Lords Sitting of 20 July 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 Liverpool.

Baroness Young of Hornsey
Margaret Omolola Young, OBE, having been created Baroness Young of Hornsey, of Hornsey in the London Borough of Haringey, for life—Was, in her robes, introduced between the Baroness Amos and the Lord Ouseley, and made the solemn Affirmation.
Lord Rowlands
Edward Rowlands, Esquire, CBE, having been created Baron Rowlands, of Merthyr Tydfil and Rhymney in the County of Mid-Glamorgan, for life—Was, in his robes, introduced between the Lord Richard and the Lord Morris of Aberavon.

NHS Treatment: Overseas Visitors
2.48 p.m.
Baroness Boothroyd Baroness Boothroyd asked Her Majesty's Government:
What guidelines are being given to general practitioners to check the eligibility of overseas visitors to receive medical care.
The Parliamentary Under-Secretary of State, Department of Health (Lord Warner): My Lords, existing guidance to general practice on these matters is set out in health service circular 1999/18. That makes it clear that if GPs do not wish to accept overseas visitors as NHS patients, they can offer to treat them on a private paying basis. The Government are currently consulting on proposals to clarify the rules in this area. Revised guidance will be issued to explain any changes that are made to the rules after the consultation ends on 13 August.
Baroness Boothroyd: My Lords, I am delighted to hear of the consultation process, although I am sad to say that the GPs with whom I have spoken are not aware of it. Is the Minister aware of the claim made by GPs at their recent conference that one in 10 patients is not entitled to NHS care? Does he agree that general practitioners are the gatekeepers of the NHS, without the time or the resources to ascertain the eligibility of visiting tourists?
Would he consider that until such time as we are issued with identity cards, we insist on holiday insurance that covers healthcare for every overseas visitor who does not fall within the eligibility rules? Would that not have the two-pronged effect of reducing pressure on our health service and at the same
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time lessening the need to recruit professional health personnel from overseas countries whose need is often greater than our own?
Lord Warner: My Lords, there are a number of strands to the noble Baroness's questions. As regards the suggestion that one in 10 patients on GPs' lists are not entitled to NHS care, it was in fact one general practitioner at the BMA conference who said that, who happens to be based in Gants Hill, Essex. We have no reliable data on the number of overseas visitors registered with general practices but, as I said, it is open to doctors now, under the current guidance, not to accept people where they have good reason to believe that they do not live in their practice area and to deal with them on a private, fee-paying basis.
Given that we have started a process of consultation, it would be premature to pre-empt that consultation by deciding how we are going to tackle this problem. Out of that consultation will come further guidance for general practice to bring it more in line with the guidance that has now been reissued to hospital services. Under the new system, essentially, the burden of proof will be on the person presenting himself or herself for registration to declare and demonstrate unambiguously that they are eligible for free NHS primary medical services.
Lord Peston: My Lords, can my noble friend enlarge on what seems to me to be a fantasy land? Most of us when we try to visit our general practitioner get to see a receptionist, who then quotes a date a month or five weeks ahead when we might be fitted in. I know that all these overseas visitors are diabolically clever, but how do they manage in their short visits to get to see a GP at all?
Lord Warner: My Lords, I know how lit my noble friend is; he may not have been to his GP lately and may not have noticed that we have speeded up access to general practitioners. It is one of the many achievements within the NHS that is to the Government's credit. Of course, when the new arrangements come in—we are not reorganising general practice—it will be for patients to present themselves and, as I said earlier, to convince the practice that they are eligible for free NHS care.
Baroness Thomas of Walliswood: My Lords, when answering the first Question the Minister told the House that the Government do not know the size of the burden placed on GPs at present. Is it not rather important to know that before you start instructing GPs how to handle what might be quite a minor problem? If further guidance is issued, is it not important to ensure that it does not result in an additional administrative burden upon GPs, who are already extremely overburdened with administration? Finally, is there not a risk that persons of ethnic minorities who live in our country might constantly be checked for eligibility?
Lord Warner: My Lords, I pay tribute to the work done by GPs. As the House knows, the Government

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have increased the number of general practitioners so that the burden is more evenly spread. We are conducting a survey to ascertain whether there is a problem in this area. It is important that we amend the guidance because it contains some ambiguities. It is important that the guidance on free NHS primary care is aligned with the new guidance on the entitlement of overseas visitors to hospital services.
Baroness Masham of Ilton: My Lords, is the Minister aware that many people with HIV come from abroad, develop AIDS and stay on? Will GPs be given extra funds to cope with these people?
Lord Warner: My Lords, I would suggest that that is a little wide of the scope of the Question. As the noble Baroness may know, the Cabinet Office is currently reviewing imported infections and immigration into the UK. We await the result of that review, which will be made available publicly in due course.
Lord Tomlinson: My Lords, does my noble friend agree that today he has announced another survey and reported to us on further consultation? Can he tell the House the state of play of the consultation that is already taking place in relation to entitlement cards, which was announced with a great flourish some months ago? If we had entitlement cards, would not that relieve general practitioners of any kind of administrative burden being put upon them?
Lord Warner: My Lords, the Government are still working in this particular area. Although, again, it is a little wide of the scope of the Question, I shall make further inquiries and write to my noble friend.
Lord Walton of Detchant: My Lords, can the Minister confirm that short-term visitors to the UK who are taken ill during a holiday or a short-term visit are entitled under the law to free treatment, both by general practitioners and in hospital; but that people coming here specifically for medical treatment and investigation at hospitals must be private patients? To avoid any kind of misunderstanding, can the Minister clarify the position of overseas students from outside the European Community and their entitlement to medical care in the UK?
Lord Warner: My Lords, it is true that the NHS remains a humanitarian service and that treatment will be provided free of charge where, in the professional opinion of a healthcare clinician, it is an emergency or immediately necessary. Nothing in the consultations will change that. As I said earlier, the arrangements in relation to primary care will be brought into alignment with the new hospital charging regulations, which came into operation in England on 1 April. We want to ensure that the same conditions apply. Essentially, they will require people to be ordinarily resident in this country. There will be a number of exemptions, and I
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believe that students will form a part of those exemptions. I shall confirm that in writing to the noble Lord.
Earl Howe: My Lords, what is the scale of the problem that the Government are seeking to solve?
Lord Warner: My Lords, as I said in reply to an earlier question, we are conducting a survey to establish precisely the scale of the problem. But we know, and there have been concerns expressed, that the guidance issued in 1999 is not as clear as it might be. It is important that we amend that guidance to bring it in line with the new hospital charging regulations, which, as I said, were brought into operation on 1 April. We are undertaking consultation to achieve that end.

Andhra Pradesh
2.57 p.m.
The Lord Bishop of Liverpool The Lord Bishop of Liverpool asked Her Majesty's Government:
Whether they will review the Department for International Development's strategy of engaging with the newly-elected government in Andhra Pradesh in India following the vote of no confidence in Chief Minister Chandrababu Naidu.
The Lord President of the Council (Baroness Amos): My Lords, following the recent elections, officials from the Department for International Development initiated discussions with the new Government of Andhra Pradesh on their priorities and how DfID can best support their efforts to eradicate poverty and achieve the millennium development goals. These discussions will continue over the next few months and are expected to be concluded by the end of the year.
The Lord Bishop of Liverpool: My Lords, I thank the noble Baroness for that helpful Answer. Can she give an assurance that DfID will seek to serve the interests of the citizens of Andhra Pradesh? As she will know, there is considerable anxiety about the role of some of the multinational companies involved in these programmes. It would be good to have an assurance that Her Majesty's Government will give a primary purpose to DfID to serve the interests of the local people.
Baroness Amos: My Lords, the right reverend Prelate will know that the core of our development strategy is to work to eliminate poverty around the world. That is why we continue to work in India, where a quarter of the poorest people in the world live. Of course I can assure the right reverend Prelate that we shall seek to ensure that the Government of Andhra Pradesh consult their citizens on their priorities, which we are seeking to support, and through our own work we shall support civil society.
Baroness Whitaker: My Lords, does my noble friend agree with last week's Economist that DfID's practice of direct budget support can improve governance and increase a government's accountability to their own population?
Baroness Amos: My Lords, I agree with my noble friend. Many questions have been raised about the impact of budget support in many countries. We work by agreeing a memorandum of understanding with a country's government, setting out very clearly the monitoring mechanisms that will be put in place and the expectations that the partner government can have of us and that we can have of the partner government.
Lord Dholakia: My Lords, although the newly elected Government of India have still to clarify their position on overseas aid, will the Minister confirm that it is their policy to rely less on development aid and that they would prefer donor countries to relate more with non-governmental organisations? If that is the case, would it not be wise to seek partners in NGOs rather than compromising the position of central or state government?
Baroness Amos: My Lords, I think that the noble Lord, Lord Dholakia, is referring to two different things. It is the policy of the Government of India to rely less on development assistance. To that end, they have become a donor country with respect to development aid. But I come back to what I said in response to the right reverend Prelate: a quarter of the poorest people in the world live in India. An important part of what donor countries do is not only to work in partnership with the Government of India but to work in partnership with key states in India. We are working with four to support the priorities of those states to ensure that the developments we are seeing in some parts of India are reflected in other parts as well.
Lord Chan: My Lords, does the noble Baroness agree that Her Majesty's Government have been investing in aid for Andhra Pradesh for nearly 20 years? Will she tell us of the progress and the benefits of that aid, and how it has helped in capacity-building in that state?
Baroness Amos: My Lords, the noble Lord, Lord Chan, will know that over the past two years, we have given some £130 million to Andhra Pradesh. Between 1990 and 2000, the poverty headcount came down from 30 per cent to 22 per cent. The state has, as one of its priorities, the eradication of child labour. In 1991, there were 1.6 million children in child labour. Noble Lords will be pleased to know that between 1990 and 2000, the number of children in primary school rose from 59 per cent to 89 per cent, which means that far fewer children are labourers. Literacy rates have improved from 51 per cent to 68 per cent. So our programmes and those of the World Bank, along with the state's own priorities, are having an impact, but there still remains a great deal to be done.
Lord Hughes of Woodside: My Lords, is it not the case that DfID sometimes has a difficulty in reconciling the different views of national governments, state governments and NGOs on the ground? It surely is a reasonable proposition for central governments to say they have priorities which must always be taken into account, while the NGOs feel that they are doing a much better job and have a much better grasp of the individual situation. How do all these issues become reconciled?
Baroness Amos: My Lords, my noble friend is quite right. Through the significant resources at our disposal, we are seeking to work to change the long-term development possibilities in a country or in a state by influencing an entire sector, be it health or education. NGOs quite often try to work on individual projects which have an immediate impact. We try to ensure that we achieve some kind of balance between those two things. However, the reality is that if a country does not have a health system that functions effectively, although a degree of short-term assistance can be given, long-term sustainability will not happen.
Baroness Miller of Chilthorne Domer: My Lords, does the Minister accept that so often the poverty reduction programmes put in place are undermined by environmental disasters, such as the recent floods in India? Is she satisfied that DfID has a sufficient risk minimisation programme in place?
Baroness Amos: My Lords, the noble Baroness is quite right. If we look at what is happening around the world, development gains can be undermined by environmental disasters, be they floods or anything else. We do engage in risk assessment; one of the things that we do in areas prone to environmental disaster is to work not just on preparedness but also on prevention mechanisms.
Lord Woolmer of Leeds: My Lords, does my noble friend recall, before the last election, the tragedies in Gujarat, where many Hindus were killed, and a very much greater number of Muslims were killed in subsequent problems? Recognising the primacy of the role of the Government in India in these matters, then and now, is DfID able to play any part in contributing towards the reduction of the problems in Gujarat, in reducing those tensions and the underlying causes of them?
Baroness Amos: My Lords, my noble friend is quite right. There was considerable violence in Gujarat in 2002 in which more than 1,000 people, mainly Muslim, were killed. We have been working to ensure that those responsible are brought to justice. My noble friend is right that we need to work to reduce the issues that caused that rioting. We do that principally through our diplomatic work rather than through our development work, but, as the British Government, we are continuing to work with the Indian Government on these issues.

Abortion
3.5 p.m.
The Lord Bishop of Oxford The Lord Bishop of Oxford asked Her Majesty's Government:
What plans they have to consider the proposals of the Lord Steel of Aikwood to reduce the stage at which abortion is legal except in the most exceptional circumstances.
Lord Warner: My Lords, the Government have no plans to change the law on abortion. This is a subject on which people hold strong and widely differing views. However, it is accepted parliamentary practice that proposals for changes in the law on abortion come from Back-Bench Members and that decisions are made on the basis of free votes, with Members and Peers voting according to their own beliefs and values.
The Lord Bishop of Oxford: My Lords, I thank the Minister for his reply. However, in view of the increasing interest—indeed, sense of awe—at the recent 4D ultrasound pictures of what a baby at three months is capable of, and the fact that babies can now survive at 22 weeks, does the Minister agree that the Government should take a lead by setting up a Select Committee of both Houses to look at how far the present abortion law is applicable and appropriate in view of the changing technologies involved?
Lord Warner: My Lords, it is perfectly true that Professor Stuart Campbell's images of the 12 week-old foetus are fascinating. But they do not, I suggest, contribute to the abortion debate. The incoming president of the Royal College of Obstetricians and Gynaecologists has said that the images add little to the abortion debate. He said the fact that Professor Campbell is,
"observing these developments and physiological movements is not changing anything about the time of viability".
It is worth bearing in mind that survival at 22 weeks' gestation is only about 1 per cent.
Baroness Knight of Collingtree: My Lords, is the Minister aware that his reply will be very disappointing to a large number of people, particularly since there is so much evidence now of better treatment and that children who have only a very small blemish such as a cleft palate are being aborted? Surely that cannot be right. In that case, should not the Government take a lead?
Lord Warner: My Lords, I am pretty confident that if I said anything on this subject which pleased the noble Baroness, I would also displease a very large number of other people in this House. I stand by what I said in my Answer: this is a matter for Back-Bench action when that is thought appropriate. Members in both Houses vote on this issue on the basis of their beliefs and values.
Lord Steel of Aikwood: My Lords, I have not actually made any proposals, but I wonder whether the
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Minister agrees that the time has come to have a look at how a 40 year-old Act is working in practice. A committee such as the right reverend Prelate suggests could usefully look at three things: first, whether the requirement for two doctors, under the present law, is itself causing delays and therefore later abortions than is necessary; secondly, how the law is working in neighbouring countries, where abortion on request is allowed up to the third month of pregnancy; and, thirdly, whether medical techniques have now advanced to the point where we ought to lower the upper limit of abortions from the 24th week except in cases of emergency.
Lord Warner: My Lords, if the Government went round telling either House what subject its Select Committees or otherwise should be studying, they would probably be criticised. It is of course open to any Select Committee in this House or in the other place to decide which subjects it wishes to consider.
In a poll of MPs in the Independent on Sunday, the 150 MPs who replied suggested that, on a free vote in the House of Commons, they would keep the current time limits as they are, and 62 per cent said that the 24-week time limit was about right. So, as I understand it, a majority of opinion is still in favour of the present arrangements.
Lord Alton of Liverpool: My Lords, does the Minister accept that a poll of 150 MPs is not the same as a vote in another place? On the previous occasion when another place voted on this subject, on a Bill that I put forward, 296 MPs—a majority of 45—voted in favour of a reduction in the time limit to 18 weeks. Does he also accept that many of us from all sides of the argument very much welcome what the noble Lord, Lord Steel, said about a reduction to 12 weeks in all cases other than those of exceptional circumstances and that the time has indeed come to look at this question again? Is the Minister in a position to respond to the letters that I sent to his right honourable friend Mr John Reid concerning the five recent cases of babies who were born alive during abortions and were not then resuscitated? Does he not accept that, at least on this narrow point, new guidelines ought to be issued in those compelling circumstances?
Lord Warner: My Lords, I was only gently and I thought helpfully reminding the House that there were differences of opinion. I quoted the Independent on Sunday survey to show that many MPs took a different view on the issue from that of the noble Lord. I repeat what I said about inquiries. It is up to the Houses of Parliament, through their Select Committees, to decide what issues they wish to study. I shall certainly look into the correspondence that the noble Lord is having with the Secretary of State and ensure that he receives a reply. I do not think that what the noble Lord, Lord Steel, was saying was quite the same as what the noble Lord, Lord Alton, was saying, but it will be for the noble Lord, Lord Steel, to correct the record.
Baroness Lockwood: My Lords, is it not a fact that most late abortions occur because of the inadequate

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facilities in the abortion service? Would it not be better if we had a proper and comprehensive abortion service in all areas so that these late abortions which are causing most distress were avoided?
Lord Warner: My Lords, the Government's teenage pregnancy strategy and sexual health strategy are intended to reduce the level of unintended pregnancies. As I understand the situation, there has been an improvement in the number of abortions in the under-18 age group. There has been a 9 per cent reduction in the under-18 conception rate since the introduction of the Government's teenage pregnancy strategy. We have put more resources into this area so that women can get an abortion, when it is appropriate and meets all the necessary requirements, at an earlier stage in the pregnancy.
Lord Lester of Herne Hill: My Lords, I declare a professional interest as one who—for my sins—has recently argued a case about this subject in the Northern Ireland courts. Does the Minister agree that one practical problem with reducing the time limit particularly affects women in Northern Ireland? They come to England because they cannot get abortions on the same basis in Northern Ireland. As a result, they often come late and they have no NHS funding. Would that not have to be considered carefully if there were to be a reduction in the period in which abortions would be lawful in this country?
Lord Warner: My Lords, the noble Lord is of course absolutely right. There are some complex issues involved in this particular area. That is why one should not rush into change without due consideration, and that is only one of the many considerations that would have to be taken into account. Perhaps I may take this opportunity to remind noble Lords that 87 per cent of abortions were carried out under 13 weeks' gestation.

Traffic Islands
3.14 p.m.
Lord Higgins Lord Higgins asked Her Majesty's Government:
What steps they are taking to ensure that the design of traffic islands and maintenance of signposts on them do not endanger public safety.
Lord Davies of Oldham: My Lords, the design of traffic islands and the maintenance of traffic signs are the responsibility of highway authorities. Guidance on sign maintenance and traffic islands is given in the Code of Practice for Maintenance Management that was published by the Institution of Highways and Transportation in 2001. The Department for Transport supports the code and commends it to local highway authorities.
Lord Higgins: My Lords, will the Minister give an assurance that the Department for Transport will investigate why highway authorities are failing to maintain signs on traffic islands, which increasingly
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endanger road safety rather than improve it? Given that bad maintenance increases the risk that more traffic islands will be hit, will he ensure that a limit is imposed on the height of traffic islands, many of which are higher than the level of car axles and endanger both life and limb? In some cases, they resemble tank traps more than anything else.
Lord Davies of Oldham: My Lords, in response to the noble Lord's second point, the height of traffic islands depends on their purpose. Some of them certainly play their part in traffic calming measures and that is why they are particularly high. However, there are road markings on the approach to such islands and they are generally attended by lower speed limits. On the more general question of maintenance, local authorities and the Highways Agency have to satisfy safety audits of their levels of maintenance. The noble Lord's concerns reflect the fact that one of the problems is that the modern traffic island can be more subject to vandalism than in the past. Traffic islands are not only struck and damaged by cars, necessitating their replacement, but some are also prone to vandalism. That is why a safety audit needs to be carried out as the noble Lord hinted.
Lord Borrie: My Lords, does not the occasional failure of traffic authorities to follow the kind of appropriate guidance that the Minister mentioned suggest the need for at least some back-up powers in central government, such as will be proposed later this afternoon by the Minister in relation to the Traffic Management Bill?
Lord Davies of Oldham: My Lords, as the House has already indicated in broad terms, the Traffic Management Bill has many merits, but the particular issue of traffic bollards and islands has been regarded as a major safety consideration, although there is concern whenever any of our safety measures and provisions falls short of the highly desirable. As the noble Lord, Lord Higgins, indicated in his Question, some aspects with regard to traffic islands need attention. The Department for Transport will be monitoring them.
Lord Clarke of Hampstead: My Lords, does the Minister agree that mini-roundabouts often form an island in a road? Very often, cars are seen to go right across them, causing a danger. Would the Minister agree that, where possible, it would be appropriate to erect warning signs ahead of a mini-roundabout in order that people can take appropriate action instead of having to brake sharply when they reach it, sometimes going straight across?
Lord Davies of Oldham: My Lords, all roundabouts need adequate warning signs. My noble friend is reflecting the fact that many motorists have found mini-roundabouts particularly difficult. Certainly, the multiple roundabouts that were introduced in one or two places a number of years ago have created a degree of complexity that has worried motorists. However,

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roundabouts are very successful in guaranteeing traffic flow and the number of accidents on them is not particularly excessive.
Lord Bradshaw: My Lords, it is now common practice to divide the carriageways of former three-lane roads and the approaches to traffic islands with white hatching marks. Those are not enforceable. Is it the Minister's intention to make them enforceable, thereby helping many people to avoid colliding with traffic islands and enhancing road safety by reducing the chance of head-on collisions?
Lord Davies of Oldham: My Lords, the noble Lord is right that such markings are not enforceable. They are meant as a warning to motorists and an indication that they need to take care wherever those signs appear. It is certainly the case that if we are not successful in that strategy, and collisions with traffic islands then occur more frequently, we shall need to look at toughening up enforcement measures, as the noble Lord indicated. As I said earlier, as with all road furniture, from time to time vehicles collide with traffic islands. That is true of all signs. The fault more often lies with the driver than with the inert sign.
Lord Berkeley: My Lords, does my noble friend agree that the prime purpose of a traffic island is to protect pedestrians from cars? Would he not therefore also agree that the wider and higher the island is, generally, the more protection they will get? If an incident involves the car hitting it and breaking its axle, is that not a good price to pay to protect the pedestrian?
Lord Davies of Oldham: My Lords, I think the House has some sympathy for that viewpoint about the protection of pedestrians at traffic islands. But the question is about all traffic islands, and there are many traffic islands which are not designed to protect pedestrians at all. In fact, the pedestrians are nowhere near them. The islands are there to separate traffic on two lanes of carriageway. It is those which give rise to a certain anxiety over the height of the kerbstone and maintenance of the signs. It is very important that all such signs—remember, these signs are in the middle of the road—should be maintained and entirely visible by day and night.

Butler Report
3.21 p.m.
Lord Owen Lord Owen asked Her Majesty's Government:
Whether the withdrawal by the Secret Intelligence Service in July 2003 of two reports, as described in paragraph 405 of the Butler report, was revealed to the Hutton inquiry; and, if so, whether the inquiry was prevented from disclosing this withdrawal.
The Minister of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, the Hutton inquiry was not informed of the withdrawal of the reports. As the noble and learned Lord, Lord Hutton, said, his remit was not to look at the wider intelligence picture. Paragraph 9 of his report states:
"The issue whether, if approved by the Joint Intelligence Committee and believed by the Government to be reliable, the intelligence contained in the dossier was nevertheless unreliable is a separate issue which I consider does not fall within my terms of reference."
It was precisely in order to meet the call for a look at the wider intelligence picture that my right honourable friend the Prime Minister set up the Butler review.
Lord Owen: My Lords, is it not an indictment of our democratic procedures that not only was the noble and learned Lord, Lord Hutton, not informed about the matter—I gather from the newspapers that he has expressed some concern about this—but that two parliamentary inquiries were not informed about it, and above all, more extraordinarily, that the Prime Minister himself read about this only when he read the Butler report? Are we to assume that the Foreign Secretary was not told about this by the head of MI6?
Baroness Symons of Vernham Dean: My Lords, as the Prime Minister has made clear in another place, there are indeed criticisms in the Butler report that have to be addressed. However, I do not believe that one can go so far as the noble Lord, Lord Owen, in saying that it is an indictment of our entire system. I would also not wish the noble Lord, Lord Owen, to run away with the idea that others were not informed about the withdrawal, because he would not be correct in drawing that conclusion from what I have said. What I have done is to answer his question about the Hutton report. Others were informed about the withdrawal.
Lord Davies of Coity: My Lords, does my noble friend agree that it would be beneficial to the House if we knew who knew what, and when?
Baroness Symons of Vernham Dean: My Lords, I will do my best to give your Lordships a view on that, although I do not think that I can be absolutely exhaustive. The Office of the Prime Minister has already made clear that he knew about the withdrawal of the reports as a result of the Butler inquiry. My noble friend's question demands a slightly longer reply than normal, and I hope that your Lordships will bear with me.
On 17 July 2003, the chief of the Secret Intelligence Service told the Intelligence and Security Committee that the intelligence was being withdrawn, on the condition that they did not refer to it in their report. This was because the sourcing was still being investigated as a sensitive operational matter. The report was formally withdrawn on July 29 2003, and the investigation continued. But C pointed out to the ISC that he still

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believed the information was correct, although SIS could no longer substantiate the sourcing chain and hence the report was being withdrawn.
The Foreign Secretary first became aware of the withdrawal of this report when he agreed, in response to a request from the SIS on 8 September 2003, that the reports in question should be disclosed to the Intelligence and Security Committee.
Lord Wallace of Saltaire: My Lords, the other place is discussing the Butler report today. Can the Government give us an assurance that this House will also have an opportunity to discuss and debate the conclusions of this further inquiry? It has clearly not yet given the public reassurance that everything has now been uncovered.
Noble Lords: Hear, hear.
Baroness Symons of Vernham Dean: My Lords, as the noble Lord, Lord Wallace, will expect me to say on these occasions, that is a matter for the usual channels. I understand the noble Lord's desire to have a fuller opportunity to discuss this as soon as possible in oral questions. No doubt the usual channels will have their usual discussions on that.
Lord King of Bridgwater: My Lords, has the Minister has the chance to read the latest report of the Intelligence and Security Committee? Has she identified the most serious criticism by the all-party committee, that the Government's attitude towards the recommendations that it made—and their failure to respond to a number of points made in that report—is deeply unsatisfactory? Does she recognise that when the noble Lord, Lord Owen, talks about the democratic processes, that is one of them, which, in my view, the Government are treating with increasing contempt while failing to respond to sensible suggestions made by that committee?
I hope that she has read that report, and will make sure that her colleagues in government read it with far greater seriousness than to date.
Baroness Symons of Vernham Dean: My Lords, as the noble Lord, Lord King, asked me a direct question about that report, no, I have not read it. I shall certainly do so as a result of the noble Lord's inquiry.
This matter has now been looked at by four different reviews. It has been looked at by the ISC, by the FAC, by the Hutton inquiry and by the noble Lord, Lord Butler. On all points, the Government have been acquitted of acting in bad faith. The noble Lord raises points which are perhaps more about the machinery of government, and some of them were addressed in the report of the noble Lord, Lord Butler. As my right honourable friend the Prime Minister has said, he accepts the findings of the Butler report.
Baroness Pitkeathley: My Lords, looking ahead to the future, can my noble friend say what lessons the Government have learnt from this episode about the way in which our intelligence sources operate?
Baroness Symons of Vernham Dean: My Lords, first, as any reading of the report of 195 pages will show, there
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are a number of important issues. My understanding of the important issues that have to be addressed certainly includes validation, particularly of human intelligence.
Secondly, there are issues of how one caveats anything which is put into the public domain, and the importance of applying appropriate caveats to intelligence is stressed in the Butler report. There were points made about the way in which the chairman of the JIC had authorship of the report. As your Lordships will know, that was also an issue that was questioned.
Lastly, and very importantly, there is the question of the co-ordination of the intelligence services. Again, those are issues that have to be addressed.
Lord Howell of Guilford: My Lords, this question of the defective or withdrawn intelligence—
Noble Lords: Time!
Lord Davies of Oldham: My Lords, we really are at the fortieth minute.

Medway Council Bill
Read a second time, and committed to an Unopposed Bill Committee.

Balance of Funding Review and Report
3.29 p.m.
The Minister of State, Office of the Deputy Prime Minister (Lord Rooker): My Lords, the Fire and Rescue Services Bill has not yet been called—
Lord Grocott: My Lords, we are on the Statement.
Lord Rooker: The Statement, my Lords? I was about to move that the fire Bill be read a third time. I apologise.
With the leave of the House, I shall repeat a Statement made in another place by my right honourable friend Nick Raynsford, the Minister for Local and Regional Government. The Statement is as follows:
"With permission, Mr Speaker, I shall make a Statement about the Balance of Funding Review report which is published today and about the Government's response.
"Before I begin, I should like to say a word or two about the speculation we have seen at the weekend and in yesterday's press that the Government have plans for huge increases in people's council tax bills. This is simply untrue. I will say more about this when I come to the report's conclusions on council tax.
"The review started in April 2003. I chaired the steering group which included my honourable friends the Members for Wentworth and Corby, as well as other senior figures from central and local government, academia, business, the union movement

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and professional bodies. The remit of the review was to establish the nature and priority of the balance of funding issue and to identify and analyse options for change, setting out the pros and cons of each. We commissioned research, held a public consultation and sought further evidence on the main options for reform raised in the public consultation. We had nine meetings in all. All the papers presented to us are available on the website of the Office of the Deputy Prime Minister.
"I must first record my thanks to the steering group members, to everybody who responded to the review's public consultation last year and to those who presented papers to the group.
"Secondly, I should like to welcome the report published on 16 July by the ODPM Select Committee following its inquiry on local government revenue. There is significant common ground between the committee's conclusions and those of the Balance of Funding Review. The Government will reply formally to the committee in due course.
"As those who read the report will find, some of the press speculation of recent days has been wholly misleading and inaccurate. As the report makes clear:
'The Review has been conducted for the Government, not by the Government. It follows that this report is not a statement of Government policy. It is rather an analysis of issues and options. Although it draws some conclusions, in line with its remit it does not make recommendations'.
"It has always been the case—indeed, it was included in the terms of reference—that the review would simply set out the pros and cons of a range of short and long-term options.
"As the report states quite clearly, the aim of the review was,
'not to provide a detailed blueprint for reform, but to gain consensus at this stage of the argument on the broad issues, and to agree what the most likely options were, as the basis for more detailed work in the future'.
So we are at the start of this process of further work and there is a great deal more detailed thinking to do.
"The main conclusions of the review are as follows. First, like the Select Committee, the review concludes that there are strong arguments for shifting the balance towards more local funding. However, this depends on the feasibility and desirability of any measures to achieve it. And it would have to be possible to achieve satisfactory equalisation for needs in the distribution of resources between local authorities alongside any greater local revenue raising.
"Secondly, again like the Select Committee, the review concludes that council tax should be retained but reformed. It has important advantages as a local tax. However, in the opinion of the group, it will need reform in order to help people on low incomes and to reduce the impact of revaluation. Further work will be needed on the options for such reform. A fair and effective system of council tax benefit will be a vital component of any reform package. It is
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clear, for example, that levels of take-up for council tax benefit amongst pensioners and others on low incomes remains low in comparison with other benefits.
"As for council tax bands, the report concludes:
'There is a clear case for reviewing council tax bands and the ratios between them at the time of revaluation'.
And I should point out that the Government have always made clear that we would want to consider these issues with other stakeholders ahead of revaluation. But the report adds:
'particular care is needed to ensure that council taxpayers on low incomes living in high value properties are not unfairly affected'.
It goes on,
'further detailed work is now required on how council tax might be reformed, based on a clear vision of the direction of travel'.
Far from proposing a trebling of people's council tax bills, the review actually states that,
'the aim should be to avoid significant changes to the overall liabilities of taxpayers'.
"There has been much comment in the media about the ideas submitted by the New Policy Institute. It is certainly true that the NPI gave evidence to the review on changes to the banding structure and its ideas are well documented in the report. Indeed, its original paper for the review has been available on the website of the Office of the Deputy Prime Minister since January. However, these are the NPI's ideas and they are not government policy. Indeed, they are not actually recommended by the review.
"Thirdly, the review concludes that the only way to achieve a major shift in the balance of funding is to supplement a reformed council tax with either re-localised business rates or a local income tax or a combination of both. None of these options would be easy and further work would be required here too.
"Fourthly, re-localisation of business rates could give councils greater incentives to promote economic development and improve links with business as well as altering the balance of funding. However, business has serious concerns, including potential risks to their productivity and competitiveness.
"Fifthly, while a local income tax would be more progressive and more buoyant than council tax, it would also be less predictable as a result. Considerable further work would be required to address the substantial technical and administrative issues and costs, as well as the impact on individuals and employers before firm conclusions could be reached on the feasibility or desirability of a local income tax. In that respect, the report makes for difficult reading for those who regard local income tax as a simple solution. As we say in the report, the devil is very much in the detail. I note that the Select Committee takes a similar view.
"Sixthly, the review has concluded that smaller taxes or charges do not provide the potential for major change in the balance of funding. The case for and against each such option should be judged on its own merits.
"I turn now to the Government's response. We are developing a new 10-year vision for local government. We want local government to be more effective and more accountable. A fair and sustainable finance system is crucial to this. We welcome the Balance of Funding Review report as a major contribution to the debate.
"The review could not look at everything. However, while it does not make recommendations, it has reached a number of important conclusions defining the issues, narrowing down the options and assessing the case for change as well as investigating much of the preliminary detail. It provides a sound platform from which to go forward.
"The Government can accept right away that council tax should be retained but reformed. It is clear that council tax is far from perfect and that changes are needed. We are, for example, working with colleagues in the Department for Work and Pensions to improve take-up of council tax benefit. That work should continue.
"However, the report flags up the need for more work before decisions can be taken either on how council tax should be reformed or on the possible means for shifting the balance of funding. These matters need to be considered carefully and in detail. We must keep up the momentum, but we must also ensure that any changes are soundly based. As I said earlier, the press speculation that the Government are planning a council tax shake-up that will lead to huge rises in council tax is simply untrue. Any suggestion that we have opted for any particular course of council tax reform is just plain wrong.
"The review concludes that,
'the detailed case for and against some kind of sub-national approach should be considered'.
It is right that we should do this, but not because we want to hit middle England; precisely the opposite. We need to look at options for regional banding in order to ensure that areas of high property price growth such as London and the south-east are not unduly affected by revaluation.
"One thing is clear: there are no easy answers. This subject needs extremely careful examination and detailed consideration. It is far too important to be a political football.
"We have therefore decided to set up an independent inquiry to be undertaken by Sir Michael Lyons to look into these matters and report back by the end of 2005 to my right honourable friends the Deputy Prime Minister and the Chancellor of the Exchequer. Sir Michael is very widely respected and brings to the task a wealth of local government and other relevant experience. I can think of no one better able to take forward the work which the Balance of Funding Review has begun. Honourable Members will recall that Sir Michael has a distinguished background in local government. He is currently director of the Institute of Local Government Studies at the University of Birmingham and between 1994 and 2001 he held the position of chief executive of Birmingham City Council. He was recently appointed as deputy
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chair of the Audit Commission. He is a member of the Treasury's Public Services Productivity Panel and was also a member of Sir George Bain's review of the fire service. In 2003 he reported to my right honourable friend the Chancellor of the Exchequer on the relocation of public sector jobs away from London and the south-east.
"The inquiry will consider, in the light of the report by the Balance of Funding Review, and other developments such as new funding arrangements for schools, the detailed case for changes to the present system of local government funding. It will make recommendations on any changes that are necessary and how to implement them; and take evidence from stakeholders.
"In particular, the inquiry will make recommendations on how best to reform council tax, taking into account the forthcoming revaluation. It will assess the case both for providing local authorities with increased flexibility to raise additional revenue and for making a significant shift in the current balance of funding. It will conduct a thorough analysis of options to complement council tax, including local income tax, reform of non-domestic rates and other possible local taxes and charges, as well as the possible combination of such options. It will consider the implications for the financing of possible elected regional assemblies, as well as any implications that its recommendations have for other parts of the United Kingdom.
"The Government now look forward to a period of focused study by the independent inquiry which will build on the Balance of Funding Review's work. We can then take firm decisions on the best way forward to put in place the fair and sustainable system of local government finance that is our objective".
My Lords, that concludes the Statement.
3.41 p.m.
Baroness Hanham: My Lords, I thank the Minister for not getting too muddled about which business we were approaching. I agree with him that we face a difficult afternoon in deciding what we are dealing with. I also thank him very much for repeating the Statement made by the right honourable Nick Raynsford in another place.
The Minister was at some pains to point out that the Balance of Funding Review was a report to the Government and not by the Government. But however presented, there are within it a number of areas of considerable concern.
It is of course a sine qua non that when the Government find themselves in a difficult position they call for an inquiry or, in this case, another inquiry; this one to be undertaken, as the Minister has said, by Sir Michael Lyons. That clearly falls into this category. We of course wish Sir Michael well and hope, without great confidence, that he may find the road to the holy grail.

