Lords Sitting of 26 February 2004

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

Bank of England: Monetary Policy Committee
Lord Newby Lord Newby asked Her Majesty's Government:
Whether they intend to influence the future setting of interest rates by the Monetary Policy Committee of the Bank of England.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): No, my Lords. In May 1997, the Monetary Policy Committee of the Bank of England was established with full operational independence to set interest rates to meet the Government's inflation target. The arrangements have worked well and have delivered a credible monetary policy framework with low and stable inflation and inflation expectations. Since May 1997, average RPIX inflation expectations have been close to 2.5 per cent. By comparison, inflation expectations averaged 4.6 per cent under the previous monetary policy framework in operation from October 1992 to May 1997. There are no plans to alter those arrangements.
Lord Newby: My Lords, I am grateful to the Minister for that reply. He may recall that, on 12 February, in response to a Question by the noble Lord, Lord Howell of Guildford, about remarks made by the Government's chief economic adviser about the desirability of a particular interest rate change, the Minister said:
"My Lords, everybody in this country is entitled to make observations about the future evolution of interest rates in this country".—[Official Report, 12/2/04; col. 1204.]
Does the Minister agree that, while that is a fine rule for the generality of the population, such a rule should not apply to senior Treasury officials or Ministers? If they give their views a day or two before the MPC meets, it could be seen that they are seeking to influence the MPC decisions and to jeopardise its independence.
Lord McIntosh of Haringey: My Lords, I now understand on which quotation the noble Lord, Lord Newby, is seeking to get comments. He is referring to a speech by Ed Balls, the chief economic adviser, on 4 February, which was misinterpreted by the Financial Times and by Martin Weale of the National Institute of Economic and Social Research as referring to a particular meeting of the Monetary Policy Committee. It is not only my view that those
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remarks were misinterpreted, as a week later, in presenting the Bank of England inflation statement, the Governor said:
"All I can say is that ever since the system was set up in 1997, there hasn't been a single instance of any advice, pressure, wish being expressed to the committee or to me. Not one, throughout that entire period. You couldn't possibly ask for more than that".
Lord Tomlinson: My Lords, does my noble friend agree that, if it is so important to establish independence for the Bank of England, similar standards ought to be applied to the European Central Bank relating to the stability and growth pact? Will he urge his friends, both here and elsewhere, to stop the political interference with the operation of that pact?
Lord McIntosh of Haringey: My Lords, that is a very subtle way in which to introduce an European element. It is almost worthy of the noble Lord, Lord Pearson of Rannoch, but I do not believe that it follows from the Question on the Order Paper.
Baroness Noakes: My Lords, does the Minister agree that a plausible conclusion from the fact that a senior Treasury official attends the monthly meetings of the MPC is that he is there to tell the MPC what the Chancellor wants? Will the Government, in the interests of both the actual and the perceived independence of the MPC, put a stop to that?
Lord McIntosh of Haringey: No, my Lords, it is not a plausible interpretation. It does not happen, and the quotation that I have just read from Mervyn King makes it clear that it does not happen. The Treasury works very well to maintain contact with, but not to interfere in, the decisions of the Monetary Policy Committee.
Lord Howe of Aberavon: My Lords, getting the Minister back on to this side of the Channel, would he be kind enough to acknowledge that the undoubted success of the Monetary Policy Committee has been built upon the foundations laid by my right honourable and,—in the other place—learned friend, Kenneth Clarke, in a previous administration?
Lord McIntosh of Haringey: My Lords, I am grateful to the noble and learned Lord, Lord Howe, for bringing us back to this side of the Channel, but I believe that I answered his question in my first Answer. The arrangements that we have had between 1997 and today have resulted in inflation expectations of approximately 2.5 per cent, which was what we wanted. The figure for the period 1992–97, which I believe is what the noble and learned Lord, Lord Howe, was referring to, was 4.6 per cent. I believe that the comparison is on our side.
Lord Barnett: My Lords, I congratulate my noble friend. Members of the MPC of the Bank of England appear before our Economic Affairs Committee regularly, and we on the committee are satisfied that it is truly independent, has worked well and is working well, as the Minister said. Surely, however, there is no need to apologise for the fact that it may possibly be

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seen as if the Chancellor is seeking to influence the work of the MPC—although wrongly, as the Minister said—when the Treasury comments, or is seen to be commenting, in agreement or disagreement, on movements of interest rates. In those circumstances, would it not be better if Ed Balls did not make those kind of speeches?
Lord McIntosh of Haringey: My Lords, I did not hear myself apologising—maybe the noble Lord, Lord Barnett, did. I can quote exactly what Ed Balls said in his speech on 4 February. He said that,
"a forward-looking and pre-emptive approach to monetary policy, backed by a sound fiscal policy, is the best way to lock in stability and deliver balanced regional growth".
That was in the context of a long-term view of the relationship between fiscal and monetary policy, and certainly had no relevance to the monthly decision of the Monetary Policy Committee. Therefore, even the perceptions are wrong.

Iraq: Oil
11.6 a.m.
Baroness Northover Baroness Northover asked Her Majesty's Government:
What progress has been made in the work of the International Advisory and Monitoring Board which was established to oversee the spending of Iraqi revenues by the Coalition Provisional Authority.
Baroness Crawley: My Lords, at their third meeting on 12 and 13 February, the members of the International Advisory and Monitoring Board agreed the statement of work for the independent external auditors to provide an audit of the export sales of Iraqi oil and the operations of the Development Fund for Iraq. The tender process for that appointment closed on 18 February, and we expect an announcement to be made shortly on the appointment.
Baroness Northover: My Lords, I thank the Minister for that reply, which is more encouraging than it might have been. However, the board was set up by UN Security Council Resolution 1483 on 22 May last year to audit the money used by the CPA from the sale of Iraqi oil. Is it true that almost 3 billion dollars of that money has already been spent by the CPA without international audit? When is the CPA going to nominate accountants and agree procedures with the board, or does it not intend to do so? What is the UK doing to persuade its US allies that it is better to work with the international community than to try to circumvent it?
Baroness Crawley: My Lords, I am very glad that the noble Baroness is slightly encouraged by my original Answer. As for her concerns about the delay, she will know, as she is following these matters, that the members of the IAMB have worked hard with the
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Coalition Provisional Authority to agree terms of reference and a statement of work for the IAMB and its independent auditors in difficult circumstances. We know, for instance, that the bombing of the UN offices in Baghdad last summer has meant that the parties have not been able to meet in Iraq for several months. However, I agree that it has taken longer than expected to reach this stage, but now we look forward to the appointment of auditors and for the IAMB to he getting on with its work.
Lord Howell of Guildford: My Lords, would the noble Baroness care to confirm that the projections for this year for oil revenues for Iraq are said to be 20 billion dollars, that output is about to rise to 2.5 million barrels a day and that the whole project is six months ahead of target? Not all the news from Iraq is as bad as it is cracked up to be or as we are told in the newspapers.
Baroness Crawley: My Lords, I very much agree with the noble Lord, Lord Howell of Guildford, that the news is getting more positive every day. One positive thing that is happening is that all information about oil revenue and the management, for instance, of the Iraqi development fund is now available and is in the public domain; it is in our Library and on websites.
Lord Sewel: My Lords, given the somewhat emergent nature of public institutions and authorities in Iraq, will the Minister explain to us how we monitor public finance spend in Iraq?
Baroness Crawley: My Lords, I thank my noble friend for that question. The coalition has introduced a system of complete transparency while it has been monitoring public spending in Iraq. For instance, the budget documents for 2003 and 2004 have been made public, which is a significant shift away from the treatment of the budget as a secret document under the former regime. That budget is available on our website.

Railway Rolling Stock
11.11 a.m.
Lord Bradshaw Lord Bradshaw asked Her Majesty's Government:
Whether the present arrangements for procuring rolling stock for the railways represent best value for taxpayers' money.
Lord Davies of Oldham: My Lords, my right honourable friend the Secretary of State announced a review of the rail industry on 19 January. A key objective is ensuring that taxpayers can see value for money for the increased investment that the Government are putting into rail. Rolling stock represents a significant part of that investment and rolling stock issues are therefore likely to be addressed as part of the review. It is too early to say whether any changes to existing arrangements are necessary.
Lord Bradshaw: My Lords, I thank the Minister for that Answer. I draw his attention to the fact that the rolling stock strategy, published recently by the Strategic Rail Authority, disappointed many people by being neither strategic nor forward looking. It is a very disappointing document. Will he comment on the fact that many passenger transport authorities are putting up with grotesque levels of overcrowding because of a shortage of rolling stock? Is this because of the oligarchy situation in the rolling stock industry where, despite the fact that there are three companies, there is little effective competition or surplus rolling stock? Alternatively, is it because the SRA is spending so much money on the vastly overspent West Coast Main Line that there is no money available for the very much needed alterations and improvements to the railway elsewhere?
Lord Davies of Oldham: My Lords, it is certainly the case that the long-overdue modernisation of the West Coast Main Line has been an important and expensive priority. However, I bring to the attention of the House the fact that by 2006 over one-third of the total rolling stock fleet will have been replaced in the previous lour years. It is not just a question of the West Coast Main Line. On commuter lines south of the Thames £2 billion is being invested in replacing all the slam-door trains by 2005 and another £1 billion is being invested in upgrading the power supply to accommodate the new trains. Commuters, and passengers in general, will see the benefits of new and improved rolling stock, some of which will greatly help to resolve the overcrowding issue.
Lord Campbell-Savours: My Lords, will my noble friend accept that rolling stock leasing companies are overcharging?
Lord Davies of Oldham: My Lords, the rolling stock companies signed up to a code of conduct that is supervised by the regulator. He has not felt the need to refer any of their practices in relation to the provision of rolling stock. There have been one or two reports that appear to have greatly exaggerated the profit margins on which the rolling stock companies are operating.
Earl Ferrers: My Lords, does the Minister agree that, even though there has been great expenditure on rolling stock, passenger trains are now far more uncomfortable than they were 20 years ago? Why cannot they make them more comfortable when they replace them?
Lord Davies of Oldham: My Lords, increasing the capacity of commuter trains may look as if it is not increasing passenger comfort, but I am not sure that the noble Earl is right when it comes to main line trains. Certainly, the ride is a good deal smoother because the technology underpinning the new trains is so superior. That will certainly be seen on the West Coast Main Line with the tilting trains.
Lord Luke: My Lords, can the Minister tell us why so many of these new trains, which we all welcome, break down? Could it be because Network Rail is unable to supply track and other facilities for effective trials to take place before they come into service?
Lord Davies of Oldham: My Lords, there were one or two instances where the performance of the new rolling stock was not up to standard and it caused great difficulty with the provision of services. But, as I have indicated, the investment in rolling stock, particularly over the past four years, will bring real benefits to the travelling public. This is already being experienced on some lines.
Lord Tordoff: My Lords, will the Minister expand on that and tell the House on how many occasions new rolling stock has been put into service that has proved to be unserviceable?
Lord Davies of Oldham: My Lords, the biggest single problem with rolling stock is bringing it into service in the south of London where we do not have sufficient power supplies. That has been the single most regrettable development over the past 18 months. We are now on target to see the oldest form of travelling vehicle, the slam-door trains with their attendant dangers, phased out next year. I do not have figures on the numbers, but as I indicated earlier, there have been instances where the rolling stock introduced produced teething problems in operation to the discomfort of all of us.
Lord Clark of Windermere: My Lords, will my noble friend make any comment on the report that there are many new train units waiting to be cleared? If that is the case, is it not a scandal?
Lord Davies of Oldham: My Lords, I think that my noble friend may be referring to rolling stock that we hoped would be in operation south of London. Utilisation has been held up by the inadequacy of power supplies for the new rolling stock which, because of its design, consumes considerably more power than the old rolling stock. It has additional features for the comfort of the travelling public. Power supplies have been our single greatest problem over the past few months. But, as I have indicated to the House, we confidently anticipate that we shall have the old trains out of use and the new ones fully in use next year.
Baroness Strange: My Lords, will the Minister confirm that this is because it is the wrong sort of electricity? We have already had the wrong sort of leaves and the wrong sort of snow.
Lord Davies of Oldham: My Lords, I congratulate the noble Baroness on the way in which she has expressed her question. Let me assure her that the electricity is okay. Its quality is tine; there is just not enough of it.
Lord Lyell: My Lords, the Minister has explained to us about slam-doors for the lucky commuters south of the Thames. Many of us, including the noble Baroness, Lady Strange, take diesels, which I think are known as high-speed trains, that are now 20 years old. We go on Great Western to Sheffield on the Midland line and north of Edinburgh, where the line is not electrified. Those trains have slam-doors that, in my present state, I am finding hard to open and close. Can he give us any news on these, or perhaps inform me in writing later?
Lord Davies of Oldham: Well, my Lords, I do not have briefing for every line in the country. More accurately, I have briefing for every line in the country but just cannot recall it at a moment's notice. So I shall have to write to the noble Lord on that. However, I assure him that the very significant investment put into the rail industry in recent years means that we can anticipate that the major problems with rolling stock will be overcome, because it will be replaced by new trains.
Lord Livsey of Talgarth: My Lords, perhaps I can tweak the Minister's memory. There is a very important line running from Paddington to south Wales and also to the west of England. Those high-speed trains are now 33 years old. They are the main carriers and rolling stock. Does that not underline the comment by the noble Lord, Lord Bradshaw, that too many resources are going into the West Coast Main Line—which is electrified and was already, before the upgrade, far superior to that going to south Wales and the west of England? It is a disgrace and something needs to be done. Is the SRA's position much the same as that of the Bank of England's Monetary Policy Committee which was said to be entirely independent? Surely the Government have some influence on SRA policy.
Lord Davies of Oldham: My Lords, in introducing new rolling stock and greatly improving the service on one line, one is always open to the charge that other lines no longer compare so well with that line. The noble Lord will forgive me, but I am sure he will recall that it is not so many years ago when the train service to the west and to Wales was the envy of those who came down from the north. Of course, in due course we shall have to address ourselves to the longevity of the trains in use on that particular line. However, I do not think that he should detract from the higher priority accorded to the West Coast Main Line because of all the difficulties of which we have been all too well aware over nearly two decades.

Gulf War: Illnesses
11.22 a.m.
Lord Morris of Manchester: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as honorary parliamentary adviser to the Royal British Legion.
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The Question was as follows:
What further representations they have received concerning the Royal British Legion's call for a public inquiry into medically unexplained illnesses among veterans of the 1990–91 Gulf conflict and related issues.
Baroness Crawley: My Lords, the Royal British Legion and others continue to campaign for such an inquiry. However, the Government are still not convinced that a public inquiry would help. The possibility that we may look again at this matter has not been ruled out. However, in the present circumstances, it is only through the programme of research initiated by the Government that we are ever likely to establish the causes of Gulf veterans' illnesses.
Lord Morris of Manchester: My Lords, I am grateful as always to my noble friend. Is she aware of the letter sent to me by Stephen Irwin QC, the chairman of the Bar Council, and other lawyers, backing the legion's call for an inquiry and insisting that difficulties in proving fault in the courts—where the burden of proof is put on the sick veteran—should not inhibit Ministers from pursuing "a process of conciliation" with the ex-service community,
"designed to make good by ex-gratia payments the deficiencies of the War Pensions Scheme"?
Does not the lawyers' letter to me make all the more worrying the Government's new proposal to switch the onus of proof from the MoD to veterans in war pension cases where today—as my noble friend Lord Bach said in the House, at col. 1138 of the Official Report for 22 January 2004—"only a reasonable doubt" has to be raised "for claims to succeed"? Surely that proposal must now be urgently reconsidered.
Baroness Crawley: My Lords, my noble friend, as we know, has worked tirelessly with the Royal British Legion on behalf of Gulf War veterans. We thank him for that. I wish to reassure him that the MoD listened very carefully to the concerns of the Royal British Legion. On the issue of the letter which he raises, I am certain that the department will give it careful consideration. However, I have to say to him that the Government are not persuaded on the basis of information currently available to it that there is a case for additional no-fault compensation to Gulf veterans—the ex gratia payments which he mentioned—separate from and above that which is already available to both Gulf and other veterans. As far as the proposed Armed Forces compensation scheme is concerned, my noble friend will know that both Houses of Parliament will have an opportunity very soon to debate that.
Lord Astor of Hever: My Lords, what lessons were learned about multiple inoculations in the first Gulf conflict, and were they fully applied last year?
Baroness Crawley: Yes, my Lords; lessons were learned from the multiple inoculations—the "cocktail", as it is sometimes called—as regards Op TELIC and they were applied to most of those serving in the recent Gulf

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operation. So lessons were learned, and we shall continue to learn lessons. That sort of cocktail will not, we hope, be used again.
Lord Campbell of Croy: My Lords, have the Government an estimate of the number of veterans who are still in this situation with illnesses of this kind?
Baroness Crawley: My Lords, I do not have that brief in front of me. However—and I shall write to the noble Lord if I am not correct in this figure—up to 2,000 veterans and their families have given notice that they will look for compensation should the legal circumstances arise where their claims can be met. I shall write to the noble Lord on those figures.
The Countess of Mar: My Lords, is the noble Baroness aware that there is quite a large cohort of veterans from the Afghan war and from the present Gulf conflict who are suffering from the effects of multiple vaccinations? The lesson has not been learnt. It is particularly the case with the TA and the reservists. Can the Minister tell us why Her Majesty's Government did not do what the Americans did with their home guard and ensure that they were vaccinated prior to any conflict? Their vaccinations are kept up to date now.
Baroness Crawley: My Lords, I would to some extent refute what the noble Countess has said. From what I have been told, I believe that inoculations were given according to a timetable before the most recent conflict and were not given all together. However, I shall write to her if I am not correct.
Lord Redesdale: My Lords, can the noble Baroness say whether work is being done to investigate the anecdotal evidence that there have been a large number of birth defects among the children of those who served in the Gulf conflict? Would it not be helpful to have a public inquiry? Although the Government talk about compensation and pensions being given to servicemen, that is obviously not the case until they recognise Gulf War syndrome as regards the dependants of veterans.
Baroness Crawley: My Lords, I shall write to the noble Lord on the issue of birth defects. He will know that a great deal of research is being done both by the MoD and the Medical Research Council and that a number of pension benefits are available to ill Gulf War veterans which are taken up both by themselves and by their families.
Lord Craig of Radley: My Lords, is it not the case that the MoD and the Government continue to hide behind the excuse that further research is necessary? After 13 years, surely the time has come to appreciate that this research will never be conclusive and that ex gratia payments to resolve this ongoing distress with the war veterans should be considered actively and taken forward.
Baroness Crawley: My Lords, I hear what the noble and gallant Lord has to say, but we are not hiding behind
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the ongoing research programmes. The research programmes are extremely complex and we cannot hurry the assessment of those results. Some of that research has now been completed and final results are due to be published this year. So I would refute that and say that we are not hiding behind research.

Katharine Gun
11.30 a.m.
The Attorney-General (Lord Goldsmith): My Lords, with the leave of the House, I wish to make a Statement about the prosecution of Katharine Gun. I am afraid that opposition Peers have only just received a copy of the Statement; I am afraid that it had only just been completed.
Yesterday at the Central Criminal Court, the Crown offered no evidence in the case of Katharine Gun. Ms Gun had been charged under Section 1 of the Official Secrets Act. The effect of offering no evidence was that the case against Ms Gun was discontinued.
I hope that it will help the House if I first explain what the process is in respect of prosecutions under the Official Secrets Act. Prosecutions under it are governed by the normal rules applied by the Crown Prosecution Service when considering any prosecution—the code for Crown prosecutors—and there is the additional requirement of the Attorney-General's consent before a prosecution can go ahead.
I should say at the outset that, when making decisions under the code for Crown prosecutors, the Crown Prosecution Service acts in the public interest and decisions for which it is responsible are taken by it independently. I also remind the House that, when making decisions about whether to consent to a prosecution, the Attorney-General makes his decision in the public interest, and not in the interests of the Government.
When the Crown Prosecution Service is considering a prosecution under the Official Secrets Act, the normal code rules require that it first considers the sufficiency of the evidence—evidence to make out the case and evidence to rebut any defence which might be available and might be raised. It will not take any further action if it thinks that there is insufficient evidence. If its view is that there is a realistic prospect of conviction—that is, that the evidence is sufficient to make it more likely than not that a jury would convict—it then considers the public interest test.
In the Gun case, the evidential test was, in the view of counsel instructed by the Crown Prosecution Service and in the view of the Director of Public Prosecutions, met. The evidential test having been met, the CPS next moves on to the public interest test. That test is, quite simply, whether the prosecution would be in the public interest. In the case of this prosecution, as it was under the Official Secrets Act, the prosecution required the consent of the Attorney-General.
When considering whether to consent to a prosecution under the Official Secrets Act, I as the Attorney-General will carry out a Shawcross exercise—that is, I will seek

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the views of any ministerial colleague who may have an interest in the case. That is so that I can be informed of their views of the public interest considerations of the case that are within their particular ministerial responsibilities. When they express their views, I, as previous Attorneys-General, will take them into consideration when deciding whether to give my consent.
In the Gun case, the view of the independent prosecutor, Senior Treasury Counsel Mr Mark Ellison, and his junior, Mr Ed Brown, on the review of the evidence available at the time was that it afforded a realistic prospect of conviction. The Crown Prosecution Service applied for my consent, and I undertook a Shawcross exercise. I did that by way of a Shawcross letter to the Secretary of State for Foreign and Commonwealth Affairs, in view of his departmental interest, which was copied to other interested ministerial colleagues. Views were expressed but, as always with the Shawcross exercise, the decision was mine. I gave my consent to the prosecution on 13 November 2003.
Under the code, it is the obligation of the prosecutor to keep under review the prospects of a conviction resulting as a case progresses. If on that review the prosecutor forms the view that the evidence is such that there is no longer a realistic prospect of conviction, it is his duty to withdraw the prosecution. Counsel reviewed the case. The decision not to proceed with the prosecution was a decision made by the Crown Prosecution Service after consultation with me. It was based on the advice of Senior Treasury Counsel in the case. The evidential deficiency related to the prosecution's inability within the current statutory framework to disprove the defence raised on the particular facts of the case.
The view of Senior Treasury Counsel and of the Director of Public Prosecutions was that there was no longer a realistic prospect of conviction. At the Central Criminal Court on 25 February 2004, Senior Treasury Counsel therefore informed the court that the prosecution was offering no evidence as there was no longer sufficient evidence for a realistic prospect of conviction.
Perhaps I should, at this stage, tell the House of a statement made this morning by the Director of Public Prosecutions, Mr Ken Macdonald QC. I apologise as I do not have a copy of it, but I shall make it available to opposition Members when I can. However, I shall read it now. It is a Crown Prosecution Service press release, and it states:
"Senior Treasury Counsel prosecuting this case gave advice, with which the Director of Public Prosecutions fully concurred, that there was no longer a realistic prospect of convicting Katharine Gun.
As has been commented upon there was, in this case, a clear prima facie breach of section 1 of the Official Secrets Act 1989.
The evidential deficiency related to the prosecution's inability, within the current statutory framework, to disprove the defence of necessity to be raised on the particular facts of this case".
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The press release concludes by stating:
"This determination … had nothing to do with any advice given by the Attorney General to Government in connection with the legality of the Iraq war. It was also a determination made in advance of the defence request for disclosure which came on 24 February 2004.
The Attorney General was consulted and concurred.
But the decision to offer no further evidence was one made by the Crown Prosecution Service as an independent prosecuting authority. It was a decision taken solely on legal grounds and in accordance with the Code for Crown Prosecutors, free from any political interference".
I recognise that many in the House will want to know more about the detailed basis on which counsel concluded that there was no longer a realistic prospect of conviction. However, as the matter concerns issues of intelligence it is not appropriate for me to do so, even to this House. As to the impact of the decision on the conduct of future prosecutions, it is the case that the substantive law is always kept under review and the effect of particular prosecutions on the substantive law considered.
My Lords, that concludes the Statement.
11.37 a.m.
Lord Howell of Guildford: My Lords, I am very grateful to the noble and learned Lord the Attorney-General for making the Statement. As he said, it has come rather suddenly, and therefore there has been very limited opportunity to see either the text of his Statement or the press release to which he referred. Indeed, the latter has not yet been made available at all, as he said.
Nevertheless, it is an important Statement and I am grateful for it, because there are some very puzzling and curious aspects of the case that it is right for noble Lords to address. The obvious one is about why the decision to drop the case was made so late in the day. Why on earth was it not made earlier? Why did it become apparent so late that the evidential basis for carrying forward the case had changed? Although the noble and learned Lord gave reasons to do with intelligence on why he could not expand on that sudden inability late in the day to pursue the case, it leaves a mystery hanging in the air. I therefore press him to give a little more explanation on the matter, bearing in mind all the constraints on him, which are perfectly proper.
Can the noble and learned Lord confirm that, entirely properly and within the bounds of established conventions, he discussed the case with the Director of Public Prosecutions? He was perfectly entitled to do that. Can I confirm—his Statement indicated it—that he discussed it with Cabinet colleagues? That again is within the bounds of the conventions. Where does the aspect of the Foreign and Commonwealth Office legal adviser's own advice to the Government on these matters come into the picture? Is it correct that that legal advice, which is tendered by a lady who, I think, has since resigned from the Foreign Office—the Foreign Office legal adviser—was available to the defence in this case? Would it have had to have been

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published if the case was continued? I think that is a matter that your Lordships would like to consider as possibly relevant to the whole handling of this matter.
In the short time available, although there are wider implications, I think there are no further points but those key ones that I would like to express. I repeat the mystery in our minds about why the evidential basis so suddenly and so lately changed and what was the nature of that change; and I just seek agreement and assurance from the noble and learned Lord that he would always support the principle that the political process in our country be kept strictly separate from the administration of justice. I know he believes in that and I know that the noble and learned Lord the Lord Chancellor keeps telling us he believes in that as well. Indeed, he claims that his plans to go forward with his current ideas are based on that belief and, therefore, we all want the strongest possible assurance that no breach of that principle has in any way occurred in this case. Therefore, it is important that we understand a little more about why the evidential basis changed; and until we understand that, I am afraid that a mystery will remain hanging in the air.
11.41 a.m.
Lord Goodhart: My Lords, I think the key passage in the Statement is the one where the noble and learned Lord the Attorney-General, says:
"The evidential deficiency related to the prosecution's inability within the current statutory framework to disprove the defence raised on the particular facts of the case".
I note that I think those exact words were also repeated in the press release from the Director of Public Prosecutions.
The Attorney-General says that he cannot tell us why counsel advised that there was no longer a realistic prospect of conviction. But he can tell us what the defence was—why the defence of necessity was raised. What were the contents of the defence statement that raised the defence of necessity? What were the particulars of that defence? What further documents did the defendant request disclosure of? Will the defence statement, as it stands, be disclosed now, because that cannot be subject to the Official Secrets Act?
To take the matter a little wider, the e-mail that was leaked was about the bugging by American intelligence of the foreign embassies—the embassies of the countries that were regarded as potential swing voters on the second resolution—which, at that time, this country and the USA were actively seeking. Does the noble and learned Lord agree that the bugging of foreign embassies is contrary to international law? Is Clare Short correct in her belief, as stated on the "Today" programme this morning that her meeting with Kofi Annan was bugged and, if so, is that something which is legal? The fact that the embassies of the swing vote countries were being bugged indicates that the second resolution from the United Nations was thought to be a matter of very great importance. How does that fit in with the view of the noble and learned Lord that Resolution 1441 and the earlier resolutions were enough without a second
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resolution? Is it correct that the Foreign and Commonwealth Office was arguing that the second resolution was necessary to give legality to the invasion?
It is noted that Elizabeth Wilmshurst, the lady to whom the noble Lord, Lord Howell, referred earlier, confirmed in the Guardian today that she resigned from the Foreign and Commonwealth Office because of her disagreement with the conclusion that the war was justified. That surely confirms the need for the public to see the whole of the Attorney-General's advice if, indeed, anything more than the one paper statement released by the Attorney-General does in fact exist.
11.44 a.m.
Lord Goldsmith: My Lords, I start by thanking the noble Lord, Lord Howell, for welcoming the Statement. Let me deal first of all, if I may, with his questions and then move to those raised by the noble Lord, Lord Goodhart.
I entirely understand—and that is why I said what I did in my Statement—that noble Lords would wish to know more, if they could, about the detailed reasoning of senior Treasury counsel with which the Director of Public Prosecutions concurred. I have indicated that, because of certain constraints which I have identified in the Statement, it is very difficult for me to do that. And I, in a sense, regret that too, because I would welcome nothing more than for your Lordships to see fully that some of the suggestions that have been made that I have seen in newspapers are completely without foundation.
However, I have to say to noble Lords this: the Director of Public Prosecutions has very clearly stated in the Statement that I read, and of which copies I hope will very shortly be available, that the decision was—I repeat—a decision by the Crown Prosecution Service on the basis of advice from senior Treasury counsel, in which the Director of Public Prosecutions concurred, that there was,
"no longer a realistic prospect of conviction",
and that he has said that it was a decision on solely legal grounds, free from any political interference. I have, therefore, to ask noble Lords to accept, recognising the difficulties that I am in—and I wish I were not in them either—that what the DPP has said about the decision and what I have confirmed about the decision is the fact. I ask noble Lords to accept that from him and from me.
The noble Lord then asked me whether I can confirm that I did discuss the case with the Director of Public Prosecutions. He was good enough to say that it would have been perfectly proper to do so and, of course, he is right about that. Of course I discussed that with the Director of Public Prosecutions. I had given my consent originally, it was plainly right for him to consult me in relation to the matter and, of course, I consulted with him and, indeed, wanted to hear directly from senior Treasury counsel what his view was as well.

