Lords Sitting of 26 January 2004

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Bishop of Manchester.

Government Investment and Planning
Lord Hunt of Chesterton Lord Hunt of Chesterton asked Her Majesty's Government:
What steps they are taking to improve the way that United Kingdom industry and research contribute to the future policies, investments and operations of government departments and agencies, especially those involving advanced technology.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, the Government believe that, in order to get the best value for money, they must act as intelligent customers. The recently issued Innovation Report and the report of the Office of Government Commerce to the Chancellor of the Exchequer, Increasing Competition and Long-Term Capacity Planning in the Government Market Place, put forward proposals on how government departments should procure goods and services in such a way as to encourage innovation and competitive advantage in their suppliers.
The proposals are being taken forward by the implementation plan of the OGC's report and by a cross-departmental ministerial group chaired by my right honourable friend the Secretary of State for Trade and Industry.
Lord Hunt of Chesterton: My Lords, I thank the Minister for that reply. Will the Government's
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policies, which I support, now meet the concerns, expressed by this House's Science and Technology Select Committee and the CBI, that investment and future planning decisions that should involve high technology are being taken by government departments and agencies without considering at an early stage how UK industry and research could contribute? Would that not be the best way of encouraging the high-tech entrepreneurship advocated today by the Chancellor? Should not the job descriptions of most agency chief executives now include an explicit duty to collaborate with UK industry? I declare an interest as a former chief executive and director.
Lord Sainsbury of Turville: My Lords, that is exactly what we are trying to achieve by encouraging government departments and agencies to act as intelligent customers. As we take forward that agenda, we will make certain that there is nothing in their job descriptions that inhibits either civil servants or chief executives of agencies doing so.
Lord St John of Bletso: My Lords, can the Minister elaborate on how successful the Office of Science and Technology has been in promoting knowledge transfer across the universities, research organisations and businesses throughout Britain?
Lord Sainsbury of Turville: My Lords, in the past five years the Office of Science and Technology has undertaken much work in the area of knowledge transfer through three schemes: University Challenge, science enterprise centres and the Higher Education Innovation Fund. That has been a huge success. We have seen a dramatic increase in the number of spin-off companies and the number of patents and licences, which are of a higher order of magnitude—showing that there has been a real cultural change in our universities.
Baroness Sharp of Guildford: My Lords, does the Minister not agree that departments can do that job

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better if their budgets are increasing, rather than decreasing? Have not the R&D budgets of most government departments fallen dramatically over the past 20 years? In particular, would he comment on the budget of Defra, which, despite climate change and the many challenges facing the industry, has been falling extremely quickly?
Lord Sainsbury of Turville: My Lords, it is clearly easier to do the job better when budgets are increasing rather than decreasing. That is true of many activities in life. In fact, the R&D budgets of government departments, having fallen sharply, are now, as a whole, flat or increasing. We wish to see that trend continuing, which is why we are putting so much emphasis on having properly costed science and innovation strategies for each government department.

Public Appointments
2.40 p.m.
Baroness Howe of Idlicote Baroness Howe of Idlicote asked Her Majesty's Government:
Whether, following the publication of Delivering Diversity in Public Appointments 2003, they are satisfied with each government department's reported progress towards their 2005 targets as specified in the Cabinet Office publication Public Bodies: Opening up Public Appointments 2002–2005.
Lord Bassam of Brighton: My Lords, diversity is increasing. For example, women now hold 35.7 per cent of public appointments compared with 32 per cent in 1997. The Government want boards of public bodies both to be appointed on merit, having the necessary skills and experience, and to be more representative of society as a whole. Delivering Diversity in Public Appointments 2003 outlines what each central government department is doing to increase diversity on the boards of its public bodies and includes individual departmental action plans and targets. Progress has been made but there is still much more to do.
Baroness Howe of Idlicote: My Lords, I thank the Minister for that helpful and partly encouraging reply. However, can he give a firmer guarantee that all those targets, particularly the 45 to 50 per cent target for women, will be achieved by 2006? Will the Minister focus for a moment on appointments to senior positions? Will he give an undertaking to make public annually the percentages of women and other groups who hold positions of chairmen and deputy chairmen and give the comparison between the percentage of the same groups that hold remunerated rather than non-remunerated positions?
Lord Bassam of Brighton: My Lords, it would be impossible for me to commit the Government
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absolutely to meeting all of those targets in the time-frame that the noble Baroness has outlined, not least because only around 10 per cent of public appointments come up annually. Hitting those targets is a somewhat imprecise science. I am aware that in the past the noble Baroness has asked questions about senior appointments. My understanding is that, from responses given in Written Answers, those data are publicly available and can be published regularly.
Baroness Gardner of Parkes: My Lords, will the Minister say whether times have changed since I sat on a women's committee, trying desperately to achieve more women appointments and we were given "the old run-around"? When we applied to the departments they said, "No, you need to go onto the general list". When we applied to the general list we were told that each department holds its own. Has that changed and is there any more direct way for women to get there now?
Lord Bassam of Brighton: My Lords, I would hate to think that the noble Baroness was given the "run-around". That is an appalling prospect which I could not support at all. Since the Government came into office in 1997 the percentage of women appointed to public bodies has increased. With the setting of targets—and the meeting of them by many departments—we are achieving much more than was achieved in the past. I am sure that all noble Lords would support that.
Baroness Warnock: My Lords, is the Minister able to answer the second part of the Question asked by my noble friend Lady Howe: is it possible to publish the proportions of paid and unpaid senior appointments?
Lord Bassam of Brighton: My Lords, I shall certainly undertake to see whether we can achieve that, as it is highly desirable.
Baroness Whitaker: My Lords, does my noble friend share my disappointment that it is only women asking all these supplementary questions?
Lord Hunt of Chesterton: My Lords, that is because the women are jumping in earlier than the men.
Lord Bassam of Brighton: Am I disappointed, my Lords? Yes, I suppose that I am.
Lord Hunt of Chesterton: My Lords, perhaps I may make a comment—or pose a question. A very firm letter should be sent to government executives along the lines of those that I received when I was at the Met Office, which transformed the numbers of women and ethnic minorities on our board. Are the Government really pressing the matter? The difference between departments is extraordinary. Some have very few numbers; others are doing very well. Why is there such a big difference?
Lord Bassam of Brighton: My Lords, it does vary; I am sure that there are explanations. One is that the rate at which public appointments come up is much slower in some departments by comparison with others. Some problems will be inherited; for example, having smaller numbers of people with the right technical expertise for more technical appointments. But the noble Lord is right; we must do everything that we can to encourage meeting and matching the targets that the Government have rightly set.
Lord McNally: My Lords—
Baroness Chalker of Wallasey: My Lords—
Lord McNally: My Lords, is the Minister aware that the reason that the ladies got in first is that the age of gallantry has not passed on the Liberal Democrat Benches? I have ruined my point slightly, but I did not give way to the noble Baroness because she was always thought of as one of the chaps in the Foreign Office.
Is the Minister aware that this is a wholly welcome initiative, but that women often tend to be more self-censoring than men on their fitness for public office? How much effort are the Government putting into mentoring and getting publicity to women outside the usual circles to inform them that jobs are available, and that they are qualified and will be given help to do the job?
Lord Bassam of Brighton: My Lords, the noble Lord was moving into rather dangerous territory; I shall not dig any further. He made a very serious point in the end. As part of the programme of opening up public appointments, the Government have concentrated on giving support and encouragement to more women to come forward, with the holding of seminars, open days and so on, so that there is positive encouragement to take up positions in public bodies. From the feedback and research undertaken, that seems to be having a very positive effect on appointments.
Baroness Chalker of Wallasey: My Lords, will the Minister kindly undertake to ensure that the Government publish, department by department, notice of the appointments coming up? There have been cases where women who were interested found out far too late. It is not always easy, from the publications so far printed, for women to find out when appointments are coming up. We can help women to apply for public appointments only if there is knowledge.
Lord Bassam of Brighton: My Lords, I thought that we were improving how public appointments are advertised, but the noble Baroness makes an important point. I will speak to officials and see whether we can do more to promote the opening up of those appointments and to ensure that there is greater knowledge and awareness of them.
Lord Chan: My Lords, does the Minister agree that only the Department of Health has met its
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appointment targets for ethnic minorities? If that is the case, why do other departments not seem to meet their targets for ethnic minorities; for example, in the appointment of justices of the peace?
Lord Bassam of Brighton: My Lords, the simple answer regarding the Department of Health is that there is a far larger volume of appointments; therefore, there is much more scope for that department to hit its targets. Useful progress has been made in the Home Office. The Department for Constitutional Affairs is now responsible for nearly all appointments, particularly those of magistrates and so on. The appointment of ethnic minorities to public bodies is at 5.3 per cent, an increase from 3.6 per cent in 1997. Useful progress has been made across the board.
Baroness Seccombe: My Lords, the Minister said in his Answer that there had been an increase from 32 to 35 per cent since 1997. Does he agree with me that the very significant increase took place between 1992 and 1997, from 26 to 32 per cent, and that that was a cause for celebration?
Lord Bassam of Brighton: My Lords, it is obviously a cause for celebration that there has been an increase year on year in the number of women appointed to public bodies. The noble Baroness says that 28 per cent were appointed in 1992; I think that that figure was for 1993, but it rose to 32 per cent by 1997 and to 35.7 per cent by 2003.
Baroness Thomas of Walliswood: My Lords, the Minister referred to the varying levels of achievement based on historic trends and so on. Why are the targets so variable? Those for some of the biggest departments, the Department of Health and the DTI, are 45 to 55 per cent, but for the Food Standards Agency and the Department for Environment, Food and Rural Affairs—both areas of great interest to women, on which they might have a lot of knowledge, one would have thought—the targets for the coming year are only 35 per cent and 27 per cent of the numbers respectively.
Lord Bassam of Brighton: My Lords, departments must be looked at separately to see where they are starting from. Obviously, some departments start from a lot further back. As I explained at the outset, the rate of turnover affects their ability to meet and match those targets. It is all very well setting a higher level or a higher target, but it is somewhat unrealistic to do so if the number of appointments coming up is low. It varies from department to department, and it will depend on the starting point from which they come.
Lord Berkeley: My Lords, does my noble friend see any connection between the gender mix of the selection committee, or the people who are recruiting, and how many women are taken on? If it is an all-male committee, is there not a likelihood that it will appoint mostly men as opposed to women?
Lord Bassam of Brighton: My Lords, that may well have been an influence in the past. One would like to be optimistic and suggest that it is not an influence and will not be in the future. We must have targets in place, so there is an obligation on each and every department to meet that target and improve the levels of female representation, ethnic minority representation and representation of people with a disability.

EU Treaties and Institutions
2.51 p.m.
Lord Phillips of Sudbury Lord Phillips of Sudbury asked Her Majesty's Government:
What they propose to do to help the European Union to uphold the integrity of its treaties and institutions in the light of the breach by France and Germany of the stability and growth pact and the fact that the Court of Auditors has not approved the Commission's accounts for nine consecutive years.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): My Lords, we continue to support a prudent interpretation of the stability pact that takes into account the economic cycle, sustainability and the important role of public investment. With regard to the Commission's legal challenge of the November ECOFIN decisions, it would be inappropriate to comment on the possible, or likely, outcomes of the case. On the European Court of Auditors, the UK has been working closely with the Commission on radical reform of the EU's financial management, which the European Court of Auditors itself describes as ambitious and fundamental.
Lord Phillips of Sudbury: My Lords, I am grateful to the Minister for his reply. Does he accept that when Mr Prodi became head of the Commission, he talked in his early days of zero tolerance of fraud? The language of the reply that he has given is comparable with language that has been given over the failure of the Commission to produce accurate accounts for nine years. Given the historically high levels of mistrust of the institutions of the EU, not just in this country but across Europe, would it not be more prudent of the Government to do more than utter sentiments? In particular with regard to the action commenced by the Commission as a result of the failure of France and Germany to comply with the stability and growth pact, would it not be the right thing for Her Majesty's Government to back the Commission? If I may—
Noble Lords: Oh!
Lord Phillips of Sudbury: My Lords, I will leave it at that. I must leave it at that, but the fact is that the Government have not unequivocally backed the Commission in this action. Why not?
Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Phillips of Sudbury, got away—I do not
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quite know how—with asking two different questions in his Question on the Order Paper. One is about the stability and growth pact, and the other is about the Court of Auditors. He has managed in his supplementary questions to mix the two up in a way that I did not think was possible.
I will answer as best I can about the Court of Auditors, because the noble Lord will know that the Chancellor has been ferocious in attacking both red tape and inefficiency in the European Commission. At the same time, without defending it, it should be recognised that the Court of Auditors has approved the income and expenditure accounts, and the administration and pre-accession aid accounts. The problem has been with the assets and liability statements.
Lord Stoddart of Swindon: My Lords—
Baroness Noakes: My Lords, the double-headed Question asked by the noble Lord, Lord Phillips of Sudbury, is really about the quality of compliance that exists in the EU. Does the Minister agree that non-compliance is a serious issue? France in particular does not comply, and does not introduce EU laws. What do the Government intend to do about that?
Lord McIntosh of Haringey: My Lords, I congratulate the noble Baroness, Lady Noakes, on finding a link between the two heads of the original Question. Unfortunately, in doing so she has raised an issue of compliance with European legislation, which does not relate to either of the questions asked by the noble Lord, Lord Phillips of Sudbury.
Lord Stoddart of Swindon: My Lords—
Lord Marsh: My Lords, my question is in relation to the accounts, which are part of the Question. The Government have good friends in the Commission and good relationships with them. Would the Minister like to comment on the role of Mr Kinnock over the past nine years?
Lord McIntosh of Haringey: My Lords, no, I certainly would not—"over the past nine years", indeed. It is generally recognised that—did I say, "would not"? I meant that I would. I beg your pardon, that was a slip of the tongue, and I apologise. I would never resist an invitation from the noble Lord, Lord Marsh, to comment. Mr Kinnock is generally recognised to have done an excellent job in the reform of the procedures of the European Union.
Lord Howell of Guildford: My Lords—
Lord Stoddart of Swindon: My Lords, I am not giving way again. I am most obliged to the noble Lord. I gave way twice—I did not think that I should do so for a third time.
Is it not absurd that the Commission should be able, through the stability and growth pact, to threaten this country with legal action, bearing in mind that our

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economy is thriving while the economy of the euro-zone is stagnating? In Germany, the unemployment rate is 10 per cent. In France it is 9 per cent. In this country it is only 5.2 per cent. In Germany the growth rate is 0.9 per cent. Even in this country at its lowest rate it was 2 per cent last year.
Lord McIntosh of Haringey: My Lords, I am not in a position to dispute the noble Lord's figures. I will have to read them carefully and see whether they can be confirmed. His basic question was on what basis would the European Commission be threatening the United Kingdom. It is not threatening the United Kingdom, and if there were any threat it has been resolved by the statement of Commissioner Solbes, which was reported in today's papers.
Lord Howell of Guildford: My Lords, the Minister has been moving around the central question with his usual skill. What is our attitude to the law-breaking by the French and German Governments in relation to the stability and growth pact? Is it true, as all the newspapers report, that we have backed them? Have we backed France, by far the biggest lawbreaker in the Union? If so, we have done so to the fury of the smaller countries. Is this part of a unfortunate policy—which I hope that we change—of constantly being with the big boys against the smaller and newer members of the Community and thus damaging the Community, instead of taking the kind of lead that we should with the smaller countries?
Lord McIntosh of Haringey: My Lords, I take it that the noble Lord, Lord Howell of Guildford, is referring to the ECOFIN decision of 25 November last. In answer to a Question last week, I said that we supported the general statement that ECOFIN made at the end of its communiqué. I point out that the decision about whether to proceed to the next step under Article 104 is taken only by those members of ECOFIN who are members of the euro-zone. Therefore, we did not take part in the vote on that decision.

Prisons: Mental Health Services
2.59 p.m.
Lord Dholakia Lord Dholakia asked Her Majesty's Government:
What is their response to the comments by the Chief Inspector of Prisons for England and Wales on 20 January that new mental health units need to be built so that prisons can care for the people who ought to be there.
The Minister of State, Home Office (Baroness Scotland of Asthal): My Lords, the Government of course take very seriously the comments and recommendations of Her Majesty's Chief Inspector of Prisons. We are investing in schemes to divert mentally ill people away from custody, and in better mental health services in prisons. We are also improving the
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way in which we use secure mental health services, so that this specialist treatment is available to those who need it.
Lord Dholakia: My Lords, I thank the Minister for that Answer. Does she share the concern that, on average, two prisoners a week kill themselves in our overcrowded prisons? Will she accept that new arrivals, drug users and mentally ill offenders are at most risk of self-harm and suicide in our prison institutions? Why, when the overall crime rate is falling, are we incarcerating more people than ever?
Could we make a start by treating people with mental health problems in specialist units, as recommended by HM Chief Inspector of Prisons and the Director-General of the Prison Service? While considering that proposal, will the Minister also consider how the court diversion scheme promoted by the Prison Reform Trust could help? Surely the state has a responsibility to ensure that those in its care are adequately protected.
Baroness Scotland of Asthal: My Lords, I join the noble Lord in highlighting the fact that it is a deep worry to us all that the average suicide rate seems to have increased. Mental health provision is extremely important. Prisoners who need in-patient treatment for mental disorders may, as the noble Lord will know, be transferred to hospital by direction of the Home Secretary, under the Mental Health Act 1983. The number of prisoners so transferred has risen from under 200 a year in the late 1980s to between 600 and 700 now.
Your Lordships will know that, through the Carter review and the changes that we are making to the Prison Service and the Probation Service, we hope to be able to give a more holistic response to those in the community and in our prison estate. There is a scheme now in place that will help us to manage our mentally ill prisoners more easily.
Lord Laming: My Lords, does the Minister agree that we are in danger of expecting far too much of the Prison Service? It is right to place a priority on security, training and education, but to expect the service, in addition, to be in the forefront of drug treatment and the treatment of people with serious mental health problems, is to expect too much. Is it not time that the Prison Service was able to focus on its main tasks, without being responsible for the care of mentally ill people?
Baroness Scotland of Asthal: My Lords, we certainly think that it is possible to marry a service that provides for security and for the needs of prisoners generally. One of those needs is mental health treatment.
The noble Lord will know that, by the end of March, National Health Service mental health inreach teams will be in place in the 90 prisons in which the need for such services is greatest. Delivered as part of the NHS Plan, the teams will involve more than 300 additional staff and provide specialist community-type mental health services to more than 5,000 prisoners. The

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important thing is not to separate the prison estate from the community but to do that which will enable there to be a smooth transition, so that individuals receive the care that they need.
Baroness Noakes: My Lords, will the Minister comment on the target of moving seriously mentally ill prisoners into NHS care within three months? Will she say whether that target is adequate? What progress has been made towards meeting it?
Baroness Scotland of Asthal: My Lords, first, I must say that it is, of course, important that the targets are addressed. There has been huge investment in the National Health Service mental health services in prisons. It will double to £20 million in 2005–06. In the next two years, it will be available in every prison in England and Wales. The extra investment will also help existing inreach teams. That will mean, we hope, that we will be able to manage more easily those in the prison population who have mental health difficulties and within the targets that we have set ourselves.
Lord Acton: My Lords, is my noble friend aware that, in her annual report, the Chief Inspector of Prisons drew attention to the high incidence of mental health disturbance among women prisoners? Will the Government pay particular attention to that and to the need to provide the necessary facilities for women prisoners?
Baroness Scotland of Asthal: My Lords, we are giving that issue serious consideration. I assure my noble friend that everything is being done to address the needs of women and others who suffer from mental difficulties. With regard to the figures in the report, I remind noble Lords that a broad spectrum is included in the definition of mental disorder.
Lord Avebury: My Lords, the depressing thing about the Chief Inspector's comments is that she is echoing the evidence that was given by her predecessor to the Select Committee on Home Affairs three years ago. Does the noble Baroness recall that, at that time, the Chief Inspector's medical adviser said that there was a shortage of 500 places in special hospitals for which prisoners ought to have been eligible? The Chief Inspector's medical adviser said that that was still the figure two years later. Is the Minister satisfied that adequate provision is being made for special hospitals for this category of mentally ill prisoner?
Baroness Scotland of Asthal: My Lords, it is also important to remember that the Chief Inspector acknowledged that there had been material improvements in the way in which we are addressing the mental health issues. The noble Lord will know that the Government's approach to mental health in prisons has three strands. The first is to help to ensure that people with mental health problems do not go to prison inappropriately. The second is to improve mental health services in prisons significantly. The
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third is to ensure that individuals who are assessed as too ill to remain in prison can be transferred to a hospital setting under the Mental Health Act 1983.
All three of those strands need to be worked on simultaneously, if we are to make sure that individuals get the right treatment at the right time in the most appropriate environment. I accept that we have a way to go, but we believe that we have a system in place that will help us better to deliver what we would like to see.

Business
3.6 p.m.
The Lord President of the Council (Baroness Amos): My Lords, with the leave of the House, my noble and learned friend the Lord Chancellor will, in a moment, make a Statement on judicial aspects of constitutional reform. The Lord Chief Justice, the noble and learned Lord, Lord Woolf, is in his place, and I am sure that the whole House will wish to hear what he has to say. As Leader of the House, I have been asked whether—exceptionally—we can allow him to speak at greater length than the brief comments and questions permitted by the Companion, without taking time from other Back-Benchers.
It is, of course, a matter for the House. I have consulted the usual channels, and I have their agreement to propose that, unless any noble Lord objects, the noble and learned Lord, Lord Woolf, be heard for up to 10 minutes, after the 20 minutes of Front-Bench exchanges. My noble and learned friend the Lord Chancellor will respond to the noble and learned Lord, Lord Woolf, and there will then be a full 20 minutes for other Back-Bench exchanges. As I said, it is proposed as an exceptional procedure for an exceptional case.
Lord Rees-Mogg: My Lords, I would be grateful if the noble Baroness the Leader of the House could tell us what subsequent arrangements are being made for a debate on a matter of the highest constitutional importance. Of course, we would all be delighted to hear the noble and learned Lord, Lord Woolf, for 10 minutes; that is not a problem. However, we ought to be told in advance that there are satisfactory arrangements for debating such extremely important constitutional issues.
Baroness Amos: My Lords, I am aware of the concern about the need to debate the matter in the House. A provisional date has been agreed for a debate just prior to the Recess.

Constitutional Reform
3.8 p.m.
The Secretary of State for Constitutional Affairs and Lord Chancellor (Lord Falconer of Thoroton): My Lords, with the leave of the House, I should like to make a Statement on the judiciary-related functions of the office of Lord Chancellor.

