord Bach: My Lords, I am grateful to the noble and gallant Lord. I know that he talks widely on these matters. I simply repeat that the Army Board is fully behind these proposals. In an ideal world, where all departments of state had as much money as they wanted, of course there would be other views, but my understanding is that the Army Board and the Chief of the General Staff support these proposals.
Baroness Strange: My Lords, does the Minister agree that despite the very welcome enhancements he has announced and the very welcome salvation of the Brigade of Guards, the Ghurkhas, and the Royal Air Force regiments, this is a very sad and retrograde day for the Army, for the Government, for Scotland and for Great Britain?
Lord Bach: My Lords, I know how strongly the noble Baroness feels about these matters. She knows that I cannot agree with her, but I understand the depth and experience with which she speaks. I do not know whether it will help if I mention what

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Lieutenant-Colonel James Cowan, the commanding officer of the Black Watch, was quoted as saying in the Sunday Telegraph on 28 November. He said:
"Retired soldiers and officers are criticising the reorganisation because they feel passionately about our historic regiment. But I am passionate about it too and the changes proposed are sensible. The old soldiers should get into line with serving soldiers who are supporting the proposals. They should stop complaining and rally round in support. The time has come for peace in the regimental family".
I do not know whether that is of any assistance to the noble Baroness.
Lord Truscott: My Lords, will my noble friend the Minister confirm once more that, as he mentioned in passing, these changes will actually result in more boots on the ground, not less? Secondly, will they not reduce the frequency of relocation of Army families, which I believe is very important?
Lord Bach: Yes, my Lords, I can confirm those matters. Anyone who studies the proposals will realise that that is the case. In trying to move the Army forward to meet the needs of this century, it is important to make changes. Changes are always difficult, but it is our obligation to make them and I believe that we are making them in the right way.
Lord Elton: My Lords, can the Minister tell us whether the Secretary of State for Northern Ireland has guaranteed that the situation will remain stable there sufficient to guarantee that these changes will not prove to be a disaster?
Lord Bach: My Lords, that is obviously a guarantee that no Secretary of State for Northern Ireland, wherever he came from, could possibly give. However, a judgment must be made about these things, and anyone who has been to the Province recently knows that the position has changed dramatically over the past 10 years or so.
The noble Lord asks a reasonable question, however. All this is based on the suggestion that Northern Ireland does not revert to the position it was in some years ago. We are confident, as much as we can be, that it will not. These changes, particularly with regard to numbers, will not happen if there is a reversion to the previous situation in Northern Ireland. They are dependent on the situation in Northern Ireland continuing to improve.
Lord Murton of Lindisfarne: My Lords—
Baroness Crawley: My Lords—
Lord Brooke of Sutton Mandeville: My Lords, I speak as someone who has been in the Chamber throughout. I am conscious that on the occasion of momentous Statements, we can run beyond 20 minutes. If I may say so, the Whip gave an assurance that there would be ample time for all noble Lords to speak.
Baroness Crawley: My Lords, we shall not be going beyond 20 minutes today.
Lord Bach: My Lords, I understand that other noble Lords would like to ask questions. The noble Lord, Lord King, reminded us that we shall have a full debate on 17 January—although I do not know whether it is for the whole day or half the day. Those noble Lords who have not been able to speak today are welcome to put down their names for that debate, and I shall attempt on that occasion to answer their questions.

International Organisations Bill [H.L.]
1.32 p.m.
The Minister of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, I beg to move that this Bill be now read a second time.
The noble Baroness said: My Lords, I am pleased to have the opportunity today to introduce the International Organisations Bill to this House. It is a small but important technical Bill designed to ensure the effective functioning of international organisations and bodies. These measures are required to enable Her Majesty's Government to meet outstanding international commitments to confer legal capacity and privileges and immunities on a number of international organisations and bodies and certain categories of individuals connected to them.
Let me explain more fully the effect of the Bill. Clauses 1 to 3 concern the Commonwealth Secretariat and the Commonwealth Secretariat Arbitral Tribunal—the CSAT. As many of your Lordships will know, the secretariat is the primary inter-governmental organisation of the Commonwealth. It facilitates consultations and co-operation between Commonwealth members and provides policy advice and technical assistance aimed at promoting the well-being and development of member countries. The C'SAT is an internal arbitral body established in 1995 by the Commonwealth Secretariat to resolve contractual disputes between the secretariat on the one hand and its staff or any other person who enters into a written contract with the secretariat on the other.
The Bill will change three aspects of the privileges and immunities currently enjoyed by the Commonwealth Secretariat under the Commonwealth Secretariat Act 1966, which implements the 1965 agreed memorandum establishing the secretariat. They are as follows. First, at the moment, the secretariat has immunity from the jurisdiction of the courts in the United Kingdom subject to three specified exceptions: cases in which the immunity is waived by the Secretary-General; cases concerning motor accidents or motor traffic offences; and when arbitration proceedings are taken in respect of a written contract with the secretariat.
The last exception, concerning arbitration proceedings, has been interpreted by the courts in the UK as allowing the courts to exercise supervisory

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jurisdiction over CSAT arbitration proceedings under the Arbitration Act 1996. That particular exception to immunity will be removed by Clause 1 of the Bill, which will bring the secretariat's immunity provisions into line with those enjoyed by many other international organisations based in the UK. The new extended immunity will not apply to written contracts entered into by, or on behalf of, the secretariat before Clause 1 enters into force. For those contracts, courts will continue to have supervisory jurisdiction under the Arbitration Act 1996.
I turn now to the second way in which the privileges and immunities of the Commonwealth Secretariat staff will change. Clause 2 of the Bill will accord the president and members of CSAT the same immunity from legal process in relation to their official acts that is conferred on the Commonwealth Secretariat staff under the Commonwealth Secretariat Act 1966. The Bill provides that, if the CSAT is replaced by an equivalent successor body, an order may be made by the Secretary of State to amend the Commonwealth Secretariat Act 1966 for the purposes of conferring privileges and immunities on the successor body equivalent to those enjoyed by CSAT.
The third provision affecting the Commonwealth Secretariat is in Clause 3 of the Bill, which confers exemption from UK income tax on all staff of the secretariat in respect of salaries and emoluments that they receive as staff of the secretariat. This new exemption will not apply to pensions, annuities payments, or to income received by staff from other sources. The exemption is conditional on the secretariat establishing an internal tax system for its own benefit, as is currently the case with a number of other international organisations. That deals with the Commonwealth Secretariat and the CSAT.
I turn now to Clause 4, which deals with the OSCE. With 55 participating states, the OSCE is the world's broadest-based international security body. It is active in conflict prevention, crisis management, human rights, democracy issues and post-conflict rehabilitation. The UK is a founder member of the OSCE and we work closely with it in all areas. The Bill will bring the OSCE within the scope of the International Organisations Act 1968 and thus enable the United Kingdom to implement the political commitments that it made when it endorsed the 1993 Rome Council decision to confer on the OSCE domestic legal capacity and privileges and immunities. That will confirm our support for the work of the OSCE.
Clause 5 deals with EU bodies established under Title V—that is, "Provisions on a Common Foreign and Security Policy", or CFSP; or Title VI, which is "Provisions on Police and Judicial Cooperation in Criminal Matters", or PJCC, of the Treaty on European Union.
The Bill will add a further section to the International Organisations Act 1968 to enable the UK to confer legal capacity and privileges and immunities, by Order in Council, on bodies established under Title V or Title VI of the Treaty on European
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Union and certain categories of individuals connected with those bodies. Bodies established under Title V and some of the bodies established under Title VI of the Treaty on European Union are not covered by the European Communities Act 1972 or by its subsequent amendments.
Examples of such bodies established under TEU include: ATHENA, the EU Satellite Centre and the Institute for Security Studies. ATHENA is a financing mechanism set up to enable member states to contribute towards the financing of EU military peacekeeping missions, as the EU budget cannot be used for military operations. The Satellite Centre provides valuable satellite imagery analysis which helps the EU monitor crises across the world, and the ISS adds academic analysis and strategic thinking to the development of common foreign and security policy. The Government believe that the bodies established so far are important for the successful development of the ESDP. Under existing obligations, the UK is committed to conferring privileges and immunities on these bodies and certain categories of individuals connected to them.
Clause 6 relates to the International Criminal Court, which is a permanent court established by the Rome Statute of the International Criminal Court. The ICC is situated in the Hague. The purpose of the ICC is to try individuals for some of the most serious crimes known to mankind: genocide, crimes against humanity and war crimes. There have long been aspirations for the creation of such a court. These were given added impetus with the foundation of the United Nations in 1945 and after the Nuremberg and Tokyo military tribunals.
The ICC has jurisdiction over individuals not states. The court is able to prosecute not only those who carry out crimes, but also those in authority who order crimes to be committed, including heads of state and government officials. The ICC works as a court that is complementary to national courts. National courts retain primary responsibility to prosecute such crimes. The ICC will take over investigating and prosecuting such a crime only when the states with jurisdiction are unable or unwilling genuinely to do so.
The court is now taking its first operational steps. It has opened up two investigations into northern Uganda and the Democratic Republic of Congo. The court will have to operate in some of the world's most difficult environments, so safety is paramount. In order to ensure its staff can work effectively, they need to be granted the added security provided by the ICC Privileges and Immunities Agreement, which the United Kingdom signed in 2002. The Bill will amend the International Criminal Court Act 2001 to allow the UK to confer all the privileges and immunities necessary to fulfil its obligations under the ICC Privileges and Immunities Agreement.
I now turn to the questions raised by the noble Lord, Lord Howell, during the debate on the International Criminal Court (Immunities and Privileges) Order 2004 on 9 December. The noble Lord asked why the Government were conferring privileges and immunities by means of the ICC order when the International

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Organisations Bill was due to come before the House today. The noble Lord also asked why the Explanatory Notes to the International Organisations Bill state:
"Under existing legislation the UK is unable to confer privileges and immunities on these organisations"
when the above-mentioned ICC order was doing exactly that.
Under the Agreement on the Privileges and Immunities of the International Criminal Court of 2002, which the UK has signed, the United Kingdom is obliged to confer privileges and immunities on the court itself and on two groups of persons related to the court. The first group consists of the most senior court staff, counsel, experts, victims, witnesses and other persons involved in proceedings at the court. The necessary privileges and immunities were conferred on this group by means of the ICC Order in Council. This was the order debated in this House last week. The legal basis for the Order in Council is the ICC Act 2001.
However, the ICC Act, as it currently stands, does not allow us to confer the obligatory privileges and immunities on the second group of people, which consists of family members of the most senior court staff and states' representatives at the Assembly and other meetings and representatives of intergovernmental organisations. We therefore need to amend the Act to give us the additional power needed to confer privileges and immunities on this second group of individuals. Clause 6 of the Bill presently under discussion will secure the necessary amendment and allow the UK to fulfil its legal obligations under the ICC Privileges and Immunities Agreement. This will be done by means of a separate Order in Council once the International Organisations Bill enters into force.
We were not able to wait for the ICC Act 2001 to be amended so that both groups of people could be covered by one Order in Council because we could not be certain of securing parliamentary time for the International Organisations Bill.
As regards the question of the noble Lord, Lord Howell, about the Explanatory Notes to the International Organisations Bill, in light of what I have just said, the statement in the summary of the Explanatory Notes is certainly not incorrect. However, I concede that it might have been better expressed as,
"under existing legislation the UK is unable to confer all the necessary—
I stress the words "all the necessary"—
"privileges and immunities on these organisations".
I hope that the explanation in paragraph 8 of the Explanatory Notes is thereby clarified.
Finally, it was not possible to ensure that the ICC Act 2001 covered both groups of people because the Act was passed in May 2001 and the ICC Privileges and Immunities Agreement was not finalised until September 2002.
Clause 7 applies to the European Court of Human Rights. The court forms part of the Council of Europe. It enforces the Council of Europe's Convention for the
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Protection of Human Rights and Fundamental Freedoms, more commonly known as the European Convention on Human Rights. The court examines cases brought by any member state or any individual claiming to be a victim of a breach of the convention.
The Sixth Protocol to the General Agreement on the Privileges and Immunities of the Council of Europe confers privileges and immunities on members of the court. The United Kingdom has signed and ratified the Sixth Protocol subject to a reservation in respect of Article 1, so far as it requires the conferral of privileges and immunities on family members of judges. The Bill will amend the International Organisations Act 1968 and this will allow the United Kingdom to implement Article 1 of the Sixth Protocol fully and withdraw our reservation.
Clause 8 concerns the International Tribunal for the Law of the Sea (ITLOS). ITLOS is an international court based in Hamburg. It was established by the UN Convention on the Law of the Sea. The United Kingdom is a state party to the convention. The Agreement on the Privileges and Immunities of the International Tribunal for the Law of the Sea provides that the tribunal and various categories of individuals connected with it shall enjoy privileges and immunities. The United Kingdom has signed this agreement but has not yet ratified it because it is not possible to implement the provisions relating to the tribunal itself using existing legislation. The Bill will bring ITLOS within the scope of the International Organisations Act 1968 and enable the UK to confer privileges and immunities on the tribunal. This will allow the UK to ratify the ITLOS agreement.
I know that noble Lords will be concerned about the cost of all this. In practice, the financial implications of the Bill are minimal. The only loss of revenue that might occur would be by way of refunds of VAT on travel and incidental costs for visiting officials. We are mostly talking about visiting officials with regard to these international organisations. The only ones of any real numbers are those of the Commonwealth Secretariat. We estimate that this sum would be under £1,000 per annum. The Bill will not impose any additional regulation on the business, charities or voluntary sectors, and so will have no impact domestically.
By enabling us to confer privileges and immunities on them, this Bill will confirm our support for the work of these organisations and will be a clear demonstration that the United Kingdom is meeting its international commitments. I commend the Bill to your Lordships' House.
Moved, That the Bill be now read a second time.—(Baroness Symons of Vernham Dean.)
1.47 p.m.
Lord Moynihan: My Lords, having listened to the Minister, the International Organisations Bill is clearly worthy of broad support. It is important that the United Kingdom is able to meet its international commitments in relation to international organisations and bodies.
The world is becoming a smaller place, and our national laws and responsibilities now often have an impact on the international community. If, therefore,

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we are not to alienate international activities, we must take account of the measures within our domestic law. That is precisely what we are attempting to do today. I commend the Minister on that objective.
This is an interesting and useful Bill for another reason. Its Long Title particularly interests me, for it makes,
"provision about privileges, immunities and facilities in connection with certain international organisations".
The issue of how to treat certain international sports federations has been particularly prominent in recent times. It is on that point that I wish to concentrate today. I must admit that on my first reading of the Bill I was rather heartened because I thought that in Clause 6 the ICC accurately reflected exactly what it should have stood for—the International Cricket Council. However, I hope that there will be opportunity in Committee to amend the Bill accordingly because today I shall refer to the ongoing saga of the International Cricket Council, the members of which, I deeply regret to say, are apparently beginning to pack their suitcases as they prepare to leave Lords and head abroad. They do not want to leave Lords—it is their home and the spiritual home of cricket itself. Nor do they want to leave England for, after India, England is the world's biggest market for cricket.
However, the ICC feels that it is being forced out by the Government and in particular by the Chancellor's swingeing system of corporation tax, which currently requires the ICC to pay full tax in England for every penny it has earned around the world. Bearing in mind that the ICC exists primarily to promote the sport of cricket around the world, it appears to the world of sport to be unreasonable to penalise it in this way.
We are led to believe that UK Sport has intervened in the situation and has proposed a new tax regime for the ICC—a regime which might offer certain specific exemptions for international sporting federations. This proposal had been approved by the Department for Culture, Media and Sport, but was effectively ruled out of consideration by the Treasury team in another place an hour ago in Treasury Questions.
Today, I call on the Chancellor and the Government to think again, and to take urgent and decisive action. The Government must do whatever they can to keep the International Cricket Council where it belongs and where it wants to be. This is very important indeed. In recent times, the International Rugby Board has decamped to Dublin; the International Amateur Athletics Federation has gone to Monaco; the Table Tennis Federation has gone to Switzerland; and the International Badminton Federation is in the process of relocating to Kuala Lumpur. This is a terrible state of affairs, not only for the loss of business and the loss of prestige associated with international sporting federations, but because of what it says about the United Kingdom as a sporting nation.
This country's level of influence on the world stage of sport is pitifully low. As a nation we are under-represented on the committees and the boards of too
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many major sports. Our use of sport as a tool of international development is minimal, and our record of bidding for and staging international events is frankly unacceptable. As things stand, the ICC is one of the jewels in the UK's sporting crown. The Government should be drawing the ICC closer to them; championing it and by association championing this country as an international hub of sporting activity and excellence. Instead, they appear bent on driving it away with their blind refusal to compromise. This Bill provides your Lordships with the opportunity to reverse this trend.
The consequences will go still wider. Consider, if you will, how the ICC's departure from Lord's would play out among the 123 members of the International Olympic Committee who are charged with deciding whether London should host the Olympic Games in 2012. Consider also that in its initial report on candidate cities the IOC criticised London for its lack of experience of staging international events and for a perceived lack of government support for the bid.
I should not think that the sight of a blue riband international federation being unceremoniously shoved off to the Far East would do much to enhance London's chances. In fact, I fear that this display of obstinacy from government could go some way towards undermining all the outstanding work being done by the 2012 bid committee led by my noble friend Lord Coe, work which has our absolute, unstinting and full support. The Government have been using the Olympic bid like the sword of Damocles, telling politicians and journalists alike that if they speak or act out of turn they will threaten the bid's success. Yet, it is the ministerial team responsible for sport that has constantly failed to deliver.
Lord Hylton: My Lords, will the noble Lord reflect on whether he is in order and within the norms of this House? He is discussing sporting organisations, whereas the Bill deals with international organisations.
Lord Moynihan: My Lords, I am grateful for the intervention, but as the noble Lord will have heard in my opening remarks, I am absolutely within the order of this Bill because it deals, as the noble Lord rightly pointed out, with "certain international organisations". All my remarks are focused on international organisations of sport that are based in the United Kingdom. They come within the definition of certain international organisations. In Committee, I shall seek to amend this Bill in line with the 1968 Act, which I have reviewed in detail, to ensure that "certain international organisations" also caters for the important international governing bodies of sport; not the national governing bodies, but the international governing bodies of sport.
That is why I am focusing exclusively this afternoon on the International Cricket Council. I am grateful to the noble Lord to allowing me to clarify that point, because clearly I have looked in detail as to whether it would be in order for me to come forward with amendments to this Bill. I have taken counsel to that effect, and I believe that it is wholly proper to widen