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The noble Lord then asked me whether I had discussed this matter with Cabinet colleagues. I indicated in my Statement that at the outset I conducted what is known as a Shawcross exercise. Noble Lords will recognise that that is a reference to the late Lord Shawcross—Sir Hartley Shawcross when he was Attorney-General—who made a very important Statement in another place in 1951 which explained why it was right for Attorneys-General to seek to be informed by colleagues of matters affecting the public interest. He made clear, as I have made clear, that having been informed, it is a matter then for the Attorney to reach his decision and his decision alone. I can entirely confirm that it was. I indicated that I received views in response to the letter that I had sent.
When it came to the Crown Prosecution Service and counsel raising their concerns about the prosecution continuing—as I have said counsel's view was that there was no longer a realistic prospect of conviction—then, because the Foreign Secretary has statutory responsibility for GCHQ, which is what this is all about, he spoke to me by telephone on 14 February and at a meeting on 24 February about this case. The purpose was to inform the Foreign Secretary about the advice I had received relating to the continuation of the prosecution. The Foreign Secretary took no part in decisions relating to the discontinuation of the prosecution.
I was also asked by the noble Lord why this was so late in the day. May I just correct one matter, because I think that a point is gaining currency that the trial was due to take place yesterday. It was not. Yesterday was the plea and directions hearing, which is essentially the first hearing in the Crown Court. No date for trial had been set. No directions had been given for the trial. This certainly was not at the eleventh hour. On the contrary, this was still at quite an early stage in the case. The reason the decision was taken was, as I have indicated, the review by counsel of the case and the material in order to comply with his obligation under the Code for Crown Prosecutors to keep under review whether there was a realistic prospect of conviction. That was the reason for it.
Noble Lords again, I hope, will agree that, that very important decision being made by the independent prosecutor, it was right that the case should be brought to an end as soon as possible. And that is what happened by the statement yesterday.
I move on to a question raised about a report which, I understand from noble Lords, appeared in the Guardian this morning, which I have not seen. That concerns the position in relation to the Foreign Office and some particular adviser. I cannot comment on the reasons an official in another department chose to leave the service and I do not intend to do so. That is a matter for her and for the department. But I repeat this: the decision to stop the case was not in any way based on considerations in relation to the legality of the war or in relation to questions of disclosure of anybody's advice. It was on the basis of the view of senior Treasury counsel, concurred in by the Director of Public Prosecutions, that there was no longer a realistic prospect of conviction.
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A very important point was made by the noble Lord, Lord Howell, at the end and I want to deal with that. He asked me whether I could give him an assurance that I would always support the strict separation of the political process from the prosecution process. He was good enough to recognise that that is a principle in which I strongly believe and I can unreservedly assure him that when it comes to prosecution decisions I regard it as extremely important that they are made independently of political considerations. I can also assure him and the House that this decision was also made independently of political considerations, as the Director of Public Prosecutions, in his release, has confirmed.
I turn to the questions raised by the noble Lord, Lord Goodhart. He asked me whether I can say more about the contents of the defence statement. I am told that no defence statement has in fact yet been received, but in the initial interviews Ms Gun gave an indication of what, in her mind, her justification for her action was. It was on the basis of that and, as the Code for Crown Prosecutors would require, the prosecutor's own consideration of the case that thought was given to what the defence was likely to be and therefore how to meet that defence.
I am aware of a statement made—noble Lords will forgive me because I have seen no such document, I can confirm. There was a defence request for disclosure, as is apparent from the statement by the DPP, which I have read, which was received on 24 February. The Director of Public Prosecutions makes the point that that was received after the determination not to proceed with the case had been made. I do not have a copy of that. I have seen—as noble Lords have seen—some suggestions in the newspapers as to what it contains, but I cannot confirm what it contains because I have not personally seen it. I am seeking to assure noble Lords that that was received after the determination had been made and it is not because of that request for disclosure that the prosecution did not proceed.
The noble Lord, Lord Howell, then asked me questions on comments which have been reported from Miss Clare Short. Noble Lords will know that the Government do not comment on intelligence matters. As a matter of practice, they do not do that. But the Government do give this assurance: that the British security services always act within domestic and international law.
Noble Lords will have heard that statement from successive administrations of both political parties. It has been a standard and important line that is made. And noble Lords will know that there are other mechanisms by which the regularity of the way that our security services operate are dealt with. Noble Lords will be well aware of provisions under various Acts, of the commissioners, of the opportunity to make complaints, and of reports which are made to Parliament—or made to the Prime Minister and then laid before Parliament—concerning the review by commissioners of the operations of the security services. But there is nothing new about that statement at all.
The noble Lord, Lord Goodhart, took the opportunity to go beyond the position in relation to this particular case, as I see it, to pick up a question

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which has been debated before in your Lordships' House about the legality of the war. Let me just say this, because I have said it before: at the time we started military action, it was my own considered and honest view that military action was lawful based on the repeated failure of Saddam Hussein and his regime to comply with multiple United Nations Security Council resolutions, in particular United Nations Security Resolution 1441, which made clear that there had been material breaches and that there would be, in the judgment of the whole of the Security Council, further material breach if Iraq did not wholly and unconditionally comply with the terms of the resolution. And the effect in law, in my opinion—and I understand it to be the opinion at least of the Official Opposition Front Bench as well, repeatedly stated—was that the authorisation to use force, which had been given in earlier resolutions by the United Nations, revived.
That is why 1441 said in terms that there would he serious consequences if there were not full and unconditional compliance. I believe that was the position at the time we engaged in action. I believe today it was the correct legal position and I explained that in the Answer I gave in this House to my noble friend Lady Ramsay. It was further explained in a longer document delivered to the Foreign Affairs Committee on the same day by the Foreign Secretary, which set out the United Kingdom Government's view on the basis of legality. That document, for example, pointed out that the same legal analysis of revival of the earlier resolution had been relied upon by successive governments—governments of both main political parties—for taking military action previously in relation to Iraq and had been expressly approved by a former United Nations Secretary-General. Of course I am aware that others took a different view. That was abundantly apparent at the time. Opinions were published and letters came out in the Guardian. But that was the view that after considered reflection I believed was the correct position.
I hope that I have answered all the questions.
11.58 a.m.
Lord Wright of Richmond: My Lords, having spent much of my time in my final years in the Foreign and Commonwealth Office dealing with security and intelligence matters—in particular with relations with the intelligence agencies and GCHQ—I have to say that I find the decision to drop this case and the implications of it for the future handling of secret intelligence, in particular for what are called "crises of conscience", extremely disturbing.
I believe I am right in recording that following the Ponting case a counsellor was appointed to help individuals in the intelligence and security agencies—I think I am right in remembering that that included GCHQ but it may not have done—faced with crises of conscience about intelligence matters. Can the noble and learned Lord tell us whether that post still exists; whether the counsellor was used in this case; and whether Mrs Gun consulted him? If not, I suggest that
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the existence of a counsellor, if he is still in post, is brought to the attention of all employees in the security and intelligence agencies.
Lord Goldsmith: My Lords, I entirely understand the point made by the noble Lord, Lord Wright. I cannot specifically say that a counsellor was appointed in relation to GCHQ but I believe that that was the case. I have no specific knowledge either way, but the speed of events suggest to me that such a person was not consulted by Ms Gun. However, again, I cannot confirm that because I do not have direct knowledge; I am inferring it. I am sure that the noble Lord is right to say that the attention of all employees in the security services should be drawn—if, indeed, it has not been already—not only to that route but to other routes that exist for the purpose of raising difficulties.
The noble Lord may know that, subsequent to the Ponting case, others have gone through the courts, including the Shayler case, where quite detailed discussions have taken place—in the Court of Appeal, in particular—on the circumstances in which an apparent failure of authorisation, notwithstanding that, might be subject to a defence. Those matters were fully in the mind of prosecuting counsel when considering the prospect of achieving a conviction in this case.
Lord Thomas of Gresford: My Lords, will the noble and learned Lord the Attorney-General kindly tell us whether the record of the interviews that took place with Ms Gun formed part of the material before the CPS when it decided to refer the matter to him and whether it was before him when he gave his consent? If no defence statement was served and no further disclosure was required, what happened between the decision to prosecute following the consent of the Attorney-General and the pre-trial hearing yesterday which caused the prosecuting counsel to change his view? What conceivably could have happened if he did not have in his hand a defence statement setting out the particulars of the necessity upon which the defendant relied in order for him to make a decision?
Lord Goldsmith: My Lords, I am absolutely confident that the record of the interview with Ms Gun was before prosecuting counsel at the time the case was reviewed, and I am sure that it was also before me when I gave my consent. However, if I may respectfully say so, of all people, the noble Lord, as a practising lawyer, will know that the obligation of the prosecution is to continue to keep a case under review and to examine not only the original material that may have been before him at the time of making the decision but further material which is gathered in the course of the investigation which follows and to determine, in the light of all of that, whether there is a realistic prospect of conviction.
The noble Lord will also know that, in reaching a view on whether there is a realistic prospect of conviction, under the code it is the obligation of prosecutors to have regard to likely defences as well as to something which has been put formally in a defence statement. No doubt, on many occasions, the noble

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Lord's clients have benefited because prosecutors have considered that in a certain case such and such a defence is likely to be raised. Of course, in this case it was apparent from what had been said in the interview that the defence along the lines of necessity or duress of circumstances referred to by the Court of Appeal in Shayler was precisely the line that would be taken in the defence.
Baroness Trumpington: My Lords, bearing in mind that GCHQ took the place of Bletchley Park, the noble and learned Lord can imagine that I am particularly interested in what he said. Perhaps I may say how much I agree with what the noble Lord, Lord Wright, said earlier. Regardless of the contents of Ms Gun's public statements, is it not a simple fact that she contravened the Official Secrets Act? What can one say to stop the lady in question or her colleagues giving further information? Why could not this whole matter have been dealt with in camera, which I believe would have happened at Bletchley had such a situation ever arisen? Surely things are left in the worst possible situation, having, I imagine, thoroughly irritated America and equally thoroughly irritated those who are trying to run GCHQ.
Lord Goldsmith: My Lords, taking into account the noble Baroness's past experience, I absolutely understand why she agrees with the observation that was made. As I indicated in answer to the noble Lord, Lord Wright, I entirely understand the significance of that. Noble Lords may recall that in the Shayler case, the Government argued very strenuously that there should be no possibility whatever of a defence of necessity or duress—precisely because of the reasons that the noble Lord and the noble Baroness have raised. However, that was not the view that the Court of Appeal took in relation to the matter.
I recognise the difficulties, which I hope the House understands I have tried to indicate, concerning the nature of the material. Undoubtedly, questions such as those raised by the noble Baroness—for example, whether these difficulties could be overcome by dealing with matters in camera—were fully discussed between prosecuting counsel and GCHQ before prosecuting counsel took the view that he did and the Crown Prosecution Service took the decision that it did. I am reminded of one of the difficulties relating to the Act: I believe that it was the Lord Chief Justice, the noble and learned Lord, Lord Woolf, in the Shayler case who, in the Court of Appeal, said that sometimes these cases become unprosecutable.
Lord Mayhew of Twysden: My Lords, what is the deficiency in the Official Secrets Act 1989 or any other component of the statutory framework to which the Attorney-General has referred that makes it impossible, as he stated, for the Crown to disprove the defence of necessity? At the very end of his Statement, the noble and
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learned Lord made reference to keeping the law under review. Can he help us a little by indicating in what respect he would like to remedy the law as it now stands?
Lord Goldsmith: My Lords, I am grateful to the noble and learned Lord. I am afraid that, at this stage, I can say only that the Government are carefully considering whether this decision has any implications for the Official Secrets Act. The Government keep all legislation, including that Act, under review and they will carefully consider whether the decision has any implications for the Act.
Earl Ferrers: My Lords, can I ask the noble and learned Lord the Attorney-General to clarify matters a little further for one who climbs up these hills rather slowly? The noble Lord, Lord Thomas of Gresford, asked a question which I should be grateful if the noble and learned Lord could clarify further. The noble and learned Lord said that there was no longer a realistic chance of a conviction. I understand that. Presumably a few weeks or a few months earlier there was a realistic chance of a prosecution, otherwise it would not have taken place. What happened to change black to white? It must have been a considerable occurrence and not simply a small thing.
Lord Goldsmith: My Lords, I am not sure that I agree with the description "black or white". These matters are often balanced just over a limit or perhaps significantly below it. Be that as it may, counsel's continuing review of the case and of the evidence gathered in the course of the investigation led counsel to the view that I have indicated. Again, while recognising that noble Lords would like to know more and while recognising my own difficulty in saying more, I simply repeat the hope that noble Lords will accept from me and from the Director of Public Prosecutions that this was the decision and the view reached by the independent senior prosecuting counsel, and concurred with by the Director of Public Prosecutions, based on the evidential issues that I have identified, even if, I am afraid, I am not able to detail them.
Lord Morris of Aberavon: My Lords, I endorse and commend the propriety of the actions of the Attorney-General, which have been adumbrated according to the limited knowledge that we are able to have. In particular, I endorse his emphasis that in all cases a prosecution, however mundane—the same applies to a drug-running case or anything of that kind to a matter of the utmost seriousness—must be constantly reviewed.
Long after I retired, I was summoned before the Intelligence and Security Committee under the chairmanship of Tom King—now the noble Lord, Lord King—to explain my actions in declining to prosecute in another case. I presume that the noble and learned Lord the Attorney-General will have no difficulty if he is summoned to explain to the Intelligence and Security Committee what had happened. From what he has told us today, I am sure that he will satisfy the committee on all counts.
Lord Goldsmith: My Lords, I am grateful to the noble and learned Lord for his comments at the outset.

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With his great experience, including in the office which I am privileged to hold now, I welcome that very much. He is right; all cases have to be kept under review.
I agree that if asked to come before one of the committees which looks particularly at secret information and circumstances, I shall do my best to provide it with information. I am glad for his prediction that I will be able to satisfy such a committee; that will be for the committee to say.
Lord Palmer: My Lords, following on from the response to the noble and learned Lord, Lord Mayhew, surely this makes a complete mockery of the Official Secrets Act, which will, most certainly, have to be completely rewritten and looked at again.
Lord Goldsmith: My Lords, I do not think that the position is nearly as black as that. Certainly, I would not want to be taken as accepting that. There are particular circumstances in every case. However, as I have indicated, the Government will carefully consider whether the decision has any implications for the Official Secrets Act. It would not be right for me to indicate at this stage what the conclusion of that will be. It may be that there is not any problem with it as it stands, but we shall have to wait and see.
Lord Mackay of Clashfern: My Lords, perhaps I may ask the noble and learned Lord the Attorney-General a little more about the circumstances. As I understand it, when the decision was taken to initiate the prosecution and he gave his consent, the initial statements of the lady in question were available, as he recalls, both to the prosecution and to himself. As I understand what he said, at that stage the possibility, at least, of the defence of necessity was manifest. I assume, therefore, that the question of whether or not the prosecution could overcome such a defence was considered at that stage.
I understood that at that stage senior Treasury counsel was adviser to the Crown Prosecution Service and was the same senior prosecuting counsel involved as matters proceeded. As the noble and learned Lord said, these matters are continually under review. If I am right so far, something must have occurred—I do not question exactly what; it may be that the noble and learned Lord is not able to tell us—to alter the view that both senior prosecuting counsel and he had formed at the early stage of the possibility of the prosecution overcoming the defence of necessity. If so, I should like to know at what date that occurred and when it was brought to the notice of the Director of Public Prosecutions.
I should like to make it clear that I fully accept everything that the noble and learned Lord said. I have the highest possible confidence in his integrity and in his decisions, which were taken in the light of very difficult circumstances in this case. As I think I said to him some time ago, the position of the Attorney-General can be a difficult one. This, perhaps, is an illustration of that. I have every possible sympathy with that point of view. However, if people who are less willing than I am to accept that situation are to be
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reassured, we need to understand as best we can against a background of the intelligence involved the course of events, which will enable them to follow what has occurred.
Lord Goldsmith: My Lords, I thank the noble and learned Lord for what he said. I shall do my best, within the limits of what it is appropriate for me to say, even to your Lordships. Yes, indeed, I have indicated that the records of the interview with Ms Gun were available and considered at the time the initial decision was made.
Without going into detail, which, for the reasons I have given I would find difficult, I have also indicated that it was in the course of review, including a review of further evidence and material gathered in the course of the investigation, that counsel reached the view he did.
As to timing, it was at about the beginning of this month that these issues emerged. It was in about the second week of this month, or perhaps slightly earlier, that I became aware of them. In the intervening period, consideration had been given to those views and to the consequences of those views, and the decision was then taken to indicate at the first hearing, the plea and directions hearing, that the case should not proceed. So, it is all very recent.
Lord Wallace of Saltaire: My Lords, does the noble and learned Lord the Attorney-General accept that the wider context of this case is the network of agreements between the United States and the United Kingdom on mutual defence and intelligence co-operation, the effective integration of some aspects of US and UK intelligence and the extra-territorial rights that US forces and intelligence services have in the United Kingdom?
We recall that most of these agreements have been in existence for 50 years or more and that a great deal still goes on under them. I understand that US intelligence personnel in this country increased substantially after September 11 2001, for example, although my information is informal and nothing was reported to Parliament.
I received a written reply from the Foreign Office yesterday about the renewal of the US-UK Mutual Defence Agreement, which has to be renewed by the end of 2004, with reference to whatever amendment may be necessary. I ask the noble and learned Lord the Attorney-General to put into the Government's reconsideration of this case that it would be appropriate at this stage for the Government to publish this year a consultation paper on this network of agreements, most of which were signed in the early stages of the Cold War, and to lay before this House the justification for whatever amendments to those agreements the Government may consider necessary.
Lord Goldsmith: My Lords, I thank the noble Lord, Lord Wallace of Saltaire, for that question. He is right to draw attention, as he has on other occasions in your Lordships' House, to the importance of the relationship

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that we have at a number of levels between this country and the United States. It is an important relationship and it is important that it works.
I wondered at one stage if the noble Lord was to make reference to that in the context of this case. I would have had to say that the separation of the political and the prosecutorial issues cuts both ways. I know that the noble Lord will understand what I mean in relation to that.
I have noted what the noble Lord said about the request for consultation on those agreements. I know that he will not expect me to be able to respond to that, but that will be passed on to those who make decisions of that kind.

Child Trust Funds Bill
12.18 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time.
My briefing notes state:
"I am delighted to be bringing this Bill before the House",
and I really am. It is not very often that one has a complete innovation in social policy brought forward by a political party in its manifesto, consulted on over a number of years, receiving in principle virtually universal support, even in the detail, and have the opportunity to bring it forward. So I am delighted to be bringing this Bill before the House. The child trust fund represents a new and imaginative way of encouraging children and their parents to save for the future and the Bill enables us to make that a reality for the many children who will benefit.
There are four objectives to the child trust fund: to help people to understand the benefits of saving and investing; to encourage parents and children to develop the savings habit; to ensure that all children have a financial asset at the start of their adult life; and to build on financial education and help people to make better financial choices throughout their lives.
That is an ambitious project. Too often, welfare policy looks solely at income distribution and focuses exclusively on meeting immediate needs. It is now time to take a longer view and consider the factors that make a difference to young people's opportunities.
The child trust fund is a universal savings policy that will benefit all children but will target greater resources at those children who need it most. With the child trust fund we could, for the first time, make a real difference to people who have never had the security of a financial asset.
The child trust fund was proposed in our manifesto in 2001. It has been developed on the basis of extensive formal and informal consultation with potential providers, trade bodies, consumer organisations and other voluntary organisations. There have been two formal consultations.
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Saving and Assets for All, published in April 2001, set out our belief that saving and asset ownership is an essential element in our welfare strategy. The paper outlined policy options for the saving gateway and the child trust fund. The responses received influenced a further paper in November 2001—Delivering Saving and Assets—in which the Government consulted on more detailed proposals for delivering the child trust fund: through the open market or licensed providers.
In the 2003 Budget, the Chancellor announced that child trust fund accounts would be introduced in 2005 for all children born from September 2002. In October last year, we published detailed proposals on how the child trust fund will work. The Bill had its Second Reading in the other place in December—I will return to discuss its passage there later.
We want to encourage all families to save for their children. Surveys show that only one third of the population saves regularly. There is not a tradition of people saving money for their children over the long term. They save for a rainy day or for a particular purchase but there is little evidence of people saving to build up a financial asset for their children when they reach 18.
We are especially concerned about families on low incomes. The American experience with individual development accounts shows that incentives do encourage people on lower incomes to save money. Our own pilots of the saving gateway—although it is early days to draw conclusions—indicate that people on very low incomes can make regular savings.
We believe that the child trust fund will kick start savings among families for two reasons: first as a response to the initial government payments—and further payments at age seven—and secondly as a result of financial education.
The Bill places a duty on the Inland Revenue to make child trust fund payments to eligible children. It sets out how CTF accounts are to be set up and run and includes powers to make regulations covering some of the more detailed issues. The draft regulations were published on 2 February and copies are available in the Library. Those include most of the detail of the investments that will be allowed and the requirements of providers. I will discuss some of the detail later.
This morning, the Select Committee on Delegated Powers and Regulatory Reform published a report on the Bill, for which I am grateful. I understand, on first reading, that it has made a number of suggestions for substituting affirmative for negative resolutions in the Bill. At this stage, I see no difficulty in our complying with its proposals.
I turn to eligibility. In developing the child trust fund our aim has been to keep the processes as simple as possible for all concerned—families, providers and children. All children born since 1 September 2002 who live in the United Kingdom and for whom child benefit is claimed will be eligible for the child trust fund. Entitlement to a child trust fund account—I hope that I can I call it the CTF; using its full name is getting boring—will be linked to an award of child

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benefit, which nearly every parent in the country claims. That removes the need for a separate claim form and process for the CTF and will keep things simple for parents.
Child benefit cannot he claimed for children in local authority care and the Inland Revenue is working with representatives of local authorities and central government to ensure that those children do not miss out. When the award for child benefit is made, the parent or guardian will be sent a CTF voucher and an information pack. The information pack will include details of all providers, a step-by-step guide to opening an account and a clear and objective explanation of the stakeholder CTF account, which all providers are required to offer. Parents—or someone else with parental responsibility—can then take the voucher to the provider of their choice to open an account.
Financial institutions that want to offer CTF accounts will need to be approved by the Inland Revenue. The details are set out in regulations but that is a straightforward process and one with which financial providers are already familiar, as it is based on the approval process for individual savings accounts. Providers will be able to offer a variety of different accounts to suit the different preferences of parents. The CTF will be a "wrapper" in a similar way to the ISA—that is, it can be wrapped around a variety of products such as cash or unit trust and life insurance products. That will give parents choice and allow providers to offer a full range of accounts to suit a diverse market.
The CTF is a long-term savings and investment policy. Historically, investments in equities have been shown to provide a better return than cash deposits. Over the past 18 years, for instance, £100 invested in the stock market would have yielded £321, whereas the same £100 deposited in a building society account would have produced £171. We want all children to have the opportunity to benefit from the generally higher returns on equities over the longer term. That is why offering the stakeholder CTF account will be a prerequisite for all financial providers that want to offer CTF accounts.
The stakeholder account will follow the principles outlined by Ron Sandler in his July 2002 report, Medium and long-term retail savings in the UK. He proposed that stakeholder investment products should be simple, low cost, accessible and risk controlled. Stakeholder accounts will be equity-based. To balance risk and return, providers who offer stakeholder accounts will be required to diversify investments so that investors are not unduly exposed to a narrow range of equities. They will also be required to apply "lifestyling" to the accounts, moving investments to less risky assets as the account nears maturity. Again, further details are set out in the regulations.
Once the CTF account has been opened, the financial provider will claim the amount of the initial government payment—£250—from the Inland Revenue. Children in families on child tax credit whose income is below the income threshold—currently, £13,230—will have an additional payment
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of £250 paid directly into their accounts as soon as the tax credit claim for the year in question has been finalised.
Children born between September 2002 and April 2005 will receive higher amounts to recognise the fact that they could not open accounts earlier. A further payment will be made when the child reaches seven, and, again, a second payment will be made to those children in families on low incomes. By the age of seven children are beginning to understand money and that payment will remind them and parents of the account.
Inevitably, there will be some people who do not get round to opening accounts for their children, but we do not want those children to miss out. If an account has not been opened 12 months after the voucher has been issued, the Inland Revenue will open an account and tell the parent or guardian that that has been done and how they can take over managing the account. The accounts that the Revenue opens will always be the risk-controlled child trust fund stakeholder accounts, as they are designed for long-term investment. Of course, they will be with an approved provider. The Inland Revenue will not be responsible for managing the account once it is opened.
Parents will be free to move the account to a different provider or type of account if they wish. We hope that the number of accounts that the Inland Revenue needs to open will he small and will diminish over time. The Inland Revenue will also open stakeholder accounts for looked-after children for whom a child benefit award has not been made. As those children are in care when the account is opened, they will not be able to qualify for the additional government payment by living in a family receiving full child tax credit. Given the disadvantages experienced by those children, the Government have decided that they will automatically receive an amount equal to the initial and the additional government payments.
But the child trust fund is not only about government payments. We hope that government payments will kick-start a saving habit and that parents and other family members also make their own savings.
We would like to see a change in attitude to saving for the long term and have decided that child trust fund accounts should have certain advantages to encourage that. Between them, parents, grandparents, friends and relatives will be able to add up to £1,200 to the accounts each year, and all income and growth will be free of tax.
As a further incentive, the income tax settlements legislation will not apply to child trust fund accounts. With child trust fund accounts running for 18 years, the settlements legislation could have caught large numbers of people in the later years of the account.
I promised to return to the passage of the Bill in the Commons, where a number of interesting issues were debated. I shall discuss first the effect of the child trust fund on means-tested benefits claimed by the child or the family. First, I can give the assurance that funds