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On 14 July, I published consultation papers on the establishment of a new way of appointing judges, the creation of a new Supreme Court and the future of Silk. In September, I published a paper on the abolition of the office of Lord Chancellor. We are grateful to those who responded to our consultation process. The Government are today publishing summaries of those responses.
As set out in the gracious Speech, we intend to bring forward legislation to enact these changes. It is for Parliament to consider that legislation, and my proposals today are conditional upon parliamentary approval. Today, I wish to set out our proposals for the future handling of those functions of the office of Lord Chancellor which relate to the judiciary.
I have had detailed discussions with the Lord Chief Justice, who has been speaking on behalf of the judges on these issues. I am pleased to be able to tell the House that the terms of today's Statement have been agreed with the noble and learned Lord the Lord Chief Justice. The Lord Chief Justice's agreement is, of course, conditional on Parliament's approval of our proposals. I think it is right that Parliament should be told first of the results of those discussions.
In making changes, we must secure embedded, enduring judicial independence; good working relationships between the judiciary and the executive; high quality judges; and high public confidence in the judiciary. I believe that, taken together, our reforms and the proposals in this Statement will help to secure those aims.
The reforms seek to clarify and embed in statute the principle of judicial independence. Judges must enforce, impartially, the law made by Parliament. The executive must continue to guarantee security of judicial tenure and remuneration, and ensure that the judiciary is supported by an efficient and effective system of court administration.
We propose that there should be a general statutory duty on the Government, all those involved in the administration of justice and all those involved in the appointment of judges to respect and maintain judicial independence. In addition, there should be a separate specific duty falling on the Secretary of State for Constitutional Affairs to defend and uphold the continuing independence of the judiciary.
But the judiciary does not operate in a vacuum. It is part of a constitutional framework in which Parliament is the supreme law-making body. The Government, through Parliament, must ensure that the needs of the public are fully served by our legal system. Parliament must be able to hold the Government to account for the operation of the justice system and the resources provided for it.
That clearly requires a partnership; the Lord Chief Justice and I are determined that the successful partnership between my department and the judiciary should he sustained and entrenched for future generations. But to maintain this partnership without blurring the boundaries of responsibility requires clarity and transparency. To that end, we intend to define in the forthcoming Bill the respective
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responsibilities of the Secretary of State for Constitutional Affairs and those of the Lord Chief Justice, as the most senior judge in England and Wales.
The Bill will make it clear that the Secretary of State is responsible for the administration of the courts; that he is accountable to Parliament for the efficiency and effectiveness of the court system; and that he is responsible for supporting the judiciary in enabling it to fulfil its functions.
The Lord Chief Justice will lead the judges, with the authority that comes from being appointed as chief judge. He will be responsible for ensuring that the views of the judiciary are effectively represented; he will be responsible for the education and training of judges; and he will be responsible for the decisions on deployment of individual members of the judiciary.
The Lord Chief Justice should therefore be given the additional title of "President of the Courts in England and Wales". He should also no longer be the President of the Queen's Bench Division of the High Court. That should become a new post in its own right.
As regards deployment, we propose that responsibility for setting the overall framework for the organisation of the court system should be exercised by the Secretary of State, in consultation with the Lord Chief Justice. When it comes to the posting of individual members of the judiciary within that framework, however, responsibility should fall to the Lord Chief Justice.
I announced in July the Government's proposals for a judicial appointments commission and consulted over the summer on the detail. Central to the appointments process will be a new, clearly independent, judicial appointments commission. The commission will have full responsibility for the process of advertising vacancies and evaluating candidates for judicial appointment. No candidate will be appointed to the judicial posts for which the commission will be responsible unless recommended by the commission. The sole criterion for the commission in making its recommendations will remain that the appointments must be made on merit.
To ensure proper accountability to Parliament, the final decision on whom to appoint—or whom to recommend to the Queen for appointment—should remain with the Secretary of State. However, the Secretary of State's discretion must be severely circumscribed. He should be able to appoint only candidates recommended by the commission and should have strictly limited powers to challenge those recommendations. It is not right that a political appointee (albeit one always acting in good faith) should be able to cut across the system to appoint who he or she thinks is right.
Magistrates are a very important part of the judicial family and we propose that equivalent arrangements apply to the magistrates' appointments. On the advice of the local advisory committees, the judicial appointments commission will make recommendations to the Secretary of State, who will have the same limited powers to reject as he does in relation to the professional judiciary. For administrative reasons, the commission will not be able

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to begin dealing with the appointment of professional judges and magistrates at the same time. We propose, therefore, that for an interim period the Lord Chief Justice will fulfil the role of the commission for magistrates' appointments.
It is vital that the commission itself should incorporate the expertise of the judiciary and the legal professions, but also the demonstrable impartiality and wider experience of those who are not from the legal world. We propose, therefore, that the chair of the commission should be neither a lawyer nor a judge, and that the largest single group on the commission should be members who are neither lawyers nor full-time judges. The commission will include members of each level of the judicial hierarchy, up to the Court of Appeal, and will be required to consult the Lord Chief Justice during the recruitment process. The Lord Chief Justice will be able to engage judicial colleagues. That will ensure the commission is able to benefit from the views of the judges about potential candidates, and about any particular requirements for a vacancy.
In order to ensure that the system is as open and accountable as it can be, and that it is independent of government, we propose that the commission should be fully responsible for the appointments process itself. It should recruit its own staff and submit an annual report detailing its activities over the year. To provide a further guarantee of the impartiality of the system, the commission should establish a system for handling complaints from candidates who are unhappy with the way that their application has been handled. We will provide for an ombudsman to deal with those instances where a candidate remains dissatisfied.
I want to make it clear that appointments will continue to be strictly on merit. But our proposals will greatly improve the transparency, openness and fairness of the appointments system. By doing so, they will help to ensure that the judiciary of the future fully reflects the diversity of the community that it serves—a goal that both the Government and the judiciary seek.
I am also pleased to announce that Dame Rennie Fritchie, the Commissioner for Public Appointments, has agreed to chair the appointing panel for the commissioners. The Lord Chief Justice will also sit on the panel, as will one other member (who will be neither a member of the Government nor a civil servant) to be nominated by the Commissioner for Public Appointments. Once appointed, the chair will be on the panel for the appointment of the other commissioners.
The education and training of the judiciary is the responsibility of the Judicial Studies Board, which is chaired by a senior member of the judiciary and, although staffed by members of my department, is under the control of the judiciary. The Lord Chief Justice will be responsible for the provision and sponsorship of judicial training, within the resources provided by the Secretary of State, with a continuing role for the Judicial Studies Board. We will further propose that the Lord Chief Justice should in future
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appoint both the chair and members of the Judicial Studies Board, after consultation with the Secretary of State.
The Secretary of State and the Lord Chief Justice will both continue to have a role to play in relation to judicial discipline and conduct. That partnership reflects the importance of respecting the independence of the judiciary, of providing assurance to the public that complaints about judges are subject to proper scrutiny, and of providing accountability to Parliament for the complaints system.
In the most serious cases, in which it falls to be considered whether a judge should be removed from office for incapacity or misbehaviour, removal will be by the Secretary of State with the agreement of the Lord Chief Justice. It will not be possible unless they both agree. For the higher judiciary, removal will continue to be by Her Majesty the Queen on an address from both Houses of Parliament. Such cases will be first investigated by a judge of appropriate seniority and will be able to be referred to a review body.
In less serious cases, the Lord Chief Justice and the Secretary of State will need to agree on any penalties short of dismissal to be applied to a judge. They will be supported in this work by a complaints secretariat, and they will both be consulted about all complaints of any substance, as well as receiving regular reports about all other complaints dealt with. For all cases involving magistrates, local input will continue. The Secretary of State will be accountable to Parliament for the efficient and effective operation of the complaints system as a whole and will continue to deal with correspondence from Peers and Members of Parliament on the subject.
To provide greater certainty and transparency about the process of handling such complaints, the Bill will provide for a complaints procedure to be agreed by the Lord Chief Justice and the Secretary of State that will be set out in secondary legislation. As a further guarantee of the openness and fairness of the new complaints process, we propose that the complainant or the judge concerned should be able to refer the handling of the complaint to the ombudsman.
There are a number of posts, such as the senior presiding judge and the presiding judges, that do not involve formal promotion to a more senior judicial level. Those roles, which are held for a relatively short term by different judges in succession, entail a degree of judicial leadership and a range of administrative functions. We propose that in the future such appointments should be made by the Lord Chief Justice, either in consultation with, or with the concurrence of, the Secretary of State.
The making of rules of court is a key means of giving effect to policy decisions approved by Parliament. Responsibility for the making of rules will remain with the relevant rule committee. The Secretary will allow or disallow rules. We propose, however, that the power to alter rules should be repealed. Instead, we will propose a new power allowing the Secretary of State to require a rule committee to make new rules, or to change existing rules, to achieve a particular desired

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outcome. It would then be for the committee to consider how best to frame the rules to meet such a requirement. and to submit or resubmit them to the Secretary of State.
The policy that I have outlined today covers the position in respect of England and Wales. My responsibilities also extend to Northern Ireland. Consideration will be given to the future handling of my functions that relate to the Northern Ireland judiciary. That process, which is currently under way, will include consultation with the Lord Chief Justice of Northern Ireland, and will be based on the same guiding principles as in England and Wales, taking into account any provision already made for Northern Ireland to give effect to the recommendations of the Northern Ireland Criminal Justice Review.
The Lord Chief Justice and I will listen carefully to views expressed today in your Lordships' House and elsewhere. Your Lordships will have a further opportunity to consider those issues in more detail when legislation is introduced. To assist in such consideration, we have today placed in the Libraries of both Houses an explanatory document setting out the proposals in more detail.
With parliamentary approval, the reforms that I have set out will guarantee that the independence of the judiciary is protected for future generations. The reforms will clarify the relationship between the executive and judicial arms of the state, improve each arm's accountability, and promote and strengthen partnership, so as to serve the public better.
My Lords, that concludes the Statement.
3.22 p.m.
Lord Kingsland: My Lords, the noble and learned Lord the Lord Chancellor and the noble and learned Lord the Lord Chief Justice have been courtesy itself in keeping me informed of the progress of their negotiations and their conclusions on the agreement. They have also kindly let me have foresight of the relevant documents and, indeed, of their speeches in draft. I understand that the same privilege has been extended to the noble Lord, Lord Goodhart.
I am delighted, as I am sure are all your Lordships, to see the noble and learned Lord the Lord Chief Justice in his place. I understand that he has come down to your Lordships' House to explain the judiciary's approach to the agreement. Long may the noble and learned Lord the Lord Chief Justice and his successors exercise their right to speak their mind about vital judicial matters in your Lordships' House. However, I understand it to be the intention of the noble and learned Lord the Lord Chancellor that this will prove to be one of the last times we shall see the noble and learned Lord the Lord Chief Justice in your Lordships' House. Indeed, that privilege will also be denied to his successors.
In the context of today's Statement, I find that fact rather ironic. The philosophy behind the Statement of the noble and learned Lord the Lord Chancellor is to remove the judiciary from the legislature, so that the judiciary will in some way become decontaminated of
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the influence of the law-making process. Yet, we have an agreement that has been carefully negotiated, albeit in secret, and which will end up as clauses in a Bill that will be placed before your Lordships; and the noble and learned Lord the Lord Chief Justice is here to express his endorsement of that agreement, and those subsequent clauses, even though his right to do so is now threatened by the Government.
I hope that I am not alone in finding the Government's approach to those negotiations, and the welcome given to their conclusion by the noble and learned Lord the Lord Chancellor, somewhat illogical. Perhaps some of your Lordships might even think it—dare I say—hypocritical.
The details of the proposals will be debated at length on 12 February. I wish today simply to place them in the broader context of what I understand to be the Government's legislative proposals. I shall do so, first, by looking at the manner in which the agreement was reached, and, secondly, at its scope.
As to the manner, I trust that I am not alone in thinking that matters of such importance as the independence of the judiciary and the selection of judges should not have been conducted in negotiations in confidence between the executive and the judiciary without any participation by either House of the legislature.
The conclusion that has been reached is rather strange. The party of government has been more enthusiastic than any other political party of this country about pre-legislative scrutiny. I can think of no better set of proposals to undergo that process than those that will be contained in the Bill. I recall when I was involved in the draft Financial Services Bill three or four years ago how successful the pre-legislative scrutiny of that Bill turned out to be. Would not it have been helpful to your Lordships' House, for example, for the proposals in the agreement to be compared with the existing situation? Evidence from senior judges who have direct experience of judicial selection under the existing situation could have been taken. That could have been considered in the context of what the noble and learned Lord the Lord Chancellor has said to your Lordships this afternoon.
To take another example, we understand that not only will the noble and learned Lord the Lord Chief Justice depart from your Lordships' House, but the noble and learned Lord the Lord Chancellor will disappear altogether. Who will guarantee that Ministers will not criticise judges, following judgments that displease them? That already happens from time to time, but I am sure that the restraining hand of the noble and learned Lord the Lord Chancellor being in the Cabinet has meant that there are far fewer examples than there would otherwise have been.
It is not too late for the Government to hold a pre-legislative review. The agreement reached between the noble and learned Lord the Lord Chancellor and the noble and learned Lord the Lord Chief Justice could form the basis of such a review.

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In saying all that, I am in no way criticising the noble and learned Lord the Lord Chief Justice for what he has done. The noble and learned Lord was not given the option of a pre-legislative public review. He had to do the best he could in the circumstances in which he was placed. There can be no criticism of him whatever.
As to the scope of the agreement, it is vital to emphasise that, in the context of the whole Bill, it is fairly narrow. First, as the noble and learned Lord the Lord Chancellor said, it does not bind the legislature. Secondly, there is nothing in the agreement about the Supreme Court, which, of course, is not surprising. The noble and learned Lord the Lord Chief Justice is responsible for the judiciary in England and Wales. The scope of the Supreme Court runs much wider to the whole of the United Kingdom.
Thirdly, there is nothing in the agreement about the preservation of the rule of law. In this respect, the role of the Lord Chancellor in the Cabinet is vital. The Lord Chancellor is invariably a member of the Cabinet of jurisprudential distinction and is, of course, the head of the judiciary. He is a man—it might be a woman—who has attained the pinnacle of his career. He has nothing more to hope and nothing more to fear. In British politics there is no better figure to ensure that the rule of law is not overrun by political expediency. Why does the Prime Minister want to remove such a figure from the Cabinet? Noble Lords may find that the answer to that question does not pose a severe test to the intellect.
What of the removal of the Lord Chief Justice, the Master of the Rolls and the Lords of Appeal in Ordinary from your Lordships' House? I view this with alarm. The judiciary is one of the three great arms of the constitution. To deprive noble and learned Lords of their intimate involvement in the legislative process will be to isolate the judiciary in this country and to turn it into a mere political pressure group. Moreover, it is wholly illogical to remove the judiciary from the legislature without giving the same treatment to the executive.
As a party in opposition we are not against change, but it must be change which harmonises with our past. The present arrangements have existed for over 400 years. They have been tested by every generation and not found wanting. As I said in the debate on the gracious Speech, what is so special about 2004?
3.31 p.m.
Lord Goodhart: My Lords, I start by repeating the thanks of the noble Lord, Lord Kingsland, for the opportunity given to myself as well as to the noble Lord to see in advance the draft documents which have been released today. Unlike the noble Lord, Lord Kingsland, I propose to say something about the terms of the agreement. The noble Lord's speech left me and, I suspect, every other Member of the House, absolutely in the dark about the views of the Conservative Party on the substance of the matter under debate.
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Members on these Benches warmly welcome the Statement. We have long believed that it was wholly improper for judges to be appointed by a Cabinet Minister. Of course recent Lord Chancellors have been unquestionably impartial in making their appointments, but in the future there is a real and increasing risk that the appointments process will be politicised if things are left as they are.
We do not agree with all the proposals put forward by the Government. We are concerned, for example, about the make-up of the proposed judicial appointments commission. It may be that too high a proportion of the members are holders of judicial office; it will be seven out of 15 if we include the representatives of the lay magistracy and tribunal members. We shall raise that and other issues during our discussions in debate on the Bill.
However, we recognise the enormous constitutional importance of the concordat now arrived at between the noble and learned Lord the Lord Chancellor and the judiciary, represented by the noble and learned Lord, Lord Woolf. That concordat will get the new system off to a far better start than if the Government were seeking to force a new system on an unwilling judiciary. Therefore we shall not seek to unravel the agreement reached in the concordat.
This is not the time to go into the detail of the terms of the concordat, but we very much welcome the specific statutory duty on the Secretary of State to defend the independence of the judiciary. However, I have to say that that does not go far enough because the independence of the judiciary is useless if its powers are excluded or improperly restricted. A plain example of that is Clause 10 of the Asylum Bill now before the House of Commons which excludes judicial review of decisions in asylum cases. That is a constitutional abomination. Clause 10 is a threat to the integrity of the legal system. It is not just a question of the rights of asylum seekers; it is one of the powers of the High Court to review the decisions of inferior tribunals. That is a fundamental principle of our constitution. I believe that the noble and learned Lord the Lord Chancellor should have insisted that judicial review should be retained. I do not know whether he failed to object to Clause 10 or whether he objected and was overruled. Either way, the present system has failed. To make future failures less likely, the statutory duty of the Secretary of State must be extended to include not only the defence of the independence of the judiciary, but also the defence of the integrity of the legal system.
We must preserve not only the independence of the judiciary, but the independence of the legal profession. That means that if appointments to Queen's Counsel or an equivalent rank under another name are to continue, those appointments must also be independent of government. I should add that Schedule 5 to the Access to Justice Act 1999 gives the Lord Chancellor considerable powers over the rules of professional bodies. Those powers should either be transferred to the Lord Chief Justice or require his concurrence.

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Let me finish by mentioning briefly two matters that need to be looked at in the longer term. First, the forthcoming Bill will be of the utmost constitutional importance. It will determine the relationship between the executive and the judiciary, but it is to be contained in an ordinary Act of Parliament which could be repealed by any other Act. In the past we have prided ourselves on our unwritten constitution, but that constitution is no longer unwritten; bits and pieces are scattered in various statutes, of which the constitutional reform Act will be one. They need to be brought together into a single, written constitution.
Secondly, it is time that we created a proper ministry of justice and brought responsibility for our substantive criminal law into the Lord Chancellor's Department or the Department for Constitutional Affairs, and out of the Home Office.
This is the beginning of a long debate which will resume at much greater length on 12 February and again in March when we have the Second Reading of the constitutional reform Bill. I have not yet seen the detailed proposals for the creation of the Supreme Court, so I cannot comment on them, but I believe that the concordat represents an important step forward towards what is a vital constitutional reform.
3.37 p.m.
Lord Falconer of Thoroton: My Lords, I am grateful to both noble Lords for their thanks. It was right to keep them informed throughout the process. The noble Lord, Lord Goodhart, was correct to point out that, having listened to the noble Lord, Lord Kingsland, unfortunately we have no idea what the Conservative Party thinks about these proposals, so I shall not comment on that.
Like the noble Lord, Lord Goodhart, I welcome the fact that the noble and learned Lord the Lord Chief Justice is in his place this afternoon and I am glad that he will take the opportunity to set out in this House what he thinks of these proposals. There has been no element of secret negotiations here. The moment that an understanding was reached between us, we came straight to the House and explained the purpose. I am not sure what the noble Lord, Lord Kingsland, had in mind. Should we have detailed on the website precisely where we were in our correspondence? I do not think that even the noble Lord would suggest that.
I turn to the remainder of the remarks made by the noble Lord, Lord Kingsland. At the heart of the understanding between myself and the noble and learned Lord the Lord Chief Justice is the proposition that the Lord Chief Justice for England and Wales should become, in effect, the acknowledged leader of the judges. I can think of no other process that would more strongly embed the rule of law and ensure that the independence of the judiciary is guaranteed.
I am glad that the noble Lord, Lord Goodhart, has welcomed these proposals. He is right to say that they are of very considerable constitutional significance and, as my noble friend Lady Amos has said, there will be a chance to debate them before we reach the Bill itself. Turning to his remarks about a written
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constitution, our constitution has always been based on the supremacy of Parliament. If a written constitution is set above Parliament then in effect that supremacy is lost. Of course some things should be set out in statute hut, like all other statutes, they should be subject to the will of Parliament. As regards Clause 10, I think that that should be debated on another day.
3.39 p.m.
Lord Woolf: My Lords, I am most grateful to the House for allowing me extra time to respond on behalf of the judiciary to the Statement made by the noble and learned Lord the Secretary of State and Lord Chancellor. Before making my statement I consulted the Judges' Council, and the judiciary of the High Court and the Court of Appeal. It is therefore with their agreement that I welcome the Lord Chancellor's Statement and make these remarks.
After the Government announced on 12 June last that they were proposing to abolish the office of Lord Chancellor, the judiciary regarded it as of the greatest importance that if this were to happen there should be a new constitutional settlement, reflected in legislation, that would protect the administration of justice in England and Wales for the future.
A settlement responding to the proposed new situation would have to ensure: first, that the judges retain the confidence of the public; secondly, that the independence of the judiciary is maintained: thirdly, that the quality of the judiciary continues to be outstanding; fourthly, that there is an appropriate and harmonious relationship between the judiciary, Parliament and the Government; fifthly, that the resources essential to an effective and efficient court system are provided.
The arrangements just announced by the Secretary of State and Lord Chancellor are the result of detailed discussions between the noble and learned Lord and myself. If they are accepted by Parliament, their implementation will have my firm support.
If you compare what is announced with the response of the Judges' Council to the Government's consultation papers on constitutional reforms, you will find significant differences. However, the judiciary recognises that there is more than one way in which its objectives can be achieved. During the course of our discussions, the Lord Chancellor and I have been willing to accommodate the views of the other as long as they do not involve impinging upon the important principles that we each believe have to be secured by an agreement that safeguards the interests of the public.
I emphasise that what is announced is a package of proposals and I make it clear that the judiciary's endorsement is conditional on the proposals being implemented as a whole.
I shall explain shortly why the judiciary considers that the package of proposals is acceptable. Before I do so, it is important that I make clear that these proposals do not deal with all the issues which will have to be determined as a result of the proposed changes announced by the Government last year. The package of proposals about which I speak today deals