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the bodies that the Minister has rightly drawn to our attention to include international governing bodies of sport and international federations.
Why should international governing bodies of sport be of importance to your Lordships? Why is our international reputation in sport so important? First, in the UK we have been slow to recognise the potential that our sporting traditions, facilities, prowess and experience offer for enhancing our influence overseas. The world of sport is intensely political. Bidding to host international sporting events is a process steeped in politics. In order to win the right to host the Olympic Games, international, or world championship events, strong influence on the international sporting stage, particularly through high-quality representation on international sporting bodies, is essential. Sport offers a multitude of opportunities to enhance our international reputation both at home and abroad. At present, these opportunities are being wasted. Our influence on international sports forums is unacceptably low. From the Prime Minister down, the Government need to recognise the value of our sporting traditions, facilities, prowess, and experience to our overseas influence. After all, that is what this Bill seeks to protect ill other forums of the international organisations that are based here. Clause 6 refers to an international organisation based in The Hague.
What is required, in addition to the amendments that I propose to bring forward, includes a government-backed, systematic international events policy. UK Sport has failed in that objective. It has focused too much on how many representatives we have, not on how effective and influential they are. Our most successful and influential representative is my noble friend Lord Coe, whose work on the International Amateur Athletics Federation is outside the career-planning structure of the United Kingdom. We need a new policy aimed at securing international events that will replace the world class events programme to support the bidding and staging costs of major events on home soil and to ensure that international federations are supported to stay in this country. If we provide them with support through this Bill, we will not only ensure that they can stay in this country, but I hope that we will be able to ensure that we bring additional international federations to this land.
We have a duty to enhance our international reputation through sport. This Bill provides us with that opportunity. It is appropriately drawn to allow us to move away from the list of specific organisations in the Bill to include additional international organisations. Accordingly, it is wholly proper that the Government urgently do what is required to keep the International Cricket Council at Lord's. It is wholly proper that the ICC remains in the spiritual home of cricket. The fact that it is about to leave Lord's is a tragedy in itself, but it is also part of a far broader issue. How can the Government claim to support the bid for the 2012 Olympics, and particularly the outstanding work of my noble friend Lord Coe and the 2012 committee, when they turn
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their back on the International Cricket Council and allow our influence on the world stage, which is what this Bill is about, to dwindle still further? I call on the Government to keep the International Cricket Council at Lord's and to publish a plan demonstrating how they intend to increase our international influence in sport. They can start by amending this Bill in Committee.
1.58 p.m.
Baroness Falkner of Margravine: My Lords, in broad terms, we are content with several facets of this Bill, but we feel that several other aspects need clarification. When I say "the Bill" I refer to the conventional interpretation of the Bill.
Most of my comments will deal with the Commonwealth Secretariat. As the hulk of my comments will be concerned with provisions relating to the Commonwealth Secretariat, I place on record that I was a member of the paid, full-time staff of the secretariat from 1999 to 2003. During my employment there, I was vice-chairman of the Commonwealth Secretariat Staff Association, CSSA, from 2000 to 2003. The CSSA elects its officers democratically, on the basis of one member one vote, at elections every year. My role on the CSSA was a voluntary and unpaid position undertaken concurrently with my other duties.
On these Benches, we have always supported the concept that our common good is better served by international co-operation and joint endeavour.
We recognise that working with others is better than working alone, that building alliances and entering into agreements based on respect and mutual consent is always better than going it alone and that international co-operation is the best method that we have for achieving peace and prosperity for future generations. Hence our commitment to the good governance and efficient functioning of international organisations.
The Commonwealth Secretariat is somewhat different to other international organisations, as it is unique in the closeness of its association with the United Kingdom. It was established in London, it is headed by our sovereign and is so closely bound up with our past that almost all of its countries, with the exception of Mozambique, have a tradition of government and jurisprudence related to our own and, above all, share a language and history which has been touched by our own. Therefore, we have a special duty to ensure that, whatever changes we make to the governance arrangements of the secretariat, they respect the highest traditions of good governance and employment standards that we believe in for ourselves in the UK.
I fear that the provisions of the Bill will dilute those standards rather than enhance them. I refer in particular to subsections (1), (2) and (3) of Clause 1 and to the provisions of Clause 2. The changes proposed in these clauses might serve to dilute the rights of staff with respect to their access to justice.

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In terms of background, I will briefly touch upon the nature of staff arrangements at the secretariat. Its staff, most of whom are based in London, number some 300, of which approximately half are either British nationals, non-British UK residents or dual nationals. They are appointed by the Secretary-General, with the majority on fixed term contracts of three years, which are renewable for a limited period at the discretion of the Secretary-General. Their terms and conditions are set out in rules and regulations which form part of their contract of employment. Should an employment dispute occur between a member of staff and their employer—the Secretary-General—the legal recourse for settlement is the Commonwealth Secretariat Arbitral Tribunal (CSAT), the subject of Clause 2. All members of the tribunal are appointed by the Secretary-General, who is also responsible for their remuneration. There is no independent supervisory control to ensure independence. The method for staff to enforce their rights or seek remedy for a breach of obligations is to make a claim to CSAT, where there is no right to an oral hearing under its procedures and thus no right to question witnesses. There is no right of appeal.
Under the existing interpretation of the Arbitration Act 1996, the English courts have taken the right to entertain applications from parties challenging a decision by an arbitral tribunal in very restricted circumstances on the grounds of lack of independence or bias. English courts have, therefore, in those limited circumstances, been seen as the only recourse for someone seeking to challenge a CSAT decision. We fear that this minimal safeguard of natural law rights would be removed if the Bill were to become law, because blanket immunity would be provided which would leave no scope for any redress beyond that of CSAT. It is questionable whether this situation will be compatible under the European Convention on Human Rights and we expect to question that further in Committee stage.
For the moment, it would be helpful to hear from the Minister of other examples where access to justice is similarly restricted. It would also be illuminating to hear whether, in such cases that might exist, immunities have been further extended to restrict rights since the Human Rights Act came into force. If they have, this could be a diminution of the Government's stated intention to promote a human rights culture, both domestically and beyond.
Our concern with respect to the changes set out in Clause 3 relate to equality in employment. We understand that previous arrangements for taxation discriminated against British nationals and if this anomaly will now be corrected, that is to be welcomed. We shall seek further clarification in Committee. Those are our reservations with respect to the human rights of staff employed by the Commonwealth Secretariat.
In Clause 4, which relates to the Organisation for Security and Cooperation in Europe, it is peculiar that the OSCE, compared to other international organisations, does not have legal personality. We
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understand that from its genesis, it started out as a conference but has now evolved to a situation where it has its own staff, secretariat and institutions. It would make sense to give it legal personality, as long as its flexibility, which is its much vaunted strength, continues.
Clause 5 is slightly opaque and it is unclear what the Minister envisages to be the practical application of the clause. Which bodies have been established under the provisions of the Common Foreign and Security Policy or Title VI? Are any new ones envisaged? On the remaining clauses, we understand that these are tidying up exercises and, therefore, we broadly welcome them.
In conclusion, I note the comments of the Parliamentary Under-Secretary of State at the Foreign and Commonwealth Office in his regulatory impact assessment of the Bill. Mr Rammell described it as a,
"a small, technical and uncontroversial Bill".
Small and technical it may be, but its impact on the human rights of staff, as envisaged in Clauses 1 and 2, may prove significant. The danger in lowering thresholds is that we jeopardise the principles of universality and indivisibility to which we have long adhered. We hope that that will not be the result of the Bill.
2.7 p.m.
Lord Wallace of Saltaire: My Lords, I, too, noted the Foreign Office briefing that this was a tidying-up operation, a non-controversial Bill, but I wish to peg on to our examination of the Bill some wider considerations and to argue in the opposite direction to the noble Lord, Lord Moynihan. If one is considering extending rights and privileges to international organisations, I should have thought that the example of the International Olympic Committee was not a happy one. It is a deeply corrupt body which has been through some reforms, but still—
Lord Moynihan: My Lords, I am deeply grateful to the noble Lord for giving way, but I never mentioned the International Olympic Committee because it would have been outside the remit of the Bill, as it is not an international federation based in the United Kingdom.
Lord Wallace of Saltaire: My Lords, I accept that, but I wish to argue my doubts about the emergence of a growing class of international officials in Britain, across Europe and elsewhere who are immune from domestic taxation and are beyond the obligations and protections of domestic law.
I must declare an interest. My wife is director of the Robert Schuman Centre—part of the European University Institute, which is an intergovernmental organisation set up under the EURATOM Treaty. I am part of her family. I am classified as a dependent spouse and I must confess that she receives a dependent spouse allowance on my behalf, for which I am deeply grateful. I have mixed views on her immunity from domestic taxation and on the lower rate of notional taxation which she is forced to pay on her salary. I should also declare an interest of the noble Lord, Lord Roper. The Minister mentioned the European Union's Institute for Security

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Studies, of which the noble Lord was the first director. I have no doubt that he was deeply upset by the manner in which his salary, too, was arranged under similar circumstances.
The justification for extending immunities to families, which is also included in the Bill, again seems to be questionable. There are some wider and longer term issues. After all, those of us on these Benches who are committed to the idea of a strengthened global order and higher global interdependence—which require active management—recognise that we will have a continuing proliferation of intergovernmental agencies to manage them. But that carries with it the danger that two classes of people will be operating—those of us who are subject to domestic law and pay our taxes and parking fines, and an increasing number of people who do not.
For global organisations, such as the International Criminal Court, diplomatic privileges are still necessary. I strongly agree with the Minister that the added security needed by bodies such as that are required in all member states and we cannot ask to be different. However, they are not always recognised in all member states. In late August, I found myself in the middle of a UN convoy in South Ossetia, surrounded by a group of people in Russian uniform but of uncertain provenance who certainly did not seem to regard the UN as having any privileges whatever under those circumstances. Therefore, we need that security for global organisations.
But it seems to me that, within the European Union, we should be putting down a marker about how many further agencies within the EU should have these kinds of rights and immunities. We can all agree that the EU is not a federation, but it is more than an intergovernmental organisation and it extends a great deal further into our ordinary lives. Therefore, we must question how extensive the privileges and immunities of those who work for European agencies should be.
As the Minister will know, I am a strong supporter of the further development of the European Union, but I regard the powers, privileges and status of the Commission and of many of its agencies with mixed feelings. I refer to the salaries of those involved, their access to duty-free sales and the extent to which the Commission and the various agencies are outside the remit of the employment law and regulations which the Commission itself imposes on member states and candidate countries. That is another area where Her Majesty's Government should be pushing further.
There is a real danger of a popular backlash against the emergence of this privileged elite. In this House we hear the noble Lord, Lord Pearson of Rannoch, going on endlessly about the privileged pensions received by former Commissioners. It is easy to imagine the press campaign which could build up as more and more such agencies develop. Indeed, the Minister mentioned some of them.
We now have the European Medicines Agency in London, the European Central Bank in Frankfurt, a food standards agency, which is not yet established, in Parma, the European Monitoring Centre on Racism and Xenophobia, and, under Titles 5 and 6 of the Treaty on European Union of Maastricht, a number
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of others which the Minister mentioned and which come under Europol, Eurojust, the new European Defence Agency, the EU Satellite Centre and elsewhere.
ATHENA is also mentioned in the report of the Delegated Powers and Regulatory Reform Committee. I have been trying to remember all the other activities or potential agencies that are developing within the second and third pillars. Odysseus is one of them—they almost all have Greek names. One can imagine a world in which new agencies grow up. We have the European Police College in Bramshill, in which the number of people who are, to some extent, outside the domestic law of the member states continues to proliferate a great deal. We may well wish to test that in Committee—in particular, the extension to family members of such rights and privileges.
My noble friend Lady Falkner talked in detail about the Commonwealth Secretariat, and so I shall not refer to that. So far as concerns the OSCE, the Minister will know that some of us have real doubts about its continuing value and, indeed, its uncertain status. There is clearly a case for strengthening its status and for making it a full intergovernmental organisation, but only if it is to be given the potential to play the role of a full intergovernmental organisation. As we saw at the OSCE council meeting last week, the Russian Government, in particular, seemed deeply resistant to the OSCE playing any positive role.
I say nothing about ITLOS beyond that some years ago I was privileged to attend a number of conferences on the reform of the Convention on the Law of the Sea and I remember eating the most superb seafood as I went from conference to conference. So I hope that they start again with a further revision of the Convention on the Law of the Sea.
Similarly, I query whether the European Court of Human Rights should have all the privileges of the International Criminal Court. The European Court of Human Rights operates in the European region, where its members are much less likely to have problems about their citizenship and their behaviour. The European region does operate under the rule of law, and therefore, here as in other places, we should be moving towards the assumption that, as one moves across the European Union, partly as European citizens, we do not need extra privileges in order to be able to operate.
Therefore, I ask Her Majesty's Government to take a more restrictive approach in general to the extension of diplomatic privileges. I recognise that much in that regard cannot be achieved by the United Kingdom alone but, most importantly, it should be placed firmly on the EU agenda and included in discussions on the reform of the United Nations and its agencies following the high-level panel report on UN reform.
2.15 p.m.
Baroness Rawlings: My Lords, I thank the Minister, the noble Baroness, Lady Symons, for her detailed introduction to the Bill. This afternoon's short debate has been constructive and informative.

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There is no doubt that closer co-operation through international organisations can help all the people involved in working towards meeting the challenges that we face today. We would support "mutual recognition" here rather than straight harmonisation. More importantly, we on these Benches will continue to work to ensure that within these various organisations, particularly the European ones, measures that undermine civil liberties are not extended.
We want to ensure that all the organisations and their members remain accountable for their actions. Therefore, while the Minister described the Bill as a relatively small and technical one, we shall still study all the proposed changes with great care, as she would expect.
I am afraid that today, unlike yesterday, I have many questions to which of course I do not expect an immediate answer. Having looked at the agreements referred to in the Explanatory Notes, I see that the most recent one appears to have been in relation to the International Criminal Court in 2002, as referred to in Clause 6. The noble Baroness stated that the Government are committed to providing these immunities and privileges to the specified organisations, their members, their members' families and their members' households, but that they have not had the mechanism to do so until this Bill. In the light of that, and as it is simply a "technical Bill", my first question is: why have the Government waited so long to bring it forward?
In relation to the immunities and privileges that may be awarded to bodies established under the Treaty on European Union, can the Minister, before the next stage, provide the House with a full list of the bodies to which the Bill will apply? I understand that so far the Library has been unable to find a comprehensive list of these second and third pillar European bodies.
In relation to Clause 5, I want to highlight a point that has been made before by the European Scrutiny Committee. Can the Minister explain the legal basis for conferring the privileges and immunities of the European Communities on EU bodies when the EU itself does not enjoy a legal personality? This issue has been raised by the House of Lords European Union Committee as well as by the House of Commons European Scrutiny Committee. For example, I understand from the Scrutiny Committee report that the Government wish to make the European Police College a body that will fall into this category. Can the noble Baroness inform the House whether the Government have responded to the specific questions raised by the European Scrutiny Committee and explain the effect that these orders, which were discussed last Thursday, might have on the issue?
Will the noble Baroness also assure the House that the powers provided in this Bill will not allow the Government to act in anticipation of the decision of Parliament on the EU Constitutional Treaty and any bodies that will flow from that?
Throughout the Bill, immunities and privileges are granted not only to the people concerned but also to various family members and members of their
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households. Will the Minister inform the House why that does not include civil partners, as recently enacted? We will also be looking to ensure that these immunities and privileges are limited to those recommended in the agreements; for example, with regard to the International Criminal Court, they will have privileges only in regard to customs and quick repatriation in times of crisis. I hope there is no possibility of British taxpayers subsidising shopping trips for members of these organisations and their spouses. Will the noble Baroness give a categorical assurance to Parliament that that cannot, and will not, happen under this Bill?
Clause 4 of the Bill deals with the Organisation for Security and Co-operation in Europe, which I understand includes among its members some states such as Belarus, whose record on human rights leaves much to be desired. Does the noble Baroness agree that we must be careful about giving immunities and privileges to the ruling elite of such countries, notwithstanding the signal that that gives out to those struggling, even as we speak, against anti-democratic regimes?
In the light of Article 1 of the Sixth Protocol, I understand we signed a reservation when we agreed the ECHR overall. Can the noble Baroness confirm that this reservation was included in the instrument of ratification deposited in November 2001 and that that was reaffirmed in 2003 in respect of the Isle of Man? Will the Minister please explain to the House what has happened to that reservation? Is it now changing? Why, if it is so important, was it not dealt with earlier? Will she ask the Joint Committee on Human Rights to report on this issue while the Bill is in this House? That would be in line with the committee's expressed duty to do so on all human rights treaties or amendments to such treaties.
I am sure that your Lordships will agree with me that the Joint Committee on Human Rights report will help to inform the debate, but it will not be much use once the opportunity to discuss it has passed. Can the noble Baroness also explain how tax immunities for judges of the European Court of Human Rights sit alongside Her Majesty's Government's domestic plans for judicial pensions? What exactly will the tax immunities be and how far will they extend? Will they cover, for example, share portfolios?
We shall be looking for further clarification on monetary immunities and privileges in Committee. Some have questioned why, when we have already waited so long to implement these changes, we should choose to implement them now, regardless of how low the cost is said to be. The country is already so highly taxed, with 66 new stealth taxes introduced since 1997.
It has been suggested that there are some concerns for the human rights of employees who work in the Commonwealth Secretariat as regards transparency and their ability to air grievances, and the accountability of the organisation should employees be made immune from the British court system. Will the noble Baroness please comment on that issue and reassure the House that that is compatible with the European Convention on Human Rights?