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within CTF accounts will not be taken into account in any claims for family benefits or tax credits while the account is growing. The Government are keeping the treatment of capital in income-related benefits under review, so that a sensible balance is struck between providing targeted state support and not unfairly penalising those who have acted responsibly by saving. There are three points at which the CTF and benefits interact: when a child reaches 18 and the CTF account matures; the impact on pension credit when grandparents contribute to CTF accounts; and where a child dies and parents receive funds from the CTF as part of the child's estate.
I shall deal first with the treatment of CTF at maturity. Understandably, there is concern that saving in a CTF may affect entitlement to benefits such as income support and jobseeker's allowance when a child reaches the age of 18. At that time, the CTF account ceases to be a CTF and the funds are available for the young adult to spend or to reinvest. The Government have responded to those concerns. At Second Reading in the Commons the Financial Secretary announced that, as a first step, from 6 April 2006, the threshold above which savings reduce eligibility to income support, jobseeker's allowance, housing benefit and council tax benefit will be increased from £3,000 to £6,000. Although it is not possible to guarantee the rules for benefits in 2020, when the first CTF accounts mature, that doubling of the threshold will reduce the number of people affected.
The second issue is pension credit and capital deprivation rules. Capital deprivation rules for income-related benefits such as pension credit are designed as anti-abuse measures. Officials in the Department for Work and Pensions have discretion to determine whether payments such as those into a CTF account will be treated as deprivation of capital. It is unlikely that modest contributions would be caught under that rule.
In the sad event of the death of a child, the funds from the CTF will form part of their estate and will be treated as capital in the hands of the person inheriting the estate. That could affect any benefits claimed by that person; but, again, the increase in the capital threshold will reduce the number of people affected.
There have been debates on disabled children in Standing Committee and on Report in the other place. Let me clarify the position: the child trust fund is a long-term savings policy, and the funds in the account can be accessed only when the child is 18. The honourable Member for Witney suggested that it might be useful for the parents of severely disabled children to be able to access the money for the good of the child before 18, and that the annual limit of £1,200 for non-government contributions should be raised so that more money could be paid into the CTF accounts of those children.
The Financial Secretary committed on Report to consider the proposal in consultation with disability groups. She pointed to factors to be taken into account. The first was whether the CTF is the right vehicle to help disabled children, given the tax-free allowance of £4,615 for all individuals—but which children are not likely to
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breach—and the availability of accounts with immediate access. The second is whether such a change would not distort the objectives of the CTF and result in disabled children being disadvantaged at 18; thirdly, whether the administration required would be proportionate; and. fourthly, whether there is a consensus of support for such change among disability groups.
Debates in Standing Committee were constructive. The Financial Secretary was able to respond positively on Report to another suggestion; that is, that parents of terminally ill children will have access to the funds in the CTF account before 18. That change will mean that parents can withdraw the funds and use them for the benefit of their child. That is sensible, but there is still work to be done on the details.
Before outlining an amendment that I intend to table, I wish to inform the House about two amendments made by the Government in the other place. I explained that parents could open a CTF only with a voucher issued by the Inland Revenue. A number of providers and Members of the other place have argued that it is unnecessarily bureaucratic for providers to be obliged to obtain the voucher from parents before accounts are opened. We think that handing over the voucher containing the child's details will both play a key part in the efficiency of the CTF and deter fraud. None the less, we can see that flexibility to make any changes to that system by regulation would be useful. We have amended the Bill to put that requirement in regulations. If experience demonstrates that the paper voucher is not necessary, we can make changes much more easily.
Baroness Hayman: My Lords, I am grateful to my noble friend for giving way. On the interaction with social security benefits, although the raising of the threshold is obviously welcome, will the Government undertake to look again at the principle of the issue? It is problematic to think of an 18 year-old who is unable to find a job and is on jobseeker's allowance being penalised, not just because of the money that the state has put in, but because for years grandparents, uncles and aunts have contributed to the CTF instead of giving birthday presents, and so on. We ought to look at that problem.
The issue of payment on death is equally important. Mainly those will be hugely tragic cases, where perhaps parents have given up work to care for a child who is dying and want to use the CTF to form a memorial, but instead find that it reduces their benefits while they are trying to remake their lives.
Lord McIntosh of Haringey: My Lords, the noble Baroness's second point was about what happens in the case of the death of a child under the age of 18. I thought that I had answered that, and that the Government's changes dealt with the point that the noble Baroness makes.
The interaction at maturity between the child trust fund and benefits was discussed constructively in the Commons, and I think that it can be discussed in the same way here. I am sure that there will be amendments, that everybody will have their say, and that I will be able to give a more detailed answer to specific proposals. I

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agree that an issue of principle is involved, but there are also considerable practicalities to be considered. We will have to look at specific proposals to be able to respond to them.
The second amendment concerns the age at which children can manage their CTF accounts. The Bill as originally drafted followed general law, which does not allow under-18s in England, Wales and Northern Ireland to make binding contracts to buy or sell shares, whereas in Scotland they can do so at 16. Following a debate in Committee, the Government tabled amendments on Report to allow 16 year-olds to manage CTF accounts, including accounts with investment in equities. That does not affect general law about other investments, or the age at which children can access the funds in their CTF accounts—it remains 18—but it means that 16 year-olds will be able to make decisions about their CTF accounts.
I shall now discuss an issue that affects children being looked after by local authorities, and my proposal to table a government amendment to improve the Bill in Committee. In most cases, parents retain parental responsibility for their children while they are in the care of a local authority, and will be able to manage their child's CTF account. But there will be cases, such as those of orphans with no legal guardian, or where contact with the parents has been terminated, where no one is able to take on the role of responsible person for the looked-after child's CTF account. The Official Solicitor has agreed to do this and I intend to table an amendment to the Bill allowing that to happen.
Before closing I should like to say something about the charge cap and the minimum contribution. The Government's decision to set the cap at 1.5 per cent recognised that the CTF had certain key characteristics that were not typical of other products in the stakeholder suite, including stakeholder pensions. In particular, child trust fund accounts will be smaller than stakeholder pensions and will have a lower minimum contribution level than other stakeholder products.
The charge cap of 1.5 per cent is in the best interests of consumers, as it encourages a wide selection of providers to offer CTF accounts. A large number of providers will encourage competition and the best value for consumers.
The evidence on which the Government based their decision included research commissioned from Deloitte. Deloitte's report comprehensively analysed the trade-offs of different charge caps for providers and consumers. That report will be published later this year at the same time as its report on the other stakeholder products.
The minimum contribution for the stakeholder child trust fund account has been set at £10 to ensure that it is accessible to all savers, including those who are unable to contribute regularly. Providers may accept even lower contributions if they wish. It is expected that competition among providers could drive the minimum amounts accepted below this.
The child trust fund is a bold and ambitious policy. We hope it will fundamentally change attitudes to savings, improve financial capability and extend opportunities across income barriers by providing all children with an asset when they reach 18.
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We all have an interest in creating a society that understands the benefits of saving. The child trust fund will help us to do that. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord McIntosh of Haringey.)
12.41 p.m.
Lord MacGregor of Pulham Market: My Lords, I wholly support the objectives of the CTF as outlined by the noble Lord and in the various documents we saw earlier. I support them because they are fundamental Conservative objectives which the Tory party has subscribed to during the period I have been a member of it. In particular, I am wholly in favour of the objective of greater financial education, especially among young people. There is no doubt that in all kinds of ways this is deeply desirable.
When I was—for an all too short period—Secretary of State for Education, I was particularly anxious to see what I could do to encourage that in schools. We should recognise that this objective will be more fully achieved by what can be done in schools—and we have to recognise that it is a long-term objective—rather than by the CTF. I am also—and have been throughout my political lifetime—in favour of more encouragement of wider ownership both of homes and of shares and of savings for the future and encouraging the savings habit. I am in total agreement on all of that.
The Government have more recently subscribed to the belief of encouraging individual savings, but they have signally failed in their endeavours so far. In the six years to 1997 the savings ratio was never lower than 9.1 per cent; in the six years since, it has never been higher than 5.7 per cent. So one has to say that whatever the Government have been trying to do, they have absolutely failed in their objectives and have been less successful than the previous administration.
I also see the importance of giving encouragement to savings. During the mid-1990s I saw several surveys which indicated that the vast majority of the population recognised that they needed to save more, particularly for pensions given that the state pension was going to be insufficient for their needs. There was a huge recognition of the need to subscribe more. But when one actually looked at the responses of those who were doing something other than being in occupational pension schemes—and we know what has happened to them—one found that they simply were not taking the necessary actions to meet the objectives that they saw as desirable.
That was the position then. I think that it is worse now when one looks at what young people in particular are now saying. Very many believe in spending on the day and are actually not subscribing—possibly apart from buying their own house—to the need to save for the future. So there is a big, big job to be done.
I therefore support the objectives. But, the key question is: is this scheme the right way to achieve them? The Chancellor has a mania for micro-management, for micro-social engineering, for tinkering at huge cost and with complexity and bureaucracy. I have to ask the

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question: is this scheme one of those? So at the moment I am agnostic. I am prepared to be persuaded and that will depend on the Government's response to various questions which address three issues. The three issues are these: is it cost-effective? Is it practical? And, will it achieve the objectives? I recognise that the third issue is one that inevitably involves judgment, but the question must be asked.
The first two issues can be answered more directly. I have a number of questions to put to the Minister in connection with it. I make these points and make no apology for bringing them forward because I notice that the Select Committee in another place on child trust funds concluded in December last year that,
"the Government is committing itself and its successors to significant expenditure under this initiative, potentially over £4 billion over the next 18 years. It must therefore get the details of the scheme and its implementation right".
The Government, as the Minister has indicated, have been working on this scheme for about three years, so I hope that they will be in a position to answer all my questions. Interestingly, some of them were raised by the Liberal Democrats in the other place, and led that party to vote against this proposal both at Second and Third Reading. Indeed, the final comment of Mr Laws was that the Government's first priority should not be to,
"launch a Bill whose policy is supposed to be evidence based, but where evidence that the policy will work is in such short supply".—[Official Report, Commons 3/2/04; col. 729.]
These are the questions that we should be asking.
Before I turn to the particular questions, I should declare an interest in that I am a non-executive director of a financial services provider, although I have not actually discussed these details at all with anyone in that particular company. They are my own personal concerns based partly on my experience in the City but perhaps even more on my experience in government. I recognise—and I acknowledge this straightaway—as the Minister clearly outlined, the Government have done a great deal to meet many of the objections and difficulties of the scheme, but a number of concerns still exist.
The first question is in relation to the overall cost of the scheme. We all recognise that it will be very expensive—about £4 billion over 18 years. Does that £4 billion relate only to the £250/£500 payments—and presumably some estimate of the payments that are going to be made at age seven, but we do not know how much at the moment—or does it also take into account the administrative costs of dealing with the proposal? I suspect that the scheme will be very expensive for the Government to administer and for the Inland Revenue in particular. So my first question is in order to establish what the total cost will be: what is the Government's estimate of the administrative costs of running this scheme as far as the taxpayer is concerned?
The second issue I want to raise is the use to which the money will be put. The Financial Secretary indicated in the other place that, leaving aside whatever additional money might come at age seven because we do not know
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what that will be, the £250 would produce a figure of £475 at age 18 and the £500—for the lower income groups—would produce £911. If, as may well be the case, the top up—and I want to come to that later—by many families will be minimal, how can the Government be sure that that sum of money—the £475 and the £911—will either go into further saving schemes at the age of 18 or will be spent on good causes?
I recognise the difficulty of prescribing particular causes. That matter was much debated earlier and of course was much part of the consultation. Indeed, it is interesting to note that in the consultation period the Savings and Assets for All paper of 2001 indicated:
"This could be supported by restricting the uses to which young adults can put the funds in their matured Child Trust Fund".
Reference was made in the paper to the individual development accounts in the United States, to which the Minister has referred. The interesting point about that is that the individual development accounts in the United States confined the uses of the funds at the age of 18 to lifelong learning, business or housing. It can be done. The question that we need to explore is whether the Government are right to reject that answer. The responses that they received, quoted in Delivering Savings and Assets of November 2001, were evenly balanced between those in favour and those against restrictions on the final use of the assets.
My concern is that large numbers of young people who are given £475 at the age of 18 may well find that it will not be much help to them in a deposit for a house, or perhaps—as has been indicated that the Financial Secretary wishes—to start a business of their own. Is it not much more likely that that money will be used on an 18th birthday party spree? If that is the case, what have we achieved with this vast amount of taxpayers' money? We have not actually developed the savings habit for substantial numbers, and that money has simply gone in the wrong direction. Are we right to say that there should not he some restrictions on the use to which the money should be put at the age of 18, as in the United States?
The Minister rightly indicated that there were tax advantages for parents, grandparents, family friends, and others to top up the child trust fund to a limit of £1,200 per year. I recognise the objective of encouraging many more people to contribute to the fund, but I want to explore what particular advantage there would be in putting money into the CTF compared to other savings media. The advantage is the tax relief. However, in response to the issue of whether children born before September 2002 should be allowed to come into the scheme without the £250 but getting the tax advantages, the Treasury stated that the cost would be negligible. That suggests that the advantages to parents and others of topping up this fund would also be negligible. I would like to hear more from the Minister about that calculation.
The fourth point is the likely take-up by providers. I am glad that it has been recognised that a 1 per cent cap is not sufficient. I recognise that the Children's Mutual and other banks and building societies will be providers. The Children's Mutual has played a big part in the development of this scheme. I have talked to the

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Children's Mutual, and it is keen to see this scheme succeed, as am I. I wonder how many providers there will be. I recognise the merit of the voucher scheme. It is an ingenious way in which to market the scheme to parents and younger children who are eligible. It is an ingenious way of getting them involved, but nevertheless there are issues that seem to work against there being a large number of providers. They relate to the 1.5 per cent cap.
The Minister indicated some reasons why this scheme needed to have a higher cap; small sums, a large number of people taking part, and so on. He minimised the difficulties, because there could well be large numbers of small sums coming from a lot of different individuals to the one fund. That will all have to be managed by the provider. There is the possibility of the owners of the funds being able to change providers, with the cost involved in that. There will be annual statements, and there will he all sorts of things, because there are many transactions involved. Given that the 1.5 per cent produces a return to the provider of £3.75 per year, I wonder whether all of that will be covered in the available time. We need to explore whether there is sufficient incentive.
On top of that, there is the need to market the scheme. The voucher helps, but there will need to be marketing by the providers too, particularly if we are to encourage people to top up. There are questions about whether that cap is too low. The stakeholder pension experience suggests the same. We are now finding—for individual stakeholder pensions as distinct from group pension schemes—that a large number of people are moving out of being providers. That is a real worry.
Everything must be done to simplify the scheme. There are two areas of concern, which the Children's Mutual has raised with the Government. The first is the question of whether vouchers are required to be provided on paper. I heard what the Minister said, and that looks like a useful concession, but I rather doubt whether it is enough. Perhaps we can explore that in Committee. The bigger worry is that the regulations say that every provider must permit, as a means of payment to the account, payment by cash, credit card, debit card, cheque, direct debit, standing order or direct credit. If we are to make the scheme work within the cap, there has to be a concentration on electronic means of payment. I suspect that having to provide the whole range—they do not have a choice—will put a lot of providers off. We should consider all those issues.
There is the issue of whether children who were born before September 2002 should be eligible not for the government contribution but for the tax relief. That issue has been debated in the other place. It will be difficult for parents to explain to their children that a child who was born in July 2002 will not be eligible even for the tax benefits under the scheme, whereas a child born a year later will be. That issue needs to be explored, particularly if the cost is negligible.
There are two issues relating to regulation, and they concern particularly the Financial Services Authority. It is important to stress them. The first issue is that, if
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providers are to be ready to be set up, they must know what the regulatory aspects that will be laid down by the FSA are as quickly as possible. I am still bothered about the dangers of what might be regarded in any other form of saving as retrospective mis-selling. I shall explain the mis-selling point.
I understand why the Government say, rightly, that the schemes should be available for equities. The Minister explained exactly why. He also said that it would be a risk-controlled environment. The Government also intend that, in the later years of the child, in order to help with the risk, one would move slowly from equities into interest-hearing forms of saving. However, equities move up and down, and it is not good enough simply to say that, over the past 18 or 20 years, they have provided so much. What happens if, under the rules of the scheme, a child of 15 moves from equities to interest-bearing accounts at a point similar to, say, the end of 1999? There would be a big loss on the money in the scheme. If the child is obliged to move at that point into interest-bearing accounts only, there must be doubt about whether, for a £250 payment, there will be £475 available. If that is the case, will there be an accusation of mis-selling, as there would in other areas such as endowment policies? I have not heard the Government's answer to that, and I do not know how they intend to make the system work without risking that kind of accusation.
We must consider such issues carefully. As I said, I support the objectives, but I need to be convinced that the scheme will deliver them in a way that is cost-effective for the Government and the providers.
12.58 p.m.
Baroness Goudie: My Lords, I declare an interest as a founding trustee of PiggyBank Kids, a charity that organises and delivers a range of projects to support and strengthen charities working to improve opportunities for children and young people across the United Kingdom. I welcome the Child Trust Funds Bill. I see it as a further commitment by the Government to tackle poverty and improve the life of those on low income.
We all know that many families can offer their children a financial buffer to protect them and assure their future. Improving people's income will not in itself allow the children of poorer families the opportunity to fulfil their full potential. The Government must build up their wealth, in order to give children on the brink of adulthood a fund that will assist them to take opportunities and fulfil the ambitions that all young people have, irrespective of their financial and social background. That is exactly what this Bill will do. Its aims are to ensure that, in future, all children have a financial asset at the start of their adult lives. It will encourage parents and children to understand the benefits of saving which also enables family and friends a tax-efficient way to contribute up to £1,200 each year to the account. It will build on financial education and help people make better financial choices throughout their lives.

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In the Pre-Budget Report, the Chancellor, Gordon Brown, announced an additional £1 billion per year investment in Britain's children to meet the Government's commitment to reduce child poverty by a quarter. In order to advance that goal, it is important that not only some, but all this country's children are given the best possible start in life. No child should be left behind. That commitment to an active strategy, founded on the principle of security, opportunity and responsibility, is underpinned by the proposals in this Bill.
The Bill will increase opportunities to help young people manage the transition into independent adulthood and improve their financial literacy and responsibility. For the first time all children, no matter what their circumstances, will in future receive a financial resource on which to build, helping in the fulfilment of their ambitions.
1.1 p.m.
Lord Northbourne: My Lords, access to a small capital fund for all young people as they move into independent living and the world of work certainly appears to be an attractive idea. I support the underlying objective of the Bill. Unfortunately, I do not think in all honesty that the fund as proposed in the Bill is necessarily going to achieve that objective. I want to draw attention to two important defects.
First, government funding alone is inadequate to produce the desired results. Without any extra top-up from the family, it has been estimated that at the higher rate of input of £500 by the Government, applicable to poorer families, the fund would accumulate £91 I in terms of current buying power over the 18-year term. Such a sum would not seriously contribute to the cost of setting up independence for an 18 year-old. Indeed, as the noble Lord, Lord MacGregor, pointed out, it is much more likely that the money will be blown on a party or in some similar fashion.
If we consider the fund as a vehicle for family savings, which is clearly what the Government intend, I believe that it is not an appropriate means for poor families. Such families live on a financial knife-edge. Their finances are punctuated by crises. Even quite small adverse events such as an illness, the children suddenly having a spurt of growth and needing new clothes, a burnt-out cooker or even a fine from the courts, can play havoc with the family's weekly budget. If they have to turn to street borrowing, that is usually secured on the benefit book. The interest can cost up to 10 per cent of the loan per week.
At such times of crisis, it is crucial that if the family has any savings, it should be able to access those funds so as to avoid mounting up crippling debts. If a poor family has a windfall, they should save the money in a flexible scheme, one that can be accessed in an emergency. Top-up money put into the child trust fund would not be available in this way. For that reason, I do not think that I would ever recommend it to a family with limited means.
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My second point is the more important. I believe that the scheme as drafted patronises parents and I shall try to explain why that matters. There are two ways in which the state can offer to help the nation's children. The first is to accept that parents will always have a unique role in the care and education of their children and then to work as much as possible with and through those parents. The second way is to intervene directly in the life of the child, possibly brushing aside the involvement of parents, regarding them merely as an unnecessary complication.
This Government wisely adopted the former strategy when they set up the Sure Start programme, which has been an outstanding success. But some of their subsequent initiatives have fallen into the second category. I cite as an example their childcare policy. It has focused on getting parents out to work, even single parents with young children, and the state then moving in with subsidised professional childcare. Parents or grandparents who want to stay at home and look after their own children have consistently been denied subsidies in any way comparable with those available for state-sponsored childcare.
The trouble with this "Nanny knows best" form of intervention is that it is bound to demotivate parents. I fear that this Bill may be another declaration that "Nanny knows best". If so, it will be another nail in the coffin of responsible parenthood. The Bill seems to say to parents, "We believe that your child could benefit from a capital sum to help him or her get started in independent living, but we don't trust you enough to consult you about how and at what age that sum should be made available to your particular child, or how he or she can be helped to spend it in his or her long-term interest". That is implied, even though parents know far better than the state possibly can their own children's individual needs.
We should consider whether that message is liable to encourage or discourage parents to take their parenting job seriously, and to believe that the huge contribution they are making to society is valued. It is a financial and logistical impossibility for the state to bring up all the nation's children, so would it not be sensible to take parents a little more seriously?
I wonder how many noble Lords, when they were children, had the experience of a parent or teacher who, when they were trying hard to do something useful or good, would impatiently snatch the job away and do it themselves. Noble Lords will recall how demotivating was that experience. They will have thought, "What is the use of trying?". I believe that struggling parents sometimes feel the same.
Finally, and specifically in relation to the Bill, I accept that if the Government are investing taxpayers' money, it is right that there should be some form of trust. But surely the trust should acknowledge that all children are different and that parents usually know more about their children than the state ever could. Trustees should be required to consult parents in order to ensure that, as far as possible, the money is made available to the young person at a stage in their life when it is likely to be of most help. By no means is that

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always at the age of 18. Further, parents should be involved as much as possible in obtaining help and advice for their children so that they can reach responsible judgments about how to spend their money in their own long-term interest.
I know many young men from all kinds of backgrounds who, at the age of 18, are still so immature and insecure that they would be unlikely to make wise decisions without help. They would spend the money on a binge, on clothes or on winning popularity. Then, at the age of 20 or 21, they would bitterly regret that they had done so.
I am considering whether it will be possible to introduce amendments in Committee and I shall certainly he interested to hear from any noble Lord who would like to talk to me about that.
1.9 p.m.
Lord Naseby: My Lords, I welcome the Bill. I declare an interest as chairman of the Tunbridge Wells Equitable Friendly Society, founded in 1881, and trading since January 2003 as the Children's Mutual. Over the past 20 to 25 years, the Children's Mutual has specialised in children's savings. We believe it is important that families are encouraged to save for their children.
As to the point made by the noble Lord, Lord Northbourne, we have carried out a fair amount of research in relation to the attitude of families towards saving for children. The vast majority of families differentiate between saving for their children and any other form of saving. Poorer families, in particular, see the money set aside for their children—either by the parents, grandparents or other relations—as sacrosanct. That money is kept purely for the children. Whatever crisis may arise, they do not see it as a fund to be used for other family matters. That evidence has been consistent over a number of years. I give that as an example of why I believe that the final point made by the noble Lord, Lord Northbourne, is not correct.
I became interested in this project after listening to an interview given by the then head of IPPR. It may have been in the Labour Party's aspirations but certainly it was not publicised as a venture it would be taking forward. I was sufficiently interested to invite him to tea in your Lordships' House. Having listened to him, I suggested that, in principle, the Children's Mutual, of which I was then chairman—I am still—would be prepared to contribute a modest sum to help take the work forward. We did not want to interfere in the work but the money was there for the IPPR to take it forward.
That was one of the best investments we have ever made as a society because out of it has come this Bill. Like my noble friend Lord MacGregor, I believe that it supports Tory principles. That is why I have been passionate about it ever since. Your Lordships will know—certainly the noble Lord, Lord McIntosh knows—that we own the registered trade mark of the "Baby Bond".
Since the Government have taken up the idea the society has been in the forefront of encouragement. We have shown this by opening our doors to Treasury
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officials and anyone else who wanted to see the mechanics of how a provider deals with the real issues of running such a scheme. We have attended every seminar there has been on the issue and we have responded to every consultation document. It is in that vein that I make my contribution today and will continue to do so at Committee stage.
We are troubled by two particular issues at the moment and there are two further issues on which we should all reflect at Committee stage. I shall first comment on the sales regime; then the method of payment; then the pre-September 2002 children; and then the voucher system.
First, as to the sales regime, Ministers may not realise it but this is where a good deal of the providers' costs will be. I have knowledge of the 1.5 per cent cap determined by the Government but I have absolutely no idea what the sales and associated disclosure regime will be. I respectfully suggest that normally under joined-up government one would have the data on these two issues and, arising from that, a sensible cap would be settled. But the way it has happened is not quite so sensible.
My society and every other provider now have only seven months to build the IT structure necessary to apply for a licence by 1 October. For instance, should I be building the CTF stakeholder alongside the non-stakeholder CTF? Will I be able to promote the non-stakeholder CTF by itself? Those are two straightforward questions, but there are many more. I shall be very happy to share the others with the Minister when we reach Committee stage.
I am also worried that the CTF may be tied tip with the other Sandler products for which there is no implementation date at the moment. When the Minister replies to the debate, will he assure the House that the CTF is to be treated quite separately?
The second issue concerns the method of payment. The existing draft regulations stipulate that, as a provider, we would have to offer six methods of payment—including cash and credit card. This will be the first government-sponsored saving scheme of any UK government where the provider, by law, has to offer all six methods of payment or else cannot take part. I strongly recommend to the Government that they should leave it to the providers to decide how many of the six options they will offer. In my judgment, there is no great need for every provider to offer all six.
Some providers have many branches. Many building societies have them on the high street. Others—for example, friendly societies—usually have one or two offices. For them, cash is not a convenient method of subscribing to the CTF. If necessary, they will take cash, but it is not a terribly cost-efficient way to operate.
More importantly, there is the issue of payment by credit card. I do not know whether the Minister realises that you cannot take out national savings by credit card but that you can by direct debit card, cheque, cash and through the Post Office. I suspect that the reason national savings does not accept credit

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cards is twofold: first, you are encouraging a debt to achieve a saving, which is not terribly logical; and, secondly, there is a cost to the provider of somewhere between 3 per cent and 5 per cent, depending on which credit card you accept. When the cap is 1.5 per cent, it is a little like Mr Micawber to have a charge of between 3 per cent and 5 per cent. I do not believe credit cards should be a runner. Certainly they should be removed from the mandatory element. I, personally, would remove them altogether.
The third issue concerns the voucher system. I heard what the Minister said about the regulations and that if the system does not work too well amendments can be made, but we need to reflect a little on why the Inland Revenue steadfastly refuses to allow parents to use the Internet or the telephone. By definition, it is young couples who have newborn children. Among those young couples, both parents may be working. The profile of people using the Internet indicates that many of them are young couples or the elderly. Obviously in this case it is the young couples who are important. Where they both work long hours, they should be able to come home, get on the net, make a decision and buy something. But they will not be able to do that with the voucher system as it is at the moment. This area should be looked at.
The experience of my own society with the current Baby Bond is that when we get an application on line and send out a piece of paper for signature, we lose about half the people who originally applied on line because they cannot be fagged to go through the second stage. The whole thrust of government policy across so many areas is that the people of this nation should become more and more IT literate, and yet here the opportunity to do something ab initio is at the moment being denied.
The issue of children born before September 2002—this point has been referred to already—will be extraordinarily difficult and a major disincentive. Let us take the example of someone with a child born before September 2002 and another child born a year later after that date. The children will grow up a year apart but one will have the benefit of £1,200 a year in a tax-free environment and the other will have only the £270 tax-exempt policies available through the friendly society movement. That will cause a great deal of heart-searching in families, and is a major disincentive. I make a plea to the Government that either they set up a regime—without the £250 or £500, obviously—of tax exemption for children under 16 up to the £1,200 limit, or they should raise the friendly society limit to £1,200. Both options must be considered very seriously.
In conclusion, the child trust fund has come a very long way, and I congratulate the ministerial team who have taken it thus far. We at the Children's Mutual want to see it become a major success, with a very high take-up. The facts are that just one in five families save for their children. So there is a lot to do and it will not be automatic—it will require marketing.
I hope the Government will reflect on my observations and suggestions. I have highlighted the difficulties of the method of payment, particularly
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regarding credit cards. I have highlighted the fact that the FSA urgently needs to publish its guidance on the sales regime. It has had it long enough for some form of draft proposal to be available. Quite frankly, I see no reason why it should not be published next week.
Having said that, I thank all those who have worked so long and hard to make this a reality. I think it is very exciting for the future.
1.21 p.m.
Lord Newby: My Lords, we on these Benches share the Government's view that long-term savings should be encouraged. However, we believe that this Bill is misconceived and is in danger of being little better than an extremely expensive gimmick.
I would like to explain why we believe that the Bill is unlikely to achieve its aims, why and where we believe the money could better be spent, and then outline a number of specific amendments that we will be seeking to make at a later stage.
The Government have set out four aims which underpin the Bill and I shall look at each of them in turn. The first is to help people understand the benefits of saving and investing. The vast majority people covered by the Bill will not be doing the saving or investing—the Government will do it for them. Certainly, children will have no say until they are 16, at the earliest, on how the money will be invested for them. They will simply be given a lump sum—a windfall—at the age of 18. The key principle of saving—namely, forgoing consumption today for enhanced consumption tomorrow—will simply not be taught via CTFs, because children are not making a trade-off. They are simply getting a no-strings-attached 18th birthday present.
Secondly, the Bill is to encourage parents and children to develop the savings habit and engage with financial institutions. Of course we agree that we want to encourage adults to save, but the key questions are what we want them to save for and how. By the Government's own admission—and I think it is a fairly common-sense approach—there is a hierarchy of savings objectives. The first is to pay off any debts; the second is to establish a pool of assets for a rainy day—no pun intended. The third is to look at long-term savings, of which the first and most important vehicle is a pension. Then there are CTFs.
In reality, a CTF is the fourth savings priority, which the Financial Secretary accepted in another place, and, as I say, we agree with that. So before parents even look at CTFs, they should have developed the savings habit and engaged with the financial institutions on these other areas. Given that, as the Minister said, a third of people save for the long term and two thirds do not, the higher issues in that hierarchy must be addressed by those people first. So I think there is a problem there.
That is why the Institute for Fiscal Studies, which looked at the Bill, came to the conclusion:
"It is far from clear that many families would be well advised to contribute additional funds to their Child Trust Fund Account. It is difficult to find a convincing explanation for why the Government has chosen to support young people using this policy".
We agree.