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Will the Government say when in 2005 the review will report? Will the Minister also tell us whether the terms of reference of the committee, rather than the broad outline given in the Statement, will be available to the House before it is set up? Nick Raynsford was a brave man when he set forth on the path of reconsidering the options for the council tax and the relationship between the Government's contribution to local government expenditure and that raised by local government itself, which of course now includes the uniform business rate. He was brave because the options for reform have been considered on innumerable occasions and the same difficulties and objections to their alternatives outlined in the Balance of Funding Review report have always come into focus.
As is clear from this report, business does not want to return to a local business rate. Business revaluation will bring untold problems anyway, and any local form of income tax is bound to raise fundamental issues, whether it is assigned from central government revenues or raised locally. Immediately one sees the problems in relation to a tax raised locally, particularly in central London, in view of the number of people who do not actually pay income tax in this part of the world and who therefore might possibly avoid it if paid locally.
All the usual suspects are raised, including local sales tax, tourist tax and now congestion charging which is a tax which should be used, if at all, only for preventing congestion and not as a means of raising missing revenue. Sir Michael will have his work cut out to come to any conclusions which will meet any, never mind everyone's, aspirations and/or concerns. If the members of the balance of funding review have not been able to answer that problem, then Sir Michael's mind is going to have to be very superior indeed.
But whatever is brought forward or thought through again, it is clear that the council tax will remain at the heart of local government revenue. I believe that the Minister made that absolutely clear this afternoon. If I may remind the House, it was much derided when it was introduced by the previous government, but it has proved to he a tax which is simple to collect and to allocate to property, and is understood by those paying it. That has been one of its prime successes, in that it took into account the property base so that there was always somewhere to collect the revenue.
A great deal of the Minister's Statement was concerned with trying to downplay the reports in the press over the weekend that the already scheduled revaluation of domestic properties, along with the possibility of increasing the number of bands and the ratios between them, would have a massive impact on people in the new high bands. It is instructive to recall that throughout the discussions on the Local Government Bill the Government resisted all amendments which would have limited the number of bands and, if there were to be an increase in that number, maintain the current ratio of 1:3 between the top and the bottom. Those amendments, tabled by my noble friend Lord Hanningfield and myself, would at least have ensured that the elongation of bands
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would not result in vastly increased amounts being paid by those in the upper tiers. Those amendments were opposed by the Liberal Democrats.
It is clear from the balance of funding review that that is not an option and that, whether suggested by the NPI report or the review itself, there could be potentially substantial increases if this route of extending the ratio were adopted. The Minister has said, and I agree, that no one wants families in either low value or high value property penalised by having to pay much too high local taxes. The rise in property values has been a mixed blessing to those who have lived in their houses for a number of years since the Chancellor now seems to believe that they are a suitable milch cow. The Government need to think very carefully before they accede to any proposal which will force people into having to sell their property because they cannot afford to pay the council tax. We might perhaps seek an assurance from the Minister today that that would not be the intention because there are a great number of people who are already living in properties, particularly in the south-east, which have risen in value well beyond their income if the council tax were to increase substantially.
Will the Government indicate what they intend to do about improving the uptake of council tax benefit? The Statement said that this matter is being looked at, but it has been looked at ever since council tax benefit was introduced and still there has been no resolution. I believe that I am right in saying that there are over 1.5 million people who are entitled to council tax benefit but are not taking it.
The balance between funding that is raised locally and that raised nationally, as the report brings out, is a sensitive one. That is why whenever it has been looked at before nothing has resulted. Council tax has risen remorselessly under this Government. It is now 70 per cent higher than when they came to power. A further 20 per cent rise is predicated by the Chancellor's spending review over the next three years. In addition, much of that spending is regulated by the Government in the form of passporting or specific grants. Extra costs are being borne in London as a result of the regional assembly. There is no reason to assume that that would be any less the case for any new assembly. The Statement makes it clear that is an aspect which will be looked at by Sir Michael Lyons, namely, the possible cost of a possible assembly. One ought to note that in the Greater London Authority Bill, now an Act, the expectation was that the cost to the boroughs would be three pence in the pound. That has now risen by 210 per cent since the Mayor's office came into being.
This may not be the Government's review, but it was chaired by the Minister and staffed by people from various government departments. Therefore, it is owned by the Minister at least or it would not have seen the light of day. At least a further review of the review will put off the final day of decision, probably until after the next general election. I would have thought that a very wise decision for the Government to take, as the implications of both a revaluation and the extension of the council tax bands will serve to ensure that it is a hot issue with the electorate. They

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may not be minded to come out and vote in great numbers at local elections, but they will surely take note of a threat of massive increases in council tax rates, and/or in any other form of contribution that they are asked to make, through local tax, tourist tax, or any of the other options.
The Government are embarking on yet another 10-year plan; good heavens, we have had 10-year and five-year plans for all sorts of things recently. The council tax has stood the test of time so far—it has certainly stood 10 years. The Government will mess with it at their peril. I thank the Minister for the Statement and ask that he be kind enough to respond to the few questions that I have raised. Ultimately, I look forward to the final decisions and discussions on the subject when Sir Michael Lyons finally reports to the House and the country.
3.51 p.m.
Baroness Hamwee: My Lords, I, too, thank the Minister for the Statement. I was also unclear which set of papers to have ready at the start of business.
The noble Baroness referred to a 10-year plan, but the Statement referred to a 10-year vision. I am not sure whether what is referred to is a plan or a vision, but I doubt that those struggling to pay the unfair and outdated council tax will feel hugely enthusiastic about the time frame envisaged by the Statement. They may feel—as I did when I read it, and as the noble Baroness clearly did, although our views are different—that to announce a review of a review to report at the end of next year is a clumsy way of saying, "We still don't know what to do, and will postpone it until after the general election and in the mean time repeat some cosy words about how we understand the problems inherent in the current continuing system". It must be undeniable that, now knowing something of the time frame, we will be well into the 10 years before there is any change in local taxation.
The terms of reference of the balance of funding review were to review all aspects of the balance of funding—fair enough; to review the evidence; and to look at the reform options. So perhaps I should not criticise the Government for sticking so closely to the letter of that. However, I criticise them for deferring the decisions, however elegantly. When talking about elegance, I must congratulate the noble Baroness on dancing around the issues so delicately in her support of council tax.
According to the Statement, the objective is to gain a consensus on broad issues. Do the Government not recognise that there is consensus about the unfairness of council tax, and that there will be consensus that the review appears barely to take us forward? The Statement also refers to particular care to ensure that those on low incomes in high-value properties are not unfairly affected. We are not starting from square one—they are unfairly affected today, and clearly will be next year and the year after that. The Statement refers to council tax benefit. We support encouraging the take-up of that, but the problems go far wider than those who are entitled to it.
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The Minister recognises that local income tax is more progressive and buoyant. I am sure—I invite the Minister to confirm it—that the Government themselves want to be recognised as progressive although, at this point in the parliamentary term, buoyancy may be another matter. It is sad that fear about the overall tax take being unpredictable, which is what I understand from the Statement, might override progressiveness and fairness. The Minister may not want to commit himself—I ask him anyway—on whether everything that we have heard is code for a disagreement between the Office of the Deputy Prime Minister and the Treasury. That is certainly how it reads.
The Minister refers to work to do, including reviewing council tax bands and the ratios between them. There is a lot of work in that, and once it has been done substantially it will be human nature not to want to ditch the tax. I fear that, by committing the Government to such a course of action, we shall have a self-fulfilling prophecy of, "We've done all this work, so we need to stick to the programme that it supports". In any event, I fear that reviewing banding will exacerbate the problem for those with low incomes in high-value properties.
We welcome visiting the issue of business rates, which the local government world has sought for a long time. The inquiry is to be independent. Can the Minister tell the House anything about its membership? The membership of the review group included local government representatives and others. Will he say anything about how the other members will be appointed, from where they will come, and how they will be supported? Presumably everything will come from the Office of the Deputy Prime Minister. Can he assure us about the independence of the other members? The appointment of Sir Michael Lyons has been announced; I assume that it took place on Nolan principles, but I would welcome some comments from the Minister.
The inquiry is to go further than local, personal and business taxes. There is a reference in the Statement to other developments such as—I emphasise those words—new funding arrangements for schools. What are the Government really saying about funding education and local government? Is there more here than meets the eye?
I hope that the Minister knows that we on these Benches look for the positive and try to be constructive in our criticism. I am sad that I find so little to be positive about in the Statement, but I fear that the Government have given little cause for optimism to those outside the House and another place who have protested so loudly and—I had thought—effectively about the unfair council tax. Those people will feel badly let down by what the Government have said today.
3.57 p.m.
Lord Rooker: My Lords, I apologise for the confusion at the beginning. The annunciator suggested that the Statement would be at a convenient time after Questions, and no one had informed me that that would be immediately after Questions. I assumed that we were going on to legislation.

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I shall deal with as many of the points as I can, in reverse order. Schools funding was not within the remit of the balance of funding anyway, but ring-fencing will halve the gearing ratio for non-school services. In that sense, it will increase councils' financial flexibility. That is a major issue, obviously, because education is so important.
The members of the inquiry will be absolutely independent, because there will not be any. Sir Michael Lyons will conduct the inquiry at the request of the Chancellor of the Exchequer and the Deputy Prime Minister. He will be fully supported, of course, by officials from across Whitehall and by local government experts, and will have full powers to call for evidence from other stakeholders. He will conduct the review on the same basis as Kate Barker did the review of housing supply. The post was not advertised, but no one will question the independence and probity of Sir Michael Lyons, given his track record and his service to local government.
There is no disagreement within government. We are trying to show that we have learnt the lessons from getting rid of the unpopular rates. We never really had a balance of funding review and discussion before the poll tax—the holy grail. The duke and the dustman were to pay the same; that was the phrase used. Those who proposed that came unstuck. A secret inquiry was conducted within government by the great and the good, saying that the poll tax would be a good idea. I shall not list the names on its front cover, because it is embarrassing for people who are still around. We will think about the matter carefully. We are affecting people's lives in a massive way, because council tax is clearly the most visible tax that people pay, so we have to be very careful about the changes.
There may be a consensus that council tax is unfair, but there is no consensus on an alternative. Whatever people might think about a quick-fix, simple option, there is no consensus on it. I do not think that the noble Baroness, Lady Hanham, indicated that.
The date for publication is by the end of 2005—I cannot be any more precise than that. Whether it will be Christmas Eve, the Recess, New Year's Eve or next summer, I cannot say.
The terms of reference have been published today with the press release. I am happy to read them out, but they come to 300 words and that would take an excessive amount of time. I have given a broad summary of what Sir Michael will be asked to do.
The membership of the balance of funding review, in this House as in the other House, was varied. There were people representing local government, such as the chief executive of Luton council, the director of finance of Wigan, the chief executive of Manchester. The group director of corporate affairs of Tesco also attended. The local government trade union, Unison, was also represented, as were academics and, importantly, the leaders of the Liberal Democrat and Conservative groups at the Local Government Association. Let us not run away with the idea that this was a secret government cabal behind closed doors. Three political parties, a trade union, Tesco and Uncle
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Tom Cobley and all in terms of local government and academics were involved in the review. They are all listed—there is no secret about it—so it was a report to the Government and not by the Government.
The rise in property values has not been evenly spread across the country. If that were the case, we would not need a revaluation, because the percentage and the ratios would be exactly the same. The revaluation has been legislated for and will proceed. There is the question of the economics versus the politics—at some time those issues have to be in the balance. If we were to farm all that out to officials and academics they would come up with a brilliant system, but it would not be acceptable to the people. That is the role of us grubby politicians—to find a way forward, to raise the taxes and provide community services in a way that is acceptable to as large a majority of people as possible. Our role is also to give local government greater accountability. At present, only 25 per cent of funding on average is raised locally and 75 per cent comes from the general taxpayer. That is partly the result of the nationalisation of business rates.
I have to say the following in response to questions: we have set up an independent inquiry and it ill behoves me to give any answers, because I do not know what it will come up with. However, I hope that it comes up with the holy grail, because that would be helpful to everybody.
4.2 p.m.
Lord Biffen: My Lords, will the Minister confirm that the balance of funding review did not cover the capability of local authorities to charge for the services that they render?
Lord Rooker: My Lords, the review may have looked at part of that issue, but the inquiry that Sir Michael Lyons will conduct will look, as I said in my Statement, at a mixture of things such as charges. We pointed out that some small charges do not make a difference—we are talking about billions of pounds. The amount currently raised by the council tax is something like £19 billion, so even small charges are miniscule. Certainly, there are no no-go areas, although we have said that it is a matter of the reform of council tax, which may be added to other taxes or a combination of other taxes. Looking at charges is not ruled out, but it is not a panacea.
Lord Smith of Leigh: My Lords, first, I would like to declare an interest as the leader of a council, Wigan, in fact, whose treasurer was a member of the balance of funding review. I am sure that the Minister would agree that the council tax was accepted largely because it was not the poll tax. If we can agree that there is a need for a property tax, let us consider renaming it, because the council tax was not well designed.
Secondly—and the Minister will remember that I raised this matter during the last Local Government Bill—will he agree to refer to the Lyons inquiry the prospect of introducing an annual uplift to a property tax based on house price inflation? That would

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increase the buoyancy of any property tax and would also avoid the political pitfalls of a periodic revaluation.
Lord Rooker: My Lords, according to the terms of reference, part of the remit of the inquiry is that it will,
"consider, in the light of the report by the Balance of Funding review, the detailed case for changes to the present system of local government funding".
To that extent, people can put their evidence and Sir Michael will no doubt be swamped with all the schemes that could be helpful. Then he will be required to make recommendations on any changes that are necessary to implement them.

Fire and Rescue Services Bill
4.5 p.m.
Read a third time.
Clause 2 [Power to create combined fire and rescue authorities]:
Lord Rooker moved Amendment No. 1:
Page 2, line 27, after "question," insert—
"(aa) any local authority all or part of whose area forms part of the combined area,"
The noble Lord said: My Lords, with this amendment I will speak also to government Amendments Nos. 2, 5 and 12. The amendments have been tabled in response to arguments put forward in both Houses of Parliament. There has been considerable debate about whether local authorities, as well as fire and rescue authorities themselves, should be included in the list of those to be consulted on the making, variation or revocation of combined schemes. To allay concerns expressed, we have stated our aim to allow for the widest possible involvement of all affected stakeholders, including local authorities.
We did not wish, however, to list in the legislation every category of organisation that should be consulted on a scheme on the basis that such a list could never be exhaustive. That said, we recognise that local authorities are in a unique position. That point was made from all sides of the House. We think that the Bill should reflect this. They are democratically elected bodies representing people of the areas involved in any proposed combination scheme, and they are also bodies from which the existing fire and rescue authorities are constituted. The amendments therefore add an explicit requirement for the Secretary of State to consult local authorities on the making, variation or revocation of combination schemes where all or part of an area forms part of the area which would be or is covered by the scheme. I hope that that demonstrates our commitment to an inclusive approach.
Amendment No. 12 adds a new clause in order to define "local authority" for the purposes of the Bill. I therefore respectfully request noble Lords to accept
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the amendments in the spirit in which they are moved. They are born out of experience in this House and in the other place. I beg to move.
Baroness Hanham: My Lords, I welcome the amendments. As the Minister said, they are the result of considerable debate and it seems to us that they are wholly sensible and much more inclusive than the previous structure of the Bill. I thank the Minister for listening on these aspects and I welcome their inclusion.
Baroness Hamwee: My Lords, I, too, thank the Minister. He always knows how to take the Opposition by surprise, and he did so last time when he grinned at me and said that he would have some good news next time for the noble Baroness. The drafting is so much better than mine and I am happy to welcome the amendments.
On Question, amendment agreed to.
Lord Rooker moved Amendment No. 2:
Page 2, line 34, after "affected," insert—
"(ba) any local authority all or part of whose area forms part of the combined area or would, under the scheme as varied, form part of the combined area,"
On Question, amendment agreed to.
Baroness Hanham moved Amendment No. 3:
After Clause 2, insert the following new clause—
"COMPOSITION OF COMBINED FIRE AND RESCUE AUTHORITIES
(1) Membership of a combined authority, made under section 2, will be made up of elected members from those authorities that constitute the combined fire and rescue authority.
(2) In Wales, a scheme under section 2 may not make provision for the appointment of members by the National Assembly for Wales unless the Assembly has consulted the Partnership Council for Wales established under section 113(2) of the Government of Wales Act 1998 (c. 38) (relations with local government )."
The noble Baroness said: My Lords, this amendment returns to the matter that we discussed last time. It is now a new clause on the composition of a combined fire authority. I will also speak to the amendment dealing with changes to Clause 3, which is consequential to the new clause.
Hand in hand with regionalisation, the Bill gives almost unprecedented powers to the Secretary of State, as we have discussed over and over again. Indeed, the two themes of regionalisation and centralisation run throughout the Bill. Coming from the Government, who have little opportunity to proclaim their belief in localism, I still find this slightly puzzling. We see that manifestation again here in black and white, with the power of the Secretary of State to appoint up to 49 per cent of members to a combined fire and rescue authority.
We have rehearsed the arguments in some detail at each stage of the Bill. Suffice it to say that our minds have not changed. We do not believe that, for a local service, the provision is democratically acceptable. It will do nothing to improve local accountability. Throughout the passage of the Bill, the Minister has claimed that the power is there as a last resort and

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would be used in the instance of a failing authority. I have the highest regard for the noble Lord in person, but my experience of watching the Government in operation tends to allow me to take a slightly sceptical view, when I see something like that in a Bill.
The arguments are well known, and I will not detain the House with detail that has already been aired. I suspect that, on this point, we will have to disagree. I will, however, touch quickly on two distinct aspects of the new clause. The first is that it would ensure that each combined fire authority was made up of elected members from the constituent authorities. That seems a sensible way forward that would guarantee accountability and representation at local level.
The second part of the new clause deals with the issue that we touched on last week, with regard to the power of the Welsh Assembly to appoint members to Welsh fire authorities. It seems to us that the provisions of Section 113 of the Government of Wales Act 1998 will be meaningless if the Government continue to legislate in new ways for the Assembly to reduce the power, autonomy and accountability of local government in Wales. Subsection (2) of the new clause, therefore, would insert a requirement for the Assembly to consult the Partnership Council for Wales, before making any provision for the Assembly to appoint members of a fire authority. That will ensure that the Assembly's proposals are discussed with senior representatives of local government in a public forum. It may not guarantee that the Assembly will listen, but it would be an appropriate safeguard to ensure that the Assembly's scheme to sustain and promote local government is respected.
As I mentioned, the amendment to Clause 3 is consequential and would remove reference to the involvement of the Secretary of State in the appointment of members of the authority and the reference to different voting rights for different categories of member. That would not exist under our new clause. I beg to move.
Lord Roberts of Conwy: My Lords, I support my noble friend on the Front Bench, as I did on Report, with particular regard to the new clause. I am particularly concerned about the situation in Wales and would insist that the Assembly should be under an obligation to consult local authorities.
There is a tendency in the legislation coming from the National Assembly Government to ride roughshod over local authorities. This is not the only Bill in which that tendency is detectable. It is patent in the draft Bill relating to transport in Wales that was recently considered by the Select Committee on Welsh Affairs in the other place. Suffice it to say that the Select Committee's report states:
"the draft Bill does give the appearance, if not the intention, of an overbearing National Assembly influence over Local Transport Plans".
I have made my point: there is such a tendency. I hope that the Government will accept my noble friend's reasonable and moderate amendment, in the interests of good relations and harmony between Welsh local authorities and the National Assembly. I hope that the Government will see their way clear to
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showing their respect for the spirit behind the Government of Wales Act 1998—Section 113 in particular.
4.15 p.m.
Baroness Hamwee: My Lords, we have stood together with the noble Baroness, Lady Hanham, throughout on these issues. I congratulate her on finding a way of bringing the amendment back. We did not get quite enough people through the Division Lobby on the previous occasion. I say, "Well done", and I must remember to have Wales as a back-up, when I want to divide the House again or, at any rate, bring some matter before it again. That makes my position on Amendment No. 3 clear enough.
Amendment No. 4 would alter the detail of a scheme made under Clause 2, as set out in Clause 3. I had a look back to see what the Government had to say about differential voting—if I can put it that way—at previous stages. We tabled an amendment that would have taken that bit out, and it did not seem to me that it was spoken to. I see no justification for giving different weight to the votes of members of pretty much any sort of authority. It leads to trouble, and it will not enable the members of an authority to work together easily and productively.
I did not read through Hansard for the Commons, but there seemed to be no justification for the move in Hansard for this House. I am grateful to the noble Baroness for giving the Minister an opportunity to justify it to those of us who are hanging on his words.
Lord Rooker: My Lords, I too am grateful to the noble Baroness for bringing the matter back, for reasons that I will explain in a while. I note what the noble Lord, Lord Roberts of Conwy, said. I know nothing about the Assembly riding roughshod—his words, not mine—over local government, but local government always claims that somebody is riding roughshod over it, when it cannot get its own way. For centuries, the call has been, "It's the Westminster Parliament riding roughshod over us"—not any more. That central change has taken place.
Amendments Nos. 3 and 4 would challenge the power in the Bill for the Secretary to State to combine authorities. I realise that that has been a sore throughout; I fully accept that. The amendments would remove the provision about how members are chosen, while restricting membership of combined authorities to elected members of constituent authorities. The amendments would leave us in an untenable position.
Amendment No. 4 would remove powers for a combination scheme to provide for the composition of the combined authority and for how the members are chosen. The Secretary of State would not be able to specify the maximum number of members who should sit on an authority, a power that he rightly has at present for combination schemes under the 1947 Act. Reading the amendment alongside Amendment No. 3, we assume that the intention is that existing authorities will retain the power that they now have to appoint members. The basis on which those appointments

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would be made is not at all clear from the new clause. For example, how will the balance of membership be determined? Will authorities be represented equally or in proportion to their size? The new clause is silent on such important matters.
As we have argued, we believe that the Secretary of State must have the power to make appointments to fire and rescue authorities. The Government's motivation in seeking the power to appoint is not to enhance central control but to improve the delivery of a public service. It is essential that fire and rescue authorities collaborate effectively with each other in order to deliver the modernised, efficient and effective service that we need. This Bill and the national framework give authorities ample scope to collaborate voluntarily to deliver what is required. That is the point: it is in their gift to get it right and do it themselves, without any involvement of the Secretary of State. We are not seeking to get involved. Combination would therefore be a last resort, in the event that authorities failed to collaborate effectively. In other words, if they fail to do the job, we are responsible for making sure that the job is done.
Authorities might fail to collaborate effectively because of lack of capacity, lack of will or lack of leadership. Given the new statutory framework, organisational obstacles are unlikely to be the sole cause of failure, so combining them, without more, would not necessarily resolve the problem. That is why we are insisting that it is essential for the Secretary of State to be able to appoint a minority of members should it be necessary to do so to overcome the previous problems. In such circumstances, the Secretary of State in making the combination scheme would make provision for the appointment of a number—less than half—of the members, who would be statutory officers under the Crown. The scheme would provide for the appointment of the remaining members by the constituent authorities of the new combined fire authority.
Should such appointments have to be made there are none the less considerable safeguards for local democracy built into the clause, including appointees being in a minority and their being excluded from votes on precepting. That would be left to those democratically elected. We have given assurances to both Houses that appointments would be publicly advertised under the Nolan principles. So in the event of the power being invoked it would be used in a transparent and proportionate manner.
Amendment No. 3 would limit membership of a combined authority to elected members of the constituent authorities only. As we have argued, the Secretary of State must have the flexibility to address a failure to collaborate by fire and rescue authorities by having the power to appoint. It is vital that the power is not restricted to appointing the elected members of the failing authorities. That would be barmy. It would be absurd to leave it to the fire and rescue members who had proved lacking in will, capacity or leadership to provide the new combined authority with the will, capacity or leadership needed to turn the situation around. Those people will have failed and have been given every chance. It is a last resort, not a first resort.
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Indeed, we do not want to see any restriction placed on the type of person who might need to be appointed to a new combined authority. The Secretary of State needs flexibility to make a judgment based on the reasons for the combination. He needs to be able to appoint people chosen for their ability. I assured noble Lords on Report that we had no plans to appoint lire and rescue authority employees to a combined fire authority.
I can, however, now go further—which is why I am glad the debate is taking place—and assure noble Lords, in the light of detailed legal advice, that the Bill does not give the Secretary of State the power to override the absolute restriction on an employee of a fire and rescue authority being a member of that fire and rescue authority, under Sections 79 to 81 of the Local Government Act 1972. Nor does the Bill override the provisions of Section 1 of the Local Government Act 1989, which prevents anyone who holds a politically restricted post from becoming a member of any fire and rescue authority. The latter provision would prevent all but very junior employees of a fire and rescue authority from being members of any fire and rescue authority. So there would, after all, be no question of appointing a chief fire officer.
Amendment No. 3 also requires the National Assembly for Wales to consult the Partnership Council for Wales on the appointment of members. The Government have already conceded that local authorities should be explicitly listed as consultees on the making, variation or revocation of combination schemes—that was our first debate a few minutes ago. Our fears were that the list of potential consultees to those schemes could go on and on, and so it proves. The Government have already stated their position, which is that we are committed to the widest possible consultation on the matter. We cannot keep adding bodies to be consulted to the Bill, but I assure the House that our intention remains to consult as widely as possible.
Furthermore, it is our intention that the Bill should apply to Wales in exactly the same way as it does to England. The amendment would impose a further duty that would apply to Wales alone, a situation that we have carefully avoided. It is for the National Assembly for Wales to determine which bodies it should consult, in the same way that that responsibility falls to the Secretary of State in England. The principle of consulting as widely as possible remains, however, and I hope that Members of the Committee accept this assurance.
I used a phrase earlier when I was talking about the people who would be appointed as statutory officers under the Crown. I previously said that,
"we are insisting that it is essential for the Secretary of State to be able to appoint a minority of members should it be necessary to do so to overcome the previous problems. In such circumstances, the Secretary of State in making the combination scheme would make provision for the appointment of a number—less than half—of the members, who would be statutory officers under the Crown. The scheme would provide for the appointment or the remaining members by the constituent authorities of the new combined fire authority".