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I cannot end without a brief word on the excellent contribution of my noble friend Lord Moynihan. I fully support his views on sport. In international terms, sport is vital in so many ways for our country and for its inhabitants, although this is not the right occasion to debate that.
I have outlined some of our concerns on which we shall wish to seek detailed assurances and clarification during the progress of this Bill. We on these Benches have expressed reservations about aspects of the International Criminal Court and European bodies. Those are well known. Against that background, we intend to carry out our role as the scrutinising upper House to ensure that this legislation meets the agreements upon which it is based and no more.
2.25 p.m.
Baroness Symons of Vernham Dean: My Lords, I welcome the broad support of the House for this "useful" Bill, as I think the noble Lord, Lord Moynihan, described it. I am sorry to disappoint him, but the International Criminal Court is quite distinct from the International Cricket Council. My ICC is not based here either. As he is well aware, it is based in the Hague. His ICC has a number of issues to discuss with my right honourable and honourable friends in the Treasury and the Department for Culture, Media and Sport, but not in relation to this Bill.
I applaud the noble Lord's ingenuity, but his speech really concerned keeping the ICC and other sporting organisations based in London. His argument is that we should use the Bill to improve the financial climate for those organisations to continue to operate in this country. I understand the connection very well. Perhaps I may say why, on this occasion, we shall not be taking his advice about using the Bill as a vehicle for that objective.
The International Organisations Act 1968 concerns only organisations of which the United Kingdom as a state is a member, or organisations of which other sovereign states are members. States are not usually members of international sporting organisations. Therefore, such organisations are outside the scope of the 1968 Act. It would be inappropriate—that is the kindest word I can use—to extend the Act to those sporting occasions. I am sure that we all give the noble Lord, Lord Moynihan, full marks, as always, for very good bowling, even if on this occasion he did not claim a wicket.
I turn to the points made by the noble Baroness, Lady Falkner of Margravine, on the Commonwealth Secretariat. By conferring on the Commonwealth Secretariat extended immunity from the jurisdiction of UK courts, the Bill does nothing more than bring the immunities of the Commonwealth Secretariat into line with the treatment accorded a number of international organisations based in the United Kingdom and abroad. The noble Baroness tried to argue that the Commonwealth Secretariat was different. All these organisations are different; all of them are unique in their own way. However, it is important that we try to bring them into line with each other and do not try to
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single out individual ones for certain treatment, particularly in the way that the noble Baroness suggested.
On the issue of whether UK law applies in general, we would expect international organisations based in the United Kingdom to comply with our domestic laws and regulations as a matter of policy, regardless of immunity from the jurisdiction of the UK courts that they enjoy. I do not accept that the Bill dilutes the rights of the employees of the Commonwealth Secretariat in the way described by the noble Baroness. Far less do I accept her claim that it is a diminution of human rights.
The noble Baroness produced a number of arguments about the CSAT. In my opening remarks I pointed out that the CSAT is an internal arbitration mechanism, established in 1995. It was established to resolve contractual disputes, once a party has exhausted any other remedies available to the secretariat, and that includes staff grievance procedures. None of that excludes any of the points raised by the noble Baroness.
An important provision in the statute is the requirement that the rules of the CSAT must ensure that applications before it are,
"dealt with in a manner that is independent and impartial and consistent with the Commonwealth Harare principles in relation to fundamental human rights and independence of the judiciary".
I really think that that covers what I agree are the very important points that she raises.
The noble Baroness also asked about the bodies covered by Clause 5. I endeavoured to give examples of those in my opening remarks, but on this occasion my usual rapid rate of delivery may have been a little too speedy. Let me reiterate. The first example is ATHENA, which is the mechanism which enables member states quickly to contribute towards financing EU military peacekeeping missions. Of course, EU moneys cannot be used for that purpose unless it is specifically decided that it should be. Secondly, the satellite centre provides imagery analysis and helps us to monitor crises worldwide. There is also the Institute for Security Studies which adds academic analysis and strategic thinking to the way we are able to develop our CFSP.
Lord Wallace of Saltaire: My Lords, we may need to probe that matter a little further in Committee. I have only recently discovered that there is a similar funding mechanism within the third pillar—the European Refugee Fund. Will other such bodies also come into this category, so that we may expect more and more of these agencies to qualify for the same privileges?
Baroness Symons of Vernham Dean: My Lords, I was just coming on to that point, because the noble Lord was very clear in the question that he asked. Basically, he asked whether we needed to take a hard look at the sort of privileges and immunities conferred on the EU bodies that are established in the future and why such immunities and privileges would be appropriate. The fact is that privileges and immunities

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are conferred on organisations and bodies to ensure that they are able to carry out their functions without being impeded. That is the whole point.
The general policy of this Government—which after all goes back to the policy of the previous government in the 1980s—is that privileges and immunities should be granted primarily on the basis of functional need. So each time there is a proposal to set up an EU body, the Government take a view on whether the body needs legal capacity and/or privileges and immunities. It is only if such a need is established that we proceed to negotiate a privileges and immunities agreement.
So the short answer to the noble Lord's question is that we look at each case as it arises and judge whether the privileges and immunities are merited. We then negotiate an agreement and bring it into UK law by whatever means we can—sometimes by Order in Council and sometimes by primary legislation, as in the case of the Bill.
However, my blood ran cold when the noble Lord got to his feet and described this as "tidying up legislation". I hesitate to agree with that description; the last time a Minister did so we never heard the end of it. Especially as this Bill has a European dimension, I counsel the noble Lord to join me in using a good deal of caution with such descriptions.
The noble Lord asked why we were extending immunities to families. Where those involved are connected to senior court officials—such as those on the European Court of Human Rights—it is very important to ensure that those officials cannot be undermined by threats against close members of their families. That is why it is important to confer immunities on family members.
The noble Lord was also worried about the increasing number of people covered by immunities. In fact the Bill does not confer a huge number of immunities. Of all the bodies mentioned, the only one based in the United Kingdom is the Commonwealth Secretariat, which employs up to 280 staff. The figure is currently a bit below that, but that is the complement.
We need the legislation because of visiting members of other bodies such as the ICC, which is based in The Hague. When its officials visit this country they have to have those sorts of protections. We are talking about six international organisations, but I would not want your Lordships to think that this is a huge extension in the number of those covered by immunities and privileges. That would not be the case.
The noble Lord raised queries about the OSCE. The OSCE is an enormously important organisation. Of course we have recently had our difficulties, but, my goodness, it is a vibrant organisation, as I saw when I went to its recent meeting in Sofia. It played a vital role most recently in the elections in the Ukraine, and earlier this year in the elections in Georgia. We seek constantly and constructively to engage Russia in refocusing OSCE activity. We do not want to see any weakening of our relationship with the OSCE. I think
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that the relationship is a very valuable instrument to have at our disposal, and I hope that I shall be able to persuade the noble Lord that that is the case.
I thank very much the noble Baroness, Lady Rawlings, for her support—if not for the lengthy list of questions that she produced. I shall do my best to answer what I can of those. I assure her that this Bill has got nothing to do with the EU constitutional Bill; it deals with legislation that we need to have on the statute book.
The noble Baroness was quite searching in her questions about why we have waited so long to confer this provision on, for example, the ICC. I had hoped that I touched delicately on this issue in my opening remarks when I said that it had not been possible until now to find a legislative slot for this legislation. That is the truth. Many of us wish that it had been possible to find a slot before now, but at least we have the legislation in front of us now. So I hope the noble Baroness will be generous on that point.
As for the legal basis and why we need to deal with this matter when the EU does not have a legal personality, the bodies need legal capacity and privileges and immunities to operate. Once we have agreed to the Council decisions or other measures to establish these bodies, the UK is under an obligation to confer those under international law. I am sure that the noble Baroness will wish to probe the matter further in Committee. I am also sure that my noble friend Lady Crawley and I will have a great deal of fun in dealing with that in the future.
The noble Baroness also asked why the immunities to which I referred in answering the noble Lord, Lord Wallace of Saltaire, did not include civil partners. The aim of the Civil Partnership Act is that civil partners should be accorded parity of treatment with spouses. The Bill does not refer to spouses. The phrase used in the Bill is,
"members of their families who form part of their households".
We believe that that covers civil partners as it now covers spouses. Therefore, there is no need expressly to provide for civil partners in the Bill. We believe that other legislation has dealt with that issue.
The noble Baroness raised a number of other questions. I shall go through them very carefully and I hope to give her satisfaction in the answers I provide. I was happy to see that we agree on the excellent erudition and powerful arguments of the noble Lord, Lord Moynihan. However, I regret to say that we disagree on the appropriateness of the intervention.
On Question, Bill read a second time, and committed to a Grand Committee.

Consolidated Fund Bill
2.39 p.m.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): My Lords, I beg to move that this Bill be now read a second time.
Moved, That the Bill be now read a second time.—(Lord McIntosh of Haringey.)
On Question, Bill read a second time; Committee negatived.
Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.

Pre-Budget Report 2004
2.40 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey rose to move, That this House takes note with approval of the Government's assessment as set out in the Pre-Budget Report 2004 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.
The noble Lord said: My Lords, I welcome this opportunity to open this debate on the information provided to the European Commission under Section 5 of the European Communities (Amendment) Act. Each year, the Government report information to the Commission on our main economic policy measures.
The procedure is set out in Articles 99 and 104 of the European Community treaty, which relate to the broad economic policy guidelines, convergence and stability programmes and the excessive deficits procedure. The objective is to ensure that member states' economic policies are consistent with the goals of the treaty, including non-inflationary economic growth, a high level of employment and social protection, and better living standards for citizens across both the UK and the EU.
Those goals are consistent with the Government's own approach to economic policy. Section 5 of the European Communities (Amendment) Act 1993, usually known as the Maastricht Act, requires Parliament to approve the information sent by the Government to the Commission for that purpose. The Government's strategy for economic policy is, most recently, set out in the Pre-Budget Report, published earlier this month. This material forms the basis of the information that we send to the European Commission and is subject to the usual parliamentary scrutiny and approval. Sharing the information in the Budget with our European partners allows us to influence the development of the EU, bringing enhanced employment and growth to Britain and other member states.
The background for this debate is one in which UK gross domestic product has grown strongly over the year and the global recovery has gathered momentum, despite higher world oil prices. Although a number of risks continue to surround the international outlook, the sound macroeconomic fundamentals in the United Kingdom will help to support continued growth and stability. More specifically, not only is the United Kingdom experiencing its longest expansion since records began, with sustained growth for 49 consecutive quarters, but it managed to maintain that record during the recent downturn, while all other G7 economies experienced at least one negative quarter of growth.
Alongside that impressive growth record, the UK is also enjoying the longest period of sustained low inflation since the 1960s and, at the same time, interest rates remain low by historical standards. As a result of this strong macroeconomic framework, the Government have been able to deliver record high rates of employment and record low rates of unemployment; with 1.9 million more people in work now than in 1997.
Setting employment records is not possible without an environment that promotes business development and growth. That is why the Government have taken steps in every Pre-Budget Report, Budget and Comprehensive Spending Review to support enterprise in the United Kingdom. As a result of those policies, there are 300,000 more new small businesses in the UK than in 1997.
As always, we will continue to maintain the fiscal discipline that is at the heart of our strategy for long-term stability. In the Pre-Budget Report, the Chancellor announced that we were meeting our fiscal rules. Debt this year is forecast to be just over 34 per cent of national income, compared to 44 per cent in 1996–97, and well below the 40 per cent ceiling of the sustainable investment rule.
The Chancellor also announced that we are meeting the golden rule over the economic cycle, with a surplus in this cycle of £8 billion, including the annually managed expenditure margin. Therefore, the Treasury is able to afford all of our existing commitments abroad and at home, and yet to release extra resources for the nation's priorities in the years leading up to 2008.
Central to the Government's economic objectives is building a strong economy and a fair society where there is opportunity and security for all. The strategy set out in this year's Pre-Budget Report highlights our determination to take long-term decisions by entrenching macroeconomic stability and by building a flexible, enterprising economy with a highly skilled, high-productivity workforce and a strong science and innovation sector.
The challenge is to combine our macroeconomic stability and our new-found confidence in our economic potential with the resolve to make the right long-term choices. The challenge is to secure and maintain the stability and growth of the economy, and yet to invest more in the education, skills, science, and innovation that will drive the growth and prosperity of our future. It is to invest, also, in our vital health service and transport infrastructure, increasing the well-being and prosperity of individuals, as well as delivering for UK business; to invest, in an uncertain world, in law and order, security and defence in order to protect our citizens at home and our interests abroad; and to meet, too, our global responsibilities to others, by investing in international development and the achievement of the millennium development goals.
Productivity growth, alongside high and stable levels of employment, is central to long-term economic performance. As a result of macroeconomic stability and market failures, the UK has historically experienced low rates of productivity growth compared to other major economies. The Government's strategy to close

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this productivity gap focuses on five key drivers of productivity performance: improving competition; promoting enterprise; supporting science and innovation; raising UK skills; and encouraging investment.
Building on reforms and initiatives already introduced, the Pre-Budget Report set out the next steps. These include: giving employers access to free and flexibly delivered training for their low-skilled employees through a national employer training programme; establishing an independent review to examine future skills needs of the United Kingdom economy; reforms to reduce the regulatory burden on business; publication of the interim report of the Hampton review consulting on improvements to the current system of regulatory inspection and enforcement to reduce the regulatory burden on business; setting out the vision of how significant reductions in compliance burdens for small businesses will be delivered through integration of Her Majesty's Customs and Excise and the Inland Revenue; the implementation of the changes recommended by the Graham review of the small firms loan guarantee by the end of 2005; and implementation of the 10-year science and innovation investment framework, through strengthening the partnership with business to raise investment in UK research and development, and taking forward the recommendations of the Lambert review on business/university collaboration, including through the northern science and industry initiative.
The UK is making progress in closing the gap with France and Germany measured in output per worker. In 1995, the gap was 22 per cent with France and 8 per cent with Germany. Latest Office for National Statistics data show that the gap with France has narrowed to 13 per cent and the gap with Germany has now closed.
The Government have examined the challenges and pressures that face the nation and are determined to make the right long-term spending plans for Britain. From our position of economic stability and growth, we are in a position to invest more, not less. This summer's spending review set departmental spending plans up to 2007–08, locking in the next step change in resources delivered in the three previous spending reviews and announcing extra resources to be delivered to our priorities.
In the competitive global economy of the future, it will be the intellectual capital of our country that will drive its economic growth. It is therefore imperative that we invest in our children's education, in adult skills and training and in science, innovation and enterprise. Those are the investments that will enable us to reach our potential as individuals and as a nation, and to make Britain a world leader of the future global economy. That is why the plans we announced in Spending Review 2004 focus extra resources on delivering that investment in the drivers of our future prosperity.
To support those spending plans for the future, the public sector will be seeking, as always, to deliver value for money, to maximise efficiency and minimise waste. This will allow the Government to release additional
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resources to the frontline without compromising our ambitious programme of public service delivery. The Government, building on Sir Peter Gershon's review of efficiency, are taking further steps to identify and implement more efficient business planning and management in the public sector. The Pre-Budget Report outlines further work to secure efficient delivery of public services. That includes the publication of Sir Michael Lyons's recommendations on asset management, calling for detailed asset disposal plans.
In addition, the Government have made clear our policies to promote fairness alongside enterprise, so that everyone can take advantage of opportunities to achieve their full potential in an outward-looking, flexible economy. The reforms of the welfare state introduced since 1997 reflect aims of eradicating child poverty, supporting parents to balance their work and family life, promoting saving and ensuring security for all in old age.
The Pre-Budget Report sets out the next steps the Government are taking to support these aims, including: a 10-year strategy for childcare, setting out the Government's long-term vision of affordable, flexible, high-quality childcare and providing parents with real choices in balancing work and family life; an extension of paid maternity leave from six months to nine months from April 2007; further steps to encourage saving and asset ownership through ISAs, the Saving Gateway and stakeholder products; and a package of measures to promote financial inclusion by increasing access to banking services, affordable credit and face-to-face money advice.
The Government want all children to have the best possible start in life, with opportunities to deliver their full potential and lead a fulfilling life. We have set an ambitious long-term goal of halving child poverty by 2010 and eradicating it by 2020. Significant progress has already been made in reversing the long-term trend of child poverty.
The Government are on course to meet our target of reducing the number of children in low-income households by at least a quarter between 1998–99 and 2004–05. The most recent data show that, by 2002–03, there were about 500,000 fewer children in relative low-income households than in 1998–99.
The Government also believe that a fair society guarantees security in old age and ensures that all pensioners can share in rising national prosperity. As a result, a £50 payment will be made to households including someone over 70 in addition to the winter fuel payment in 2005, to help meet the costs of council tax and other living expenses.
Our hard-won economic stability and sustained growth allow the Government to commit to more investment in the areas that matter to this country—not less, as noble Lords opposite would have it. That investment will enable Britain to develop into a world economic leader of the new global age.
That is the programme set out in the 2004 Pre-Budget Report, and that, with the approval of the House, is the basis on which we will send updated information to the