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with the issues that arise as a consequence of the Lord Chancellor ceasing to be the head of the judiciary. Once there is no longer a Lord Chancellor who is head of the judiciary, it is vitally important to the administration of justice that there are provisions in the legislation which protect the judiciary in its task of providing justice for those who come before the courts. This, in the judgment of the judiciary, is what the present proposals achieve.
This package of proposals does not deal with other issues which have not, as yet, been the subject of discussion between myself and the noble and learned Lord—that is, the question of the creation of a new Supreme Court and the question of whether senior judges should continue to sit in this House, an issue to which the noble Lord, Lord Kingsland, referred. Nor does it cover the future of the silk system.
On a similar note, I should make clear that, in engaging in these discussions with the noble and learned Lord, I have not sought to address the question of whether the office of Lord Chancellor should indeed be abolished. It seems to the judiciary that that is a matter for Parliament.
Subject to these qualifications, I can say that the proposals are satisfactory because, first, the appointments commission will be wholly independent of the executive and appointed by a body that is equally independent. The commission will be qualified to appoint and promote our judiciary in the future. It will not be a commission dominated by the judiciary but there will be sufficient members who sit, full time, as judges to ensure that the commission benefits from their experience as to the qualities that judges must have. The sole criterion for making appointments will be merit, and it will be an important part of the commission's role to work out ways of increasing the diversity of those who apply for judicial appointments so that there will be a wider range of applicants from which to choose. A lay chair will be able to devote the time to this role that such an important post deserves. For appointments of a specialist nature, those who have the requisite expertise will be able to contribute to the selection process.
Secondly, the Secretary of State is to be involved in the appointments process to an extent necessary to meet his responsibilities to Parliament and the public, but his involvement is suitably restricted. He can ask for a proposed appointment to be reconsidered or for a different name to be submitted, but he cannot propose a candidate for appointment and he will have to identify why he considers that a particular candidate is not acceptable. I have accepted that it is not practical for the appointments commission to take on its responsibilities for the appointment of magistrates from its inception. Having discussed the matter with the Magistrates' Association, I have agreed that until the appointments commission is ready to do so, recommendations received from the existing advisory committees will be passed to me and that I will submit an approved list to the Secretary of State under a procedure mirroring that which will apply to the appointments commission.
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Thirdly, the security of tenure of the judiciary is preserved. However, an important aspect of its independence is that members of the judiciary fulfil their responsibilities in a way that does not adversely affect the public's confidence in the judiciary. There must therefore be an appropriate system for dealing with complaints and discipline, and this the proposals contain. Again, the Secretary of State has a part to play in the system proposed and, again, his role is carefully limited so as to protect the independence of the judiciary. He will be answerable for the complaints system to Parliament; he can require a judicial investigation or review; but no judge can be removed or any other sanction imposed without the agreement of both the Secretary of State and the Lord Chief Justice of the day. Together they will consider the findings of the investigating judge or review body and agree whether the recommendations should be implemented. In addition, the administrative support for the disciplinary and complaint process will be provided by a separate section of the staff of the department working to an independent chief executive.
Fourthly, the Secretary of State, unlike the Lord Chancellor, will not be head of the judiciary. The previous position of the Lord Chancellor as president of the existing Supreme Court will pass to the Lord Chief Justice of the day, but the Lord Chief Justice will assume the new title of President of the Courts of England and Wales. The Lord Chief Justice will have the statutory responsibility and therefore the authority to speak on behalf of the judiciary on matters that concern the judiciary. The Secretary of State is, however, to continue to have a clear statutory responsibility to provide administrative support for the judiciary and the resources to enable it to perform its duties. This includes providing the Lord Chief Justice with a properly resourced staff and office.
Fifthly, the Judicial Studies Board is to continue to be independent of the executive.
Sixthly, as to resources, the judiciary is to have, for the first time, non-executive membership of the boards of both the department and the Unified Courts Administration. This should lead to a closer involvement of the judiciary in the decision-making process.
Seventhly, in addition to the proposed specific duty on the Secretary of State for Constitutional Affairs to defend and uphold the continuing independence of the judiciary, there will be a general statutory duty on the Government, all those involved in the administration of justice and all those involved in the appointment of judges to respect and maintain judicial independence.
In agreeing the proposals, the judiciary has regarded as its primary responsibility, not the protection of its own interests but the protection of the independence of the justice system for the benefit of the public. I urge your Lordships to study the proposals, the details of which have been placed in the Library. If you do, I hope that you will agree with the judiciary that this is a package which will contribute to achieving the new

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constitutional settlement that the abolition of the Lord Chancellor requires. If you agree, I am sure that you will endorse the judiciary's view.
In lending my support to the proposals as a whole, I acknowledge that the noble and learned Lord has been commendably prepared to listen and respond to the proper concerns of the judiciary. An important consequence is that the close working relationship—or, as it is sometimes described, the partnership—between his department, the Court Service and the judiciary is more likely to be preserved. That close working relationship is a special quality of our justice system, which, in the interests of the public, it is important to preserve. I thank your Lordships.
Lord Falconer of Thoroton: My Lords, I am grateful to the noble and learned Lord the Lord Chief Justice for his endorsement of the proposals. I pay tribute to him for the work he has done in the discussions he has had with me and for the leadership he has provided to the judges. I thoroughly agree with his statement that, during the course of the discussions, both the noble and learned Lord and I have accommodated each other's views in many areas, because both of us believe that the proposals provide an enduring basis for a high quality, independent judiciary and a proper partnership between the executive and the judiciary.
Lord Ackner: My Lords, I have two questions for the noble and learned Lord the Lord Chancellor. The first relates to the paper dealing with appointments. The Government suggested in their paper that they should,
"retain the policy relating to the appointment of the judiciary".
Is it now accepted that that was wrong? It would amount to the government of the day having the ability to dictate to the new commission how it performed its role.
My second question relates to deployment. It is suggested that only the deployment of individual judges is left to the judiciary. I submit to your Lordships that that is wrong. Deployment is part of the process that supports the independence of the judiciary. There was a recent suggestion from the executive that Hampshire should be removed from part of the western circuit. There was correspondence in the Times, to which I was party. Ultimately a settlement was reached. The Lord Chancellor agreed to consider the matter several years hence.
If one looks at a long judgment by the Chief Justice of Canada considering what is comprised in the independence of the judiciary, deployment was very much one of the points that he emphasised. For the Secretary of State to be in a position to say that a particular judge who perhaps has not pleased him should be sent off some part of the country that he would not wish to be in would clearly be wrong. Why is general deployment not accepted as the responsibility of the Lord Chief Justice?
Lord Falconer of Thoroton: My Lords, on the first question about criteria for appointment, it is made clear in the document—and indeed in my remarks—
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that the sole criterion for the appointment of judges will be merit. That does not mean that there are not other factors we would like to see promoted, for example, in relation to diversity, but there is no dilution of the principle. It will be enshrined in statute that merit is the principle.
The second question was about deployment. I thoroughly agree with the noble and learned Lord, Lord Ackner, that there should not be any question of a government Minister or official being able to say to or about an individual judge that he or she should sit there rather than here. But there are plainly issues for the executive in relation to wider issues of administration; for example, how many judges should be present during crime or family trials. Equally, there are significant issues for the executive in relation to how regional areas of court administration should be broken up.
I agree with the noble and learned Lord about individual deployment, but I do not accept that there is not a role for the executive in the wider issue.
Lord Morris of Aberavon: My Lords, I welcome the broad thrust of the Lord Chancellor's Statement and that of the Lord Chief Justice in entrenching the judiciary's independence and the independent machinery for its appointment. I am grateful to both noble and learned Lords for their careful explanation of their position.
I declare an interest as a member or chairman of three of the Lord Chancellor's county advisory committees on the appointment of justices. Will the Lord Chancellor state that there is no diminution in the role of the advisory committees, which are essentially the best judges of local needs? In no way are they to be regarded as agents of a government department, whatever its name.
Lord Falconer of Thoroton: My Lords, I am grateful to my noble and learned friend for his welcome of the proposals. I accept what he says about advisory committees: there is no intention of diluting their importance in the appointment of magistrates. Equally, I fully accept that the local knowledge they provide is vital and that it is in no way acting as the agent of central government that they do so.
Lord Howe of Aberavon: My Lords, perhaps I may express a more anxious response, contrary to the fact that, as the Lord Chancellor knows, I have been prepared to look with favour on some aspects of what is in prospect. How far can we be sure that this increasingly complex future will achieve with as much confidence the guaranteed independence of the judiciary to which the noble Lord, Lord Goodhart, paid tribute, in relation to the conduct of Lord Chancellors in recent generations?
Does not that independence depend on, more than anything else, a network of conventions that have been built up and observed with increasing good faith over the years? Is not the keystone of that arch of conventions the existence and presence of the Lord Chancellor? Do not all the changes that we have yet to

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consider in detail flow, as has been said already many times, from the need to substitute for the existing structure of the constitution that has served us so well in so many respects?
Of course it needs some reform, but the Lord Chancellor speaks of the proposals giving us openness and transparency. As I listen to the chronicle of clauses and subsections of the agreements sketched out, with the utmost good faith, I am sure, of the Lord Chief Justice, I worry that it may achieve exactly the opposite. How many clauses in how long a Bill will this produce? How many sets of statutory instruments will this produce? How many additional public servants in the network of the Department for Constitutional Affairs will be produced? How will they reproduce the good faith identified by the noble and learned Lord, Lord Morris of Aberavon, in those who serve the existing advisory committees?
Is there not a great fear that the attempts to reproduce the simplicity and transparency of the old system will land us in a network of complexity and obscurity that will fail to achieve the purpose that we all share?
Lord Falconer of Thoroton: My Lords, I respect the noble and learned Lord's views, but I believe that he is wrong. In relation to many of the matters described in the Statement I made today and the Statement by the Lord Chief Justice, we reflect what is in effect already happening. For example, in relation to judicial discipline, there are already arrangements in existence between the Lord Chancellor's Department and the Lord Chief Justice that effectively ensure that no significant disciplining will take place without the concurrence of the Lord Chief Justice.
It is right that those arrangements now become much more open. It is also right that the leader of the judiciary should be the person appointed as the head of the judiciary in England and Wales and carries that respect. In the long term, I am sure that making these arrangements open and giving the Lord Chief Justice the title that he genuinely deserves will make the position stronger rather than weaker.
4 p.m.
Lord Davies of Coity: My Lords, although I am not a member of the legal fraternity, I certainly understand what my noble and learned friend the Lord Chancellor has delivered to the House today. However, I have a question about the extension of the independence between the judiciary and the legislative process—the executive. I understand that currently, when the law is not implicit or is not clear, judges make judgments about what they believe Parliament intends. If the independence is to be extended, will that role continue?
Lord Falconer of Thoroton: Of course, my Lords. It is for judges to interpret the law in accordance with the law and none of these proposals affects that one jot. It is intended that there will be no executive interference
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at all in judges making decisions about what the law is. That frequently occurs and if a law is not spelt out, it is for judges to interpret in accordance with the law.
Lord Waddington: My Lords, would the noble and learned Lord not agree that it all amounts to this: following the abolition of the post of Lord Chancellor, a Bill will be introduced to guarantee the independence of the judiciary which, until the decision to abolish that post, was never thought to be in doubt?
Lord Falconer of Thoroton: My Lords, the independence of the judiciary was never thought to be in doubt in this country because, whether from the point of view of judges or the Government, it is a fully accepted part of our constitution. The abolition of the Lord Chancellor makes it possible for the head of the judiciary to become the Lord Chief Justice and for the Lord Chancellor, in his ministerial functions, to concentrate on being a Minister. There is no doubt that the proposals that we have advanced today ensure and embed judicial independence.
Lord Borrie: My Lords, your Lordships will have noticed the vital qualification made in the Statement by the noble and learned Lord the Lord Chief Justice that he and his judicial colleagues accept the Statement on the basis of an assumption that the office of Lord Chancellor will be abolished. Rightly and properly however, they have taken no view about whether that office should be abolished. That reminded me and no doubt many of your Lordships of the debate a couple of weeks ago on the Speakership, which was also based on an assumption in the report by the Select Committee that we needed to elect a Speaker because the office of Lord Chancellor would be abolished. Again, it was an assumption.
When I listened to the lengthy part of the Statement today by my noble and learned friend the Lord Chancellor, it occurred to me that the detail about how judicial appointments should be made in future—by an independent judicial appointments committee taking an important role—is an evolutionary development of the advisory commission that his predecessor, the noble and learned Lord, Lord Irvine, initiated some years ago. I welcome that detail and the changes from the White Paper, including that the Permanent Secretary of the Lord Chancellor's Department will not be the chairman of the panel making the appointments but that it will be Dame Rennie Fritchie.
Could not all of these beneficial changes to ensure improvements in the appointments procedure be done without the abolition of the office of Lord Chancellor? We should bear in mind that we must note the disadvantages of having a Minister in the Cabinet—the Secretary of State for Constitutional Affairs—who may not in future be a lawyer, with a much lower order of precedence compared with that of the Lord Chancellor in the past. That is the disadvantage and deficiency compared with the positive points that have

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been made. The detail could well have been attached to the Lord Chancellor's office rather than abolishing that office.
Lord Falconer of Thoroton: My Lords, the noble Lord raises the political question in a nutshell. Do we think that the arrangements are stronger if the Lord Chancellor's ministerial functions are performed by a Minister and the head of the judiciary is what most people in England and Wales already regard as the head of the judiciary—the Lord Chief Justice? Or, should they be one person? We believe that a separation should occur because it would enhance the role of the Minister and place the Lord Chief Justice in the position that he should be in as far as the judiciary of England and Wales is concerned.
Lord Maclennan of Rogart: My Lords, I recognise and support the direction of the reforms and, in most of the detail, acknowledge the force of the case. I also noticed, as other noble Lords may have, that the Lord Chancellor spoke about the expectation that this would be a stable package, "embedded in statute", with respect to the retention of judicial independence and the entrenchment of the relationship between the department and the judiciary. However, in answer to my noble friend Lord Goodhart, the Lord Chancellor made it clear that that could happen only as long as it followed the will of Parliament. In other words, there is no constitutional underpinning for these proposals at all that is in any way different from other statutory legislation.
In those circumstances, is it not appropriate now to consider whether that basic fundament of the English constitution is not due for update? The evidence has been before us in this Parliament—my noble friend spoke about the asylum Bill, but there are other examples of fundamental rights having been swept away by the will of Parliament. Should we not consider that there are certain constitutional issues of such vital importance. including the independence of the judiciary, that we need to entrench them by other constitutional means, such as requiring a higher majority than for ordinary legislation or popular backing through a referendum?
Lord Falconer of Thoroton: My Lords, the noble Lord said that these are matters of great constitutional importance. I agree. He said that the independence of the judiciary is a fundament of our constitution—I entirely agree. Another fundament of our constitution is the supremacy of Parliament. In effect, he proposes that some provisions that Parliament passes cannot be changed unless special additional measures are gone through. I believe in the supremacy of Parliament without procedurally entrenched provisions. That is the right way forward, so I do not agree that we should change that part of our constitutional settlement. I do not believe for one moment that things such as the independence of the judiciary would ever be threatened by our Parliament.
Lord Donaldson of Lymington: My Lords, I join in the wholehearted welcome that has been given to this concordat and I congratulate both the noble and learned Lord who speaks for the Government and the other noble and learned Lord who speaks for the judiciary on the efforts that they have made. However, I take up the point implicitly dealt with by the noble Lord, Lord Kingsland, and expressly dealt with by the noble Lord, Lord Goodhart—about protection for the rule of law. The Lord Chancellor, when he referred to Clause 10 of the asylum Bill, said, "That is for another day". I respectfully disagree. It is something that all of your Lordships should have a look at now, although the legislation is still in the House of Commons. It provides that there should be no supervisory jurisdiction of the Immigration Appeal Tribunal by any court in the land.
If that were not sufficient, the Bill goes on to provide that, in particular, there should be no basis of complaint against the tribunal if it exceeds its jurisdiction, or, even more breathtaking, if it acts contrary to natural justice. That is in the Bill. If we are going down that road, it seems very relevant to the concordat, or to legislation connected with the concordat, that there should be some entrenchment.
I cannot help drawing attention to the fact that more than 100 Members of this House and of the Commons, of all political persuasions, have recently supported an amicus brief to the Supreme Court of the United States, supporting claims that that court should assert the supremacy of the civil courts over the military tribunal that exists in Guantanamo Bay. What exactly is the difference in principle between that and the situation where we have a new special tribunal and no other court whatever can look at its activities? We do not want a Guantanamo Bay in this country. I think. with respect, that the noble and learned Lord ought to address not Clause 10 itself, but the philosophy that lies behind it, and address it now.
Lord Falconer of Thoroton: My Lords, I am grateful to the noble and learned Lord for welcoming the package. As he knows, Clause 10 allows decisions of the Home Office to be looked at by a single appeal tribunal. That appeal tribunal would be presided over—not in every case, but administratively—by a High Court judge. If people object to the conclusion of that tribunal, they can apply again to the tribunal and a judge, properly appointed, will consider it. I believe that that is sufficient judicial consideration of the rightness or wrongness of the view.
The noble and learned Lord is shaking his head. However, Parliament, and in particular this House, will get an opportunity to consider it in detail.
The Earl of Erroll: My Lords—
Lord Phillips of Sudbury: My Lords—
Lord Grocott: My Lords, it is time to move to the next business.

Statute Law (Repeals) Bill [H.L.]
4.12 p.m.
Lord Falconer of Thoroton: My Lords, I beg to move that this Bill be now read a second time.
I am pleased to bring forward this Statute Law (Repeals) Bill, which continues to make further progress in the modernisation of the statute book. The Law Commission and the Scottish Law Commission have a statutory responsibility to promote the repeal of obsolete and unnecessary laws. Over the past 35 years, 17 reports on statute law revision, with draft Bills attached, have been presented to Parliament. The 16 previous reports have resulted in repeals of more than 4,300 enactments, including nearly 2,000 whole Acts. The present Bill proposes the repeal of 68 whole Acts and the removal of redundant provisions from more than 400 others.
The repeals in this Bill are set out in Schedule 1. They are in 17 parts. They range from the administration of justice, ecclesiastical law and education to obsolete enactments concerning aviation, finance and road traffic. A number of local Acts in Scotland, which have no continuing practical utility, are also being repealed.
As always, the work of the Law Commissions has uncovered areas of some historical interest and antiquity. For example, one repeal proposal relates to Queen Anne's Bounty, an institution dating back to 1704. Other proposals relate to the obsolete provisions in the London Hackney Carriages Acts of the Victorian era. But such has been the pace of social, economic and political change in more recent times that many of the proposals in the Bill relate to statutes enacted since the Second World War. This is particularly true in the area of agriculture where many changes have come about over the past half century because of new farming methods and our membership of the European Union.
Your Lordships will wish to know that there has been full consultation with interested bodies on all the proposed repeals. I am sure that your Lordships will wish to join me in paying tribute to the two Law Commissions for their thorough and painstaking efforts in this important work of modernising the statute book. I should also thank those who have been consulted by the commissions for their contributions.
If your Lordships are content to give this Bill a Second Reading, it will be referred to the Joint Committee on Consolidation Bills in the usual way. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord Falconer of Thoroton.)
Lord Goodhart: My Lords, I have been campaigning for many years for the repeal to the Preamble to the Clergy Ordination Act 1804. I am delighted to see that my campaign has at last succeeded.
I rise only to repeat very briefly the thanks expressed by the noble and learned Lord the Lord Chancellor to the Law Commissions, which, as ever, have done an
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extremely valuable job in pruning some of the dead wood that the great forest of our statute law has accumulated over recent years. We are very happy to support the Bill.
Lord Kingsland: My Lords, it is good to experience a sensation of total harmony with the noble and learned Lord the Lord Chancellor and the noble Lord, Lord Goodhart. I wholly endorse everything that they have both said about the work of the Law Commissions.
Inevitably, measures such as a Statute Law (Repeals) Bill take some of us down memory lane. In my case, it recalls, pleasingly, Lady Hylton-Foster. I note that her Annuity Act of 1965 is being repealed. It was to settle and secure an annuity on her in consideration of the eminent services of her late husband, Sir Harry Hylton-Foster, who was Speaker of the House of Commons. It reminds us pleasurably of Lady Hylton-Foster. As I sit down, I am experiencing the same pleasurable feeling about this particular piece of legislation.
On Question, Bill read a second time, and committed to the Joint Committee on Consolidation Bills.

Patents Bill [H.L.]
4.16 p.m.
Lord Sainsbury of Turville: My Lords, I beg to move that this Bill be now read a second time.
The future strength of the UK economy will increasingly be dependent on how effectively it can exploit its knowledge resources to answer the challenges of rapidly changing global-scale markets. In mature economies such as ours, generating new business will depend on being able to add unique value to solve business problems, whether through the application of new ideas or the innovative application of existing ideas or both. Such economies cannot compete in terms of the costs of labour or of production with the emerging economies in the Far East. For example, in China, wages are less than 5 per cent of those in the UK, and in South Korea, which has almost the same proportion of graduates in its workforce as the UK, the wage costs are half of ours. The future success of the UK economy will be dependent on adding knowledge value, for example by making effective use of research and development to develop new business.
Patents, along with other intellectual property rights, play an important role in helping an individual person or company to protect what is often their most important asset: the unique value added when developing new products or processes. It is therefore timely that we should be looking at a Bill that updates patent law when it comes so soon after the publication of the Government's Innovation Review. Appropriate and fair protection for the results of UK business's investment in innovative activity can encourage only more innovation for the benefit of us all.

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Patents are, unfortunately, not well understood by many businesses. The Innovation Review has recognised the need to increase awareness about all intellectual property and this is something that we are pursuing in parallel to this Bill. Patents provide the holder, who may he the inventor or the company for whom the inventor works, with the statutory right to prevent someone else using the invention without his permission. The practical effect of this is that the patent holder has the exclusive right, for up to a maximum period of 20 years, subject to the payment of an annual renewal fee, to recover the investment he has made in the invention that he has patented. This recovery may take a number of forms. For example, the patent holder may license the right to exploit the invention to a third party and receive a licence fee for doing so. Alternatively, he may decide to work the invention himself and so manufacture the product, or carry out the process, protected by the patent.
UK businesses operate in national, regional and global markets and thus will want to ensure that they can protect their valuable intellectual property assets in all types of markets. The Patents Act 1977 has served us well in this respect. It had two key objectives: first, to reform and modernise UK domestic patent law and, secondly, to permit the UK to ratify a number of international patent agreements and thus ensure that UK businesses could obtain similar patent protection for their inventions regionally, in other countries in Europe, and globally.
The most important of these international patent agreements was the European Patent Convention of 1973 which allows a UK applicant to obtain, using a single application and granting procedure, a patent which will be effective in any of up to 27 European countries, including the UK as well as all our EU partners. This European patent is in effect a bundle of national patents that all become effective in the country in question upon payment of a fee and filing a translation of the patent in the official language of that country.
In November 2000. at an intergovernmental meeting in Munich, a large number of changes to the 1973 European Patent Convention were discussed and agreed by representatives from all the contracting states which had ratified this convention. All the states which attended this conference undertook to implement the agreed changes as soon as possible.
The first objective of the Bill is therefore to amend the Patents Act 1977 to implement, in UK law, the changes to the 1973 European Patent Convention that were agreed in 2000. Failure to ratify the revised version of the European Patent Convention would result in the UK having to leave the European Patent Organisation, the body set up under the convention to carry out all the tasks involved in the granting of European patents. The consequences for UK business would be significant.
By bringing UK patent law into line with these revisions to an international treaty, we will ensure that UK businesses can continue to use the single application and granting procedure to obtain
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European patents valid in the UK. In 2002, UK businesses were the third largest user of the European patent system after Germany and France, both in terms of patents applied for and patents granted. Were we to leave the European Patent Organisation, UK businesses would experience increases in red tape and the costs of obtaining patent protection. They would have to file separate applications and pay separate fees for patent protection in the UK and in other European countries under the European Patent Convention.
Moreover, as one of the original signatories to the convention, it is important that the UK maintains the active role it has played in the development of the European patent system since its beginning. It is only by meeting our obligations under the revised European Patent Convention that we can continue to be a contracting party to it, and so influence future developments for the benefit of all UK interests. The Bill is therefore crucial if the UK is to remain a key player at the centre of the European patent system.
Clauses 1 to 5 make the necessary changes to the 1977 Act to take account of the changes agreed to the European Patent Convention in 2000. Clause 1 achieves two things. First, it makes it much clearer that any method of medical treatment—for example, a new surgical technique—cannot be patented. Secondly, it provides a much less complicated way of obtaining patent protection when a new use is found for a medically active substance which already has a known use or uses.
Clauses 2 to 4 cover various issues arising from the new limitation procedure provided by the revised version of the European Patent Convention. Clause 2 ensures that when the courts, or the comptroller of the Patent Office, exercise their discretion on whether or not to allow an amendment of a patent—such as a limitation—they will do so having regard to any relevant principles under the European Patent Convention. In the situation where a European patent in force in the UK is found to be partially invalid during infringement or revocation proceedings here in the UK, Clauses 3 and 4 ensure that the new central limitation procedure will be available to the patent holder as a remedy. He will be able to limit—that is, reduce—the scope of his European patent in one step at the European Patent Office and this will have effect in all the countries in which this European patent is in force, including the UK.
Clause 5 introduces Schedule 1 which deals with the remaining amendments to the Patents Act 1977 required to fulfil our international obligations. While the majority of these changes flow from the streamlining of the European Patent Convention in 2000, this schedule also makes some minor changes in respect of the relationship between the Patent Co-operation Treaty and UK domestic patent law. This treaty permits a single application for patent protection in up to 123 countries worldwide. It provides an alternative route for UK businesses requiring protection at a global level.
This brings me to the second part of the Bill which is concerned with other amendments to the Patents Act 1977—which will make improvements to the current