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As for children, I think it is frankly futile to try and persuade them at a young age to get into the habit of long-term saving. In my experience, and I suspect most parents would agree, children are, by their nature, consumers, not investors. In all but the most affluent families, and probably even there, they believe they have legitimate immediate short-term demands to which their unreasonable parents do not give in. I do not believe that the Bill will change that mentality one jot.
The third purpose of the Bill is to ensure that all children have an asset at the start of their adult life. That is undoubtedly the case. But, as a number of noble Lords have made clear, the money can be spent on anything. It is a windfall, and windfalls, by their nature, are often not valued as highly as things for which one has saved.
A number of noble Lords talked about the possibility of introducing an amendment which would constrain the uses to which these funds could be put. In reality, that would be extremely difficult to do, but we on these Benches would be interested in exploring that possibility. I am not saying this in a pejorative way, but I do not believe that many 18 year-olds will, when there are so many demands on their life, think of using this little pot of money for something that the Government and all those who support the Bill would wish it spent on.
For CTFs which have not had significant parental and family contributions, the amount will be almost "neither nowt nor summat", as they say in Yorkshire. What might a young person do with a pot of money that will be less than £1,000? What would a young person really want to do that would make a big difference to his or her life? We might encourage young people to learn to drive, for instance, because it affects their ability to get a number of jobs. They might want to buy a car and would need to be insured. As one of my children has just gone through this painful procedure, you might, if you are really lucky, be able to take enough driving lessons to get through your test on the child trust fund; you might, as we were able to do, purchase a car for a very few hundred pounds. But car insurance is staggeringly expensive, and significantly greater than the sum of money that will be in the child trust fund as a result of government and parental contributions.
Another possible use of the child trust fund which, I suspect, will be very common, is to offset the cost of university. This is a classic case of the Government robbing Peter to pay Paul. The money will go in a circular fashion from one bit of government to another. To set up this whole edifice to make it easier to pay the Government's impost which has recently been introduced is not a sustainable argument. It will be extremely interesting, if the Bill goes through in its current form, to see what the money is spent on and whether it is well spent. It may be impossible to do that. Certainly, it will be 18 years before we have any evidence.
Another problem with the Government's perceptions about how the money will benefit young people is that many of the most disadvantaged poorer young people—
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those for whom £500 or £1,000 will represent a significant sum—will leave school at 16, rather than 18. The point in their lives at which they will be faced with the sternest financial constraints may well he between 16 and 18. As the Bill currently stands, they will be in the frustrating position of having a pot of money with their name on it to which they will not have access. Therefore, many of the most vulnerable and disadvantaged children, who should and will be beneficiaries of this Bill, will not get the benefit when they most need it.
The final argument advanced by the Government in favour of this Bill is that it will build on financial education to help people make better financial choices. What financial education? There is nothing in the Bill about financial education and many children go through school at the moment with no financial education of any significance. I commend to the Government the recent call from Neville Richardson, the chief executive of the Britannia Building Society, that personal finance education should become a mandatory part of the national curriculum. I agree, and wonder whether the Government will respond positively.
The Government believe that better financial choices will flow from this measure, but I would like them to explain how a windfall helps one to exercise choice. It is a complete non sequitur. We reject the Government's assertions that CTFs will effect a major change in the savings habits of the nation. They probably will encourage some better-off parents and grandparents to channel funds into their children's CTFs. However, even if they follow the Government's advice, in terms of the hierarchy of savings, this will only be spare cash after they have saved enough for their own short and long-term financial needs
Could the money be better spent? Even with these shortcomings, if this is the best way of using free money, perhaps we should go with it. However, we believe that the money could be spent better. A minimum of £4 billion will be expended by the Government before a single child gets a single penny benefit some 18 years from now. That £4 billion could be put to better use. There are a number of ways of doing that. We commend to the Government one of the policies that they introduced which has undoubtedly been a resounding success—the Sure Start programme.
We would expand the provisions of Sure Start so that the Sure Start centres offered a wider range of help to children and parents than they do at the moment. They are undoubtedly a success in the inner cities, but they do not exist in many towns and there are none in rural areas, where many if not all of the problems found in inner cities also exist. The Government have a policy which is successful and really does give every child the best possible start in life, in so far as governments can, which is begging for more cash. It is a model that could be replicated throughout the country and we strongly recommend that the Government redirect CTF funds into Sure Start.
There will be plenty of time to debate specific issues in Committee. I was extremely grateful for the detailed way in which the Minister explained amendments that have either been made in the later stages of

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proceedings in the Commons or tabled here. However, I wish to flag some areas that we will examine. We want to look again at the inability of 16 year-old school leavers not having access to CTFs, and at the minimum contribution level. Although £10 may not be a huge amount to your Lordships, £5 is a sum that more people would find possible to put into a CTF.
We will also further pursue the logic of providing equity-based accounts for children in care. The noble Lord, Lord MacGregor, mentioned fluctuations in the stock market. We would also like to look at the remaining concerns, both of the Building Societies Association and many of the detailed issues raised by the noble Lord, Lord Naseby. We will also examine concerns raised by the NSPCC about 18 year-olds who are vulnerable to predatory adults or those who may not be in the best position to receive such a payment—young people with a drugs habit who are about to leave care homes, for example.
We on these Benches are happy to work with the Government on encouraging long-term saving and, indeed, to try to improve this Bill. However, we are not convinced that this Bill is the best way to encourage saving or to give children, especially poorer children, the best possible start in life.
1.35 p.m.
Baroness Noakes: My Lords, I thank the Minister for introducing the Bill so enthusiastically in his customary comprehensive and lucid way. I welcome his acceptance, at least in principle, of the recommendations of the Delegated Powers and Regulatory Reform Committee. I wish to say at the outset that it is a pleasure to consider a Bill for which the draft regulations have already been made available. So often when we consider a Bill, the guts of the policy are in regulations which seem barely to have been considered. My noble friends in another place lamented the fact that the regulations were published on only the last day of their proceedings, but we can rejoice that they are available to us.
We have had a small but high-quality and interesting debate on this Bill. I would particularly like to refer to my noble friends Lord Naseby and Lord MacGregor, who made important practical points about how this Bill could be implemented. I hope that the Minister will reply to them today. If he does not, I can assure him that those points will be a focus for us in Committee.
We see child trust funds as having the laudable aims outlined by the Minister earlier—to provide financial education, encourage the habit of saving and give children financial assets with which to start their adult lives. These Benches agree with those aims. Indeed, as my noble friends Lord MacGregor and Lord Naseby pointed out, such aims have their roots in Conservative philosophies that go back much further and deeper than any to be found in new Labour's policies. The Bill's proposals are startlingly at odds with much that we have had from the current Government, especially the Chancellor.
The Chancellor has a particular responsibility for destroying public faith in saving for old age, especially through his annual £5 billion smash and grab raid on
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pension funds. Since 1997, the savings ratio has halved and now stands at 4.75 per cent. The Chancellor taxes those who own their own homes—we have the administrative nightmare of stamp duty reserve tax, the most modest of houses can trigger inheritance tax and now he is threatening a retrospective tax on pre-owned assets. He has supported the massive increase in borrowing by young people that the Government's higher education policies entail—to which the noble Lord, Lord Newby, alluded. He is meanly lowering the value of annual contributions to ISAs as well as ending their ACT entitlement. Indeed, it is difficult to come up with many of the Government's or the Chancellor's policies that favour savings or assets.
Members of your Lordships' House who wish to find out what lies behind the new government policy would do well to read the proceedings of a seminar held jointly by the Institute for Public Policy and Research—new Labour's favourite think tank—and No. 10. It was called Opportunity and Assets: the role of the Child Trust Fund. It contains such insights as describing this policy as being the,
"third way within the third way",
and other new Labour content-free mantras. It is regrettable that new Labour language has even crept into the draft regulations where that non-word "lifestyling" has now become part of the official lexicon.
New Labour and third way thinking is not, of course, what we expect from the Chancellor but the notes of the proceedings of the seminar contain a most valuable insight into the real dynamic behind this policy. Kevin Rudd, a left-wing Australian politician, talked about what he called a potential problem with child trust funds. He is reported as saying that,
"the long term nature of the Child Trust Fund could mean that it does not fit well with the electoral cycle".
That is a big problem. But our ever-inventive Chancellor has turned that particular problem into an electoral vote winner. First, he announced his proposals just before the previous election. But what better way to appeal to the voting intentions of the parents of about 2 million children who will initially be eligible than to send them a voucher, worth £250 or £500, compliments of the Chancellor, just before the next general election?
Most commentators think that the smart money is on May or June 2005 as the date of the next general election. When will the vouchers hit the electorate? Yes, just a month or so before that. That is why the major concern that these Benches have about this Bill is the timing of its implementation. It would simply not be right to allow the implementation of this policy close to the next general election.
We shall press amendments designed to defer implementation of the scheme so that it cannot be construed as buying votes. If the Government win the next election and if the Chancellor still wants to implement the scheme—there is at least one big "if' there—we would not stand in their way. However, the scheme must not be allowed to be an electoral influencer.

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I shall not pretend that child trust funds as set out in this Bill would be a policy of choice for these Benches. As I said earlier, our beliefs in the virtues of savings go way beyond this policy. We are deeply sceptical about whether this scheme, which involves taxpayers paying money into accounts which accumulate until a child reaches the age of 18, will have any effect at all on savings behaviour. We are quite sure that the account will be well used by those who have already acquired the habit of saving and sincerely believe in it. The ability to top up child trust fund accounts by up to £1,200 a year with a tax shelter will be appreciated by those who already save or have significant financial assets. The tax breaks are welcome but they are probably only of significance to those children who already have other sources of income.
One issue is whether any new savings will be generated. The evidence given by the Government to the Treasury Select Committee in another place showed only slender evidence for this proposition. The Committee was told that the Treasury had not modelled the likely outcomes or set any targets whatever.
Another set of issues is whether asset holding will persist once entitlement at age 18 is established. A number of noble Lords referred to that. Again, only very sketchy evidence was produced. This is the kind of evidence-free policy-making which is, unhappily, typical of this Government.
I was interested to hear the reservations of the noble Lord, Lord Northbourne, about the scheme, and, indeed, that it may in some cases be counter-productive. We are sceptical about many aspects of the scheme. As I said, we are not convinced that saving behaviour will be altered. It is very likely that large numbers of young people will simply fritter away the funds as soon as they get their hands on them. Financial education may constitute not much more than how to cash in an investment at its maturity.
This is a huge experiment with large sums of taxpayers' money. We may find at the end of the 18 years, having invested taxpayers' money of well over £4 billion, plus the administrative costs that my noble friend Lord MacGregor asked the Government to explain further, that the savers simply carry on saving and the spenders carry on spending, not to mention a whole host of abuses that could well emerge during the course of the experiment. The Government think that it is worth the gamble but it is not where we would place our bets.
We on these Benches will not oppose the Bill. In another place my honourable friends voted for the Third Reading of the Bill but that represents our deep commitment to re-energising the habit of savings rather than our satisfaction with this particular scheme. Instead we shall concentrate our attention on the details of the Bill.
During its passage in another place the Bill won some helpful concessions from the Government, to which the Minister referred. I should like to praise in particular the efforts of my honourable friend Mr George Osborne. However, as the Minister is
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aware, some matters were left unsettled and we shall want to return to them in your Lordships' House. The Minister will not be surprised to hear that we shall want to look again at the position of disabled and terminally ill children. We shall, indeed, wish to look again at the issue of capital disregards. We shall in particular want to ensure that child trust funds are available to all children, without the Government's contribution for those born before 2002, but with the ability for parents and others to contribute the £1,200 annually. We have a particular concern about the most vulnerable of children—those in care. I look forward in particular to seeing the amendment that the Minister said would be tabled for consideration in Committee. I hope that that goes some way to allay the problems that were illuminated in another place. The scheme must also be kept under close review by Parliament in view of the long time between its introduction and proof of its ultimate efficacy.
However, the most important issue is the one that I raised earlier. We must not let this child trust fund scheme become intertwined with the politics of a general election. With that strong caveat, we commit to working hard to see that this Bill is improved before it leaves your Lordships' House.
1.47 p.m.
Lord McIntosh of Haringey: My Lords, I am genuinely grateful for the tone of the debate and for the expertise which has enthused many of the contributions to it. I can sum it up by saying that everyone except the Liberals want the objectives of the child trust fund but that there are genuine and sincerely felt queries about the way in which it may be expected to work. I do not object to that. We are, after all, proposing something which, although I understand from the noble Baroness, Lady Noakes, has been part of Conservative philosophy for many, many years, has never actually come out in terms of Conservative policy and has never actually been brought into force by a Conservative government.
Of course, I commit myself in Committee and at Report to respond to the specific criticisms and queries that have been made. Many of those important points are better responded to in the form of a response to actual amendments or proposals for alternative action. However, that does not mean that I shall not this afternoon try to respond to as many of the significant points as I can.
The difficulty that I have with some of the criticisms is that when you propose something for the first time and when you propose a radical new change that has not been done before, there are two kinds of response. The first one is the genuine, proper Conservative response that nothing should be done for the first time. That, after all, has been the principle of the Conservative Party since it was first founded. That is all right; that is its philosophy and we are used to it. But the second response is that somehow when you are doing something for the first time, you should have evidence about every single aspect of it when that does not exist. I have been a survey researcher all my life. Much of the time I had to do what we in our jargon called projective research; in other words, we tried to

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estimate the effect of things that did not exist. Some of them we got hopelessly wrong. I remember saying that there would never be any market for large-scale spirally welded steel tubes in the 1960s, which was before we discovered gas and oil in the North Sea. One can get these things wrong, but every now and again one has to take a leap and say, "This is the right thing to do, let's go ahead and do it. Let's give ourselves the flexibility to make changes in response to particular problems that arise, but don't let us be deterred by the fact that there is no experience, here or anywhere else, of the detailed operation".
In response to the noble Lord, Lord MacGregor, I certainly do not think that this is an example of what he called the Chancellor's micro-management. It is much more an example of the Chancellor's willingness to be visionary and to do new things, which has been characteristic of his tenure of the office of Chancellor for nearly seven years. The noble Lord is right to say that it is necessary to be as sure as we can that the proposal is cost effective, practical and will achieve its objectives. Of course, all those things are true, but I hope that I can show that our evidence suggests that those who are best informed and most likely to have informed opinions believe that this is an experiment very much along the right lines.
I anticipate a debate in Committee on additional contributions for looked-after children, to which the noble Baroness, Lady Noakes, referred. However, as the matter was not referred to in detail, I do not have anything specific to reply to, and I shall respond in Committee.
There was some discussion of the issue of the start date, and whether we should make provision for older children. The noble Lords, Lord MacGregor and Lord Naseby, referred to that point, and the noble Lord, Lord Naseby, made a helpful suggestion about raising the limits for friendly societies. That is certainly worth looking at, although whether it could be done in this legislation is quite another matter. Of course, it is awkward for families with children born both before and after 1 September 2002, but we have to make a start somewhere. The fact is that there are tax-effective savings vehicles for all children; there are stakeholder pensions for children, for example. The noble Lord, Lord Naseby, knows better than most, from his role as chairman of Children's Mutual, that there are many children's accounts on which no tax charge would arise. However, the Financial Secretary said at Report that she would monitor whether there was a gap in the market and would consider how it should be filled. I do not see how she could say fairer than that.
Again, only the noble Baroness, Lady Noakes, referred to the issue of disabled children, early access and a higher limit. Since no positive suggestions were made for alternatives, I shall deal with that matter in Committee.
A great deal of debate took place on the possibility of restrictions on the use of the funds at 18. I have to say at the outset that I was puzzled by the contribution made by the noble Lord, Lord Northbourne. I know that he is devoted to the cause of families, and I have
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always admired him for that, but I was puzzled that he described the provisions as patronising parents. He said that we should consult parents more about the age at which the maturity of the child trust fund should he set and on the use that should be allowed for it at the age of 18. I should have thought that the alternative is patronising young adults, which is something that we should avoid.
The noble Lord, Lord MacGregor, referred, although only in the form of a question, to the individual development accounts in the United States as being limited to life-long learning, to business or to housing. He put that only as a question, and did not recommend it as a proper alternative. The noble Lord, Lord Newby, said that children are spenders, not savers. Of course they are—but we are referring to the decision to be taken on the expenditure of the child trust fund, or the continuation of further investment, at the age of 18, when people are young adults. At that age, they have been able to be married for two years, for example.
We should be wary of patronising young adults by putting restrictions, which have not been very well defined, on the way in which the funds should be used. It was asserted that the money might go on a party or on drugs. As the noble Lord, Lord Naseby, will bear out, the Children's Mutual showed that 47 per cent of young adults would spend the money on education and 20 per cent would invest it in another account.
At the age of 18 young adults can join the Army, can vote, and have been able to be married for two years, as I have said. Surely, they are more likely to be responsible about money that has been saved by their families—and, yes, that has come in a windfall from the Government, but what is wrong with that?—than other people are, making decisions for them. Having made the concession about 16 year-olds being able to manage their account, we would be very unwise to accept amendments that would restrict the use of the funds at the age of 18. It would he counter to the evidence, of which I shall say more in due course.
The noble Baroness, Lady Noakes, made a predictable point about the timing of these funds and the timing of an election. When does one put forward a proposal of this kind except in a manifesto? That is what we did, in 2001. How does one implement it, having put it forward in a manifesto and having won the election? One does so by proper consultation, which is what we did. Having completed the consultation, one announces it and announces the dates so that people know where they stand, and then one implements it through primary legislation. Having carried the primary legislation, one must have a certain amount of time in which to allow providers to be set up and all the other provisions to he made. Yes, in this case the provisions come out for 2005. I do not know whether there is going to be an election in 2005 but, in any case, there would not be any generic marketing of child trust funds during any pre-election period. It is simply the way in which governments work—we say we are going to do something in a manifesto, and then we do it. If it comes out before the next election, that does not seem to me at all unreasonable.

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In an intervention, the noble Baroness, Lady Hayman, made a point, that I take very seriously, about the interaction of the child trust fund on maturity with benefits. I should like to discuss that with her between now and the Committee stage. Indeed, I offer any noble Lord an opportunity to talk with me, and I shall take steps to ensure that there is an all-party meeting to discuss the provisions of the Bill between now and Committee stage. Clearly, the issue is one that we have considered carefully and on which we have come to conclusions, but we are willing to listen to arguments.
We have always made it clear that there is no impact on the parents' finances while the child trust fund account is growing. It has always been our intention that the fund can be rolled into tax-free accounts on maturity. The income from tax-free savings does not affect the entitlement to tax credits. As we announced when the Bill was going through the Commons, we have doubled the threshold, which is certainly not insignificant. We said then that we would keep the treatment of capital under review as the accounts progress, and that we shall certainly do.
There was a good deal of debate on the burdens on providers, some of which took me by surprise because this is a wonderful new opportunity for them. With the honourable exception of Children's Mutual, most financial service providers do not significantly provide for the kinds of funds that will be available from Government and families through the Child Trust Fund. It is looking a gift horse in the mouth to complain about the opportunities and financial returns for providers.
The noble Lord, Lord MacGregor, asked me how many providers there are likely to be. A very large number of people have told us that they are going to be providers. We have testimonials, which I will not read out, from the Association of British Insurers, the Investment Managers Association and the Association of Investment Trust Companies. They all applaud the child trust fund.
I know that there are questions about vouchers. The noble Lord, Lord MacGregor, thought that they were a good thing. The noble Lord, Lord Naseby, was sceptical. He wanted the use of the Internet and the phone and we shall consider that. Given the fact that the Financial Services Authority is continually making changes, all I can say is that we have been consulting it on the regulatory regime as much as is humanly possible.
The noble Lord, Lord MacGregor, made a point about the forthcoming simplified sales regime. We believe that this is a different proposal from that which the FSA is investigating and we do not think that there is any likelihood of any conflict.
I take the point of the noble Lord, Lord Naseby, about methods of payment. I listened to what he said about difficulties with cash or credit cards. Regulations on these matters are at present in draft form. If these matters are raised in Committee we shall consider them and any amendments that would be appropriate for the draft regulations. However, I am not sure that we would be sympathetic to any restriction that will inhibit those who
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are not normally savers from accessing new forms of saving. After all, our whole intention is to increase the amount of saving for children.
There was a series of criticisms about the lack of research evidence. I have already commented that research evidence on the detail of something that has never been done before is particularly difficult to find. But there is research evidence. To answer questions such as that raised by the noble Baroness, Lady Noakes, about the effect on savings behaviour, there has been research on the development of a savings habit. McKay and Kempson have shown that a windfall receipt of as little as £57 encourages teenagers to start saving. The evidence from the early findings from the Savings Gateway shows that people on incomes of below £11,000 are saving. The Homeowners Friendly Society found that 62 per cent of parents in socio-economic groups D and E intend to contribute to a child trust fund.
On financial assets at 18, the National Child Development Survey showed that assets of even £300 to £600 could significantly affect children's futures. I have already quoted the valuable research from the Children's Mutual that shows that 47 per of children would be likely to use the money for education and 27 per cent would invest it further. The National Consumer Council, which is not removed from these issues, believes that the child trust fund is an excellent opportunity to communicate financial issues to a generation of parents.
I do not know how it fits in here, but the noble Lord, Lord MacGregor, asked me about the administration costs. The start-up cost is about £90 million and the administration costs are about £10 million a year. The £4 billion is an endowment. I think that sets it in context.
I find it very difficult to respond to the noble Lord, Lord Newby. He is antagonistic without really proposing any alternative.
Lord Newby: My Lords, I am very sorry, but the noble Lord cannot have been listening. Apart from an alternative use of the funds, I suggested that the Government might devote considerable resources to financial education.
Lord McIntosh of Haringey: My Lords, I was going to wind up with the issue of financial education because, on that issue, I certainly agree with him. But financial education is not in conflict with the proposals in the Child Trust Funds Bill. It is complementary to them. I entirely agree with him. The noble Lord, Lord MacGregor, made the same point about financial education. In point of fact, our schools are developing new ways of teaching financial education—they are doing so through the personal social health education programmes—and they have been teaching it through the citizens programmes since 2002. In addition, the Financial Services Authority has been providing teaching and learning materials on financial matters and financial responsibility to our schools in a very praiseworthy way. I have answered as many points on that issue as I think is legitimate for me

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to do so. If there are any others I shall respond in writing. On that issue, I think that we can all agree: financial education is a good thing.
On Question, Bill read a second time, and committed to a Grand Committee.

National Insurance Contributions and Statutory Payments Bill
2.7 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time. The Bill continues the path that the Government have undertaken to work with employers on reducing unnecessary red tape and to improve the delivery of public services.
The Bill had cross-party support in another place and achieved the perhaps unusual distinction of passing without a single amendment being tabled by any party. However, a little bird has told me that the noble Lord, Lord Higgins, is considering tabling amendments here.
This is a technical Bill so it will perhaps help the House if I give an overview of the reasons for the changes that we are making and of what the Bill will do. Before the transfer of the Contributions Agency from the then Department of Social Security to the Inland Revenue in 1999, there was duplication of administrative effort and of burdens on employers and taxpayers. Both had to deal with two different organisations over their tax and national insurance affairs. This was especially a problem for employers who were visited regularly by the Inland Revenue and the Contributions Agency to check on their operation of PAYE and contributions. So the Chancellor of the Exchequer announced in his March 1998 Budget that the Contributions Agency and the Inland Revenue would be merged. That was widely welcomed by business and by members of Her Majesty's Opposition. The merger was given effect by the Social Security Contributions (Transfer of Functions, etc.) Act 1999.
When that Bill was debated in this House, the noble Baroness, Lady Hollis of Heigham, said:
"Over time these transfers will reduce the burdens on business and take a first step towards removing the technical differences between tax and NICs rules that employers fear will trip them up".—[Official Report, 10/12/98; col. 1038.]
It has been nearly five years since that transfer, and we have done a good deal to work towards that in measures that have not required primary legislation. Officials in the Inland Revenue meet employers' representatives regularly. They discuss the issues that concern them and they see if they can put them right.
A lot has already been achieved. In the very swiftest summary, we have abolished the "entry fee"—the lower limit for starting to pay NICs—which was calculated as a percentage of all income. We aligned the primary and secondary thresholds with the income tax threshold. We radically simplified the number of
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rates of employers' NICs down to one. Where dispensations concerning the treatment of benefits in kind and expenses payments were agreed for tax purposes, they have also been agreed for NICs. We have made changes to regulations on foreign travel and foreign travel expenses of overseas employees. We have made changes in the way that the Inland Revenue is organised so that tax and NICs matters can be administered together, so that we have the joint employer compliance reviews covering both tax and NICs. We have introduced new teams for the joint handling of expatriates' tax and NICs affairs. However, there are some areas that need legislation, and this is that legislation.
If noble Lords will forgive me, I shall deal with the Bill out of order. I want to deal first with issues of alignment. In Clauses 7 and 8, the Bill aligns the powers that officers have for obtaining information when investigating national insurance contributions with those that they have for tax. This will bring clarity for employers and provide a consistent approach by Inland Revenue officers. That is what the House wanted when the transfer of responsibility to the Inland Revenue was debated in 1999.
In Clauses 5 and 6, there is alignment of the way in which the Inland Revenue recovers national insurance contribution debts. Some 97 per cent of contributions are collected with tax, and since 1975 any debt has been recovered under tax rules. The Bill aligns the debt recovery rules for the remaining 3 per cent of contributions with the tax rules and accepted best practice for debt recovery generally. Until now, some contributions payable by the self-employed—mainly the £2 per week flat-rate class 2 contributions—have been recovered under different rules from tax. That means that a person owing both tax and class 2 contributions could face two separate actions. We put that right by aligning the period of notice required for distraint action in England and Wales and application for summary warrant in Scotland with those which apply to tax debts; and by aligning the procedures which apply in Northern Ireland with those which apply in England and Wales. That is why the Bill is twice as long as it should be—it has to have extra clauses for Northern Ireland.
Clauses 5 and 6 also contain a new regulation-making power which will allow the Inland Revenue to apply tax legislation to the recovery of this type of national insurance contributions debt in the future, without having to come back to Parliament for primary legislation, so that they cannot become misaligned in future.
I come now to the measures in the Bill, in the earlier clauses, which help employers with their national insurance contributions obligations. Alignment of administrative rules for tax and national insurance contributions is important, but we are always mindful of areas where, because of structural differences between tax and national insurance contributions, alignment is not the answer. We need to make sure that we enable individuals and employers to meet their national insurance contributions obligations in a way that is fair and straightforward.