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European Commission. We are fulfilling our commitment under the Maastricht Act to report on our main economic policy measures and are maintaining the position developed by this Government at the heart of the EU policy process.
Moved, That this House takes note with approval of the Government's assessment as set out in the Pre-Budget Report 2004 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.—(Lord McIntosh of Haringey.)
2.52 p.m.
Viscount Trenchard: My Lords, I am grateful to the Minister for introducing the debate. I tend to feel that the ostensible reason given by the Minister for the debate has little real point. We do not believe that the Chancellor cares much what Brussels thinks about our economic policy and performance, and, as my noble friends Lady Noakes and Lord Pearson of Rannoch said in our debate on 5 November, we do not care much either.
It is a great honour to speak immediately after the Minister, but I fear that to speak immediately ahead of the noble Lord, Lord McKenzie of Luton, is foolhardy. I feel rather like a marked man; he always has the last word.
It is true, as the Chancellor stated in his report to the House of Commons on 2 December, that Britain will,
"extend the longest period of uninterrupted growth in the industrial history of our country".—[Official Report, Commons, 2/12/04; col. 781.]
It is also right that we should recognise the Chancellor's wisdom in his decision to give operational independence to the Bank of England. The successful management of an independent monetary policy by the bank is one of the reasons for the basically sound state of our economy and for our continuing economic growth. However, the market reforms carried out by the governments led by my noble friend Lady Thatcher have provided a legacy of an efficient and lean economic structure that, as Anatole Kaletsky pointed out in the Times on 3 December, should enable any reasonably competent Chancellor to maintain healthy public finances and decent economic growth.
Mr Kaletsky also mentioned our third major advantage: we have an economy that is specialised in services, whereas global competition is shifting most manufacturing activity to the Far East. The French and German economies, in contrast, are more heavily dependent on manufacturing. I do not believe that it is likely that we can maintain our strong economic position indefinitely, if we withdraw completely from manufacturing. The Chancellor is right to say that Britain must invest in high value-added, high technology manufacturing, as well as services, and take the tough decisions to achieve American levels of business creation.
The Government's policies, however, seem to be designed to ensure that the state will absorb too great a proportion of our national resources. I will not dwell on the massive waste of resources resulting from the Government's obsession with the regions and regional
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government; I shall look only at national government. The massive increase in Civil Service numbers to 520,000 illustrates the point.
The Minister often talks about the Government's success in reducing unemployment, yet I have not heard him tell the House in which sector the Government have been most successful. I can tell your Lordships that it is the public sector. The large increase in public sector jobs has been paid for by the taxpayer. Tax revenues, which have already risen by £16 billion since the Government took office, are set to rise by a further £26 billion by 2006. The Chancellor optimistically predicts that, of that sum, £12.7 billion will be raised as a result of corporation tax receipts increasing by 44 per cent over the level seen in the previous fiscal year. He also believes that income tax receipts will be 16 per cent higher, national insurance 32 per cent up and stamp duty 27 per cent above last year's level.
The Chancellor needs to be unrealistically optimistic—if that is the right word—about the Government's projected tax receipts, in order to continue to claim that he will not break his golden rule. There is already a deficit of £17 billion in the current fiscal year, in spite of the Chancellor's having received a windfall of £4 billion from higher oil prices. The Chancellor believes that that will be reduced to £12.5 billion by April, but the Institute for Fiscal Studies predicts that it will have increased to £23 billion, breaking the golden rule with a year still to run.
Further, it is hard for us to be optimistic that the Chancellor will be correct in his assessment of future tax revenues. In the fiscal year ended last April, tax revenues were £9.6 billion less than the Government's forecast. Most observers predict that further substantial tax rises will be necessary in the next fiscal year.
Against that background, I fear that it will be difficult for the United Kingdom to achieve American levels of business creation. The necessary levels of corporate and personal taxation will make this country a progressively less attractive location for business investment. Another negative factor is the relentless increase in regulation emanating from Brussels. The overall share of GDP taken by net taxes and national insurance contributions by 2009–10 is stated to be 42 per cent, predicating a significant rise in the average tax rate.
There are points on which the Government deserve congratulation. Their decision to freeze fuel tax was helpful, as was the announcement that the winter fuel allowance of £200 for pensioners would be increased to £250. However, the allowance of £ 100 last year, to help pensioners meet their council tax bills, will not be paid in the current fiscal year. What the Chancellor gives with the left hand, he takes away—indeed more so—with the right.
The Chancellor has met his target on economic growth, but he has again missed his optimistic projections on revenues. Given the strength of sterling, he may not achieve the growth of 3.25 per cent that he expects for this year and next year. In that case, borrowing may need to be higher than £35 billion this year. That £35 billion is itself £8 billion—nearly 30 per cent—higher than the £27 billion that he projected in the 2003 Budget.

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The truth is that fat government costs money. The taxpayer will have to pay for it in the end. Our national debt rises relentlessly, and the interest alone on the increase on the debt expected over the next three years will cost the Exchequer another £8 billion.
It is no wonder that the Chancellor is forced to drag more and more people into the higher income tax bands and more and more estates into the inheritance tax net. The Government's failure to adjust the inheritance tax threshold to reflect rising house prices has resulted in five times as many estates being subject to inheritance tax as was the case in 1997.
I must be a glutton for punishment to return again, for the third time in six weeks, to a subject on which I was severely chastised by the Minister in his winding-up speech on 25 November. The Government still refuse to reverse or even acknowledge the serious harm done by the abolition in 1997 of dividend tax credits previously received by pension funds and charities. The noble Lord was mistaken in his claim that dividend tax credit was double-counted. The effect of the Government's act was to increase the underlying taxes suffered by bodies that are otherwise exempt from paying taxes. The current system discourages investment in UK equities by pension funds.
Furthermore, the Government's action has resulted in a vicious circle of a badly underperforming stock market and a serious pensions deficit, about which your Lordships' House is all too aware. The Minister claimed that the pensions crisis was caused in part by companies taking pension holidays. But companies were entitled to assume that their pension funds would continue to receive the dividend tax credits. The unexpected and sudden abolition of those credits directly weakened the ability of pension funds to meet expected future liabilities. Companies that took pension holidays, on the other hand, were acting responsibly. It is possible that in the event that stock markets rise significantly in future, they will again be able to do so.
The Minister, in rejecting my argument, claimed to rely on the answer given to me on 5 November by his noble friend Lord McKenzie, who always follows me in these debates. I would not wish to suggest that the noble Lord deliberately misled the House in his assertion that the previous government had anyway reduced the value of the imputation credit from £43 to £25 on every £100 of dividend received by a pension fund. However, the noble Lord omitted to mention that for every £100 of gross income distributed by a United Kingdom company by way of dividend to a pension fund, the net amount received by the fund increased over the same period by 22 per cent, whereas it has correspondingly decreased by 17 per cent under this Government. That is after taking account of the modest decrease—2 per cent—in the rate of corporation tax claimed by the noble Lord, Lord McKenzie, as a justification for the Government's action.
The noble Lord cannot have it both ways. The Government reduced corporation tax by 2 per cent but abolished the whole tax credit worth 25 per cent at the net
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level. The Conservative governments reduced corporation tax by 19 per cent—from 52 to 33 per cent—over the period and reduced the value of the tax credit by 18 per cent—from 43 to 25 per cent. Incidentally, I would also mention that the principal cause of the Treasury's current raid on other government departments—in part leading to the need to scrap four infantry battalions about which we heard this morning—to provide the £1 billion necessary to avert the need for massive council tax increases at this politically sensitive time, was that councils' mushrooming pension fund debts would otherwise have necessitated large increases.
However, we should give praise where it is due. We must welcome the Chancellor's decision not to apply his threatened further penalty on savers in the reductions in the amounts that can be invested annually in ISAs. No doubt he has been persuaded in part by the lobbying on this point over the past year and more by investors' representative bodies. But why cannot the Chancellor admit his mistake and just get on with it? Why waste time and money with another consultation exercise?
In the debate on 25 November, the Minister seemed to dismiss as unimportant the pains of stock market investors. Rather, he claimed that a,
"hugely successful series of government policies, over a period of seven years [have made] … this a better country in which to live".—[Official Report, 25/11/04; col. 254.]
It may be that the Government delude themselves and in their arrogance believe this.
But it is now clear to all that new Labour is the same as old Labour, that this Government's misguided belief that they know best, their wasteful appropriation of an ever-increasing proportion of our national resources, their failure to defend our national interests in Brussels or the freedoms and rights of minorities at home, their arrogant misuse of transitory power to destroy checks and balances in our constitution through ill-thought and ill-conceived reform and their incompetence in wrecking our pensions system and savings culture, will surely ensure that they take their place in history as a government who may have intended, as the noble Lord likes to claim, to make this country a better place to live, but were successful only in making the public sector a better place to work.
3.5 p.m.
Lord McKenzie of Luton: My Lords, it is a particular pleasure, now in accordance with established practice, to follow the noble Viscount, Lord Trenchard. I did not want to return extensively to imputation credits and rates of corporation tax and their reduction. But that must be looked at in the round with what happened in the earlier period of the Conservative government with the reduction of first-year allowances, accompanied by reductions in rates of corporation tax, to see the effective rate of tax that companies then bore.
I welcome the Pre-Budget Report, which is a robust account of the impressive economic record of the Government. It is a record that has underpinned the substantial improvement in our public services. I should

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like to concentrate my remarks on certain taxation issues, particularly bearing in mind the charge of "66 stealth tax rises", which was reiterated in another place by the Shadow Chancellor, Oliver Letwin. Curiously, it was referred to in the debate on the previous Bill about half an hour ago. In doing so, I am mindful that the setting of taxes is the prerogative of that other place, although the impact of taxation policy and the manner in which it is interpreted and portrayed is reasonably within our purview.
I have been bemused by this stealth taxes charge for a little while, so I sought out this list of 66 to better understand what is included. It can be found in a document that is promoted on behalf of the Conservative Party. It makes interesting reading. I shall comment on some of the items shortly.
We have heard before, and will doubtless hear today, the clamour for an independent review of Government projections, but sight of this list should cause us to call perhaps for the policy statements of opposition parties to be subject to impartial scrutiny to determine whether they are objective and fair.
If we are to have an objective discussion about taxation policy and the performance of the Government, we should look at those matters in the round. Surely that should recognise where taxes have been reduced as well as where the burden has been increased. It is not possible in the time available to chart all of the tax reductions introduced since 1997, but we might remind ourselves of some of them.
The legacy from the outgoing Conservative government was a corporation tax rate of 32 per cent, which is now 30 per cent; a small companies rate of 24 per cent, which is now 19 per cent; a basic rate of income tax of 24 per cent, which is now 22 per cent; and a lower rate of income tax of 20 per cent—there is now a starting rate of 10 per cent.
We have seen under this Government the introduction of the child tax credit, the working tax credit and the pension credit. R&D tax credits have been introduced for a range of companies and expenditure, including R&D spend on drugs and vaccines. Tax relief by way of enhanced capital allowances has been introduced in a range of circumstances, including investment in environment-friendly technologies and low-emission cars.
VAT has been reduced on such items as children's clothing, vehicles adapted for people with disabilities, the clearing of contaminated sites and the installation of energy-saving measures. Stamp duty has been abolished on property transactions in enterprise zones and for certain intellectual property transactions. The introduction of the taper has significantly reduced the capital gains burdens, particularly for business assets. There is more, but none of this is acknowledged by opposition parties in juxtaposition to their list of alleged tax increases.
So what is on the list? A raft of the so-called stealth tax increases are in fact anti-avoidance measures. For example—it is on the list—the denial of the opportunity for some, typically the wealthy, to escape UK capital gains tax by a temporary period of non-UK residence
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may well increase the tax burden for a few, but I doubt whether the voting public would consider this to be an imposition they would wish to see reversed. Perhaps the noble Baroness, Lady Noakes, will tell us whether this is a change of which she approves or disapproves.
Next the withdrawal of the ability of some professions to report profits on a cash rather than on an accruals basis shut down a major tax planning opportunity for some and created a level playing field, particularly for those carrying on a trade. Is it Conservative Party tax policy to reinstate this privilege for these professions?
Several references are made on the list to proposed tax increases arising from changes to controlled foreign companies legislation, but those changes are targeted at preventing UK companies sheltering profits in tax havens or low-tax territories. As these changes are clearly deprecated by members of the Opposition, do they propose to reverse them? And what about the measures aimed at stopping certain tax advantages from manufacturing dividends and the abuse of double tax relief provisions? Would they really say that these are fairly characterised as stealth taxes? Where do they stand on legislation enacted to prevent the avoidance of VAT and stamp duty? Would they challenge the Government, or do they see such provisions as measures of fairness which protect the boundaries of the tax system and which should be applauded?
The inclusion on the list as a stealth tax of provisions relating to landfill tax and the escalator is especially shoddy. These have been emphatically declared as a key part of the strategy to improve waste management. There has been no lack of transparency on the part of the Government on this matter.
Similarly, as a matter of public policy, in successive Budgets the Government have increased tobacco duties in real terms. This policy has been stated explicitly on numerous occasions. Why, therefore, does the Conservative Party claim that people are let down by Labour on this matter? Would a Conservative government, should there ever be one, continue with this approach, or not? Would they promote real increases in tobacco duty, or not? It is clear that, even on a cursory analysis of the list, this is a gross distortion of the Government's record on taxation.
The Pre-Budget Report sets out the data on tax, and in particular tabulates net taxes and national insurance contributions as a percentage of GDP. These are 35.6 per cent for last year, an estimated 36.2 per cent for the current year, and 37.1 per cent for next year. This puts the current year's projected outturn on this indicator better than half of the years of the previous Conservative government. But not only is it at least comparable, it is also a fairer system because this Government have been tough on anti-avoidance whereas their predecessors often looked the other way. It is fairer because some tax reductions and reliefs have been general and some targeted.
Changes to the tax and benefits system since 1997 have resulted in families with children being on average £1,300 per year better off, with the poorest

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one-fifth of the population being £3,000 per year better off. A single earner family on half average male earnings with two children is £3,700 per year better off. The latest available data for the EU shows the UK to levy taxes as a percentage of GDP that are significantly below the average, both for the enlarged EU and the predecessor 15 countries. All in all, this is a record of which the Government can be proud.
I should like to raise one further point. I applaud the announcements in the Pre-Budget Report relating to the settlement for local government, and in doing so should disclose an interest as a continuing member of Luton Borough Council. The settlement includes the additional £1 billion for which local government lobbied and builds on impressive levels of support in previous years. Since 1997 we have seen cumulative increases in revenue support grant of more than 30 per cent in real terms. I have no doubt that this year Labour-controlled councils will once again lead the way with the lowest council tax increases across the country.
We all acknowledge that reform of local taxation is necessary and no doubt we will have an opportunity next year to consider these matters further. It has always been the case that finding fault with successive local government tax systems has not been difficult, whether the rating system, the poll tax—particularly that tax—and now the council tax. The challenge is to determine how the system should be supplemented or replaced.
Certainly any change should proceed only after careful deliberation and analysis, and it is in this regard that I register great concern about the simplistic notion of a local income tax based on the ability to pay. A comprehensive local income tax system would have huge practical ramifications and potential costs for employers both in the public and the private sector. A non-comprehensive, watered-down system has implications for equity. I note that the example of a system promulgated by CIPFA did not include investment income as part of the tax base. Such a system might well be practical, but certainly could not be said to relate properly to the ability to pay. It would favour the rich at the expense of the poor.
If the British people are shortly to be asked to make a judgment about these matters, we are entitled to inquire of those who promote the concept about its broad parameters. Perhaps we may hear today from the noble Lord, Lord Newby, whether the tax base for the Liberal Democrat local income tax will in principle include investment income and capital gains in the tax base. Simplistic slogans will not suffice at this juncture.
3.16 p.m.
Lord Northbrook: My Lords, first, I declare an interest as an investment fund manager. I do not know whether it is going to become standard practice for me to speak after the noble Lord, Lord McKenzie of Luton, but I have to declare a measure of astonishment at some of his words on the Government's taxation policy, particularly as he seemed to ignore the huge
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increases in national insurance contributions that have taken place since the Government came to power. The Government had said that they would not increase rates of taxation at all, but national insurance should be considered part of the tax system, particularly when such contributions affect middle England, policemen, nurses and so forth. The other area where stealth taxes are particularly apparent is in the increases in stamp duty, which again hit middle England on the house-buying front. So I am slightly surprised.
As the BBC News website puts it:
"This was the Chancellor's final performance before the election and he was even more of a conjuror than normal. Despite large and growing deficits, he managed to give money away to children, council tax critics",
and to curb fuel tax increases to motorists. He also changed his mind on cutting savings limits, of which more later.
First, as always I should like to praise one or two measures in the Budget. The decision to give pensioners aged over 70 and 80 additional payments as part of the winter fuel allowance is welcome, as are the measures to extend the child trust fund scheme at birth and age seven, with certain caveats which I shall mention later.
I am also pleased that the Government are to consult on a fairer and more coherent tax system for the 300,000 smaller businesses. The Chancellor must have read my Budget speech last July, when I complained about the effect of IR 591 on smaller companies. To recap, the story is as follows.
Since 1997, the Government have encouraged the incorporation of businesses by lowering the rate of corporation tax from 23 per cent to 20 per cent. In 1999 they created a starting rate of 10 per cent, which was lowered to zero in 2002. The Government then panicked in the 2004 Budget because they felt that too many companies were taking advantage of the new system and slapped a tax on any distributions out of smaller companies, thus causing alarm and upset to those who had converted from sole traders to limited companies because they thought that the Government were promoting incorporation to favour business. Hence the promise in the Pre-Budget Report to make life easier for smaller companies, while welcome, needs to be treated with caution because the Government's record in this area is not good.
The Chancellor must also have read my comments in the same speech in July on ISAs, when I complained that the Government were planning to lower the ISA limit from £7,000 to £5,000 from April 2006. I said:
"ISAs should be at the centre of their strategy to encourage long-term savings".—[Official Report, 20/7/04; col. 193.]
Lo and behold—I am sure not as a consequence—the Government are considering extending the £7,000 limit until 2009. But why only until then? Why not make it more permanent?