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arrangements for handling disputes over patents, including the creation of a new opinion procedure to provide an early and rapid assessment of issues relevant to validity or infringement of a patent; and make the UK patent system more responsive to the needs of customers.
The Patent Office can hear a wide range of disputes over patents on questions such as should a certain patent have been granted; in other words, is the patent a valid one? Does a certain act fall within the scope of a patent: in other words, is the patent infringed by this act? Has an employee who made the invention received just compensation from his employer who owns the patent? Are all those listed as applicants for the patent entitled to be so?
The Patent Office has built up considerable experience over many years in addressing the issues that could arise in disputes, but we do not believe that this experience is fully utilised. Moreover, we have recognised the changing needs of users of the patent system in the UK and a growing concern in some quarters with regard to the enforcement of patent rights. Much of this concern currently focuses on the cost of patent litigation. For example, a recent case at the Patents Court concerning infringement of a patent reportedly involved costs of £850,000 for a four-day hearing. The result of this is that for many companies, especially those in the small and medium enterprise sectors, enforcement of their patent rights may involve costs, but also time pressures, that are difficult to bear.
The Government have therefore taken the opportunity presented by the Bill to make a number of improvements relating to the handling of disputes and utilising the expertise in the Patent Office. In an effort to help patent holders and others determine as early as possible what is the likelihood of success when considering or facing possible litigation, Clause 12 of the Bill would provide a new procedure under which the Patent Office would issue, on request, an opinion on certain matters that might be relevant to a patent dispute.
Opinions would be possible on whether or not a specific act is an infringing one with respect to a particular patent, or whether some new evidence—for example, a published article not previously considered—brings into question the validity of a specific patent. Although the opinion will not be binding on any party, it will provide a rapid and affordable assessment of the particular issue of validity or infringement in question, based on a consideration of both sides of the argument. Such a timely and affordable assessment will, we believe, be extremely helpful to any party, but perhaps particularly so to a small or medium-sized enterprise trying to decide how best to enforce its patent rights.
Clause 12 sets out certain substantive issues relating to the new non-binding opinions on validity or infringement, including a mechanism to review such opinions where appropriate. However, many of the details of the opinion procedure and review will be laid
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down in secondary legislation after further comprehensive consultation with stakeholders on how best to implement this new procedure.
Further improvements in the area of infringement disputes are provided for in Clauses 10 and 11. Clause 11 would make it easier for a patent holder who is genuinely interested in settling a dispute to make an approach to those who are believed to be the source of the infringement, such as those making or importing an allegedly infringing product. In situations where such a person is not easy to identify, this clause would also permit a retailer to be approached to find out who, exactly, is the source of the suspected infringing matter at issue. As long as this approach is made in an appropriate way, the patent holder will not be subject to an action from the retailer for making a groundless threat to launch infringement proceedings. Thus, it will make it easier for the patent holder to find out the true source of the alleged infringing matter and hence encourage settlement of the dispute with that person.
Clause 10 makes it simpler for a patent holder to enforce an award for damages following successful infringement proceedings before the Patent Office.
I should like now to consider the improvements in the Bill which relate to patent litigation on issues other than infringement and validity. The Patents Act 1977 recognised for the first time that an employee should have certain statutory rights in relation to inventions made by him, but being exploited by his employer. A wide-ranging review of the effectiveness of these rights under the 1977 Act was conducted as part of the public consultation which preceded the Bill. The conclusion from this exercise was that these provisions of the 1977 Act have provided a strong incentive to companies to make their own corporate arrangements for the effective reward of employees who make important contributions to the business. Despite suggesting a number of options for reform, there was sufficient support for change on only one issue.
Clause 9 will allow an employee to include benefits that flow from the invention itself, and not only benefits flowing specifically from the patent, when required to show that a patented invention is. in the words of Section 40, of "outstanding benefit" to the employer. This will allow the employee a limited increase in the scope of what can count towards meeting the high evidential threshold of outstanding benefit, without upsetting the careful balance that must be maintained between the rights of the employer on the one hand, and those of the employee on the other.
Clause 6 makes an adjustment to the handling of disputes over who is rightfully entitled to be named as the applicant for a patent. It prevents the unsuccessful party in such a dispute from being able to reduce the patent protection available to the successful party.
The final improvement in this area is made in Clause 13, which concerns the circumstances in which a party is required to provide a security for any costs that it may be ordered to pay at the end of proceedings before the Patent Office. The change will bring the law on

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patents into agreement with the law on trade marks, and will enable the rules to be aligned with those governing civil procedure in the courts.
As I have already mentioned, the second part of the Bill also makes a number of changes to the 1977 Act to ensure that the UK patent system continues to be responsive to the practical needs of users. Clause 7 would permit the date by which renewal fees must be paid in order to keep a patent in force to be altered to the end of the month. This will make it simpler for UK businesses to manage their patent portfolios and has the added advantage that it brings us into line with practice in other European countries.
The second improvement in this area is that in Clause 8. This makes clear the relationship between co-owners of a patent in certain situations where they may not have made any agreement between themselves on how to act.
Schedule 2 contains a number of more modest changes which would also permit an improvement in the Patent Office's responsiveness to its customers. Measures included here will make it easier for the Patent Office to vary its hours of business, and to alter the layout and content of its application forms in response to customer feedback. The remaining measures in Schedule 2 deal with minor and consequential amendments to the Patents Act 1977.
This is a small but important Bill, which is essential if we are to meet our international obligations under the European Patent Convention. Furthermore, in doing so, we will ensure that the UK maintains the role in the development of the European patent system commensurate with the important position of UK industry as its third largest user. At the same time, by improving the mechanisms for resolving disputes in this Bill, we will assist all who obtain patents to gain the fullest benefit possible from their most important asset—their intellectual and knowledge resources. I commend the Bill to the House.
Moved, that the Bill he now read a second time.—(Lord Sainsbury of Turville.)
4.33 p.m.
Lord Lyell: My Lords, your Lordships may wonder why I put my name down to speak on this somewhat esoteric Bill. The Minister will appreciate that 27 years ago—I think to the day—I was sitting exactly where my noble friend Lord Attlee is sitting, with my noble friend Lord Belstead. We started debating the Second Reading of the 1977 Patents Bill, as it then was. I seem to recall that the Bill finally passed through all the stages in your Lordships' House on 15 July of that year. In spite of the fact that the Minister referred to the Bill as relatively simple, I commend and admire him for covering all aspects of the Bill, together with other aspects relevant to it, in 16 minutes. I hope that I shall he much briefer.
I worked on that Bill with my noble friend Lord Belstead and with Lord Elwyn-Jones, the then Lord Chancellor, the noble and learned Lord, Lord McCluskey and Lord Horam, together with two other patent barristers on the Back Benches and the late
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Lord Halsbury. We discussed various aspects of that particularly important Bill late into the night. That led me to admire inventions and industry such as that referred to by the Minister. It also led me to make contacts that I have maintained to this day, and to have great admiration for one of the leading industries that I know is admired by the Minister—the pharmaceutical industry.
In 1977 we had lengthy discussions and obtained some valuable amendments concerning the licences of right. This was non-controversial and the Government gave us considerable assistance. On this occasion, we have had some briefing, including the Department of Trade and Industry brief, and some helpful words from the Minister about "need to know" and above all how invention and novelty are of particular importance.
Will the Minister or his assistants be able at some stage to advise me on Clause 2? That clause adds some slight amendments to three sections of the 1977 Act—Section 58, concerning references of disputes as to Crown use, Section 62, concerning restrictions on recovery of damages for infringement and Section 63, which concerns relief for the infringement of partially valid patents. Clause 2 makes minor amendments to all those sections about relief being sought "in good faith". Will the Minister be able to advise me as to whether there has been a difficulty over the years or recently in this area? I understand that we have plenty time before we come to further stages of debate on the Bill and that we may take a relaxed attitude. However, if at some stage the Minister or his team could give me some advice on that I would be grateful.
I come to three more clauses in the Bill on which I hope the Minister will be able to give me some advice during the coming weeks—I hope that it will not be months. Clause 9 deals with Section 40 of the 1977 Act. It inserts into that section a new subsection (1)(b), which includes the phrase:
"having regard among other things to the size and nature of the employer's undertaking".
The provision goes on to refer to "outstanding benefit". I hope that I am not as much of a cynical so-and-so as a chartered accountant, but I wonder whether there is any limit to that term.
If I may I shall digress briefly to speak about a Swiss company that is now part of a large group—Novartis. About 10 years ago, as I recall—I shall get confirmation of this information and I apologise for not having it for the Minister this afternoon—the chairman of the company allowed two or three research projects to go ahead even after they had passed their sell-by date. In one case, the researchers discovered a product called Sandimmun—the company was called Sandoz and they added something else on. That product had a particular and more than outstanding benefit in terms of that company's profits for three successive years. I would certainly have more information on this matter if we were able to discuss it in Committee. It was of particular interest. I do not know whether there are

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other, similar examples in British industry, let alone in the pharmaceutical sector. I wish to know how this quality of outstanding benefit is to be defined.
Such a discovery, particularly in the pharmaceutical industry, is due not to one employee, but to a team or group. There may be a team leader, but three, four or more people will be involved and, as a result of their collective endeavours, a particularly valuable invention or process may be identified, which could be patented. The advice that I have received relates to what to my mind is a dreadful word—competition—but which is very much approved of by the Minister. Any company that does not adequately reward a team—let alone an employee, as drafted in the Bill—will soon find that that team, invention and knowledge goes elsewhere. I should be very grateful if—over the next week or so, if not today—the Minister could advise me how "outstanding benefit" will be defined.
Clause 11(4) is about the use of "best endeavours". Is the Minister able to give me a steer on how that can be defined? Has there been a difficulty over the 27 years?
The noble Lord tried to be persuasive—and probably was quite persuasive—about Clause 12 and the opinions of the Patent Office. He suggested that there should be simplicity for small and medium-sized firms. I much admired the Patent Office in 1977 and much admire it now. However, giving opinions can be perilous or even dangerous, and certainly somewhat difficult. The Minister drew attention to the fact that Clause 12 states that:
"An opinion under this section shall not be binding for any purposes".
I look forward to that provision being used if anything comes before the courts. No doubt it was written with good intention, so perhaps the Minister will be able to assist me further in the days to come.
A percentage of GNP is for business research and development in the United Kingdom. As the noble Lord pointed out, in those terms the United Kingdom is about average for the European Union, but it is well below the United States, let alone Finland, France and Germany. However, the average could be rather crude. I understand that the pharmaceutical industry—I hope that I am not basking in its glory or buttering it up overmuch—is virtually second to none so far as concerns Europe and, I believe, on the world stage. Therefore, I suspect that the figures for that industry and other sectors may well be much more flattering and encouraging.
I apologise for taking half the time that it took the Minister to talk about the Bill, but it is important. It is particularly important to one special and very successful industry in the United Kingdom that employs lots of young, competent and very intelligent scientists. I approve of all that the Minister said and wish the Bill a speedy passage through the House. I hope that the Minister can clear up some of the matters raised today and that we will have plenty of time at the next stage. I thank him for his comments.
4.42 p.m.
Lord Razzall: My Lords, the noble Lord, Lord Lyell, said that the Bill was extremely esoteric, which it clearly is politically, considering the sparse attendance in the House this afternoon. He also ended up saying something with which I absolutely concur; namely, that the Bill is important for large sectors of British industry.
It is apparent to those of us who have studied the background to the Bill that an extensive consultation exercise has been undertaken on possible changes to the Patents Act 1977. However, one problem—it touches on the problems that the Minister often seems to have with Department of Trade and Industry Bills—is that large numbers of very worthwhile suggestions have come forward in the consultation procedure that either his department or his lords and masters who control the legislative programme have felt inappropriate to put into the Bill. Because of the esoteric nature of the subject and the exigencies of the legislative programme, I suspect that we will not have an opportunity to look at a number of those issues for some time.
I understand that the consultation exercise indicated quite considerable support for a new designs Act, the jurisdiction of the Patents County Court being widened to cover trademark matters, a number of parts of the Copyright, Designs and Patents Act 1988 being amended, and taxation laws in relation to damages and costs in legal proceedings being amended. That is a big mouthful for the Minister to chew on, let alone swallow. However, it is regrettable, with the pressures of legislative time and the government programme these days, that when an opportunity has been taken for such extensive consultation the legislation that comes forward is limited.
I want to raise a number of questions for the Minister. I suspect that he will not necessarily answer them when he responds, but as we move into Committee we on these Benches will look for answers to them. In the consultation exercise, answers came in on a number of issues and the Government took a whole series of policy decisions that did not necessarily meet the views of a number of the parties consulted. I shall highlight those and, either today or when we go through the issues in Committee, I hope that the Minister will satisfy us that the correct policy decisions have been taken.
A number of the people consulted believe that we should bring the UK into line with the European Patent Convention, which allows an inventor, if he or she is not the applicant, to have his or her name and address kept confidential. The Government have not seen fit in their proposals to agree to that. Either today or in Committee, the Government need to justify that decision.
There were considerable cross-currents of views in the consultation process in relation to employee-inventor compensation for inventions of outstanding benefit. The Minister indicated that the Government proposed to make no change to the existing

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procedures. He will be aware that Section 40 of the existing Act has never been used, because either employers have generally chosen to settle anything but the most hopeless of cases rather than face litigation, or the balance between the interests of the employee and the employer is weighted too heavily in favour of the employer. When we get to look at the Bill in detail, Her Majesty's Government need to justify whether and why they think no change is necessary to Section 40.
The next point that caused some controversy was in relation to discretion being removed from post-grant amendment. The general view was that the Government's policy was correct. However, some justification is necessary from the Government about whether, if discretion is removed from post-grant amendment so that the conduct of the proprietor is no longer a factor, the facility to oppose amendments should also be removed.
There is a brief and technical point regarding licences of right and Section 46(3)(c). In the consultation process, the Patent Office suggested,
"extending the concession that no injunction and only limited damages will be available as remedies in infringement proceedings, provided the defendant agrees to take a licence of right. This concession is currently only available to those who import into the UK from within the European Economic Area".
Following the consultation process, the Government do not propose to extend that concession, but they need to justify that.
Next, and probably my main point, is that in the original consultation it was proposed that,
"section 61 be amended to remove the existing requirement that if infringement proceedings are to be brought before the comptroller both parties must consent to this happening".
There was considerable consultation on that because, if the requirement that both parties must consent was withdrawn, a considerably cheaper alternative to litigation would be available, taking into account the expertise of the Comptroller. Could the Government explain why, following the consultation, they have chosen not to remove that existing requirement?
Finally, there is the thorny issue of threats; it is an issue which took up a large amount of the consultation process, with considerable disagreement among those who were consulted. First, the Government asked whether the provisions on threats needed improving generally to facilitate genuine attempts to settle infringement disputes prior to litigation—which would be in the spirit of the reforms of the noble and learned Lord, Lord Woolf.
Secondly, the Government proposed a specific change to Section 70(4), so that where someone was alleged to be a primary infringer, and a threat was made that included an allegation of secondary infringement, proceedings for unjustified threats would no longer be able to be brought by the alleged infringer. The Government are proceeding with that specific change, but have not chosen to deal with the general improvement of provisions which would facilitate attempts to settle threats disputes. It is also an area where we will seek further explanation. A number of respondents suggested going further than
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the Government propose by allowing a patentee to be free to notify a potential infringer of a patent, identify alleged infringing products and the relevant claims and provide reasoning that repeated assertions should give rise to possible threat actions. The Government have not seen fit to go that far.
Thirdly, the Government have not seen fit to introduce an equivalent provision to Section 132 of the Australian Patents Act to protect legal representatives and patent agents from threats of litigation in proceedings. Will the Government also justify why they have not chosen to take that step?
In conclusion, these Benches welcome the Bill. We will not be difficult over ensuring its passage. Most of the provisions are technical and essential. It is a pity that the Government have not taken the opportunity to amend Section 61 to allow the Comptroller to offer an informal and cost effective alternative to litigation. It is also a pity that the opportunity has not been taken for a wider review of the whole area.
4.53 p.m.
Earl Attlee: My Lords, I am grateful to the Minister for explaining his Bill. He said that patents were not well understood by business. I have the same problem, but I am learning. The Bill is non-controversial, highly technical and important, as all noble Lords agree. However, it appears that the Bill's importance is inversely proportional to the size of the list of speakers. That makes me all the more grateful to my noble friend Lord Lyell for his contribution. In his press release of 16 January, the Minister said:
"The Government is committed to improving the environment necessary to support and encourage innovation. Effective, flexible and up-to-date patent law is essential to help businesses turn bright ideas into successful products and processes."
I could not have put that better myself.
The 1977 Act, now well over 20 years old, has stood the test of time well, as the Minister observed. It has obviously had much benefit from the attentions of my noble friend Lord Lyell. As the Minister explained, the Bill implements EPC 2000. I have little problem there and I strongly support the assertion that there should be no discernible difference between EPC 2000 and UK domestic law. There will no doubt be some minor matters to be clarified during later stages of the Bill.
As a complete Euro-sceptic, I hope that the Minster has a long-term aspiration that we should have a single European patent convention covering all EPC states. It is clearly a single market issue. The cost of translation of patents is stupendous and we need to have one language for them all. There is an obvious difficulty for the Minister when negotiating with other European states. English is the technical language of the world—85 per cent of patents are published in English and nearly all of them are initially published in English. I am confident that the Minister is on the job. Can he give us a progress report when he replies?
The noble Lord, Lord Razzall, raised a number of points about the consultation. I expect that we shall sing off the same song sheet more often than not. The Bill introduces new measures to assist the enforcement

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of patent rights and to help resolve patent disputes. Clause 9 extends compensation to employees to inventions and not just patents, as the Minister explained. Like my noble friend Lord Lyell, who expressed some caution, I am worried about that. Is the new provision too wide or too general? We will have to look closely at that in Committee.
Clause 11 concerns the issue of threats under Section 70 of the 1977 Act. The new provisions may be helpful, but we detect concerns from larger organisations. We will have to balance the needs of large organisations with the needs of small ones or even individuals. I suspect that a difficulty that all noble Lords will have with the Bill will be the need to avoid the perils of regulation and bureaucracy.
Clause 12 provides for the Patents Office to give an opinion on validity and any infringement of a patent. I share the concerns of my noble friend Lord Lyell about the clause. I can see the mischief regarding the extremely high cost of litigation—one reason for that is that patent lawyers need to be technocrats as well. I can understand how the Patent Office, because of its wide experience, can give an opinion on the validity of a patent, but infringement will be a new area of activity for the Patent Office. The new procedure is designed to save the costs of litigation and I have been told that it might cost in the order of £150 to £300. But one would be lucky to have an hour of the services of a good patent lawyer for that much money, so I am not quite convinced that the new procedure will help. Will the Minister give some idea of the costs and the time scale involved in the Patent Office giving an opinion? That opinion may be useful as a sanity check to parties in a dispute, but the Minister will have to convince the House that there is further utility in the clause.
Regarding intellectual property rights in respect of computer software—another highly complex area—we certainly do not want to follow the American route of being able to patent a business plan. What is the Government's position on computer software?
Finally, I turn to the thorny issue of exemplary damages in the event of a flagrant breach of a patent. The noble Lord, Lord Razzall, thought that the thorny issue was threats, but I think that it is exemplary damages. A Private Member's Bill was introduced in another place in 2002 by Mr Liddell-Grainger under the 10-minute rule procedure. Currently the only remedy available in cases of infringement is an injunction over the royalties lost. That might not be a significant deterrent to a large organisation to prevent it abusing its position. Triple damages are available in the US. But there is a difficulty with the Liddell-Grainger Bill: it contains no definition of "flagrant". Without tight drafting of the Liddell-Grainger provision on exemplary damages, every claim for infringement could also incur a claim for exemplary damages, which is not desirable. Perhaps something could be inserted into Section 70, for example. The jury is out on exemplary damages at present. I would be very interested to hear the Minister's views, and I hope that we can carry out a careful examination in Committee.
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We welcome the Bill, although there may be room for improvement. I hope that the Minister can reassure us, where we have concerns, but I do not think that he need lose any sleep over the Bill.
5 p.m.
Lord Sainsbury of Turville: My Lords, ever since James I introduced the Statute of Monopolies in 1623, the law relating to patents has not been the most straightforward legislation. That is partly because the law must go to some lengths to maintain a careful balance. It awards exclusive rights to those who create genuinely innovative products and processes, but the system must encourage the exercise of those rights in a manner that is beneficial for all and must provide ways for others to challenge those rights.
Furthermore, patent law is not straightforward, because it combines difficult legal issues with complex matters of science and engineering. Fortunately, this House has expertise in both legal and technical fields. I look forward to the Bill being subject to further analysis and detailed scrutiny.
I shall now reply briefly to the main points made. The noble Lord, Lord Lyell, raised the question of outstanding benefit and how it is defined. I can only offer the following comment from the leading court case on the issue: the word "outstanding" denotes something special and requires the benefit to be more than substantial or good. It would be unwise to try to define the word "outstanding" in more detail. Courts will recognise an outstanding benefit whenever it occurs. That is probably the wisest approach rather than trying to define it in detail.
The noble Lord, Lord Lyell, also raised the question of good faith. There is an issue concerning whether a patent-holder who knowingly maintains an invalid patent claim can later amend his patent. When a court or the Comptroller is deciding whether to allow or refuse an amendment of a patent, Clause 2 would retain their discretion to take account of such covetous behaviour, but only if it is consistent with the relevant principles under the European Patent Convention. If it is considered that the principles under the EPC clearly rule out covetous behaviour from being taken into account, the Comptroller or the court would not be able to take such behaviour into account either. However, Clause 2 would prevent a covetous patent-holder from winning damages for any infringement committed when the patent claim was restricted by amendment to its proper scope. The provision would therefore protect the public from the action of covetous patent-holders, but differently from the past.
The noble Lord, Lord Razzall, said that more changes should have been made to the Bill on employee invention. We looked at the matter in great detail. The argument put forward is that it is difficult to show that an employer has gained outstanding benefit from the employee's invention. However, the vast majority of respondents to the consultation on the proposed changes to the provisions agree that the threshold should remain at its current level. It was considered more appropriate to allow the employee to