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I am reliably informed that "statutory officers under the Crown" is not correct, so I am not sure what status they would have. However, as I put it on the record and I am now told that it is incorrect, I am removing it. In due course I shall no doubt receive a further clarification. This issue has now been raised at every stage and I fully understand why. The Government have moved on the issue, but I repeat that it is a last resort; the Secretary of State will use those powers only if people fail to organise themselves properly and efficiently. Central Government are not coming in and reorganising and combining fire authorities. It is a power of last resort.
If it were a power used when there had been a failure it would not make sense to allow the same groups of people who failed previously to sort it out in the future, because they would have had more than adequate opportunity.
Baroness Hanham: My Lords, before the Minister sits down, will he answer a question that we raised at another stage? I am not sure what the answer was. How will the local authority members who are to be appointed be confined to elected members? As the Bill stands it says that local authorities can appoint, but are they going to appoint anyone outside or is the intention, which we have been trying to get specifically in the Bill—it would be enormously helpful if the Minister could place it on the record—that those members would be local authority elected members; that is, the 51 per cent?
Lord Rooker: My Lords, the final sentence of the paragraph I just repeated was,
"The scheme would provide for the appointment of the remaining members"—
that is, the 51 per cent—
"by constituent authorities"—
that is, the local authorities—
"of the new combined fire authority".
I cannot see the local councils appointing anyone other than their elected members. The intention under the scheme in Clause 2 is that they would be members; that is, elected councillors.
There would be no justification for non-elected councillors being appointed, bearing in mind that the extra influx from the Secretary of State could make up for that and it is right that they are the constituent authorities. It is true we are saying that they have failed, but nevertheless they would have the right to appoint and they would appoint councillors—people elected from those constituent authorities. That is our intention.
Baroness Hanham: My Lords, I am glad to have the Minister's confirmation on the record. As we have discussed in the past, there are many occasions where local authorities make appointments and those appointees do not have to be elected members. If the Minister has now placed on the record that those members appointed to the fire authority will be from the
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council and will be councillors, that is enormously helpful. It does not totally respond to the amendment that I tabled, but it takes us forward.
We have discussed the composition of the fire and rescue authorities at length in the past. I have returned to the matter to try to ensure that the question of elected members is placed on the record. I am still not happy about the appointment of 49 per cent by the Secretary of State. I expect and hope that that would happen only in a moribund and difficult situation where fire authorities were being brought together in order to resolve a particular problem.
We have rehearsed again the question of Wales because it is important in matters relating to the Assembly that there is a clear understanding of the position of the people who will be on that fire authority. We have now more or less reached the position that I wanted. The 49 per cent will have to stand. I have taken the matter as far as I can and therefore I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.30 p.m.
Clause 3 [Creation of combined fire and rescue authorities: supplementary]:
[Amendment No. 4 not moved.]
Clause 4 [Combined authorities under the Fire Services Act 1947]:
Lord Rooker moved Amendment No. 5:
Page 4, line 36, after "affected," insert—
"(ba) any local authority all or part of whose area forms part of the combined area or would, under the scheme as varied, form part of the combined area,"
On Question, amendment agreed to.
Clause 19 [Charging]:
Baroness Hanham moved Amendment No. 6:
Page 10, line 10, leave out subsection (6).
The noble Baroness said: My Lords, the amendment would remove from the Bill the requirement that the charges set by an authority do no more than recover the full annual cost of providing the service in question.
On Report the Minister went over the ground that he covered in his letter dated 14 June. That dealt with the Government's concession in Committee which allowed for an authority to continue recovering an element of profit on a given service if it had been doing so on or before 1 April this year for up to two years after the introduction of a freedoms and flexibilities package under the fire CPA. Although we were pleased with that concession we feel that the Government have not made the case for restricting fire authorities in the manner proposed by Clause 19(6).
The Government's decision to restrict charging for services, even taking into account the concession, is bad for innovation in local government—my noble friend Lord Hanningfield, who is unable to be here this afternoon, waxed lyrical about Essex's innovative powers—and will unfairly close down possible sources of income. This loss of income will have to be paid for

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by the council tax payer. The Government's plans introduce a serious opportunity cost to the taxpayer, and will get worse over time. We do not agree with the Government's intentions and their interference with fire authorities' charging regimes. The Government have failed to articulate why it is so important that the present system should change. The capacity to charge more than the cost of a service is important in terms of future innovation and motive. I beg to move.
Baroness Hamwee: My Lords, we take a similar view, although the noble Lord, Lord Hanningfield, always waxes lyrical when he talks about Essex. On the last occasion that this issue was debated in Grand Committee the Minister referred us to an order to be made under the Local Government Act 2003 and we have recently seen the first wave of such orders. We on these Benches very much dislike the CPA procedures and allowing freedoms and flexibilities for certain authorities only. But much as I would like to see all fire and rescue services able to charge at their discretion, I understand the Government's logic in treating them like other local authorities for this purpose. I hope that I have correctly understood the Government's position, although I may be corrected in a moment. It is a pity that they are doing that for any local authorities at all.
Lord Rooker: My Lords, for the final time we have come to what I shall call the "Essex amendment". I do not wish to interfere in Essex. It is a well run authority with an excellent leader.
Baroness Hanham: My Lords, from our party.
Lord Rooker: My Lords, thanks very much. I often wonder if those people who pay the charges to the Essex fire brigade realise that they are not paying a charge, but a tax, because it is obviously used as a revenue raiser. I do not know what is on the invoices or the bills or how that fact is advertised—"We have this extra way of raising funds and keeping the council tax down. We are ripping off people"—some people might say, although others, not I, would use that term—"We are not paying for the cost of this charge, we are putting something on top of it because we need more revenue". I do not know how open and transparent that is, but one thing is certain—it is trading that is not carried out via a company. By and large when local government trades it has to set up a company properly, with accounts, because trading without a company structure is anti-competitive, I am told.
However, I do not wish to discuss again the issue of different fire brigades fighting fires in each others' areas. I shall not even suggest that that might be looked at in the Lyons review because this relates to fire service, not local government, funding—although in this case it is used as a means of local government funding and, regarding the question that the noble Lord, Lord Biffen, asked me earlier, it may be a source of revenue. I do not know.
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The amendment is identical to earlier amendments and my argument is exactly the same. We have made a concession openly and in good spirit. It is true that the wording of Section 3 of the 1947 Act has caused confusion among authorities about the extent of their powers to recover more than the cost of providing a service. That is certainly the picture to emerge from fire and rescue authorities during the recent consultation exercise on charging. We want greater clarity on the issue and that is precisely what the clause as drafted achieves. But I and my ministerial colleagues in the other place have repeatedly made clear that we have no wish to create financial difficulties for authorities such as Essex that have become accustomed, in good faith, to recovering a profit component on some of their activities.
That is precisely why we announced a concession in Grand Committee when considering the then Amendment No. 65. I shall put on record again that as a result, where an authority was recovering an element of profit on a given service on or before 1 April this year, the concession will enable it to continue doing so for up to two years after the introduction of a freedoms and flexibilities package under fire comprehensive performance assessment (CPA). That will be achieved by means of an order under Section 95 of the Local Government Act 2003 and will require authorities to conduct their trading activities through a company. Authorities will not be allowed to expand into new areas of trading under the concession but may be allowed to do so if they achieve a favourable CPA. Where an authority fails to achieve a favourable assessment within two years any trading order under this concession will be withdrawn.
Our objective throughout has been to draw a line under the previous uncertainty. It is obviously a certainty in Essex and there might be other areas where that is the case, although none have come to my attention. But we wish to remain sensitive to authorities such as Essex that currently recover a profit element. We do not wish to damage them in any way. Our approach provides clarity about the way forward. With those assurances, I hope that the amendment will be withdrawn for the final time.
Baroness Hanham: My Lords, I thank the Minister for that reply. I shall certainly pass the Minister's comments on to my noble friend Lord Hanningfield regarding his abilities, with which I agree. Perhaps this time he may not have totally convinced the Minister about this matter but the commitment given in Grand Committee took us some of the way. I do not think that we will go the rest of the way today; therefore I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Rooker moved Amendment No. 7:
After Clause 22, insert the following new clause—
"INTERVENTION PROTOCOL
(1) The Secretary of State must prepare, and may revise, a protocol about the exercise of his power to make an order under section 22(2).
(2) The protocol must in particular make provision about persons or descriptions of persons that the Secretary of State will consult before exercising that power.
(3) The Secretary of State must have regard to the protocol in exercising that power.
(4) In preparing the protocol, or any revisions to it which appear to him to be significant, the Secretary of State—

(a) must consult fire and rescue authorities or persons considered by him to represent them;

(b) must consult persons considered by him to represent employees of fire and rescue authorities;

(c) may consult any other persons he considers appropriate.

(5) The Secretary of State must publish the protocol for the time being in force in the manner he considers appropriate."
The noble Lord said: My Lords, the amendment places on the face of the Bill a requirement for the Secretary of State to consult on and publish an intervention protocol under which the powers to intervene under Clause 22 will be exercised. We have always said that we would be more than happy to follow the provisions of the local government intervention protocol in exercising those powers.
We therefore propose to consult fire and rescue service stakeholders on the application of the local government intervention protocol to the powers contained in Clause 22. This will give the fire and rescue authorities and other stakeholders the opportunity to comment on the procedures that we will follow should intervention under Clause 22 prove necessary.
Since the local government intervention protocol is specifically designed to address the needs of poorly performing authorities, we believe that it is appropriate to apply it to the powers contained in Clause 22. However, the amendment gives us the opportunity to review the protocol if, following consultation, it becomes clear that there are additional factors that need to be taken into account. Following all necessary consultation, we will publish the protocol that has been agreed.
Coupled with this amendment is Amendment No. 8, tabled by the noble Lord, Lord Hanningfield, and the noble Baroness, Lady Hanham. This is an opposition amendment that goes further than the government amendment. It requires that an intervention code be published that will apply to all direction-making powers in the Bill and not just those in Clause 22. We do not think that that is necessary or desirable. The powers in Clause 22 are different from other "intervention powers" elsewhere in the Bill. They are specifically designed to deal with poor performance, so we need a protocol which reflects that, as the existing protocol, developed for the use of best value intervention powers, does.
Other intervention powers in the Bill will, for the most part, be used to deal with specific circumstances rather than poor performance. For example, the power under Clause 29 will allow us to access equipment to ensure public safety in the event of industrial action. There are other issues, so a "one-size-fits-all" protocol would not work.
I have more material, but I hope that I have made the point that our amendment relates the protocol to the issues specific to Clause 22. The opposition amendment goes widely across the Bill, dealing with other matters, which is not desirable. I beg to move.
Baroness Hanham: My Lords, I never lose an opportunity to try to be all-encompassing. However, I recall the Minister saying in Committee that he would consider the matter, and my amendment was tabled in case he forgot to do that or forgot that he was being careful and helpful. Clearly, that is not the case.
The intervention code under the Minister's amendment does not go so far as ours, but it sets the parameters that we wanted to see. We wanted to ensure that there was a protocol on the intervention procedures that people understood—what should be involved and who should be consulted. I am happy to rest on that and to withdraw my amendment. I thank the Minister for having considered our original approach and for having brought forward that satisfactory amendment.
Baroness Hamwee: My Lords, I am grateful to the Minister for explaining the matter. He confirmed that the protocol referred to in his amendment will be the same protocol that operates now in equivalent areas.
I understand that a report to be published in the autumn by Inlogov on the engagement process is taking place with the application of the current protocol. It is obviously important to consider what lessons have been learnt since it was set up. The amendment provides, rightly, for consultation with a number of organisations and people. I am sorry to bowl this one unexpectedly at the Minister, but it would be interesting if he could explain how the work that is going on separately will interlock with the consultation provided by the amendment.
Lord Rooker: My Lords, it would be interesting if I could, but I cannot. However, I am certain that one will dovetail the other and not contradict it.
On Question, amendment agreed to.
[Amendment No. 8 not moved.]
4.45 p.m.
Clause 36 [Prohibition on employment of police]:
Baroness Hanham moved Amendment No. 9:
Page 18, line 42, at end insert "except in such cases as may be specified by the Secretary of State in regulations"
The noble Baroness said: My Lords, the amendment has been brought back today because we were unable to pursue it on Report owing to a line error. The Minister had the wrong dates and we had the wrong indications of what we were talking about.
The amendment concerns whether Clause 36 unduly restricts the employment of police officers as retained firefighters. The clause penalises the retained part of

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the fire service in a way that is inconsistent with the stated aims of the Bill to make the fire and rescue services flexible, effective and diverse.
In Committee, the Minister said that there would always be a possibility of conflict between the duties of a police officer and his or her duties as a firefighter. I do not believe that there have been any examples of a conflict of interest caused by this professional relationship but I am happy to stand corrected on that point if it helps me to understand the Government's position. More importantly, I do not understand why there cannot be a reasoned and rigorous process put in place that could effectively prioritise between potentially conflicting roles.
Surely, that would not be difficult to implement. There are many examples in public life where fulfilling the duty of one role ultimately gives way to another. I have no doubt that that choice would have to be made at difficult junctures, such as in emergencies, but that is why a process could be in place so that the police officer and his employers would know exactly where they stand in advance of such a situation arising.
I am also concerned that Clause 36 seems to restrict all employment with a fire and rescue service whereas the 1947 Act dealt only with employment with a fire brigade. For example, under Clause 36, a part-time police constable could not be employed as a part-time fire control room operator or in a part-time administrative role. That suggests that the clause is not only an unnecessarily wide prohibition on a police officer's right to secondary employment, but also that there may be circumstances which need not result in what the Government would presumably class as an unacceptable conflict of responsibilities.
The amendment would allow the Government an opportunity to specify in regulations the circumstances in which it will be possible to be both a police officer and fire and rescue services employee while not compromising the main intention of Clause 36. We feel that that would be a much fairer and more effective way forward for both individual employees and the retained part of the fire service, as well as reflecting the fact that many of us are able to navigate potential conflicts of interest in many walks of life without undue restriction. I understand that many people are already in that position and would be jeopardised by the clause. I beg to move.
Baroness Hamwee: My Lords, we support the amendment. It seems to be reasonable as it would not remove the restriction altogether, but allows for sensible, practical arrangements to be put in place. I have been unable throughout to understand the complete restriction, given what we have heard about recruitment difficulties in some areas, and those who undertake a civilian role in the police, or those who are not on shift duty for the police service providing support for the fire service. I hope that the Minister can accept the amendment. The noble Baroness is not asking him to put detail into the Bill. The amendment would allow for reflection and detailed consultation with the two services, which is important. I am sure that the police have something to say. I am aware that
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we have been hearing from the fire service, not from the police on the issue. The opportunity is there for the Government and I hope that they will take it.
Lord Rooker: My Lords, I hope that I can give further clarification. The noble Baroness, Lady Hamwee, said that we have not heard from the police, but we shall hear from the police and the Home Office now.
The noble Baroness, Lady Hanham, said that the clause was too restrictive and would prevent a person who is also a police officer being employed for any purposes, and not just firefighting. She gave examples of part-time working in a fire control room or in an administrative role. It was also suggested that a process could be in place so that a police officer and his employer would know in advance what his position would be at an emergency incident.
We are very concerned here with the duties that a person holding the office of constable might be required to perform if employed by a fire and rescue authority. I want to make it absolutely clear that the prohibition would not affect special constables or community support officers, who, of course, are employed by police authorities, or the civilian administrative staff of police authorities. We are talking about police constables.
We remain satisfied that there could be a conflict of roles at an incident if an off-duty police constable were employed as a retained part-time firefighter and confusion over which employer had the primary claim on the officer's services. I do not think that it would be practical to agree responsibilities in advance because by its very nature an emergency is unpredictable and police officers and firefighters have to make decisions in difficult and dangerous situations. It is better, therefore, to make a clear distinction.
Furthermore, the Association of Chief Police Officers has made it clear that it would wish the present prohibition, which has been in place since 1947, to remain, not only because of its concerns about confusion at times of emergency over primacy of role, but also because retained firefighters can be called out at no notice, which could impact upon police constables' ability to perform their next tour of police duty, with consequences for the efficiency of the police service.
We have reflected on the possibility of accepting the amendment. There have been internal discussions in government and we have had discussions with our colleagues in the Home Office. However, we have taken the view that it would be wrong to introduce the power to make a change by regulation when we have no intention of exercising that power.
As I said, the prohibition impacts only on persons who hold the office of constable. I have not seen any examples of where such a situation would occur, but this is not a change that we are prepared to make. The Association of Chief Police Officers is against it and I believe that we should take account of that advice.
Baroness Hanham: My Lords, we have been around this circuit a few times. I do not understand the logic put forward by the Minister. If a police officer acts as a retained firefighter, he acts as a retained firefighter and not as a police constable. I am certain that he would understand that he wore that hat. The possibility that I believe is being suggested by the Minister that a police constable who acts as a retained fire fighter would suddenly decide that he was a police officer, and leap into the breach when he was fighting a fire, or acting under command, seems to me to be absolutely ludicrous. I am certain that this happens at the moment, that police officers supplement retained firefighters in one way or another, even if they are not in the front line of fighting fires. I believe that it is a great pity that the Government are taking their present line.
Lord Rooker: My Lords, the noble Baroness has not addressed the issue of a police constable being a retained firefighter. One does not know how long it will take to fight a fire and what brigades will turn up to it. Such a constable may not be able to turn up for his next shift as a police officer. We have to consider that because of the nature of the areas concerned.
We are talking about police officers, who are not on duty, undertaking this job. However, police officers are never off duty. Whatever they do, they are always police officers. They may do something in their spare time—when they are not clocked on—but the noble Baroness has not addressed the issue of police officers who are not fit, or who are too tired or not available to turn up for their shifts as police officers the next morning or later the same day or for the night shift, undertaking such jobs. This is not an unimportant point and it is not one that we should ignore.
Baroness Hamwee: My Lords, before the noble Baroness replies and with the leave of the House, perhaps I can ask whether this is a matter for the forces involved rather than Parliament trying to dictate how the matter would work. Any employee in any situation will look at how it will work in practice. I feel very uneasy, sitting in London SW1, suggesting the detail of the matter. That is why I support the amendment.
Baroness Hanham: My Lords, I did not address the point, but retained firefighters are made up of all kinds of people who have all kinds of responsibilities within the community. The only reason we are addressing police officers is that they are the only people mentioned. The Government may just as well restrict nurses, doctors or anyone in the community who has a specific role to play and a specific responsibility. Presumably everyone else is entitled and can make that decision and the employers can make the decision.
It seems to me very strange indeed that police officers will be excluded in such a way by definition specifically because, as I understand it, the Government are afraid that such people may forget which hat they are wearing and suddenly become police officers. That is what the Minister says. I do not intend to test the opinion of the House but I remain unhappy about the Minister's response.
Amendment, by leave, withdrawn.
Clause 43 [Powers of fire-fighters etc in an emergency etc]:
Lord Rooker moved Amendment No. 10:
Page 21, line 12, after "out" insert "or to be about to break out"
The noble Lord said: My Lords, in moving Amendment No. 10, I shall speak also to government Amendment No. 11. These amendments have been prepared in response to the concerns expressed by the noble Baroness, Lady Hanham, on Report, and which had been raised at earlier stages of the passage of the Bill in both Houses: that Clause 43 as drafted would not allow a firefighter to make an appropriate response to situations in which, while there was as yet no evidence of fire, there was clear evidence that the ingredients for a fire were present.
In consideration in Committee in the other place, the Minister for Local Government and the Regions challenged those who considered that the scope of the clause was too limited, to provide better examples of the type of incident which could cause such problems. As I made clear on Report, all the examples received both in this House and the other place are, in our view, satisfactorily covered by the powers already provided in the clause and no extension of the powers seem to be necessary.
While the House accepted that point in relation to the specific examples given, a concern remained that an opportunity to plug a potentially serious gap was being missed. My ministerial colleagues and I have reflected further on the point alongside our objective of ensuring firefighters are equipped with adequate powers to deal with the often life-threatening incidents that they face.
While the likelihood of such an event occurring remains in our view small, we believe that it would be prudent to take the opportunity offered by the Bill to give firefighters this modest but potentially important extension of powers. The power could be exercised only where the firefighter had a reasonable belief that a fire is about to break out and, without it, there might be occasions on which a police officer had to be called before action could be taken, unnecessarily distracting the officer from other duties and perhaps increasing the risk of a more serious emergency developing because of the delay in taking action.
We have listened to what was said on the previous occasion and we believe that it is right to make these very modest changes. It is an opportunity that it would be silly to miss. The clause already gives a firefighter power to do anything necessary when a fire has broken out and this amendment will allow intervention if he reasonably believes that a fire is about to break out. Any action that he takes will have to be justified by the circumstances of the case. I beg to move.
Baroness Hanham: My Lords, I am delighted that my powers of persuasion or my wearing down has finally brought us to this extremely sensible outcome.

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Once again, I am grateful to the Minister for being so responsive in this matter. While I appreciate that he has not been totally responsive on all matters, I am glad to have a victory on one or two points. This is an important amendment and an important concession. I am grateful to the Minister.
On Question, amendment agreed to.
5 p.m.
Lord Rooker moved Amendment No. 11:
Page 21, line 13, after "extinguishing" insert "or preventing"
On Question, amendment agreed to.
Lord Rooker moved Amendment No. 12:
After Clause 55, insert the following new clause—
"MEANING OF "LOCAL AUTHORITY"
In this Act "local authority" means any of these—

(a) a district council;

(b) a county council;

(c) a county borough council;

(d) a London borough council;

(e) the Greater London Authority;

(f) the Common Council of the City of London;

(g) the Council of the Isles of Scilly."

On Question, amendment agreed to.
Schedule 1 [Minor and consequential amendments]:
Lord Rooker moved Amendment No. 13:
Page 41, line 17, at end insert—
"60A In paragraph 5(a) of Schedule 11 (police and fire services: derelict petroleum tanks), for "fire authority" substitute "fire and rescue authority"."
The noble Lord said: My Lords, this is a consequential amendment to the Local Government Act 1985, which, I am afraid, was not picked up at an earlier stage. It simply changes a reference to "fire authority" in the Act to "fire and rescue authority". I therefore respectfully request noble Lords to accept the amendment. I beg to move.
On Question, amendment agreed to.
Lord Rooker: My Lords, I beg to move that this Bill do now pass.
Moved, that the Bill do now pass.—(Lord Rooker.)
On Question, Bill passed, and returned to the Commons with amendments.

Traffic Management Bill
5.1 p.m.
Lord Davies of Oldham: My Lords, I beg to move that the Commons reasons and amendments be now considered.
Moved accordingly, and, on Question, Motion agreed to.

COMMONS REASONS FOR DISAGREEING TO CERTAIN LORDS AMENDMENTS, COMMONS DISAGREEMENT TO A CERTAIN OTHER LORDS AMENDMENT AND COMMONS AMENDMENTS TO WORDS SO RESTORED TO THE BILL
[The page and line references are to HL Bill 47 as first printed for the Lords.]

LORDS AMENDMENTS
4 Leave out Clause 20
The Commons disagree to this Amendment for the following Reason—
4A Because intervention powers are necessary in order to enforce the duties in Part 2
5 Leave out Clause 21
The Commons disagree to this Amendment for the following Reason—
5A Because intervention powers are necessary in order to enforce the duties in Part 2
6 Leave out Clause 22
The Commons disagree to this Amendment for the following Reason—
6A Because intervention powers are necessary in order to enforce the duties in Part 2
7 Leave out Clause 23
The Commons disagree to this Amendment for the following Reason—
7A Because intervention powers are necessary in order to enforce the duties in Part 2
8 Leave out Clause 24
The Commons disagree to this Amendment for the following Reason—
8A Because intervention powers are necessary in order to enforce the duties in Part 2
9 Leave out Clause 25
The Commons disagree to this Amendment for the following Reason—
9A Because intervention powers are necessary in order to enforce the duties in Part 2
10 Leave out Clause 26
The Commons disagree to this Amendment for the following Reason—
10A Because intervention powers are necessary in order to enforce the duties in Part 2
Lord Davies of Oldham: My Lords, I beg to move that the House do not insist on its Amendments Nos. 4 to 10, to which the Commons have disagreed for their reasons numbered 4A to 10A. I shall also be speaking to the other amendments in the group—Amendments Nos. 11, 11 A, and 11B and Amendments Nos. 12 to 15.
In considering these amendments there was much debate in the other place which led to the reinstatement of these vital clauses.
We have said repeatedly that local authorities are in the best position to deliver improvements in their area and to ensure that optimum use is made of the existing road network. If they fail it would be wrong for the Government to do nothing. But these powers would not be used lightly.
We have put on record that these powers would be used only as a method of last resort. We would look for every opportunity to resolve problems with the

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local authority before considering the imposition of a traffic director. Even where that was unavoidable, the provisions are constructed in such a way that the intervention order can only confer the powers that are needed to do the job.
Concern was raised that a traffic director's appointment would be open-ended, and that it would be difficult for him to disengage. One of the traffic director's objectives would be to help the authority improve to the standard where it could take back full responsibility. As such, there would be a natural and sustainable conclusion to the appointment. But in any event it is in no one's interest to have a traffic director for any longer than absolutely necessary.
It has been said that intervention would be difficult to justify given that the traffic director would have no local knowledge or accountability.
On the first point, I would normally expect intervention to be the result of a breakdown in the arrangements put in place by an authority. Here the traffic director would apply sound business management principles. However, in any case a traffic director would be expected to work with the local authority, drawing upon its experience and local knowledge.
On accountability, it is important to bear in mind that intervention would occur only where an authority was failing. While I accept that a traffic director would be accountable to the appropriate national authority, the appointment may indeed be made to protect local people.
That said, we would expect a traffic director to have regard to existing obligations, policies and objectives of the authority when undertaking his activities.
It was also mentioned during Third Reading that intervention was an unjustifiable cost for the local authority. On one side we need to keep in mind the cost of failing to manage effectively the road network—delays for businesses and travellers and inconvenience for everyone. But, in terms of the cost to the local authority, the provisions in the Bill allow the appropriate national authority discretion on whether to reclaim all or part of the cost.
Clearly, we need to guard against rewarding failure through the provision of a resource aimed at turning the service around. But I accept that it would be in nobody's interest to force payment if that draws funds away from meeting the duty in the future.
It has been said that the intervention provisions mark a fundamentally different approach to dealing with local government. Not so; the Local Government Act 1999 allows intervention in a council as a whole. There is no significant difference between the way those powers can be exercised and the provisions in the Bill.
Finally, a key concern expressed during Third Reading was about how failure would be assessed. The Bill provides that if the appropriate national authority is satisfied that a local traffic authority is failing, it is able to intervene. But it also provides for that authority to publish guidance about the criteria which
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it proposes to apply for the purposes of deciding whether to give an intervention notice or to make an intervention order.
Not only is the guidance on those criteria being drawn up by representatives of all the interested parties, including the Local Government Association, but it will also be subject to consideration by Parliament through the negative resolution procedure.
I am confident that this inclusive process will deliver an outcome that is acceptable to all stakeholders. However, to allay any outstanding concerns—and I appreciate the concerns that have been expressed during the passage of the Bill—should either opposition party wish to participate in this work, we would be more than happy for it to be represented on the working group which is to be established.
To conclude, I would hope that I have offered suitable reassurance that these powers are not a big stick with which we plan to beat local government. Instead, they offer a flexible and proportionate approach, for use very sparingly, which is consistent with the protocol governing intervention in a failing authority. As such, these provisions should be part of the Bill.
Moved, That the House do not insist on its Amendments Nos. 4 to 10, to which the Commons have disagreed for their reasons numbered 4A to 10A.—(Lord Davies of Oldham.)
Lord Rotherwick: My Lords, I stand in the place of my noble friend Lord Astor, who sends his apologies for not being here today, especially as the topic in question is a straightforward matter of principle close to his heart.
It is a great disappointment to these Benches that the Government have seen fit to reintroduce the clauses on intervention into the Bill. Indeed, I go so far to say that it is a slap in the face for local democracy and the changes we implemented to protect the interests of local government in this country. As my colleague in the other place explained, this shows that the,
"new localism in new Labour simply equalises the old centralism. When push comes to shove, the Government want to control all details and all aspects of every policy".—[Official Report, Commons, 15/7/04; col. 1598.]
Indeed, the Local Government Association has said that the reinstatement of these clauses undermines local freedoms and accountability.
The imposed traffic management officer will not be accountable to those who elected the local authority. He will be able effectively to overrule their democratic decisions on who they want to run the roads, and thus not necessarily take into account local traffic schemes—although I accept that what the noble Lord said earlier is possible—and plans on matters such as environmental issues which local authorities have a duty to care for. Will the Minister explain how he can justify letting such an individual, or many individuals, be unaccountable to those on whom their actions will have a daily effect?

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As the Government are putting the clauses back into the Bill, perhaps the Minister will clarify for the House some issues of great concern that have so far gone unanswered. I accept that the Minister has answered some points about how the Government will decide whether a local authority is failing. However, we look forward to seeing the criteria that will be used to decide that one local authority is managing the traffic well, and another is not. Will the Government have to prove that a local authority is failing before they intervene? How long will the intervention last, and on what basis will the intervention be reconciled? How may a local authority appeal against an intervention decision? Will the Minister outline a set timetable that will be used for disengagement? Will the National Audit Office be given a role to decide if this method of intervention provides value for money, particularly in terms of additional costs that could be forced on a local authority by intervention?
It is clear that there remains much uncertainty as to how this power will be used, and who will ensure that it is used only as a method of last resort, based on a set of clear criteria available to all. It is an inadequate means of achieving the desirable end of less congestion, especially when a tool for sensible and practical intervention is already available.
Does the Minister agree that a scheme under the Audit Commission's comprehensive performance assessment already exists that could be utilised to judge how effectively a traffic authority was performing? Attached to the commission's comprehensive performance assessment are improvement mechanisms to assist and aid local authorities, in the form of peer reviews; the Local Government Association; and the Improvement and Development Agency for local government, which I would have thought would have made the role of the external traffic director completely unnecessary. What discussions did the department have with the Office of the Deputy Prime Minister prior to the drafting of this Bill?
It is with a heavy heart that we have decided not to further oppose this Bill. We do not want to hold up the Bill over an issue that the Government are refusing to back down on.
Lord Bradshaw: My Lords, I agree with much of what the noble Lord, Lord Rotherwick, said. The restitution of the clauses to the Bill is totally unnecessary and, as I said on Report, smacks of a Stalinesque attitude to local government. With the production of local transport plans, which must be submitted to the department, and which do measure progress year on year, and with the comprehensive performance assessment, which the noble Lord, Lord Rotherwick, has referred to, there are plenty of opportunities for the Government to deal with a failing authority.
The approach of appointing a traffic director from outside, whose presence will be bitterly resented wherever he is appointed to, is a heavy-handed and clumsy method of dealing with someone, bearing in mind that the Government have the mechanism of
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withholding money from that local authority in the annual grant review if they believe that the local authority is failing.
However, like the noble Lord, Lord Rotherwick, I do not intend to divide the House or call for the Bill to be rejected, because there is much in it that we like and that we want to see. I say to the Minister that with so much transport legislation likely to come in the next Session, which I imagine will be the last before a general election, much of it requiring considerable co-operation from this side of the House to get it through, we feel badly let down over this. Our reasons for sending this hack to the Commons were soundly based, and if we are going to have things thrown back at us time and again, the battle over the next lot of legislation will be fierce indeed. We will not withdraw so easily again. However, I am content to let the legislation pass.
5.15 p.m.
Lord Borrie: My Lords, I am glad that the other place has restored these provisions to the Bill. I am afraid that the noble Lord, Lord Bradshaw—who I admire as an expert in these fields—has today used somewhat extreme language in referring to the Government's "Stalinesque" approach. Indeed, the noble Lord, Lord Rotherwick, was overstating the case when he said that this was a slap in the face for local democracy. It is a reserved power for the Government in an extreme situation. How can it be a slap in the face for local democracy when it can only be applicable if one, or possibly more, local authorities at some point in the future fail in their important traffic management duties set out in the Bill? There should be a power for central government by way of traffic directors to intervene.
Given the other provisions in the Bill, which I will not develop now, as to what the obligations of a local authority are, and how it can be that one can fail, no one expects authorities to fail. All noble Lords are great believers in local democracy and local government. No one expects that more than one local authority in a blue moon will fail in its activities. It would be irresponsible if there was no power whatever, in that rare circumstance, for central government to intervene. Are central government supposed to do nothing in such an instance, when we all regard traffic management, coping with congestion and so on, as so important?
This is not a "Stalinesque" approach to government. It is a modest proposal, it has been made plain what it is all about, and the Minister has explained that guidance will be provided as to what is meant by "failure" to carry out the proper duties. I am only glad that both Front Benches have agreed not to pursue their opposition any further after today.
Lord Davies of Oldham: My Lords, I appreciate the contributions that have been made to this short debate. It will be recognised in the House that I appreciate the contribution of my noble friend most of all. I say to the noble Lord, Lord Bradshaw, that it is quite something to be accused by my noble friend the moderate, reasonable, judicious Lord Borrie of having

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used extremist language and to be warned about the danger of going over the top. My noble friend is exactly right. The noble Lord, Lord Rotherwick, probably deserved a degree of my noble friend's opprobrium as well. These measures have been dramatised as centralisation measures. They are not; they are measures of last resort. There are a whole series of processes to be followed before any possibility of the imposition of a traffic officer on a local authority would occur.
Lord Rotherwick: My Lords, the noble Lord, Lord Borrie, and the Minister have overlooked the fact that we have been put in a very difficult position. We do not know the criteria that are going to be used to judge whether a local authority has failed. It would have been much easier if we had known this before the Bill came along, in which case perhaps this problem would never have occurred.
Lord Davies of Oldham: My Lords, I gave a clear indication, which I have reiterated today—together with a welcome for the Opposition parties if they wish to be represented on the committee which will draw up the criteria—that we do not propose to adopt criteria which are anything other than acceptable to local authorities and in which the LGA is to play a prominent part.
Even in the extreme circumstances of a traffic officer being appointed, he will have to work with the grain of the local authority. I made it quite explicit in my opening remarks today that it is not conceivable that he will operate like a deus ex machina with regard to the local authority, but it may be necessary in the extreme circumstances of failure. It goes without saying that the failure would impact upon the local people, and the traffic officer would be employed in order to remedy that situation.
Traffic congestion spills beyond local authority boundaries. We reflected on this point at Third Reading when we had the opportunity of discussing the congestion charge and its impact on boroughs. I was at pains to point out at that time that of course I recognise that a congestion charge imposed on a discrete area has a significant impact upon the immediate area and the people who live there, but I am sure that we all recognise, by the very definition of traffic movement, that these issues go far wider than the immediate locality. That is why a failure will, in the last resort, need to be addressed.
I should say to the noble Lord, Lord Rotherwick, that the duty is applied in the first instance to local traffic authorities. We place trust in them to deliver the programme outlined in the Bill to reduce traffic congestion, which we all recognise is a blight on our transport system. The intervention powers will come in only in the extreme case of failure.
I recognise that I cannot satisfy noble Lords in every respect today. The noble Lord, Lord Rotherwick, attempted a small flying wedge by asking whether the Office of the Deputy Prime Minister had been consulted on this measure. But, of course, this Bill, like
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all other significant Bills, is a product of a Government who are totally seamless in their approach to policy; who recognise the importance of co-operation between departments beforehand and, even more important, recognise that delivery should be a responsibility of government. In sustaining the arguments on the Bill, the Government, as a whole, are in total agreement.
The noble Lord, Lord Rotherwick, asked about appealing against an intervention. I emphasise that it is a staged process towards intervention; at each stage there is an opportunity for an authority to make representations and to set out its plans for redressing any problems. We all fervently hope and wish that we will resolve problems in this way. By definition, if we reach the position of appointing a traffic officer there will have been considerable delays in remedying the very issues we are seeking to tackle. We want to see a process that is flexible and responsive to local authorities, but which also ensures that they meet their obligations under the terms of the Bill.
I note the element of regret. I note also the incipient threat to future legislation. I understand the noble Lord, Lord Bradshaw, who has been constructive in regard to certain aspects of this legislation. However, he has not had his way in regard to all aspects of it and he is bound to forewarn us of challenges to come. It would be a poor approach for the Government if we put forward transport legislation that was not challenged by the noble Lords, Lord Bradshaw and Lord Rotherwick, because that is in the nature of the process upon which we are engaged. However, they will forgive me if I leave the quaking of my knees to a later date and merely take solace in the fact that, as I understand it, the amendments will not be opposed today.
On Question, Motion agreed to.