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This still does not make up for the damage that new Labour has done to savings since 1997. First, as my noble friend Lord Trenchard said, the Government raided pension funds and deprived them of dividend tax credits of £5 billion a year, hoping that no one would notice. Secondly, they cut the individual tax-free savings limit from the total of £10,800 available in 1997 through a combination of general PEPs, single company PEPs and TESSAs, reducing it to £7,000 a year. Thirdly, they removed the 10 per cent tax credit available on ISA dividend income. How does that encourage people to save?
This action is reflected in the decline of the savings ratio since 1997. In the six years from 1998 to 2003, the household savings ratio has never been higher than 6.7 per cent. In the previous six years to 1997, it was never lower than 9.3 per cent.
As for the child tax credit, which I praised earlier, I see from the Times today that there may be a problem with sufficient providers in the administration system. In view of the small sum involved, I wonder whether it would not have been better to have cut tax rates.
If people are not saving, they are certainly spending. The build-up of household debt to a figure of £1 trillion is a cause for concern. The deputy chairman of the Bank of England, Sir Andrew Large, said last March that he was conscious of the build-up in household debt and,
"in particular the possibility that the potential vulnerabilities stemming from higher debt levels do in fact crystallize at some point and trigger a sharp demand slowdown that could have an impact on monetary stability".
Not only is personal debt a problem but the Government's borrowing situation is getting worse and is in danger, as has already been stated by my noble friend Lord Trenchard, of breaching the golden rule. The Institute of Fiscal Studies states that by increasing the current budget deficit forecast by £2 billion for this year and £1.4 billion next year, the Treasury cuts the margin of error in meeting the golden rule to only £8 billion, including £3.9 billion in the reserve for unforeseen spending needs.
In its press release, the IFS highlighted the Chancellor's reliance on strong tax revenues to meet his forecasts. It stated:
"Whether the improvement in the current budget balance materializes on the desired scale depends in large part whether tax revenues rebound as strongly in the medium term as the Chancellor continues to hope".
As has been stated by my noble friend Lord Trenchard, this relies mainly on a substantial increase in corporation tax receipts, which the Chancellor conceded will once again be lower than expected this year. The IFS agrees with the shadow Chancellor that if tax receipts do not meet the Chancellor's projections he will have to raise taxes.
The IFS continued:
"The Chancellor is predicting that the tax burden will rise by 2.2 per cent of national income over what is likely to be the next parliamentary term. This represents an increase in taxation equivalent to £26 billion in today's money, compared to the £16 billion seen since Labour came into office. Voters may not be so happy with these further increases in tax".
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The IFS told the Financial Times on 4 December that there is only a six in 10 chance of the golden rule being met. Carl Emmerson, the IFS deputy director, said:
"At best the Chancellor has a 62 per cent chance of success. If the trends of the first seven months of this financial year were continued the Chancellor would have only a 34 per cent chance of keeping government borrowing inside the golden rule limit".
City institutions also believe that the Chancellor has been too optimistic in his forecasts. The investment bank, Morgan Stanley, stated in its Pre-Budget Report commentary that:
"Given the current outcomes this year for spending and tax receipts there are upside risks to the Treasury's projections for borrowing in 2004–5 and 2005–6".
Credit Suisse First Boston goes further. It states:
"The authorities are nothing if not consistent. The Pre-Budget Report again asserts that the public finances are on course to improve and to satisfy the fiscal rules. The problem with these forecasts is that they simply haven't been right. The Pre-Budget Reports of two or three years ago were more than 1% of GDP out on the following year's current balance. On current trends last year's forecast looks set to go more or less the same way … Last year's budget report forecast that this year's current balance would be a deficit of some £8 billion. This year's budget raised that forecast to £11 billion and the Pre-Budget Report has now raised it to £12.5 billion. The fact is however that more than half way through the year the twelve month running total is over £12 billion higher than that and hasn't been falling at anything like the required rate".
So, in effect, that is the missing £10 billion that the authority's forecast depend on.
Even normally sympathetic newspapers such as the Times are starting to question the Chancellor's figures. Gary Duncan, its economic editor, writes:
"The red ink grows darker and deeper. So does Gordon Brown's woes over the deteriorating state of public finances … The extra red ink comes as tax revenues continue to defy the Chancellor's optimistic projections".
The OECD, in its economic outlook for the UK written just before the Pre-Budget Report, also expresses caution. It states:
"The Government deficit is likely to be above 3 per cent of GDP in 2004"—
contrary to the figures stated in the Pre-Budget Report—
"and in the absence of a spontaneous rise in taxes, additional action may be required to achieve a decisive and sustainable reduction".
In summary, I cannot approve the Government's assessment as set out in the Pre-Budget Report for the purposes of Section 5 of the European Communities (Amendment) Act 1993. I am concerned in particular about the increasing budget deficit and, contrary to the Minister, I do not believe that the extra money being spent in health and education, in particular, is being spent wisely or well.
3.28 p.m.
Lord Stevens of Ludgate: My Lords, I thank the noble Lord, Lord McIntosh for arranging this debate today. It is also a great pleasure to follow my noble friend Lord Northbrook.

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On the whole, I congratulate the Chancellor of the Exchequer on the accuracy of his economic forecasts. To forecast GNP growth to within 1 or 2 per cent is a pretty good achievement. Admittedly, the figures over his period as Chancellor have changed, but many of these were deliberate policy decisions. Despite the reservations expressed by myself, to most City journalists and economic commentators the economy has continued to expand much in line with the forecast by the Chancellor.
However, there have been fundamental changes within it and here—the Minister could not expect this praise to go on for much longer—I agree with our new European Commissioner, Mr Mandelson, that,
"we should not exaggerate our economic achievements".
After all, the Chancellor's borrowing record is pretty poor. At this stage of the business cycle one would be entitled to expect the budget to be in surplus, not in deficit. Public spending as per EU rules is rising at 6 to 7 per cent, including tax credits, and in the third quarter of this year government expenditure accounted for two-thirds of economic growth. Our trade deficit is at record levels, and with the EU our exports are lower and imports higher at a time when sterling has weakened against the euro.
Let us look at some of the main economic commitments set out in the 1997 Labour Party election manifesto: The first is to raise the rate of economic growth. Growth has slowed in relation to the last years of the Conservative government, being below 3 per cent versus 3.2 per cent then, but there has been growth. The second is to achieve economic stability. This has probably been achieved, but let us not forget a 20 per cent fall in import prices offset by a 30 per cent increase in the cost of government services. However, inflation has been controlled. The third is to broaden the UK industrial base. Manufacturing is still declining, for example, textile production is down one-third. But I have to say that I doubt whether any government could have done any better. The world is changing at a rapid pace. The fourth is to keep the tax burden as low as possible. Tax is now 38.5 per cent against 35 per cent of GDP under the last Conservative government.
The fifth is to promote savings—save to invest, not to spend. Household savings are down from 10 per cent to 5 per cent. Personal debt levels have risen by 80 per cent in the past seven years and the economy is now much more sensitive to interest rate changes than previously. More than 80 per cent of the debt is on flexible rates.
In the first 35 pages of the Pre-Budget Report, one sentence is repeated five times: talk about red tape. The sentence is:
"The UK is in a strong position relative to many other countries to meet the challenges of an ageing population".
"Relative" is not explained, but the Chancellor seems to be quite happy just to say that the UK is relatively better able. Let us examine that. It will cost taxpayers nearly £600 billion to pay unfunded pensions already promised to people on the public payroll. That is more than the
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national debt. The younger generation does not save for pensions and probably never has. They either need to spend their income or they choose to do so. The decline in the stock market and savings scandals have discouraged others, and most companies have closed defined benefit plans.
The UK stock market is one of the worst performing of the major European stock markets over recent years for the reasons clearly given by the noble Viscount, Lord Trenchard. However, the deficits in company pension schemes are not all of the Government's making. In the 1980s many companies took pension holidays, mine included, based on actuarial assumptions supported by accounting standards that have turned out to be a bit of a nonsense. For the average individual, it is too complicated and too risky to save for pensions. We must reverse the £5 billion raid on pension fund assets and make saving simpler and more tax effective.
The Chancellor talks about the need for 3 million more people to open bank accounts but, since one needs two utility bills to open one, how does he propose that those without their own accommodation do so? I would love to have an answer to that question.
Another point made in the manifesto is that there is too little investment. Increased investment is the key to future economic success. Growth slackened from 4 per cent in 1993–97 to 2.3 per cent in 1998–2002, although it is now rising.
A further point is early action to get people off welfare and into work. Our employment rate now, if you include those on benefit, is the same as most members of the EU. It is not lower. Even yesterday, the Minister for Work said that the Government have done almost nothing until recently, which is seven years later, to encourage people to return to work. However, the number of those in employment has consistently risen and the uncontrolled immigration policy—if it can be called a policy—has undoubtedly helped to stimulate the economy.
Another manifesto point was to raise productivity. Limited progress has been achieved. We are still basically slipping down the league tables, but what about the future? The UK has dropped heavily down the world education league according to the Programme for International Student Assessment. The UK dropped in the past three years from fourth to 11th in science and from eighth to 18th in maths, which is not a great prospect for productivity improvement in the future. Where did we hear, "education, education, education"?
Another point is to cut red tape. The general view now is that red tape is costing the UK economy £100 million a year. Most recent reports on EU directives are interesting. The British Chambers of Commerce calculate that for every 100 pages of regulation coming from Brussels, our civil service adds another 234. Defra manages to turn a 1,167-word EU directive into more than 27,000 words. What encouragement is all that to business, and to small business in particular? The World Bank is reported as

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saying that seven of the top regulation cutting countries last year were European, but the UK was not one of them.
The Government keep on forming new bodies to review this, as we have just heard from the noble Lord, Lord McIntosh. Every day since 1997, 15 new regulations have come into effect. For every job lost last year in the private sector, two were created in the public sector. The best way to cut red tape is to reduce the number of people who do it. The Chancellor announced last summer that he would cut the civil service by 100,000 staff—100,000 staff put on by him, incidentally. The Pre-Budget Report has a full page that tells us how 8,000 people have gone, but what about the 92,000 that have not? So far, he has relocated less than 4,000 of the 20,000 jobs in the Treasury relocation review published this summer.
Is it correct that the more civil servants a mandarin has under him, the more he is paid so that, if he cuts costs, he gets paid less? I quote from the manifesto:
"The myth that the solution to every problem is increased spending has been comprehensively dispelled under the Conservatives … The level of public spending is no longer the best measure of the effectiveness of government action in the public interest".
Enough said, I think. What encouragement is it for any business to hear from Treasury officials in a House of Commons committee that they did not know what a 40 per cent increase in their own department's running costs had been spent on?
Now to consider the Golden Rule, which most commentators think will be broken. The Chancellor's assumptions are just too optimistic. For example, he expects a growth in exports this year of 7 per cent against a growth of 2 per cent last year and zero the year before. He also expects a substantial increase in corporation tax revenue. The golden rules have already changed. While we, in our ignorance, thought that surpluses or deficits would be added up in billions of pounds and that, on this basis, the rule would be broken, the Treasury now states that the rule had always been perceived as a percentage of GDP. By doing this, of course, the earlier surpluses have a higher percentage.
The Chancellor agreed to a change in the way the Treasury calculates the depreciation of government assets, which cut several billion pounds off the current deficit. Lastly, the Chancellor could, in order to meet the rule, change the timing of the economic cycle by saying that there is more spare capacity in the economy than he originally thought. But does it really need to be met? Missing the rule slightly has no economic significance, but it still leaves the next government with an annual deficit of approximately £40 billion. The Chancellor has succeeded in turning a budget surplus into a deficit of 3 per cent of GDP, and that in a period of economic expansion. So much for the 1997 manifesto comment:
"National debt has doubled under John Major".
What he has done is better, but not enough.
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Much as I wish to thank the noble Lord, Lord McIntosh, for the opportunity to have this debate, I wonder why, at this time, it is couched only in the terms,
"for the purposes of section 5 of the European Communities (Amendment) Act 1993".
It says so at a time when other countries are flagrantly breaking the stability and growth pact, which even Mr Prodi regards as a nonsense. France and Germany are in breach of the growth pact after some sleight of hand (for example, bringing in future revenues early—shades of Associated Fire Alarms some years ago), Greece is being sued by the European Commission for disguising its true deficit, and the Italian and Portuguese figures are generally regarded as unreliable.
Now the Europe Minister in another place is quoted as saying that entering the euro system is "economically irrelevant" and that Downing Street is "making a fetish" of the currency. I agree with him. Let us not make too much of a fetish of satisfying the European Union on our economic policies.
3.40 p.m.
Lord Newby: My Lords, in at least two respects, the Chancellor has been true to form with the Pre-Budget Report. I refer first to the sheer volume of material that has been produced. In addition to the 250 pages of the main document, noble Lords will, no doubt, like me, have staggered under the great bulk of other documents produced on the same day. I wonder whether the Chancellor regularly watches "Yes, Minister". It reminds me of the marvellous episode in which a key increase in Permanent Secretaries' salaries was buried in the 75th annexe of a series of documents several inches thick which Ministers were being expected to approve on the trot. I wonder what nuggets there are in some of the other documents we have not yet had time to read, far less debate. No doubt, we will all be enlivening our Christmases by reading them.
The Chancellor made the Statement with absolute certainty regarding every assertion. He is very fond, as we know, of setting economic tests for matters European. I have 10 tests which I suggest the Commission might apply to aspects of this Pre-Budget Report in order to assess the credibility and robustness of the assumptions the Chancellor makes.
First, as a number of noble Lords have said, the Chancellor states that the deficit on the current Budget will be £12.5 billion this year. Two thirds of the way through the year, it is already some £17 billion, and most commentators expect it to be significantly greater rather than smaller by the end of the year. The noble Viscount, Lord Trenchard, mentioned the IFS estimate of a deficit of £23 billion. This week the British Chambers of Commerce suggested that it might be £20.4 billion. Either way, only the Chancellor and his Treasury officials believe that it will be anything near as low as £12.5 billion.
The second issue is tax take. There are a number of severe question marks against the assumptions, but I think that the corporation tax take projections take

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the biscuit, as the noble Viscount, Lord Trenchard, mentioned. They assume, as he said, that for this year, the take will be 25.5 per cent higher than for last year—twice the level of increase we have seen so far this year, so there is a long way to go. They also assume that this will rise to a staggering £41.3 billion in 2005. That is not just staggering, it is incredible.
Looking forward, I hope that the Commission will look very seriously at the third issue, the Chancellor's growth forecast for next year. He predicts growth of between 3 and 3.5 per cent—again, significantly higher than many other forecasters. Again, the British Chambers of Commerce this week suggested that it would be 2.4 per cent—very significantly less.
Let us look at where this growth might come from, because there is a series of other uncertainties and questions in the fourth area of consumer expenditure. In the next year, will consumer expenditure be the motor of growth as it was this year and last year? Consumer expenditure fell in October, and with static or falling house prices, my view is that it is likely to be static or falling in the medium term.
The fifth issue is industrial output. In October, industrial output was down for the fifth successive month. Why does the Chancellor think that there will be a big turnaround?
The sixth issue is export growth. As the noble Lord, Lord Stevens of Ludgate, pointed out, the Chancellor is assuming a 7 per cent growth in 2005 against export markets growing by 8 per cent. Yet in this year, export markets grew by 9 per cent, but our exports will grow by only 2 per cent. Somehow, the Chancellor expects a very significant change to take place in our ability to export between this year and next. However, October's trade figures bring the first 10 months to a shortfall of £48.8 billion, the worst since records began in 1697.
The Chancellor is rightly proud of some aspects of our economic performance, and tends to refer back to how we are doing better than when records first began. Amazingly, the trade deficit, or the trade situation, has escaped his eagle gaze. But the trade deficit is now equivalent to 5.5 per cent of our GDP, almost as big a proportion as in the US. We worry about the US trade deficit. Over the past decade, we have hardly worried at all about our trade deficit, but as it is growing significantly, year on year, I fear we may need to start worrying about it again.
It is a particular worry to me that the Government appear not to be putting the effort into promoting trade in the fastest growing markets. Our European partners, France and Germany, have been sending their Prime Ministers to China with huge trade delegations in recent times. I believe that the Chancellor has never been to China, yet it is a massive potential market which, all the evidence suggests, Britain is doing relatively little to develop.
My seventh question for the Commission is about exchange rate volatility. This is not discussed in the Pre-Budget Report. Do the Government have a view on whether exchange rates matter? The fall in the dollar will almost certainly depress export opportunities further.
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There are also signs that the flow of Far Eastern funds into the US may be reversing with the euro-zone and sterling being seen as better opportunities against the falling dollar. So the degree of volatility we have seen up to now is, I suspect, far from coming to an end.
My eighth concern relates to inward investment, which we have discussed in your Lordships' House a number of times. The latest figures show a further fall, so we now have a pattern of falling inward investment over a number of years. I suspect that the noble Viscount, Lord Trenchard, will put this down to growing red tape, bureaucracy and high taxation. I also suggest that the fact that we are not in the euro-zone might also be relevant.
My ninth thought relates to the risks associated with the rise in household borrowing. The Bank of England warned this week that the continuing rapid rise in household borrowing poses a potential threat to the economy in the longer term. It is now 140 per cent of income. It is a higher level of borrowing than in the US, for example, and much of Europe. Unsecured borrowing is rising particularly rapidly. This appears to be a risk. Does the Chancellor agree?
My final area of uncertainty relates to efficiency savings, on which the Chancellor places great store. The question is whether these are real. Of the £2 billion allegedly saved so far through efficiency savings, apparently 40 per cent has been saved because IT projects have been delayed. How is that an efficiency saving? According to John Oughton, it is an efficiency saving because it has avoided cost overruns. This is wonderful logic—Lewis Carroll is alive and living in the efficiency unit.
Further proposals for efficiency and their definitions look equally dodgy. I particularly like the idea that if the MoD reduces the number of submarines and patrol vessels in operation, that counts as an efficiency saving. The Commission might like to have a look at that.
If there are all these risks, how should they best be assessed? As far as the Government's tax and expenditure is concerned, as your Lordships know, we have proposed introducing a new requirement on the National Audit Office to review them. I am delighted that the Conservatives have belatedly come to the same conclusion and I hope that the Minister does not repeat his canard that the NAO can do that already. He knows that the NAO audits only a few carefully selected variables—carefully selected by the Government—and leaves most of the contentious issues untouched. Given the particular uncertainties about the future of corporation tax take, it would be appropriate for the Chancellor to ask the NAO to look at corporation tax assumptions in the next Budget. I hope that he will do that.
I have a further suggestion for the Chancellor which I hope that he will pass on to his Treasury colleagues. The Government are in the process of introducing operating and financial reviews for all quoted companies, with the purpose of enabling shareholders and other stakeholders to assess the companies' strategies and potential to succeed. The OFRs will require companies to list the