45
include more material that might demonstrate outstanding benefit rather than to reduce the threshold. Hence respondents were prepared to accept that the best approach was to allow benefits arising from the invention itself to be included, in addition to the benefits arising from the patents. So we enabled the inventor to produce more evidence but did not change the threshold.
The following question will arise in further debates: if you have outstanding benefit from a patented invention, will that create difficulties as regards the contribution made to it by others in the company? If you can establish what was due to the quality of the patent and the invention and what was due to the quality of the others involved, such as marketing and production staff, it will ring clear. I certainly agree with the noble Lord, Lord Lyell, that competition between companies will mean that they reward employees properly for invention, but it seems right to have that as back-up.
The noble Lord also asked about the R&D position. He is right that on average our R&D is roughly the same as the EU's. Two startling contradictions to that are the pharmaceutical industry and the aerospace industry. The pharmaceutical industry has an extraordinary record on R&D in this country; it is way above the international average, which is undoubtedly why it is so successful. Without the pharmaceutical industry's input to our figures, they would not even look average. We should not be too sanguine about the fact that our position is average.
The noble Lord, Lord Razzall, asked why the Bill would not allow inventors to remain anonymous when a patent application was published. We consulted on whether inventors should be allowed to remain anonymous. The majority of respondents to our consultation were against it, for a variety of reasons. We are aware of concerns that scientists who develop controversial technologies are sometimes targeted by activists. However, on patent applications, employees have always had, and will retain, the option of giving their employer's address rather than their own if they fear for their personal safety. Moreover, we intend to change the patent rules to prevent an inventor who is not the patent applicant keeping his address confidential. Thus it is not necessary or appropriate to include anything in the Bill.
The noble Earl, Lord Attlee, asked about the Patent Office's opinions on validity or infringement. I think that the matter will be debated in Committee. It will help to speed up negotiations, but of course participation is entirely voluntary. It will be useful only if it is seen as a way whereby people who genuinely wish to negotiate can take things forward at a lower cost than otherwise.
The noble Lord, Lord Razzall, and the noble Earl, Lord Attlee, asked about the threats provision. Genuine attempts at pre-litigation settlement of a patent infringement may have been hampered in the past by the existing provisions on threats in Section 70 of the 1977 Act. Clause 11 makes several changes intended to address that. The change to Section 70(4)
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is one of those. However, that is now subject to the second change made by Clause 11, which was in response to concerns raised during the consultation. Under current provisions, a patent holder who, for example, has failed to find the manufacturer of an allegedly infringing product cannot risk contacting the retailer of the product to resolve the dispute for fear of a threats action against him.
Clause 11 would, therefore, allow the patent holder freely to approach an alleged secondary infringer, but only in the limited circumstances where he has unsuccessfully used his best endeavours to locate the alleged primary infringer first. Furthermore, it clarifies the way in which a patent-holder may contact an alleged secondary infringer as part of his best endeavours. I believe that it is therefore a modest adjustment to the balance between the rights of a patent holder to chase infringers and the need to provide alleged secondary infringers with protection from unjustified threats. It is an adjustment that should address concerns about the inability of patent holders to make genuine attempts to settle disputes.
The noble Earl, Lord Attlee, raised the question of the situation regarding the single European patent and the proposed language regime. I note what the noble Earl said about the single European patent. In order to avoid confusion with a European patent, which is a bundle of national patents and is currently granted under the European Patent Convention, it is more helpful to refer to a single European patent as a Community patent.
Negotiations are currently under way in Brussels on a European Community regulation to establish the Community patent. They are currently focused on the issue of a centralised Community jurisdiction for resolving disputes. The final form of the regulations has not been agreed, but a single language regime based on English, which is favoured by many—and which is the entirely rational way to do this because so many companies that want a patent will automatically transfer it to America—is not one that we have been able to get everyone to agree to. We will continue our efforts in these negotiations to obtain the best possible agreement for the UK.
In due course, we will elaborate on the costs and timescale of opinions issued by the Patent Office. However, we expect opinions to be delivered in a few months at most from the request being made. We expect costs to the requester to be a few hundred pounds at most. It will be important to make sure that both timescale and cost are commensurate with the fact that opinions are not full blown proceedings. Opinions can serve a useful purpose, as we have identified. Moreover, as has already been said, procedural details will have to be decided in the light of the views of the stakeholders and, in this respect, we will be consulting widely.
I am afraid that I have not dealt with all the issues that were raised. Most of the others can be taken in Committee in more detail. I hope that I have dealt with the more major issues. The current situation on computer software is that we are not changing the law,

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we are merely seeking clarification of the current position. We have no desire to go in the direction that the American law has taken.
This Bill may be modest in size and technical in nature, but it nevertheless contains a number of important measures. It ensures that our law remains in line with international agreements, particularly the revised European Patent Convention, and so ensures that the United Kingdom can remain a major player at the heart of the European patent system. It tackles the difficult area of patent enforcement, by providing improvements to help parties to resolve disputes over patents without resorting to litigation. The Bill improves the patent system, so that it may be more flexible in response to the needs of its users.
I look forward with interest to the deliberations on these measures in Committee. I look forward to working with your Lordships to ensure that the patent system is responsive, flexible and accessible, so that it will meet the needs of tomorrow's innovators for the benefit of all.
On Question, Bill read a second time, and committed to a Grand Committee.

European Central Bank
5.13 p.m.
Lord Radice Lord Radice rose to move, That this House takes note of the report of the European Union Committee on Is the European Central Bank Working? (42nd Report, Session 2002–03, HL Paper 170).
The noble Lord said: My Lords, noble Lords will no doubt remember that the Sub-Committee on Economic and Financial Affairs reported on the stability and growth pact in March last year. The House held a debate on that report last June. Our report on the European Central Bank, which was published at the end of last October, just before Jean-Claude Trichet took up his presidency, which we are debating today, is a companion volume to the one on the stability and growth pact.
A few months before the ECB was established on 1 June 1998, my committee conducted an inquiry into the feasibility of such a bank. Now, five years later, it is a good time to review the workings of the ECB. The report does not consider whether, or when, the UK should join the euro. My views on that subject are well known. Rather, it is an evaluation of the ECB as a central bank looked at from an overall European perspective. In our inquiry, we held eight public hearings and also received written evidence. I thank all our witnesses, our committee staff, especially our Clerk, and my distinguished colleagues for their participation and commitment.
The first point of the main conclusions of our report is that our overall assessment of the ECB's monetary policy is positive. Noble Lords will remember that the primary objective of the ECB is to maintain price stability. Without prejudice to that objective, the bank has an obligation to support the overall economic
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policies of the EU, including a high level of employment and sustainable, non-inflationary growth. Our witnesses all agreed that the ECB had achieved its primary objective of delivering an inflation level of just above 2 per cent. In that sense, we can say that the ECB is working. It may be a young institution, but it has already built up a high level of credibility on the inflation front.
Does the EC Treaty give the ECB the right remit? Our witnesses pointed out that the EC Treaty objectives for the ECB are little different from the hierarchy of objectives set out in the Bank of England Act 1998, with primacy given to price stability. The Federal Reserve has a much wider remit. However, in practice, as Mr Paul Volcker, chairman of the Federal Reserve between 1979 and 1989, said to us,
"the principal function of the Central Bank has to be concerned with stability".
It would be fair to say that whatever the differences in mandate between the ECB, the Bank of England and the Federal Reserve, all operate in a similar fashion. Our witnesses agreed that it was best for the ECB to retain a single objective—price stability—otherwise it creates an illusion of what monetary policy can achieve.
David Walton of Goldman Sachs said to us,
"monetary policy cannot increase the long-term growth of the economy and has no lasting effect on the equilibrium rate of employment".
In the real world, the ECB has paid attention to the secondary objectives of growth and employment. As Professor Buiter told us,
"the fact that inflation has been above target in the euro area for years now is not consistent with the view that monetary policy has been too tight".
Indeed, the UK Government suggested to us that monetary policy for the euro area has been a little bit looser than it would have been under the Bundesbank. In a way, that is part of the argument as far as the German case is concerned.
Sir Samuel Brittan was especially concerned that the ECB should not be made the scapegoat for the sluggish euro area growth rate, which he, like our other witnesses, believed was mostly related to structural problems in the European economy. The committee's conclusion was that it was right that price stability should continue to be the primary objective of the ECB, though without prejudice to that objective the ECB should also support growth and employment.
Despite the successes in delivering price stability, we believe that some useful reforms could greatly assist in the working of the ECB and make it more effective. The ECB has already shown itself to be flexible. Following a review of its monetary policy strategy, it announced that its commitment to hold inflation below 2 per cent did not mean that it intended to drive inflation ever lower; rather, its aim was to maintain inflation levels close to 2 per cent over the medium term. The bank did not intend to drive the European economy into deflation. The second change that it announced was that it was downgrading the second

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monetary growth pillar of its monetary policy strategy—some might say, "Not before time"—as it had not proved to be a particularly effective indicator.
The committee's conclusion was that the ECB should go further and explicitly adopt an inflation target expressed as a symmetrical range around a central figure, on the lines of the British model. Although the committee accepts that, in practice, the ECB has pursued its price stability objective with flexibility, a symmetrical inflation target would be clearer, thus helping transparency, and would also address the criticism made by a number of people—as I have said, we believe it to be unfounded—that the bank does not take sufficient account of deflationary risks.
The Select Committee has another proposal to improve transparency and accountability. I should say that, from the evidence that was presented to us, it is clear that the ECB is much more transparent and accountable than is sometimes supposed. An academic survey of six central banks placed the ECB second only to the Bank of England in the ranking. The ECB is accountable to the European Parliament, and it submits an annual report to the Parliament, as well as to the Council and the Commission. The president and other members of the ECB can be asked to appear before the European Parliament's Economic and Monetary Affairs Committee. In practice, the president now appears four times a year before that committee. In addition, there are the ECB's monthly reports, which are extremely useful, and there is the president's press conference after meetings of the governing council of the ECB.
We think, however, that the ECB could go further. The records of deliberative meetings of the governing council should be published, though without attribution to individuals or voting records. That would help transparency and help the markets and the general public to understand some of the arguments without, at the same time, exposing individual members of the governing council to national pressures. It is important that that does not happen.
I turn to the governing structure of the European Central Bank. We are concerned that the reforms agreed last year to deal with enlargement, which are based on a complex rotating model, will, in the end, prove unworkable. I do not intend to describe them now, although I recommend a fiendishly clever diagram on page 40 of our report, which gives a good idea of what is intended. We recommend, instead of the proposal, that, in time, the ECB should have a small monetary policy council on the Bank of England model, composed of six members of the ECB executive and up to six independent experts. That small monetary policy council would operate under the auspices of a much larger governing council, on which all the member states' governors of central banks would sit. A monetary policy council on those lines would run monetary policy more effectively than the cumbersome and complex proposals that have been made to deal with enlargement.
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The big appreciation of the euro against the dollar has thrown into sharp relief the question of exchange rate policy. As noble Lords will know, exchange rates fall within the competence of the Council, rather than the European Central Bank. It is obvious that movements in the exchange rate can affect monetary policy considerably, so it is essential that the ECB takes exchange rate movements into consideration, as indeed it does. The committee believes that it would be a mistake for the euro area to adopt an exchange rate target. It would almost certainly be ineffective and would probably lead to an almighty row with the United States. However, that should not rule out the ECB, Finance Ministers or both having views about the exchange rate and occasionally agreeing on interventions in the currency markets, in order to dampen down excessive swings.
That brings me to the issue of co-ordination between fiscal and monetary policy. Inside the EU, co-ordination of economic policy is complicated—indeed, it is very difficult. There is a single monetary authority, on the one hand, and multiple fiscal authorities, on the other. Yet, co-ordination is required to deal with tricky issues such as the exchange rate and with disputes over the stability and growth pact, as well as to ensure that more general and important issues such as monetary and fiscal policy complement each other. We propose that arrangements for the communication and exchange of information between the ECB and the fiscal authorities could be strengthened, if the role of the euro group were formalised, thus allowing its representative or chairman to communicate more effectively—probably on an informal basis—with the president of the ECB.
I have come to the end of what I wish to say. I believe that it is right that we continue to assess the development of the European Central Bank. Even while we stay out, the operations of the ECB affect our economy, given the fact that the euro area is our largest single market. If, as I hope, we decide to join, it is essential that the ECB works as effectively as possible. We are entitled to have views about what happens to the ECB. It is in that spirit that I present the report to the House. I look forward to hearing what the Government have to say. Their reply to us, although interesting, was somewhat opaque. I look forward to hearing the views of noble Lords on an institution that, whatever happens, will remain vital to the future of our country.
Moved, That this House takes note of the report of the European Union Committee on Is the European Central Bank Working? (42nd Report, Session 2002–03, HL Paper 170).—(Lord Radice.)
5.28 p.m.
Lord Barnett: My Lords, I thank my noble friend Lord Radice for his report and for his speech. There is not a lot in them to disagree with. My noble friend is, as always, modest and moderate in his views. When any chairman is presenting a report by a Select

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Committee on the issue, it is difficult, if he wants a unanimous report, to have anything other than a modest and moderate one.
The Government's response is even more modest. They say that they welcome the report and say that it will be an important contribution to the debate. I am not so sure about that. It is difficult to get any kind of serious debate on Europe in this House, in the other place or in the press—or anywhere else, for that matter. It virtually is impossible. Indeed, in this debate, I am happy to see that I am likely to agree with most of the contributors. Those who disagree seem to have opted out for another day when they can have a debate on their own. That being the case, we who are pro-euro and pro-Europe should be able to be constructively critical of the parts of the European Union's policies that we see not working correctly. To some extent, that certainly applies to the European Central Bank.
I want to deal with a few points. First, I turn to paragraphs 241 and 242 of the report where the committee asks the Government for their views on "prudential supervision". The first line of the Government's response relates to the five economic tests. Most of us who are concerned and care about Europe and about the possibility of joining the euro-zone—it is to be hoped in the not too distant future—will know that the five economic tests are nonsense, which, I believe, most sensible people within government circles will know. So that certainly is not a serious response to the report.
When the Minister replies, perhaps he could tell us about the central test of sustainable convergence and how we will ever get it, and, therefore, how we will ever join the euro-zone, which I hope remains the objective of the Government. How they can ensure sustainability both on that issue and on almost any other, I should be delighted to hear, as I am sure would the House.
In their response to the report, the Government, under the heading of "Financial Stability and Prudential Supervision", answer paragraphs 241 and 242. They state:
"As stated in the EMU study Policy frameworks in the UK and EMU (paragraph 3.61): … a clearer assertion of the position on official support operations in the euro area would be helpful to ensure that the euro area avoids creating ambiguity".
I am always happy to support the removal of ambiguity, but I should be glad to hear from the Minister how he has in mind to do that.
My second point is, to me, the central point of the report and, indeed, the whole issue; that is, the primary objective of the European Central Bank. We are told that "price stability" is the primary objective, again stated in paragraph 243. Paragraph 244 states that the European Central Bank has to consider the second objective "without prejudice" to the first objective. That is similar to the Bank of England and the Monetary Policy Committee, although the wording is slightly different. Under the Monetary Policy Committee, there are those famous three words, "Subject to that". In other words, subject to the first
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stability question, only then must it consider growth and employment. I note that some of the witnesses, and many others, are not too concerned that recently, within the euro-zone and within Europe, the average growth rate has been so poor.
One is bound to wonder to what extent the European Central Bank considers the second objective of growth and employment, in the same way that I often wonder what weight the Bank of England Monetary Policy Committee gives to the second objective of economic growth and employment. I am bound to say that, over the years, my impression of the extent to which the European Central Bank gives serious consideration to growth and employment is "not a lot". One is bound to conclude that the primary objective, judging from everything that has happened over the years, as with the Bank of England, almost completely supersedes its consideration of growth and employment.
The response from the Government states that, overall, the European Central Bank is pragmatic, but that it could do better. I certainly accept the pragmatic point. I certainly accept that it could do better. In my view, it could do very much better. But should we not be concerned—the report does not express this to the degree that I would have preferred—to what extent the European Central Bank really is acting, if at all, on that second objective? That must be of concern to all of us and, certainly, to those like me who want us to join the euro-zone as soon as possible. The committee states that economic success of the euro-zone is beyond the narrow definition of the stability of inflation, with which I very much agree.
I now briefly turn to the point made by my noble friend Lord Radice on the stability and growth pact, referred to in paragraph 271. As my noble friend pointed out, it is a short paragraph because there have been previous occasions on which to debate the matter. Paragraph 271 states:
"The Stability and Growth Pact can help Member States".
It can; it can also do great damage and harm to them as well, as we have seen. That is what I mean when I refer to the report and my noble friend as being very moderate on these occasions. The plain fact is that the pact is almost as much nonsense as the five economic tests. The pact works only because it is not allowed to be strictly enforced. I make no bones about it; I do not want to see it strictly enforced. At a time like now, to see it strictly enforced would be mad. When we need more economic growth within Europe, strictly to enforce the terms, as originally envisaged, of the growth and stability pact would not be sensible.
Lord Radice: My Lords, I thank my noble friend for giving way. To be fair to the committee, the whole point of its previous report was that the pact should be interpreted flexibly, particularly at a time of depression or deflation.
Lord Barnett: My Lords, as a former chairman of that committee, I am delighted to recognise the point made by my noble friend. But, as I say, this would be the wrong time to cut debt within the euro-zone.

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Again, the Government response is very interesting. We are told that they support,
"a prudent interpretation of the Pact".
We would all support prudent interpretations of almost anything. What exactly does that mean?
At the Economic Affairs Committee only last Wednesday, we had before us a very impressive group of senior Treasury officials. I particularly emphasise the impressiveness of the main Treasury official. I asked him for the Government's view on whether they would like to see the European Union implement the Chancellor's golden rules. The answer was very interesting. Again, I shall he interested to hear whether the Minister agrees. The answer was "yes". He added a "but". In fairness, it is worth saying why he added a "but". He said that it is more difficult, within 12 fiscal authorities, to have the kind of system that we have.
He went on to make a number of other points. The general point he made was that the growth and stability pact—he was involved in the negotiation of it in 1996–97 and lived with it and watched it evolve—had changed a tremendous amount; it had not changed overtly and there had been no big statements that it had changed in another way. But we know that it has changed. Of course it has changed and, sensibly, in its implementation.
He went on to show why he said "but" after his "yes" by saying:
"I would say it recognises the cycle a lot more than it did and whereas if you said 'cyclically adjusted deficit' in 1996 you were seen as a heretic, that is now accepted".
I should add that those quotations are from a report of a Select Committee that sat only last week, so it has not been corrected or published. I was there, and I doubt whether anyone would disagree with what I have read out.
That is a senior and impressive Treasury official's view of the Government's policy. Knowing Treasury officials as I do, I should be astonished if he said it without knowing what he was saying or being very careful in his choice of language. I certainly hope that my noble friend will confirm that that is indeed the Government's—and the Chancellor's—view; after all, it is his golden rule, so why should he not want to see the European Union, or the euro-zone, accept his own golden rule rather than the nonsensical growth and stability pact that will not work as it stands? I look forward to hearing my noble friend's response.
5.41 p.m.
Lord Brittan of Spennithorne: My Lords, I add my congratulations to the noble Lord, Lord Radice, and his colleagues, on an admirable report. I say so not because it is the convention to do so, but because it is an excellent analysis and makes excellent recommendations. Indeed, it is in line with a series of reports from committees of this House that led Jacques Delors to say to me informally that he thought such reports represented the most serious critique of European policy emanating from any legislature in the European Union.
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Few people would disagree that it would he fair to characterise the economic situation in the euro-zone as one with a high degree of price stability but inadequate growth and inadequate structural reform. As price stability is the stated primary objective of the European Central Bank, it is not surprising that the report commends the European Central Bank for achieving its desired objective and rapidly building up a high level of credibility. It is worth pointing out that what the European Central Bank does is not significantly different from the Federal Reserve or the Bank of England. As the report says, it just does it a bit more slowly and cautiously.
I would add, quoting my brother, Samuel Brittan, that the European Central Bank is also to be commended for so successfully achieving the formidable administrative and technical task of introducing the euro and handling what could have been an awkward transitional phase. I would add to that its successful launch of notes and coins. I remind the House that many Euro-sceptics gleefully predicted that each and every one of those tasks would end in disaster, but that did not happen.
The report comes to other very important conclusions. The first, which has been referred to by the noble Lord, Lord Radice, is that it would be a mistake for the European Central Bank to have an exchange rate target. I wholly agree with that for two reasons. First, it would be extremely difficult to make that work in practice, without international co-operation. I do not know whether the results would be as draconian as suggested by the noble Lord, but one could say simply that it would fail because the United States Government, in their present policy, which is one that has been followed over many years, would be extremely unlikely to co-operate, or give the co-operation necessary to achieve any such objective.
Secondly, an exchange rate target would be a mistake because, as those of us who have been in the Treasury have readily observed, there cannot be two targets. There cannot be both an inflation target and an exchange rate target because they may clash. There must be only one, otherwise they may fall between the stools.
The second important point—here I differ slightly modestly from the noble Lord, Lord Barnett—is that the report rejects the frequent complaint that greater prominence should be given to the secondary objective of supporting growth and employment, not because those objectives are not at least as important as price stability—they are possibly more important—but because of the severe limit on what monetary policy can do to achieve that.
I shall quote Mr Duisenberg, the former president of the ECB, who said:
"Theoretical and empirical evidence clearly confirm that there is no long-term trade off between price stability and economic growth. Trying to use monetary policy to fine-tune economic activity or to gear it above a sustainable level will, in the long run. simply lead to rising inflation—not to faster economic growth".