LORDS AMENDMENT
11 Leave out Clause 27
The Commons disagree to this Amendment but propose the following Amendments to the words so restored to the Bill—
11A Page 12, line 28, leave out "publish" and insert "give, in accordance with subsection (2),"
11B Page 12, line 30, at end insert—
"(2) The guidance shall be appended to an order made by the authority by statutory instrument.
(3) A statutory instrument containing an order under subsection (2) made by the Secretary of State is subject to annulment in pursuance of a resolution of either House of Parliament."
Lord Davies of Oldham: My Lords, I beg to move that the House do not insist on its Amendment No. 11 to which the Commons have disagreed and do agree with the Commons in their Amendments Nos. 11A and 11 B to the words so restored to the Bill. I spoke to these Amendments with Amendment No. 4
Moved, That the House do not insist on its Amendment No. 11 to which the Commons have disagreed and do agree with the Commons in their Amendments Nos. 11A and 11B to the words so restored to the Bill.—(Lord Davies of Oldham.)
On Question, Motion agreed to.

LORDS AMENDMENT
12 Leave out Clause 28
The Commons disagree to this Amendment for the following Reason—
12A Because intervention powers are necessary in order to enforce the duties in Part 2

LORDS AMENDMENT
13 Leave out Clause 29
The Commons disagree to this Amendment for the following Reason—
13A Because intervention powers are necessary in order to enforce the duties in Part 2

LORDS AMENDMENT
14 Leave out Clause 30
The Commons disagree to this Amendment for the following Reason—
14A Because intervention powers are necessary in order to enforce the duties in Part 2

LORDS AMENDMENT
15 Clause 31, page 14, leave out lines 6 and 7
The Commons disagree to this Amendment for the following Reason—
15A Because intervention powers are necessary in order to enforce the duties in Part 2
Lord Davies of Oldham: My Lords, I beg to move that the House do not insist on their Amendments Nos. 12 to 15 to which the Commons have disagreed for their reasons numbered 12A to 15A. I spoke to these amendments during the debate on Amendment No. 4.
Moved, That the House do not insist on their Amendments Nos. 12 to 15 to which the Commons have disagreed for their reasons numbered 12A to 15A.—(Lord Davies of Oldham.)
On Question, Motion agreed to.

Housing Bill
5.27 p.m.
Lord Rooker: 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 Rooker.)
On Question, Motion agreed to.
House in Committee accordingly.
[The DEPUTY CHAIRMAN OF COMMITTEES (Viscount Allenby of Megiddo) in the Chair.]
Clause 1 agreed to.
Clause 2 [Meaning of "category 1 hazard" and "category 2 hazard"]:
Baroness Maddock moved Amendment No. 1:
Page 3, leave out lines 6 to 14 and insert—
"( ) Meanings of "category 1 hazard" and "category 2 hazard" shall be prescribed for the purposes of this Act.
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( ) Those meanings shall be so prescribed by reference to—

(a) hazards of prescribed descriptions, and

(b) a ranking system for the severity of such hazards by which the question of whether a hazard achieves a particular ranking is decided by reference to—

(i) the results of qualitative assessment of the hazard in question, and

(ii) an assessment of whether those results meet prescribed qualitative criteria."

The noble Baroness said: In moving Amendment No. 1, I shall speak also to Amendments Nos. 2, 4 and 7, which are in the group.
The amendment seeks to rewrite the way in which the two types of hazard gain meaning. The Bill proposes meanings based on a numerical scoring system; Amendment No. 1 would specifically write into the Bill that the meanings found foundation also in qualitative considerations.
So why have we brought forward the amendment? As the Bill stands, it would define the banding and categorisation of a hazard based on a numerical score arrived at by an inspector. It is not disputed that in arriving at the score professional judgment would also be required. A score would be difficult to defend unless there is some explicit recognition of the judgments required.
I am grateful to the Chartered Institute of Environmental Health, which has brought the matter to my notice and to the notice of others. It has highlighted this issue because it believes that the decision should be based on descriptions rather than just on scores. The old system that the new housing health and safety rating system will replace contained advice and guidance, but it was judgment based.
5.30 p.m.
The Government have piloted version one of this system, and a number of problems were found by environmental health officers. Although version two has been produced, it has yet to be tested. There are still questions surrounding this, which is the purpose of raising the amendments at this stage.
On 20 January 2004, the Minister in another place, Keith Hill, recognised the problem at col. 48 of the Committee's proceedings in the Official Report. On Report in the Commons, this same amendment was debated, although it was not pressed to a Division. Mr Hill recognised these concerns and explicitly referred to the "judgment of the inspector". The noble Lord, Lord Rooker, has indicated that regulations and guidance can address our concerns, but I think it right that we explore this fully.
The amendment would remove these concerns by explicitly basing the categorisation on qualitative considerations. It need not undermine the principle of a numerical system, but it would make it more of an underlying than an underpinning system. It would provide for greater protection against challenges on numerical calculations.
Along with many others, we support the principles of the new system. It is right that the effect of housing conditions on the health and safety of occupants should be decided on the basis of hazard analysis and risk assessment. We also welcome the addition of many new hazards, as compared with the current fitness standard, and also the evidence base that has been established. However, I emphasise again the concern of many that when enforcement action is taken under the new system through tribunals or courts, such cases could get bogged down in a lot of legal and technical argument about scores, arising from the use of this system.
It is important that court decisions are made on the basis of descriptions of the property rather than on scores. In this regard, the guidance notes that will be issued by the ODPM are crucial. I have had communications from the Minister about various pieces of guidance that arrived at the end of last week. I really have not had the time to digest them; perhaps the Minister can tell me more when replying to the amendments. We want the system to protect occupiers, but it must not become a charter for lawyers.
Amendments Nos. 2 and 4, which aim to widen the meaning of "hazards" to include other matters of housing condition, back up Amendment No. 1. They were discussed in another place. As I said on Second Reading, there was some discussion about the repeal of Section 190 of the Housing Act 1985. The Minister in another place wondered whether this was why these issues were being raised. It would be helpful if the Minister could clarify the Government's position on the repeal of Section 190 of the 1985 Act.
Amendment No. 7 backs up the intention of the amendments in my name in the group. I beg to move.
Baroness Hanham: Amendments Nos. 5, 6, 8, 9, 16, 18, 19 and 22, which are in my name, also relate to the hazard categories of the assessment. I am aware that this series of amendments was raised in another place, but I believe it is worth us having another look at their intent in order that we may be able to discuss some of the Government's intentions in relation to the assessment of housing standards and the system for defining hazards, as set out in the Bill. I also hope that the Minister might, in his usual skilled manner—that is what I have written down here—provide noble Lords with slightly more detailed explanations than those received by honourable Members in another place. In that regard, the amendments should be seen as essentially probing in nature.
Amendment No. 5 would amend the definition of "hazard" so as to clarify that deficiencies in buildings or land should be in the immediate vicinity. It is likely that any potential problems with the house will be on the premises, so my question is: what other circumstances does the Minister envisage coming into play that would not be in the immediate vicinity?
Amendment No. 6 would require disability to be taken into account in the methodology used to determine the seriousness of hazards. The estimated
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number of disabled people in this country varies between 6.8 million and 8.5 million. A very large number of people are not registered disabled and are not chronically disabled, but may be temporarily disabled. They may have a dynamic disability of one sort or another, which is changing, and their needs may change accordingly. They may have moderate learning difficulties; they may fall into a number of categories; they may be temporarily very ill; they will have housing needs, be subject to hazards and be vulnerable in a way that the Bill should identify and cope with. Only by defining ability and disability using a different kind of evidence-based approach will we get to the people that we need to reach if we are to make the Bill work to the best effect.
Amendment No. 8 requires that the hazard bands should be,
"clearly defined by the appropriate national authority".
Those hazard bands will be described in regulations. To be effective and to stand up to robust legal challenge, they will need to be clear.
Amendment No. 9 would add "physical and environmental" to the definition of health. Again, we are looking for a firm commitment.
Amendment No. 16 in Clause 5 and Amendment No. 19 in Clause 7, along with Amendments Nos. 18 and 22, have a similar intent to that of Amendment No. 8. Again, we wish to probe the Minister to be more specific about the balance between category 1 and category 2 hazards and where such hazards would actually arise.
Lord Rooker: It is useful to have this large group of amendments as a preliminary to start the Committee stage of the Bill. I shall try and stick to my golden rule about not using acronyms, but I am really being tested. The HHSRS slips off the tongue quite easily, compared with the housing health and safety rating system, which I shall be repeating ad nauseam. So if I use the acronym it is because even I am getting tired of saying it.
I should like to deal with these amendments in the two groups in which they have been spoken to. To put the amendments in context, Clause 2 provides for the components of the new system to be prescribed in regulations. The components are: the method for calculating the seriousness of the hazards; the descriptions of the hazards; the bands into which the hazards may fall according to the seriousness of the hazards; and the numerical scores which determine the bands into which the hazards fall.
Subsection (1) defines hazard for the purpose of Part 1 of the Bill. It is a,
"risk of harm to the health or safety of an actual or potential occupier of a dwelling or HMO which arises from a deficiency"
on the premises,
"or in any building or land in the vicinity".
Examples of such deficiencies are construction faults, dangerous features—such as broken banisters—inadequate heating or insulation, or lack of repair or maintenance.

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Subsection (1) also defines category 1 and category 2 hazards. Category 1 hazards are those which are sufficiently serious as to trigger the general duty on the local authority in Clause 5 to take the appropriate enforcement action. Category 2 hazards—that is, all the other hazards—are those which trigger the powers set out in Clause 7, under which the local authority will have a discretionary power to take enforcement action.
The assessment of a hazard has two elements: how likely it is that there will be an occurrence resulting in harm, and the potential outcome of that occurrence. By virtue of Clause 2(3), the regulations that prescribe the method will take account both of the likelihood of harm occurring and the severity of the harm if it occurs. For example, a child may fall through a low window with a wide opening and no safety catch. The likelihood of falling out is no different whether the window is on the ground or the top floor of a block of flats, but the likely outcome will be very different. For other hazards—for example, excess cold—certain factors, such as the presence or lack of effective insulation, will be a factor in the severity of the health outcome.
I have made available to the Committee copies of the current draft of version 2 of the housing health and safety rating system. That document describes the method for assessing hazards; sets out the principles of scoring the hazards and placing them in bands; and lists the 29 categories of hazard covered by the system. It also gives advice on how local authority officers should operate the system using their judgment; that is, what they should look for and what can be done on the premises to remove or reduce the hazards. Most noble Lords present missed an excellent presentation on the technical aspects of the system which we held recently in an upstairs Committee Room. Nevertheless, certain Members of the Committee came to listen to the experts who designed the system.
Amendments Nos. 1, 2, 4 and 7 would miss the point of the assessment and the way it needs to work. Though new to the Committee, they are not new to the debate on the Bill and they were tabled in almost identical form in the other place. Amendment No. 1 would make technical changes to the meaning of hazards. Unless they are intended to disrupt or harm the introduction of the rating system, they undermine its objectivity, which is its primary aim. It is also clear that they reflect a view that the system is mechanistic and leaves no room for judgment. I accept that the noble Baroness, Lady Maddock, in moving the amendment, said that the inspector would still use his judgment and knowledge, but the rating system does not deal with numbers at the expense of the inspector's professional judgment and knowledge. We have been at pains to stress that. The system of course uses numbers, but the hazard score is not determined by the system; it is determined by the inspector.
Amendment No. 4 would introduce the concept of relative standards to a system of risk assessment by requiring the "age, character or locality" of a property to be taken into account. That leads us on to a slippery slope—that is not the hazard, but an unintended pun.
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We do not argue that the rating system seeks perfection in every dwelling. That is just not possible in the 20-odd million dwellings in this country.
Some kinds of dwelling will have characteristic defects; for instance, early-20th century terraced houses may have steep staircases that increase the risk of a fall. A local authority inspector will know that and will make appropriate allowance for it. That is my personal experience in London every day. An early-20th century steep staircase would not pass muster in a modern property today.
On the other hand, it will not be good enough for the inspector to say that, because many dwellings in his area have leaking roofs, he should play down the seriousness of that defect in a particular dwelling. The housing health and safety rating system is a tool that provides objective information as a starting point for an inspector to support his judgment of the action needed to deal with a hazard. That judgment should take on board the effect of housing conditions on the health and safety of occupants.
Amendment No. 4 would also introduce considerations of material comfort to a system which assesses the health and safety risks to occupants. That is obviously a reflection of representations that have been made regarding the repeal of Section 190 of the Housing Act 1985. Aside from any merits for a separate power to deal with minor disrepair and discomfort, it is inappropriate to introduce such considerations to the housing health and safety rating system formula.
The rating system formula will pick up disrepair where it contributes to a hazard; that is, any hazard in category 1 or 2. I can assure the Committee that that represents a very wide range of housing conditions. The worked examples that we issued in 2000 to illustrate version 1 of the rating system showed examples of category 1 hazards. We will be issuing an updated and extended series of worked examples to illustrate category 2 hazards and how the defects are taken on board. It would make for very bad regulation indeed and be confusing to those who are being regulated to try to superimpose on a regime that deals comprehensively with everything from very serious to modest deficiencies a regime that simply comes at the problem from another direction.
The housing health and safety rating system provides a tool for authorities to prioritise intervention. They can choose to tackle disrepair that contributes to modest hazards should that be their approach. Where disrepair does not even contribute to a hazard, we should hesitate to provide open-ended powers. Enforcement action needs to be proportionate and evidence based. There is no reason why authorities cannot provide advice to landlords where they judge that defects might lead to discomfort or further deterioration in the future and monitor those conditions.
I turn to the other amendments in the group. Clause 2 provides for the components of the new rating system to be prescribed in regulations. Those are: the method for calculating the seriousness of hazards; the descriptions of

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hazards; the bands into which they may fall; and the numerical scores. As I said, Section 1 defines "hazard" for the purposes of Part 1 of the Bill.
Amendment No. 5 would qualify "hazard" by limiting any deficiencies outside the premises to any building or land in the "immediate" vicinity. This appears to be an unnecessary change as the assessment should take account of all factors that the inspector judged to contribute to the hazard, regardless of whether they are in the immediate vicinity. Why would we not want the inspector to consider all of the relevant facts if they are available?
Amendment No. 6 would add consideration of an individual disability to the assessment of a hazard. I fully understand the motives behind the amendment and I am sympathetic, but it fails to take account of three important considerations. First, the rating system is evidence based and the evidence of vulnerability is mainly age related, although that would not prevent us adding to our evidence base over time. Secondly, the assessments are based not on the individual occupant, but on the generality of vulnerable people.
Thirdly, there are difficulties in trying to use health and safety legislation to deal with disability rights. We have serious doubts that we could reasonably use this legislation to require a landlord to make alterations and provide special adaptations to an otherwise healthy dwelling. There are other processes and procedures for aiding adaptations for people with disabilities.
Amendment No. 8 would require the hazard bands to be clearly defined by the appropriate national authority. The amendment is unnecessary, because we will ensure that the regulations prescribing the bands will be clear. In addition, the guidance may provide additional assistance.
Amendment No. 9 would clarify that "health" should include "physical and environmental" health. That is unnecessary. Clause 2(5) does not preclude physical and environmental health from the meaning of health. The clause merely states:
"In this Act 'health' includes mental health".
The purpose of Clause 2(5) is to make sure that mental health is not excluded. The parliamentary draftsman obviously thinks that we need such a provision, but I find it appalling, because mental health is a health issue like any other. Nevertheless, as we normally use it in legislation, I assure the Committee that environmental and physical health are included in the meaning of "health", but subsection (5) is needed to make sure that mental health is not excluded.
I turn to Amendment No. 16 in Clause 5. Clause 5 imposes a general duty on a local authority to take the appropriate enforcement action in relation to a category 1 hazard existing on residential premises. Local authorities may select the appropriate enforcement action from the options provided in Clause 5(2). The amendment would ensure that any category 1 hazard that exists in a dwelling is one that has been "clearly defined". All of us want to be sure that decisions taken
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by local authorities are sound. That is why we want those decisions to be based on an evidence-based system that helps them identify the problems in housing that matter, and to rate and prioritise them.
Amendment No. 16 reflects similar misunderstandings to those behind Amendments Nos. E1 and E5 to Clause 2—I am sure these amendments have been assigned different numbers now, but they were certainly E1 and E5 when first tabled, so far as my notes are concerned. It fails to take into account the fact that the assessment of the hazard is a function of the inspection carried out by the environmental health officer having regard to the guidance. Whether there is a hazard, and whether that hazard is a category 1 hazard, is therefore a professional judgment of the environmental health officer.
Amendment No. 18 is a cousin to Amendment No. 16 in that it seeks to ensure that any category 1 hazard that exists in a dwelling has been clearly defined. Again, this ignores the fact that the assessment of the hazard is a function of the inspection carried out by the environmental health officer having regard to the guidance. That, we believe, is a matter of professional judgment.
Amendment No. 19 is again related to Amendment No. 16, in that it seeks to ensure that any category one hazard that exists in a dwelling is one that has been clearly defined. We want to be sure that these are sound, and it comes down to the fact that Amendment No. 19 reflects what are apparently no more than misunderstandings behind Amendment No. 16 and Amendments Nos. 3 to 9 to Clause 2—they must be the Amendments Nos. E1 and E5 I referred to. It fails to take into account that the assessment of the hazard is a function of the inspection, and this will be a matter for professional judgment.
Amendment No. 22, the final amendment in this group, relates to Clause 7, which gives local authorities the power to take particular kinds of enforcement action in response to a category 2 hazard existing on residential premises. Authorities may select the appropriate enforcement action from the options provided. These options are essentially the same as those provided by Clause 5 in respect of category one hazards.
Amendment No. 22 fails to take into account that the assessment of the hazard is a function of the inspection, carried out in accordance with the guidance that we issued under Clause 8, by a professional environmental health officer.
I know it sounds like a bit of a damp sponge—I do not say a bucket of cold water. I have gone into some detail with this, because it is an important part of the Bill. The amendments are quite legitimately tabled for the Government to be held accountable, but I hope I have explained the general thrust of this part of the Bill. Much of what has been tabled here is a matter for the assessment, which will be carried out not on a hunch, but by a professional environmental health officer, in line with the final guidance which will be

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issued in due course after the Bill has received Royal Assent. So it will be some time before we have a final version of the guidance.
Baroness Maddock: The Minister has, as usual, been very full and explicit in his explanations, and we are very grateful to him for that. My noble friend Lady Hamwee, sitting beside me, was wondering whether people trying to listen to this debate were wondering what on earth we were all talking about.
I challenge the Minister again with my main point: those people who are going to try to make this happen on the ground—by and large, environmental health officers—are still concerned that when enforcement action is taken, and if somebody challenges it, the legal and technical arguments in court or tribunals could be quite complicated. They are worried about the system getting bogged down. Can the Minister say what his department thinks of this proposition? That was the one thing he did not touch on.
Lord Rooker: I asked that very question this morning, putting my former constituency member hat on. What would happen, for example, if campaigning solicitors in localities, or campaigning groups, wanted to pick off one property against another? I am assured that the nature of the system is robust enough to stand court judgments on the basis of the scoring system across the range of issues, and the fact that it relates to the property and the vulnerability of people who may be in it. It will have to be an issue of judgment in the case of a particular property. That is the nature of the situation, so one cannot draw premature conclusions. I am assured that it is legally watertight. A parliamentary draftsman has prepared it so that it does what it says in the Bill—not to give anybody free advertising. But it will, along with the guidance, do that.
It is a very technical system, as was seen when we had the presentation upstairs by the external experts who designed it. We are satisfied that the system is robust, and the way it is drafted in the Bill is fit for the purpose we intend, without succumbing to the pitfalls of nit-picking in the courts over the judgments of environmental health officers.
Baroness Maddock: I thank the Minister for that response, and for the presentation on how the system works.
The Minister, in referring to Amendment No. 4, felt that it was not quite the appropriate place for it, so I shall read what he said very carefully. It may be that there will be other matters we might want to return to at a later stage, but I certainly will not be pressing the amendment for the moment.
Baroness Hanham: I thank the Minister for his detailed reply. I come back to the question of whether a "vicinity" is a vicinity or an immediate vicinity. The concept of a vicinity goes very wide, and in terms of individual properties, one has to ask "How wide is wide?". Would a house in danger of collapsing in the street behind be in the vicinity? I presume, if it was a
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hazard to property, it might be. If there was a tree whose roots were coming through, and nobody knew quite how far but the tree was two streets away, would that be in the vicinity?
One has to be really careful about this definition. We have clearly defined some things, but if we do not clearly define this then the environmental health officers will use their own discretion as to how near or how far they are going on what could potentially be a fishing expedition. Perhaps the Minister has an answer to that, then I will come to the next point.
Lord Rooker: It would be unreasonable for people to go on fishing expeditions. It means in the vicinity of vulnerable people in a particular property. Joint entrances, passageways, covered walkways jointly shared with another property but not within the property, would all certainly be within the vicinity and be used by people in the property being inspected. I am not sure about roots of a tree two streets away, but if they are affecting the safety of people in a particular house, may be because they are making the entrance unsafe, then I would imagine that would come within the vicinity of that particular property. EHOs would certainly not be allowed, however, to go on fishing expeditions.
Baroness Hanham: Thank you. I hear what the Minister says, and I shall read his reply carefully.
I am not clear why the definition of health includes mental health, which is more or less what the Bill says. I cannot think why mental health has been picked out as the only aspect of health. In this day and age, with all that we know about mental health, and all that health means, the word "health" should be all-encompassing. There should be no need for an Act specifically to pick out that one word. That is one of the reasons we have put in the others, to define the extent of jeopardised health. It appeared to be a curious single word—and a curious aspect of health—to include. It might have been easier for it simply to be removed. We needed to debate the reasons for its inclusion.
6 p.m.
Lord Rooker: I do not know. I cannot say more than I have said. I regret that there is nothing in the Explanatory Notes. I am assuming that in Acts of Parliament and Bills the way in which "health" has been used in the past has been found not to cover mental health, and perhaps this approach involves redefining health. The fact that mental health must be specifically stated must mean that it has been held in the past that the term "health" did not cover mental health. For the purposes of this Bill, "health" includes mental health. I assume that it is included for some historical reason involving other legislation. I shall get further particulars on this, however, because I need a better explanation. That is the only common-sense view of why subsection (5) appears as it does.
Baroness Hanham: I am grateful to the Minister. If it is possible to let us know why it has been included in

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advance of the Bill's next stage, that would be helpful. For today's purposes, I beg leave to withdraw the amendment.
The Deputy Chairman of Committees (Baroness Fookes): I do not believe that the noble Baroness, Lady Hanham, moved the amendment.
Baroness Maddock: I knew that the noble Baroness, Lady Hanham, wanted to intervene so I did not withdraw the amendment earlier. However, at this point, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 2 not moved.]
Baroness Hanham moved Amendment No. 3:
Page 3, line 16, leave out "potential" and insert "likely"
The noble Baroness said: The housing health and safety rating system—I will not attempt to pronounce its acronym—is to operate in accordance with guidance to be published by the Government. At the moment, an unfinished draft known as version 2 is available. There are 29 proposed hazards including falls, fire, structural stability, crowding and space, radon gas, security and so on.
Where an assessment is required the environmental health officer will assess each category of risk on a structural basis to establish the likelihood of the risk occurring which could cause harm within the next 12 months and the range of outcomes from such harm. The spread of outcomes relate to the risk of death or injuries that require medical attention, by a GP or hospital.
This assessment is always based on the most vulnerable age group, if one exists, and is purely age related. Depending on the category of risk, the most vulnerable are either the very young or the elderly. The reason for this is that the only statistics that exist are age based.
Many properties which will be subject to the housing health and safety rating system assessment are not lived in by the very young or the very old. Indeed, most private, rented properties are occupied by students, young couples and young working people.
The guidance assessment process disregards characteristics relating to the actual or potential occupiers, except in one case; namely, crowding and space, where the number of occupants is taken into consideration.
The purpose of the amendment is to ensure that this is done as part of the evaluation process in all cases. No guidance is intended despite the structured approach in which the first two stages of the process are to be undertaken. There would therefore be no structured way of doing this.
The effect of not making this change will be to require unnecessary works to be undertaken to properties with the consequent costs involved. This will lead to higher rents or possibly encourage the landlord—for example, an owner of one or two
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properties in a student area—to sell up and so reduce the amount of accommodation available. I beg to move.
Lord Bassam of Brighton: The noble Lord, Lord Rooker, helpfully took us through the Clause 2 components of the new system in his earlier inspection of the way in which we see the new HHSR system working. He did so rather forensically, I thought. He usefully set out how we see it operating. For that reason, having listened to the noble Baroness, the amendment probably misses the point of the way in which the assessment must work if it is to give an objective means of comparing the severity of hazards across the housing stock. I heard what she said about assessments and how they relate to the age of the occupant and the level of risk but she failed to make a leap of faith, as it were, involving the way in which we see the system working in practice.
Amendment No. 3, which attempts to redefine hazards as a risk of harm to the health or safety of an actual or likely rather than a potential occupier, slightly misses the point. It fails to take account of the fact that the assessment system is intended to assess the condition of the property for the most vulnerable person who could potentially live there based on the principle that a dwelling that is safe for the most vulnerable is safe for all.
We need to know not who is likely to live there but only that such a person may possibly do so in future. Having come to an understanding of the degree of hazard, it will be for the environmental health officer to determine the appropriate action to be taken in the circumstances, which involve the property and the way in which it is likely to be used.
The noble Baroness may have failed to take account of that part of what happens after one has understood the level of hazard and risk as part of the assessment. The amendment is not in the end necessary although I can appreciate that it is hard—certainly at the initial stages—to get to grips with the way in which the system might work in future.
Baroness Hanham: The housing health and safety rating system will probably exercise us for some time. The assessment may be done potentially for the most vulnerable but there are properties in which the most vulnerable might never live. The amount of work that would potentially have to be done to every property would be to that standard, which might not be a necessary standard. We are trying to tease out whether the standard will have to be the most extreme in every case, whatever the scoring system, or are there opportunities for people who are less vulnerable and who will be perfectly happy to occupy a property that has not been done up to the highest levels of safety and healthy existence? That was the purpose behind the amendment. My query is whether that is the case. Will everything have to be done to the most extreme standard?
Lord Bassam of Brighton: Perhaps the best way in which I can help the noble Baroness is to rehearse the argument in the following terms. The local authority

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environmental health officer will carry out an inspection and come up with a score, which they will take away, reflect on and make a decision on what to do. The local authority will not try to get work done on the property for no particular or good reason. If no one vulnerable is living or is likely to live in the property, gold-plated work to the property, as it were, is unlikely to be undertaken. To use a phrase that is often employed in your Lordships' House, the remedy would be proportionate to the problem and relative to those most likely to live in that property. If a group of healthy, fit and active students is involved and the hazard that is there is not so extreme as to produce vulnerability to them, clearly that would colour the view of and judgment made about the most appropriate action to undertake when the environmental health officer thinks about what he or she has seen with regard to making sense of the hazard and coming up with a risk assessment. I hope that that helps.
Baroness Hanham: It does. I shall consider what has been said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 4 to 9 not moved.]
Clause 2 agreed to.
[Amendment No. 10 not moved.]
Clause 3 [Local housing authorities to review housing conditions in their districts]:
The Deputy Chairman of Committees: Before I call Amendment No. 11, I point out that there is an error in the Marshalled List. Clause 3 ends, so to speak, after Amendment No. 13. Amendment No. 14 is in Clause 4.
Baroness Maddock moved Amendment No. 11:
Page 3, line 35, after "to" insert "assess progress towards meeting targets relating to house condition or decency set by the appropriate national authority and to"
The noble Baroness said: This amendment to Clause 3 concerns local housing authorities and their duty to review housing conditions in their districts. The purpose of the amendment is to introduce the review of housing conditions and to make sure that information collected is used. The amendment aims to make an explicit link between house conditions and decent home standards. However, the Bill provides no mechanism to require local housing authorities to measure their progress towards achieving the decent home standard in the private sector. Currently, there are no data on the location of non-decent homes occupied by vulnerable people. I shall speak about that matter again in a moment.
The amendment addresses both issues and would generally alert local housing authorities to the need to work towards the decent home standard in the private sector. This is a very important area because three-quarters of all properties that do not meet the decent home standard are in the private sector. Although the Government moved some time ago to set targets for the decent home standard in social housing, it was only in 2002 that the public sector agreement target was extended to include a reduction in the proportion of
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households on benefits living in the private sector in non-decent homes. The target was 43 per cent in 2002 down to 30 per cent in 2010.
That indicates why this is rather an important amendment. If we are going to tackle the problem of non-decent homes in the private sector, local authorities will have to collect the facts and figures. I hope that the Minister will understand that. Later, I shall move another amendment which is also important in trying to deal with decent home standards in the private sector. I beg to move.
Baroness Hanham: I have two amendments in this group, Amendments Nos. 12 and 13. Having discussed a little the intent of the new rating system, we now move on to how local authorities will go about putting it into place. Amendments Nos. 12 and 13 are similar in attempting to ensure openness and transparency in the process, allowing all those concerned to see on an annual basis what the local authority is doing on an annual basis.
Amendment No. 12 would ensure a local authority made public the report on housing in its area. Therefore, a review of housing should take place and there should be a degree of public understanding, knowledge and scrutiny of what the local authority is doing. That seems important given some of the things that have been discussed. It will be a big change, and with it will come a comprehensive analysis of a range of issues associated with housing in a given area.
Given the fundamental nature of the change and its significance, it is important that the review be published and available for inspection and subject to proper public scrutiny. Perhaps the Minister can helpfully tell us what information will be in the public domain, as the Bill now stands.
Not only should the authority make clear what it has done to review its stock; it should also make perfectly clear what its intentions are. Amendment No. 13 would complement this transparent process by ensuring that a local authority published all this information in an annual report.
6.15 p.m.
Lord Gray of Contin: I support the amendments just spoken to. I declare an interest in that for nearly 10 years I was vice-president of Neighbourhood Energy Action, as it was in those days, and is now National Energy Action. During that period, I was president of the Scottish sister organisation. Both have done an enormous amount of work, particularly in the provision of assistance to the less fortunate in insulating homes which in most cases were desperately in need of it.
Perhaps I may say something about the relationship which has existed. It has been an all-party campaign over the years. In Neighbourhood Energy Action and in Energy Action Scotland, we have had excellent support from governments of both parties. That highlights the non-party attitude taken by both governments. I hope that that will continue, as I am sure it will. I know that the Government do not wish to

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create legislation that is going to be an embarrassment either to local authorities or to those in the private sector who provide homes for the less fortunate and who do all they can to try to comply with various regulations.
As regards this legislation, these organisations are concerned about one or two matters. For example, they are anxious that the regulations include a requirement for a heating system which is economical and efficient and capable of heating the whole dwelling to a comfortable level in normal weather conditions and at affordable cost to the occupant. Some of these measures may be easier to state than to achieve. We hope that these points are being taken into consideration by the Government in preparing the legislation. They also believe that any property to which this part of the legislation applies must achieve an SAP rating of no less than 65.
I have seen some of the homes before and after they have been treated by the charities and provided with insulation and improvements. Very often it is the elderly who live in these houses, but there are also people with young families. The properties tend to be smaller so that a large number of them are occupied by elderly people who are not in a position to carry out the work for themselves.
I hope that all these points will be taken into consideration by the Government. I know that these amendments have been tabled not to try in any way to get something from the Government which they do not want to give, but as constructive proposals to try to ensure that the people at the sharp end receive the benefit of the improvements made. I hope that the Government consider what I have said as being helpful.
Baroness Maddock: I support the noble Lord, Lord Gray. I am a vice president of National Energy Action. It is my intention later in the Bill to discuss the fact that we have different standards for different types of homes. I hope that we can reassure the noble Lord by saying that the noble Baroness, Lady Hanham, has an amendment dealing with decent home standards, particularly as regards energy. We raised this matter on Second Reading. I support the noble Lord in all the work he has done in the past.
Lord Rooker: I was almost going to say to the noble Lord, Lord Gray, that I expect to have quite detailed debates on energy and heating during the course of the Bill, but not today. That is not to devalue at all what he said; I certainly pay tribute to his work and that of all those involved in the energy action organisations. As he rightly said, the issue has always been an all-party one. I have spoken in many groups myself, sharing platforms with colleagues from other parties when I was a humble Back-Bencher and, indeed, a campaigning Front-Bencher. It is more difficult now as a Minister, being expected to have all the answers.
The clause is an important part of the Bill. It replaces, with modifications, Section 605 of the Housing Act 1985, which had its origins in the Housing Act 1969. It provides part of the strategic context for the work that local
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authorities need to do to tackle poor housing conditions in their area. Subsection (1) places a duty on local authorities to keep the housing conditions in their area under review, with a view to identifying any action that they ought to take under the provisions mentioned in subsection (2). The provisions are those in Parts 1 to 4 of the Bill, together with those in other legislation relating to demolition, clearance and renewal.
As introduced in the other place, Clause 3 replicated the requirement in the 1989 Act to review housing conditions annually. There was some misunderstanding in the other place about what was meant by that, and we amended the clause to reflect more closely the current approach to local housing strategies, which local authorities are now expected to update periodically to cover a three-year to five-year period. The requirement in Clause 3 to keep the housing stock under review remains important, but the obligation to do so annually was out of kilter with that approach to strategies.
The purpose of the clause is to ensure that a local authority maintains a current awareness of the state of the housing stock in its area, so that it can come to a well-informed judgment on the action that it needs to take. The purpose of the clause is not to require an authority to produce reports at particular intervals, although we expect them to keep records which can be made available.
Amendment No. 11 seeks to insert into Clause 3 an extra duty on local authorities, when they are reviewing housing conditions in their area, to have regard to the decent homes targets or any other non-statutory targets set by the Government. As many colleagues will be aware, the decent homes standard and associated targets for both socially rented and private sector stock are important policy issues for the Government, and are vital in ensuring that the overall objective of housing policy—that everyone has the opportunity to live in a decent home—is met. However, the standard and targets are non-statutory. The basis on which they are being delivered is through the public sector service agreements between the Treasury and my department—the Office of the Deputy Prime Minister. Flowing from that is a framework of policy guidance and financial support to local authorities, to enable them to deliver.
The guidance that we have issued to local authorities on the decent homes target already sets out in detail the monitoring requirements that should be undertaken at local level to ensure that various milestones towards meeting the targets will be achieved. For private sector housing, we are asking local authorities to undertake periodic stock-condition surveys, to assess progress in making decent the homes of vulnerable households. As one of the noble Baronesses said, the biggest percentage of non-decent homes in the country is in the private sector. Local authorities are also required for the purposes of best-value indicators to measure progress in improving housing conditions in their area. Such progress will be monitored closely by my department, working with the government offices and the Audit Commission to ensure that the targets are met.