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risks they face that could jeopardise their plans. The Chancellor, by contrast, almost completely ignores the risks associated with his policies. To listen to the Pre-Budget Report, noble Lords would think that he lived in a risk-free sunlit upland. The one paragraph on risk in the Pre-Budget Report refers only to risks caused by rising oil prices and comes to the satisfying conclusion that the downside risks may well be balanced by offsetting benefits.
As we are clearly facing such significant risks, I suggest that the Chancellor introduce a proper risk assessment into the Budget Report next spring. If he does not know where to start, I suggest that he looks at the Accounting Standard Board's exposure draft on the reporting standard for the operating and financial review.
The noble Lord, Lord McKenzie of Luton, asked me a specific question about the council tax. I hope that we will have the opportunity to discuss council tax again as part of the debate of the noble Lord, Lord Blackwell, on taxation in early January, not least because I would like to probe with him why the Chancellor decided to make a panic raid on a whole raft of departmental budgets to inject £1 billion into local council expenditure next year in order to avoid an electorally disastrous increase in council tax.
There are clearly growing uncertainties facing the economy and the Government's taxation estimates. The Chancellor would be doing a great service by acknowledging the uncertainties rather than, as in this document, ignoring them.
3.53 p.m.
Baroness Noakes: My Lords, I have enjoyed this debate. In particular, I have enjoyed the continuing exchanges between the Benches opposite and my noble friend Lord Trenchard on the tax raid on pension funds. I am persuaded by my noble friend's forensic analysis and I hope that the usual channels will ensure that my noble friend gets to speak after the noble Lord, Lord McKenzie of Luton, next time, so that he has the contemporaneous right of reply.
Here we are again debating a Maastricht Motion. My noble friend Lord Trenchard has already said that we do not think that this is a meaningful activity. One of the few things on which we agree with the Chancellor is the folly of the UK joining the economic and monetary union. Of course, the Chancellor does not publicly say that it is folly, but he has been especially skilful—and I pay tribute to him—in preventing any serious moves by the UK to join the euro-zone. He knows, as we do, that the UK economy will prosper better outside the clutches of the European Central Bank and all the other trappings of euro entry, and long may that remain.
Let me be clear: I shall not be arguing that there is a crisis in our economy. My noble friend Lord Trenchard has already noted the excellent legacy left by my party and the current Government have so far continued to achieve a stable and growing economy. However, I say four things: first, that the Government have wasted taxpayers' money to an unacceptable degree; secondly,
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that they have increased taxes, largely by stealth and will continue to do so; thirdly, that they have over-regulated the business sector and thereby damaged our international competitiveness; and, lastly, that the figures presented by the Chancellor are at best optimistic and at worst misleading.
I will start with waste. The Chancellor has ramped up public expenditure without ensuring that the money was well spent. He has often claimed that he would give extra money only in return for reform in public services, but in practice he has scattered taxpayers' money regardless of the value for money return and bureaucracies have thrived. In the NHS, far more administrators have been added to the payroll than nurses. In our schools, only one quarter of the extra staff since 2000 are in frontline teaching jobs. Public sector sickness absence is on average 40 per cent worse than the private sector and in some cases twice as bad. Therefore, public sector productivity has fallen in the past five years—on any measure yet produced—and we have a Civil Service the size of Sheffield.
Sir Peter Gershon's analysis is that over £20 billion of waste exists in the public sector. We believe that that is a conservative estimate. The independent analysis undertaken by David James for my party shows a higher figure. However, the crucial question is whether this Government will deliver the £20 billion. So far, the omens are not good. For example, the CBI has described the detailed plans as "confusing and vague".
The noble Lord, Lord Newby, has already referred to the smoke and mirrors of the money that has already been claimed to have been saved in 2003–04, but not a single job has been reported as being cut. In the July spending review, the Chancellor announced job cuts of 84,000, but they were really only 70,000 because some were re-allocations. But 70,000 would be better than nothing if they were ever realised. I invite the Minister to tell the House precisely when we can see these reductions occurring in terms of fewer civil servants overall.
Turning to the question of taxes, there is no doubt that the Chancellor has been raising taxes since he came to power. We have identified 66 stealth taxes to date and only a U-turn late last week prevented the 67th in relation to the taxation of orphan assets. I listened carefully to the critique of the noble Lord, Lord McKenzie, but my noble friend Lord Northbrook rightly cited the national insurance increases and stamp duty increase. I would add council tax increases and, of course, the pension fund raid. The plain fact is that the average household is now paying £5,000 more in taxes than in 1997.
Lord McKenzie of Luton: My Lords, would the noble Baroness still contend that each of the 66 items on the list that her party has produced are properly characterised as stealth taxes, especially given some of the points that I made earlier?
Baroness Noakes: My Lords, the noble Lord, raises an interesting question. When he raised it, I asked for the list of the 66 to be sent to me, which I have received. I have not had a chance to look at it in detail, but I do

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not recognise what the noble Lord was saying to the House in his critique earlier, and pro tem I will stick by 66 stealth tax increases.
It is not only the tax taken to date. The Pre-Budget Report shows more tax rises. Council tax receipts are shown to go up next year by 8 per cent, which is six times the rate of CPI inflation and nearly three times the rate of increase in pensions. Income tax is expected to rise next year by 8 per cent and national insurance by 6 per cent, but earnings have recently been growing at less than 4 per cent.
Looking further forward, the rate of tax as a percentage of GDP is set to rise steadily, from 35.6 per cent last year to 38.4 per cent in 2009–10. Slowly but surely, the Chancellor plans to turn ours into a high-tax economy. There is absolutely no doubt that there will be tax rises in a Labour third turn; that is something that no Treasury Minister has yet denied. The only question is about the magnitude of tax rises. We believe that the PBR, through the use of optimistic assumptions, understates the amount of the tax raid that the Chancellor really plans.
We believe in lower taxes, not only for their own sake but because we believe that a lightly taxed economy is a healthy economy. We do not have an opportunity to examine that issue in detail today, but I am glad that my noble friend Lord Blackwell has secured a debate on the virtues of a low-tax economy early in the new year. I look forward to that.
I shall not dwell overlong on the over-regulation of British business, as my noble friend Lord Stevens of Ludgate has already dealt with that matter. He referred, for example, to the average of 15 new regulations for every working day since 1997. Normally when Members of these Benches say that, noble Lords opposite jump up and say that some of those regulations are not real burdens on business, so the ones that do affect business are all right. But it would be interesting to see what noble Lords opposite say to the fact that the daily rate of regulation shows an increase of 53 per cent over the whole period 1979 to 1997. Regulation is increasing. It is no wonder, therefore, that we have been slipping down the international competitiveness league tables, that our productivity figures lag behind those in the United States or that inward investment has slumped.
Before leaving the subject of business, I refer also to the damage that the Government have done to the manufacturing industry. Between 1993 and 1997, 179,000 manufacturing jobs were created. Since 1997, 865,000 manufacturing jobs have been destroyed. I searched the PBR for something among the plethora of views and initiatives that might address the future of our manufacturing sector. I found nothing, so I conclude that the Chancellor is indifferent to the fate of the manufacturing industry. Perhaps the Minister would like to say something about that matter.
Lastly, we come to the figures themselves. As many noble Lords have already pointed out, there are no commentators who believe that the Chancellor's figures stack up. They all believe that the "golden rule"
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will be broken unless there are tax rises, and that that may well occur before the end of the current economic cycle. My noble friend Lord Northbrook dealt comprehensively with that issue.
The PBR is littered with claims that the Chancellor is using NAO audited assumptions. The noble Lord, Lord Newby, referred to that area. If I were the Comptroller and Auditor-General I would be pretty angry about that. On the basis of the work that the NAO has done, no commercial auditor would allow its name to be associated as it is in this PBR. The truth is that the so-called audit of assumptions is a highly selective exercise, examining only what the Chancellor wants examined. It is carried out over a three-year cycle, and no work whatever was done by the NAO on the figures actually used in the PBR. For example, it is true that for the 2002 Budget the NAO examined the trend of GDP growth figures. But that work can in no way be taken to endorse the actual and critical GDP growth projections used in this PBR. The fact that the NAO examined something a couple of years or even six months ago is simply not relevant to figures prepared this month.
It is damaging to the standing of the UK if the Chancellor stands accused of using numbers that suit his own ends. That is why we believe that it is time for public finances to be independently forecast. My right honourable friend Mr Oliver Letwin, the shadow Chancellor, announced last week our proposals to create a fiscal policy committee within the NAO, which would take responsibility for economic forecasts and projections. Those policies, which are similar to but not the same as those of the Liberal Democrats, would put an end to the possibility that the books could be cooked and would enhance the credibility of economic analysis. It might also shed some light on issues such as exchange rates.
Earlier this week, the Minister refused to answer my question to him on what exchange rate assumptions were used in the PBR. He said that we could debate the matter today—so I would like him to tell me today what exchange rate assumptions were either input as an assumption to the Treasury model or produced as the output to the model. The figures for the dollar and euro exchange rates for the next fiscal year will be fine for today, if the Minister does not have all the data with him.
The Government might be proud of this PBR, but we are not. It tells the story of an economy which has rising but inefficient public expenditure being financed by rising taxes. It is based on some questionable figures and fails to address some wrongs already inflicted on our economy. I hope that members of the commission, when reading the PBR, will have alongside them the edition of Hansard containing today's debate, so that they can see the real story.
4.6 p.m.
Lord McIntosh of Haringey: My Lords, have you noticed something? Have noble Lords noticed that every single speaker from the Conservative Benches has started by congratulating the Government on the economic

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figures in the Pre-Budget Report? They all then go on, like Lilliputians attacking Gulliver, to attack individual issues in the Pre-Budget Report. Of course, that is legitimate and, of course, I shall reply to those points. Perhaps the noble Baroness, Lady Noakes, did not congratulate us—that is not her style. But she said that she did not challenge the fact that the economy was strong.
Baroness Noakes: My Lords, I said that it continued to be strong.
Lord McIntosh of Haringey: My Lords, "continued to be strong" will do for me.
Have noble Lords noticed something else? Every single one of the three Back-Bench Conservative speakers complained about having to speak either before or after my noble friend Lord McKenzie. They would much rather that he did not speak at all, while I would rather that he spoke before and after each one of them. On every occasion he knocks the stuffing out of their arguments in a way which is becoming familiar to those who have had the pleasure of listening to him.
The noble Lord, Lord Newby, has not quite caught up yet. He has talked about storm clouds and given dark warnings about the economy for years and years. Now the best he can say is that there are growing uncertainties. At last I can agree with him. Of course, there are uncertainties; this is an uncertain world. The global economy is full of uncertainties. We have said that in Budget speeches and Pre-Budget Reports for a very considerable time. Perhaps within the next few years the noble Lord, Lord Newby, might also recognise that the economy is strong and that the policies of this Government have contributed to the strength of the economy.
When they cannot really attack the performance of the economy, noble Lords opposite have to fall back on attacking the economic forecasts that the Government make. They claim variously that the average of the Government's forecasts is more optimistic than those of independent forecasters. Sometimes—I did not note which noble Lord said this—they say that they are more optimistic than all the other forecasters.
The noble Viscount, Lord Trenchard, may have referred particularly to forecasts of revenues. I have to point out to him that what the Government are forecasting concerns net borrowing, which is, of course, the difference between revenues and expenditure. If you do not get either revenues or expenditure right, you will not have a correct forecast of net borrowing. The Treasury's forecast differences for net borrowing have tended to be smaller than those of the OECD, the IMF and the European Commission. Our forecasts have, on average, been cautious. They have deliberately indicated a growth of 0.25 per cent below the central estimate. The result of that has been that the Treasury's growth forecasts have been very close indeed to the average consensus of independent forecasts. Those independent forecasts
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show that the hard-won platform of stability is expected to remain in place, confirming the credibility of the new macroeconomic framework.
It is all in the Pre-Budget Report. The record of Treasury forecasts as compared with those of other forecasters stands up very clearly. I am afraid that the selective quotations which have been used against it are not particularly effective. The result is—and this time no noble Lord has attempted to deny it—that we are meeting both parts of the fiscal rules. Because of the cautious assumptions we are making, public sector net debt is low and stable at just over 37 per cent of GDP. The average annual surplus on current budget over the whole economic cycle is projected to be 0.1 per cent of GDP, ensuring that the Government are meeting the golden rule. No other G7 country has had lower average debts and deficits since 1997.
I refer to the attack which says that the fiscal rules have been redefined. That is simply not the case. It is not just the Treasury Select Committee that says so: Martin Weale, Goldman Sachs and the Institute for Fiscal Studies have all recognised that the methodology for the fiscal rules and the methodology for dating the economic cycle—which are all in the public domain—have not changed and have not been seriously criticised.
The noble Lord, Lord Stevens, seems to object to the calculation being made on the percentage of GDP. What else should it be made on? Should it be made on some out-of-date figure that does not change?
Lord Stevens of Ludgate: My Lords, I think it will be generally accepted that most people were under the impression that it was an absolute figure, such as £4 billion, £6 billion or £8 billion, and that it was not a percentage of GDP. My point is that it was generally accepted as that in my opinion. The Government now explain that it is meant to be a percentage. The answer to the noble Lord's question is that I thought it was an absolute figure, and I believe that most other commentators did as well. If you take an absolute figure, you are already in breach of the golden rule. But as I said, I do not consider the golden rule to be important. If I may correct the noble Lord, I did not comment on the noble Lord, Lord McKenzie; in fact, his name did not come into my speech.
Finally, I hate to make a speech, but regrettably I am not a Conservative Back-Bencher. I no longer take the Conservative Whip; I am a party of one called the Conservative Independent Party.
Lord McIntosh of Haringey: My Lords, on that final point I certainly beg the pardon of the noble Lord, Lord Stevens. I was confused by the position in which he chooses to take his seat in the House, which is, he will admit, surrounded by Conservative Back-Benchers, when there are any there, of course; there are not at the moment.
No, I do not agree with the noble Lord. It is not generally thought that the correct measure is an absolute figure rather than a percentage of GDP. If the noble Lord looks back over not just the period of office

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of this Government, but the previous administration, he will find that the calculation has always been as it ought to be; on the percentage of GDP. That is the basis on which we have been calculating the fiscal rules since the beginning. I am sure that Conservative Chancellors have done the same.
The noble Viscount, Lord Trenchard, thought that national debt was increasing relentlessly. Now I understand that he thought that we were talking in absolute terms rather than as a percentage of GDP. In fact, the figure of 37 per cent in 2003 is considerably lower than it has been in previous years. Now that I understand what party he belongs to, I understand why the noble Lord, Lord Stevens, queried the other member states' observance of the stability and growth pact. I hope that he will be pleased with the conclusions from the November ECOFIN, which turned out in the end to agree with what the Chancellor has been saying for many years, that you need a prudent interpretation of the stability and growth pact that takes local circumstances into account. He will agree that that is an improvement on the rather more rigid interpretation.
A number of comments were made about taxation. I have now finally solved the 66 stealth taxes. It is clear to me for the first time that the noble Baroness, Lady Noakes, is confusing tax rates with tax yield. The examples that she gave were about increased yield from taxes on which there is no increase in tax rate. If you cannot tell the difference between tax yield and tax rate, all sorts of consequences flow from that.
I suppose that is how she can get to her figure, which I deny, that indicates that the average household is now paying more in taxation than at the beginning of this Labour Government. If you take, as you should, tax and benefit together, in 2005–06 the average household will be paying £800 a year less than in 1997.
I agree with the noble Lord, Lord Stevens, that investment is never high enough. On the other hand, for the most recent year for which we have measures, there has been an increase in investment of 6 per cent. That is a welcome turnaround from far too many years of low investment.
The noble Lord, Lord Northbrook, asked me about savings ratios and what we were proposing to do about them. There are two answers to that. First, savings ratios are not the only measure of a sound and stable economy. Savings ratios tend to be lower when there are lower levels of return on savings, lower interest levels, and a more stable economy. Despite that, our stakeholder products, our individual savings accounts, our matching and saving gateway and our child trust funds are all activities designed to increase savings.
If we look at the economy as a whole and take an overview, it ought to be recognised, and it was not seriously challenged in debate, that the UK economy has benefited significantly from the improvement in global conditions because of the domestic stability that has been delivered by this Government. This year has been one of particularly fast global growth; the sound domestic economic fundamentals have allowed the economy to
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grow strongly and at above trend rates. Unemployment rates are at record lows; inflation is low and stable; and interest rates remain low by historical standards. The Government are meeting their strict fiscal rules under any of the assumptions that we make.
I was interested in what the noble Lord, Lord Stevens, said about exporting. Exports—and a majority of exports from this country are of manufactured goods—are up by 4.2 per cent in the last year that we can measure.
A number of noble Lords made comments about employment and the labour market, and particularly about what the noble Viscount. Lord Trenchard, called the rise in public sector employment. Well, of course there are different kinds of public sector employment and I take it that the noble Lord deplores the increase of 20,000 in the number of doctors and 70,000 in the number of nurses, just as much as he would deplore any increase in the number of civil servants. If he does not, then he should not use the public/private sector divide in the way that he does. In answer to him, the biggest feature in the increase in employment in this country has been the New Deal—1,160,000 young people have benefited from the New Deal and its effect has been a decrease of more than 75 per cent in the long-term unemployed for both those aged 25 and over and younger people.
The noble Lord, Lord Stevens, rightly drew attention to the problems of an ageing population, but he will agree that we were not saying that it was not a problem, but that we were better equipped to deal with it than some of our competitors in other countries. We have done that because we have a strong pension regime and more funded pensions than many other countries.
A number of observations were made about debt and housing finances. It is true that there has been an increase in household debt, as the noble Lords, Lord Northbrook and Lord Newby, said. But that is in circumstances of lower and stable inflation and of low mortgage rates. The result is that household balance sheets are stable, as they have seldom been before, and that interest on debt is, on average, 7.6 per cent of household income compared with the figure in 1990, for example, of 15 per cent. Under those circumstances I do not take the apocalyptic view that, in macroeconomic terms, is taken about household debt, although of course I recognise the social problems which can be brought about in individual households who are suffering from excessive debt.
A number of comments were made about the business and manufacturing sector. In a situation where, in summary, a majority of our exports are of manufacturing goods and our exports are up by 4 per cent over the past year, the decline in employment in manufacturing to which the noble Baroness, Lady Noakes referred—she is quite right and she does not get her figures wrong, merely the interpretation—is deplorable and it would be desirable to reverse it. However, on the whole, our manufacturing industry is performing well.
Regarding questions about what exchange rate assumptions would be made, I said in the rarefied atmosphere of Starred Questions, where I am supposed