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We have included in the Bill two measures which will offer employers greater flexibility in the way in which they meet their national insurance contributions obligations when they make payments of earnings in the form of securities. We believe that that will help employers who want to use shares to motivate and reward employees.
First, in Clauses 1 and 2, the Bill extends employers' ability to recover primary national insurance contributions paid on behalf of their employees and former employees when the earnings have been paid in the form of shares or other securities. That recognises the fact that employers may face difficulty in recovering national insurance contributions which they have paid on behalf of their employees who receive security-based earnings; for example, earnings derived from share awards. The clause recognises the value of share incentives and removes a disincentive to their use.
Secondly, the Bill addresses a problem faced by employers who pay earnings in the form of restricted or convertible shares. Restricted and convertible shares are subject to tax and national insurance liabilities when events occur after their acquisition which increase the value of the shares held by the employee. When employers award such shares to employees they cannot predict the amount of their (secondary) national insurance liability due when these events occur.
Clause 3 provides employers with an opportunity to ask employees receiving restricted and convertible share awards to fund the employer's (secondary) national insurance liability arising on post-acquisition earnings received from those shares. However, in doing so, the Bill will not be introducing a new facility, but will extend the scope of a facility introduced in 2000 which allowed this transfer of liability on unpredictable share option gains. Use of this facility is voluntary for both employers and employees and both stand to benefit from this measure. Both measures will remove disincentives employers faced when rewarding employees through shares or securities-based earnings.
I must emphasise that there are fundamental differences between Clause 1 and Clause 3. Clause 1 is only about the collection method for the employee's own contributions liability. It does not in any shape or form alter the amount of contributions that an employee must pay when they receive earnings in the form of securities. There is no transfer of liability. Employees are, and remain, liable for their own contributions. However, the employer is responsible for collecting that money from the employee and passing it to the Inland Revenue. If he fails to collect it from the employee at the time the earnings are made, he must make other arrangements to collect it, within the framework of rules set out in legislation. All this measure does is provide extra flexibility in that framework of rules. It guarantees that the extra flexibility cannot be abused by ensuring that there is a written agreement between employees and employers when the arrangements are made.
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Clause 3, on the other hand, is entirely about employers' (secondary) national insurance contributions liability. The clause allows employers and employees to agree—they have to agree—that the employee will take over the cost of the employer's unpredictable future liability that may arise following certain types of share award to that employee. Use of this facility requires the employee's written agreement. This agreement is entirely separate from that required in Clause 1, but both are necessary to protect the employee against coercion.
Finally—I return to some semblance of order—in Clauses 9 and 10, the Bill makes important reforms to the way in which the Inland Revenue oversees the statutory sick and maternity pay schemes. This will have the effect of protecting the rights of people who are sick and of new mothers. Responsibility for the operation of statutory sick pay and statutory maternity pay was transferred to the Revenue from the then Department of Social Security at the same time as the responsibility for national insurance contributions. The compliance regime was transferred unchanged. Failures to comply with statutory sick pay and statutory maternity pay obligations are dealt with as a series of minor criminal offences. This is out of step with the Revenue's practice of imposing civil penalties for compliance failures, and is disproportionate to the nature of the failures.
The Bill aligns the statutory sick pay and statutory maternity pay regime with that which is in place for other parts of the Revenue's business. The regime which the Bill introduces is identical to that which was put in place for statutory paternity and adoption pay in the Employment Act 2002. By doing this we are putting in place a system of civil penalties that is proportionate to the failures. The penalties will be based on the scale of the failure that has taken place, and on whether there has been a previous failure by the same employer. But the penalties will not be used in cases where the employer has tried his best but has made a mistake. In those cases it is the Inland Revenue's role to help the employer to get things right for the future.
There is a very small minority of employers who seek to avoid their obligations, either deliberately or through inaction. That is unfair to employees and it is unfair to the employers who comply. The measures in the Bill will help to protect the rights of employees and ensure a level playing field for all employers.
As I said at the beginning, the Bill is technical. It is helpful to read it in conjunction with the Explanatory Notes which I thought were exceptionally good—I say that although I should not, not that I wrote them. By explaining it in reasonably common language, I hope that I have made it clear that it has a crucial enabling role. It completes the list of administrative measures that we have taken over the past five years to align tax and national insurance contributions in particular. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord McIntosh of Haringey.)
2.20 p.m.
Lord Newby: My Lords, I congratulate the Minister on setting out the extremely detailed provisions of the Bill so clearly and concisely. As he said, it is an extremely technical Bill and I am pleased, after my strictures in the previous debate, that I am able to support it. He will no doubt be pleased to know that we do not intend to break the precedent of our colleagues in the Commons by, tabling any amendments to the Bill.
One of the broader issues that the Bill raises, and to which the Minister alluded, is the extent to which the tax and national insurance systems should be aligned, and the desirability or not of merging tax and national insurance. That issue goes much wider than the Bill, but it is one to which we should return at some point, not least because the Chancellor, in his decision to introduce the 1 per cent national insurance contribution to all higher-income earners, appears to be treating national insurance as a disguised form of income tax. At least at a macro-political level, there seems to be an alignment in his mind between the two, and I am not absolutely convinced that the arguments made to keep elements of the administration of the two taxes separate outweigh the benefits for employers of a common system across the piece.
The only other issue that I would like to raise—the Minister may be able to help us—is the problem that has arisen about the failure of the Revenue to send out reminders to people between 1996–97 and 2000–01 who had the scope to top up their national insurance contributions. The common practice is that those people are reminded to do it because, if they do not, they will not be entitled to a full state pension. Because the reminders were not sent out, apparently 10.2 million people by the Government's own admission were likely not to be reminded, and therefore might simply not make contributions of, I gather, upwards of £200 and on average about £425 a year.
I understand that the Revenue estimates that there are 10.2 million letters to be sent, which are going out at a great rate. However, there is also the suggestion that another 3 million people will not even be receiving reminders now, because they have moved address since the point at which the reminders should have been sent in the first place. That is obviously a major administrative failure by the Revenue, and it is extremely important that it be put right. I would be grateful for anything that the Minister could say today to reassure me on that point.
2.24 p.m.
Lord Higgins: My Lords, the House will be grateful to the noble Lord, Lord McIntosh of Haringey, for spelling out the features of the Bill so very clearly, and even going to the extent of reordering the sequence in which he thought the clauses might most logically be discussed, whatever the draftsmen might have thought. I am always slightly uncertain whether he or the noble Baroness, Lady Hollis, will introduce such debates, but the Bill is of course concerned with the
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integration of national insurance contributions and so on into the tax system. I shall say more about that in a moment.
I want to take up one matter from the seventh report of the Delegated Powers and Regulatory Reform Committee, which does such invaluable work on behalf of Parliament. It refers in particular, in relation to the Bill, to Clause 13 on commencement and raises some problems with it. Although it does not actually come down against the clause as such, it asks the House to take into account the comments that it makes on such powers, stating that,
"we refer the House to our general comments on such powers in paragraphs 31 to 33, below, of this Report".
In the conclusion, the report states:
"Save for the comment made in paragraph 4 above, referring to paragraphs 26 to 28 of this Report, we take the view that the powers in this bill in each case are appropriately delegated and subject to an appropriate level of Parliamentary scrutiny".
I presume that that is a straight typing error. Paragraphs 31 to 33, referred to in paragraph 4, do not appear to relate to the point that the committee is making. For the avoidance of doubt, as lawyers say, that might be clarified.
Lord McIntosh of Haringey: My Lords, it is not for me to respond about the report of the Delegated Powers and Regulatory Reform Committee.
Lord Higgins: My Lords, I understand that. No doubt the appropriate authorities will take note. The Bill is extremely complicated and it may be that I have not understood it. There may have been a typing error.
My noble friend Lady Noakes earlier expressed appreciation of the fact that, on the Bill discussed a few moments ago, the Government had provided draft statutory instruments. That is the case so far as this Bill is concerned, in relation to this House, and I also express appreciation of the fact that those statutory instruments have been provided in draft. It makes the whole comprehension of the Bill so much better when that is so.
The Minister rightly said in introducing the Bill that it is technical—one might say highly technical. I do not think that it will raise enormous passions on either side of the House. The only real matter of controversy about it in the other place was in regard to whether the reason for the Bill was that the Chancellor had made the increase of 1 per cent in national insurance contributions on an uncapped basis. There was quite a lot of to-ing and fro-ing in the other place about that. I want to say a word or two about the context so far as contributions into the National Insurance Fund are concerned.
The House will recall that the Chancellor said that the money was being raised to go to the National Health Service. It then disappears into the National

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Insurance Fund. However, it is not in the least clear how that allocation takes place. The report made each year on the fund states:
"The Social Security Administration Act 1992 requires that the Government Actuary apportion the national insurance contributions collected each year. The main focus of this exercise is to confirm the Class split in order to calculate the appropriate amount to he paid over to the National Health Service".
Although the statement by the Chancellor was originally very simple and straightforward, its mechanics are vastly more complicated. As I propose to argue in our next debate, we have at some stage to look strategically at the whole issue of whether the present National Insurance Fund arrangement is really very sensible. The funds going to the National Health Service on the one hand and the whole benefit structure on the other no longer depend in any very coherent way on the fact that those funds are national insurance contributions. Of course there arc much wider considerations regarding whether payment of contributions entitles someone to the so-called contributory benefits. I shall return to that in another speech. It is a real issue which we ought to consider further—not necessarily on this Bill.
The noble Lord referred to the fact that there were no amendments moved in the other place. That is not without precedent, but it is unusual. It had the great advantage that, given the way in which Bills are so ruthlessly programmed in the other place and so many arrive in this House not scrutinised anywhere near enough by the other place, we have to deal with the matter. But in this case I was not clear why they had to rush it with such a tight programme—two sittings in one day. The measures have come hack, as the noble Lord pointed out, five years after the initial decision by way of a tidying-up exercise. None the less the matters were discussed in considerable detail in another place. It would appear from the debate at Third Reading in another place on 28 January and the response by the Paymaster General that further representations had been received from the Institute of Chartered Accountants. She appeared to say that those amendments did not find favour with her. But at Third Reading in another place one cannot move amendments, whereas in this House we can. It may be—and this is the point that the noble Lord was making about the Committee stage—there are still one or two loose ends which, given that the chance for primary legislation on such matters is so rare, we will need to clear them up at that stage.
The noble Lord pointed out that the Bill deals particularly with security-based earnings; and both sides of the House are in favour of share options, which encourage the wider spread of share ownership and are to some extent and incentive to savings. We welcome the way in which a number of the proposals tie up the loose ends that have been around for so long. We welcome the fact that the Inland Revenue, for example, is abandoning powers of entry and will treat the national insurance side in the same way as the tax side. I understand that it will be subject to third party scrutiny. The way in which they proceed is also welcome. The recovery of debt side, while never popular with those whose debts are being recovered, is none the less better done by a single action, rather than split between a debt for national insurance contributions and a debt for tax. The change from
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criminal offences on the national insurance side to civil offences on the tax side and the integration of those two on a civil basis is again welcome.
The question of recovery of national insurance contributions in relation to shares and securities and so on is complex. There may be some points to which we shall return in Committee. There are difficulties when the amount due is unpredictable and over the way in which the burden—or rather the payment—is split between employees and employers. We can return to those matters in Committee. That said, the Bill as a whole is welcome. We are grateful for the clear explanation given by the Minister and we look forward to discussing any further points which may arise, particularly in the light of the draft statutory instruments which the Government have provided for Committee stage.
2.35 p.m.
Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords for the way in which they have responded to the Bill. I suspect that the lack of Back-Bench contributions arises from the degree of technical complexity that is inevitable in such matters.
The noble Lord, Lord Newby, made a couple of points which he acknowledged were nothing to do with the Bill, but I am happy to try and respond to them. First, he talked about whether it was desirable to merge tax and national insurance contributions and he referred to the 1 per cent for the health service being a disguised income tax. The very fact that national insurance contributions are not being levied on the same basis as income tax is evidence that they are different. We have no plans for structural alignment of tax and national insurance and we do not propose to convert national insurance contributions to an annual charge, with allowances and reliefs, like tax which is collected cumulatively. That would be a major change and would be unnecessary and undesirable. What we have done in the Bill is to make sure that from the practical point of view of employers and taxpayers there are no unnecessary complications.
The noble Lord referred to the failure of the Inland Revenue under the previous administration to send out letters telling people about shortfalls in their national insurance contributions. I can best answer him by sending him selected extracts from Hansard in the name of my noble friend Lady Hollis, who explained the matter with great clarity to the House when the issue arose. This Government have been trying to put that right. We have issued over a million letters—indeed I received one only yesterday on behalf of my son who lives abroad, is some years behind in his payments and will now have the opportunity to make them up. No one needs to lose out. If they want to pay voluntary contributions to improve their basic state pension entitlement, they will have as much time as they would have had if the letters had been sent out on time—and they will be frozen at the original rate. So there is no question of 3 million people losing out. The only reason for the reduction in numbers is that the first number was an early estimate. Everyone who would have received a deficiency notice in 1998 will

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receive one. I do not think that the matter is a problem any more. Perhaps I shall withdraw my offer to send extracts from speeches by my noble friend Lady Hollis.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, I believe in the diffusion of useful knowledge.
Lord McIntosh of Haringey: My Lords, my word should have been "threat", not "offer".
The first point raised by the noble Lord, Lord Higgins, was about consideration of the Bill in the Commons. In fact, four sittings were allocated but they were not used up because no one had enough to say. That should be fine—no one can say that the Commons did not do its job because the Bill was timetabled. The noble Lord referred to the Delegated Powers Committee. The committee did not criticise the commencement clause. It only noted that the department's memorandum had not drawn the power to the committee's attention—but it did so without criticism, as I understand it. The noble Lord is right in thinking that the paragraph reference was a typing error.
Regarding the issue of the use of money from the National Insurance Fund, I acknowledge that it is not always clear from its accounts where the money goes, but if it had not been in that fund, rather than the Consolidated Fund, these clauses would have been in the Finance Bill and your Lordships would have had no opportunity to do anything other than debate them in general terms. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Grand Committee.

Guaranteed Minimum Pensions Increase Order 2004
2.39 p.m.
Baroness Hollis of Heighamrose to move, That the draft order laid before the House on 22 January be approved [7th Report from the Joint Committee.]
The noble Baroness said: My Lords, I beg to move the first order standing in my name on the Order Paper. I confirm that both orders standing my name are compatible with the European Convention on Human Rights.
Although draft orders are a routine annual event they are still an important part of the Department for Work and Pensions' business. The Guaranteed Minimum Pensions Increase Order is laid each year and the increase—in line with the retail prices index, capped at 3 per cent—is needed to prevent inflation eroding the value of the occupational pension rights which a person has built up through being contracted out of the state system. This year the increase will be 2.8 per cent—the annual increase in the retail prices index to September 2003. I am normally chastised by the noble Lord for being brief about GMPs, but as he
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knows at least as much about them as I do, I am confident that that will satisfy him. However, it may not satisfy the noble Baroness, Lady Barker.
The uprating order will, as usual, increase most benefits from April in line with the RPI for national insurance benefits and the Rossi index for income-related benefits. For the 12 months ending in September, the RPI increased by 2.8 per cent and, in the same period, the Rossi index rose by 1.8 per cent. The difference is because housing benefit is independently financed.
Although this order, in the main, keeps to those standard rules, I would like to mention some benefits in particular and achievements of this Government in the work and pensions arena. I realise that the noble Lord has already threatened us with a blue skies disquisition on the interaction of national insurance tax and the future finances of the country, but perhaps he will allow me to go into some particularities before he widens the issue.
I want to begin with the issue of parents and children. We are continuing to help the poorest families. As your Lordships may remember, last year we aligned the child allowances in income support and jobseeker's allowance with child tax credit rates so that those families benefit from the increased generosity in these tax credits. Indeed, all the child allowances will be increased by more than the Rossi index, which is usually used to uprate income-related benefits. From April, the allowances for children up to age 19 will increase from £38.50 to £42.27. This is worth an increase of £180 a year for each child to families on income support or jobseeker's allowance: that is £130 a year more than our commitment to uprate in line with earnings.
As a result of personal tax and benefit measures introduced since 1997, families with children in the poorest fifth of the population will be, on average, by September 2004, £2,900 a year—nearly £60 a week—better off in real terms. This new investment means we are on track to meet or exceed our PSA target to reduce the number of children in low income households by a quarter by 2004 on a before housing costs basis.
I turn briefly to pensioners. We continue to show our commitment to tackling pensioner poverty. In this order, we are again doing more for those pensioners who are most in need. Pension credit, introduced last October, guarantees a minimum income and directly rewards the savings and second pensions of pensioners on low and modest incomes. We will, as we did in every year for its predecessor, the minimum income guarantee, increase the guaranteed minimum income in line with earnings. In April, it will rise from £102.10 to £105.45 for a single person and from £155.80 to £160.95 a week for a couple.
Through pension credit, those who have worked hard and saved hard have started to see the benefit of their labours. Those with savings may still be entitled to some pension credit even with income up to around £144 for single people and around £212 for couples. In addition, the introduction of pension credit marked the end of the intrusive weekly means test and the rules which excluded people with £12,000 or more in savings from any help.

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In 2004–05, as a direct result of the pension credit, and in conjunction with winter fuel payments and free TV licences for older pensioners, we will see that the poorest third of pensioner households will have gained £1,600 a year—over £30 a week better off than they were in 1997.
Already, 2.6 million people in around 2.18 million households are receiving pension credit. More than 1.5 million of these households are gaining on average £11.80 a week more than before pension credit was introduced. In line with our aspiration to get all those who are eligible to claim and receive their entitlement, we are continuing with our take-up campaign in the media, press and through the local service of the Pension Service. We planned a sensible phased approach for take-up of pension credit to ensure that we built on lessons learnt from previous campaigns. Indeed, 4.1 million tailored information packs have been sent and by June this year we will have written to all pensioner households that were not previously receiving the MIG. No pensioner should lose out as a result of this approach. Special arrangements have been made to allow the Pension Service to backdate and pay arrears to 6 October 2003 (or the date of entitlement if later) where people apply before October 2004.
Furthermore, we are honouring our promise to increase the basic state pension by at least 2.5 per cent during the lifetime of this Government by increasing it in line with the RPI which, as I have already mentioned, is 2.8 per cent. This means an increase from £77.45 a week to £79.60 a week for single pensioners and from £123.80 to £127.25 for couples. And we will continue to uprate by at least 2.5 per cent in future years during the lifetime of this Parliament. These measures help all pensioners, with most help going to the poorest.
We are, of course, able to introduce measures to give extra help to those who need it most because of our success in building a strong economy. Our policies have resulted in the highest employment figures on record and the lowest unemployment rates since 1975. We have seen UK unemployment fall from nearly 3 million 10 years ago to less than 1 million today. The New Deal must be seen as playing a key part in this success. It has helped nearly half a million young people into work; nearly 165,000 long-term unemployed people into work; and more than 220,000 lone parents into work. This, of course, has a positive effect on the economy by way of lower social security spending and higher tax returns. As I know from working with lone parents who have returned to work through the New Deal, it has helped enormously in terms of quality of life. We believe that this uprating order further delivers on our promises. I beg to move.
Moved, That the draft order laid before the House on 22 January be approved [7th Report from the Joint Committee].—(Baroness Hollis of Heigham.)
2.45 p.m.
Lord Higgins: My Lords, as on many previous occasions, we are grateful to the noble Baroness for spelling out the details of this year's uprating order. It
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is a traditional debate. The level of increases appears to be somewhat related to the electoral cycle. In the middle of the previous cycle, there was the notorious 75p increase, followed by a much-more-than-inflation increase. This being an in-between year, it appears to be in line with the various indices to which the noble Baroness referred. What happens next year remains to be seen; perhaps sending out the cheques for baby bonds will suffice as an alternative.
Be that as it may, we have always on these occasions had an extremely wide debate. We have previously commented that our debate is wide while that in another place tends to be narrow. That is no longer so. They followed our example a couple of days ago and debated the basic state pension, means testing, take-up, advertising, lone parents, pension poverty, failure of the Government's computers and even the Child Support Agency. I do not propose to go quite that wide, but rather I want to raise more fundamental factors. One common feature goes through all these events; they are mostly extraordinarily complex and are getting more so. That is a real problem and one of the reasons why we put forward our proposal to shift the balance towards the basic state pension in future.
I cannot help feeling that if one could wave a magic wand and go hack to 1997, many aspects of pensions and so forth would be a great deal better. But of course other things have improved. I come increasingly to the view that the danger is that the next generation of pensioners will either be at the bottom end of the scale, subject to means tests and the level of income that that implies, or, if they had previously been above that level, will find they are less well-off as pensioners than were their predecessors. An article in last Sunday's Telegraph was headed,
"How life begins at 50 in the grey revolution—if you can afford it",
but there will be an increasing percentage of people who are on means-tested benefits and dependent on the state for their retirement. To some extent, that is alongside the massive deterioration in company pensions, which were for so long a major beneficial feature of our system, in terms of the closing of final salary schemes and restrictions on them, compared with the situation in 1997.
This is a traditional debate and one inevitably has a sense of déjà vu. Indeed, one can even predict that one is going to have a sense of déjà vu, if that is not too philosophical a way of looking at the matter I very rarely read my own speeches—in fact, I do not believe that I ever do if I can help it—but I thought that I should look at my speech from last year. One thing that emerged was the extraordinary way in which, when replying, the noble Baroness seemed to treat the problem of the wind-up of pension schemes as a relatively unimportant matter. However, we now have ahead of us a massive Pensions Bill, which seeks to deal with that problem and on which, no doubt, towards the summer we shall spend many happy hours.

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Another traditional issue is the continued determination to stick to the fact that one has to take an annuity at the age of 75—an issue on which your Lordships defeated the Government twice and, equally, had those defeats overturned in another place. I believe that that has become more and more of a problem because annuity rates are now at an extremely low level, having come down from a relatively high one. The Government are now borrowing vastly more than they intended—£37 billion as against an original estimate of around £11 billion. Inevitably, they can do so only at higher rates of interest and that, in turn, will mean that annuity rates rise. However, as each month passes, a number of retired people will have to take out an annuity at the age of 75 when, in my view, it is likely that the annuity rates will increase. That seems to me quite wrong, and I still hope that the Government will manage to do something about it.
The other perennial issue is that of the Government's commitment to moving from a 40–60 split between private and public provision for pensions to one of 60–40. That has been described by the noble Baroness as an "aspiration" of the Government. However, as these debates take place each year—this is the sixth or seventh that I have had with the noble Baroness—one cannot help wondering whether the split is moving in the right direction. It is all very well having an aspiration but if, year after year, the ratio is moving in the wrong direction, perhaps one should consider whether something is wrong with the policy. Can the noble Baroness tell us whether, compared with last year, it is felt that the 40–60/60–40 split is better than it was 12 months ago?
Baroness Hollis of Heigham: My Lords, in the light of the noble Lord's own party's commitment to raising the state pension in line with earnings, how does he believe that would impact on the 60–40/40–60 split?
Lord Higgins: My Lords, I refer the noble Baroness to the splendid leaflet that we published on the way in which that is to be financed. Having said that, perhaps I may also turn to the other major problem which is arising in this area so far as concerns the savings ratio generally. The extent to which the public/private sector split takes place depends to a significant extent on the way in which savings either increase or decrease. I consider that to be a desperately worrying situation. In the six years from 1998 to 2003, it was never more than 5.7 per cent. In the six years prior to that—up to 1997—it was never less than 9.1 per cent. That is a massive change in the savings ratio and, again, perhaps the noble Baroness can tell us what the ratio is at present.
The other problem is that the savings issue is affected by the way in which means-tested benefits have increased so massively under the present Government and as a result of the Chancellor's passion—that would be one way of putting it; "preoccupation" would be another—concerning the issue of tax credits and so on. But, against that background, it is increasingly worrying that, unless one saves a substantial amount of money, ultimately,
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when one comes to take one's pension, one gets nothing for it because it is all means-tested away. The estimates relating to that have varied: Mr Frank Field said that approximately £70,000 must be saved, and I believe that my honourable friend Mr Willetts said that a figure significantly higher than that is required. Supposing that an individual saves £60,000 by the time he retires, can the noble Baroness tell us what benefit he will receive which does not means-test away the proceeds of those savings? I believe that this is having a very serious effect.
The noble Baroness repeatedly says that it is wrong to speak about means-testing and that one should speak about targeting. She has constantly adopted that theme. It is supposed that means-testing is a better way in which to target poor pensioners, but that is a serious misunderstanding of the real issues. The means test is well targeted only if the benefits are taken up. Many problems have arisen because, although the means-tested benefit appears to be targeted on a particular group of people, in reality it tends not to hit a high percentage of those people because the benefit is not taken up. Looking at the recent report of the Public Accounts Committee, of which I was chairman for some time—I believe that I was the previous chairman—the way in which the non-take-up of benefits is reflected in the figures is very worrying.
That is particularly true so far as concerns the pension credit. One can realise how anxious the Government are—quite rightly—to encourage the take-up of these various benefits, but I am rather puzzled by the extent of the advertising, which consists of massive, full-page advertisements. I also have grave doubts about the value of full-page, as against half-page, advertisements. I suspect that people mostly turn them over. However, in an example that I have here, which no doubt cost a huge sum of taxpayers' money, more than half of it contains no information whatever. I consider that to be very worrying. The section which states:
"The new Pension Credit. Pick it up. It's yours",
has a paragraph which reads:
"And now, for the very first time, those 65 or over who have modest savings, investments, or income such as a second pension … could get extra money as well".
However, I believe I am right in saying—the noble Baroness will correct me if I am wrong—that it means that one keeps rather more of one's own money, which is not really the same as saying that one receives extra money. The noble Baroness shakes her head and waves her hands up and down, but it is not the same thing. To say that a person will receive extra money is rather misleading. That is not to say that I am against advertising; I am all for the pension credit being taken up, but I believe that the way in which it is being advertised is not as efficient as it might be and, to some extent, the advertisements seem to be misleading.
Finally, I turn to the point to which I referred in the earlier debate—I believe that the noble Baroness appeared in the Chamber at about the time that I raised it—concerning whether, more than half a century after Beveridge, we should retain the structure that he set up and concerning, in particular, the question of the contributory principle. There have been two fascinating

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reports on that. One was by the Social Security Committee in another place as long ago as the 1999–2000 Session. Its summary of conclusions began:
"Our survey of the history of National Insurance since Beveridge has led us to conclude that the National Insurance scheme has been undermined, both directly as a result of successive governments' policies and indirectly as a result of economic and social change".
I emphasise the word "undermined". I believe that to a considerable extent that is true. The report goes on to deal with the surplus in the fund, and so on.
In many ways, the mechanism to which I referred in the earlier debate in which the national insurance contributions go into a fund and the fund manager decides how much goes to the health service, how much to the benefit system and so forth, is an increasing handicap as far as concerns allocating resources. We should consider more generally and strategically—I express a personal view—whether that old arrangement is true. It has never been a national insurance scheme. "National insurance fund" is a misnomer.
However, the important point of the contributions principle is that it entitles those who have contributed to various so-called contributory benefits. That is not unimportant. The report of the Select Committee on Economic Affairs of this House, published in November last year, much less than a year ago, contains some radical proposals in that context. It draws particular attention to the way in which the present scheme disadvantages women, and goes into that in some detail. Indeed, the noble Baroness and I attended a meeting a few days ago where the extent to which women are disadvantaged by contributory arrangements was discussed. However, a number of other aspects of the arrangements deserve re-appraisal.
The Select Committee did a magnificent job on the basis of an incredible amount of expert evidence and came to some very radical conclusions. First, as regards the point I have just made, it states:
"We conclude that the contribution basis of the basic state pension acts as a significant barrier to the acquisition by women of full state pension entitlements".
I believe that is common ground between us, and is certainly true as regards the Select Committee. The committee go on to state at paragraph 8.11 of chapter 8:
"We therefore recommend that the basic state pension should be paid on the basis of' citizenship rather than contribution record".
That is a very radical proposal in the light of the very extensive evidence before the committee.
I think everyone is agreed that this is an annual event as far as concerns the uprating of national insurance benefits and the corresponding uprating in contributions. Therefore, in the light of the committee report and more generally—the committee is concerned only with pensions not the whole of contributory benefits, which raises very complex issues—it is perhaps time, well over half a century since Beveridge, that this matter should be strategically considered.
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I am grateful to the noble Baroness for her explanation, and look forward to her response.
3 p.m.
Baroness Barker: My Lords, I declare an interest as an employee of Age Concern England. Compared with the noble Lord, Lord Higgins, and the noble Baroness, I am a comparative novice in these matters. I have not sat through the many debates they have had. None the less, I, too, have turned to debates in previous years to inform my thinking for today.
Like the noble Lord, Lord Higgins, I was intrigued about the timing of today's debate. I took the importance of the timing to be that it precedes the discussions shortly to begin in another place on the Pensions Bill. I believe that there were one or two issues, particularly as regards the guaranteed minimum pension uplift, which we would do well to explore today in the light of that forthcoming debate.
In 2003 the question was put to the department that in that year the Government estimated that approximately £12 billion of public money was being spent on contracted-out rebates. At that time, my colleague in another place, Professor Steve Webb, asked how many people received those rebates. It was not possible to have an answer at that point. The Government said that they did not have the information within their famous computer system. One year on, I shall put the same question to the noble Baroness. Has the department been able to come up with that figure? Just how many people are we talking of as far as concerns contracted-out rebates? I raise that within the current atmosphere of considerable concern about the end of defined benefit schemes, which we have debated many times over the past two years.
The noble Baroness sticks firmly to the line that defined contribution schemes could be as beneficial as defined benefit schemes, were employers to make the same level of contribution. However, does she share the view that a number of defined benefit schemes are closing because defined contribution schemes are contracted in and defined benefit schemes are usually not? Does the department have any figures on how many occupational pension schemes are currently contracting back into the state scheme?
Finally on this point, what is the Government's estimate of the number of people who will be entitled to GMP for contracted-out final salary schemes who will not receive full entitlement due to the winding up of those schemes? It is important that when we debate the Pensions Bill in full we understand fully the assumptions that lie behind those schemes.
Like the noble Lord, Lord Higgins, I too looked at the wide-ranging debate held in another place a couple of days ago. I decided, like him, that there were two or three points on which it would be preferable to concentrate today. Perhaps because the noble Lord, Lord Higgins, and I had the joy of working our way through the Tax Credits Bill in all its complexity with the noble Baroness, we have an ongoing interest in the way in which it is being implemented. To a certain