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In the light of that very substantial policy framework for delivering decent homes which already exists, it would not be right to make the amendment to Clause 3. The framework is non-standard, and the Government do not intend to change that. I do not want to open up another debate at the moment, as I have no doubt that we will come to it later. However, we do not want to open any door to a fourth way for local authorities, people who might want to kid themselves, or people who are lying through their teeth to local authority council tenants about there being a fourth way—extra money—to meet the decent homes standard. There are only three ways, as everyone knows. They are: large-scale voluntary stock transfer; private finance initiative, in which the houses or homes remain under the ownership of the local authority; and arm's-length management organisations, again at which point the houses or homes remain in the ownership of the local authority.
Those are the three ways. There is no fourth option. I want to get that on record, for the avoidance of any doubt in future with campaigning noble Lords or noble Baronesses who might have other views. I have to make that clear, because I was at a local authority on Friday and was handed a leaflet—not by the authority, but by some of the local people campaigning—that said that there were four ways for decent homes, one of which was for them to remain council tenants. People can remain tenants in homes with ownership by the council, but there is no fourth way. I want to make sure that there is no back door to a fourth way. I hope that that is useful for further debates on the Bill.
Amendment No. 12 attaches to the duty to review housing conditions a requirement to publish a report of the review. Those reviews are ongoing, however. The amendment also asks authorities to publish details of the action that they propose to take, and details of their intentions as regards any discretionary licensing. The amendments somewhat miss the point. Clause 3 is a strategic rather than an enforcement provision. In respect of discretionary licensing, Clauses 55 and 77 already make substantial provision, including consultation before the designation of additional or selective licensing. Amendment No. 13 adds a requirement for local housing authorities to publish an annual report in relation to review of housing conditions. It is not clear whether that is the report already referred to in Amendment No. 12.
As I said, local-authority housing strategies are now on a more statutory basis following the Local Government Act 2003. Section 87 of that Act enables the Secretary of State to require an authority to have a strategy in place, to require it to produce a statement and to influence the content of that statement. The Office of the Deputy Prime Minister, through the government offices, works with local authorities to ensure the production of "fit for purpose" housing strategies which are current for at least three years. The plans are expected to include effective delivery of decent homes—now extended to the private sector, which is absolutely crucial because of the large number of vulnerable people involved.
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Given the fact that the debate is a precursor to others, certainly so far as insulation and energy are concerned, I hope that the noble Baronesses will not press their amendments.
Baroness Hanham: I hear what the Minister says. As he got to his feet, it occurred to me that the housing strategy was applicable to the issue and that we needed to take note of it. None the less, the reviews will not take place very quickly, simply because of the extent of the work that will be required and the number of environmental health officers who will need to be employed.
Perhaps I should declare my interest as a member of the local authority for the Royal Borough of Kensington and Chelsea. Having been chairman of the housing committee, I remember the condition surveys that used to have to be undertaken, and the fact that they were lamentably slow. That was in an authority that was really well funded and resourced. One could see that, whether the issue had priority or not, it could be a slow job, especially in areas where property is in relatively poor condition anyway. It would seem sensible that there should be some review of what was being undertaken and why, if there were so many properties to be dealt with that there was some slowing down. We were interested to know how many properties were being surveyed, what the outcome was and, if there were targets, whether they were or were not met. That was the purpose of the amendment. I hear what the Minister says, and we may or may not return to that at a later stage.
6.30 p.m.
Baroness Maddock: As usual, the Minister gave a full and clear explanation of how the Government will monitor progress towards a decent home standard. I particularly spoke about a decent home standard in the private sector because of the issues that we are talking about. I had no intention of raising the fourth way, but perhaps we will do that another time. As the Minister said, decent homes and the warmth and thermal capacity of a home are very important and I am sure that we will return to those issues. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 12 and 13 not moved.]
Clause 3 agreed to.
Clause 4 [Inspections by local authorities to see whether category 1 or 2 hazards exist]:
Baroness Hanham moved Amendment No. 14:
Page 4, line 30, at end insert "or a number of electors to be determined on the basis of the size of the parish"
The noble Baroness said: This is a simple, straightforward amendment that would give a group of electors living in a particular neighbourhood or area a route to make an official complaint. We believe that there needs to be some safeguard, otherwise an individual bearing a grudge might well make repeated complaints. The amendment takes that into account by allowing a certain proportion of local residents to come together and act. It is important that when things

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are being done in their name—as will be done under these clauses—people should be encouraged to become involved in their neighbourhoods and in the state of local housing. I beg to move.
Lord Rooker: It is a simple, short and clear amendment, but I have to disappoint the noble Baroness—I will not be able to accept it. I hope that I have sufficient reasons to explain why.
Clause 4 replaces with modifications Section 606 of the Housing Act 1985. That section places a duty on the proper officer of a local authority to make a report to the authority if he considers that a dwelling house or a house in multiple occupation is unfit for human habitation or that an area should be dealt with as a clearance area. It also requires a proper officer, as distinct from the authority itself, to inspect such a property or area in response to a complaint by a justice of the peace or a parish or community council that the property is unfit or the area should be cleared.
We introduced amendments in the other place to set out the meaning of Clause 4 more clearly. In particular, they reduced the prominence that it appeared to give to complaints made through justices of the peace and parish or community councils, and gave more emphasis to the day-to-day responsibility of authorities to determine whether an inspection is necessary. That responsibility arises both in response to complaints and as a follow-up to their reviews of housing conditions in their area under Clause 3.
Clause 4(1) now requires a local authority to consider whether to inspect a property in its area to establish whether or not there is a category 1 or category 2 hazard. A duty to consider arises either from the authority's review of housing conditions under Clause 3 or for any other reason. Under subsection (2), where a proper officer of an authority has received an official complaint from a justice of the peace or a parish or community council that a category 1 or 2 hazard may exist on residential premises, or that an area should be dealt with as a clearance area, the proper officer must inspect the premises or area.
Inspections of premises under Clause 4 must be carried out in accordance with the regulations referred to in Clause 4(4). Where, following an inspection made as a result of an official complaint, the proper officer is of the opinion that a category 1 or 2 hazard exists on residential premises, or that an area should be declared a clearance area, subsection (6) requires him to make a report in writing to the authority without delay, which must be considered as soon as possible.
Amendment No. 14 adds an unspecified number of elected members to those who can make an official complaint. It is not clear who determines what the number will be or what the criteria are. Aside from that, we do not believe that this addition serves any practical purpose. Authorities will generally investigate all complaints as a matter of policy. There is a potentially long list of worthy people we might add to our list.
We admit to other misgivings about trying to introduce a political dimension to the issue. We should trust authorities to exercise sensible discretion when it
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comes to complaints. People will not be slow to use this process, whether they be parish councillors, district councillors or members of the other place. In this case, we do not see the justification for adding Amendment No. 14 to the Bill. Authorities will generally take all reasonable steps to investigate all reasonable complaints as a matter of council policy.
Baroness Hanham: I thank the Minister for his reply. The wording of the Bill is odd. It effectively says that an official complaint can only be made by a justice of the peace or a parish or community council. Any other complaint is presumably not an official complaint, which can therefore be ignored by the health or housing authority if it wishes.
Perhaps this is where the difficulty lies, because if someone makes a complaint, one would expect it to be taken seriously. However, why does the Bill then introduce an official complaint? In order to get a justice of the peace to do anything about it, someone will have to get the justice of the peace or the parish council involved.
The phrasing of the amendment may not be ideal, but an official complaint has to be able to be made by a residents' association or a group of electors. I can think of a house in my borough that was a disaster zone for a number of years. It was not a matter of official complaints—complaints were falling out all over the place. It is important that people feel entitled to complain. They will, regardless of the Bill, but the wording of the Bill is infelicitous.
Lord Rooker: The language of the clause came from elsewhere. It replaces Section 606 of the 1985 Act. I do not know where that section came from, but I have already referred to a 1969 Act. It is probably old language, because, while there might be 8,000 to 10,000 parish councillors in the country, huge areas of the country are not covered by parish councils. Most big cities are not parished—I think that they ought to be, but they are not. However, that does not stop complaints being made, and any good local authority—do not forget that local authorities are checked over by the Audit Commission these days—will have a complaints policy. If they do not, they should, and I cannot imagine a local authority without one.
Complaints that are reasonably made about houses and conditions in their areas will generally be investigated as a matter of policy. I am quite happy to get a note on this matter to the noble Baroness, Lady Hanham. The language is probably an ancient throwback to previous legislation, which has been transferred from one Act to another. As I said, parish councils do not cover the whole country, so it would be quite wrong to disadvantage people who might not be able to make a complaint just because they do not have a parish council.
Baroness Hanham: I would be grateful if the Minister would look into it. I do not think that my amendment is correct. I am trying to ensure that anybody has a right to make an official complaint

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while trying to protect against people being awkward and difficult. It may be that subsection (3) needs to be removed unless there is a very good reason—which the Minister looks as if he might have.
Lord Rooker: Official complaints, as defined in the Bill and elsewhere, are meant to be rare. Ordinary complaints—there are several categories, including dire complaints and urgent complaints—are complaints none the less. There is no reason to believe that they will be devalued simply because there is a process for making an official complaint.
The noble Baroness should look at subsection (3)(a), the first part of the subsection that she wants to amend: justices of the peace are all over the place. Although I do not want to encourage people to knock on their doors, there are a lot of JPs in the country and all areas are covered. However, that relates to an official complaint. It is intended that that will be a rarity, as opposed to ordinary complaints. Ordinary complaints are not devalued because they are not official complaints.
Baroness Hanham: I do not wish to prolong the discussion, but the more I look at the clause, the more concerned I get. It includes districts and parishes, but what on earth will happen with boroughs? I declare an interest as a justice of the peace. I do not want people running around making official complaints.
We should come back to the clause. It is rather bitty, and we might make it better at the next stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hanningfield moved Amendment No. 15:
Page 5, line 4, at end insert—
"(8) The authority must make available to any interested parties upon written or oral request, any report made to them under subsection (6)(b)."
The noble Lord said: Amendment No. 15 is sensible and reasonable, and I hope that the Minister will agree. If a local authority conducts an inspection to determine whether a category 1 or 2 hazard exists and concludes that the area in question should be dealt with as a clearance area, local people have the right to be made aware of such a decision. Perhaps it is just my reading of the Bill—I would welcome the Minister's thoughts on the matter—but I cannot see how such a decision would be communicated to people who might have a vested interest in it.
Amendments Nos. 53 and 54 are also sensible and reasonable. The essence of the amendments is to provide for greater openness and clarity, and I know that those things are close to the Minister's heart. It would seem rational that, were a local authority to make a slum clearance or demolition order, the grounds on which the decision was made should be made available to any interested party.
The amendments would not compel the authority to make its decisions public—that might involve additional time and money—but would make it
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necessary for it to do so on written or oral request. I am sure that the Minister will not disagree with those sentiments. I beg to move.
6.45 p.m.
Lord Bassam of Brighton: I listened carefully to what the noble Lord, Lord Hanningfield, said. On the face of it, what he asks for is not unreasonable. However, I shall go through Clause 4 and its operation, because I think that, having listened to what I have to say, the noble Lord will probably think that we are acting entirely reasonably.
Clause 4 requires the proper officer, as distinct from the authority itself, to inspect a property or area in response to a complaint from a justice of the peace or a parish or community council that the property is unfit or the area should be cleared. We had some discussion about the history of that, and I shall come to my view on that in a while. If, following an inspection carried out as a result of an official complaint, the proper officer is of the opinion that a category 1 or category 2 hazard exists in any residential property in the district or that an area should be declared a clearance area, subsection (6) requires him to make a report in writing to the authority without delay, and subsection (7) requires the authority to consider the report as soon as possible.
Amendment No. 15 would add the requirement that, where the report of an inspection that follows an official complaint recommends that the area should be declared a clearance area, the authority must make the report available, on written or even oral request, to any interested parties. The noble Lord, Lord Hanningfield, made a plea for local people to know. That is fine, and I have no doubt that local authorities, acting in the way anticipated in the clause, will have to advertise the action that may be taken and the reasons for it. My question is this: to whom precisely are the reports to be given? In the context of the noble Lord's amendment, who is an interested party, and how would the authority determine that? There are no clues in the amendment. Should an authority be responding to an oral request? How is the person who requested the report to establish that the request has been properly made?
Obviously, we appreciate the case for openness, although it is arguable that the Freedom of Information Act 2000 ought to be the conduit for the release of information by central or, as in this case, local government, but why specifically these reports? We need to consider carefully what is likely to happen in practice. First, official complaints are likely to be few. There is no evidence that authorities receive many of them now. A question that almost came up in the debate was why the concept of an official complaint had been retained. The answer is interesting. Apparently, during consideration of the draft Housing Bill, there was no such provision. The Government were persuaded in the other place that we should retain the procedure.
My noble friend Lord Rooker put his finger on it: the provision has been there for many years. It was in the 1969 Act, I think, and my guess is that it probably goes back to some of the early legislation about fitness

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of premises and properties in the early 20th century and maybe even slightly before that. On a personal note, I have a feeling that it is probably because of the unique role that magistrates at one point had in considering the fitness of premises that it retains a place in the legislation. I can remember, as a housing activist and housing adviser in the early 1980s, using magistrates' courts as a means of taking enforcement action against reluctant landlords. Perhaps part of that procedure involved the concept of an official complaint, so that the information that the magistrate received led to an action. There was, perhaps, an obligation on the local authority further down the line to take action in some way. I think that that is where the legislation is coming from.
We were persuaded to retain the provision. It is a historical hangover, but it may have some use. In the circumstances that the noble Lord, Lord Hanningfield, described, it is likely that the local authority would want to ensure that local residents were well informed. However, we must consider carefully the terms on which reports should be requested, who should have the right to request them, the circumstances in which they can be requested, and how the requests would be properly made and recorded. I am concerned by the notion that detailed information should be supplied simply on the back of an oral request, when that is somewhat informal.
The occasions on which a proper officer will recommend that an area be declared a clearance area are, in the circumstances that I have outlined, likely to be extremely rare. A clearance recommendation presupposes that a large number of properties have been inspected following an official complaint. It is far more likely that the authority itself will initiate the action, leading to a clearance declaration, as part of the review under Clause 3. Clearance declarations follow the procedures set down in Section 289 of the 1985 Act, as amended by this Bill. If they proceed, the owners and occupiers of the property affected must be consulted. There is an obligation in the legislation, which was enacted by the noble Lord's party when it was in government. On balance, we consider the requirement to make such reports available unnecessary and difficult to operate in the circumstances suggested by the noble Lord, although we appreciate the spirit of openness that lies behind the amendments.
Amendments Nos. 53 and 54 are similar in their intent. One relates to the making of demolition orders, the other to the making of clearance orders. Again, the question arises of whom the reports should be made to. Who is an interested party? How do we define that? How is the local authority to determine it? There is also the vagueness of the oral request and the way in which such a request is logged and made clear in the local authority.
I recognise the case for openness. I understand the spirit in which the amendment was moved. We believe that the concept of openness is carefully enshrined in the Freedom of Information Act 2000 with which local authorities must comply. I am not persuaded that anything further is needed given the general legislation to which I referred and the requirements in the
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1985 Act for notice of demolition orders to be given. We think—and I am sure that the noble Lord will agree, particularly as his party put it in place—that that legislation is clear and easy to operate through the local authority. Having heard that explanation I hope that he will feel able to withdraw the amendment.
Lord Hanningfield: I thank the Minister for that detailed reply. Part of his answer related to the Freedom of Information Act, so it will be difficult to deny people access to the information if they want it. Some of the decisions will be controversial; for example, planning decisions where people are concerned about what is happening to properties next to existing properties. These days, people want openness and the most information possible to be made available on planning decisions.
I can see that some of the decisions will be controversial. I understand the Minister's point on magistrates. We have moved on a great deal and most of the action will be taken by local government under this part of the Bill. The Minister accepted that there should be openness. We are suggesting that the information should be available to those who request it. It would probably be a job to prevent that anyway under the Freedom of Information Act. As the Minister went along with what we were saying I do not understand why the Government cannot accept the amendment. It would probably be a job to refuse it.
Lord Bassam of Brighton: I was trying to set out for the noble Lord the practical circumstances in which this situation might occur. I am not convinced that the noble Lord's suggestion adds anything to what would be expected of the local authority in any event.
Lord Hanningfield: Therefore the Government could accept the amendment.
Lord Bassam of Brighton: The noble Lord invites me to accept the amendment on those terms; I am not minded to do so. If he tables a similar amendment at a later stage we will ensure that we can describe to him, in even more detail if he wishes, exactly how the local authority would be expected to operate in those circumstances. I invite him to reconsider the woolliness of his proposition, because the questions I posed back to him about who an interested party might be and whether we should accept mere oral requests for detailed information would probably trouble some local authorities—perhaps not his own because it is not a housing authority, but certainly the district authorities that operate within Essex County Council.
If the noble Lord is prepared to think about the operability of his suggestion—and I am certainly prepared, in offering explanations at a later stage, to consider the obligations on the local housing authority over and above those in the 1985 Act that I described—perhaps we will reach an amicable score draw on the amendment.
Baroness Hamwee: Before the noble Lord responds, perhaps I may say that, if he tables another

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amendment, we would find it helpful if he could explain how his proposals fit in with the technical and detailed freedom of information provisions under which local authorities have to provide for requests for information. It would be helpful to these Benches to understand how the two might lie together. The Minister referred to that, but there might be considerable practical difficulties in operating separate systems.
Baroness Dean of Thornton-le-Fylde: I find the amendment not only woolly but almost undeliverable. It would make available to any interested party—and we are talking about clearance areas, which are always controversial—reports that would probably cost a great deal of money to draw up. What about the financial impact on the local authority if hundreds of people want information? As worded, the amendment means that the local authority would have to give any report to any interested party. Who will decide who is an interested party? That is a potential conflict. Or how does one prove that an oral request by telephone was made? The amendment's intention is good, but not only is it woolly, it would be damaging to the Bill.
Lord Selsdon: I am confused, but happy to be confused at a higher level. It is easy to define interested parties under law. It is easy to consider what currently happens in the planning world. When a planning application is made, an announcement is made and interested parties can consider it. Little notices go up on lamp posts and residents' associations or interested parties often get together and may define themselves. It is only a question of defining "interested parties", which would not be difficult.
Lord Hanningfield: We seem to have had a great deal of debate on the issue. In response to the noble Baroness, Lady Dean, local authorities have to respond in considerable detail to planning applications. Many planning applications are controversial, particularly when one wants to build on areas and neighbourhoods where people do not want building. Planning authorities receive hundreds of requests for information and detail about planning applications which they cannot refuse. This would be no different.
I accept the comments of the noble Baroness, Lady Hamwee, and I thank the Minister for his answer because it offered a way forward. He rightly said that I am involved in Essex County Council and that it is not the housing authority. Between now and further stages of the Bill, I would like to consult my colleagues on housing authorities in local government and see if we can come back with a better suggestion. The Minister said that if we talk to local government about it we might come back with a solution that we could all accept about how and to whom the information will be made available. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 4 agreed to.
Clause 5 [Category 1 hazards: general duty to take enforcement action]:
[Amendment No. 16 not moved.]
Lord Hanningfield moved Amendment No. 17:
Page 5, line 20, at end insert—
"(h) serving a deferred action notice under section 86 of the Housing Grants, Construction and Regeneration Act 1996 (c. 53) (unfitness for human habitation etc: party to improve enforcement procedures) as specified in the Housing (Fitness Enforcement Procedures) Order 1996 (S.I. 1996/2885)."
The noble Lord said: Both Amendments Nos. 17 and 20—which is in the name of the noble Baroness, Lady Maddock—should be seen as consequential to the removal of Clause 50. I will therefore comment on why we believe the clause is unnecessary. The minded-to procedure was introduced by the last government as a measure of deregulation. Its repeal is now proposed by the present Government as a measure of deregulation.
The procedure was introduced under Sections 81 to 86 of the Housing Grants, Construction and Regeneration Act 1996 as a deregulatory measure to save costs and avoid formal regulatory action being taken when it could be avoided. It was the answer to widespread concerns by landlords that local authorities were proceeding immediately to service of formal notice.
Under the minded-to procedure, before serving a formal notice the local authority must serve a notice of its intention to do so and give the landlord the opportunity to object and make representations. This includes a right for the landlord to appear in front of an officer appointed by the local authority to make representations before any informal action is taken. This procedure can be overridden in urgent cases.
Experience has shown that the procedure has worked well. It removes a source of friction between local authorities and landlords. It gives the landlord an opportunity to negotiate with the local authority. More time may be needed to do the work or it may be agreed that substitute works are satisfactory or indeed a particular item may not need to be done at all. In the majority of cases in response to the minded-to notice the landlord has given an undertaking to do the work so as to avoid service of formal notices.
The landlords' association in Leeds—the Leeds Property Association—has had direct experience of the operation of the procedures and they have worked well in practice. The ODPM has argued that the enforcement concordat provides an alternative, but that is only guidance from central Government and not binding in law. In any case, particularly in relation to HHSRS there will be a mandatory duty under primary legislation to serve notices. There is a mandatory duty to serve notice where a category 1 hazard exists, under Sections 5(2) and (3). The retention of the minded-to procedure would allow less formal procedures to be adopted in the first instance.
The serving of a formal notice attracts a fee of up to £300. The imposition of fees of this magnitude will lead to hostility between landlords and EHOs. The

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responsible landlord will say, "If you had only written to me or telephoned me about this I would have dealt with it straightaway". This is the very reason that the minded-to procedure was instituted in the first place.
7 p.m.
The Bill rightly contains, in Schedule 5, Parts 1 and 2, a consultation procedure to enable representations to be made before an HMO licence is issued, varied or refused, Why, therefore, cannot a similar procedure be retained for the service of notices especially those under Part 1 of the Bill, in respect of the HHSRS. If there is no preliminary procedure a landlord served with a notice may well have to make a protective appeal to the residential property tribunal if he contests certain aspects of the notice. There are strict time limits for such appeals. Although there is power for the tribunal to extend the time for appealing there is no guarantee of this. Unnecessary appeals may be needed simply to protect the landlord's position.
Formal service of a notice automatically sets the landlord in confrontation with the local housing authority, whereas the minded-to procedure enables good relations to be maintained so that the landlord can work with the authority to tackle a problem. If a landlord fails to take remedial action the option of serving a formal notice remains, although in most cases that would not be required. Abolishing the minded-to procedure is an unnecessary piece of heavy-handed regulation that is not conducive to creating a constructive atmosphere in which landlords and local authorities can co-operate.
Amendments Nos. 17 and 21 are consequential to the removal of Clause 50. I beg to move.
Baroness Maddock: I have also put my name to the amendment and to the question whether Clause 50 stand part of the Bill. I have also put my name to Amendment No. 20, which is exactly the same as Amendment No. 17, but to a different clause.
I support the comments of the noble Lord, Lord Hanningfield, and, indeed, we have both been heavily lobbied by the Residential Landlords Association, which makes some important points. If we try to regulate the private sector we need to work with landlords. I am sure that the amount of bureaucracy with which local authorities will have to deal as a result of the Bill will be greater. Therefore anything that we can do to cut down on that bureaucracy is important.
We know that the minded-to procedure has worked and I know that the Government believe that the enforcement concordat provides a good alternative. It was part of the explanation that we were given at a session with the Minister and departmental officials. Nevertheless I should like to hear a little more from the Minister about why he thinks that it is a reasonable replacement for the minded-to procedure that has
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worked so well. I hope that he can persuade me that the new procedure will work. Otherwise, we should pursue this matter on behalf of landlords.
Lord Bassam of Brighton: Clause 5 imposes a general duty on a local authority to take the appropriate enforcement action in relation to a category 1 hazard existing on residential premises. Authorities may select the appropriate enforcement action from the options provided in subsection (2). It operates somewhat like a menu. If the intention behind Amendment No. 17 is to retain the minded-to procedures—which is the intention of both noble Lords—the amendment is defective. The amendment attempts to add deferred action notices under Section 86 of the Housing Grants, Construction and Regeneration Act 1996 to the menu of options open to an authority with housing responsibilities to deal with a category 1 hazard. Deferred action notices are in fact provided for under Section 81 of the 1996 Act. Section 86 deals with what are known as "minded-to" notices.
This is a pre-notice procedure in which the authority must give the reasons for its proposed action and it allows the person served with the notice the opportunity to make representations. We have consulted twice on the repeal of the minded-to notices—first, as far back as 1998 in a paper on changes in principle to the fitness standard and again in a paper in 2001 on the detailed proposals for the HHSRS procedure. At that point there was broad support to remove them. I am aware that there are still those who would retain those procedures.
Repeal of the minded-to procedures is in part a deregulatory measure. It was seen as costly and bureaucratic and a potential delaying tactic by owners who wanted to stall the improvement of their property. It is unnecessary where informal procedures are already in place. As the noble Baroness, Lady Maddock, and the noble Lord, Lord Hanningfield, said, we have encouraged authorities to sign up instead to the enforcement concordat. The great majority have done exactly that. The concordat commits authorities to good enforcement practice, including consultation with those affected by their enforcement powers, providing information and discussing compliance failures. The minded-to procedures are unnecessary because of the success of the concordat. This is why the Government have long advocated their repeal.
I should declare an interest because I have a feeling that in my earlier life in the Local Government Association I was partly responsible for encouraging the development of concordats. I recall that I may even have attended the signing ceremony in March 1998—although I should not wish to be pressed on that. I certainly remember the concordat process and I had the impression at that stage that local authorities preferred the concordat—with its degree of informality, its pre-consultative format and an agreement to engage with those affected by enforcement action—rather than having to go through what was sometimes seen as the activation of a pre-enforcement process being used just to delay appropriate enforcement action.

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For those reasons, we feel unable to accept Amendments Nos. 17, 20 and 21, which have a similar effect.
The noble Baroness, Lady Maddock, wanted to be persuaded. Perhaps I should make a final point. Over time we have encouraged local authorities to sign up to the concordat. We have been impressed by their coverage. The statistics suggest that some 96 per cent of all central and local government organisations with enforcement functions have adopted the enforcement concordat. So its coverage is almost universal. As a result of that success we do not think that the minded-to process has any great merit and we want to see this element of deregulation because it reduces bureaucratic burdens on local authorities. That would be to local authorities' benefit and would reduce burdens on them because we want them to act in a more precise way. It is perhaps ironic that both opposition Front Benches are urging us to retain something which we see as a bureaucratic burden. We are arguing for its removal because what local authorities have done has worked so well, particularly through the operation of the concordat. We want to see the application of that rather than a bureaucratic straitjacket.
Perhaps the noble Lord, Lord Hanningfield, believes that that would provide a necessary protection for landlords. I do not believe that he is motivated by that spirit because usually he sees enforcement as being important in certain circumstances. We certainly take that view.
We would like to rely on the enforcement concordat, but we do not think that the pre-enforcement minded-to approach is necessary. We congratulate local government on the progress it has made in ensuring that the concordat works effectively.
Baroness Maddock: I thank the Minister for giving the detailed information about the way in which the enforcement concordat works. If he had not done so I was about to ask him whether he had some figures. In the light of his remarks, I am satisfied that the situation will be satisfactory. The issue was raised by landlords. Obviously some landlords still prefer the old system, but I am satisfied by the Minister's remarks.
Lord Hanningfield: As the noble Baroness said, the matter has been raised by landlords' associations as they are concerned about the processes. I totally agree with most of what the Minister has said because there has to be the ultimate sanction of enforcement. One wants to try to do remedial works as quickly as possible with the minimum of fuss. It is best to let them happen rather than go through lots of bureaucratic procedures. We shall analyse what the Minister said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 18 not moved.]
Clause 5 agreed to.
Clause 6 agreed to.
Clause 7 [Category 2 hazards: powers to take enforcement action]:
[Amendments Nos. 19 to 22 not moved.]
Clause 7 agreed to.
7.15 p.m.
Lord Rooker moved Amendment No. 23:
After Clause 7, insert the following new clause—
"REASONS FOR DECISION TO TAKE ENFORCEMENT ACTION
(1) This section applies where a local housing authority decide to take one of the kinds of enforcement action mentioned in section 5(2) or 7(2) ("the relevant action").
(2) The authority must prepare a statement of the reasons for their decision to take the relevant action.
(3) Those reasons must include the reasons why the authority decided to take the relevant action rather than any other kind (or kinds) of enforcement action available to them under the provisions mentioned in section 5(2) or 7(2).
(4) A copy of the statement prepared under subsection (2) must accompany every notice, copy of a notice, or copy of an order which is served in accordance with—

(a) Part 1 of Schedule 1 to this Act (service of improvement notices etc.),

(b) Part 1 of Schedule 2 to this Act (service of copies of prohibition orders etc.), or

(c) section 268 of the Housing Act 1985 (service of copies of demolition orders),

in or in connection with the taking of the relevant action.
(5) In subsection (4)—

(a) the reference to Part 1 of Schedule 1 to this Act includes a reference to that Part as applied by section 27(7) or 28(7) (hazard awareness notices) or to section 39(7) (emergency remedial action); and

(b) the reference to Part 1 of Schedule 2 to this Act includes a reference to that Part as applied by section 42(4) (emergency prohibition orders).

(6) If the relevant action consists of declaring an area to be a clearance area, the statement prepared under subsection (2) must be published—

(a) as soon as possible after the relevant resolution is passed under section 289 of the Housing Act 1985, and

(b) in such manner as the authority consider appropriate."