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to respond in 75 words, that it was not appropriate to deal with the matter. The sterling exchange rate forecast in the PBR is made on the assumption that the exchange rate grows in line with an uncovered interest parity condition. As the UK currently has higher interest rates than a weighted average of other major economies, this condition results in sterling depreciating by around 3 per cent per annum in 2005 and 2006. I do not understand that and I shall find out what it means and write to the noble Baroness, Lady Noakes.
Baroness Noakes: My Lords, that has saved me from intervening.
Lord McIntosh of Haringey: My Lords, I thought that that would save time. I have taken more time than I should, but before I sit down I wish briefly to refer to the issue of efficiency and efficiency gains.
I was asked a number of specific questions by the noble Baroness, Lady Noakes, about the timetable for the relocation of staff out of London and the gross reductions in Civil Service posts. By 2008, there will be up to 250,000 more staff in frontline services, with gross reductions of around 84,000 Civil Service posts, or about 70,000 when posts directed to the front line are taken into account—and 20,000 staff will be relocated out of London and the south-east by 2010. Those figures are forecast for a number of years' time, because the changes cannot be made quickly. However, across government £2 billion has already been saved through better procurement deals and the use of e-auctions. The Government are on course to make the necessary workforce reductions: 10,000 posts will be gone by March next year and 4,000 posts will have been relocated from London and the south-east.
I return to the fundamental issue of economic growth, on which all this depends. Recent data for the United Kingdom economy remain consistent with the Budget forecast of 3.75 per cent growth for 2004. On that independent forecasters agree. The UK is experiencing the longest period of unbroken economic expansion on record, with 49 consecutive quarters of growth. Since 1997, UK GDP growth has been more stable than in any other G7 country. By contrast, from 1979 to 1996 GDP growth in the UK was the most volatile of any country, with the exception of Canada. Under those circumstances, it is with some confidence that I commend the Motion to the House.
On Question, Motion agreed to.

Building Societies Act 1986 (International Accounting Standards and Other Accounting Amendments) Order 2004
4.26 p.m.
Lord Davies of Oldham Lord Davies of Oldham rose to move, That the draft order laid before the House on 11 October be approved [33rd Report from the Joint Committee, Session 2003–04].
The noble Lord said: My Lords, I beg to move that the draft order be approved. Three pieces of accounting legislation have originated from the
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European Commission in recent years which require implementation for building societies. This order gives effect to two of them: the EU Regulation on International Accounting Standards (the IAS regulation) and the Modernisation of Accounts Directive.
The Fair Value Directive and other parts of the Modernisation of Accounts Directive are being implemented in a separate Statutory Instrument: the Building Societies (Accounts and Related Provisions) Regulations 2004. Those separate regulations use the negative resolution procedure and were laid before Parliament last week, on 6 December. Those accounting changes have been implemented across two different statutory instruments, because the powers available in current legislation require different parliamentary procedures to be followed.
The DTI Minister of State for Industry and the Regions recently introduced in the other place similar regulations for companies, and my noble friend Lord Triesman introduced those same regulations for companies in the House of Lords on 5 November.
Her Majesty's Treasury and the DTI have worked together closely on these accounting changes. A joint consultation document on the IAS regulation and the Modernisation of Accounts Directive was published in March this year. A co-ordinated and coherent approach is important, not just because the accounting changes are similar for both companies and building societies, but also because of the need, which will be recognised in all parts of the House, to ensure a level playing field between companies and building societies, where appropriate.
A level playing field is important. Having a diversity of legal forms and providers of financial services is of benefit to consumers in encouraging more choice and competition. It also has wider benefits for the financial services sector. Having different forms of ownership structure provides for greater diversity and stability. To ensure that building societies can continue to play a valuable role in financial services, it is important that changes such as those in accounting do not significantly favour or disadvantage building societies in relation to other types of undertakings. For those reasons, the draft order seeks to ensure that implementation of those accounting changes for building societies mirrors implementation for companies as closely as possible.
My noble friend Lord Triesman outlined much of the background and detail of these accounting changes when he introduced the regulations for companies. However, I shall briefly reiterate the reasons for, and substance of, the changes.
The Financial Services Action Plan, which was published by the European Commission in May 1999, aims to facilitate a single market across the European Union. One way that it seeks to do so is by harmonising financial reporting across the European Union on the basis of globally agreed accounting standards. The IAS regulation of July 2002 is an important measure towards that goal. Another key measure is the Modernisation of Accounts Directive of July 2003.
The IAS regulation is directly applicable to companies that are governed by the laws of an EU member state. Companies whose securities are admitted to trading on a regulated market in any member state will be required to prepare their consolidated accounts in accordance with IAS, as adopted by the European Commission, for financial years beginning on or after 1 January 2005.
The definition of "company" used in the IAS regulation includes building societies. Therefore, building societies whose securities are traded on a regulated market in any member state will be caught by the same requirements as publicly traded companies.
The IAS regulation also contains options allowing member states to permit companies to use IAS, where they are not required to do so, for their individual and consolidated accounts. The Government have adopted a permissive approach to this. For now, we have decided against mandatory extension due to the burdens that that would impose. Instead, building societies that are not required to switch to IAS by the regulation will be able to choose whether or not to switch to IAS when they themselves judge that the benefits of so doing outweigh the costs and at a time which suits them. That is a flexible, market-friendly approach which has been strongly supported by the sector.
The IAS regulation is a large step towards the goal of globally agreed accounting standards. It will allow for more comparability of accounts and will encourage cross-border investment. It is an important contribution to stronger financial markets.
It is inevitable that the regulation has thrown up some technical problems. For example, the building society sector approached us last year to discuss its concerns about how IAS would affect the ability of building societies to securitise their assets under IAS while still remaining compliant with the statutory restrictions on the funding and lending activities for building societies. In the interests of allowing building societies to securitise in the same way as companies are able to do, I am pleased to say that earlier this week we laid a statutory instrument to resolve that problem.
Some building societies will be required to use IAS and others may choose to do so. For those that do not use IAS, building societies will continue to be required to comply with European accounting law. The Modernisation of Accounts Directive amends existing European accounting law with the aim of bringing European accounting requirements into line with modern accounting practices. It requires member states to make certain changes to national law and gives them options in other areas.
Most of those changes are relatively minor and technical amendments. The most significant of the provisions are the new reporting requirements relating to the directors' report. The directors' report must now contain a fair review of the building society's position. That fair review must include a comprehensive
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analysis of the development and performance of the business and a description of the principal risks facing individual building societies.
I shall now outline the structure of the draft order that I have introduced today. It amends the Building Societies Act 1986 and is split into four main parts. Parts 1 and 2 give full effect to the IAS regulation and the member state options in it. It does that by inserting into the Act provisions which permit building societies to choose to prepare their accounts using IAS. These parts also specify that the order applies to financial years starting on or after 1 January 2005; they set out the provisions on consistency of accounting frameworks within a group; and they set out the circumstances in which a society may switch back to using UK accounting standards once it has chosen to use IAS to prepare its accounts. Parts 3 and 4 of the order implement those parts of the Modernisation of Accounts Directive that require amendments to the 1986 Act. They also make transitional provisions.
The schedule to the order makes consequential amendments, the most substantial of which are the insertion of two new schedules into the 1986 Act. Those new schedules require building societies to make disclosures in the notes to their accounts about directors, employees and associated undertakings of the society. These requirements were previously in secondary legislation and have been moved to the 1986 Act so that they will continue to apply to all building societies, including those that prepare their accounts using IAS.
As I indicated earlier, we have consulted widely on the IAS regulation and the Modernisation of Accounts Directive. A joint DTI/HM Treasury consultation document was published earlier this year. Our policy of a level playing field between companies and building societies was strongly supported. We are thankful to those who took the time to respond to this consultation. We have worked closely with the building society sector over these changes. The Government would particularly like to thank the Building Societies Association for the views and assistance that it has provided during and since the consultation.
These proposals are an important step forward for building societies. They will allow building societies to follow modern, more transparent accounting practices and to operate on a level playing field with companies. There is much support for mutuality. I hope that those who are concerned about mutuality and the success of building societies will welcome these proposals which I commend to the House.
Lord Stewartby: My Lords, before the noble Lord sits down, will he explain why the sale value issue is being dealt with separately?
Lord Davies of Oldham: My Lords, as I indicated earlier, of the two procedures operated here, this one is the approval procedure and does not include the fair value one because that is included in the other instrument that we are bringing forward under the negative procedures that we have also tabled.

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Moved, That the draft order laid before the House on 11 October be approved [33rd Report from the Joint Committee, Session 2003–04].—(Lord Davies of Oldham.)
Baroness Noakes: My Lords, I thank the Minister for introducing this complex order. The House will remember, from our debate on the equivalent Companies Act regulations in November, that I said that we on these Benches are enthusiastically in favour of International Accounting Standards because we believe that global capital markets will benefit from common accounting standards.
We had some concerns, which we outlined, on 5 November. In particular, I asked the noble Lord, Lord Triesman, whom I appear to have frightened off, what the Government intend to do about IAS 39. He replied:
"On IAS 39, the UK would have unquestionably preferred full endorsement, but it has not proved possible. The key short-term priority was to provide companies with clear guidance on the implications of the partial endorsement decision. We are working with the ASB on this guidance".—[Official Report, 5/11/04: col. 575.]
I ask the Minister what progress the Government have made on producing guidance with the Accounting Standards Board on IAS 39, which is a matter of some concern to everyone who intends to apply international accounting standards.
Of course, this particular order has a very narrow scope, applying only to the building society sector, which now has only 63 building societies in it, ranging from the very large, with over £100 billion worth of assets, down to the extremely small, with £18 million in assets.
At first sight, the optional nature of International Accounting Standards seems appropriate for this sector, given the diversity within the sector. On the other hand, it may seem strange to have such a small sector being accounted for on different bases, given that they are all subject to prudential supervision. My question to the Minister is whether the FSA is content for the adoption of international accounting standards to be left to the building societies themselves or whether it would have preferred to see common use of accounting standards.
The main point I want to raise with the Minister today concerns not the international accounting standards but the implementation of the modernisation directive. To that extent, what is happening in this order goes beyond what has already been done for companies. Paragraph 4 of the order adds a new Section 75A to the Building Societies Act 1986 to create the requirement for a business review; and the noble Lord outlined what should be in that business review. I am sure that the Minister will be aware that for companies this particular review was included in the draft order implementing and operating a financial review.
That draft order, which was issued by the DTI earlier this year, was roundly and rightly criticised by both business and the accounting profession. The Government climbed down on the matter in a Written Statement on 25 November. We have yet to see a
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revised order. Indeed, the Government have not yet had the courage to publish the results of the consultation they promised. The DTI's website makes no reference yet to the U-turn.
So, for companies there was a draft order implementing the business review but there is not one at the moment. I have a few questions for the Minister arising out of that. First, I should be grateful if the Minister could explain why the Government are pressing ahead with this requirement for building societies when it is not doing so at the moment for companies.
Secondly, will the Minister explain why the business requirements for building societies do not have any exemptions for small or medium-sized building societies? The equivalent companies order which we had in draft provided for the usual small company exemption.
Thirdly, the original draft companies order provided for auditors to report on the consistency of the business review with the accounts, but I could not find any equivalent reference to that in the building society order.
Lastly, the DTI's announcement effectively said that implementation certainly of the operating finance review, and I assume also the business review, is to be deferred for companies until 1 January 2005, which in practical terms means an extra 12-month leeway for those with a December year end. I hesitate to say that the right hand of government does not know what the left hand of government is doing because we know that the Treasury likes to believe that it is omniscient as well as omnipotent. But if the Treasury do know what is going on in the DTI, perhaps the Minister could explain why the Treasury has a different policy agenda for building societies to that for companies, because the main justification for these orders was to stay in step with companies.
Lord Newby: My Lords, this order seems to be a sensible, useful and technical piece of work to which we could not conceivably want to object. Indeed, it helps consolidate the workings of the single market, which I think we all endorse, despite our other differences about matters European. We therefore support it.
Lord Davies of Oldham: My Lords, I am grateful to noble Lords who have contributed to this short debate, although I am more grateful to those who have been exceedingly brief than those who have been brief but pertinent with their questions. I shall do my best to answer the issues which the noble Baroness addressed, particularly in comparing the provisions for building societies with the state of play with regard to companies.
The noble Baroness asked about progress with regard to the issuing of guidance. The Financial Accounting Standards Board has issued guidance on International Accounting Standard 39. It did so on 15 December and the guidance is on the FASB website. She asked whether progress had been made on that and I can be reasonably definitive in my reply.