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extent we are not surprised but remain worried that the levels of take-up have been as low as we predicted then they would be because of complexity.
The noble Baroness will undoubtedly be aware that last week my honourable friend in another place, Professor Steve Webb, drew attention to the levels of inquiries that have been taken by the department. In December there were 193,000 calls to the call centre; that is 8,430 calls per working day. They were handled by 1,300 staff. That works out to seven calls per day per member of staff, and more staff are to be taken on.
That is in stark contrast to what is happening elsewhere. Were Members of the House to come with me not more than two miles away to information and advice agencies which provide support to older people, they would see staff completely overwhelmed by the numbers of pensioners coming in to meet them face to face to try to understand what their pension credit entitlement is. While the department's call line may be, as we predicted at the time, somewhat "underwhelmed", out there in the real world of information and advice agencies, it is looking very grim indeed.
Were the noble Baroness to have chosen the timing of today's debate, I do not think that she would have chosen today, not in the light of the figures released this morning by the Department for Work and Pensions on take-up for income-related benefits in 2001–02. The department's own estimate shows that pensioners are missing out on £2.56 billion in benefits owed to them, and that across all groups a total of £5.87 billion is unclaimed. Not surprisingly, given its complexity, one of the worst of all performance benefits is council tax. The number of pensioners not claiming council tax benefit is 1,760,000 and a total of £770 million is unclaimed.
We know from the rather extraordinary campaign being waged at the moment that council tax is a particular problem for pensioners. Some of the poorest pensioners are not able to afford it because they cannot access easily the means to do so via the benefits system. That matter should concern anyone who is anxious to end pensioner poverty, which is one of the Government's claims.
I make two final points. First, it is interesting to go back over the historical aspect of the benefit uprating. I note that for people aged over 85 the additional amount of pension will remain at 25 pence. In the days when 25 pence was five bob it was worth having; today it is a stamp. In terms of basic entitlement, I believe that, as we have discussed with the noble Baroness on many occasions, older pensioners deserve better than that.
Secondly, I wish to refer to the Government's announcement of lump sums for deferral of pension take-up. Will the lump sum be disregarded for pension credit and will it be taxable? If it is to be taxable will that be at the basic rate or would it take someone into a higher tax band? If a person aged 65 were told that at the age of 70 he would be offered £26,000—the sum mentioned—would that be a gross figure, which would become £20,000 net? The reason for asking that is that
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people must know what their income position will be so that they can do what the Government are encouraging them to do, which is prudently to plan their income for retirement. If the sum is going to be taxable then, as the noble Lord, Lord Higgins, has told us on many occasions, there are many other kinds of more advantageous savings vehicles available to them and they need to know that—particularly as many of the people we shall be talking about are people who will be working part time.
It is important at this stage, before we start the Pensions Bill, that everyone has a clear understanding about what assumptions are being made about these things. If the pension credit is to have a hope of working I believe that the misunderstanding of its basic level must be overcome among those people who are supposed to be its beneficiary. People still say, "But that is for people who do not have anything; I have got something in the bank". It is a benefit which is not easily communicated to beneficiaries. If we do not overcome that and if we ignore the even lower level of take-up figures than were supposed at its inception then we shall see very many more people in poverty.
Baroness Hollis of Heigham: My Lords, we have all been re-reading in Hansard last year's debate to see to what extent issues have moved on. Some of the issues being raised, particularly those by the noble Baroness, Lady Barker, were to try to scope some of the questions for the Pensions Bill. It was a good try, but the Pensions Bill will not be coming to your Lordships' House for a while. However, I may he able to help her on some of her statistical information. In so far as I cannot, I shall obviously write to her with the knowledge that I have.
Perhaps I may first turn to the main points made by the noble Lord, Lord Higgins. First, his fears—and I shall share his fears if they are right—about the possible growth in pensioner inequality in incomes over time. Secondly, he pressed me about savings ratios and the interaction with an increase in means-tested benefits. Thirdly—and he was very much joined in this by the noble Baroness—the eligible non-recipient issues; in other words, the take-up statistics, on which I would like to spend a little time. Finally, he came back to an issue which he has explored in this House before; namely, the interaction of national insurance tax and the intellectual viability, and social viability possibly, of the national insurance scheme. I think those were the main issues that he raised.
On the first issue of pensioner incomes and growing inequality, if the noble Lord were right then I would share his worries. But I would put a question mark over the matter and I am not trying to score party points. I think that in 1979 or in the mid-1970s I would have agreed with my late friend Lady Castle that the right way forward for pensioner incomes was to go—as the Tory Party is now arguing—for an earnings-linked basic state pension because the disparity in pensioner incomes was much narrower, partly because occupational savings had not kicked in. As a result an earnings link would have broadly benefited most pensioners.

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That is no longer true. That is why in the past I used to have debates with my noble friend. The statistics no longer suggest that that is the right way forward, particularly if the noble Lord, Lord Higgins, is concerned about women. Given that women do not have a full NI record for the most part, any earnings link increase passes them by. Therefore, the proposal benefits men and better-off men and not women and poorer-off women.
I return to the point about pensioner inequality. What has happened since 1979 is that average wages in this country rose by about 36 per cent. The poorest quintile of pensioners rose by less than that, something like 28 to 30 per cent. The richest fifth rose by about 80 Per cent. Between 1979 and 1997 we have seen a huge stretch in pensioner income. In other words, inequality has grown with the poverty of the poorest. The question facing government—and that is why we went the way we did with pensioner credit—was, what do we do, first, to try to address the immediate problem of pensioner poverty; but, secondly, to try to prevent this problem becoming a long-term one by increasing incentives to save.
In my view the pension credit seeks to address both issues because its guarantee element will ensure that individual pensioners without any other income do not experience an income of £79 a week but one of £105. So we float people up to a more adequate level of basic income. We do that while at the same time attaching a savings element to it which means that those people with modest occupational pensions will no longer face 100 per cent MDRs. In the past, if you were a single pensioner on £77 per week with an occupational pension—say you were the widow of a local authority manual worker—of £100 per month, you would not have kept a penny of it because MIG would have floated you above that. You would have had 100 per cent docked off. In future, under pension credit you keep £60–60 per cent—of that. Therefore you are actually something like £15 per week better off. Therefore, it is worth having the modest pension.
So, the elegance as well as the decency of pension credit is that it both addresses the immediate issue through its minimum income guarantee element—the guarantee element of pensioners' poverty—while its savings element makes it worthwhile to go for smaller pensions and savings without 100 per cent deductions taking place against minimum income guarantee. That is why I believe it works and is satisfactory.
Having said that, however, it is the case—and I think we would all agree and again it is absolutely not a party point—that a basic state pension based on pension credit and minimum income guarantee will provide a minimum, but I think decent, but none the less not a comfortable level for one's old age, which is why we would all agree that people need a second pension. One of the great triumphs since the 1970s has been the growth of occupational pensions.
That is why a year a two ago we introduced for those people with very modest incomes—under about £12,000 a year—who do not have access to an occupational scheme, the state second pension, which
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gives a replacement income, for someone earning less than about £9,000 a year, of nearly 100 per cent, and in some case 120 per cent of his earnings in retirement.
Therefore not only through pension credit and MIG have we produced a better basic platform for pensioners now and in the future, but we have built on to that not only the occupational private provision—the security of which we hope to increase during the forthcoming Bill which we will be discussing—but also a similar ladder of a state second pension for those not eligible to go into an occupational pension. I think that that is a decent response to pensioner poverty both now and in the future.
The noble Lord accused me about our aspirations concerning the 60:40 and 40:60 ratio. All that I will say is that that remains our aspiration—he would not expect me to say anything different from that—but we expect that our public policies will continue to stabilise GDP spending on private pension provision at between 5 and 6 per cent of GDP.
The noble Lord pressed me about savings ratios and how much money would need to be floated off income-related benefits. It depends. I have not seen the higher figure of £180,000 that I have seen bandied around deconstructed; I suspect that it refers to a couple and is based on assumptions relating to housing benefit. As the noble Lord will know, 70 to 80 per cent of pensioners are owner-occupiers. In so far as one needs a large sum not to be entitled to claim means-tested benefits, that is as much a statement about the decency of income-related benefits as it is about the wealth that pensioners may need.
My point is that those are not 100 per cent deductions. The statement that one needs X to be floated off and that it is therefore not worth saving would be true only if, for every pound of pension, one lost a pound of benefit. Of course, that is true only within the income range of £77 now and £102 for MIG. Thereafter, one keeps 60 per cent of one's small savings and, at a certain point, there are no deductions at all because one is floated off the range of pension credit. Therefore, through pension credit we are not only addressing current pensioner poverty but encouraging future pension savings.
The issue on which the noble Lord and the noble Baroness pressed me—if I may say so, they are absolutely right to do so—is take-up. Targeted benefits are successful in addressing poverty if they are claimed. If they are not claimed, they are not doing the job. All governments have a choice. We can give £5 to everyone, including every Member of your Lordships' House; or we can give £25 to the poorest fifth. We have chosen the targeted route to address pensioner poverty. Obviously, take-up will be crucial.
We have been looking at the statistics. For this purpose, I shall concentrate on pensioner payments under MIG. The statistics only cover 2001–02; they are not the most recent ones. The first thing to recognise is that the number claiming is up: it increased from 1.43 million to 1.52 million. But because we have made the scheme more generous, more people are entitled to it. So both noble Lords are correct to say

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that there is a somewhat reduced entitlement claim, although the absolute number of people claiming has risen. The number of people entitled to claim has increased.
If we read the report to which I suspect that the noble Baroness, Lady Barker, was referring, which was issued today, on the estimated take-up of income-related benefits for 2001 to 2002, it is clear about what is going on with the take-up of MIG. The first point made is that although the numbers are up and the scope has increased, the best estimate of those who have not claimed is that at least one-third of them was eligible to claim only £10 and that about 18 per cent was eligible to claim less than £5.
In other words, what appears to be happening—which is unsurprising—is that those people who have least to claim are least likely to claim, because they cannot he bothered. That is not to say that some people are not missing significant sums—they are—but there is always a tail effect. When we make a scheme more generous, people who enter the scheme may, first, not know, and, secondly, have the least to claim and therefore may not bother.
Secondly, the report shows that of those people, 30 per cent go on to claim further down the line. So we bring people back into the system subsequently. That is important.
We are advertising and receiving significant responses to our calls. We want maximum take-up, but we should understand the statistics. If we increase eligibility by, say, 10 per cent, and the number claiming rises by only 5 per cent, although there is a real growth in the number of people receiving money, there is a reduction in the percentage of eligible claimants who claim. That is the present situation. As I said, we are addressing that and the important point is that, according to the report, at least one third of those currently not claiming probably go on to claim in the subsequent year. So advertising, information, telephone calls, visits, pamphleteering and so on appear to have an effect.
Finally, the noble Lord pressed me on the general point about national insurance and tax. I accept—indeed, I sought to argue myself—that the national insurance system of the 1940s was based on a different family structure, when he in work mediated the network of benefits for his family, including a dependent wife and children. The presumption was of a 40-year working life, 40-hour weeks, full employment and relatively little job mobility.
I accept that the national insurance principle has, rightly, had to be extended to cover people who are working but not necessarily in waged work—by, for example, caring for children. As a result, we have home responsibilities payments—supported, I think, by all parties—together with tax credits, and so on. I also find interesting much of the critique of the House of Lords report, because it is certainly true that, by definition, anyone who was in and out of the labour market—whether women, the chronically sick, the unemployed or those in a region with areas of
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relatively high unemployment—always stand to be less advantaged by national insurance than a man in a secure job in a high employment area.
However, equally—we should not underestimate this—national insurance reflects the contributions of those in work. It resonates with people in terms of the language of rights and social solidarity in a way that we should not lightly jeopardise. There are also practical issues. Income tax is charged on savings and investment income, pensions and contributory benefits; whereas NICs are not. Liability to employees' NICs stops at pension age; whereas liability to income tax continues. A key point is that both employers and employees pay NICs on individual savings; only employees pay income tax. We must find a mechanism to recoup the £32 billion a year of employers' NICs.
So there are practical issues if we were to move in the direction suggested by the noble Lord, which is to conflate the two systems.
Lord Higgins: My Lords, this may be a bad point, because I have only just thought of it, but to what extent does the noble Baroness think that the preservation of NICs, which has the advantages that she states, but which are widely disputed by the Lords' report, is the same thing as being tied to the fund? What is so odd now is that the Chancellor stands up and says, "I am putting an extra 1 per cent surcharge on NICs and it will go to the health service". But it does not; it goes into the national insurance fund.
We then find, as I said in a previous debate, that the Government Actuary apportions national insurance contributions effectively—I paraphrase—to determine the amount going to the National Health Service. The whole fund concept has become very strange now, because some of the money going to the health service comes from national insurance contributions, some comes direct; and likewise for benefits. Why we do need the fund, which, as the Commons committee pointed out, has a surplus that no one is sure should be there or not? We ought to reconsider that.
Baroness Hollis of Heigham: My Lords, I agree, but the Government would not argue that it is a fund in the sense that people normally mean, in that a pot of money is invested in stocks and securities. I do not think that the noble Lord would disagree that, essentially, that is an accounting issue where, under long-standing legislation, contributions paid in can be used only to pay for contributory benefits and where any surplus must be used to buy gilts. In practice, that means that the Government will borrow less from elsewhere. In that sense, he is right: it is not a nominal but an accounting fund, rather than a real pot of money under the bed, as it were.
Surplus contributions are used to buy gilts and to reduce money borrowed elsewhere. As the noble Lord will also know, ever since 1948 there has been an element of hypothecation of NICs to pay for health.

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That money has been channelled direct to the NHS—there is no simple read-across between the two but there has always been that element of hypothecation.
Lord Higgins: My Lords, I well understand that. I was going to say that I think that I wrote it; actually, I think that I approved it, which is not quite the same thing. I understand all that, but I begin to wonder at the back of my mind, this many years after the event, whether that is really a sensible accounting arrangement, because it gets in a most awful tangle.
Baroness Hollis of Heigham: My Lords, I was surprised that the noble Lord was nodding his head so vigorously in agreement with me when I read those words. If I had realised that he had written them, I would have understood why he was so enthusiastic. There is an honest and honourable debate to be had on that issue. However, there is a mindset of support for the principle of national insurance based on contributions, entitlement and rights, which one would have to be very careful to challenge. Equally I accept that society has moved on from the original concept on which it was based in 1948. There is perhaps a debate to be had.
The noble Baroness, Lady Barker, raised specific points about contracting-out and contracting-in funds. She asked me how many people had contracted out and contracted in. I have the statistics and would be very happy to let her see them. As of 2000–01, the total number of contracted-out scheme members was 14.3 million; there were 8.6 million contracted-out occupational scheme members, 8 million of whom were contracted out as final salary; 316,000 have been contracted out as money purchase; there are 5.7 million APPs and 9 million people belong to SERPS. There is relatively little evidence of change between 1996–97 and 2000–01, but I would not be surprised if there had not been change since then.
The pattern of movement of contracted-out occupational schemes has hardly changed since 1997–98; in fact, it has increased from 1999–2000 and so on. The statistics, although they are the latest that we have, are sufficiently out of date that I cannot give her a really helpful answer. There does not seem to be any significant movement, as reflected in those statistics. They seem to remain the same.
The noble Baroness asked how many schemes are contracting back into the state system. As with the figures for contracting out, the latest figures relate to the 2000–01 tax year. As the majority of schemes that are contracting in have done so relatively recently, the figures do not reflect any trend. I shall see whether we have more up-to-date information on it—I shall want that information later. I cannot be as helpful as I would wish to be, even though I know that the noble Baroness would like that material.
I have sympathy on the 25p issue. It has not been increased since 1971, when it was introduced, but there we are. The noble Baroness asked specific questions about pension credit. My understanding is that the basic state pension is taxable, therefore if you defer it, whether by increments or otherwise, it would be taxable. I do not know whether the noble Baroness
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had any further questions about the lump sum and its interaction with pension credit as opposed to the taxation system. We must still work out the fine detail, but we seek to ensure that anybody who would be eligible for pension credit should not be penalised for deferring by being excluded from pension credit. The precise details, whether increments or lump sum, still have to be worked out. As and when we have fuller details in the course of the Bill, we will be able to share them with the noble Baroness, and she will be able to decide whether she regards them as satisfactory.
I hope that I have answered the questions raised by noble Lords and that, as a result, they will agree to accept the regulations.
On Question, Motion agreed to.

Social Security Benefits Up-rating Order 2004
3.33 p.m.
Baroness Hollis of Heigham: My Lords, I beg to move.
Moved, That the draft order laid before the House on 4 February be approved [8th Report from the Joint Committee].—(Baroness Hollis of Heigham.)
On Question, Motion agreed to.

Pneumoconiosis etc. (Workers' Compensation) (Payment of Claims) (Amendment) Regulations 2004
Baroness Hollis of Heighamrose to move, That the draft regulations laid before the House on 28 January be approved [7th Report from the Joint committee].
The noble Baroness said: My Lords, I beg to move that the draft regulations laid before the House on 28 January be approved. I confirm that in my view the provisions of these regulations are compatible with the European Convention on Human Rights. The regulations are being made under the Pneumoconiosis etc. (Workers' Compensation) Act 1979. Their purpose is to increase by 5.4 per cent the amounts of compensation paid to those people who first satisfy all the conditions for payment on, or after, 1 April 2004. The level of increase corresponds to the increase in inflation since payments under the scheme were last uprated in December 2001. In other words, although there has been a delay in uprating, it has taken fully into account the increase in the cost of living since then.
The Act was introduced to provide compensation for sufferers of certain dust-related diseases or their dependants who were unable to claim damages from the employers where the dust exposure that caused the disease occurred because the employers concerned had ceased to carry on business. In introducing the legislation the government of the day had been motivated by concern over the plight of slate quarry workers in north Wales who had contracted silicosis and had been unable to claim damages because the

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quarries had closed down. In setting up the scheme the government ignored the findings of a Royal Commission on compensation for personal injury—the Pearson Commission—which concluded that it would be wrong to provide an additional social security benefit to a limited group of people.
The Act recognises the difficulties caused by the nature of dust-related diseases where they can arise from exposure many years previously—in most cases, 20 to 40 years. It is not surprising then that in many cases employers have gone out of business and sufferers or their dependants have no reasonable prospect of making a successful claim.
By introducing this Act the government of the day showed their commitment to helping those who suffered as a result of poor standards of health and safety. The Government maintain that commitment, which is why we have brought forward these regulations for noble Lords to consider.
The Act provides for lump-sum payments to be made to sufferers of certain dust-related diseases, or, where the sufferers have died, to their dependants where there is no realistic chance of success through the courts. The Act covers five main respiratory diseases, most of which are directly related to asbestos exposure. These are: mesothelioma; pneumoconiosis, which includes asbestosis; diffuse pleural thickening; primary carcinoma of the lung, if accompanied by diffuse pleural thickening or asbestosis; and byssinosis.
Today, over 70 per cent of compensation claims paid under the scheme are for those suffering from mesothelioma. It is an extremely severe form of cancer affecting the lung lining and chest wall. The disease can take up to 35 years or more to develop and is invariably terminal within 12 to 18 months. There are three main conditions of entitlement, which must normally be satisfied before a payment can be made. First, that there is no relevant employer who can be sued—effectively, it is in lieu of civil damages; secondly, that no court action has been brought nor compensation received in respect of the disease; and, thirdly, that industrial injuries disablement benefit has been awarded. The original 1948 Act introduced the equivalent of the industrial injuries award, and the 1979 Act added the lump-sum compensation. To make claims for the lump-sum compensation you first must be receiving the pension.
Since the Act came into force there have been 17,565 applications to 31 March 2003, of which 11,786 were successful—approximately 67 per cent. In the early years of the scheme the majority of unsuccessful claims failed because a relevant employer was still in business and there was therefore the opportunity to claim compensation through the courts. It has always been the Government's position that, wherever possible, those responsible for a person contracting a disease should be liable for compensating the victim. The best way to ensure that employers do not care about asbestosis is for the Government automatically to pick up the bill. It is only right and proper, therefore, that these claims should "fail".
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As time has passed the numbers failing on those grounds have, as would be expected, reduced. In the year to 31 March 2003, 2,099 claims were made. Of the 716 that were rejected, only 131–18 per cent—were refused because there was an employer to sue.
Today the majority of claims are initially rejected because industrial injuries disablement benefit has not been awarded, or has yet to be claimed. That is a precondition. I say "initially" as these people can claim again once disablement benefit has been awarded. There is no problem with claiming subsequently. In 2002–03, 473 of applications—approximately 66 per cent—were refused on this basis. Since the Act came into force in March 2003, nearly 12,000 payments have been made, at a total cost of nearly £120 million. As noble Lords will see, the main reasons for refusal have either been that there has been an employer to sue, or that claimants have not yet claimed industrial injuries disablement benefit.
Responsibility for the administration of the Act transferred to the Department for Work and Pensions from the Department of the Environment, Transport and the Regions in September 2002. That was when DETR broke up, which in turn had inherited the responsibility from the old Department of the Environment. The transfer of this responsibility between departments is the basic explanation of why we have had this slight gap in uprating. We are committed to continuing to administer the compensation scheme in the same sympathetic way as our predecessors. Although rules must be kept, we recognise the suffering and tragedy of each individual case, and we are as generous as the legislation can allow.
The Government have a long-standing commitment to Parliament to regularly review the amounts payable under the scheme to maintain their value. While reviews were undertaken annually, it was not always the case that payments were increased as a result of those reviews. The transfer of responsibility for the administration of the scheme was seen as an opportunity to provide a guaranteed annual increase and to allay the increase in terms of timing with the main social security benefits. I would expect that each time this House debates the annual uprating, we will include the uprating of this benefit.
Alongside providing compensation to those suffering from one of these terrible diseases, the Government are determined that strong, effective measures are taken to minimise the risks posed by asbestos to current and future generations. Failure to fully recognise the risk and take all possible action in previous decades leaves us with a legacy of ill health and death from exposure to asbestos. This legacy continues to claim lives. I recall from the debate that we had on asbestosis that deaths from asbestos now represent more than all other deaths from industrial injury and accident put together. It is that serious an issue. We are determined that future generations should not pay in the same way.

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We support the high priority given to asbestos by the Health and Safety Commission. Significant controls are now in place, including the requirement that all work carried out with asbestos is subject to the Control of Asbestos at Work Regulations 2002. All work with asbestos coating, asbestos insulation, asbestos insulating board—other than that of very short duration—requires the possession of a licence issued by the Health and Safety Executive. Imports of all types of asbestos are banned, except for a few specialised exceptions, and the use of all types of asbestos is banned, except for a few specialised exceptions.
I hope that your Lordships will agree that although no amount of money can ever begin to compensate individuals and families for their suffering and loss, these regulations allow us to provide some practical and material help. We are seeking to ensure that future generations will not be exposed to the same risks as their predecessors. It is important that we maintain the value of the compensation, and I am confident that your Lordships will agree to that. I commend the order to the House.
Moved, That the order laid before the House on 28 January he approved [7th Report from the Joint Committee].—(Baroness Hollis of Heigham.)
3.43 p.m.
Lord Higgins: My Lords, this is an immensely sad and serious problem with which one can have the greatest sympathy. I ask the Minister, having thanked her for her explanation, three quick points. First, will she confirm whether the benefit is means tested? Secondly, she says that it has not been uprated for several years, but that it will now be uprated annually. That is certainly welcome. However, does that mean that the real value of the benefit is now less than it was originally, because there has been a period during which it has not been uprated?
Will the Minister tell the House whether one has to have been an employee to get this benefit? If for some other reason one was suffering from asbestos, is the fact that one has been employed at some stage—albeit that the employer may have gone out of business, or one is still employed—an absolutely necessary qualification for getting the industrial injuries disablement benefit, which is a passport to getting this benefit? I would be most grateful if the Minister would clarify those points.
3.45 p.m.
Baroness Barker: My Lords, I, too, thank the noble Baroness for her detailed statement. As with many people, I suppose, mesothelioma is a matter that has only recently come to my attention. I noticed the death last year of the music producer, Mickie Most. Like many people, he contracted the disease as a result of working in recording studios in the 1960s and 1970s.
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More recently, it has come closer to me through an acquaintance. As I did not know much about the payment, I made it my business to find out, and I am indebted to the trade union safety team in Chesterfield for providing me with a briefing, which I shared with the Minister.
The briefing raises several valid questions about the way in which the benefit works in practice. As the noble Baroness will understand, I am always interested in the ways in which benefits can get to people in the most effective way. I also think that we are at a point at which it would not be wrong to review the workings of the scheme. I understand that it is forecast that there will be a rapid increase in the number of people in this position. The peak is likely to come at 2030.
My questions relate to two issues. The Minister mentioned the industrial injuries disablement benefit and the fact that someone must have applied for that, before they can go on to apply for the pneumoconiosis payment. IIDB is not an income replacement benefit; it is paid on top of earnings. It is assessed according to disability, and it is recoverable by the Compensation Recovery Unit. It can affect income support and other benefits. One of the reasons why people may not claim it is that they fear that it will affect their income support.
The second question is about the pneumoconiosis payments and the position of dependants. I understand from what the noble Baroness said that the scheme is meant to prevent people who are very ill and whose life expectancy is short having to go through lengthy litigation. In comparison with civil law compensation, it is very narrow. Can the Minister say whether the definition of the word "dependant" under the scheme is as comprehensive as it should be, given the range of people affected? Noble Lords may be interested to hear about a case that I came across a couple of months ago. It could have a bearing on the forthcoming civil partnership legislation, because it happens to be the partner of a gay man who has been diagnosed.
My second question relates to posthumous claims. I understand that, under the legislation, it will be possible for there to be a posthumous claim. Sometimes, there are enormous difficulties with the diagnosis of such cases. The difference between payments made posthumously and those made while someone is still living is dramatic. Will the Minister comment on that?
Perhaps the most important issue is this: as I understand from what the noble Baroness said, an assessment is made, and, thereafter, no account is taken of a change in a person's circumstances. Can the Minister tell us about that?
The noble Baroness said that the scheme was set up many years ago for a particular purpose. There is a question of whether it is now being operated in the most effective way; that is, through the Compensation Recovery Unit. It could he that the scheme may be operating in a manner which suggests that the Government are bailing out bad employers. Would it be possible to change the way the scheme is operated so that

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DWP payments are made to all those eligible under the terms of the 1979 Act and then to recover directly any compensation payments made by insurers?
The trade unions safety team has made the point that when people find themselves unwell and know that they are in this position because of the actions of an employer, they are not backward about making a claim. In fact, they are often fuelled by anger and a sense of injustice. I would welcome the response of the noble Baroness explaining how this scheme, which is necessary and will be even more urgently needed over the coming 25 years, might be updated and made more efficient.
Baroness Hollis of Heigham: My Lords, I welcome the contributions of both noble Lords and I am happy to clarify some of the points that have been raised. The first point of the noble Lord, Lord Higgins, was answered to some extent by the noble Baroness, Lady Barker. He asked whether the benefit for industrial injuries is means-tested. No, it is not. It can be paid in addition to earnings, should someone have the kind of injury which allows them to carry on working. However, the noble Baroness was right to point out that if the benefit is someone's primary income, they would normally be eligible for a top-up through income support, which is by definition income-related.
Secondly, the noble Lord, Lord Higgins, pressed me on whether, since the sum has not been uprated for a couple of years, anyone has lost out. No, that is why the benefit uprating is 5.4 per cent, thus covering completely the inflation gap since the last uprating. Thereafter the payment is to be uprated annually. People will not have lost out. Indeed, someone eligible now will possibly attain a somewhat higher sum than if they had come into the previous scheme.
Lord Higgins: My Lords, I presume that, in real terms, some will have lost out in the meantime.
Baroness Hollis of Heigham: My Lords, the case is similar to that of vaccine damage payments. If a claim was made last year, the claimant would have been paid the sum prevailing at the time. However, it is the case that the RPI loss since the last uprating has been recovered for future claims.
In response to the noble Lord's final point, I can confirm that this is an industrial injury benefit and therefore it is paid only to employees. It is not available to the self-employed and others. I should say that various disability benefits are available for those with the condition. The noble Lord will be aware of them. For example, a householder who contracts asbestosis might be covered under national insurance for incapacity benefit. They may well be eligible for a severe disability premium on top of income support and any carer might be eligible for a carer's allowance. Further, depending on the severity of their condition, they might be eligible for disability living allowance.
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Thus we have three sets of benefits here. Benefits are available which depend on someone having been an employee; national insurance benefits are available which may be accessed by others if they have appropriate contribution records or credits; and lastly we have the universal benefits such as DLA which are available according to someone's medical condition. Although someone may not be an employee, they would still be eligible for other forms of disability benefit.
I thank the noble Baroness, Lady Barker, for giving me sight of her questions about the workings of the scheme before our debate. I want to put on the record a point that I believe will be of interest to both noble Lords. The noble Baroness asked about the trend of asbestos-related disease. The annual number of mesothelioma deaths, which is the most severe form of the condition, has risen substantially over the past three years. In 2001 there were 1,848 deaths, compared with 1,631 only a year before. I say "only", but even one is one too many—and only 153 deaths in 1968. That demonstrates the exponential rise. The latest statistical modelling suggests that the number of mesothelioma deaths is expected to peak in the range of 1,950 to 2,450 deaths per year at some time between 2011 and 2015. However, the noble Baroness may be right to say that the peak will occur later. It has been estimated that currently there are between one and two asbestos-related lung cancer deaths for each case of mesothelioma.
In response to further questions put by the noble Baroness, I think that I have already confirmed that income support payments can be affected. Understandably, the questions posed by the noble Baroness reflect those of the support groups. She has asked whether we can extend the range and generosity of the scheme. She asked also about dependants, in particular whether the definition of "dependant" could be extended to include partners. It is right, given the Civil Partnerships Bill and so forth, that we should look at this issue. My honourable friend in the other place, Mr Des Browne, the Minister for Work and Pensions, is keeping the scheme under review. I know that he is very interested in this issue and I am confident that he is exploring this and other questions.
Finally, the noble Baroness asked about weighting. Our payments are weighted to compensate for what is expected to be the future occurrence of the disease. Perhaps the noble Baroness has evidence, but I am not aware of any suggestion that getting an early diagnosis and being assessed as having a partial industrial injury would result in someone being out of pocket; that is, eligible for less money than they would have received had they put in a claim later, when the disease had become more severe. I have checked this point with my officials. Mesothelioma is a swiftly progressive disease and that is taken into account in the weighting of compensation. However, if the noble Baroness has further concerns on this point, I can certainly make available to her the guidance which sets out the technical details of how the benefits are weighted to ensure that we do not appear to be exploiting the fact that people may not have taken up the best option when they come to register their disease.