The noble Lord said: The amendment responds to a recommendation of the Joint Committee on Human Rights.
Clause 5 places a general duty on local authorities to take action in respect of category 1 hazards. The local authority must take the most appropriate of the courses of action available to it. Under Clause 7, which provides powers to take action in respect of category 2 hazards, they may take one of the available courses of action.
In their 8th and 10th reports the Joint Committee on Human Rights expressed concerns that the absence of a duty on local authorities to give reasons for deciding which form of enforcement action to pursue under Clause 5 or 7 fails to comply with Article 6 of the convention on human rights, on the right to a fair hearing, with Article 8, on respect for private and family life, and with Article 1 of the First Protocol 1, on the protection of property.
The amendment aims to give effect to the Joint Committee's recommendation by placing a duty on local authorities to prepare a statement of their reasons for their decision to take the course of action on which they have settled, and to provide a copy of that statement with the notices, copies of notices and copies of orders that they are required to serve under the enforcement provisions of Part 1 of the Bill and the relevant provisions of the 1985 Act.
We believe that the new clause responds positively to the Joint Committee's concerns without placing local authorities under a significant additional burden. I beg to move.
On Question, amendment agreed to.
Clause 8 [Guidance about inspections and enforcement action]:
Lord Hanningfield moved Amendment No. 24:
Page 6, line 42, leave out "may" and insert "shall"
The noble Lord said: The thrust of these amendments is to tease out a little more about guidance for the enforcement and inspection regime and the resulting costs to local authorities.
Subsection (1) states:
"The appropriate national authority may give guidance".
It is clear that guidance does not have to be given, which is why we suggest in Amendments Nos. 24 and 25 that it "will" give guidance. The appropriate national authority would therefore be under a duty to give guidance rather than merely having the power to do so.
Amendment No. 26 would add paragraphs (e), (f), (g) and (h). Paragraph (e) would make transparent the training expected of environmental health officers. It is clear what the roles to be undertaken under the new system will require but one ought to be specific about what is required of local authorities rather than the rather vague provision in the Bill as it stands.
Paragraph (f) is proposed because certain specifications are expected of local authorities. Paragraphs (g) and (h) also add to the guidance. We are trying to expand the degree of guidance needed so that the time and cost implications for local authorities are much clearer and more quantifiable. We want the situation to be clear so that authorities know what the costs are, and so that the Local Government Association can make representations to the Government for proper funding.
Amendment No. 27 would ensure that any guidance issued under this section is properly scrutinized by both Houses of Parliament rather than simply being published by the Government.
Amendments Nos. 35 and 38 would provide an avenue for a local authority to seek suitable guidance in regard to the issuing and contents of prohibition orders from the appropriate national authority.
We are attempting to probe the Government's thinking a little on the system that the Bill envisages. It would surely be preferable to have a system that is easily understood, with uniformity throughout the country. There appears to be nothing at present that
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restricts one local authority from interpreting this part of the Bill significantly differently from a neighbouring local authority. Circumstances will obviously change from area to area and, indeed, from district to district whatever the Government do. Surely allowing each local authority recourse to the national authority is a sensible step. I beg to move.
Lord Rooker: I regret that my response to the amendments will be a lot longer than the speech of the noble Lord, Lord Hanningfield. He said that he was probing the Government. I am all in favour of spending time on the early parts in the hope that we can avoid later amendments. One of these days we might even be able to miss out a stage.
Clause 8 enables the appropriate national authority to give guidance to local housing authorities on the exercise of their functions under Part 1. Our intention is that the guidance will fall broadly into two categories: guidance about the way in which properties are inspected and the way in which hazards are assessed, using the housing health and safety rating system; and guidance about the way in which authorities, when they have established that a hazard exists, can use the enforcement duties and powers provided in Part 1. Those relate to the use of improvement notices, prohibition orders, hazard awareness notices, demolition orders, clearance and the use of emergency measures.
Amendment No. 24 would place the appropriate national authority under a duty to give guidance, which we think is unnecessary. I can assure Members of the Committee that we intend to issue that guidance. It has already been made available in draft.
On Amendment No. 25, we are not sure what the difference is. Noble Lords will be aware that precursors of Amendment No. 26 were debated thoroughly in the other place. There was a Division, but the argument is obviously not convincing so I shall try again—hence the extra time that it will take.
Amendment No. 26 adds to the topics on which guidance may be given. We are not convinced that the additions are necessary. More that that, all but the reference to fire safety, which is important, are entirely inappropriate in guidance about the use of the enforcement tools available to authorities. It is the case that authorities need to ensure that their officers are appropriately qualified and experienced to carry out their work on behalf of the authority. Authorities will also need to consider the costs of enforcement action to themselves as well as to property owners.
We suspect that Amendment No. 26 reflects continuing nervousness over the change to a risk assessment system. But we should not have too many qualms about current competence and experience of environmental health practitioners. I have heard no criticism of those professional officers. They are highly respected and regarded by all sections of society. They have an extremely interesting job, given the range of things in which they can become involved. The rating system requires a change of approach by local authorities. But the housing health and safety rating

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system is essentially a tool to assist professional judgment. It makes transparent the process environmental health practitioners already go through in judging fitness.
They are already trained in the use of risk assessment methods. The Housing Minister in the other place, Keith Hill, referred to an account of their members given by the Chartered Institute of Environmental Health in their response to consultation on the enforcement guidance. The CIEH pointed to environmental health practitioners',
"experience in risk assessment procedures and ability to take an holistic view of the health, safety and welfare of occupiers alongside traditional building and means of escape defects".
I doubt very much that we are talking here about the need for new qualifications. However, we shall ensure—we have made a commitment on this—that the rating system is implemented smoothly. To achieve that we shall ensure that there is adequate training in the system, and my officials are currently discussing with the Local Government Association and others the kind of training that will be required.
Subsection (1)(f), which Amendment No. 26 would insert into Clause 8, appears once again to be an attempt to write a regulatory impact assessment into the guidance. We do not believe that that is the function of guidance.
I am aware that some local authorities have suggested that inspections may take longer than at present. If so, we are not sure whether that reflects the complexity of the rating system or shortcuts that are taken now in the fitness inspection. What is certain is that inspections are likely to vary considerably in length, both in the field and back at base. Most dwellings, even really had ones, will not be riddled with serious hazards. They are likely to contain one, perhaps two, although there may be less serious problems as well. Some may well require considerable attention. Surely that should not be so, if a building is to be made safe for people to occupy.
On new subsection (1)(g), which would be inserted by the amendment, it is not clear in what circumstances authorities may need to compensate landlords. Landlords will have a right to appeal the improvement notices and prohibition orders for which the Bill provides, before they take effect—or, in the case of the emergency measures, after the measures have been taken. Compensation may well be an outcome of an appeal in some such cases. I suggest that compensation should be dealt with on appeal. I cannot agree that compensation should be a matter for government guidance under Clause 8; nor can we see that compensation is a likely outcome for a landlord who has kept his tenants in conditions so hazardous that a local authority has felt compelled to take enforcement action.
We must be sensible about this. The vast majority of landlords are good, decent property owners, providing a really good service for their tenants. Others sometimes deliberately keep tenants in hazardous conditions and ignore their complaints. Where enforcement action is taken in those circumstances, compensation should not be on the radar.
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We take far more seriously, of course, any concerns about fire safety. Fire is one of the 29 hazards dealt with by the rating system. There will be guidance on hazards from fire. It will cover the causes and preventive measures. It is not necessary to single out fire safety on the face of the Bill. All the hazards will be spelt out in the regulations which prescribe the housing health safety rating system method under Clause 2.
We want local authorities to prioritise action against all serious hazards. In the case of houses in multiple occupation covered by Part 2, they will be required to do so following an application for a licence. I promise that we shall emphasise that in the guidance that we issue to authorities.
It would be inconsistent with a system of risk assessment to prescribe specific means of dealing with hazards. However, the technical guidance to be issued under this clause will recommend that there should be adequate means of escape from fire from all parts of a building. In some houses in multiple occupation, sprinkler systems may well be required. That does not mean that authorities will require such systems in all houses in multiple occupation, but it does mean that it will be appropriate to fit them where the risk justifies it.
I hope that noble Lords will accept that the technical guidance under Clause 8 will deal comprehensively with fire and other hazards, and I believe that the elements of the amendment are either misplaced or inappropriate in the circumstances.
On Amendment No. 27, Clause 8 enables the appropriate national authority to give guidance to local housing authorities on the exercise of their functions under Part 1. I am certainly willing to take this amendment away. We shall, of course, lay a draft of the guidance before Parliament and we are willing to consider further whether the guidance should be made by affirmative resolution. I shall bring forward a suitable amendment to provide for that, if that is the final decision.
Lord Hanningfield: I thank the Minister for that very full and detailed reply. He referred to many areas covered by my series of amendments. However, he did not mention the cost at all. That needs to be assessed. He mentioned such matters as training for officers, but there will be some costs to local authorities. Local authorities will want to ascertain what the costs will be as that will be part of the bid in the revenue support grant for local authorities. We shall read the Minister's reply, and we may return to some areas later. However, perhaps the Minister could give his views on where the money will come from. The more we talk about it the more it looks as though it will cost money and that money has to come from somewhere.
Lord Rooker: I had not actually finished my reply. I gave way, but I had not yet reached Amendments Nos. 35 and 38. I was making a concession. I moved back from the Dispatch Box and the noble Lord must have thought that I had finished. I shall not be accused of missing out amendments, although I do not have the full answers to the money issue. It is a little early in the Committee stage for us to come forward with the

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money for this. I am not saying that I shall be able to do so tomorrow, but if I can give an indication of the figures tomorrow, and if it is appropriate, I shall do so. I shall be brief, as I understand that other noble Lords have not entered the Chamber to speak on the Housing Bill.
Amendment No. 35 would enable a local authority to seek the guidance of the appropriate national authority on any of the requirements of this clause. The appropriate national authority fully intends, using its powers in Clause 8, to give comprehensive guidance to local authorities on the exercise of their functions under Part 1. I suggest, therefore, that the amendment is unnecessary.
Amendment No. 38 would appear to be intended to require the appropriate national authority to give guidance specifically on whether an undertaking, such as I have described, has been breached. Guidance will cover the full range of local authority functions, so we believe that the amendment is unnecessary.
It is a massive, bold commitment on behalf of the Government. The Government are committed to meeting the local authority start-up costs. That is fairly significant. At the moment we are discussing with the Local Government Association and the Chartered Institute of Environmental Health what costs will be covered. Our estimate at present is some £5 million. That may not sound much, but we are changing the situation. Professional officers are already in place undertaking many of those functions. There is a new system and training will have to be undertaken for that new system, but our estimate is about £5 million. We are in discussion with the Local Government Association. There is a well defined procedure for new burdens on local authorities. I understand that the new burdens requirements are quite rigorously enforced so that local government is not short-changed. As I say, the present estimate is £5 million.
Lord Hanningfield: I thank the Minister for a very comprehensive reply to that long list of complicated questions. I am pleased that he acknowledged that the Government will meet the start-up costs of approximately £5 million. There will be ongoing revenue costs and no doubt we shall come to those later in considering the legislation. I shall analyse the Minister's replies. I believe that we shall require further discussions as the Bill proceeds. With that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 25 to 27 not moved.]
Clause 8 agreed to.
Lord Rooker: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Finance Bill
7.30 p.m.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): My Lords, I beg to move that this Bill be now read a second time.
I shall also be addressing the issues raised by the report of the Economic Affairs Committee on the Finance Bill 2004 and of course I shall respond to any points made on those issues in any concluding remarks.
Since 1997, Britain has sustained growth through two economic cycles. In addition, this period of sustained growth has been combined with low inflation, low interest rates and the lowest levels of unemployment for a generation. Over 1.8 million jobs have been created, while claimant count unemployment has fallen by more than 800,000, remaining consistently below 1 million since February 2001.
In his Budget speech in March the Chancellor of the Exchequer renewed the Government's commitment to monetary and fiscal discipline and economic stability. The Government remain on track to meet their fiscal rules over the next five years.
The Government are also making savings on debt interest and unemployment, helping us to meet our fiscal rules, keep taxes low and spend more on vital services. These strengths mean that the Government are in a position to invest more—not less—in public services that matter most to the people of this country. Those areas will enable the United Kingdom to grow and prosper in the global economy of the future. The Finance Bill builds on our successes, it strengthens and modernises the economy and helps to prepare the United Kingdom for the challenges of the future.
The Government are committed to delivering world-class public services, offering opportunity for all. We will drive forward with investment in essential public services, while continuing to strengthen the United Kingdom economy, to support a fairer society with stronger communities and to promote stability and prosperity around the world.
Last week the Chancellor of the Exchequer announced that current spending will rise by an average of 2.5 per cent in real terms across 2006–07 and 2007–08. In this spending round, three-quarters of spending will go to vital front-line services. So while overall spending rises by just 2.8 per cent, departmental spending—spending on vital services—will have a real terms rise of 4.2 per cent over the next three years. UK education spending will rise to 5.6 per cent of GDP by 2007–08 from 5.4 per cent in 2004–05. We will invest more in our children to build on our improvements to the United Kingdom's education system, including a new determination to make pre-school provision for the under-fives as well as childcare available to all.
The five-year settlement announced in the 2002 Budget for health and the increased resources announced in the spending review this year mean that overall health spending will grow to £92 billion in 2007–08, compared

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with £33 billion in 1996–97. We will also continue our long-term investment in our infrastructure, particularly in transport and housing. The housing budget in England will rise from £5.9 billion this year to £7.2 billion by 2007–08, a 4.1 per cent annual real terms rise. That will fund a major programme of investment in affordable and social housing in order to tackle the long-term under-investment and neglect of housing. That is vital to economic prosperity and our quality of life.
Spending on transport will grow on average by 4.5 per cent in real terms over the three-year period from 2005–06 to 2007–08. This is an ambitious programme of investment and reform that will deliver greater opportunities, expand choice and help reverse the legacy of under-investment in public services.
The Government's spending plans will help to equip Britain to meet the global challenges of the future. Productivity is the key to delivering sustained and balanced growth across the United Kingdom. In order to raise productivity levels, the Government will continue to promote competition within the economy, to support business and entrepreneurship and to raise the United Kingdom levels of skills and training.
Alongside the spending review the Government also published a 10-year investment framework for science and innovation, with the aim of making Britain the best location for science and innovation in the world. So we will not cut the science budget but increase it in average annual real terms by 5.8 per cent, a doubling of cash spending on science since 1997. We have set ourselves the ambitious target to raise overall research and development spending in both the private and public sectors from 1.9 per cent of national income to 2.5 per cent by 2014.
The Finance Bill builds on our successes in supporting economic stability and sustained economic growth. It introduces a number of new measures to support entrepreneurship and businesses. Clauses 38 to 46 will continue the Government's reform of corporation tax, extending corporation tax relief for the expenses of managing investments to companies with investment business, providing greater certainty for companies in relation to their expenditure.
Clauses 93 and 94 introduce further improvements to the enterprise investment scheme and the venture capital trust scheme. Clause 141 will strengthen the research and development tax credit, widening the definition of "qualifying costs" to include costs of computer software, water, fuel and power directly employed in research and development. Clause 142 will encourage investment by small businesses by increasing the rate for first-year capital allowances for small businesses' spending on plant and machinery from 40 per cent to 50 per cent for one year.
An important part of creating a fair society is to have a fair taxation system. The Government are determined to close down the opportunities for tax evasion and to ensure that everyone pays his fair share. The Finance Bill includes a number of measures to deliver that objective. Clauses 306 to 319 provide new disclosure obligations on promoters who market certain tax schemes, ensuring greater transparency in
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the tax system and reducing the number of contrived tax schemes used to avoid tax. Clause 19 introduces a parallel disclosure measure to help counter the avoidance of indirect taxes.
In order to discourage the self-employed from incorporating solely for tax advantages, Clause 28 introduces the non-corporate distribution rate of corporation tax, ensuring that when profits are distributed to non-company shareholders, some or all of the company's profits are charged at a minimum rate of 19 per cent, thereby protecting low rates of tax for those companies that are investing in growth.
As a part of an enhanced strategy to combat spirits fraud, in Clause 4 the Government introduce duty stamps for spirits from 2006. Clause 84 introduces an income tax charge on previously owned assets in order to reduce unfair tax avoidance through the use of trusts.
There has been some criticism of the length of this year's Finance Bill. Yet the Government's pension simplification proposals, which make up some 170 pages of the Bill, actually remove over 350 pages of complex legislation and sweep away nearly 1,000 pages of guidance. Clauses 149 to 284 constitute a radical simplification to one of the most complex areas of the tax system. They introduce a single set of rules for all tax privilege pension schemes; they streamline the registration process for new pension schemes; and they allow for greater flexibility for around 15 million pension savers.
This is a modern and progressive Finance Bill. It is realistic about the challenges this country faces in competing with the world economy. The measures to create fairness in the tax system and in the wider economy will ensure that more people will be able to benefit from our economic strengths. The Bill maintains the principles of stability and economic growth which underpin an enterprise economy that supports fairness and opportunity for all to enjoy increasing prosperity. I commend the Bill to the House.
Moved, that the Bill be now read a second time.— (Lord McIntosh of Haringey.)
7.40 p.m.
Baroness Noakes: My Lords, I start by thanking the Minister for introducing the Bill. We welcome the opportunity to debate the Finance Bill and the report of the sub-committee of the Economic Affairs Committee, which considered the Bill. I pay tribute to those noble Lords on the sub-committee who produced a valuable report in the necessarily short timescale.
The fact that your Lordships' powers are limited on money matters will not diminish the relevance of our debate. We can demonstrate, as the sub-committee has demonstrated, that we have relevant expertise to contribute. I particularly look forward to the contributions of my noble and learned friend Lord Howe and my noble friends Lord Wakeham and Lord Northbrook, not to mention that of my noble friend Lady Wilcox, who will be winding up for these Benches. I also look forward to the three maiden

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speeches. We are indeed fortunate in having the noble Lords, Lord Bhattacharyya, Lord Giddens and Lord McKenzie of Luton. I know they will agree with me in a couple of hours' time that it really was not too difficult after all.
There is a lot to debate on the Finance Bill, and I will start with the Budget from which the Finance Bill derives and the Chancellor's economic management. Last week, when we debated the spending review, I was somewhat taken aback by the criticism of the noble Lord, Lord McIntosh, that the noble Lord, Lord Newby, and I had been,
"scratching around at the margins rather than even attempting to attack the Chancellor's record".—[Official Report, 12/7/04; col. 1040.]
I do not know whether the Liberal Democrats deserve that, but I put on record again our view of the Chancellor's performance. This applies to the Budget, the spending review, the Finance Bill and every interference in the economy that emanates from the Chancellor's office.
The proportion of GDP taken by public spending has been rising fast and is set to exceed 42 per cent in 2007–08. Big government is not in dispute, but this Government have gone beyond big; they are fat, and that is not healthy. Last week's spending review was an admission of inefficient spending. We applaud the belated attempt at efficiency outlined in last week's statement, but we have no confidence that the head count savings will be realised, because the Chancellor has absolutely no track record in delivering any of the many reductions in civil servants that he has promised in previous years. He does have a track record of presiding over public services, which have demonstrated massive reductions in efficiency according to all studies to date, including those of No. 10 Downing Street and the Office for National Statistics. If the subjective judgments apparently favoured by this week's Atkinson report are ever allowed to gain currency, that may well allow the Government to paint a different picture in future, but we do not believe that any rational assessment of quality gains could outweigh the truly massive decline in measured efficiency over the past seven years.
I could talk about the loss of the savings culture; the regulatory burdens on business; competitiveness; the fall in productivity growth and so on. I do not have time this evening to lay out the full charge sheet, but I do not want the Minister to be under any illusions about our view of the Chancellor's stewardship.
Last week, the Minister ducked two of the questions that I put to him on the Budget and the effect of the spending review, so I will put them to him again. First, I ask again whether the golden rule will be met over the current cycle, which runs to 2005–06. The Minister replied last week on the Chancellor's sustainable investment rule, but I hope that he will be able to reply on the golden rule tonight. I hope that he will also deal with whether the golden rule will be affected by Network Rail coming on to the Government's balance sheet, as well as the effect on tax receipts of the extra pension contributions that have recently been reported.
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Secondly, I ask again:
"Will the Minister assure the House that these spending plans will be delivered without the Chancellor raising taxes or national insurance over the whole period to 2007–08".—[Official Report, 12/7/04; col. 1038.]
Our analysis is that he will find it difficult, if not impossible, to do so. The Minister replied last week in terms of assumptions about tax rises, but that is not what I asked. I asked for an assurance. My question has even more relevance given the refusal by the Paymaster General last week to give my right honourable friend Oliver Letwin that assurance.
These matters of the economy and the dangers that lie within it are of greater significance than the contents of a single Finance Bill. I cannot remember ever seeing a three-volume Finance Bill. There are 637 pages—328 sections and 42 schedules. A massive amount of secondary legislation is necessary to put the Bill into effect. The Minister might doubt that it is three volumes, but I have it here. That is probably a record, although I do not intend that as praise.
I have been trying to reflect on why the Chancellor has produced these massive Finance Bills year after year. It seems to be symptomatic of a Government whose first instinct seems to be to get themselves involved in the minutiae of life in this country. This is a Government who do not content themselves with principles; they try to micromanage everything, which is why the public services have been weighed down with instructions and targets, and it is why businesses are regulated to distraction. It is why Finance Bills find more and more areas in which to intrude, and in so doing create yet more complexity and more regulatory burdens. Those are all signs of fat government.
Our feelings about the Finance Bill are not those of anger; although I know many who are affected by the Bill feel that way. Rather, we feel the greatest sorrow that so much should be inflicted on individuals who should be left to get on with their lives, and on businesses that should be left to get on with wealth creation. My noble friend Lady Wilcox will be talking about the Government's attacks on small businesses and on the spirits industry. I shall confine my remarks to a few other areas of the Finance Bill.
The Finance Bill sets up massive anti-avoidance reporting requirements. Of course, they were not worked out in advance, which is why the first set of draft regulations produced universal condemnation from the practitioners who must deal with those regulations at the sharp end. We have no time for those who abuse our tax system, but these new laws run the risk of making ordinary commercial life uncertain, and compliance will be burdensome. I hope that the Government will at least take on board the entirely sensible recommendations of the Economic Affairs Committee in this regard.
The so-called simplification of the pension provisions is far from simple and was not consulted on in advance. In response to industry concerns, the Government modified some of the worst aspects during the passage of the Bill in another place, but it is undeniable that the provisions are complex, particularly in transition. The new pension rules have some undesirable features, and I

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shall single out one, which is the technical rules for valuing final salary scheme pensions, which will be treated much more favourably than those for money purchase schemes. This benefits public servants in particular, and will accentuate a "them and us" divide, given that the effect of the Government's general policies towards pensions is to drive private sector employers into defined contribution schemes. As the CBI's pension strategy group reported earlier this week, the gap between public sector pensions, which taxpayers pay for, and other pension arrangements is causing growing resentment. The Government will come to regret that.
The 70-odd pages of the Bill devoted to stamp duty land lax tell us several things. First, they tell us that the Government introduced this new tax last year before they had worked it out properly. Secondly, they tell us that this tax will continue to be administratively burdensome and costly in compliance terms. Thirdly, they tell us that the law of unintended consequences is alive and well, and this tax has already distorted pricing in the housing market around various trigger points.
My right honourable friends in another place fought valiantly, but unsuccessfully, to improve the Bill in various ways, including modifying the worst aspects of the pre-owned assets and trusts rules. They tried and failed to get some certainty about fuel duty in an era of volatile prices, although I note that today the Chancellor has at least conceded that the autumn hike will not be implemented. They sought, to no avail, to restore some credibility to savings by reinstating tax credits for ISAs.
The Finance Bill before us is a monument to the intruder state and produces no net benefit for the life of the country.
Finally, perhaps I may say a few words about the role of your Lordships' House in scrutinising the Finance Bill. We strongly supported this innovation—and I have already paid tribute to noble Lords who worked on the sub-committee—but there was one very black spot: namely, the lack of full co-operation by the Treasury, which is well covered in the sub-committee's report.
It is well known that the Chancellor does not want our House to go anywhere near his Finance Bill. It is clear that civil servants in the Treasury effectively withdrew the usual full co-operation that your Lordships' House expects. It is not clear whether the Chancellor encouraged or merely allowed his civil servants to behave in this way. Either way, it is a matter of the gravest concern and really has to be sorted out.
Related to this is the Government's response to the report. I searched through the report of the Finance Bill proceedings in another place to find what the Government had to say about the sub-committee's report. I found nothing, though Members on the Benches of Her Majesty's Opposition and those of the Liberal Democrats clearly found the analysis and evidence useful. Of course we have not had a formal Government response to the sub-committee's report to consider today, and so we cannot debate it in those terms.
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I believe that these issues must be addressed when your Lordships' House comes to decide whether to make this new sub-committee a permanent part of our universe.
7.52 p.m.
Lord Peston: My Lords, I thank my noble friend for introducing the debate. It is a trifle bizarre because the relevant document shows that he will introduce the debate and then, on the following line, it states that I am to introduce it. I am not going to behave as if I am introducing it. I can tell noble Lords—all of whom, I assume, are like me and want to go home—that I have no intention of speaking a second time at the end of the debate.
Perhaps I may follow my noble friend and begin by saying a few words about the economy. In my judgment, the economy is in better shape now than I have known it in the 50-plus years that I have been a professional economist. This is a source of concern because there then follows the sad possibility that the result may well be large-scale unemployment of economists.
But—and this is not for the faint hearted—it is a dangerous thing to say because the record of economists when they are optimistic is pretty poor, to the point of being disastrous. Just before the stock market collapse of 1929, one of the world's greatest economists predicted that the great crash would definitely not happen. I can give many other examples. My own favourite is that, one or two days before the 1967 devaluation, I said on the BBC that the value of the pound would definitely be maintained. So, in saying that things are good, I appreciate that this might be the end for our economy.
In saying that the economy is in good shape, I am not remotely saying that there is no room for controversy. Speaking personally, I would favour a degree of fiscal tightening coupled with a modicum of monetary easing. But that is a technical point. I think that most economists would agree that the Chancellor's position, the position that I have just mentioned and that of several other economists are all within what we might call the compass of reasonable discourse. I think that is a fair way of putting it.
Turning now to the report of the sub-committee on the Finance Bill, I can reassure your Lordships that we have done exactly what we were required to do. We have stayed within our terms of reference; we have not strayed into any party political wrangling; and we have impressed all interested parties but one—the Treasury. Given that we have got "As" for everything that we have done and a "C" from only one body, I prefer to concentrate on all the "As".
Certainly all the experts agree that our dispassionate approach, based throughout on evidence, is precisely the right way for the Finance Bill to be scrutinised. Many of them have said to me—and I agree with them—that it would be a welcome development if the other place adopted our approach. It might also please the Chancellor because, apart from anything else, if it did adopt our approach, our contribution might

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become irrelevant. But I am absolutely certain in my own mind that what we did, and what your Lordships asked us to do, is the correct way to move this subject forward.
I shall say a few words on the report itself even though, as always—naively and pathetically—I assume that all noble Lords who are taking part in the debate have read every word our report and the three volumes of the Finance Bill itself.
Before I do so, however, I greatly welcome the fact that three maiden speeches are to be made in this debate. It is an honour for me to have chaired a committee which has attracted three such major figures to address your Lordships on the topic before us. Certainly this is the last time that I shall be addressing your Lordships as the chairman of the Finance Bill Sub-Committee, and it may well be the last time that I shall be addressing your Lordships as the chairman of the Economic Affairs Committee—it depends on the timing of our next debate. I very much look forward to the three maiden speeches.
Turning to the report, I must, as always, thank our clerk, Robert Preston, and our two specialist advisers, Mr Leonard Beighton and Mr Brian Sheppard, who are retired senior officials of the Inland Revenue, for all their work. As opposed to the Economic Affairs Committee and other committees of your Lordships' House, when we are carrying out this kind of scrutiny we rely enormously on the expertise of our advisers, as well as on external people. It is not something I feel enormously confident about without proper back-up. On the assumption that we do go ahead and make this a permanent part of our proceedings, we must find the funds to have the scale of expertise that we had this time.
Given the compressed amount of time we had available—and I thank all noble Lords who took part—it became a full-time job. Even then, we could look at only five topics. Last year we looked at three or four. I cannot remember why we chose the five topics; it may have been the chairman's whim. We looked at the tax and VAT avoidance schemes, about which I shall say something in a moment; and we looked at pension schemes. I was a little puzzled by the intervention of the noble Baroness, Lady Noakes, on this issue. I know that she will have read our evidence, and overwhelmingly all the outsiders said that they thought the simplification was a simplification and that they totally approved. So I am slightly surprised at her intervention suggesting that it was not and that people did not approve; they certainly did.
We considered the issue of small business taxation. I think the noble Baroness is right that the law of unintended consequences is working there and it was interesting to see how the relevant matters emerged. We considered stamp duty and land tax, to which I shall return; and then we came—this was definitely the chairman's whim—to the duty stamps for spirits, and I shall say a word on that in a moment.
If I were asked why we chose those topics and whether there were rational grounds for doing so, I suppose I could say that two or three of them were very important and the others were at least interesting. That is not bad.
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Let me take a little time on the issue of tax avoidance schemes. I knew very little about the subject beforehand. I knew there were such things, but I had no idea of their scale and the appalling behaviour of major firms in our country in devising these purely artificial schemes, which bear no resemblance to the businesses concerned and what they are about. This is not a party political point, but the one thing I am absolutely certain about is that any government would wish to remove that artificiality from our tax system, if for no other reason than that the ordinary people in this country—I include myself in that—pay the full tax on everything they earn. To discover, as we did only the other day, that leading professional footballers of a club I support were actually paying less tax than the average wage-earner on their so-called outside earnings simply will not do. For the tax system to work, it requires the support of the general public.
We raised the point that in trying to deal with the reporting, you could end up, in the early stages, with over-reporting. We have no doubt about that. As at least one former Chancellor will be addressing us, perhaps I may say that what tends to happen is that, on the whole, you go in blind and for a bit of overkill. I know that we are not in this business to be loved, but what struck me is that no one ever says how right we were and that they will now do as we say. Despite the fact that the Treasury will swear blind that it has not read a word of what we have said, it responds to matters of that kind. I am at least confident that although in the early stages there will be over-reporting of the registry, the system will enter an equilibrium that will work. I think that genuine people, who simply want to make sure that the system works properly in their ordinary businesses, will be reassured. So I am not worried about that, apart from in the very early stages, when there will be difficulties.
I am certain that the Chancellor needs to go beyond just recording these artificial schemes; something needs to be done about stopping them. I think that some of my noble friends will have something to say about that.
There are two other topics on which I want to speak briefly. I did not realise before we started that one of the problems with the stamp duty land tax was, again, tax avoidance. Partnerships were being artificially created in order to avoid paying stamp duty land tax. It is a very good example of how the bad drives out the good. Legitimate partnerships are, quite rightly, concerned that they should be correctly treated but, if people are inventing artificial partnerships as a tax avoidance device, it is not in the least surprising when the Treasury reacts by saying, "We are not going to have it". There are ways in which one can distinguish the genuine from the fictitious. It is a good example of why we were right to look at this issue; most of us knew nothing about it until we did.
On the point about spirits, my noble friend Lord Moser, who is a great figure in the field of statistics, impressed on us the total inability to reach any agreement on the scale of the problem. We were all quite shocked by the fact that the range was not between one number and plus or minus 10 per cent—

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we had a range of several hundred per cent between the least and the most. That is also illustrative of why this is worth doing. As I understand it, from what we have been told recently—perhaps my noble friend the Minister will tell us more about this when he replies—the Government have approached the industry and are considering a rather different way of getting into the same area without quite going down the road of enormous compliance costs. If that is happening—I know that the Government would not dream of saying they were making any changes because of us—that reassures me to some extent.
I have gone slightly over time. I reiterate that I think we have done a useful job; and if we can find 12 good men and women and true for next year to put in this much effort, I very much hope that we will continue to do it. I look forward next year to sitting on the Back Benches and contributing to such a debate again.
8.4 p.m.
Lord Bhattacharyya: My Lords, it is a great honour to address the House for the first time. When I was a small boy, I visited the House with my father. I wandered around in wide-eyed amazement at the splendour of the place. I never dreamt that one day I would be a Member. One did not see a non-white face. Today, I feel much more comfortable. A confident nation has nothing to fear from being inclusive.
I must thank noble Lords from all parts of the House and the officers of the House for the warmth of the welcome I have received. My supporters—my noble friends Lady Dean and Lord Corbett—and my mentor, my noble friend Lord Haskel, have been especially welcoming. With support like this, the errors from now on can only be mine.
Over the past few weeks, the debates in the House have impressed me with their breadth and incisiveness. The report before us is a good example. I commend my noble friend Lord Peston and the Peers on the Select Committee for the diligent work that has gone into producing it. I thank him for it, and for the opportunity to make my maiden speech on such an important topic. But first, I would like to introduce myself.
I am a Bengali, born in Dacca to a liberal Hindu family, in what was then part of an undivided India. At partition, my family became refugees. We made a new home in Bangalore. My father was a scientist, and he became a professor of chemistry at India's first research institute.
Industrialisation meant that engineering was vital to the new nation and, like many youngsters, I wanted to be an engineer. To gain experience, I was sent to England, to Joseph Lucas, one of the world's greatest centres of electrical engineering, to do my graduate apprenticeship. On completion, I was fortunate to be awarded a Lucas fellowship at Birmingham University, completing a Masters and a doctorate.
I agree with what the Prime Minister said yesterday in all but one thing: the 1960s were a great time to be a student. As the saying goes, it was a time when sex was safe and flying was dangerous. The original intention was for me to be trained in England and to
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return to India to run one of our major family organisations. England, however, was far too much fun—a time of flower power, social innovation, Mini cars and miniskirts. Life was so exciting. It was great at Birmingham to play cricket all day and then do my research on the night shift. I suspect that my cricketing days are the reason my knees are not quite as good today as they should be.
Watching the game was not always quite such fun. I went to Lords to see England play India. I am afraid that I failed the test named after the noble Lord, Lord Tebbit. Before I could open my hamper, Typhoon Tyson and Freddie Truman had put India to the sword. The scoreboard, at one time, read nought for five. Yes—five wickets down for no runs scored.
I have lived very happily in Moseley in Birmingham for more years than I lived in India, with my wife and three daughters. I am still enjoying life in England, and still learning.
Entering the 1970s, I felt that large sections of our industry lacked the intellectual horsepower needed for success. That was underlined by Monty Finneston producing a devastating report on the engineering sector. He identified the polarisation between industry and the universities. Universities were in splendid isolation, arrogantly labouring with an antiquated curriculum. Industry did not comprehend the intellectual rigour that was needed to propel it into the new age.
I had been giving a great deal of thought to how to develop manufacturing as an academic subject. To understand what was happening in global manufacturing, I studied the performance of manufacturing in Japan, the US and mainland Europe, and I continue to do so. Success in manufacturing involved a complex interplay of economic, technological and political factors, which were in a constant state of flux.
Over at Warwick University there was a vice chancellor with very innovative ideas. Jack Butterworth—later to become Lord Butterworth, an eminent member of the Conservative Benches—was a real visionary. He knew that Warwick could be established as a leading player only by doing something different, and he invited me to join him. I had the opportunity to create a new type of centre, bringing together the best of industry and academia on a greenfield site. I was the director and the first professor of manufacturing in Britain when the Warwick Manufacturing Group was established in 1980. Looking back, that was one of the triggers that propelled Warwick University to the top level of universities.
In fact, 1980 was not a good time to be starting a manufacturing group of any kind. British industry was in the pits. It was tough. I had very few resources and the whole idea of a university working that closely with industry was against the grain.
Meanwhile, the first Thatcher administration grasped the nettle of tackling our industrial relations problems. Legislation quickly followed that led to the deregulation of our markets. In many parts of the country, market

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reform was very painful, but it was an essential precursor to enhancing the competitiveness of our firms. Those changes improved the environment in which companies operated, but they exposed the failings within companies. Managers had no hiding place and no more excuses about poor industrial relations. Their products had to stand or fall in the open market.
The product of the Warwick Manufacturing Group was in great demand. We were in the thick of the reform process, working with firms big and small to improve their management and their technology. We learned about how to turn around and restructure businesses successfully, and how to raise the skill level of existing staff and create an environment where they could exploit bright young graduates.
The first stage was to keep the firms alive. The next challenge was to make them sustainable. Sustainable success means that companies need to be open to new ideas and to generate a constant flow of new products. That requires research and development. The flow of in-company research and development had dried up, jettisoned in the struggle to survive. We realised that to restart in-company research and development, firms needed a helping hand. We created a demonstrator for the automotive sector. That gave students access to industrially relevant research and state of the art equipment and it gave firms access to a constant stream of new ideas.
When the Prime Minister opened the Advanced Technology Centre at Warwick in January 1990, it was the first of a kind—a new type of research-driven partnership between a university and industry. Today, the Warwick Manufacturing Group, which I lead, is among the largest of its kind in the world. We are proud to work with numerous firms and governments in Asia, Africa, North America and mainland Europe.
At home, the structure of the economy has changed over the past 25 years. Today, small firms play an increasingly important role. The report that we have before us makes some very important points about the burden of tax collection on small companies. I share the views of the Select Committee when it identifies, in Chapter 4 of the report, the issues that face small firms.
Successive Finance Bills have grown increasingly complex. Unlike individual taxpayers, small firms do not have the option of the Inland Revenue doing the calculation for them. They have to self-assess. The Inland Revenue should have a set of simple regulations, which would, of course, be had news for accountants. I am in complete agreement with the Select Committee when it states:
"Finance Bills need to strike an acceptable balance between the protection of revenues and the imposition of compliance costs on the taxpayer".
Gordon Brown has done many things on the fiscal front, and not just for small businesses, to make Britain an even better place to do business. Those improvements have now developed a momentum of their own. For example, my home town of Birmingham has changed beyond recognition in the past few years. Today, the city is a place of which we
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are all proud. I still cannot forget seeing the President of the United States walking along Gas Street Basin to have a pint in a canal-side pub. At one time, a canal-side walk would have revealed nothing more than an old pram and a rusty bike.
As a past board member of the regional development agency, I have seen how regeneration lifts up areas such as the Black Country, enabling them to share in our economic success. In Coventry and Warwick shire, where Warwick University is located, we have effectively full employment for the first time in a generation.
We do not live in a totally free-market society. In a mixed economy, improvements in education and training, science, health and infrastructure obviously require government action. We all know about the huge investments in education and health, but extra spending on science and technology, coupled with tax credits for corporate research and development, is now starting to have a major impact. I was pleased to see that commitment maintained in the Chancellor's spending review.
Governments will always claim kudos for improvements in the economy, but it is important, too, that we have a growing sense of self-confidence and pride in our nation. We should not want to be a nation that wins a cup every now and then: we should aspire to be good at everything that we do. That must include test match cricket and, in that sport with a larger ball, taking penalties.
Finally, I concur with noble Lords who have undertaken scrutiny of the Finance Bill. Their work has great value, and serious consideration should be given to placing the sub-committee on a permanent footing. I know that maiden speeches are meant to be non-controversial, but I think that the Government should want the House to debate and scrutinise important parts of their programme, and would help to make such a process possible. There is nothing wrong in the Treasury having that confidence.
I commend the report to the House and look forward to participating in the important work and debates of this Chamber.
8.14 p.m.
Lord Howe of Aberavon: My Lords, it is a great pleasure to be able to congratulate the noble Lord, Lord Bhattacharyya, on an outstanding maiden speech. I do so with the knowledge that too, have migrated to Warwickshire, but only from Aberavon which is not quite as far as his own migration, originally from Bengal.
There are many other reasons why I welcome his speech. He is a distinguished academic and entrepreneur, who did not disclose all the aspects of his skill as a cricketer. He is certainly a very enthusiastic cricketer. On one occasion he had the privilege of playing against Don Bradman's team in Calcutta, when they were on their way back from the United Kingdom to Australia. That is an additional, formidable achievement.