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Professor Von Hagen, speaking about monetary policy, said:
"It can support full employment but to use monetary policy systematically to reach full employment will always undermine price stability".
Professor Buiter said:
"Monetary policy cannot increase the long-term growth of the economy and has no lasting effect on the equilibrium rate of employment. It has important effects at cyclical frequencies but that is it".
I would add that the same might be said about what short-term fiscal policy can do. In 1976, the noble Lord, Lord Callaghan, said, extremely vividly, that one could not inflate one's way into prosperity and sustainable growth. Successive governments would have been wise to retain that lesson.
As has been pointed out, it is not the case that the ECB has pursued the aim of price stability in a narrow way. The report states that inflation is actually slightly above what would be expected from the rigid pursuit of its stated policy. Indeed, as has been said, the policy of the ECB has been a bit looser than it would have been under the Bundesbank.
Taking that view of the situation, which I share with the Committee, it is natural that the recommendations made are not devastatingly radical, but they are still important, and I hope that they will be heeded. I shall not join in the criticisms of the Government for their modest response to the report, but shall focus on supporting it.
On the question of a symmetrical inflation target, witnesses showed that the ECB has gone a long way towards implementing it, at least by implication. That is evident from the clarifying statement issued by the bank on 8 May last year. It is not a revolution formally to adopt a symmetrical inflation target; it would be beneficial precisely for the reasons given in the report.
The proposal to publish the records of meetings, spelling out the arguments used but not attributed to individuals, is a sensible recommendation that should be followed. It is a moderate recommendation in the best sense of the word, because a more extreme one would be to publish the names of the individuals and their votes. I think that the European Central Bank is a different animal from the Federal Reserve or the Bank of England precisely because it accommodates so many different countries. To expose its members to national pressures—certainly at this stage of its devolution—would be a mistake. I think that the recommendation is balanced and sensible.
A recommendation has also been made to change the treaty so that decisions can be taken by a small monetary policy council. I believe that is desirable in principle and that it should happen at some point. If the Inter-Governmental Conference dealing with the proposed constitution of the European Union is fully reopened and all aspects of what Giscard d'Estaing has proposed are up for grabs, then certainly this should be considered and done. However, if there is any chance of a quick resolution to the impasse on voting rights so that the thing could be agreed leaving the rest
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untouched, I would not favour stopping the constitution going through by embarking on the necessarily controversial negotiations needed to agree the treaty change to create a small monetary policy council.
I should like to draw one or two more vivid and immediate conclusions from the report. It is clear that the ECB does and will take account of the exchange rate in assessing the degree of inflationary pressure in the euro-zone and, if the exchange rate rises enough, that will indicate that inflationary pressure has eased and interest rates will be lowered. It is also clear that the decisions of the European Central Bank are materially affected by the fiscal policy pursued in member states. It is right that that fiscal policy cannot be effectively co-ordinated with the ECB and it has explained why that should not be attempted. But if member states pursue inappropriately lax fiscal policies, that too is something which the ECB is bound to take into account when assessing what needs to be done in determining monetary policy.
The important point that comes out in a low-key way, but which is repeated again and again in my reading of the report, is that the ECB cannot be expected to carry all the weight of pursuing an appropriate and complete economic policy for the euro-zone. There is a severe limit to what monetary policy alone can do. It is the responsibility of the member states and not the European Central Bank, first, to carry out structural reforms, the lack of which is the main cause of the weakness of the European economy today and, secondly, to pursue appropriate fiscal policies. That is why the report draws attention, admittedly in a low-key way, to the value and importance of the stability and growth pact.
I do not think any more than does the noble Lord, Lord Barnett, that the pact in its present form is perfect, but to the extent that it is not, it should be debated, discussed and reformed, not flagrantly flouted by France and Germany. Those are countries which regard themselves as high priests of European integration and the motors of future advance. Their shameless and, in the case of France, brazen defiance of what they themselves created has done more to discredit the European cause than any other single act of any European Union member state in the whole history of the Union.
If that seems an exaggerated claim, one has only to look at what happened in the Swedish referendum on joining the euro. It was clear that the flouting of the pact was one of the major causes of that vote going the way it did. Above all, what is so mischievous about flouting rather than amending the pact is that that gives the impression that there is one rule for the small countries and another for the large—or rather, no rule for the large countries. In doing that, immense damage has been done to the euro-zone and, beyond the question of the euro, to the European cause.
I believe it is now urgent and necessary to put that right. The issue of the stability pact must be dealt with in a proper and responsible way. But, like so many other things hovering around this debate, that too is

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well beyond anything the European Central Bank itself can be expected to achieve, although it has rightly made very clear its views on this issue as well.
5.54 p.m.
Lord Taverne: My Lords, since I agree with the remarks on the report made by the committee's distinguished chairman, I shall not repeat many of his points. The report makes sensible comments and proposes reasonable recommendations. That is not surprising because we had a very good chairman and, I would add, an exceptionally able Clerk.
I want to make three points, the first of which concerns the success of the European Central Bank. People have forgotten the problems it faced and that it is an easy target. Many financial journalists make cheap comments at the expense of the ECB, saying that the ECB is responsible for low growth in Europe because it has kept interest rates far too high. The noble Lord, Lord Radice, dealt with that in part by pointing out that the bank has not been obsessed with inflation, rather it has allowed inflation to rise slightly above its target. And when considering the history of the past decade or more, one cannot blame the high interest rates forced on Germany in a one-size-fits-all interest rate policy on the ECB when Germany has had historically low interest rates since the bank has been in charge. All our witnesses disagreed with the view that the ECB had failed in its task. They formed a distinguished group and they praised it. The bank established its credibility when that was not necessarily an easy thing to do.
My second point relates to what I think is one of our most important recommendations on the future governance of the ECB. Many of the other recommendations are sensible but are what I would regard as rather marginal, such as having a symmetrical inflation target. In practice, that is more or less what the ECB has been pursuing, certainly since it modified the explanation of what it meant by keeping inflation below 2 per cent. The remarks of the noble Lord, Lord Radice, show that in fact everyone agrees that the manner in which the ECB has carried out its tasks has been very similar to that of the Bank of England and the Federal Reserve in the United States.
However, the current proposals for the future governance of the ECB are worrying; that is, the voting system. They are likely to hamper effective decision-making. Questions about voting are extremely difficult, as we have seen in the IGC. I understand the proposals; they are simpler and far preferable to those put forward at Nice, and they are being strongly championed by France and Germany. However, I understand too the opposition of Poland and Spain, which are afraid to give two countries plus one other what would be, in effect, a power of veto. But I am rather disturbed by the attitude of the United Kingdom which was to say simply, "This is not our problem. We are not in the firing line. Our problems are not being discussed and so, hooray, we don't have to take part".
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The trouble with present discussions in the European Union is that no one takes any view other than that of national self-interest. We have lost the sense of vision about Europe that used to prevail. If everyone rigidly pursues their own national self-interest, then the European Union will not work well. We have to face down chauvinist tendencies in the press and lift our eyes to a somewhat further horizon.
My third comment relates to the wider context of the report. As I have already indicated, the European Union is going through a bad patch. It has low economic growth, it suffers from a certain amount of sclerosis, it is failing to meet the Lisbon objectives, it has failed to produce structural reforms which are a major, but not sole, element in economic growth, and there is widespread disunity. In a sense I am rather relieved that we are not holding a referendum on Europe now because these are not favourable circumstances for it. Nothing much good can be said about the Union at this time.
But that has to be seen in context. We have had bad patches before. Looking back over the past 40 years, one can see an amazing see-saw in the relative success of the European Union and the United States. I remember that, in the 1960s, we had Le Défi Américain and everyone was asking how Europe could ever compete with the United States. It would be a terrible problem to compete with them.
Then, in the 1970s, the boot was on the other foot. There was a completely different picture. I remember Roy Jenkins making a speech in which he said, "Westward look, the land is bleak". It was the time of Nixon. The United States was facing a major crisis. One forgets that there was a long period when the Americans had lost their self-confidence, and thought that they would be swamped and completely overwhelmed by the Japanese. Now, in the past 10 years, the Americans have felt that they have the complete answer to all the problems of the world, and that the American business model is the only possible model for economic success.
Europe has great strengths. Despite the fast growth of productivity in the United States over the past decade, "productivity for all"—which in the end is the true test of productivity—is higher in France, Germany, the Netherlands and one or two other European states than it is in the United States. The only reason why GDP per head is higher in the United States is that Europe has a sensible and civilised approach, and does not believe that people should work and work only, work longer hours and have practically no holidays.
Thanks to the work of the ECB, European inflation looks stable for the foreseeable future. Can anyone say that with any confidence about the United States? I shall not predict the future, but it is possible that the United States will face a period of high inflation because of its high, multiple deficits. The first decade of this century may not be the decade of economic growth for the United States: it could, again, be the decade of Europe. It is certainly more likely to be the decade of Asia.

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There is sclerosis of the European Union, but it also has strengths, one of which is that it takes a longer-term view than the American business model, which is obsessed with a short-term increase in shareholder value.
A pertinent comparison has been made between Airbus and Boeing. Boeing was a company that was primarily interested in making aeroplanes, and was not terribly interested in profits. It made profits, but that was a by-product. One of the executives was horrified when the 747 was produced, because the company had not done any calculation on the return on capital that was expected from the new aeroplane. It was an enormous success.
Boeing is now obsessed with creating shareholder value, and relative to Airbus, its value has gone down. The reason is that Airbus takes the long-term view: it is primarily interested in making aeroplanes. Profit is not unimportant, but the European business model—the social model of the Continent—takes various forms. It is different in the Netherlands, in France and in Germany. The European social model has certain strengths, and it leads to a greater degree of investment and a longer-term view.
In the long term, Europe may be going through a bad patch which is temporary. We have seen these bad patches before. The single market came as a complete surprise, and turned out to be a tremendous incentive for the expansion of Europe. It is not a good time now. That is the background against which we have to judge the operation of the European Central Bank. In those circumstances, its operation has been an astonishing success.
6.3 p.m.
Lord St John of Bletso: My Lords, it has been a pleasure to serve under the able chairmanship of the noble Lord, Lord Radice, with his vast experience from the other place. I would also like to thank our very able Clerk, Dr Richard McLean.
I was fortunate to have been part of the sub-committee in 1998, which examined how and whether the bank would work, but now, five years on, we are examining whether it is working. I endorse the sentiments of the noble Lord, Lord Radice, that the ECB has worked well so far, and that a lot of the criticism of the bank is unjustified. In drawing comparisons between the effectiveness of the ECB and the Bank of England, one tends to lose perspective of the fact that the UK has been a monetary union since 1707, whilst the ECB has only been effectively in existence since 1999. In that short time, it is noteworthy how quickly the bank has achieved not only credibility, but also its authority and effectiveness in delivering price stability.
As we recommend in the report, we hope and expect that the governing council will display greater transparency, particularly in the publication of regular records of its meetings, giving the reasoning and arguments behind its monetary policy decisions without being attributed. In this regard, I endorse the
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recommendation that arrangements of communication between the ECB and Eurogroup need to be strengthened.
However, the challenge will become all the more apparent with enlargement, with the governing council of the bank likely to increase its membership from 18 to 33. I share the concerns of the noble Lord, Lord Taverne, that the unwieldy size of the enlarged governing council will complicate the process of setting interest rates and could potentially lead to rifts between the large and smaller member countries.
I support the recommendation in paragraph 260, that the ECB should eventually have a small monetary policy council, composed of six members of the ECB executive board and up to six independent external experts. Clearly, there will be political impetus for there to be some national input into the running of the ECB, but it makes sense for the proposed smaller monetary policy council to operate under the oversight of the current governing council, where the central banks of all the member states of the euro-area are represented.
We face a radically different economic climate today from that which existed when we prepared the report in 1988. Whereas interest rates then were at 3 per cent across the euro-zone and concerns about inflationary pressures resulted in interest rates rising as high as 4.75 per cent in October 2000, now interest rates in the euro-zone are at 2 per cent, and there are some concerns of deflationary pressures, particularly in Germany.
Another concern I have about the ECB is that it appears to be too fixated with the threat of inflation, and not sufficiently cognisant of the need to boost growth. As several of our witnesses told us, reducing interest rates in the euro-zone below 2 per cent would not necessarily have the desired effect of promoting growth, as euro-zone countries have comparatively low debt levels.
The ECB does not have the same degree of control over demand in the euro-zone as the Bank of England has over demand in the UK. The UK is a far more interest rate-sensitive economy than the rest of Europe. A lot of the problems in Europe cannot be blamed on monetary policy, but are more due to structural problems and regulatory red tape and labour laws, which are the remit of national governments.
An issue that I took up with our witnesses was the lack of a lender of last resort in the euro-zone, particularly in the event of a massive financial crisis. Financial supervision remains the preserve of individual countries. While I support the recent establishment of a Financial Services Committee to advise ECOFIN, I do not believe that that is enough. I agree with the Financial Secretary, Ruth Kelly, that there needs to be more clarity in the arrangements as to who the lender of last resort in the euro-zone should be.
The ECB has a clear vested interest in effectively performing its mandate for there to be fiscal stability in the euro-zone. Since the collapse of the stability and

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growth pact last year, which allowed Germany and France to run excessive deficits, it invariably will result in euro-zone members running looser fiscal policies. If one shares the view of the noble Lord, Lord Barnett, that will help to promote growth, but could risk the euro-zone's net debt position becoming unsustainable in the long term. It may be argued that the euro-zone is in danger of ending up in a bad policy mix, with monetary policy being too tight and fiscal policy being too loose.
When the stability and growth pact collapsed last year, the ECB came under some harsh criticism by several of the finance ministers of the euro-zone who claimed that the bank was acting ultra vires in its criticism of the breach of the pact and that the bank's remit was purely and simply to manage the currency and to maximise and preserve price stability.
During Questions today, the Minister was asked what action Her Majesty's Government are likely to take to ensure that member countries such as France and Germany—France was particularly mentioned today—play by the rules. Perhaps I may again press the Minister for a response on this issue when he replies to the debate.
I share the sentiments of businesses, politicians and bankers that much more needs to be done to ensure greater stability in the foreign exchange markets. After the collapse of the dollar by more than 20 per cent against the euro last year, I hope that this issue will be covered in next month's meeting of the group of seven industrialised nations. While the surging euro has reduced raw material prices and inflationary pressures, in many ways it has undermined Europe's economic recovery.
I find the comments of John Snow, the US Treasury Secretary, in support of a strong dollar hard to believe. With rising stock market prices in the US and falling long-term interest rates, the US Treasury appears to be doing little to halt the decline of its currency.
In conclusion, I obviously wholeheartedly support the report. I had hoped that the Government, in their formal response, would have been more specific in responding to the many recommendations outlined in the report.
I end on the same note with which I started. Is the ECB working? Yes. Is it fulfilling its mandate? Yes. Will the ECB continue to perform in a successful manner and could it be improved? Yes. European enlargement will be a major test for the ECB. I hope that our recommendations in the report will be seriously considered. I am a firm believer in the principle of KISS—"Keep it simple, stupid".
6.12 p.m.
Lord Watson of Richmond: My Lords, I add my congratulations to the committee on its report and to the noble Lord, Lord Radice, who has for so long been an exemplar of good sense on Europe.
As has been stated already, the report's broad findings are positive. The ECB is one of the most influential financial institutions in the world. It is endowed with extraordinary independence, which is
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hardly surprising as the Bundesbank was one of its midwives. It has performed well given its mandate and it has built up a high level of credibility by delivering on its prime objective of price stability.
However, it now faces the need to deal with the dangers of deflation and stagflation and the enlargement of the Union. The committee, as I understand it, broadly recommends three changes: adopting a symmetrical inflation target; and two steps which would bring the bank closer, without compromising its independence, to the real world—or at least the political world—that is, a small monetary council under the general council and enhanced dialogue between the ECB and the Eurogroup. All of this, of course, to sparkle with greater transparency. In other words, it should be a more proactive, more transparent ECB, with more political savvy, under the leadership of Jean-Claude Trichet.
It would seem that all this is welcomed by Her Majesty's Government in their broad but rather bland endorsement that this is,
"an important contribution to the debate".
However, the Government do not specify which debate and whether or not we are a part of it. I shall return to that point in a moment. Suffice to say that to some of us the debate on the euro, of which the ECB is a part, becomes more surreal with every passing year.
In that regard, perhaps I may briefly share an experience with your Lordships. Some months ago I caught a cab at Hyde Park and asked the cab driver to bring me to the Peers' entrance. That is always a dangerous beginning to any conversation, and indeed it proved to be the case. The taxi driver had on a radio programme dealing with the euro. He said to me, in slightly menacing terms, "Would you like to hear the programme or would you like my views on the euro?". I calculated that the journey would take about six minutes and that it was probably safer to hear his views. And I did. Britain joining the euro would of course be the introduction of the Fourth Reich; it would be the reversal of the Battle of Britain; it would lead to complete catastrophe and so on. The picture got gloomier and gloomier until, thank goodness, we arrived at the Peers' entrance. As I paid the cab driver, in sterling, I said to him, "Well, my friend, if it's really going to be as bad as you think, perhaps you should emigrate". He looked at me in some surprise and said, "Right, my Lord, I am. I'm off to Spain". It is a surreal debate in many ways.
The ECB and its role in the fortunes of the euro are not on everyone's lips—and, for the most part, they are not on those of the Government either. However, there are two key contextual developments which require some re-examination of the ECB, the euro-zone and our non-participation.
First, there is the continuing fall of inflation in the euro-zone. Core inflation—which excludes energy, food, alcohol and tobacco—is at approximately 1.6 and could fall to 1.5 by March this year. This is comfortably below the ECB's projected 1.8 for 2004. The main reason for this is the rise in the value of the euro. Secondly, this rise, on the hack of the dollar's

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fall, is in itself an extraordinary phenomenon. The fall in euro-zone inflation and the linked rise in the euro therefore clearly call for some action.
Let us remind ourselves of the figures on the rise in the value of the euro. It was up 25 per cent against the dollar in 2003, last year, and up 40 per cent on 2002.
Incidentally, one of the reasons for this surreal dimension to so much of the debate on the euro and the ECB—certainly as seen from my side of the argument as one who would like us to join—is that when the euro was weak, it was derided for being so. Now that it is strong, that in itself is perceived as weakness. When it was established it was indeed, as the noble Lord, Lord Brittan, said, expected to fail. Now that it has not failed, it is berated as the cause of the euro-zone's uncompetitiveness.
But my purpose today in the debate is not to argue for a fair hearing for the euro; it is to support the recommendations in the report and to raise one fundamental question for the Government. As I said, the fall in the euro-zone inflation rate and the linked rise in the value of the euro clearly call for more interest rate flexibility and, to some extent, the ECB has demonstrated its approach on that. In paragraph 251 the report rejects, interestingly and trenchantly, both the charge that the ECB is insufficiently focused on growth and unemployment and the charge that it is insufficiently vigilant in fighting deflation. It finds both charges unfounded.
In some ways this is a generous judgment. ECB inflexibility on rates has arguably contributed to Franco-German naughtiness on the growth and stability pact. I shall treasure for a long time the description of the noble Lord, Lord Brittan, of the French aspect of naughtiness in this regard as being "brazen". Certainly, that inflexibility has been used as an excuse. Meanwhile, a symmetrical inflation target would signal, perhaps, that the ECB is as alert to the risks of deflation as to those of inflation.
Secondly, it will help if the ECB is closer to the political world through transparency, better communications and closer liaison between the Eurogroup and the bank. But in all the brouhaha about having a more proactive, politically sensitive and market sensitive ECB, let us not lose perspective. It is easy to misread and exaggerate the impact of the rise of the euro's value on economic performance within the euro-zone. The euro-zone is already a huge single currency internal market.
I read the other day figures relating to Germany's Engineering Federation, which has 3,000 members. Its success or failure literally turns on exports. Seventy per cent of all that it makes is exported. Now, well over half the total exports of German engineering companies go to and within the euro-zone. They are thus unaffected by the value of the rise in the euro except that there is a certain cost benefit to them in manufacturing and raw material terms from the high euro.
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Thirdly, the high euro is of course the flip side of the weak dollar. Why is the dollar so weak? The noble Lord, Lord Lamont, commented the other day that the US economic recovery was the best one that money could buy. That seems an interesting way of putting it. The United States Government and authorities are doing nothing to halt the rise in the dollar. It is clear that in a presidential election year they are unlikely and reluctant to do so. But if pressure on the rise of the dollar is to be brought on the United States with any chance of success, it has to be brought collectively by the European Union. That is the lesson of the WTO and all the trade negotiations between the two sides of the Atlantic.
That brings me to my question to the Government. I was struck by two exchanges in the committee's examination of Ruth Kelly, a member of the other place and Financial Secretary to the Treasury, and indeed of other Treasury officials. I was not there, so I am dependent on the written report. The noble Lord, Lord Hannay, according to the record, asked Ms Kelly how concerned she was that a closer dialogue between ECB and the Eurogroup—advocated by the Select Committee—would be,
"a dialogue from which we will be excluded".
Her reply was that she was not concerned, but her reasons for not being concerned—certainly from reading them—appear obscure.
Mr Woods from the Treasury then intervened. He added that such meetings are prepared in the Economic and Financial Committee, in which the UK is represented. He concluded,
"we are party to those discussions".
Yes, my Lords, party, but not part of. There is a significant difference. To be party to these discussions but not part of them is, I would submit, in the long term, a highly vulnerable and unacceptable position for the United Kingdom.
Ms Kelly put the dilemma succinctly at the end of her evidence when she said:
"We can influence the debate indirectly".
I ask the Government this question. For how long are we to be content with being party to, but not part of, the Eurogroup? For how long are we to be content with influencing the debate but only indirectly? Given the importance of the City of London to the euro, given the importance of Britain to the euro, given the importance of the euro to Britain, for how long must we consign ourselves to indirect, not direct, influence, and to being party to and not part of the single currency that is reshaping Europe?
6.25 p.m.
Lord Sheldon: My Lords, I was a member of the Select Committee chaired by my noble friend Lord Radice. He has been a very effective chairman; I pay tribute to his work and to his efforts in producing this report and to the Clerk, as my noble friend mentioned.
I am particularly interested in the comparisons frequently made between the European Central Bank, the Fed and the Bank of England. There are a number

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of similarities and differences. Unlike the Fed and the Bank of England, there is no direct political relationship between the European Central Bank and a political economic department to which it would have some form of accountability. Mr Paul Volcker informed us that the chairman of the Fed and the Secretary of the Treasury met at least once a week. He said in his evidence— I quote from paragraph 33 of the report:
"The ECB is also 'to support the general economic policies in the Community with a view to contributing to the achievement of the Community'".
What would he most desirable would be some agreed political body that could communicate with the ECB to advise and even influence a decision of the bank. In the United States, the Treasury and the Fed are aware of each other's views. They are in a position to have proper and detailed discussions to set out their opinions and the actions that they propose. Disagreement between them would cause embarrassment and much worse. They need to get on with each other. That relationship has some similarity to that between the Bank of England and the Treasury in this country.
But the European Central Bank enjoys no similar relationship with those who run the economies of the member states. Of course it has discussions with member states, but the views that it encounters may be far from unanimous because of the differing economic situation in each of the countries. Given their widespread political and economic situations, how can we replicate the advantageous political and economic input that the Fed and the Bank of England both have?
Could we devise such a body? If we could, what would it look like? It would need a light touch. It might be able to intervene only when things were clearly going wrong. At present, the European Central Bank is working. How far is its success due to the western world's current reasonably stable economy? It is stable at the moment, but in a crisis how would it operate? I agree that at present there should be a symmetrical inflation target, but there are times when that may not be the best way to handle these matters.
In the argument between inflation and growth, banks in my view always have a tendency to prefer the risks of low growth in order to be sure of low inflation. Many in the industrial and political world press for higher growth even if there would be slightly greater risks with inflation.
The objectives of both the European Central Bank and the Bank of England were similar. Paragraph 33 of the report states that,
"The ECB is also 'to support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community, ' which include 'a high level of employment' and 'sustainable and non-inflationary growth'".
We see that the aims of the Bank of England are to maintain price stability and,
"subject to that, to support the economic policy of Her Majesty's Government, including its objectives for growth and employment".
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The United States are required to keep prices stable, but also and at the same time to seek full employment and to moderate long-term interest rates, which are formally seen as having equal importance. That is quite different form the European Central Bank. Both the Bank of England and the Fed have wider objectives. Of course, at the end of the day, there is one primary objective; we all know that. However, they have the responsibility of looking at these other things and taking them into account because of their relationship with the political and economic structures of the countries that they inhabit. That is important, and it is a gap that the ECB needs to fill in some way.
In practice, both the Bank of England and the European Central Bank have done what they know best—to provide a firm hand on the level of interest rates. Professor Buiter claimed in paragraph 38 that the three-legged mandate of inflation, growth and unemployment had "been forgotten in practice". We now have a single mandate. That is the conclusion of the committee. The question is how we achieve that mandate. The conclusion that I draw is that, if there were a closer relationship between the political and administrative institutions and the European Central Bank, we might get, if not a formal move to determine wider economic issues, at least a dialogue that is not dissimilar to that which the Fed has with the administration.
I believe that there is some trade off between inflation and growth. Some say that such a trade off refers only to the period while the rate of inflation declines. Once inflation is zero, growth can resume its upward path. But if that is so, why should those who hold this view not take the bull by the horns, continue the policy for the limited period of deflationary misery and arrive at the golden goal of zero inflation? The answer is that growth could halt and even become negative. So we have come to the realisation in the real world that, although we may not like it, some inflation is necessary to retain growth, but it must be kept strictly within limits. We must allow from time to time only the move in the direction of zero inflation and not hope or expect ever to attain it. That is what disinflation means in the real present world. If the aim is really zero inflation, how far would growth be affected? That is not a question that we are likely to test.
The Select Committee recommends a modification of the European Central Bank position to a symmetrical inflation target, and that is what we will achieve. In studying the reasoning behind the decisions of the ECB there is a need to spell that out more clearly, which was commented on by many other speakers in this afternoon's debate. There is a distinction between this and the clear danger of attribution of its various views. We must be clear that we cannot attribute to any of the members of the European Central Bank the views of each of the members. The reason is that the views of the Bank may not be the same as those of the individual member states. The identification of the views of the members