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I believe that I have now responded to all the questions raised by noble Lords and I hope that, as a result, they will join me in welcoming this useful increase for people who are in a most distressing situation.
On Question, Motion agreed to.

Children (Leaving Care) Social Security Benefits (Scotland) Regulations 2004
3.57 p.m.
Baroness Hollis of Heighamrose to move, That the draft regulations laid before the House on 4 February be approved [8th Report from the Joint Committee].
The noble Baroness said: My Lords, these regulations deal with the social security benefit entitlement of care leavers in Scotland, but they need to be seen in the much wider context of far-reaching improvements in the way Scottish local authorities support the children in their care and prepare them for independence.
The effect of the regulations is to exclude, from 1 April this year, 16 and 17 year-old Scottish care leavers from entitlement to housing benefit and, in most cases, from entitlement to income support and income-based jobseeker's allowance. But this exclusion is only because in future they will receive equivalent help from a more appropriate source—the local authority that previously looked after them.
This handover of responsibility is in line with changes introduced in England and Wales in October 2001 when the Children (Leaving Care) Act came into force. I am sure noble Lords will recall the debates on the Bill that led to the Act. It was widely welcomed and put a much-needed responsibility on local authorities to continue to act as corporate parents for young people who have been in their care.
An essential part of the role as corporate parents was for local authorities to provide financial support to care leavers until they reached the age of 18 rather than expect them to rely on benefits. The availability of benefits was one widely acknowledged reason for the failures in the care system, partly because it provided a perverse incentive for local authorities to discharge children from their care at the age of 16 and, not to put it too bluntly, to wash their hands of them. It was universally agreed that what was needed was to put care leavers aged under 18 in the same position as other 16 and 17 year-olds who normally look to their parents for financial support, not to the benefits system.
The Children (Leaving Care) Act 2001 therefore removed from care leavers aged under 18 in England and Wales entitlement to housing benefit and, in most cases, to other income-related benefits. However, income support and income-based JSA continued to be available to care leavers who were lone parents or were sick or disabled. For obvious reasons, a lone parent may well be setting up an independent home.
At the time of that Act we made provision for the same benefit rules to apply to care leavers in Scotland. This would happen once local authorities there were in a
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position to take on financial responsibility for them. Scottish Ministers have recently made regulations under separate Scottish legislation relating to children leaving care—because, obviously, looking after children is a devolved responsibility; social security benefits are a national responsibility—giving local authorities in Scotland the responsibility from 1 April this year on broadly the same terms as in England and Wales.
I can go into greater detail about the continuing responsibility that local authorities will have but I hope my explanation makes clear that we are bringing the Scottish system into line with England and Wales in a way that ensures local authorities continue to look after children in their care until the age of 18. I commend the regulations to the House.
Moved, That the draft regulations laid before the House on 4 February be approved [8th Report from the Joint Committee].—(Baroness Hollis of Heigham.]
On Question, Motion agreed to.

London Theatres
4.1 p.m.
Lord Harrison Lord Harrison rose to ask Her Majesty's Government how they will respond to the recent report by the Theatres Trust entitled Act Now: Modernising London West End Theatres.
The noble Lord said: My Lords, some three years ago I opened a debate in your Lordships' House concerning the plight of regional theatre. Today I have the privilege of concentrating on London's commercial theatres whose problems and opportunities have been so ably set out in the Theatres Trust's outstanding report entitled Act Now: Modernising London Is West End Theatres.
My reading of the report provokes a real concern about the wellbeing of theatreland, whether we are talking of the support for live drama, of its impact on London's tourist economy or of the conservation of its built environment as represented by its wonderful century-old theatres. I wish to speak about each concern in turn.
First, as regards live drama, it is fashionable in some quarters to criticise the West End as conservative and focused solely on generating long runs and quick profits. It is true that inflated ticket prices and this week's particular problem—the difficulty of buying a single ticket when only pairs are on sale—are criticisms that must be answered. Nevertheless, I do not believe that the blanket criticism is fair. London West End theatre, and its counterpart off the West End, provide an attractive and wide range of live drama.
I have recently enjoyed an excellent version of "The Alchemist" at the tiny, off-West End Courtyard Theatre and, pursuing a Jacobean theme—the original age of commercial theatre in London—I have been thrilled by the Queen's current production of "The Tamer Tamed" and the Gielgud's five Jacobean plays, none necessarily courting commercial success.
For the most part the West End is an inspiration not an inhibition to live drama. After all, it represents an unparalleled concentration of live and musical drama—the envy of the world—and we should cherish it.
Secondly, the world comes to London and its theatres as tourists and visitors, spending money which keeps our economy buoyant. The Wyndham Report of 1998, quoted in Act Now, details the hitherto under-reported £1 billion spent by tourists in the West End, some £200 million of which is passed on to the Exchequer. Theatre is a British export and it is not too fanciful to declare that a buoyant theatre betokens a buoyant economy.
But my principal reason for supporting the Theatres Trust's report is its aspiration to modernise the stunning examples of Britain's outstanding architectural heritage. Most of the 40 or so working theatres are listed; they are authentic, august and available for work—all criteria dear to our Government's heart. But they are in dire need of remodelling.
Act Now vividly describes how these theatres were designed and built for audiences and back-stage staff of some 100 years ago. But modern needs and sensibilities have changed. People have grown larger, requiring bigger seats, more comfortably upholstered and with better sightlines. My wife at a recent performance was unable to see easily over the dress circle balcony without sitting forward. Toilets, foyers and bars are in desperate need of being imaginatively upgraded, and back-stage conditions need to conform to modern health and safety practices.
Theatres must adapt to match the demands of the recent Disability Discrimination Act. Wise investment here will draw in theatre lovers who are currently reluctant to brave a solely able-bodied environment. Apropos of this, I declare an interest as a vice-patron of Vocal Eyes, a charity which enhances the experience of the blind and poorly-sighted visiting our theatres. The use of concealed actors who describe through earpieces what is happening on stage to those with loss of vision of course requires some adaptation of the auditorium. The objective of helping the disabled—and thus attracting new customers into our theatres—is good for everyone.
But all these changes require funds. We need some modern day financial alchemists to turn these 100 year-old theatres into a state of readiness for a new golden age of drama. Indeed, I am conscious that we are joined in the debate today by those who have already willingly contributed to financing the upkeep of these Alhambras of architecture. We should be grateful to entrepreneurs who mix enterprise with a love of theatres. But they cannot do it all and we should now turn to some possible solutions.
The Theatres Trust believes that a minimum of £250 million is needed to bring theatreland up to scratch and that a 15-year programme of some £17 million each year might be a practical way forward. Will my noble friend the Minister consider tax breaks to enable owners to institute programmes of
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such modernisation? I see the noble Lord, Lord Lloyd-Webber, in his place and I look forward to his elaboration on the idea of awarding tax breaks to those theatres that follow a strictly agreed, budgeted and monitored programme analogous to the tax breaks available to the British film industry but which avoid some of their current pitfalls.
I hope the Minister can encourage closer scrutiny of the disbursement of national lottery funds dispensed by the Arts Council of England. Although the current regulations do not prohibit application from the commercial theatre sector, hitherto their intimations have been lukewarm. But I believe a compelling case can be made for a one-off programme of refurbishment, funded by the Heritage Lottery Fund.
Thirdly, the Government are currently looking very closely at the antiquated planning laws which govern commercial developments in Britain today. Like our theatres, these laws need some updating. Will the Government look at their general reforms to ensure that theatreland's voice is sympathetically heard and the planning system used to promote schemes which will themselves encourage investment aimed at boosting box office sales, thus setting up a pattern of self-financing?
Fourthly, will the Government comment on Mr John Earl's proposal to place a levy on commercial ticket sales? Theatregoers might be the more agreeable if government were to make a matching contribution; nor need it be confined to theatregoers, especially if such a scheme backs London in the year of its Olympic bid. Let me throw in the suggestion that fans at Arsenal, Spurs and Chelsea might agree a ticket levy at their theatres of dreams to help the West End's goal of rehabilitation and thus express solidarity.
At the forefront of moves to improve London have been Visit London and the Mayor's office. Their "Get Into London Theatre" campaigns and the 10-year plan for London as a cultural capital are very welcome. A fifth suggestion, then, is that London's Olympic bid might include help to the theatres, which will anyway play an important role in entertaining Olympic fans, who can enjoy jumpers long and high in the afternoon in the Olympic stadium and "Jumpers" in the Shaftesbury Avenue that same evening.
Finally, there is the question of whether the Government will make a direct grant for the £250 million programme. While this is unlikely to find favour with the Treasury, it should be recalled that VAT on West End ticket sales alone each year nets some £48 million, three times the amount needed to start that vital programme of adaptation and refurbishment to ensure that London and Britain, with respect to their theatres, keep top billing. But the clear message is this: if we treasure our past and care for our future, then for our theatres' sake we must indeed "Act Now".
4.11 p.m.
Lord Brooke of Sutton Mandeville: My Lords, I declare a tiny interest in being related by marriage, but distantly, to both the Albery family and the Holmes à

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Court family, whose Australian branch took such care of their London theatre estate while they were still proprietors.
This is an excellent report; the only solecism I could see in it was the spelling of the initial name of the consulting firm Booz Allen Hamilton, where an errant "e" was added to the first of those three names, implying that the firm was a candidate for Alcoholics Anonymous.
What comes out of the report is the continuity of London theatre. I cite as an example something which I do not think is in the report—the New London Theatre, one of the only two theatres, with the Donmar, to be built since the war in the area, is based on the site of the Winter Garden Theatre where entertainment has been carried out since Elizabethan times.
The report was excellently introduced by the noble Lord, Lord Harrison, who is developing a model niche for taking up topical issues such as this. If I may be allowed the pun, in a field full of listed buildings, he is rapidly earning the reputation of being declared a listed Peer for the way in which he takes these topical reports and helps your Lordships' House to secure the opportunity to seek a response from the Government on them. Alas, the buildings were not always listed, and the genius applied by Vanbrugh and Nash to theatrical architecture has been lost down the centuries.
The report is a product of the Theatres Trust and the Society of London Theatre, in the singular. Whether the latter acronym's vowel is short or long, both pronunciations are a great improvement on SWET, the prior acronym of the Society of West End Theatres, whose acronym is as little missed as RAWP and SIFT are in the London NHS scene.
London theatre—again expressed in the singular, as in the Society of London Theatre—is in the same category as our financial services, our Armed Forces and some of our universities as being of world class, as the noble Lord, Lord Harrison, said in his introduction, so a solution to the problem which has been so eloquently expressed in the report is important. The problems have been very well and clearly stated, but solutions are less clear. However, I will add a footnote from the early days of the lottery, as it will no doubt be cited as a potential saviour as it so often is. In the early days of the lottery debate, we discussed the issue of capital as opposed to current expenditure for the use of lottery distributions. Capital had been emphasised in the guidelines to the distributor bodies that I was responsible for writing, because beyond peradventure, it was going to be additional expenditure. The Government had committed themselves to that in introducing the lottery. The lottery would not be used as a substitute for public expenditure that was otherwise occurring.
In those early days, I took the view that, in the context of this particular issue, capital expenditure could be used by the Arts Council—or, as the noble Lord, Lord Harrison, said, the Heritage Lottery Fund—for both facilities and fabric in a way that would have released theatre proprietors from using
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scarce resources for those areas in which deterioration has been observed. It would have released other money to be put into other aspects of the theatrical estate. I am conscious that, as it says in the report that we are debating, the Arts Council is said to have been able to put only 10 per cent into commercial theatre. Yet the commercial theatre, as the report makes clear, includes a whole host of listed buildings.
I hope that the Government will find ingenious ways of producing a solution to this problem. As the noble Lord, Lord Harrison, says, unless we find a solution, we will see a continuing deterioration. In the context of theatre's place on the national and international scene, that would be a tragedy.
Finally, the noble Lord, Lord McIntosh, is to respond to this debate. He will recall our debate on the Licensing Bill when we expressed concern, to which the report also refers, about anti-social behaviour. Such behaviour in the vicinity of theatres from people who have perhaps drunk too much is deterring people from visiting them. Although that is not the substance of this debate, it is another example of the way that London theatre is under threat and where defences would therefore be all to the good.
4.16 p.m.
Baroness Howells of St Davids: My Lords, I give credit to the noble Lord, Lord Harrison, for raising this debate and for the customary detail with which he presented his arguments to the House. My contribution is a small intervention in what will be said by other speakers whose knowledge is greater than mine.
The report that we are debating, Act Now: Modernising London's West End Theatres, points to a crisis in theatreland that we must prevent by investing heavily in the restoration of theatres. The report calls for government intervention to save London's theatres. Theatre is one of the major attractions of this city and a major part of our cultural heritage. The report highlights how expectations are continually rising to meet those of the 21st century, such as new health and safety regulations, the Disability Discrimination Act and so forth. They all make demands on theatre budgets at a time when the image of the West End is already tarnished by factors real or imagined, such as crime, litter and transport problems, which act as a deterrent rather than an inducement to those wanting to enjoy the pleasure of the theatre.
Can noble Lords imagine London without its theatres? Here in the capital we have the highest concentration of theatres in the world. Between them they offer an extraordinarily rich dramatic and lyric repertory which attracts audiences from all over London itself, the rest of the UK and overseas. An evening in London without its theatres hardly bears thinking about. The splendid report by the Theatres Trust paints the picture vividly in an honest fashion—the gloom is apparent to all who have read it. Our theatres need an injection of real money and must now look to the Government for support.
In the debate in the House in March 2003 on racism in the theatre, which was moved by the noble Baroness, Lady Rendell of Babergh, I brought to the

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attention of noble Lords the lack of a black-led, black-run theatre and the need for a theatre that could be a seedbed for the growing numbers of actors, producers, directors and writers from the black community to display their work. I am sure that noble Lords will be pleased to hear that such a theatre is in the making with the assurance of funding from the LDA, the Arts Council and the lottery and donations from the community. All that will help to make such a theatre a reality.
The Westminster Theatre mentioned in the report as likely to be demolished was demolished and is now earmarked to be replaced by the Jalawa Westminster Theatre. It will be a modern, up-to-date theatre expected to house an audience of between 250 and 300. Jalawa has been in existence for nearly 20 years and has proved its worth in the capital as a touring theatre. With its own home in Westminster, we are convinced that it will bring new life to theatreland and encourage theatre-goers—those who already go to the theatre and new theatre-goers—to enjoy theatre. More importantly, it will bring an extra dimension to theatre in London as it will be purpose built to the required standards of a modern day theatre with the promise of offering high quality theatre in keeping with that offered by London's theatres. Making things better for London theatres must be a priority for the country and, as such, it has to be a priority for government.
I said that my contribution would be short as I do not wish to take too much of the House's time. However, I want to stress that an evening in London without the theatre hardly bears thinking about. I end with the three Ds: dread, dream and dread. It is the metaphor for a sandwich. Act Now encompasses the dread of London without theatres. In the middle of the sandwich is the dream of keeping London's theatres. We must be vigilant that we do not move to the other side of the sandwich; that is, the dread of losing our hold on London theatre.
4.22 p.m.
Lord Lloyd-Webber: My Lords, I must declare an interest in the West End theatre in that it provides me with my living and I have a 50 per cent interest in a company that owns 13 theatres within the West End of London.
People on all sides of the theatre world are extremely grateful that the Government are listening to our problems. I am thrilled that the Minister for the Arts in the other place has agreed to chair a seminar on the subject in April. I hope that we all want to do the best that we can for theatre in general—not only the commercial theatre but also the subsidised theatre.
I wish to give a couple of statistics. I apologise for having given one in this House before. I remind your Lordships that the entire profit of all four Shaftesbury Avenue playhouses from 1945 to the present day is less than the public subsidy given to the Royal Court Theatre. I refer to a matter that I have not mentioned in this House and which I checked today. The company in which I have a 50 per cent interest owns
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seven musical houses devoted mainly to musicals and six playhouses. Ninety-four per cent of the turnover that we receive comes from the music houses and only 6 per cent from the playhouses.
I thank the noble Lord, Lord Harrison, for introducing the debate this afternoon and for the figures that he gave, but, as a musical theatre animal, I am much more concerned about the playhouses. We in the musical theatre are big boys in one sense. Much of the work that is performed is, I am afraid, getting closer to revivals and shows that may be compilations, and are not what I would necessarily want to see, but we are still there and we are still viable. But we are subsidising the playhouses, certainly in my case, and that leads me to a lot of concerns.
It is beyond the scope of this debate, which is to discuss the fabric of the buildings, to talk about the problems of play producers in London, so I shall not do so. However, we should consider some of the buildings of the playhouses. I am concerned that I shall be thought to be taking issue with the noble Lord, Lord Harrison, about the whole question of listed buildings and theatres. In saying what I am about to say, I hope that my Victorian credentials are reasonably okay. One of the greatest difficulties that we face with some theatres is the appalling sightlines. They were built as buildings in which people were more to be seen in the audience than to be seen on stage. I am going to say something that I never thought that I would ever say, in this place of all places: I believe that there is a case for the demolition and replacement of some of the playhouses.
The Government have a real problem with helping the commercial sector, although I have the belief that they will help in as many ways as they can. However, in the case of theatres such as the Lyric, which is a wonderful music house although now it is impossible to make it work, and the Apollo, which has a wonderful interior but one can see practically nothing from most of its seats, would it not be better if we did not stay on the heritage side? With the banks in the City of London, English Heritage decided that it would keep the best of them but would allow new development to happen. In the case of the theatres, would it not be better for a partnership to happen with a private developer that would allow a proper 1,000 or 1,300-seat theatre at the entrance to Shaftesbury Avenue? That would then make the whole climate different for people coming from the direction of Piccadilly, and would give us the right sort of house. We in the private theatre cannot compete with the commercial theatre. Of course, I would argue for subsidy for the music houses and, of course, we would like 2 per cent of what has been given to the Coliseum to be given to the Palace, for example, or 1 per cent to be given to the London Palladium. But there I am being pretentious.
Theatres are very expensive pieces of kit to run, the playhouses particularly so, and the playhouses are now in a downward spiral because they are so expensive to keep going and to keep staff on all the year round. In my opinion, they are taking on worse plays than they should be. It is terrific that we can say this afternoon that there

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are two Shakespeare productions on the Avenue, back to back in the Queen's and the Gielgud. However, that is not happening as often as it should.
I should like to open up this debate, in talking about the fabric, to the possibility that we should consider outside funding being able to come in. In addition, I hope that the Minister will be sympathetic and will consider some help for the buildings that we must keep. Let us keep the best buildings, but let us also consider the future of the playhouses in particular.
4.28 p.m.
Baroness McIntosh of Hudnall: My Lords, it is a privilege to follow the noble Lord, Lord Lloyd-Webber, particularly because he has opened up this debate by saying what is for many of us the unsayable.
I hope that what I say will reveal that I have a great deal of sympathy for what he has said about the difficulties of operating as a theatre producer in the buildings that we have in London's West End. However, we should recognise that on top of the undoubted difficulties that those theatres represent, many of them are of considerable architectural merit, and we do have a duty of care to those who come after us, who may have different theatrical tastes from our own. Therefore, I am not sure that I can altogether support what the noble Lord said about bringing in the bulldozers—although he did not of course put it nearly as bluntly as that.
I congratulate my noble friend Lord Harrison on introducing this debate, which has clearly already stirred up a good deal of interest. That is a source of considerable congratulation at this time on a Thursday afternoon, when one would not normally expect to have a particularly large audience in this place. The preservation of London theatres is of interest and relevance to a wide variety of people, not all of whom are by any means directly involved in theatre business. As many noble Lords have said, the preservation of the theatre heritage is part of what makes it possible for this city to remain world class, both culturally and economically.
As regards what I am about to say, I must declare an interest, as I am a trustee of the Theatres Trust and a member of the Society of London Theatre. I have been the executive director of the National Theatre. Therefore, I come at this topic from a number of different, but related, angles.
The good health of theatre principally depends on its ability to create productions of a high enough standard to attract audiences. This can be done in many ways, as the diversity of London theatre that we have already heard discussed reveals. However, to some extent it depends on an issue on which I want to concentrate: the symbiotic relationship between a highly productive subsidised sector, which creates a large volume of work that it must turn over quickly, and a commercial sector of theatres that need successful work to fill them, as the noble Lord, Lord Lloyd-Webber, has already pointed out.
When successful work is put in to a commercial theatre in the West End, once it is established it can be left to run until it comes to a natural end. On the whole,
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this cannot be allowed to happen in the subsidised theatre. In the past 30 years, the West End has provided the opportunity for extended lives for productions from most of our major subsidised theatres. One only has to look at the list of what is on at the moment: the Royal Shakespeare Company, the National Theatre, the Birmingham Repertory Theatre are represented, as are others that I could mention.
All these productions are in the West End for two reasons. First, to give more people an opportunity to see them—that is very important—and, secondly, to make money for the theatres where they originated. In doing so, they supplement the funds that are provided by government through the Arts Council or other funders. This is a vital part of the theatre ecology in this country and it ensures that better value is achieved from public funds that are put into the funded sector.
However, there is a problem. We all know that when audiences go to the National Theatre to see a show they visit a fine, modern building. Whether you like it or not, it is fine. It has very good facilities. The noble Lord, Lord Lloyd-Webber, referred to this issue as well. Nowadays, audiences that go to the Royal Court, the Almeida, the newly-built Hampstead Theatre or the Hackney Empire are also able to enjoy facilities that have been sympathetically restored or rebuilt using public funds. Audiences visiting the West End, despite the very best efforts of some of the more enlightened theatre owners, including, of course, the noble Lord, Lord Lloyd-Webber, have all too often an extremely uncomfortable time.
The productions themselves, originating, as they often do, in theatres with modern technology and flexible spaces, are sometimes subjected to compromising modifications in order to accommodate the limitations of 19th century buildings where the relationship between performer and audience is dominated by the proscenium arch. Let us not forget the often woefully inadequate facilities provided for those doing the hard work: the performers. They suffer from the lack of proper provision for their needs in many of the theatres currently operating in the West End.
Surely we can afford to look more creatively at how public money might be allocated to accelerate the improvement of our London theatre stock. The Coliseum has already been mentioned. It is worth noting that it was in private hands until 1992. If it had remained in private hands and had not been bought by the government in 1992 for the English National Opera, the very beautiful restoration job that has been done on it would probably not have been achieved. It has cost a great deal of money, not all of which has come from public sources, although a lot has.
I see that time is up. I do not want to go on at great length, but I want to say that restoration of these fine old buildings to the exacting standards that they deserve is, on the whole, eye-wateringly expensive. Private companies, however wealthy, cannot realistically be expected to undertake this responsibility alone when, in a sense, they hold these theatres in trust for all of us. As I have indicated, the West End is a vital part of the overall

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UK theatre ecology and the publicly funded sector will be the loser if the commercial sector is not helped to stay in shape.
I hope that when the Minister comes to reply he will give us some indication that the Government might now look for ways to assist the long process of recovery, which we urgently need to initiate.
4.35 p.m.
Lord Feldman: My Lords, I start by declaring an interest. I have been a smallish shareholder in the Ambassador Theatre Group for several years. It has 11 theatres in London, and another nine around the country. I also add my thanks to the noble Lord, Lord Harrison, for initiating this debate, based on an excellent report from the Theatres Trust.
I have been a regular theatregoer ever since my early school days. In those days I used to sit in the gods, but now I manage to sit in greater style. I have always believed that, with all the performing arts, you have to "catch them young". Catching them young is an important theme. However, if our theatres are not in a good condition and gradually get worse, then that part of our national life and our cultural life will gradually be lost to the young, and indeed to all of us.
As a member of the English Tourist Board I produced the London Arts Season to promote the arts in London. It ran during 1994, 1995 and 1996, promoting all of London's arts throughout the world. We had help from 60 major names from the arts who acted as our ambassadors. It was successful and—apart from theatre—helped to attract a great number of visitors from all over the world to our opera, concert halls, museums and art galleries.
We arranged that potential overseas visitors could book their arts tickets and hotel reservations from their home by way of a single phone call, thereby avoiding having to rely on the artistic abilities of the hall porter. These visitors also brought additional extra business to London's hotels, restaurants, taxis and shops. However, even in those days we had complaints about the state of West End theatre. Although money has been spent since that time, there is still much to do, as the Theatres Trust report clearly indicates.
For many years now, British film production companies have received substantial tax benefits to enable more films to be made here. I do not argue with that, but I do believe that some similar benefits should be made available to renovate our West End theatres. We know that more overseas tourists are likely to visit theatres than are likely to make trips to the UK especially to see UK films.
I should like us to contrast the way in which the Government have given substantial help to the film industry to make films here in the UK with the way in which they are still to help the theatre. Employment from films produced is relatively low and yet the benefits that have been given are relatively high. I do not wish to inhibit the Government from giving money to British films, but I do want to encourage them to
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recognise the value of the theatre in London—and, indeed, the country as a whole—as it brings substantial numbers of visitors to our shores as well as substantial related business.
And what about the lottery? I do not believe that London theatres have had enough support from that source either. In addition to making grant aid available to theatres in London, could not the Government also bring about some form of short-term tax benefit, in the same way as they have done for films, to encourage more theatre investment?
There is little doubt that most of London's 40 theatres desperately need refurbishment, and it is clear that the owners will not be able to pay for it all and need help. The issue needs further consideration. Perhaps BES and EIS could produce some help, but there must be many other ways of bringing it about. I would suggest a small group to discuss this, together with the Government. If the Government find a way of giving appropriate help, I would also suggest that they set up as a quid pro quo an Arts Passport for the young, which would give them the right to buy any unsold theatre tickets, say, 15 or 20 minutes before curtain up, at a nominal price. That would help us to "catch them young".
I urge the Government to act now and to make it possible for substantial improvements to be made to London's theatres before it is too late.
4.39 p.m.
Lord Borrie: My Lords, I congratulate my noble friend Lord Harrison on introducing the debate. It has attracted interest, including among a number of experts, some of whom have spoken already. I am not an expert. Like large numbers of people in this House and elsewhere, I am a devoted customer of the theatre and have been for some 50 years. Rather like the noble Lord, Lord Feldman, my first introduction was to sit in the gods, but I was also fortunate enough to get some complimentary tickets to sit in the stalls, and to have tea on a tray provided to me in the interval. That was a charm of the 1950s that passed away a long time ago.
Naturally, we have concentrated on the criticisms of the London theatre as it exists at the moment, but the report that we are discussing mentions a number of very positive features. One of them—my noble friend Lady McIntosh referred to it—is that those 40 theatres are all clustered very closely together in the centre of London. Rather like shops in a shopping mall, they all help to sell one another and are a tremendous attraction to people from abroad, as well as from up and down this country.
A second positive feature outlined by the report is that many of the theatres, although not all, are of extreme architectural character and interest—a delight to the eye, both inside and out. Improvements have been made. Recognition has been taken of a point made earlier, which is that we are apparently all larger and taller than our forebears of a century ago. The seats have been extended, so the issue has to some extent been taken care of.