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More seriously, there is his reputation for the achievements of the Warwick Manufacturing Group. I have been told that he had a desk, a chair and a secretary—and nothing more than that—when he started his academic career there. He has now transformed it into a business with an annual turnover of some £80 million. The university owes him a great debt for that.
Finally, I do not think that he disclosed his Brahmin origins. Brahmins are said to turn into either teachers or preachers. He seems to me to have had a marvellous blend of success in both respects. So we salute a Brahmin who is now a Brummie, who played against Bradman—that is a remarkable feat. We very much look forward to hearing from him again in debates of this kind, and others, in the House.
I have intervened, again, on a Finance Bill with some hesitation, because it is now 21 years since I have brandished a Budget box with authority and my knowledge is getting pretty rusty. I do so particularly, to follow the example of my noble friend Lady Noakes, to welcome emphatically the report that is before us from the economics committee. It is a most important contribution to the work of the House. I like to think that, had I been in the Treasury, I should have been rather more welcoming of it than appears to be the case now. I look back with some guilt on the lack of enthusiasm that I displayed towards the Treasury and Civil Service Select Committee of the other place, which was invented at about the time I went to the Treasury. So we have to have some sympathy with the Chancellor, but he will get used to this committee. I certainly hope that we shall renew it when this one finishes its term, particularly because the style, which the noble Lord, Lord Peston, commended, is exactly the kind of style with which Parliament of both Houses should be considering legislation of this kind and, indeed, many other issues. I admire the extent to which my right honourable friend in the other place, Oliver Letwin, manages to achieve that style.
We live in a society where there is now a very large degree of common ground between the parties. Many of the reforms enacted by the Thatcher government which were denounced at the time have been accepted as the foundation for the work of this Government. There is a great deal of common ground, and one of the oddities is that, as a response, the major parties have indulged in excessive product differentiation of a striking kind. That is not the right way in which to consider the sort of issues that we are considering today.
I am glad, therefore, that the Chancellor has done so much to build on the foundations which we laid, but am worried at the extent to which he seeks to erode them. I must list some shortcomings about his performance to which one must draw attention. My noble friend Lady Noakes spoke of the "fat government". That is carrying the metaphor a shade further than "big government". The Chancellor undoubtedly demonstrates a tendency towards obesity, both of paper consumed and language deployed. I am struck by the fact that my first Financial Statement and Budget Report—the Red
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Book, as it was then known—contained only 33 pages, was for sale at the cost of £1.25, and weighed only 68 grams. However, the latest Financial Statement and Budget Report costs £45, contains 296 pages and weights 1.12 kilos. That is obesity on a substantial scale in terms of paper generated. The public spending review has been transformed in a similar way.
I turn to the scale of Finance Bills—the noble Lord, Lord McIntosh, will have heard this argument previously. I pleaded guilty to an average of 98 sections and 15 schedules and my pages were on average just short of 100. However, the Chancellor's average is 141 sections but he has far exceeded that this time. His average is 30 schedules but this time he has 42 schedules. His obesity tendencies are expansive and continuing.
The Minister succeeded in giving the Chancellor a legitimate alibi in relation to pension simplifications. One must acknowledge that that is a step in the right direction, although there is no doubt that it is less than perfect. I also acknowledge that there is a real need to continue to tackle the problem of tax evasion, which is the most elusive topic. He was right to try to tackle that, although I shall return to it in a moment.
One final mitigation is that when we were in the Treasury, we succeeded in repealing certain taxes, such as capital transfer tax, development land tax, investment income surcharge and national income surcharge. We are well rid of those taxes.
Another demonstration of obesity is the hugely self-praising style of the language in all that the Treasury produces. The chapter headings of the spending review are all written in the most self-congratulatory fashion: "Stability, security and opportunity for all", "Efficiency", "Better public services", "A stronger, more productive economy", "A fairer society with stronger communities", and "Global security and prosperity". Heaven on Earth! The final capping for the dossier—inevitable these days—is an immensely fulsome foreword by the Prime Minister, which really should be avoided. The language and style are much too full of such self-congratulatory content.
To become rather more serious—these are serious points—the Chancellor no doubt will have noted in the magazine Prospect that he was selected as one of the 100 most intellectual people in this country. I hope that he will also have noticed the comments by one of his colleagues in that league, Samuel Brittan, who said in the Financial Times last week that the Chancellor's insights were,
"delivered in an unappetising mixture of Labour-speak and management consultant jargon. They have no grace or magnanimity towards predecessors, but assume that the world began in 1997. Then there is the continuing misuse of the word 'investment' to describe",
any form of public expenditure. He continues:
"I wish somebody would tell the chancellor … that self-praise has a bad odour".
That is a fair judgment on the style with which the Chancellor has approached many of these matters.
Apart from the volume of legislation, I commend the move towards simplification in the pensions field. That is in line with the task that I have been carrying

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on, thanks to the Chancellor; that is, the tax law rewrite project. I very much welcome his continued commitment to that. I am, however, sad that he is not prepared to take it further by responding more positively to the proposals of the Budd committee of the Institute for Fiscal Studies last year to establish a tax structure review project directed to examine the shape of taxation, quite apart from the language of it. That is the kind of work that could be carried forward successfully if we were allowed to maintain our economics committee in this House. Better still, that committee could work in partnership with the comparable committee in another place.
I draw attention to one aspect of the Bill on which the committee focused; namely, Clause 28 and Schedule 3, which involve the corporation tax zero rate. The Chancellor has allowed that to survive for only 12 months. A large amount of the material is there directed to try to repeal that mistaken attempt to shape the economy with the encouragement of smaller corporations. If the Chancellor is to produce proposals of that kind, it surely makes more sense to consult about them more fully, otherwise to resist the temptation. The committee quite rightly concluded that,
"the government, by its rhetoric, (including the reference to incorporation being undertaken 'often as a result of marketed tax avoidance schemes') presented the proposals as a part of the anti-avoidance strategy."
The committee goes on to say,
"We understood the argument of the private sector that the mischief to which the measure was directed was actually no more than a natural reaction to a tax incentive, which had been deliberately introduced."
That is illustrative of the kind of mistake that can follow from over enthusiasm.
I hope to summarise my message to the Chancellor from now on. It will be the same as my message to both major political parties and indeed to the Liberal Democrat Party. It is a six-word election manifesto which I would like to see us all fighting in the next election: For God's sake leave us alone!
8.26 p.m.
Lord Giddens: My Lords, let me begin by expressing my profound sense of privilege on becoming a Member of this House. I am very conscious of the wealth of knowledge and expertise that exists in the Chamber. It is indeed a somewhat daunting environment in which to speak, yet it is also a most friendly and welcoming one. I should like to express my thanks for the helpful and courteous attitude everyone here has displayed towards me.
It is very fitting that I should begin my contributions here by commenting on a report from a committee chaired by my noble friend Lord Peston. He and I share a similar academic background. I am by training a sociologist and political scientist. I was for some years a member of the Faculty of Economics at the University of Cambridge. If I wanted to be a bit mischievous I could say that Cambridge is our leading provincial university.
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Subsequently I became director of the London School of Economics for a period of some seven years. My noble friend Lord Peston taught at the LSE during the early part of his career and he had a remarkable track record there.
It has been said that the haggis and tax law have much in common: they both involve bloody processes, the end results are a mystery and those of squeamish disposition should not get caught up in the making of either. I am pleased that my noble friend and his colleagues have proved themselves to be unsqueamish, at least as far as tax regulation is concerned. I should like to congratulate them on their report, which contains a great deal of value.
As they point out, this is only the second time that a House of Lords Select Committee has looked in depth at a Finance Bill. I echo its hope that consideration might be given to establishing such a procedure and the sub-committee itself on a more permanent basis.
Nothing divides political opinion more than the level of taxation appropriate to a society. However, the passions roused by this issue could direct attention away from other aspects of taxation which are just as significant. Indeed, I would make the case that a new approach to taxation, or, more accurately, to its implications for behaviour, is one of the distinguishing features of the progressive approach to politics that I represent and to which I have tried to contribute. Unlike the traditional Left, a modern, progressive approach—the third way, if you like—is concerned in a central fashion with economic dynamism and job creation.
Unlike the traditional Left, such an approach emphasises the fostering of an enterprise culture, entrepreneurism and risk-taking. We need risk-takers not only among those who run businesses, but also in the labour force because of the need to respond to high levels of technological change. Unlike the Right, however, a progressive approach regards social protection and social justice as not only compatible with these emphases, but as inherent in them.
When appropriately structured, taxation plays a key role in pursuing such objectives. Taxation and different tax regimes can have a crucial impact on economic dynamism and on social citizenship. We should always be seeking to structure the tax system in such a way as to maximise wider economic and social benefits.
In recent years, we have seen how successful such an approach can be. For instance, tax credits such as the working families' tax credit have simultaneously helped to promote entry to jobs and to alleviate poverty. Micro-credit has been deployed with great success, to allow people without financial resources to start their own businesses. Fiscal incentives have been used in conjunction with venture capital to encourage small-business start-ups in poor areas. As a consequence, as my noble friend remarked, we have an economy that is strong and stable, yet in which there is increasing investment in public services, along with reductions in levels of poverty.

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Enterprise must go along with citizenship, however. The report has an important section on tax avoidance, especially the problem of dealing with what are called,
"sophisticated and aggressive tax avoidance schemes".
Abusive tax avoidance is an issue of core importance today, on a national as well as an international level. Tax-avoidance schemes currently cost the Treasury £13 billion a year in lost income, money that could and should be spent for public purposes. It is good to see new steps being introduced to counter the effects of the tax-avoidance industry. Many of those in that industry, in reacting to the Bill, claim that proposals for the prior disclosure of tax-avoidance schemes add to an already demanding framework of legislation. Parallel legislation in place in the US, however, has already led to the closing of 29 types of abusive tax shelter.
Of course there will always be tussles between the promoters of tax planning and the revenue services, but we should not accept the idea that individuals or companies will seek by hook or by crook to escape paying as much tax as they can. We want more entrepreneurs, yet we should expect and ensure that they behave as responsible citizens. Aggressive tax-avoidance schemes are of a piece with a decline in ethical standards that has afflicted major areas of business in recent years, with results about which we all know. Enron had 881 offshore subsidiaries and paid no taxes at all in the US during four of its last five years. Anyone who paid one dollar of taxation in that time was paying more than a corporation ranked high in the Fortune 500.
Abusive tax avoidance is by definition not illegal, but its consequences for public life and business ethics are as far-reaching as practices that are. Franklin Roosevelt's economic adviser, Henry Morgenthau, once pointed out that if taxes are the hallmark of a civilised society, as I believe that they are,
"too many citizens want civilisation at a discount".
Such a comment applies with even more force today than when it was originally made.
8.33 p.m.
Lord Sheldon: My Lords, it is a privilege to follow the noble Lord, Lord Giddens, and to congratulate him on his maiden speech. A speech of any kind in new territory is always a bit of an ordeal, but he can be assured that we listened to him with interest and approval. As the director of the London School of Economics, he has obviously been at the very forefront of our national life. That in itself makes him one who will always be listened to with interest whenever he makes a contribution in this House. However, among the many notable things that he has done is to be a Reith lecturer, which is an indication that he has been able to contribute to our understanding of the world as it is, as well as the world as it ought to be. It was a distinguished maiden speech, and we look forward to hearing from the noble Lord on many future occasions.
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The noble Lord, Lord Peston, is standing down as the chairman of the Economic Affairs Committee, which we of course regret. We have benefited greatly from his chairmanship but, fortunately, we know of his continuing interest in economic affairs, so he will remain an undiminished intruder in such debates. We welcome that.
What we have seen in the past few years is the surprising economic stability of this Government. That has had a particular effect on house prices. For the first time ever in our memory, people assume that stability will continue for ever. Once people make that kind of assumption, which is a novel one that has never been made before, they feel secure. Even if their income varies a bit, they feel that there will be stability every year.
Turning to the work of the Select Committee, last year a committee of the House of the Lords reported on the Finance Bill for the first time, and we carried out a similar task this year. We had to consider the technical aspects of tax—clarification and administration—but not of course the rates or instance of taxation, which are matters for the House of Commons. We understand that. Our particular advantage has been that we have Members with considerable experience and expertise. They have occupied positions of relevance and so they have a sense of perspective. That is what gives them something extra compared with the House of Commons.
This means that the House of Lords can make a useful contribution to the debate. That is shown by the unanimity of the committee, which extended to all its decisions. We do not have the same responsibility as the House of Commons, but the views of our committee should be of some use. The House of Commons finally decides the matters in the Bill, but some input from here can be welcomed. Now that the hereditary Peers have been reduced in number, the House of Lords cannot be assumed to be just another interest group. Our work has been to examine whether the legislation can be as effective as one would wish, not to pursue any particular aims of our own.
The House and the committee will be sorry that my noble friend Lord Barnett is not here to take part in this debate. He is making slow progress in recovering from his fall nine weeks ago in this Chamber, and I am sure that the House will wish him an early recovery. His contribution to the work of the committee has been valuable.
The task of the committee was to ensure that the Finance Bill measures prove workable and effective when implemented. We sought to answer the question, "Will they protect revenues without imposing disproportionate compliance costs on taxpayers and their advisers?". Once again, we had to be selective as to the topics that we chose. We examined them and decided to focus our efforts on a few areas which we thought were causing particular concern and where we thought our efforts might be most valuable. We had limited time in which to make such decisions, because they can come only after the publication of the Finance Bill.

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The areas that we dealt with included countering tax avoidance, simplification of the taxation of pensions, small business taxation, stamp duty, land tax and duty stamps for spirits. Concerning the disclosure of tax avoidance schemes, we noted the view of many of our private sector witnesses that the definitions of tax planning arrangements are so wide as to require the disclosure of normal tax planning as well as of the sophisticated and aggressive avoidance schemes to which my noble friend Lord Peston rightly referred.
Those schemes have expanded and they must be dealt with. It is becoming increasingly difficult to deal with the machinations of people who get substantial sums of money out of their efforts in this area. The way that the Bill targets such measures can lead to a significant risk of over-reporting, with a need for updated draft regulations to be introduced as the schemes develop. We trust that the concerns that we expressed in our report will be taken into account.
The problem of over-reporting arises when people feel that to be on the safe side they had better report almost everything. Were they to do so, it would place an enormous burden on the Revenue, which could not cope with that amount of information. We wanted the adoption of a de minimis rule in the direct tax provisions on broadly similar lines to those in the draft VAT regulations and comparable United States tax law. We took evidence from the United States Internal Revenue Service, which was helpful.
We also considered that there were good grounds for looking again at the appropriateness of the five-day time limit for filing details of certain notifiable tax arrangements. Five days is not enough; the advisers need more time than that. We suggested an extension to 30 days. Preparing a case of such importance demands a longer period than was envisaged. We recommended that the draft regulations relating to the disclosure of direct tax avoidance arrangements should, in line with the regulations for VAT avoidance schemes, be made subject to the affirmative resolution procedure.
The spirits industry particularly interested me. The Treasury concern about fraud in the spirits industry is a matter of obvious interest. The solution set out is for duty stamps for spirits to be introduced in 2006. There was a need for considerable consultation on the matter. That is something that rather saddens me about the whole Finance Bill: there should be wider consultation. I understand that there are certain areas in which it is not possible to have consultation because people will take avoidance measures, but there are areas where we can. Where we can, we must—that is the message that we should send out.
The problem was the cost of compliance with the measure which represented—and still represents—a considerable burden. Whether the cost of compliance is reasonable depends on the extent of the fraud. If the fraud is greater, compliance costs can be expected to increase.
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In that context, we were particularly disturbed at the statistical range in the Government's figures. What kind of value was set on the fraud that we were trying to deal with? Customs and Excise estimated the fraud at £600 million a year and on an upward trend. The National Audit Office examined the figures given by Customs and Excise and suggested that the amount should be expressed as ranging between £330 million and £1,060 million. The Joint Alcohol and Tobacco Consultation Group widened the range to between £10 million and £1,060 million. We cannot deal with taxation if we have figures as wide apart as that. If the agencies cannot get the figures, they must consult more and investigate more. On the other hand, we could have such a minimal tax that it would not make too much difference and then increase it as we became more aware of the amount of fraud involved.
Whatever the estimates, one cannot engage in anything other than minimal compliance costs without a more definite assessment of the amount of fraud. It will be essential to narrow the differences between those estimates. The outcome should be reflected in the continuing discussions with the industry on the implementation of the provisions. I do not know why the consultation could not go on until a solution is reached that could be put before us.
We hoped that the consultations would result in an outcome that properly reflected the interests of the smaller producers and importers, particularly as it is they who would suffer most. They have real concerns that their livelihood could be put at risk. In such matters, legislation should be in draft, and a two-way dialogue with those involved should be arranged at the outset.
We have had two years of making a contribution to work on the Finance Bill. Obviously, we respect the position of the House of Commons on taxation. We do not go beyond our remit, but we feel that through the efforts of the committee we can be of help in achieving a better Finance Bill.
8.44 p.m.
Lord Northbrook: My Lords, first, I congratulate the two maiden speakers who we have heard so far on their excellent contributions. I look forward to hearing them speak in future on financial matters. I also look forward to hearing the third maiden speaker, the noble Lord, Lord McKenzie of Luton, in due course. I declare an interest as director of a fund management company set up in 1996.
Once again, we are grateful to the noble Lord, Lord Peston, and his committee for the splendid, detailed work that they have done in producing their report on this year's Finance Bill. How well they made use of the little more time available this year.
I would like to endorse in particular three of their comments in the abstract at the front of the report. The first, which I have made frequently in the past and which was made by my noble friend Lady Noakes and

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my noble and learned friend Lord Howe, was about the length of the three-volume Finance Bill. In the committee's words,
"We noted the length of the Finance Bill and the increase in complexity and compliance costs for taxpayers and their advisers inherent in many of its provisions. One means by which a balance between the protection of revenues and the imposition of compliance costs may be found is, wherever possible, by exposing legislation in draft and encouraging a two way dialogue with those involved".
I agree entirely.
The second comment that I endorse, also discussed by my noble friend Lady Noakes, is the committee's reservation about the lack of assistance from the Treasury. When it wished to see the Treasury a second time to give officials the opportunity to respond to the points put to them after their initial explanations, the Treasury would respond only in writing. According to the report they did not give substantive answers to several questions.
Will the Minister use his best endeavours to persuade the Treasury in future to give a second face-to-face meeting that might even save it time in responding to the committee?
Thirdly, along with other noble Lords I endorse the recommendation in the final paragraph of the abstract that the sub-committee should be made permanent, although, sadly, if agreed it would no longer be chaired by the noble Lord, Lord, Peston. I speak for all noble Lords interested in financial matters when I thank him for all his work in chairing the committee.
I wish to focus on two areas of detail in the Bill. One is covered in detail in the Select Committee's report and the other is not. The Minister will not be surprised to hear that I am focusing on small business taxation, as I have raised the topic before in the House. For those unfamiliar with the topic, the story goes as follows: since 1997 the Chancellor has encouraged the incorporation of businesses through lowering the rate of small companies' tax from 23 per cent to 20 per cent, in 1999 creating a starting rate of 10 per cent.
Edward Troup, tax adviser at Simmons & Simmons, told the Treasury Select Committee in April 1999 that if we offered a tax rate of 10 per cent, every self-employed person would think seriously about whether he would be better off incorporated to save tax. The tax system is moving in a significant skew towards incorporation. In 2002, the starting rate was lowered to zero. John Whiting of the accountants PwC said in April 2002 that incorporation was something that taxpayers should have been thinking about, but the Budget had given it an extra spin down the income scale. That point has been proved by the figures for new incorporations. In 2002–03, 322,000 new incorporations took place; an increase of 43 per cent over 2001–02.
The next stage in the saga was the Pre-Budget Report in December 2003 which surprisingly recorded the Government's concern that,
"the longstanding differences in tax treatment between earned income and dividend income should not distort business strategies, or enable reductions by tax planning of individuals' tax liability, and that support should continue to be focussed on growth".
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They therefore announced proposals for action in the Budget of 2004,
"to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company".
This statement has come to be known as IR591.
One of the most interesting statements on this volte-face came from Malcolm Gunn, the editor of the independent journal, Taxation, who argued in a letter to the Chancellor in January 2004 that the comments in paragraph 5.91 had been met with some astonishment and that the very corporate tax regime which the Chancellor carefully constructed was now described in the pre-Budget review as one which distorts business strategies and enables reductions by tax planning of individuals' tax liability.
I can only echo the words of the shadow Chief Secretary in another place, who said:
"The Government failed to heed warnings given at the time by everyone, including the official Opposition, that they were distorting the tax system in favour of incorporation. Unsurprisingly, the tax loss when thousands of sole traders incorporated has turned out to be far too great, so a piece of tax complexity is required to negate that".—[Official Report, Commons, 7/7/04; col. 862.]
Or let us take the words of the Select Committee chaired by the noble Lord, Lord Peston, which, in paragraph 154, said:
"We have to say that we understood the argument of the private sector that, in a sense, the mischief to which the measure was directed was actually no more than a natural reaction to a tax incentive which had been deliberately introduced: and that on the spectrum of tax planning it tended towards the 'normal' end, albeit because of the multiplier effect, expensive in terms of revenue foregone".
In addition, the committee has serious concerns about the application of the new measure. In paragraph 144 the report said,
"We are disturbed that, so far, the Revenue have been unable to persuade the experts who gave evidence to us that applying the new measure will be as straightforward as they have confidently asserted".
The paragraph goes on to state that in one of the issues the Revenue's reply,
"underestimates the extent of the anxiety caused to affected taxpayers and to their professional advisers during the weeks of uncertainty that followed publication of paragraph 5.91".
My final comment on this subject is well summarised in paragraph 153 of the committee's report. Private witnesses perceived this provision as an administrative measure on which they would have had much to contribute had it been thrown open to a two-way dialogue rather than a one-way listening exercise by the Revenue. On the other hand, by their rhetoric, which included the reference to incorporation being undertaken often as a result of "marketed tax avoidance schemes", the Government presented the proposals as part of the avoidance strategy at the heart of this year's Finance Bill.
The other area upon which I wish to focus is the individual savings account. The Government introduced ISAs in April 1999 to increase the number of people with savings. Yet the limit they allowed of £7,000 per year was more than 35 per cent lower than

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in the previous administration. By 1997 savers were able to take out general and single company PEPs amounting to £9,000 each year and a TESSA of effectively £1,800 per year. The ISA allowance was also made more complex with maxi and mini ISAs being introduced. However, overall it was more than could have been expected from previous Labour Governments.
Two measures have been announced to restrict the benefits of ISAs. First, for the equity ISA since 6 April this year investment managers may no longer reclaim the 10 per cent tax credit on dividend income. This acts to reduce the attractiveness of equity investments within ISAs to basic rate taxpayers. As the shadow Paymaster General at the time said:
"The equity ISA tax credit does benefit the many not the few which is the point of the argument about seeking to retain the 10 per cent".—[Official Report, Commons, 1/7/03; col. 212.]
In addition the Chancellor has confirmed that the annual limit for ISAs will be reduced by another 20 per cent to £5,000 with effect from April 2006.
The Government have urged people to save and to make adequate provision for their retirement, admitting that the basic pension is not enough. ISAs should be at the centre of their strategy to encourage long-term savings. This is not the time to undermine them. Pensioners have already been hit by the ACT abolition, which has deprived pension funds of £5 billion a year. Now the Government will take in an extra £250 million per year by getting rid of the tax credits. How much of a tax break will be saved by cutting the ISA limit from £7,000 to £5,000?
The Government are not sending a good signal about encouraging savings by those two measures. That is reflected in the decline in the savings ratio since 1997. In the years from 1998 to 2003 the household savings ratio has never been higher than 6.7 per cent. In the previous six years to 1997 it was never lower than 9.3 per cent. In March, the shadow Chancellor said:
"If the Government do not do something to improve incentives to save, the stability of the economy will be threatened by excessive debt".
In summary, I believe that those two areas of the Budget send out the wrong message to small businesses and savers respectively, both of which are important for the economic health of the country in their different ways.
8.56 p.m.
Lord Haskel: My Lords, I, too, express my strong support for the work of the Economic Affairs Committee. I congratulate the members and the staff on their work, and I congratulate my noble friend Lord Peston, who has been a driving force behind it. As the noble and learned Lord, Lord Howe, said, he set the right style. I also hope that the sub-committee on the Finance Bill will become permanent after the two-year trial period which is shortly to end.
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It is a pity that your Lordships' House is inhibited from debating and scrutinising the nation's finances. In recent years your Lordships have been able to be complimentary about the work of the Treasury, my right honourable friend the Chancellor of the Exchequer and the Treasury team. As my noble friend Lord McIntosh reminds us whenever he has the opportunity, inflation is low, interest rates are low, and we are spending far less money on debt interest and unemployment pay. He reminded us about that again this evening.
I understand that the Parliament Act restrains us from amending the Finance Bill, but it does not preclude us from scrutinising it. I am well aware that there is a difference of opinion between the Treasury and your Lordships' House about where the line is drawn. I was interested to learn that the Select Committee had decided to look at tax avoidance as part of its scrutiny of the Finance Bill—and quite rightly. The committee looked at the mechanics of tax avoidance, not at the tax rates.
I noted that the Revenue has accepted some of the Select Committee's recommendations. Those are recommendations that would save the Inland Revenue from being swamped with useless information. The Revenue would thereby get better-focused information about those various schemes. Unlike the noble Baroness, Lady Noakes, I found myself in almost entire agreement with Ministers and with the committee in their determination to protect the vast majority of compliant taxpayers and the integrity of the system by supporting the Government's efforts to stop avoidance and evasion.
I agree with my noble friends Lord Peston and Lord Giddens that for taxpayers to be compliant they have to perceive the system as fair. As the Minister explained, part of that requires providers of artificial tax planning schemes to report them to the Treasury. I welcome a disclosure regime that requires accountants, bankers and lawyers to provide details to the Government of tax avoidance schemes that they sell to clients. The committee spent some time differentiating between ordinary tax planning and artificial schemes. So it must have been with some disappointment that they learned last week that a scheme—the relevant discount securities scheme—which the Revenue shut down a year ago as artificial, was allowed by the special commissioners. The noble Baroness, Lady Noakes, spoke of the practitioners being taken by surprise by the regulations. I imagine that they were taken even more by surprise by this allowance by the special commissioners.
I realise that the Minister cannot comment on that, as there could be an appeal, but it indicates how difficult it is to legislate against tax avoidance. As I understand it, a scheme such as this one uses artificial contrivances, to use the Minister's words, within the United Kingdom. Other schemes contrive to use our globalised economy to avoid tax, even though there is no commercial loss. In addition, there is the whole issue of using domicile to avoid paying tax. The possibilities are worldwide, way beyond the resources of the Inland Revenue alone to regulate, to manage and to control in a proportionate way.