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of the governing council will need to be protected. That was mentioned in paragraph 185 of the report, which states:
"President Duisenberg said that one of the reasons why the Governing Council did not vote but operated by consensus was that, like the Commission, it was a collegiate body. To move away from this position risked dividing the Council and losing its cohesive, collegiate attitude".
We must accept that. There are such differences between the member states that we cannot expose this to argument outside. We must hope that those members of the European Central Bank will look to the wider interests of the bank itself.
How far can we accept the economic variation among EU member states? That question has led to the stability and growth pact mentioned in today's debate. If there are wide variations, not only will the more undisciplined countries affect the working of the union, the central Bank will have difficulties in producing a policy that would be acceptable to all the member countries. The stability and growth pact was introduced to enforce an interest rate policy that could apply equally to all EU members. If a country had an economy that diverged from the others, they would incur higher interest rates. The situation could be endured for a short while if it were one of the smaller economies that deviated from the common policy. Much more difficult would be the position if it were a divergent major economy.
We now have that situation in France and Germany. Two major economies are not only diverging but doing so with a wilful disregard for other members of the European Union as well as the authority of the European Central Bank. That threatens the economy of the union, and the accompanying arrogance is a serious matter just when enlargement is taking place. I agree that the rules must take into account special circumstances—that is obviously essential, as several noble Lords have mentioned. However, I would certainly like France and Germany to be more contrite and apologetic and give more, clear avowals of future behaviour. We have not seen that, and that is something I deplore.
Finally, there is the question of whether and how far the European Central Bank should be given powers over financial supervision. My own view is that we should take all this slowly. We need to see how the arrangements that we have in place deal with the many different situations over some period ahead before we invest too many powers in the bank. In particular, we need to see progress in developing a working and accountable relationship between the bank and the political and industrial institutions of the Union.
6.37 p.m.
Lord Newby: My Lords, I, too, join other noble Lords in congratulating the noble Lord, Lord Radice, and his committee on producing such a clear and concise report on an extremely technical subject. I begin by echoing what a number of noble Lords have said about the overall track record of the ECB; namely, it has been successful in its principal aims. It
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did establish a single currency in Europe in circumstances, as the noble Lord, Lord Brittan and others mentioned, in which many people expected—and in this country, hoped—it would fail. Following on from that, it has succeeded in establishing the euro as the principal global currency along with the dollar. It has also succeeded in attaining its objective of maintaining price stability.
There has been much discussion in the debate today about whether that is the bank's only aim and about the role of that goal as opposed to the subsidiary goals of the other economic aims of the EU. It is worth comparing the bank's role with that of the other central banks mentioned. The treaty says that:
"The primary objective of the European Central Bank shall be to maintain price stability and without prejudice to the objective of price stability, the ECB shall support the general economic policies in the Community".
That sounds to be almost identical in meaning to the words of the Bank of England Act 1998, in which we have the famous "subject to that" proviso. Indeed, evidence to this committee—and to the Economic Affairs Committee when we examined this issue—has shown that, whatever the exact words in relation to the ECB, the Bank of England and the Fed, the way in which they actually interpret their remits is virtually identical.
Before coming to some of the criticisms of the ECB that are valid, I will deal with two that are not. First, as several noble Lords have mentioned, there is the question of the extent to which the ECB, by its interest rate setting policy, has contributed to the sluggish growth of the euro-area. I agree with noble Lord, Lord Brittan, that monetary policy cannot really achieve that. Certainly, it could not have achieved that over the past five years. Does anybody realistically believe that, had the ECB adopted an interest rate policy at even a percentage point less than its current one, the outlook for the German economy would have been fundamentally different from the outlook today? I suspect not.
There are a number of major reasons why there is sluggish growth in the euro-area against which the policies of the ECB can have no impact. The first is the inflexibility of the European economies and the structural problems that they face. As we see in Germany, France, Italy and elsewhere, and as we saw in this country in the 1980s, trying to loosen these inflexibilities is an extremely difficult job and tends to bring with it considerable political difficulty for the government that attempts that change.
The second problem facing Europe is the increased competition from China in manufacturing and, to a lesser extent, from India in manufacturing and the service industries. Clearly the European Central Bank cannot have a significant impact on that. When countries and economies the size of China and India are growing at somewhere between 6 and 10 per cent per annum and are able to produce high-quality goods in competition with those of Europe, we clearly have a problem about which the bank can do virtually nothing.

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The final issue, which is just coming over the horizon in the view of policy makers, is the consequences for Europe and European growth of a rapidly ageing population. The Economic Affairs Committee examined this issue, and I hope that the House will have a chance to discuss it in the not too distant future. Unless there is greater flexibility in retirement age, training and many other policies, a rapidly ageing population can have very serious consequences for economic growth. It is another issue that the ECB cannot begin to address.
The second invalid criticism of the bank is that it should have done more about the level of the euro. However, as the noble Lord, Lord Watson, pointed out, at first the bank was accused of not being credible, or not being credible enough, and of helping to generate a euro that was too weak. Now it is accused of indolence when the euro is higher than many people, particularly exporters, would want.
I return to the UK experience. A couple of years ago, Sir Edward George, when he was Governor of the Bank of England, appeared before the Economic Affairs Select Committee. We asked him why the pound was so high. He said, "It is all very puzzling. I am not quite sure—it does not seem to make much sense". Perhaps he should not have known why the pound was so high. The idea that a central bank governor possesses all the intelligence and levers to manipulate the value of the currency in the short term is facile nonsense.
A straightforward corollary of having an inflation target as the single target for the bank is that one cannot have an exchange rate target. While I agree with the noble Lord, Lord St John of Bletso, that it would be valuable for the finance ministers at G7 or G8 to discuss the relative levels of their currencies, I see no prospect at this stage of the Americans wanting to join in such a discussion. Therefore, I do not think that it will happen.
If those are invalid criticisms, what are the more valid criticisms? The first is the way in which the two pillars of wisdom of the bank have operated. For me at least, the relevance of the monetary pillar is very questionable. Seeing a graph of M3 annual growth takes one back to the UK of the 1980s where huge attempts were made to target our economy on M3. They were almost totally unsuccessful. I therefore welcome the fact that it appears that the bank is downgrading the monetary pillar. That pillar should be downgraded even further—if it is possible to downgrade a pillar.
I also support the criticism regarding our current asymmetrical inflation target and the need to move towards a symmetrical inflation target. I think that it would be a lot clearer if we moved towards the 2 per cent target. Arguments about inflation targeting, or the need for an inflation target, have caused a quite phenomenal degree of opaqueness in the language of past and present presidents of the bank. Indeed, even the committee almost falls into a semantic bog at this point. There is a wonderful sentence in the report which 1 think I now understand, although I did not on first reading. It states:
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"However, the ECB's decision to reject inflation targeting and maintain its two-pillar framework does not imply that the bank is prevented from adopting an inflation target".
Having read that three or four times, and having read the report several times, I do understand what it means. However, new readers would be better not to start there.
The report's conclusions on publishing minutes make sense. Press conferences are fine, but they do not have the permanence of minutes. As anyone who has read the minutes of the Bank of England Monetary Policy Committee will know, it is inconceivable that one could get the balance of the argument and some of the subtleties across in a press conference. More generally, at several points in the report it becomes clear that there has been a communications gap with the ECB, certainly under its inaugural president. He almost seemed to take a delight in being uncommunicative and unresponsive. In December 2001, facing calls to intervene to stem the fall in the value of the euro, he earned himself a place in every dictionary of quotations by saying:
"I hear, but I do not listen".
While that might have been the right policy at the time, it unfortunately summed up his view of his role. He constantly gave the impression that central banking was jolly difficult; that even financial sector audiences could not be expected to understand it completely; and, therefore, that it was not worth trying to explain it. That damaged the bank's reputation in its first days. I hope that the new president, Monsieur Trichet, who is naturally a much better communicator, will redress that balance. I agree with the point that a number of noble Lords have made, that a greater flow of information in co-ordinating policy between the ECB and the finance ministers has a lot to recommend it.
The second set of criticisms of the bank centres on its future governance and the membership of the decision-making body. I am not sure that I am wholeheartedly or enthusiastically supportive of what the report proposes. I can see all the arguments about the complexities of the proposed voting system and the neatness of the proposed monetary policy council. However, the problem is that it virtually removes the governors of the central banks of euro-zone members from the one key area of decision making that the ECB possesses. The model is not analogous with the current UK model, even though it is has independent members. Here, the governor chairs the MPC and has a key role in decision making on interest rates.
I have no particular brief to speak for governors of central banks as a union, but given that one of their principal roles within the euro-zone is to explain to their national audiences why decisions on interest rates have been taken, they will be put in considerable difficulty if they are not even in the room where the discussions take place. If one simply sees the Deutsche Bank or the Banque de France as branch offices of the ECB, that might not be a problem. However, at least for the short term, that is not how they will be viewed, not lea st by their own domestic financial markets. In the unlikely event that the UK were shortly to find

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itself in the euro-zone, I doubt whether Mervyn King would see himself in that subsidiary role. I accept that the proposed system of voting may be too complicated and opaque, but I have sympathy with finding a mechanism for keeping central bank governors formally in the interest rate decision-making loop, not simply observers of it.
It is interesting that the majority of recommendations in the report propose that the ECB should in effect adopt the current practice of the Bank of England. One of the many downsides of the UK's decision not to join the euro-zone at the outset is that Bank of England officials did not have the opportunity to influence the policy and the operational structure of the ECB when it was being established. If they had, I have no doubt that some of the practices criticised in the report would not have been adopted in the first place. It is not to criticise the report to say that our exclusion from the euro-zone is bound to reduce the bank's impact in finance ministries and central banks across the euro-zone and within the ECB itself. That is a pity, but it is only one minor consequence of our continuing wallflower status in the management of Europe's currency.
6.50 p.m.
Baroness Noakes: My Lords, I join other noble Lords in paying tribute to the noble Lord, Lord Radice, and his colleagues on Sub-Committee A for producing this report. The reports of the European Union Committee are always authoritative and interesting. This one is no exception.
The House should take especial care to record its gratitude to the noble Lords who produced this report because the Government's response to it is a particularly dismissive one. I am hoping that the noble Lord, Lord McIntosh, will give a more considered response to it this evening. The official response has the hallmarks of being produced by a junior trainee in the Treasury. I can just picture it. The Treasury cannot be doing with the euro or anything related to it, so it gets a young civil servant and sends him off with a pair of scissors, some Sellotape and that large box of papers that the Government produced last year to paper over the cracks in their policy on the euro. Two and a half months later, we have the Government's so-called response. It barely addresses the 35 paragraphs over the three and a half pages of detailed conclusions in the report. The Government's response is quite simply a poor show.
Today, however, your Lordships' House has given the report a proper hearing. We may not have had a huge number of speakers, but the quality has been very high. I was particularly pleased to hear my noble friend Lord Brittan, whose expertise in European matters is well known.
The report comprehensively sets out how the ECB has developed in the past five years and raises interesting issues such as the asymmetrical nature of the target; who sets the goals; the time frame of policy; and the possible role of different types of pillar,
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monetary and others. The report also examines the bank's role in financial stability. It is interesting to note how we have come to judge the ECB by reference to the success of our own national monetary policy arrangements involving the Bank of England.
When the Bank of England was given monetary policy independence I was a member of the Court of the Bank of England. In a corporate sense I was delighted to be given independence. However, the truth was that I remained a sceptic about the policy and its workability. That scepticism proved unfounded. While there are still some wrinkles in our arrangements, which we have debated in your Lordships' House previously, I think that the arrangements in the UK are a considerable success and superior to those in the ECB. Although that is not the report's conclusion in terms, I think that, between the lines, the framework for judging how well the ECB is doing is based on the success of our own arrangements. I think that that is a good starting position.
I should like to cover two linked issues—the governance arrangements and transparency, both of which have been touched on by other noble Lords.
The report explains with great clarity the triple layers of the Executive Board, Governing Council and General Council. Countries such as the UK who are thankfully outside the euro-zone are represented only on the General Council. However, the Governing Council is where the important interest rate decisions are made and is composed of the six permanent members of the Executive Board and the governors of the central banks of the euro-zone countries. Currently, therefore, 17 people are making the decisions on setting interest rates for the euro-zone, compared with nine on the Monetary Policy Committee in the UK and the 12 who have votes on the Federal Open Market Committee.
One might think that 17 looks cumbersome, but, as noble Lords have explained, it will get much worse with enlargement of the EU— or, more specifically, with enlargement of the euro-zone. There are some extremely complex arrangements that divide countries into groups and rotating votes—which, as the noble Lord, Lord Radice, pointed out, are well explained in the charts in the report. Nevertheless, having looked carefully at those charts, I am not sure that I could repeat exactly how the arrangements work. The very worst case—which is perhaps unrealistic as it assumes that all the current "out" countries would join with the maximum number of enlargement countries—is that there will be 27 central bankers sharing 15 votes in addition to the six votes on the Executive Board.
Part 4 of the report has an excellent critique of the arrangements, which have already been criticised by several noble Lords. To quote Professor Buiter's words at paragraph 140—and he has never been a man to mince his words—the arrangements are "an inelegant mess". The arrangements were rushed through the European Council despite opposition from the Economic and Monetary Affairs Committee of the European Parliament. The United Kingdom Government connived at that by overriding the usual

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UK parliamentary scrutiny arrangements. However, for that they earned only a very mild rebuke at the end of paragraph 259 of the report's conclusions. Given the committee's general conclusion in that paragraph, I should have thought that the committee should have been a little sterner with the Government. The paragraph states that the committee does,
"not consider that the agreed reform will work satisfactorily".
The Government's response to the report's conclusions on the Governing Council is rather difficult to discern. The civil servant with the scissors and Sellotape found a quote saying that the UK supports the existence of an effective decision-making body in the ECB. Hooray! But the real question is whether the Government think that the proposed arrangements for the ECB will be effective. I hope that the Minister will make the Government's position on that absolutely clear this evening.
Our view is that if these new arrangements do not paralyse the ECB after enlargement it will be a miracle. This is another powerful reason why this country should not abandon its successful national monetary policy arrangements and currency to join the euro at least until a proper set of reforms have been implemented to ensure that the ECB operates as an effective body.
At the heart of the governance arrangements is adherence to national representation. This is one of the diseases that afflicts many European institutions, but it is particularly relevant in the context of monetary policy. Our own experience in the UK tells us that monetary policy is best set by experts. That is why the Government have wisely resisted calls to have, for example, regional or trade union representation on the Monetary Policy Committee. But the ECB has a core of only six neutral experts and the rest of the General Council are representatives. Admittedly they are central bankers and not political representatives, but it is difficult to escape the conclusion, which I think the committee itself reached, that the country representatives on the General Council are just that.
It would, of course, be perfectly possible that each of the central governors would operate in a way that the interests of the euro-zone were the dominant ones, and partisan interests might never arise in the Governing Council. However, we cannot judge that because of the dreadful lack of transparency in the ECB. I refer in particular to the fact that the minutes of the governing council are never published. We cannot tell whether narrow country interests are argued—perhaps they are dressed up as economic imperatives or perhaps there is naked special pleading.
As outlined by the noble Lord, Lord Radice, there are some elements of the ECB that contribute to transparency. For example, there are the press conferences. Also, the president of the ECB appears before the European Parliament's Economic and Monetary Affairs Committee, rather like his US and UK counterparts. However, the committee rightly points out that, unlike the US and UK, the ECB president's appearances are not televised and so those
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of us in national parliaments and the public generally have no means of judging the messages and their delivery for themselves.
However, even if transparency improves though such things as televising, it will always be imperfect while the minutes remain a secret. The European Parliament wants the minutes published and Sub-Committee A rightly concluded that publication was warranted.
Sub-Committee A supports publication of the minutes but does not go as far as requiring the publication of full voting records or the attribution of views. We have become accustomed in this country to the publication of voting records. It is occasionally trivialised in the press, but it does contribute to transparency. On the other hand, our MPC's minutes do not attribute views. I think that had I been on the committee I would have been bolder than the committee has been. I would have placed the need to ensure that contributions were unbiased and seen to be unbiased by home considerations above the possibility—discussed in the report—of pressure at home coming from revealing either voting patterns or views. However, that is perhaps a refinement and we support the main thrust of the committee's recommendations on transparency.
However, I have absolutely no idea whether the Government agree because the civil servant with the scissors and sticky tape must have failed to find an opinion on the subject in his box of papers. I hope that the Minister will this evening give an unambiguous statement about the need for the ECB to become more transparent through publishing its minutes.
Let me conclude by repeating my thanks to the noble Lord, Lord Radice, and his committee for a stimulating report and for the opportunity that he has given us to debate that report and to expose some of the fault lines in the arrangements within Economic and Monetary Union.
7.2 p.m.
Lord McIntosh of Haringey: My Lords, I join noble Lords in expressing appreciation to the noble Lord, Lord Radice, and the other members of the committee. The report is a worthy successor to the earlier one on the stablility and growth pact and does indeed, although people do not seem to like the phrase. make an important contribution to the debate.
The noble Lord, Lord Watson, said as his summary of the report that its recommendations urge the ECB to go more in the direction of Britain, the Treasury and the Bank of England and its Monetary Policy Committee. I suppose that if I wanted an easy life I would conclude that imitation is the sincerest form of flattery and that we need go no further than that. However, I will not do that because I believe that the subject is very important.
I was disturbed by the suggestion, put gently by some participants in the debate and considerably less gently by the noble Baroness, Lady Noakes, that the Government were in some way being dismissive of these issues, or that they did not have firm views on

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them. I remind the House and the committee that with the support papers that were published in June at the time of the EMU decision there was a paper entitled Policy Frameworks in the UK and EMU, which addressed precisely the same points as are addressed in this report. It addressed them if anything at slightly greater length—something like 100 pages—and covered the issues of monetary and fiscal policy, policy co-ordination and financial stability that are covered in this report.
When I turn to the committee's report, I find that the only reference to our policy framework document in the text of the report is a footnote on page 46 on an academic issue. There is no recognition at all that the Government had made, during the period in which the committee was considering the issue, a major contribution to the debate. The only other references to that to be found in the report are in the evidence from the Financial Secretary to the Treasury and her officials, which are recorded in the evidence section of the report.
If anybody says that the Government have been dismissive of these matters, I would say that the boot is on the other foot. On the contrary, it is the committee that has been dismissive to the extent of silence about the very considered and detailed views that the Government have expressed on these matters. It is therefore misplaced to criticise, as some, mostly gently, have done, the Government's response.
It is also the case that the committee has its own terms of reference. It is fully entitled, and the House appreciates this, to express its views on such matters as it chooses to debate. The Government, of course, are inevitably more constrained. The committee can make recommendations regardless of the possibility in political terms of achieving any of the objectives that it wishes to meet. The Government have to live in the real world. The Government have to consider whether it is appropriate for them to make public comments on the conduct of a body of which they are not a member.
We are of course a member of the European system of central banks, but we are not a member of the European Central Bank. I suggest that in the real world it is not all that surprising that the Government do not leap to attention when a committee asks us for an unequivocal answer to questions about the composition and conduct of the European Central Bank, or indeed to the question of whether France has behaved brazenly in the way in which it has reacted to the implementation of Article 104 of the treaty.
I put those points to the House as an opening remark in my usual conciliatory way. That does not mean that I will not seek to comment on the debate and on the report itself, because it is important, as the noble Lord, Lord Sheldon, and the noble Baroness, Lady Noakes, remarked, that we should observe the similarities and differences between the way we do things and the way the European Central Bank does them. Similarities include the fact that interest rate decisions are taken by an independent central bank with a statutory mandate to ensure price stability and, without prejudice or subject to that, to support growth
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and employment. The frameworks incorporate a substantial degree of transparency in the form of publishing analysis and providing data and we will discuss whether more transparency is appropriate for the central bank. They both command a high degree of credibility in achieving their inflation objectives.
However, there are differences. The ECB defines price stability but here the Government define it. The ECB does not have an explicitly symmetrical inflation target, although, as I will suggest, it is moving towards one. The ECB assigns a special role to monetary aggregates under its first pillar although again, it seems to be chipping away at the first pillar to some extent. The minutes of our MPC meetings and the voting records are published, but the minutes of the governing council meetings are not. There are fewer formal mechanisms to hold the ECB to account, and the composition of the decision-making bodies is different. Some of that is inevitable.
Let me start, on the substantive issues that we have debated this evening, with the symmetrical inflation target. I agree with the noble Lord, Lord Sheldon, that if we really had an asymmetrical target in Europe, and if two were really the top or less were the bottom, we might risk deflation. However, as he said, it has not happened. Why not? Because there is movement towards a position that is closer to our position. Wim Duisenberg said that,
"in practice, we are more inclined to act when inflation falls below 1 per cent and … when inflation threatens to exceed 2 per cent in the medium term".
There have been a number of months when inflation has gone above 2 per cent and no action has been taken. Of course there is potential for uncertainty in the euro area. Inflation targets might be problematic and might cause the euro area's fiscal authorities to overreact to potential deflation. However, I suspect that the issue is more one of wording than of practice.
Similarly, I do not pay much attention to the difference in wording between our Monetary Policy Committee's "subject to" and that used by the European Central Bank. I recall that. at the time of the then Bank of England Bill, the noble Lord, Lord Barnett, who commented on that point, opposed vigorously "subject to" because he wanted to have growth and employment as an equal and additional objective. Like the noble Baroness, Lady Noakes, who recognised the correctness of delegation to the Bank of England, he may be coming round, and there may be more sweetness and light than there was at that time.
On the two-pillar framework, the noble Lord, Lord Newby, suggested that the use of M3 data should be downgraded more than it has been. I suspect that it is being downgraded more than it has been. It is only recorded once a year nowadays. I think that Milton Friedman would be disappointed, even having rejected his own theories, in the extent to which monetary aggregates are no longer important elements of monetary policy.
I return to the reform of the governing council, which is really an area on which it is very difficult for us to see a political way ahead. We can all have