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The report says something about the shape of the buildings reflecting,
"the class structure and social divisions of the period".
From this side of the House, I was rather intrigued by that. I have no doubt that it was the case. Certainly when the pit existed, I suppose that it was so. Perhaps from the other side of the House the noble Lord, Lord Feldman, who recalled sitting in the gods, will agree that when we sat in the gods we did not feel socially inferior simply because we had entered the theatre through a different entrance from those going to the more expensive seats, and put up with more Spartan facilities. As the noble Lord, Lord Lloyd-Webber, said, sightlines are absolutely vital for everyone, wherever they sit and however much or little one has paid.
I do not think that my next point has been mentioned so far. I am to this day concerned about the prices for the young, students and less well-off older people who cannot afford to go to West End theatres very often. I was recently at RC Sherriff's "Journey's End", the play about World War I, the trenches and so on. I paid £37.50 a seat in the stalls. I checked afterwards and the cheapest seat was £15, which seemed quite a lot compared with the cinema and so on, and there were very few of those. In other words, one had to pay something like £37.50 to be sure of a seat; it was a full house that evening.
As others said, the report has made a strong case for the expenditure of £250 million—I have no knowledge of whether that is too high or too low—over the next 15 years on renovation and adaptation. The trouble is that the 40,000 seats a night currently provided will, I fear, have to be reduced in number if some of the deficiencies that exist are to be remedied. We must therefore have some more new theatres. We have lost six since 1950, and have had two new ones. I rather like one of those—the DonmarWarehouse—although I found it a little poky when I was last there, and it is certainly not a model for what one would like to see.
So one does look around to see if some money can he found, not just for renovation as referred to in the report, but for new theatres as well. Where is the money to come from? I sometimes think of all those magnates who, whenever a newspaper is for sale, rush in to buy what is probably a loss-making enterprise. But they are always there. What about some of those individuals—perhaps even a pair of twins—being interested in creating a new theatre or two in London and helping with the renovation of existing ones?
This is a valuable report. I have thrown out a few ideas as someone with no expertise but as a lover of the theatre and as a customer of many years' standing.
4.45 p.m.
Baroness Hooper: My Lords, we have had an excellent debate and some interesting ideas have been aired. We should all be grateful to the noble Lord, Lord Harrison, who keeps the Government aware of the strength of feeling on the issue by his persistence in raising it in your Lordships' House. I must admit that my own theatregoing is, perforce, limited these days. I
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used to be a regular theatregoer before I became a full-time politician. I admit that my first entry in Who's Who shows theatregoing as one of my hobbies, since when I have scarcely had an opportunity to go to the theatre. However, I hope that will be rectified.
All the relevant issues have been well-aired, but I would like to stress three in particular. The first is the importance of a strong and healthy commercial theatre in London and the West End, not only for subsidised theatre, but also for our regional theatres. Let us not forget that they are the homes of traditional repertory and are great training grounds, not only for actors, but also for other people involved in the theatre as well as for testing public reaction in pre-London runs.
The second point is the issue of tourism. We all know that tourists are necessary for the economic well being of London, as well as for the theatre. It is important that we attract not just numbers of tourists, but the right sort. I believe that those people from overseas and from other parts of this country who are interested in our cultural heritage and who enjoy free access to our national galleries and museums, are just the kind of people who would be willing to pay a fair and reasonable price for theatre tickets. But they also expect the facilities of the theatre to function and the environment to be pleasant and up to date, both front of stage and backstage. The capital costs of improving the fabric of our theatres, which have been drawn to our attention by the Theatres Trust in its excellent report, would go well beyond the pockets of the average theatregoer. So public funds have to come into the equation.
I was delighted to see a feature in yesterday's Evening Standard which showed Jerry Hall performing a tour de force by attending six theatres in one evening to attract attention to the plight of London's West End theatres. It also emphasised the point, already made, that we are fortunate that our theatreland is in a very contained area.
The third point that I wish to emphasise and which is, in a sense, a third way, is the issue of tax incentives and tax breaks. We have to be grateful to our corporate purchasers of expensive tickets to go to the theatre. A company can count its corporate entertaining against tax, so it is important that that principle is extended in an imaginative way to other theatregoers.
I commend the Government on their innovativeness of the gift tax concept for forms of charitable giving. There must be a way of doing something similar to help our theatres. I had hoped to dwell on the matter last year when I tabled an Unstarred Question on the general subject of tax incentives for cultural heritage purposes. Inspired by the noble Lord, Lord Harrison, I might have to revive that issue.
I conclude by asking why the Government cannot work with the Theatre Trust for the good of the country and for the good of our theatres. As the noble Lord, Lord Harrison, requested at the outset: please will the Government act now?
4.51 p.m.
Lord Willoughby de Broke: My Lords, I do not often see eye to eye with the noble Lord, Lord Harrison, whether it is on the euro or on hunting. However, I am

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most grateful to him for securing today's debate. It is of great value to those of us who are interested in the theatre.
I declare my interest as chairman of St Martin's Theatre. St Martin's presents "The Mouse Trap", the world's longest running play. It was probably running before the Minister was walking! St Martin's Theatre was built by my grandfather in 1916 and is one of London's smaller theatres with 546 seats. We are lucky as landlords in having "The Mouse Trap", although we do not experience the highs that are so familiar to my noble friend Lord Lloyd-Webber or the lows of a dark theatre.
We have been conscientious landlords. We have carried out a total refurbishment of the theatre from top to bottom in keeping with its Edwardian origins. We have installed air-conditioning and we have carried out a number of other improvements. Year-on-year costs are associated with such an old theatre and there are health and safety regulations to comply with and so on. I have no complaint about that—I am proud of what we have achieved at St Martin's Theatre and we will continue to spend money as our budgets allow.
However, I want to pick up on what was so cogently said by my noble friend Lord Lloyd-Webber. It is my experience as the owner of a small theatre that there is no way in which we can make radical structural alterations to a 1960 building without, first, falling foul of English Heritage and, secondly and more importantly, being made bankrupt. That is why I warmly welcome the report of the Theatre Trust.
There are desirable alterations to be made, whether it is to comply with deregulation such as the Disability Discrimination Act, or simply to give 21st century audiences an experience more in line with 21st century expectations. But, again, there is no way that we, particularly the small and medium-sized theatres, can begin to contemplate major structural alterations out of our current profits.
As noble Lords pointed out in this short debate, West End commercial theatre is a huge revenue earner not just for London but for the Exchequer. It is well beyond the immediate purchase price of tickets. As the noble Lord, Lord Harrison, pointed out in his excellent opening speech, the theatres we are talking about are individually and, above all, collectively part of Britain's heritage.
If the National Lottery can give £12 million to a 400-seat theatre—the Royal Court Theatre—and if the Arts Council can give tens of millions of pounds every year to subsidise theatres, I hope that the Government will think it worth while to spare something for owners of commercial theatres. It is in everyone's interests for them to do so.
4.54 p.m.
Lord Clement-Jones: My Lords, I congratulate the noble Lord, Lord Harrison, on initiating this timely debate. In standing in for my noble friend Lord Falkland, I am not sure whether this debate qualifies for inclusion in One Amazing Week. This
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House is a theatre of a kind, but it is difficult to compete for glamour with Jerry Hall ever since Lady Haden-Guest—AKA Jamie Lee Curtis—last came for the Queen's Speech in 1998.
It is clear that many of us have succumbed to the romance of the theatre. Personally, I was smitten many years ago when I first came to the West End to see Eric Porter in "The Jew of Malta". Later, as a young lawyer, I had professional contact with the likes of Louis Benjamin and other theatrical impresarios. I certainly found those other aspects of the theatre fairly intriguing as well.
We have heard some very authoritative speeches. I recognise that this is very much a debate about the West End theatre but, in passing, I do not want to minimise the importance and role of the theatre in London more widely—that is, in outer London—and the role of children's theatre as well, although today we are concentrating on the West End.
For me, the Theatres Trust report emphasises just how lucky we are that our British theatrical producers have decided to invest not only in productions, risky though they may be, but also in the fabric of our West End theatres. No one could argue that that was a strictly economically rational decision. Nearly all those theatres are either grade I or grade II listed buildings.
Incidentally, I am delighted that the noble Lord, Lord Lloyd-Webber, has contributed to this debate. Through the Really Useful Group he has invested heavily in theatres and I believe that, following this debate, his Victorian credentials are still intact, if I may say so. Of course, that other great British impresario, Sir Cameron Mackintosh, has also invested heavily. He announced last June that he was to spend some £35 million on his theatres—principally the Queens and the Prince of Wales—and that he was to create a new Sondheim Theatre between the Queens and the Gielgud.
Over the years, there has been considerable investment by the Heritage Lottery Fund in the venues of subsidised theatre. One has only to think of the Royal Court (£25 million), the Hackney Empire (£15 million) and the Coliseum (£41 million). But currently, as has been emphasised in the debate, the commercial sector does not benefit from that type of funding. I believe that the report, Act Now!, makes an utterly convincing case, and I am pleased, especially since we debated the Starred Question of the noble Lord, Lord Harrison, last year, that the Minister appears to have taken this issue seriously. The report sets out the issues starkly and realistically.
There are huge problems, both back stage and front of house. I thought that we might be slightly larger than our Victorian forebears but, as the noble Lord, Lord Borrie, pointed out, four inches is a considerable difference. I also suspect that we are considerably fatter.
There is the benefit—I consider it to be a big benefit—of the West End theatres being in relatively few hands, and we have some very competent operators. Quite apart from the Really Useful Group

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and Delfont Mackintosh, there is the Ambassador Theatre Group. I was very interested to hear what the noble Lord had to say about that because it is one of the fastest-growing private companies in the UK. I am sure that the noble Lord made a very good investment at the time. Clear Channel is a dynamic international entertainment conglomerate. Therefore, the problems of the fabric of the West End theatres are not down to managerial incompetence; the theatres are in the hands of some very competent operators.
Over the years, West End theatres have been increasingly imaginative in attracting audiences, despite the considerable ups and downs in the tourist trade. I believe that the Government, the Mayor and GLA need to match them in commitment and imagination. There is no reason why lottery money should not be granted to them, say, on a matched basis. As the Theatres Trust pointed out, historic houses had that kind of support after the war. All in all, I believe that it is something of a mystery why the Heritage Lottery Fund does not actively regard our West End theatres as heritage sites which are worth funding. On many occasions, my noble friend Lord Falkland has drawn attention to the unspent £3 billion, which appears still to be residing in the coffers of the national lottery. I cannot think of many more deserving causes.
As the noble Lord, Lord Harrison, pointed out, the contribution of the West End theatre to the economy of London is undoubted: some £298 million of sales revenue each year purely from the theatre. The knock-on effects are extraordinarily positive. I believe that if we add together the whole of the entertainment industry, including ancillary aspects, such as people going out for meals, it adds up to something like £25 billion or so, which is directly or indirectly derived from the creative and cultural sector in London.
The noble Baroness, Lady McIntosh, pointed out, both in her Starred Question last year and in today's debate, that transfers from subsidised venues to the West End are vital for the health of the subsidised theatre. However, one party by itself cannot resolve all these issues. A partnership between the different agencies is required. It is clear that assistance with revenue by the Arts Council is not enough. Substantial capital funding is needed. It is very difficult to choose priorities in terms of that capital funding. As Equity point out, the importance of backstage is crucial. It is not purely front of house where the investment is needed, and it is not purely the Government to whom our request should be made.
I believe that the Mayor of London has a vital part to play in all of this. The half-price tickets promotion needs to be better targeted. Also, the Mayor needs to take a much more proactive role in tackling some of the concerns people have in travelling in and around the West End. In particular, I believe that the congestion charge is a key issue. My honourable friend Simon Hughes, one of the candidates for Mayor of London, will bring forward proposals which I believe will help in this aspect in terms of helping to ensure that the congestion charge bites earlier but not at the late stage when families want to come in for theatrical
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entertainment. I believe that the Mayor has a key role in working with theatre groups, local councils, business and tourist organisations to get extra funding and investment for capital projects of the kind we have been debating today. There is a strong leadership role that the Mayor could play.
All of that adds up to a strong and important agenda that must be pursued. I very much look forward to hearing what the Minister has to say.
5.2 p.m.
Baroness Buscombe: My Lords, I, too, thank the noble Lord, Lord Harrison, for introducing this important debate in response to the report of the Theatres Trust. I begin by congratulating all of those at the Theatres Trust who have contributed to this excellent and fascinating report.
As noble Lords have said, the report details the findings of a two-year investigation undertaken by the Theatres Trust working closely with representatives of the theatre industry and referred to by the noble Lord, Lord Harrison. The report concluded that over the next 15 years some £250 million will need to be spent to modernise London's 40 commercially-owned theatres. That amount is by no means insignificant, but never has the plight of London's theatres been so palpable.
One rather takes surroundings for granted when attending the theatre. Indeed, like other noble Lords, I started my life of going to the theatre being involved in amateur dramatics. Occasionally I was lucky enough to appear in West End theatres—always off hours—and as a student was very happy and lucky to go up into "the gods". However, life has moved on. Thanks to Peter Longman, director of the Theatres Trust, I have just had the opportunity of visiting the Garrick Theatre earlier this week. When one visits a theatre, one realises the difficulties and practical constraints, and the necessity for serious thought to be given to how moneys could be injected into restoring our much-loved theatre.
The Garrick Theatre, designed by Emden and Phipps, opened in 1889 and clearly reflects the social and structural class divisions within society that were the norm in Victorian times, with each tier of seating having different levels of facilities. Only those seated in the dress circle or front stalls were granted the privilege of entering through the main front door. I heard what the noble Lord, Lord Borrie, said about not being concerned about theatres being built with these different facilities. However, I am sure that they were built a long time before the noble Lord first attended. We must think about the fabric of the theatre and how it should reflect today's needs.
So there are a number of issues to be taken into account, not least the necessity to comply with today's rigorous health and safety requirements. As with many theatres the seating is cramped and uncomfortable with the poor sight lines, and facilities such as the bar and toilets are considerably limited, reflecting outdated social values and expectations.
My noble friend Lord Feldman referred to the need to "catch them young". I entirely agree that it is so important to encourage young people to go to the

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theatre. But young people's expectations of what they should enjoy in terms of refreshment facilities and so on has changed hugely in recent years.
A predominant number of theatres in the West End are commercially owned and run. The economics of theatre ownership is more complicated than one might initially assume. I again refer to the Garrick theatre as an example. The theatre is leased to a management company by the freeholder on a long lease, which in turn contracts directly with a producer of a particular production. The producer pays the costs involved and sets the price of the tickets which, to some degree, is limited by the facilities offered by each individual theatre. Statistics show that only one in 10 productions in the West End returns a profit with 70 per cent failing to recoup the initial investment cost. If a profit on a production is returned, the majority of it will go not to the theatre owner but to the producer.
Herein lies the problem. It is not commercially viable for any theatre owner to invest a large amount of capital to undertake extensive restoration of a theatre when there is no prospect of return in the short or even medium term. Although some private individuals have personally invested heavily in their theatres, this cannot be taken for granted. Such investment is very welcome but cannot be seen as the solution to the problem. As the noble Lord, Lord Harrison, said, these are very generous individuals but we cannot take them for granted.
Many private theatre owners do not have large amounts of unencumbered capital available and would have to incur considerable debt to fund refurbishment on the scale required. Additionally, whilst restorative works take place, the theatres would have to remain closed, resulting in substantial loss of revenue.
It is vital that our theatres are cherished and preserved. At present, there appears to be no alternatives available to assist commercial theatre owners with these restoration projects. When reading this excellent report, one particular statistic concerned me greatly. In 1914 there were more than 1,100 theatres in the UK; by 1980 that number had declined by 85 per cent—a loss of 935 theatres throughout the country. Yet the number of people visiting the theatre topped 12 million for the first time in 2002. That anomaly highlights the pressing need to find a solution to the predicament that the theatres in London in particular are encountering.
We understand that the Government have welcomed this report. The question is: are there any practical solutions to the problem? As my noble friend Lord Brooke said, there is a problem here. The report in some senses is less clear about the practical solutions proposed.
The noble Lord, Lord Harrison, asked whether tax breaks for owners who invest in capital projects to refurbish theatres could be a possibility. My noble friend Lord Feldman contrasted substantial help to the film industry and asked the Minister to recognise the value of theatre in London and in the country as a whole.
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In addition, my noble friend Lord Feldman suggested the possibility of a passport for the young. This is an excellent proposition and one to encourage young people into the theatre. Indeed, there has been some debate this evening on the question of pricing. I know that it is possible. My children attend the theatre and often are able to get in for about £10 each, which is a lot less than they would pay to go to watch Chelsea or Fulham, which is not too far away from the West End; indeed, teenagers on a night out on the town often spend a lot more than £10 on drink. So I think that we should find ways to encourage the young; and a passport for the young to encourage them to pick up the unsold tickets would be enormously beneficial.
I congratulate my noble friend Lord Lloyd-Webber on his brave, innovative suggestion that there may be a case for demolition and replacement of some of our wonderful playhouses. I am sure that all noble Lords would agree that that suggestion would require considerable thought, but it is refreshing to confront the fact that some of our theatres have fundamental problems that begin to explain the enormous sums of money that are invested in just one playhouse to modernise it with all the proper facilities, sight lines and comforts that people expect today.
I take on board what the noble Baroness, Lady McIntosh, said: the question of architectural merit is important. We are discussing the heritage of future generations. But my noble friend Lord Lloyd-Webber was suggesting not that we demolish all our theatres but that one or two merit some thought. That would require outside funding and some interesting discussions about heritage.
The report suggests several possible alternatives. Rebuilding theatreland from scratch in future is inconceivable both financially and architecturally, unless some of my noble friend's ideas are taken on board—but only with regard to some of our playhouses. Perhaps, therefore, the only option is to restore the theatres that currently exist. How could that be achieved? As I stated earlier, philanthropy should be welcomed but not taken for granted. A sensible solution may be to fund the restoration of theatres through the Heritage Lottery Fund or the Arts Council, bearing in mind that the level of grant available is limited by the Arts Council's budget. Its capital funding has been greatly reduced in recent years. The Heritage Lottery Fund may also provide an alternative source of funding, yet, once again, awards are limited.
I fear that I have run out of time. There is so much more that I should like to say. I finish by saying that, ultimately, the nature of ownership should not dictate the long-term future of our much-loved theatres, which are an integral part of our cultural heritage. It was the previous Labour government who established the Theatres Trust to protect our theatres. We therefore look forward to hearing how the Minister intends to ensure that that core objective can be achieved. Does the Minister accept in principle that no action is not an option?
5.12 p.m.
Lord McIntosh of Haringey: My Lords, my noble friend Lord Harrison asked a Starred Question in November last year in exactly the same terms. I congratulate him on his perseverance in not letting the matter go and securing an Unstarred Question to enable more debate and more demands on the Government to reply than is possible during a Starred Question. I am also grateful, because it gives me an opportunity to update the House on what has happened since the initial Question was asked.
Like the noble Baroness, Lady Buscombe, in January, I visited the Theatres Trust and met Peter Longman, the director, and Rupert Rhymes, the chairman, to discuss the findings of the report into the fabric of the West End theatre. Like her, I went round the Garrick. It was a bit of a shock. I do not know whether it is still dark.
Baroness Buscombe: No, my Lords, the lights are on.
Lord McIntosh of Haringey: Well, my Lords, it was dark in January. Some of the conditions behind and around the theatre are pretty dreadful. That is a theatre of which the Theatres Trust is the ground landlord, although I think that the noble Lord, Lord Lloyd-Webber, has a greater interest in it. There is certainly no shortage of examples of theatres with serious problems with their fabric. It is right for the noble Baroness to say that no action is not an answer.
This is not my particular area of responsibility, but it is known that Estelle Morris, whose responsibility it is, has held a constructive meeting with Sir Cameron Mackintosh, who, through his company, owns seven theatres. From our meetings—and especially from this valuable debate—we know much more about the concerns. We recognise the difficulties faced by commercial theatre. It was necessary to be reminded of the example given by the noble Lord, Lord Lloyd-Webber, of the profits since 1945 in the four Shaftesbury Avenue theatres. Many of these problems, but surely not all of them, arise from the historic nature of much of the building stock.
Perhaps I may venture a criticism of a report that has been universally applauded. It is slightly unfair to refer everything to the fabric and not in some way to how the theatres are run. I am not sure that theatre timing in the evening or the way in which the bars are run are perfect. I certainly do not think that American visitors who are used to receiving a free playbill in New York theatres are happy about paying £3 for a programme in addition to the cost. The noble Baroness, Lady Hooper, made reference to how theatres are run, and it must be taken into account as well as the fabric.
As a result of that, we are committed to working closely with those who share our interest in ensuring a sustainable future for West End theatres. I must rise to the challenge of the noble Lord, Lord Willoughby, on credentials. The noble Lord, Lord Borrie, has been going to the theatre for 50 years; and the noble Lord, Lord Willoughby, thinks that I was barely able to walk when "The Mousetrap" started. I must tell him that
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the first in my massive collection of theatre programmes is from the New Theatre in 1944, with Mr Ralph Richardson and Mr Laurence Olivier, and I have been a fairly constant attender over the past 60 years.
What else has been happening since the report was published and the matter was first raised? The most important matter was raised by the noble Lord, Lord Lloyd-Webber. We are prepared to act as an honest broker. The Secretary of State has agreed to chair a forum of key stakeholders from across Whitehall, local government, the Mayor's office and other agencies and NDPBs. It is more than the small group that the noble Lord, Lord Feldman, asked for; it certainly will include the Society of London Theatre and everybody involved. We are still working on the detailed arrangements, and invitations will go out in the next few weeks.
The aim of the forum will be to establish a common approach to the issues facing the West End theatre, which are highlighted by the report. We need to agree a consensus on whether there is a viable way forward and, if so, how it can be achieved and by whom. It will be difficult to get a common view from that—there was not exactly a common view today—but we hope that everyone will be committed to finding a successful outcome.
We recognise the thrust of the report: there is a very severe capital need for the West End theatre. One need not go backstage to see what must be done about poor seating, poor sight lines and poor public areas, or the complete absence of them. Those who were lucky enough to attend the reopening of the Coliseum last Saturday will have seen what is possible by imaginative reconstruction of the public areas of the theatre. However, I notice that, even there, the architect, when challenged, could not promise that there would not be queues at the ladies' lavatories at the end of the interval. That problem is endemic in West End theatres.
We need to know more clearly from theatre owners exactly how much they will invest in refurbishing and modernising the theatres. The report simply states that,
"the total requirement [£250 million] is such that there is no alternative but to look to Government or other outside agencies for some kind of matching assistance".
We need to know a little more about what that means: the noble Baroness, Lady Buscombe, made that point. Over 15 years, that means something like £17 million a year. The Society of London Theatres says that £125 million is necessary from what it calls "the sectors". What exactly are "the sectors"? How much of it is new money? Already, £3 million is being spent each year on improvements, and £3 million is being spent on maintenance and upgrading. I am not entirely clear from the report what the figures behind this are. I know that the report is based on three original reports, which for reasons of commercial confidentiality we have not been shown. We need to explore the issues of what is needed a little hit more. Without meaning in any way to denigrate the report, it would be wrong not to ask some tough questions about the financial side of

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things. However, there are good signs. Cameron Mackintosh said that he intends to spend £30 million of his own money refurbishing and modernising his theatres. He will even build a new venue above the Queen's and Gielgud theatres on Shaftesbury Avenue, creating the second London theatre multiplex.
I must be a bit discouraging about some of the sources of finance that have been raised tonight. We remain of the view that the Government's role should be to support the subsidised sector rather than the fully commercial theatre. If we want a theatre that takes artistic risks, sustains the best of tradition, develops new talent, promotes both excellence and access, and feeds the commercial theatre—as the noble Baroness, Lady McIntosh of Hudnall, said—the symbiotic relationship that the subsidised theatre maintains with the commercial theatre is so important. That was even pointed out in the Wyndham report in 1998. Look at the list of Olivier nominations in recent years to see the recent transfers to the West End: "Vincent in Brixton"; "Anything Goes"; "Oklahoma!"; "Lieutenant of Inishmore"; and, more recently, "Jerry Springer: The Opera", which I am summoning up courage to go to see at some stage.
I cannot be enthusiastic about the suggestion of a levy on ticket sales, which my noble friend Lord Harrison raised. There is a levy on ticket sales in New York, but it is voluntary. Is it really desirable to have more expensive tickets for the West End theatre? Issues of VAT are for the Chancellor, and there is nothing that I can add, but the House will be aware of the huge limitations that there are on us in making exceptions in the VAT regime.
The noble Lords, Lord Brooke of Sutton Mandeville, Lord Feldman and Lord Willoughby de Broke, all referred to lottery money. The noble Lord, Lord Brooke of Sutton Mandeville, rightly reminded us of the principle of additionality that must be
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maintained. The principle surely must be that we will not fund projects that would result in a private gain that is greater than the public benefit. That creates a difficulty with subsidising private theatre. In many ways, the same argument applies to the suggestion made by the noble Baroness, Lady Hooper, about tax breaks. It is difficult to see how we could have tax breaks that would not discriminate in favour of one private, profit-making organisation over another.
I must say to the noble Lord, Lord Clement-Jones, that there really is not £3 million of balances. The Arts Council balance in the National Lottery Development Fund that is not committed is only about £14.5 million. There is not that resource anyway.
I have to admit that I am not being very encouraging about new sources of finance. However, we have to put the fabric of the London theatres, which is the subject of this report, into context as part of the tourist, entertainment and hospitality industry in London. It is enormously important. The Wyndham report stated that it is worth £1 billion a year to the local and national economy, and I am sure that that is right. Currently research is being undertaken to update that figure.
Theatre has been a living force in this country for over 500 years, more if one counts the mystery plays. It has helped to shape our cultural heritage and our national consciousness. In the new millennium, it is enormously important that theatre has the power to create a live, shared experience which can move, surprise and engage us in ways that other art forms find difficult to do. I do not have any solutions, but I hope that the forum we are holding in April, to which I referred, will find common ground in addressing the problems which have been raised. Certainly our debate has been of great value to the Government and all the participants in the forum in seeking a solution which will satisfy us all.
House adjourned at twenty-six minutes past five o'clock.