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I understand what the noble Baroness says about the business review. She will recognise that further consultations were developed with regard to those other companies. It is not a question of the Government's right hand not knowing what the left hand is doing; it is a reflection of the fact that the position for companies is a little different from that of building societies.
The noble Baroness asked in particular about aspects of the fair value directive. We implemented it last week in the separate statutory instrument to which I referred in my response to the intervention by the noble Lord. We have just adopted with building societies the broad, flexible approach that we have adopted with companies. Building societies will be able to use fair value accounting, if they wish to do so. In the consultation on the issues, we received strong support for our approach to the fair value directive. In that area, I can give assurances that progress is being made and that it is broadly acceptable to the interests outside.
With regard to exemptions for small companies, I must point out that there is no formal method of distinguishing between small and large building societies in the same way as one can distinguish between companies. They prepare accounts on the same basis, while companies vary. The review must be only as extensive as is appropriate to the size of the society. It is not a case of one-size-fits-all. We cannot specify different requirements because we cannot separate building societies in the same way as we can with companies. That is why the issue of exemptions does not really apply.
We intend to publish our revised OFR regulations in the near future. We are making rapid progress on effective communication as a result of this order, which is itself the product of considerable consultation. As the noble Lord, Lord Newby, was generous enough to indicate, it is a step towards the implementation of a single market that is broadly accepted throughout British society and British business as being of great benefit.
I realise that this issue will be of limited interest to the wider public, but it is important for the wider financial services sector to be able to operate on the same level playing field as companies. That is the point that I have sought to stress as the basis of the order. The order provides for societies to employ high-quality modern accounting practices. That will result in greater transparency in accounts and will enable greater access to global markets and global investments. Building societies have an important role to play in the financial services market, and the order recognises that role by increasing opportunities for them and ensuring that, against the background of the developing European perspective, they are four-square with the developments that we have already set in train for companies.
If there are points of detail that I have not covered sufficiently for the noble Baroness, Lady Noakes, who asked some pertinent and precise questions, I will, of course, write to her.
Baroness Noakes: My Lords, I am grateful to the noble Lord for saying that. I ask him, in particular, to ask his officials why there is no audit assurance on the
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business review for building societies. It is regarded as a helpful feature of the equivalent provision for companies.
Lord Davies of Oldham: My Lords, I am grateful for that additional point. I will discuss it and write to the noble Baroness.
On Question, Motion agreed to.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2004
4.50 p.m.
Lord Davies of Oldham Lord Davies of Oldham rose to move, That the order laid before the House on 16 November be approved [First Report from the Joint Committee].
The noble Lord said: My Lords, I beg to move that this draft order be approved. The Government propose to legislate for a suite of simple savings and investment products through Statutory Instruments Nos. 2737 and 2738. They will be known as stakeholder products.
In July 2002, after a year-long independent review of the medium and long-term savings market, Ron Sandler reported back to the Chancellor of the Exchequer with a series of recommendations for the Government and the Financial Services Authority to consider. The Sandler review found that the UK retail savings industry has a number of features that are of some concern. The market is characterised by a high degree of complexity, a considerable number of product types and some complex charging structures.
Ron Sandler concluded that the solution lies in product regulation, as a system based on potentially highly complex products, sold with often equally complex advice, will inevitably exclude consumers below a certain level of income because of the relatively high fixed costs of the advice process. Product regulation, by contrast, provides an opportunity to minimise the fixed-cost element of interacting with the consumer, so opening the market to a wider range of consumers.
The Sandler review therefore recommended the introduction of a suite of simple and comprehensible products, the features of which would be sufficiently tightly regulated to ensure that, with certain additional safeguards, these could be purchased safely without the current regime of regulated, full and, of course, relatively costly advice. It was recommended that safeguards should include no initial charge for those products, that annual charges should be regulated and that there should be limits on investment risk.
Since July 2002, the Government have consulted extensively with firms in the financial services industry, their trade bodies and consumer groups, in order to inform the design of those products. That consultation has contributed to the positive reaction of major firms when the Government launched their consultation on this order. We have worked closely with the FSA to co-ordinate policy on product design and a basic advice regime through which these products may be distributed.
The measure that we are presenting today creates the new regulated activity of offering basic advice. The basic advice regime should reduce the time it takes to advise a client on a regulated product by 80 per cent—down from two and a half hours to half an hour for a stakeholder product—thus significantly reducing the fixed costs attached to distributing these products.
The consumer testing conducted by the FSA demonstrated that consumers like the basic advice process and that the majority of consumers will get good or adequate advice whereas currently they may be unable to access any advice at all. Advisers will have to observe the normal duty of care to their clients. Those receiving advice through the basic advice process will continue to have recourse to the financial ombudsman service. In our view, basic advice will result in innovation in the distribution of investment products and greater consumer choice in the advice market.
One of the key elements of the policy is a price cap, which has been set at a level to enable the most efficient providers to offer stakeholder products. Firms have supported the decision to raise the cap on the medium-term product from the current CAT-marked level of 1 per cent. Which?—the consumer body—was pleased that we had not accepted the arguments for up-front contribution charges. Norwich Union said that the changes, including to the stakeholder pension price cap, are,
"good news for the consumer as there will be more products, choice and competition in the market; good for the industry as we now have clarity and a more economic price cap".
HBOS has said that the charge cap is realistic, commenting that:
"It will aid transparency and enhance the level of competition within the savings industry. In addition, the decision will increase access to advice and products—all of this can only be good for consumers".
A key aim of the legislation is to reduce the risk that individuals will not save enough by ensuring that a low-cost pathway to saving is available for consumers who cannot access full advice or people who have been deterred by the complexity of products from investing through non-advised channels of distribution. Through the legislation, we also want to create a new competitive dynamic in the industry as a whole to put pressure on firms to offer other simplified, low-charging products, whether or not they use the stakeholder brand. I am optimistic that lower charges and increased efficiency will spread across the market following the initiative, benefiting all consumers of financial services products.
Stakeholder products provide an opportunity for firms to show that they value their customers by offering a suite of products that are fairly priced and easily understood, and whose performance can readily be compared between firms by consumers. Firms offering stakeholder products will send a clear message that they put their customers' needs first.
We are taking an important step here, with the aim of creating simple, transparent and low-cost savings and investment products. Accordingly, I commend the order to the House.
Moved, That the order laid before the House on 16 November be approved [First Report from the Joint Committee.].—(Lord Davies of Oldham.)
Baroness Noakes: My Lords, I thank the Minister for introducing the order. I should say at the outset that my party supports any initiatives to improve savings because, under this Government, the savings ratio has reached a near record low. Our own proposals are for a flexible lifetime savings account, but the Government prefer a more complex approach involving different products such as the Sandler products, child trust funds and stakeholder pensions. But we have a simple desire for people to build up greater funded savings and we support the Government to the extent that their actions achieve that.
The noble Lord will be aware that we are not uncritical of the child trust fund proposal. In addition to complexity, we have considerable reservations about how well it will work in practice in terms of generating significant new savings over and above the Government's own largesse. But it is better than nothing, which is why we did not oppose the Bill—save in one respect; namely, the extraordinarily convenient timing in electoral terms. The child trust fund vouchers are to be handed out just before a general election, which we predicted and appears to be the case.
The Government have been pursuing the Holy Grail of easy, low-risk investment, but the Sandler products seem not quite to be living up to their early promise. This order covers child trust funds and stakeholder pensions by allowing a simplified selling regime for both. It also covers other investments which are to be specified in Treasury regulations. Can the Minister say a little more about these other investments? He will be aware that the FSA has concluded that it cannot prescribe a simplified sales regime for smoothed investment products, which is one of the Sandler suggestions. What does that mean for further products to be covered by this order and therefore by the simplified sales regime? Will they be limited to a short-term cash deposit investment or will there be other investments? Lastly, when does the Treasury expect to finalise its views on that?
While the time-frame for stakeholder products generally may not be very critical, it is now only a matter of months until child trust funds go live, and I believe that vouchers will be sent out early in the new year. It is unfortunate, therefore, that providers have had to wait until now for clarification of the regulatory regime that is to apply to the sale of child trust fund products. This was raised both in your Lordships' House and in another place during the passage of the Bill.
The FSA said that the consultation would be published in April but it was not published until June. The combination of the delay in publication and the standard three-month consultation period is surely unacceptable when the providers of products were supposed to start registering with the Revenue in October and November in order to allow child trust funds to start to take effect from January.

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I am sure that this delay has caused real difficulties to providers. The Association of British Insurers, in its understated way, described the delays as,
"at the very least unfortunate".
This may well have contributed to a relative lack of interest among potential providers in offering child trust funds. I searched unsuccessfully earlier this week for a list of providers in order to see whether the child trust funds had attracted the premier division or something less impressive. I note from today's Times that Fidelity has decided not to join in. Can the Minister say when the list will be available?
I am never accused of wanting to over-regulate business but I found concerning a report in the Times last month which stated that the FSA could not guarantee that stakeholder products will not be mis-sold. If that is the case, how will the Government make sure that those who invest in stakeholder products understand the issues? This is of especial concern to lower income groups who may have no experience of buying products of this kind and at whom these products are aimed. What guarantees can the Minister give that training for those giving basic advice which is covered by the order will be suitable and ensure that people are not sold products that they do not fully understand?
Specifically as regards child trust funds, I would be interested to hear how the Minister envisages advice being given to parents of young children. Child trust funds can be both stakeholder and non-stakeholder. Will the basic advice regime apply to parents asking only for a stakeholder product? What happens if they ask for a non-stakeholder product? How will the parent get a comparison between the two? What kind of questions will be asked in the simplified sales regime to ensure that the Government's hand outs are not mis-invested? I am sure that the Government will want to avoid a situation arising in a few years time where there could be many claims of mis-selling because parents have been directed towards inappropriate child trust funds—and, of course, the numbers involved are potentially huge.
We support the direction of travel outlined in the order but we have some concerns about how it will work in practice. Will the Minister say something about how the Government intend to keep the simplified sales regime under review? Ultimately, long-term products which need to change over time to reflect maturity—I cannot bear to use the dreadful term "lifestyling"—are complex products. It may be that the Holy Grail of simple products and simple advice does not exist in practice. I hope that the Government have some clear plans for a review of the simplified sales regime.
5 p.m.
Lord Newby: My Lords, your Lordships will know that we opposed the Child Trust Funds Bill for a raft of reasons, but problems about mis-selling were not prominent among them. However, when the FSA expresses concerns even before the programme is
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introduced that child trust funds may well be mis-sold, it merely adds to our list of concerns about what might happen.
One thing about the stakeholder advice which must be welcomed is the fact that it will take so much less time. I take the point of the noble Baroness, Lady Noakes, about the difficulties of the Holy Grail and the shortness of the amount of advice. The Holy Grail itself, of course, has proved remarkably elusive. There is no doubt in my mind that the current immensely detailed—and therefore immensely costly—business of selling financial services products, especially when the amount being invested is relatively modest, is bound to reduce the numbers of both providers and investors. Attempting to search for the Holy Grail is therefore worth while.
It clearly makes sense that these products are regulated by the FSA. I share many of the detailed questions of the noble Baroness, Lady Noakes, and a formal review of how this process is going, within a relatively short timescale, is more than usually welcome. That is particularly so as all families with very young children are going to be covered by this, and therefore a very large number of people will be affected by it. If anything goes wrong, there is scope for a very large number of people being mis-sold products over a very short period of time. Subject to those caveats, we support the order.
Lord Davies of Oldham: My Lords, I am grateful for the support advanced in both noble Lords' contributions and I recognise the anxieties about certain aspects of the proposals. The issues regarding the child trust fund were well exercised in another place and, as the noble Lord, Lord Newby, indicated, the Liberal Democrat Party has decided that it cannot support the concept of the child trust fund in principle. The noble Baroness, Lady Noakes, is considerably more generous than that in indicating that she has clear reservations and problems to he resolved, but that she is not against child trust funds in principle The child trust fund is one of a number of government initiatives to support saving and asset ownership.
Perhaps I may tackle the broad issue. In her general comments on the question of savings, the noble Baroness, Lady Noakes, indicated that there are problems with saving ratios. We must rehearse the arguments that we have had across the Dispatch Box on numerous occasions in the past. She will recognise that people are saving a great deal through house purchases and the mortgages they take out. One would be extremely neglectful of that important dimension of the economy if one did not recognise the extent to which people regard certain aspects of the type of saving we are discussing as "rainy day" savings. That is a more overt strategy for saving. The considerable investment that they put into it relates to other forms of saving, particularly investment in property.
It is suggested that people are currently pushing the boat out too far in borrowing, but we should recognise that that is occurring in the context of greater confidence regarding overall interest rates and because people have a greater asset base on which to borrow. But that does not alter the fact that we want to

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encourage intelligent, thoughtful saving that helps to cushion people against the inevitable shocks that occasionally occur in their lives and to make provision for future events. Some of those events are predictable. One of the beauties of the child trust fund is that it seeks to identify that the child will grow to a position in early maturity where substantial costs become a feature of life. That is why it is important that we should have a concept such as this.
The noble Baroness indicated that she had some anxieties about this matter. The FSA has expressed some concerns and it is in response to the FSA that various changes are now occurring. Under the FSA regime, providers must include short but balanced comparisons between stakeholder and non-stakeholder child trust funds so that there is a basis for intelligent comparison. The information pack going out to all parents will set out key points about the CTF and the different types of accounts and guarantee so that we are not faced with dangers of mis-selling. Definitive advice will be available.
As with all new policies, the Government carry out full evaluation of developments. I indicated in my opening statement that, if things go badly wrong, there is recourse to the ombudsman. The Financial Services Authority will also review any suggestions of mis-selling that may arise, and we will get early signals on the development of the policy. A development such as this of course requires constant evaluation and analysis. The noble Baroness will not be surprised if I give the obvious assurance that there are interests at play to guarantee that this process works successfully.
On broader products than the ones I identified, the Government are concerned to extend the range of products. It is for the market, of course, to develop strategies on how this might operate, but for the Government to ensure that there is a framework within which the market can develop in a livelier and more appropriate fashion than in the past. That is the issue with regard to the attempt to put clear ceilings on initial costs so that we ensure that people are not deterred by what look like very substantial outlays before they have even made a decision on whether to invest. That is an important part of the provisions which I outlined.
I recognise that there are anxieties about early development at this stage, particularly with regard to the child trust fund. This was well articulated in the other place; the Liberal Democrat Party indicated that it was not prepared to support the concept, while the party of the noble Baroness, Lady Noakes, adopted a more measured and considered approach. We intend to ensure that it is successful. It is an important part of that armoury of new provision for those who have not saved sufficiently in the past or felt confident enough about procedures to save.
Baroness Noakes: My Lords, before the Minister sits down, the order applies to child trust funds, stakeholder pensions and investments of any kind specified in regulations. I asked the Minister what other investments were being contemplated, given that
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the smoothed investment product is now deemed not to be suitable for the simplified advice regime. I also asked when the Treasury would determine that.
Lord Davies of Oldham: My Lords, we will reach a position on that very shortly. I will write to the noble Baroness and give her precise details on that important point. I commend the order to the House.
On Question, Motion agreed to.

Child Benefit and Guardian's Allowance (Decisions and Appeals) (Amendment) Regulations 2004
5.13 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham) rose to move, That the draft regulations laid before the House on 16 November be approved [First Report from the Joint Committee].
The noble Baroness said: My Lords, in moving this order, I shall also speak to the Social Security, Child Support and Tax Credits (Decisions and Appeals) Amendment Regulations 2004.
These regulations are highly technical as drafted, which accounts for their combination of lucidity and opaqueness. They are, however, entirely benign; the Council on Tribunals and the Social Security Advisory Committee have been consulted, and they welcome them. Given that, I will be brief but will seek to answer any questions your Lordships may have.
The main draft statutory instrument makes amendments to regulations governing decision making and appeals for social security, including housing benefit and council tax benefit, child support and tax credits. The second draft statutory instrument makes an amendment to mirror one of the provisions in the main amendment regulations, for the purposes of the Child Benefit and Guardian's Allowance (Decisions and Appeals) Regulations, and also makes a small technical clarification. I am doing this on behalf of the Treasury, because the regulations are now the Treasury's responsibility and the Inland Revenue administers them. The main amendment in the second set of regulations therefore mirrors a provision within the first set.
These amending regulations essentially do three things. First, they provide for the removal of provisions for the processing of misconceived appeals. A misconceived appeal is an appeal which by definition cannot succeed. For example, one cannot get attendance allowance until one is 65. If one applies at the age of 63, by definition, it cannot succeed. It is a misconceived appeal. At the moment, this is determined by someone who is not necessarily legally qualified. Given that the matter was a cause for concern, even misconceived appeals which are clearly outside the remit of the jurisdiction will be determined and therefore rejected at that stage by someone who is legally qualified. That is a benign change with an additional safeguard.
Secondly, the regulations make changes to the rules and pay performance for notifying the clerk in relation to requests for oral and paper hearings of appeals. At the moment, the paperwork departs into two systems. We are aligning them. Again, this is a simple and technical change.
Finally the regulations provide new rights of appeal against defective claims to benefit, and extend those rights to legislation governing housing benefit and council tax benefit.
Substantive benefit decisions, such as whether or not one receives housing benefit, carry a right of appeal, but a person cannot appeal against an initial decision about whether his or her claim is in a sufficient state to be processed. For example, the local authority may have received an incomplete form from the claimant, who may have failed to give some details of income, for example, for housing benefit purposes. The local authority sends it back to that claimant to be filled in. Most often, the claimant does that and the claim is processed in the usual way, but sometimes the claimant does not return that form and, as a result, the local authority abandons the claim. It is as though the claimant has decided not to proceed.
It was felt that this might be impugning human rights legislation so this is a belt-and-braces solution. Where the body—whether the local authority or department—decides that it cannot proceed because it does not have all the relevant information following the request, it will in future send a notification to the claimant that it will not proceed and that there will be a right of appeal against that initial decision not to proceed. It gives a right of appeal at the point of discarding an appeal as well as on the substance itself. As I said, this is entirely benign.
We propose these changes to take account of decisions by social security and child support commissioners. All the changes are beneficial to claimants and reflect our desire to keep the law on decisions and appeals under review and to improve it when required. The regulations make small but important changes to the decisions and appeals regulations. In my view, the regulations are compatible with the convention rights. After that very brief introduction, I commend them to the House. I beg to move.
Moved, That the draft Regulations laid before the House on 16 November be approved. [First Report from the Joint Committee].—(Baroness Hollis of Heigham.)
Baroness Noakes: My Lords, I thank the Minister for introducing the regulations. The Minister is new to our proceedings today, but it is the fourth item of different business for the noble Lord, Lord Newby, and I; she must forgive us if we sparkle less than usual.
I am very pleased that we do not have the same rules in this House as in the other place. When the Minister in the other place went to deal with the order in the Standing Committee, she was deemed to be a non-person for some reason peculiar to the rules of that House. She
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was allowed to speak but all formal business was introduced by her Whip. As we know, the Minister could never be a non-person in your Lordships' House.
The regulations are sensible. We note in particular that the Council on Tribunals and the Social Security Advisory Committee have indicated that they are content with them and they seem to us to be entirely on the right lines.
I have one small question for the Minister. A regulatory impact assessment has not been produced because there is no impact on business. But it is noted in the context of both the orders that more appeals are likely to be made and to be successful. What estimate have the Government made of the additional cost which would arise from the orders? I have not seen that calculated anywhere.
Lord Newby: My Lords, I, too, thank the Minister for introducing these orders so briefly. The practice in this House of reading out long speeches to an audience of two or three, when they have already been made in another place and we have read them, is one which the Minister has very wisely avoided in this case. The noble Baroness, Lady Noakes, said that she was sparkling less brightly than normal, but I have stopped sparkling altogether this afternoon. I agree with her that the regulations are entirely benign, and we therefore support them.
Baroness Hollis of Heigham: My Lords, I can give the noble Baroness the stats for appeals not proceeding to hearing and reinstatement. Normally, there are something like 10,000 withdrawals, 35,000 strike-outs and 9,000 reinstatements. What I do not have before me, which I would have to check, is whether we have any expectation or forecasts of additional costs. The reason why we have not is that by far the biggest array of benefit claims—something like two-thirds of them—relate to disability benefits, which are not affected by these measures. That figure results from the difficulties with a subjective judgment with regard to DLA.
We expect the number of appeals based on defective information to be very rare indeed, because the obvious thing to do is to put it right, if the claimant wished to pursue his appeal, having remembered that he had forgotten to notify the authorities that he had a bit of capital or some extra overtime money that might affect his entitlement to housing benefit. So we do not expect the costs to be very great.
I cannot answer the one question that the noble Baroness asked me, but that is partly because we are geared up for being able to handle the work fairly effectively. What happens now, basically, is that most of the appeals that are struck out follow effectively an abandonment, when we do not expect people to pursue the matter. They may have changed address or decided it is not worth it, for example. We expect very little extra business; what we are doing is clarifying the legal and statutory basis of the appeal system, rather than expecting a large swathe of new appeals.

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I cannot give the noble Baroness the precise information that she wants, but I shall recheck. Our forecasts were so modest in this regard that we have not done an impact assessment.
On Question, Motion agreed to.

Social Security, Child Support and Tax Credits (Decisions and Appeals) Amendment Regulations 2004
5.22 p.m.
Baroness Hollis of HeighamMy Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the draft regulations laid before the House on 11 November be approved [34th Report from the Joint Committee, Session 2003–04].—(Baroness Hollis of Heigham.)
On Question, Motion agreed to.

Royal Assent
The Deputy Speaker (Baroness Gould of Potternewton): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Act:
Consolidated Fund (No. 2) Act.
House adjourned at twenty-three minutes past five o'clock.