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formulae, of course, and the committee's formula of a small central core is perfectly rational. However, given the provisions of Article 10.6, inserted into the ECB statute under the Treaty of Nice, and the requirement for unanimity in both the governing council and the Council, the Government believe that the decision taken at the 2003 spring European Council, where the heads of state or government agreed the change unanimously, probably represents the only feasible proposal achievable at the current stage.
The noble Lord, Lord Brittan, may think that there are alternatives. However, living in the real world, there is not much likelihood of an alternative. We have set out in the policy frameworks document a great deal of the academic and political argument that has taken place, and we acknowledge the force of the different opinions that have been expressed. However, we have to rely on what is actually possible in the political circumstances of Europe as it exists.
Similarly on transparency, the noble Lord, Lord Grenfell—the chairman of the European Union Committee—asked in his letter, in which he expressed disappointment at our response, whether we agreed with the recommendation that the ECB should publish records of meetings of the governing council. That matter is resolved by the EC treaty, which requires the ECB to publish quarterly reports and address an annual report to the European Parliament, ECOFIN, the Commission and the European Council. The ECB has chosen to go beyond those requirements in the sense of having a press conference after the first meeting of each month, by publishing monthly bulletins, and by publishing the euro-system staff macroeconomic projections twice a year.
There is therefore a movement towards transparency. However, on what a body of which we are not members should do in detail in terms of publishing either minutes or voting records, I would not go further than Sue Owen, the director of our macroeconomic policy and international finance directorate. She said in her evidence to the committee that the evidence,
"showed, on balance, that the markets had correctly anticipated decisions. We inferred from that they felt they were getting enough information about the way the Bank worked at the moment".
That applies to the issues of both minutes and voting records.
Of course, as the noble Lord, Lord St John, emphasised, there is a need for enhanced policy dialogue and exchange of information between the ECB and the member states of the euro area. Again, that is discussed in great detail in our policy framework documents. It would have been helpful had that been recognised in the committee's report. It could have been taken, as it is, as the considered and well thought out view of the Government on the matter. It is all there in chapter 5. Ed Balls's speech at York University last Friday gives it in even more detail. We are saying that, although mechanisms are in place for information sharing between the authorities, the evidence suggests that they may not be currently used to their full potential. That is a proper conclusion to make on the issue.
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I suppose that the next kind of issue relating to that is also on accountability, and is that of who should define price stability. The Government provided a rather more detailed response on that point. Our framework has been set up to ensure a clear separation of roles and responsibilities between the Government and the Bank of England. In the case of the ECB, it is the EC treaty that states that no members of the euro system shall seek to or take,
"instructions from Community institutions or bodies, from any government of a member state or from any other body".
Even in extreme circumstances, the ECB's independence cannot be overruled. Any change to that would require a treaty change with unanimity. Again, that issue is covered in great detail in the policy frameworks document. In the real world, we must look seriously at what chance there would be of a treaty change requiring unanimity.
As I said at Question Time this afternoon, the Government support a prudent interpretation of the stability and growth pact that builds on the code of conduct agreed by member states in June 2001, and the report agreed by EU Finance Ministers on strengthening budgetary co-ordination in June 2003. The noble Lord, Lord Barnett, asked what I meant by a prudent interpretation. I meant what I have always meant by it; namely, a combination of recognition of the importance of the economic cycle, the importance of sustainability, and the importance of public investment. My view is that, without saying so, there is a movement towards prudent interpretation. I shall not claim that that was the outcome of the meeting of ECOFIN on 25 November, but I shall certainly say that over a longer period the Chancellor's arguments have started to gain recognition in Europe. I think that is good and it was, indeed, Jon Cunliffe who said that in evidence to the Economic Affairs Committee. I cannot remember who quoted that without quoting his name.
We believe, of course, as the noble Lord, Lord Newby, said, that comprehensive reform of Europe's labour, product and capital markets is important to deliver the dynamic Europe of full employment and social justice to which Europe and we are committed. We said that in the most recent Pre-Budget Report and I am not complaining that it was not included in the committee's report, because the Pre-Budget Report was later. But we take such matters extremely seriously and we are concerned with the economic governance of the euro area. We do not blame the European Central Bank for the defects which undoubtedly exist in economic governance in the euro area, but in any case, as always, we will publish a progress report on European economic reform ahead of the spring European Council in March 2004.
Finally, the noble Lords, Lord Barnett, Lord Sheldon and Lord St John of Bletso, referred to financial stability and prudential supervision. We do support and have supported ECOFIN's agreement in December 2002 to extend the Lamfalussy process to banking, insurance and the financial conglomerate sectors. Of course there are differences in the sense that prudential supervision is a matter for member states

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rather than for the European Central Bank, but the conclusions that we reach on such matters are shared by the November 2003 report of Sub-Committee B on the European financial services action plan. When we debate that, I trust that we can do so in a spirit of greater unanimity.
I do not apologise for our responses to the committee's report. We take the subject seriously and have expressed our views with the seriousness that it deserves. I repeat my gratitude to the chairman and all members of the committee for their report.
7.23 p.m.
Lord Radice: My Lords, my colleagues and I thank all noble Lords who have taken part in what has been an excellent and informative debate. I doubt that we could have had the same debate in the other place. I also thank my noble friend the Minister, despite his somewhat hurt tone, for his lucid remarks—
Lord McIntosh of Haringey: My Lords, I am not at all hurt.
Lord Radice: My Lords, I understand the limitations on what he may say. I cannot resist one remark, which is that we did not quote from the document that he mentioned, but we quoted from the Financial Secretary and her officials, because she said it more clearly and lucidly—and gave us much more information—than the document. That is why we quoted from the hearing rather than from the document that he mentioned.
On Question, Motion agreed to.

Northern Ireland Arms Decommissioning Act 1997 (Amnesty Period) Order 2004
7.24 p.m.
Baroness Amos Baroness Amos rose to move, That the draft order laid before the House on 14 January be approved [5th Report from the Joint Committee].
The noble Baroness said: My Lords, the order appoints 25 February 2005 as the date before which the amnesty period identified in a non-statutory decommissioning scheme must end. The amnesty period is the time during which firearms, ammunition and explosives can be decommissioned in accordance with the scheme. The amnesty provides immunity from prosecution for the offences set out in the schedule to the 1997 Act—offences that might be committed during the decommissioning process. Most relate to possession, but others concern offences which may stem from a person's participation in decommissioning—centred not necessarily on the weapons involved, but on the behaviour which may accompany participation, such as the withholding of information, or making arrangements with terrorists.
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Section 2 of the 1997 Act, as amended by the Northern Ireland Arms Decommissioning (Amendment) Act 2002, requires that a scheme must identify the amnesty period and that it must end before 26 February 2004 unless the Secretary of State, by order, appoints a later day. The purpose of this order is to extend that period until midnight on 24 February next year.
Naturally the Government would like to see the decommissioning of all paramilitary weapons as soon as possible. The order is a vital part of the process of delivering on that. Since the amnesty provisions were last renewed last spring, there has been a further act of decommissioning on the part of the Provisional IRA. On 21 October last year, the Independent International Commission on Decommissioning reported witnessing a third IRA decommissioning event in which weapons were put beyond use in accordance with the Government's scheme and regulations.
Naturally the Government regret that it is necessary to continue to have such provisions at all, but we are absolutely clear that without them the process of decommissioning that we all want to see would not be possible. I underline that we want to see decommissioning by all paramilitary groups—loyalist and republican. We also call on those groups outside the peace process to engage with the decommissioning body to bring about full decommissioning, because we want to see an end to all paramilitary activity and to stem the rise of the criminal culture that threatens to replace it.
I want to pay tribute to the commitment, perseverance and integrity of General John de Chastelain and his colleagues at the Independent International Commission on Decommissioning. I want to express my thanks to them for what they have achieved in the process to date. The decommissioning process has begun. We want it to continue and to be completed, so it is essential that we continue to provide immunity from prosecution for those involved. We do that through this order and I commend it to the House.
Moved, That the draft order laid before the House on 14 January be approved [5th Report from the Joint Committee].—(Baroness Amos.)
Viscount Bridgeman: My Lords, on this side of the House we also express thanks to General John de Chastelain for all that he is doing in the peace process. Of course we share the Government's view that we all want the decommissioning period completed as early as practicable. However, we note that the amnesty period set out in the order must end one day before the decommissioning period. As the inception of the decommissioning period continues to be postponed we also accept that it is necessary under the Northern Ireland Arms Decommissioning Act for the amnesty order to be renewed annually. As the Minister has indicated, the reality is that without an amnesty in force there will be no prospect of decommissioning. Accordingly, we support the order.
Lord Smith of Clifton: My Lords, I thank the noble Baroness, the Lord President, for introducing the

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order. In the euphoria following the Good Friday Agreement there was an expectation that decommissioning would occur by the latest date set down in the 1997 Act. However, it has taken almost that long to achieve the beginning of credible decommissioning and it will take longer to achieve total decommissioning, so the amnesty must be extended.
The step of decommissioning weapons was a long time coming and no one should underestimate the significance of the move that occurred last October. It has always been recognised that decommissioning is a process—no one ever expected the IRA to decommission all its weapons at once. However, the Good Friday Agreement talks about the total disarmament of all paramilitary groups and that is our aim. Although the decommissioning that took place before the elections last year was welcome and significant, as yet we are still nowhere near the total decommissioning that all want to see.
I repeat what the noble and most reverend Lord, Lord Eames, said many years ago: decommissioning should not be elevated to a principle of supreme importance; negotiations must go on. Has there been any contact between the IICD, led by General de Chastelain, and any of the loyalist paramilitary groups? Incidences of loyalist violence are increasing, and we cannot expect real dialogue on decommissioning by loyalists while such violence continues. The aim is to achieve the total decommissioning of all paramilitary weapons. What action is the Minister taking to achieve that?
We do not believe that in a democratic society there is any place for illegally held weapons and have always called for full decommissioning by both loyalist and republican paramilitary groups. We have been supportive of the progress made on the issue to date. However, we always hoped that we would be further down the line to total decommissioning than we are. We recognise that decommissioning is a process and that no paramilitary group will decommission all its weapons at once. But now that we have started out on the process, we cannot give the IRA, in particular, any reason not to decommission its weapons. That is why we will support the passage of the order.
We are at the point of impasse, but at least we are not sustaining a false equilibrium anymore. Sinn Fein and the Democratic Unionist Party have a choice: they must either come to an accommodation, in which IRA decommissioning will play its part as will the previous intransigence of the DUP, or else the stalemate will give way inevitably to Northern Ireland being governed by a de facto London/Dublin condominium. We all hope that devolution can be restored and that there can be some sort of accommodation between Sinn Fein and the DUP.
7.32 p.m.
Baroness Amos: My Lords, I thank the noble Viscount, Lord Bridgeman, and the noble Lord, Lord Smith of Clifton, for their comments. I agree totally with the noble Lord, Lord Smith of Clifton, that the
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decommissioning of paramilitary weapons is only one element—though a vital one—in the process of taking violence out of politics in Northern Ireland for good.
The noble Lord asked me specifically about contact between loyalist organisations and the IICD. I can tell him that in April last year the Loyalist Commission along with UDA representatives met the IICD. As I understand it, that was the last contact. I hope that that addresses the noble Lord's point.
On Question, Motion agreed to.

Criminal Defence Service (Choice in Very High Cost Cases) (Amendment) Regulations 2004
7.33 p.m.
Lord Bassam of Brighton Lord Bassam of Brighton rose to move, That the draft regulations laid before the House on 15 January be approved [5th Report from the Joint Committee].
The noble Lord said: My Lords, I move this Motion on behalf of my noble friend Lady Scotland. In 2001 the Lord Chancellor established a new regime to improve control of the legal aid costs incurred by defence legal representatives in the most expensive criminal cases. Those changes were introduced in response to concern that the proportion of the criminal legal aid budget taken up by the most expensive 1 per cent of criminal cases had risen from 40 to 49 per cent of expenditure on criminal legal aid. Very high cost criminal cases currently amount to £280 million out of the total Crown Court expenditure of £569 million.
Following a successful pilot scheme, regulations were made under the Access to Justice Act 1999 to introduce a new mechanism to improve case management and control costs in those cases. Evidence from the pilot scheme suggests that it would achieve savings of 31 per cent.
A criminal very high cost case is defined in regulations to be one where the trial is expected to last 25 days or more or where defence costs for any defendant or group of defendants represented by the same firm are expected to be £150,000 or more.
The Legal Services Commission has established a specialist unit to manage defence legal aid costs in the most expensive criminal cases. Its aim is to secure quality defence services to act in complex and expensive criminal prosecutions at value for money to the taxpayer. From April 2004, the commission's Criminal High Cost Cases Unit (CHCCU) will manage all cases that meet the statutory definition of a criminal very high cost case through entering individual case contracts with the defence legal representatives. The unit also manages all very high cost serious fraud cases. Representation in such cases is limited to approved firms meeting minimum standards that are members of the Specialist Fraud Panel established by the commission.
The unit takes over management of a case by entering an individual case contract with the legal representatives once it is satisfied that they have the

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requisite experience and capacity to handle the case. A dedicated contract manager will then be assigned, and the legal representatives are required to produce a case plan. At that stage, the case is divided into stages. Regular reviews of progress against the case plan are undertaken by the contract manager. Payment is made at fixed hourly rates and is linked to satisfactory completion of the work at each planned stage.
The Criminal Defence Service (Choice in Very High Cost Cases) Regulations 2001 provide for the selection of new legal representatives where public funding has been granted by the court in a very high cost criminal case and the CHCCU or the existing legal representatives do not intend to enter an individual case contract.
The amendments to this instrument have several effects. First, they provide that the commission determines any question on whether a case meets the definition of a very high cost criminal case. That ensures consistency with the existing provisions of the Criminal Defence Service Funding Order 2001 and puts it beyond doubt that the commission's judgment on this issue is final.
Secondly, they extend the list of circumstances in which the Legal Services Commission is no longer required to fund representation by the client's current legal representative. Specifically, they provide that when the current solicitor representatives are not members of the Specialist Fraud Panel and the case is a very high cost fraud case, the commission is no longer required to fund representation. Either the commission or any or all of the current representatives may serve notice that they do not propose to enter into a contract. That aims to ensure that clients in very high cost fraud cases receive quality defence representation from specialist firms that are approved panel members. The existing regulations also provide a mechanism for a client to change solicitors where appropriate.
Thirdly, they enable the court as well as the commission to amend the client's representation order where the client has selected a new representative. That is to enable greater flexibility and to prevent any delay to ongoing criminal proceedings.
The Law Society, Bar Council and other representative professional bodies have been consulted during the preparation of the instrument. The regulation changes form part of a wider package of changes designed to reinforce the current framework for managing high cost criminal cases. That includes steps to strengthen the existing contractual and regulatory framework. Some aspects of the proposed changes are still under discussion. However, the elements set out in the order have not given rise to any opposition on consultation, and both the Law Society and the Bar Council have been notified of our intention to proceed with this part of the package. In my view, the provisions of the regulations are compatible with convention rights. I beg to move.
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Moved, That the draft regulations laid before the House on 15 January be approved [5th Report from the Joint Committed].—(Lord Bassam of Brighton)
Lord Thomas of Gresford: My Lords, I declare an interest in that I am engaged at present in a case that falls within the provisions on very high cost cases. It is my first experience of such a case, and I must say that I am very concerned about the bureaucracy involved.
We have little criticism of the order, but I shall outline my reservations about it. First, one is presented with a contract running to 19 pages, and one must guess how much time one will expend on a case. In the case on which I am working there are eight defence teams, each with a case manager, some of whom are at the headquarters of this unit. I do not see the need for that.
Furthermore, the regulations provide that if anything new is presented to the court, it is necessary for the consent of the case manager to be obtained before one can look at it. For example, in the case in which I am engaged at the moment, if the prosecution produce a plan, in theory it is necessary for the trial to stop while each of the teams contacts the case manager to get his permission to look at the plan. Similarly, any notices of additional evidence require, in theory, the consent of the case manager before they are considered.
All this is ridiculous, and it is ignored by those who are engaged in such a case at the risk of never being paid for the work that they are doing. This scheme is in danger of running into the sand through the enormous overload of bureaucracy that now surrounds it. I welcome the fact that there is machinery to appoint new counsel contained in these regulations, but, overall, I am concerned that this scheme will not succeed.
Lord Kingsland: My Lords, these regulations, interalia, provide that any question of whether the case fulfils the criteria of a very high cost case is to be referred to the Legal Services Commission.
As I understand it the commission, as contract manager, takes a number of decisions about the status of cases, including the decision on whether a criminal case falls into the category of a very high cost case.
Can the Minister assure the House that a process exists for practitioners to appeal against decisions by the Legal Services Commission, which classifies cases as very high cost?
Lord Bassam of Brighton: My Lords, I am grateful to noble Lords for their contributions to this short debate. I listened with interest to the noble Lord, Lord Thomas of Gresford. I am grateful to him for rightly acknowledging his personal interest in the subject.
The experience of the noble Lord, Lord Thomas of Gresford, gives a valuable insight into this issue. We are concerned to ensure that bureaucracy does not interfere with proper case management. I am sure that the noble Lord would accept that proper case management is important. Case management helps to

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manage the costs. However, there are regular opportunities for the commission to meet with representatives from the Bar Council and the Law Society to look at the issue raised by the noble Lord. We are keen to see that bureaucracy levels are kept within limits and that the audit process is more precise and not overbearing.
The best that I can say to the noble Lord, Lord Thomas of Gresford, is that I am grateful to him for expressing his concern in the way in which he did. It is an important issue, and we clearly need to keep it under review. Perhaps the noble Lord could share through his professional association some of those concerns and help us in our shared objective of ensuring that bureaucracy costs do not get in the way of a sensible case management approach.
There is currently no appeal procedure to cover the point raised by the noble Lord, Lord Kingsland, but it is a valid point which is worth reflecting on. I will write to the noble Lord on that point. We are happy to consider representations on that issue. I am grateful to the noble Lord for having raised it in the way in which he did.
On Question, Motion agreed to.

Harbours Bill [H.L.]
7.44 p.m.
Lord Berkeley: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Lord Berkeley.)
On Question, Motion agreed to.
House in Committee accordingly.
[The DEPUTY CHAIRMAN OF COMMITTEES (Viscount Allenby of Megiddo) in the Chair.]
Clause 1 [Amendment of procedure for dealing with applications for harbour orders]:
Lord Berkeley Lord Berkeley moved Amendment No. 1:
Page 2, line 10, after "situated, " insert—
"(ab) the relevant nature conservancy authority, "
The noble Lord said: Amendment No. 1 is grouped with Amendments Nos. 2 to 7, which also stand in my name. For the convenience of the Committee, I shall speak to them together.
These amendments have been prepared to meet a point raised by the Royal Society for the Protection of Birds, following the introduction of this Bill. I mentioned to your Lordships at Second Reading that I would be moving these amendments at this stage. I explained then that the effect of the amendments would be that the Secretary of State would be required to hold an inquiry to consider objections when English Nature or the Countryside Council for Wales object to an application for an order, and inform the Secretary of State that the agency or the commission wish the objection to be referred to a local inquiry. That explanation was not quite right, and I apologise to your Lordships if I misled the House.
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I should have said that the amendments put English Nature and the Countryside Council for Wales in exactly the same position as local authorities under the Bill; namely, that they can require a local inquiry or a public hearing, but it is for the Secretary of State to decide which of those shall occur.
Other noble Lords questioned the effects of these amendments at Second Reading. I refer to the remarks of the noble and learned Lord, Lord Donaldson of Lymington, the noble Lord, Lord Bradshaw, and the noble Viscount, Lord Astor. Many of those noble Lords are not in their places. I have discussed this amendment and my speech with the noble and learned Lord, Lord Donaldson of Lymington, and he has agreed that I should say that he is happy with what is now being proposed.
These amendments do not oblige English Nature or the Countryside Council for Wales to object to every application for a harbour order. They already have a right to object to any application that may affect matters relevant to their statutory powers and duties, such as adverse effects on nature conservation. Experience demonstrates that English Nature and the Countryside Council for Wales exercise their rights to objection only in appropriate circumstances. In such circumstances, it is more than likely that the RSPB and other interested bodies, such as the local wildlife trust and amenity bodies, will also object.
In those circumstances, it is inconceivable that the Secretary of State would not require the application for that order to be referred to an inquiry. Where the Bill will assist is in cases where orders are promoted for purposes that do not adversely affect the environment. For example, an order may be promoted to alter the constitution of a harbour authority. I imagine that neither English Heritage, the Council, or the RSPB would wish to object to such an application. However, there may be others who would wish to do so, and the Bill would enable the Secretary of State to deal with those objections by means of written representations without the need for a public inquiry or hearing.
I hope that this has been an intelligible explanation. I do not think that these amendments will reduce in any respect the efficacy of what is proposed by means of this Bill. I beg to move.
Baroness Harris of Richmond: As well as I understand the noble Lord, Lord Berkeley, my noble friend Lord Bradshaw regrets that he is unable to be in his place this evening, and he has asked me to deal with these few amendments. I am grateful to the noble Lord for explaining them so clearly. These Benches are happy with the general aim of the Bill. If that can be achieved, these Benches will be satisfied. We support the amendments.
Lord Triesman: I thank the noble Lord, Lord Berkeley, for his introduction. It was wholly intelligible even to me and therefore, I suspect, generally intelligible to everybody. I greatly appreciate what he said and the great care and detail that has gone

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into his work. I applaud that work, and I know that it has been done over some time. It has brought us to our discussion tonight.
The Committee will be aware that the Government support the objectives of the Bill. If enacted, it would make a useful contribution to our policy of streamlining the procedures associated with the planning process. A detailed exposition of the Government's support and the support expressed here was set out in the reply made at Second Reading on 7 January by my noble friend Lord Bassam of Brighton.
I can understand why the noble Lord, Lord Berkeley, has tabled the amendments. English Nature and the Countryside Council for Wales are already well versed in how to comment on harbour orders in their role as consultees on all relevant applications. Of course, the Bill brings the Harbours Act 1964 into line with the Transport and Works Act 1992 and similar planning legislation in respect of rights to inquiries. The amendment would upset that alignment to a certain degree.
I do not think, on the face of it, that that detracts from the Bill's objectives, but we would like to give the matter further consideration between now and Report, with a view to tabling our own amendments at that stage, if we believe that it is desirable to do so.
Lord Berkeley: I am grateful for the support from the Liberal Democrat Benches and for my noble friend's kind words in responding to the amendment. I am happy to consider with him any further changes that might be necessary before Report.
On Question, amendment agreed to.
Lord Berkeley Lord Berkeley moved Amendment No. 2:
Page 2, line 24, at end insert ", and
(b) "the relevant nature conservancy authority" means—

(i) if the harbour (or any part of it) is situated in England, English Nature, and

(ii) if the harbour (or any part of it) is situated in Wales, the Countryside Commission of Wales""

On Question, amendment agreed to.
Clause 1, as amended, agreed to.
Clause 2 [Amendment of procedure where harbour revision orders are made by the Secretary of State of his own motion]:
Lord Berkeley Lord Berkeley moved Amendments Nos. 3 to 7:
Page 2, line 44, leave out from beginning to ", and" in line 45 and insert "person within sub-paragraph (3A)"
Page 3, line 1, leave out "the local authority" and insert "that person"
Page 3, line 1, leave out "the authority" and insert "he"
Page 3, line 7, at end insert—
"(3A) The persons within this sub-paragraph are—

(a) any local authority for an area in which the harbour (or any part of it) is situated, and

(b) the relevant nature conservancy authority."

Page 3, line 11, leave out "has" and insert "and "the relevant conservancy authority" have"
On Question, amendments agreed to.
Clause 2, as amended, agreed to.
Clauses 3 and 4 agreed to.
House resumed: Bill reported with amendments.
House adjourned at six minutes before eight o'clock.