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In view of that and the expansion about which my noble friend Lord Sheldon spoke, it occurs to me that perhaps the Select Committee should have considered other measures; for example, a cultural change as well as a regulatory change. Before your Lordships dismiss that, with a world-weary sigh, perhaps I can remind your Lordships that cultural changes are taking place before our very eyes—in government, in the Treasury and in business. Take charitable giving. The Inland Revenue and the Treasury are encouraging a cultural change. They are encouraging the giving campaign. They are offering more tax breaks to encourage charitable donations and setting higher targets for aid to the third world. If that is not an effort to encourage a cultural change in charitable giving, what is it?
What about the cultural change taking place within business itself? Not a week passes without some encouragement to business to become more socially responsible. I am sure that noble Lords' mailbags are full of invitations to conferences, meetings, discussions and seminars about corporate social responsibility. Mine is. I am aware that many think that that is just another soft issue that gets in the way of increasing shareholder value—it is a nuisance. But possibly an equal number now think that that is central to the confidence and trust that people have in a company's products, services or brand.
The recent corporate scandals in Europe and the United States have encouraged that cultural change. Several surveys show that most managers feel that corporate ethics is an important or an emerging issue for their businesses. Indeed, there are now several awards for the integrity of social and environmental reporting. In May 2003 the Department of Trade and Industry's Forum for the Future, reported that a business with strong social responsibility will often be more successful in generating economic value added for reasons rooted in business strategy. Is that not the Government encouraging cultural change? Business leaders themselves are calling for that. Last week, in an article in the Guardian, entitled "Capitalism is a danger to itself", Sir Evelyn de Rothschild called for a new emphasis on ethics from inside corporate boardrooms as an alternative to more public oversight, which he found less desirable. He said that that was especially so in the financial services sector.
I think that all those matters are signals of cultural change in business and in government and a cultural change that does not question the legality but questions the ethics of business activities. My question is whether the Treasury and your Lordships' committee would consider tax avoidance as socially irresponsible when the culture is moving strongly towards social responsibility in business. After all, what could be more socially responsible than paying one's taxes in a fair way?
Perhaps the scene is already being set. The Inland Revenue itself is becoming much more open about tax. The Government have quite rightly introduced the pre-Budget report so that the Chancellor can flag up tax changes so that they can be discussed. The Treasury trusts the public not to take undue advantage of that opportunity for consultation and discussion so
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that there is every opportunity to get the practical issues ironed out. Indeed, your Lordships' Select Committee drew attention to this in its report about small companies and dividends.
So, where do we go from here? Many of these tax avoidance schemes, for small companies, for large companies, for personal tax, for VAT and for income tax are marketed by what are called "business service companies". Tax advice is a growth business. However, most of these companies also offer advice and consultancy to the public and private sectors on corporate social responsibility—on business in the community. They advise on preparing a social set of accounts as well as financial accounts.
Of course, however widely one interprets the purpose of business, the making of money has to be there somewhere. But these business services companies are in a privileged position. They can afford to be a little more forceful about the ethical responsibility that goes with the privilege. A cultural change here would certainly assist with protecting the integrity of our tax system. So I ask the Minister: why not have a go?
Lord Sheppard of Didgemere: My Lords, perhaps I may interrupt for one second. It may give reassurance that in fact David Varney, who was appointed on 1 October as the new head of the integrated Customs and Excise and Inland Revenue, is currently chairman of Business in the Community.
Lord Haskel: My Lords, I thank the noble Lord for that. Before I sit down, I add my congratulations for my noble friends who have made their maiden speeches and who are about to make maiden speeches. Their knowledge and experience of manufacturing, economics and industry will be of great value to your Lordships' Houses, and they are most welcome.
9.6 p.m.
Lord McKenzie of Luton: My Lords, in making my first contribution in your Lordships' House, I too would start by taking the opportunity to thank noble Lords for the kind welcome they have given me to this wonderful place. I should also like to place on record my thanks to all the staff and officials for their courtesy and assistance in helping me to understand the procedures and facilities of this House. I am grateful for the professional and gentle way they have already redirected me on a number of occasions to where I should have been heading, with a quiet reassurance that I will get the hang of things soon.
The opportunity to serve in your Lordships' House is an immense privilege. I was particularly pleased also to be able to take the title "of Luton". Luton has been my home for 32 years. It was there that I first became actively involved in politics and a councillor and, for a time, leader of the council. Living in Luton has given me the opportunity to engage with and learn from a host of individuals from our diverse communities, sharing friendships and obtaining insights into a range of aspirations, fears and cultures in a way which has enhanced my life immeasurably.

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My professional life, mostly spent with Price Waterhouse, has given me the opportunity to live and work in several different countries, from one of the richest, the US, to perhaps one of the poorest, Vietnam; from a highly sophisticated market-driven economy to an emerging market economy with still a very rudimentary legal and commercial infrastructure. But each in its way facing the challenges of operating—for them—appropriate tax regimes and safeguarding the revenues they determine should be collected.
Hence I turn to the matter before this House. I would like to speak on the provisions in the Finance Bill requiring disclosure of tax avoidance schemes, especially those relating to direct taxes. As other noble Lords have indicated, this was clearly one of the key topics examined by the Select Committee on Economic Affairs. That the Bill includes such provisions is something I welcome.
While the Select Committee was properly concerned with seeking to be satisfied that the primary legislation and related regulations were workable and effective, its unequivocal endorsement of the disclosure approach is to be commended. The regulations in their final form are a sensible advance on the original drafts and validate the process of dialogue.
If anyone has any doubts about the appropriateness of this legislation, they need do no more than read the evidence given by the deputy chairman of the Inland Revenue, to which my noble friend Lord Peston referred earlier. The deputy chairman described the proposals as "proportionate". That is certainly not an overstatement of the case. Examples were provided of the kind of artificial, aggressive, tax avoidance schemes that these disclosure requirements would help to counter. For just two schemes, the "gilt strip" and the so-called "tax efficient off-market swap", he estimated that as much as £1.2 billion could have been lost to the Exchequer.
Of course, the disclosure requirements do not of themselves make anything taxable. They give the Revenue authorities early warning and fair notice of what might otherwise be marketed in secrecy, and what might otherwise take years for them to discover and seek to counter. It will also deter some from buying into these schemes. The disclosure requirements, however modest, represent an additional weapon in the armoury of the Revenue authorities and will help, at least to an extent, to adjust what is undoubtedly not a level playing field.
That is not because of some intellectual deficit on behalf of the Revenue; it is just that some taxpayers and their advisers are able to marshal a range of resources and expertise, which is difficult for any taxing authority to replicate. This situation is not unique to the UK. The major accounting and legal practices—big firms certainly, although I am not sure whether they would like to be described as fat—have at their disposal individuals with expert knowledge of all the world's major tax and legal systems. They can call on industry knowledge in all key sectors. They can
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access specialist knowledge on sophisticated financial instruments and have developed a significant capacity to unbundle and recast those to obtain tax advantages.
I was interested to read the reference in the Revenue evidence to the proposed avoidance intelligence group, which will, I hope, act as some counterweight to all of this. The challenge that it faces is formidable; I wish it well.
The Select Committee report distinguished between the contrived artificial tax avoidance schemes, which it recognised as being the extreme of the spectrum of tax planning, and ordinary tax planning arrangements. That raises the question of where the ordinary stops and the extraordinary begins. Where should that line be drawn? That is a conundrum with which I have wrestled from time to time. It would not be unreasonable for the line to be where those in another place with responsibility to determine these matters would have intended it to rest, had they had the opportunity of reviewing the full combination of circumstances and arrangements that might have been entered into.
But for so long as the UK tax system remains largely, if not exclusively, based on form over substance, that alignment of what the law actually provides with what was intended will continue to take place generally in retrospect by way of detailed anti-avoidance legislation, with consequent losses to the Exchequer in the interim. These disclosure requirements will provide some opportunity to make this alignment sooner and more precisely than might have otherwise been the case. It is important that the opportunity leads to action. In this regard, and in the absence of a general anti-avoidance provision, it is a necessary measure. It remains to be seen whether it is ultimately a sufficient measure.
I am aware that matters of supply are dealt with in another place, but as these disclosure measures will help to protect revenues, perhaps I might take the opportunity to express the hope that we will continue to see in Luton the significant levels of investment in our schools, health facilities and the regeneration of our town, including its transport infrastructure, from which we have benefited since 1997.
Finally, perhaps I may say that I have enjoyed every moment of my time here so far. If our deliberations touch the lives of people in a positive way, this is an endeavour of which I am happy to be part.
9.15 p.m.
Lord Wakeham: My Lords, when I came to the debate this evening I thought that probably the pleasures of my day were more or less over. I have spent the past two days congratulating graduating students at Brunel University and I have shaken more than 2,000 hands; there are another 1,000 to go tomorrow. However, I was wrong; this has been an excellent debate. Any debate which the noble Lord, Lord McIntosh, opens and closes will be, by definition, a quality debate.
We have heard three outstanding maiden speeches, which we have all enjoyed. As a former chairman of the Royal Commission on the reform of this House, I

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cannot imagine another legislature in the world that could produce new members of the quality of the three new Members we have heard this evening. It is something that those who may be taking up the issue in the years to come will perhaps think about.
This House produces first-rate speeches and it is my particular pleasure, of course, to congratulate the noble Lord, Lord McKenzie of Luton, on his excellent maiden speech. I have no doubt that he will speak on many subjects. If he continues to speak with the clarity, the sincerity and the obvious knowledge that he has, he will be a welcome addition to your Lordships' House. He has a lot going for him. He is a chartered accountant—that cannot be too bad to start off with—and he is from Luton. I have a kind of connection with Luton in the sense that my father was the last general manager of Vauxhall Motors before it was owned by General Motors. We have to go back a long way—it was not too long after the First World War that that happened—and I remember in 1939 going back to Luton when my father was recalled to the army as a former territorial, the war starting and my father taking the salute. He did not have a uniform even, and he was there raising his flat cap as the troops marched past. I was a small boy standing nearby. So I have the greatest affection for anyone who comes from Luton. Of course, the radio doctor, who was a distinguished member of our party, was the Member for Luton at one time, but that is also a long time ago.
I also know—I shall not pursue this further—that the noble Lord worked in Vietnam in his youth. I have also worked in Vietnam. I suggest that perhaps we ought to reminisce over a drink in the bar rather than mention it here today.
I am a Member of the sub-committee of the Economic Affairs Select Committee and I wish to concentrate on our report. A number of noble Lords have already said that they think the experiment was a success; that we have done a good job; that we have not conflicted with our terms of reference and so on. They have also said—which I was certainly going to say—that a great deal of that credit is due to the noble Lord, Lord Peston. He has been an outstandingly good chairman. If I may say so, he has a rather individual style of chairing a Select Committee, but he has a very successful way of getting the best out of everyone on the committee. I have enjoyed being with him. The only time when he is not very convincing is when he says that he does not know anything about the subject. He did not fool most Members of the committee with those kind of remarks. Nevertheless, it was a great pleasure to serve on the committee with him.
If there was any cause for our success in writing the report, other than the noble Lord, Lord Peston, next on the list would be the quality of the evidence given to us. I thought that the government officials who gave us evidence were absolutely first class. They made a powerful case for the changes, but also showed the depth of study that had gone into the subject before they had given the advice to Ministers which had resulted in the changes we were considering. Knowing that was a comfort to all of us.
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It reminded me of when I was a junior Minister in the Treasury, under my noble and learned friend Lord Howe, who has already spoken. We were very concerned at the inward-looking nature of the Inland Revenue in those days, and we tried to get a non-executive element into it so that it would grow up a bit more aware of what was going on rather than being so concentrated. I think that the changes that have occurred in the past 20 years or so have resulted in a stronger, better and more knowledgeable Inland Revenue. I am saying that because not everything I say about it will be nice.
The outside witnesses were also very expert and excellent. If I had a criticism, it was that I sometimes felt that some of the witnesses understood the problem that the Government had but were unwilling to accept the remedies that they were proposing or to offer any alternatives. However, mostly they were excellent.
I think that our work was valuable—we worked jolly hard to complete our report before the Finance Bill left the Commons. I confirm what has already been said—at no time in our work did party politics play a part. If anybody had tried to make party political points in the committee, he would have had short shrift from his colleagues. Nor did we stray from our terms of reference, steering clear of rates of tax or their incidence.
Four of the five clauses that we examined were designed to protect the Revenue, and the fifth was designed to simplify the tax position of pensions. We had no difficulty with any of the Government's objectives, and we believe that they deserve credit for tackling them.
However, all those clauses raised a fundamental question that goes right to the heart of taxation policy in this country. The noble Lord, Lord McKenzie, touched on this in his speech, and so did one or two others. How complicated do we make our tax laws to make sure that we catch every last penny of every bit of tax from everybody who might be tempted to take some sort of unfair advantage at the expense of putting the rest of the taxpayers under an intolerable burden of complication? Getting that balance right is at the heart of what officials have to advise and what Ministers have to do.
My experience, over many years, has been that the tendency in the Inland Revenue has been to want to get the tax system absolutely fair. As a result, it has at times been more complicated than perhaps it needed to be because of this desperate concern, which I admire, to get taxation.
We were impressed with the evidence on the Government's improvements to the taxation of pensions. We felt that the clauses on tax avoidance were very important, but said that we thought that some of it was too complicated and led to a lot of uncertainty for taxpayers' advisers. The Inland Revenue's revised regulations came out just before our report; it knew perfectly well what we would say in our report, and I think that we are entitled to take some credit for the fact that our discussions with it might have had a little influence in that direction.

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I do not think that I need to go on. The tax measures for small companies were a good example of where the Government should have said, "Look, we got it wrong. We're just going to put it right". The complications that they have brought in to justify carrying on are a good example of additional complication which is really not necessary and which does not make that much difference.
However, by and large, I hope that we were fair and reasonable about the proposals. We supported what the Government were trying to do and I hope that our contribution to the debate was useful to those who have to make the final decisions.
9.25 p.m.
Lord Newby: My Lords, it is a more than usual pleasure to speak in this debate. We always have these debates at the end of the Session, and I think it is fair to say that the participants increasingly fall into the category of "the usual suspects". It is therefore a great delight to have not one but a hat-trick of maidens—to mix my cricketing metaphors—this evening. We have greatly enjoyed them all.
I endorse the comments of the noble Lord, Lord Bhattacharyya, about the regeneration of Birmingham. In a previous existence, I was involved in the early stages of the redevelopment of what is now Brindley Place. The change in central Birmingham in the past 20 years has been phenomenal. It has been a classic example of a public and private sector joint initiative in its various ways. I suppose that it is an early example of the third way, which I hope will please the noble Lord, Lord Giddens.
All three maiden speeches were exceptionally erudite. It is slightly unusual, however, for Members of your Lordships' House to use their maiden speeches effectively as auditions for their membership of the Economic Affairs Select Committee or its subcommittee on the Finance Bill, but we will let them off this time.
I neither propose nor have time to make a speech on the general economic situation. I shall deal mainly with the report of the sub-committee. We on these Benches have major questions about the Government's ability to meet their efficiency targets. I am just glad that I am not in the shoes of Mr Oughton, who has the terrible responsibility of carrying them forward.
The work of the sub-committee this year, like last year, has been concentrated, hard and detailed. We received a large number of expert submissions. We spoke to a number of expert witnesses, all of whom had devoted a considerable amount of time and effort to producing their evidence. The committee was absolutely in their debt, because it was dealing with very detailed matters, on which it is fair to say that none of us have great or immediate expertise. Our witnesses guided us through it and we felt that we ended up with a reasonable understanding of the issues. We are grateful to them, as we are to our advisers, our Clerks and our Chairman, who has taken us through the remarkably difficult
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business of getting the sub-committee working. It was a difficulty not of his making, but one through which he guided us with his usual charm and persistence.
I shall mention a number of issues that demonstrate some of our specific and more generic concerns about the measures and processes of the Finance Bill. On the disclosure of tax avoidance schemes, all members of the committee agreed that those provisions were sound in principle. The problems with which we and the experts were grappling were problems of definition. There was a lack of clarity about exactly what was going to be covered, or what the Inland Revenue wanted covered, by the disclosure provisions. Although achieving that clarity was going to be difficult, we felt that it was not impossible. Indeed, it will have to be achieved at some point. We felt that more work should have been done before the legislation was set in stone.
There is a danger of over-reporting with the current provisions, but I agree with the noble Lord, Lord Peston, that it may be a temporary problem. It is a real concern, however, in the short term. Some of the detailed provisions—for example, the five-day reporting period—were simply silly. They should have been changed and, with more time, I think they would have been. The key question for this series of provisions is how effective they will prove to be, but only time will tell. We certainly wish them well.
The non-corporate distribution of profits was a textbook case of the unintended consequences of a tax change undertaken for perfectly understandable and good reasons. However, having got it wrong, we feel that the simpler thing might have been simply to reverse it, rather than to end up with this rather complicated scheme under which a certain proportion of profits, if undistributed, are not taxable. We had great fun thinking about the owner of the milk float or the taxi who would save his profits to invest in this new piece of capital equipment. At the end of the day, the argument that capital allowances might be a more effective way of dealing with that won out. The general principle demonstrated was an unwillingness on the part of the Treasury to admit, except through the most gritted of teeth, that it had made a mistake, to own up to it and reverse it.
The final specific issues to which I should like to refer both demonstrate the case for taking a bit more time. On stamp duty and land tax, we asked people, having looked at them, how they had fared over the winter when they were introduced. The general impression was that they had just about muddled through. However, there should have been no need just to muddle through, if a bit more time and care had been taken. The strain that muddling through put on both business and the Revenue was, in my view, unacceptable.
As a number of noble Lords have already explained, the starting point of the issue of duty stamps for sprits—namely, the scale of tax evasion that the measure was seeking to counter—was completely in dispute. The answer to the question of whether this was a proportionate measure for dealing with the issue

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depended on whether you were looking at the bottom end or top end of the estimate scale. If the problem was at the bottom end of the scale, the measure was clearly disproportionate as it could cost the industry more per annum than the Revenue saved. My own guess—for what it is worth, from causal observation and knowing a bit about the structure of the industry—is that the reality is at the bottom end of the estimates. That makes me doubly sceptical about the measure.
We were particularly concerned that the proposals that the Government had brought forward would hit smaller businesses in this sector particularly hard. We were also concerned that there appeared to have been little or no high-level consultation between Customs and Excise and the DTI.
Finally, I was completely unimpressed by the argument that the industry was going to benefit by freezing the duty. Certainly since the days when I was a Customs and Excise official in the mid-1970s, there were arguments about the elasticity of demand for spirits. From time to time, there was a decision by the Chancellor to freeze duty on spirits, purely because the advice he received was that an increase in duty at that point would be counter-productive. I suspect that that is the advice that the Chancellor is getting now. Therefore, it is unsustainable to argue that this freeze is to help them deal with the problem.
The Finance Bill failed the length and complexity test: it was too long and complicated. I absolutely agree with the noble Lord, Lord Sheldon, that there needs to be more exposure of drafts and a greater dialogue with all those concerned. I also agree with the noble and learned Lord, Lord Howe, in his description of the deterioration of the Financial Statement and Budget Report from a short, clear, precise and purely factual document into a flaccid spun document that makes it very difficult to get to the reality of what is happening.
Finally, there is the question of the role and attitude of the Treasury and the way in which it dealt with our queries. The report is, as always, very mild mannered and gentlemanly, as one would expect. By refusing to answer our questions fully, far less to come back to the committee, the Treasury showed a pig-headed and pathetic attitude. What is it scared of? What does it think the committee was going to do, other than to improve the quality of the legislation? That flows from a basic lack of understanding about the way in which the House of Lords and our committee work. As other noble Lords have said, we work in a non-partisan and meticulous way. That is the way in which the House of Lords works when it is at its best. A failure to understand what we are trying to do—to improve the quality of legislation—lies at the heart of the Treasury's difficulty.
I hope that our work on the report has had some effect. For the first time our colleagues in the other place have referred to it, which suggests that at least somebody has read it. There is even a slight glimmer that one or two people in the Treasury may have noticed and responded to it. I therefore hope that the
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sub-committee is put on a permanent basis and that the House has a continuing role in improving the quality and effectiveness of our taxation legislation.
9.36 p.m.
Baroness Wilcox: My Lords, I am pleased to have this opportunity to wind up for these Benches. Like my noble friend Lady Noakes and others, I thank the noble Lord, Lord Peston, for introducing the report of the sub-committee of the Economic Affairs Committee, and I pay tribute to noble Lords who worked on and produced this valuable report in the short timescale that was allowed. We have heard from many of those noble Lords tonight.
To use a cricketing metaphor, three maidens bowled us over, as they say. It was marvellous to hear three maiden speeches this evening. It was particularly good to hear the noble Lord, Lord Bhattacharyya, with whom I worked previously when I was chairman of the National Consumer Council. He condescended to come and join us and then beat us all to death for being so slow and lackadaisical. He was absolutely marvellous to work with. I am sure that if he continues as he started tonight in this House, he and the other noble Lords who spoke this evening will be a wonderful asset.
Indeed, it is very nice for us to discuss a Finance Bill in this House and to have so many noble Lords speaking from the Labour Benches. We have sometimes had the Minister here all on his own. It is very nice indeed to have him here tonight with a bit of company.
While your Lordships' House is unable to scrutinise the legislative aspects of this Bill in its normal fashion, that does not prohibit noble Lords from passing on their expert thoughts and comments on its bulky content. As my noble friend Lady Noakes said, the sheer size and length of this year's Finance Bill will have had the alarm bells ringing throughout the land, from small businesses to the private investor—individuals who are simply trying to earn a living in our already overburdened and overregulated business and corporate environment.
I turn to some of the finer detail of the Bill. It does nothing but increase the complexity of compliance costs for taxpayers and their advisers. I am sure that we all agree that Finance Bills must strike an acceptable balance between the protection of revenue and the imposition of compliance costs on the taxpayer. Sadly, the Bill fails to achieve that.
Virtually all experts agree that the background to the Finance Bill is the Chancellor's need to raise taxation sooner or later in the face of a current structural deficit of some £35 billion. In addition, there is a black hole of an estimated £13 billion arising largely from what the Institute for Fiscal Studies assesses as over-optimistic projections for corporate tax revenues.
The tax take is going up by nearly 8 per cent this year to £31 billion, after a 6 per cent increase last year and before a further 8 per cent increase next year. Our country's people and businesses face major tax

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increases now and if Labour were to win the next election, who knows how much more they will face afterwards? All this is before the detail of the Bill is unleashed on the unsuspecting taxpayer. Our taxes have been rising steadily under Labour even before this Bill. The net effect of the previous seven Budgets and Finance Bills equates to an extra £5,000 per household per year. I wonder how many people believe that they would have got better value for money if they had kept that £5,000 under their own control to spend on their families as they saw fit in the light of their own circumstances rather than having it forced on them by Nanny Brown Knows Best with 60 silent tax rises in seven Budgets and this year slipping in six more.
In this Bill there is a new tax on small companies, a tax on UK businesses for transfer pricing, a tax rise on red diesel, a tax hike on other road fuels, a new tax on trusts, a tax on the whisky industry and a sixfold tax rise on company vans. Is that what the Chancellor has in mind when he talks about creating an enterprise economy?
In this evening's debate there has been a number of powerful and constructive contributions. My noble and learned friend Lord Howe welcomed the simplification in the pension field, although regretted so far the lack of a tax structure review project. The noble Lord, Lord Sheldon, was looking for wider consultation on the Finance Bill particularly as regards the whisky strip stamps on which I shall comment in a moment. My noble friend Lord Northbrook spoke about small business taxation incorporation. The noble Lord, Lord Haskel, spoke about something rather revolutionary—cultural change rather than so much regulatory change. I am with him on that. Corporate and social responsibility is very close to my heart. I set up and chaired the Corporate and Social Responsibility Committee for Cadbury-Schweppes plc. We believe that it has not done anything to hurt our profits so far. We are very pleased at how it is performing. I would certainly encourage the Government to listen to the noble Lord and to encourage that in the future.
The noble Lord, Lord Wakeham, spoke about a better and more knowledgeable Inland Revenue. My noble friend Lady Noakes and I were very pleased with that and had a little smile. It was not so many years ago that she and I were both co-opted on to the Inland Revenue with the new idea of non-executives to shake them up. So we were very delighted to hear that our noble friend believed that things had gone well. The noble Lord, Lord Newby, was concerned at the Government's ability to meet their efficiency targets. He spoke of tax avoidance and definition, undistributed profits and the mistake of the Inland Revenue. He commented on the whisky strip stamps.
I shall quickly comment on those two areas myself, small business taxation and whisky strip stamps. The Government have introduced a 19 per cent minimum rate of corporation tax on distributed profits. In summary, the measure effectively withdraws the benefit of the zero-rate band from those small companies that pay all their profits to their shareholders. That typically includes the large
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population of owner-managed companies where the owner is the sole shareholder and needs to withdraw most or all of the profit from the company in order to meet living expenses. This step will obviously be felt most keenly by small businesses who in many cases have to make do without expert tax assistance.
Indeed, there is significant concern among the business community about the complexity of the new rules for the calculation of corporation tax. Estimates based on Inland Revenue data suggest that 40 per cent of small companies might be affected by this measure in any one year. That could equate to about 332,000 owner-managed companies who simply do not have the time or the resources to be able to manage with such added complexity.
We have already referred to the whisky strip stamps. I fear that the idea that the introduction of pre-paid strip stamps on bottles of whisky is the most effective step in combating fraud is misguided, as the noble Lords, Lord Sheldon and Lord Newby, argued. To base a decision on the significantly conflicting evidence on the extent of the problem is a grave and worrying development. Her Majesty's Customs and Excise put the figure of fraud at £600 million in 2001–02 and on an upward trend; the industry itself believes that the figure is between £160 million and £200 million with a downward trend. Noble Lords will be aware that the House of Commons Scottish Affairs Committee published a report on its own inquiry into this proposal. The report said:
"The differences in the estimates of spirits fraud are so fundamental—the estimates do not overlap even marginally at any point in their ranges—that the Government cannot logically make such an important decision as the introduction of strip stamps based on figures which may be flawed … the Government appears to be reacting in response to what is an unconfirmed level of fraud, with the possibility of major implications for the industry".
That is a serious concern, and your Lordships will agree that there is no basis for making substantive policy decisions.
Furthermore, how do we know whether that rather antiquated system—or, as the Scottish Affairs Committee called it,
"a 19th century solution to a 21st century problem"—
will actually work to combat fraud? I would have thought it a relatively easy operation to produce counterfeit stamps. Indeed, I hazard a guess that some ingenious person is more than likely working on it already.
It has been a good debate. Unfortunately, we do not have time to explore many of the key aspects of the Bill. My noble friend Lady Noakes and I have tried briefly to highlight our remaining concerns. Much of what the Bill introduces will add more bureaucracy and complexity to a financial and business environment already groaning under this Chancellor's fixation with micro-management and regulation. Where the Government had a real opportunity to simplify, they have increased complexity; where they had a real opportunity to alleviate, they have burdened. That is a great failure of the Bill. As my noble

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friend Lady Noakes said, the Bill is a monument to the intruder state and sadly produces no net benefit to the life of this country and the life of our people.
I end by agreeing with the Labour Peer, the noble Lord, Lord Peston—an economist and the distinguished chairman of the Economic Affairs Committee's sub-committee on the Bill—who said that he feared that this might be the end. I fear he could very well be right.
9.47 p.m.
Lord McIntosh of Haringey: My Lords, I always enjoy these debates, but I enjoy them particularly when there is an opportunity for us to listen to three such distinguished maiden speakers as we have heard tonight. When the Prime Minister made his modest attempt to raise the proportion of Peers supporting the Government from 29 per cent to, I think, 31 per cent, there were the usual cries about stuffing the House of Lords with "Tony's cronies". However, I hope that everyone here will agree that, in addition to the quantity, which we certainly needed, we have the highest quality that could conceivably be imagined. I am enormously grateful to all three noble Lords.
The noble Lord, Lord Bhattacharyya, not only made a nonsense of the Tebbit rule on cricket, but brought expertise in manufacturing, as both a teacher and a practitioner. That will be of huge value to the House. The noble Lord, Lord Giddens, brought us a rational approach to taxation that I found very refreshing. He rejected the dogmatism of the Left in favour of economic taxation designed to support economic dynamism and risk-taking. He rejected the dogmatism of the Right in defending the role of taxation for social protection and, above all, he offered us a moral basis for taxation and equated it with a civilised society. I agree very much with that, and am grateful to him for what he said. I do not know Luton as well as some people, but the noble Lord, Lord McKenzie of Luton, has distinction in local government and in accountancy. His contribution made the best of both those distinctions.
In one way, however, I am disappointed in the debate, because, in past years when I have occupied this position, I have had an opportunity to discuss wider issues in Finance Bills and in the economy. However, this year and last, it was decided by the usual channels that the Finance Bill would be debated together with the report of the sub-committee of the Economic Affairs Committee of this House. I am not one to attack that decision, but the result has been that some pages of outline that I prepared for what I was going to say have been left blank. There has been no debate about public services this evening, and no debate about productivity or enterprise. I can simply remove those pages, put them away and save your Lordships' time. However, I would like to have discussed those matters, because some things need to be said in more detail than I used in my opening speech.
Even on the basic issue of the state of the economy—of macroeconomics as opposed to taxation policy—very little was said. The noble Baroness, Lady Noakes,
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made a valiant attempt to attack the Government on their economic policy, but not by going so far as to say that it was not working. Instead she said that perhaps at some time in the future it might not work. That is a somewhat defensive position for her to take. I remember her making it clear to me that she was not criticising the economy in the short term but in the medium term. I have listened to these debates for seven years now. Rather than saying that there is no jam today people always say that there will be disaster tomorrow. It never happens. Let us see.
On the golden rule, the economy and the Chancellor are on track for both of the fiscal rules. The Budget calculations show an £11 billion margin and there is a £53 billion margin before we reach the 51 per cent under the sustainable investment rule. The noble Baroness, Lady Wilcox, said that there were over-optimistic projections of tax revenue. As is well known, the National Audit Office has audited the assumptions behind the Budget, which are reflected in last week's spending review statement, and it has approved them. Certainly, on any estimate from independent economists the projections are on the cautious side rather than in the other direction.
The noble Baronesses, Lady Noakes and Lady Wilcox, both talked about the risk of tax rises in the future. The spending plans announced last week reflect the 2004 Budget public finance projections and they have been audited as being fully affordable.
The noble Lord, Lord Northbrook, who also contributed to some extent to the debate on macroeconomic issues, talked about the decline in the savings ratio. I think that I have said this to him before, but I must point out that savings ratios are high at times of insecurity and high interest rates. The savings ratio has gone down because of low interest rates and a greater degree of security, but at the same time net assets have risen and household net worth has increased by 50 per cent since 1997. In terms of economic stability, that is an important point.
Points were made from the Opposition Front Bench about tax ratios—what they call the tax burden. The tax ratio was lower in 2003 than it was in 1997–98. It is expected to rise as the economy recovers from the recent global downturn, but it will still be lower than the heights reached in the early 1980s. It was 38.9 per cent, for example, in 1984–85. This is a relatively lightly taxed economy. Our overall tax ratio is well below the average both for the EU 15 and for the EU 25.
I turn now, since there is no further criticism on macroeconomic policy to defend, to the issues in the Finance Bill to which the committee referred. I must say before I go any further that the noble Lord, Lord Peston, has achieved something in that every speaker who has referred to it has asked for the continuation of the committee that he chaired in future years. I think that he is well aware that the Treasury would not welcome that. It must be observed in fairness that he has secured the confidence of those who have spoken in the House.

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The first and most important issue is tax avoidance. That issue is one of those on which noble Lords—I cannot remember which exactly—said that they agreed with the Treasury's objectives on all of the five issues that the committee considered. Certainly, my noble friend Lord Peston referred to the size of the problem of tax avoidance. In fact, my noble friend Lord McKenzie of Luton beat me. I wrote down "gilt strip" and "off-market swap", which are tax avoidance measures that I had never heard of. Clearly, we are learning something tonight.
It is an enormous problem, and it needed to be tackled. We recognise that there is a risk of over-reporting, a point made by my noble friends Lord Peston and Lord Sheldon and by the noble Lord, Lord Newby. That is why we are working with business on the regulations and guidance that will give effect to the provisions in the Finance Bill on tax avoidance.
My noble friend Lord Sheldon thought that there was something wrong with the five-day notification period. It is a notification period for products that are already on the market or are available to be sold or marketed. There is no reason why they should not be available for reporting within one day—let alone five days—of going on to the market. He criticised the lack of the affirmative resolution procedure for the prescribed descriptions orders. The prescribed descriptions order reduces the tests. In other words, it is limiting, whereas the VAT order, which is subject to the affirmative resolution procedure, imposes additional requirements. That seems to be a reasonable balance.
The noble Baroness, Lady Wilcox, puzzled me by talking about a new tax on trusts. There is no new tax on trusts. The changes in trust legislation are designed to help small trusts; they are not an additional tax.
On the issue of non-corporate distribution, my noble friend Lord Bhattacharyya went so far as to depart from the principle of non-contentiousness—very, very marginally—by saying that there was a degree of uncertainty about the Government's policy on the matter. I think that it is recognised that there has not, in fact, been a policy change. The noble and learned Lord, Lord Howe of Aberavon, and the noble Lord, Lord Northbrook, described it as a mistaken attempt, resulting from over-enthusiasm. The noble Lord, Lord Newby, went so far as to say that we should reverse the zero and 10 per cent starting rates. The zero and 10 per cent starting rates work. They have worked for a larger number of people than are affected by the 19 per cent charge on non-corporate distribution. The introduction of those starting rates was followed by Internet-based, mass-marketed incorporation schemes that were designed only for tax saving. It is those schemes that will be eliminated by the Finance Bill.
Several noble Lords referred to the stamp duty land tax. Even the noble Baroness, Lady Noakes, in what was only a glancing reference, neglected to mention the fact that it has worked well since December 2003. I
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think that the noble Lord, Lord Newby, used the words "muddling through", but there has not been any evidence of distortion in conveyancing markets. The vast majority of transactions have been unaffected by the changes. I agree with my noble friend Lord Peston that this is another example of outrageous tax avoidance via partnerships. I notice that the defence of the noble Baroness, Lady Noakes, was not very robust.
The noble Lord, Lord Northbrook, raised the issue of payable tax credits on ISAs. It was never intended that ISAs or their predecessors—PEPs and TESSAs—were going to continue for ever. There has been a reduction from £7,000 to £5,000, but it will take place in 2006 not in 2000 as originally intended. In any case there are so many additional offers, including child trust funds, stakeholder products and the advantages of pension simplification, that that criticism does not hold water.
The references to spirit duty stamps puzzled me. My puzzlement is because I am also a statistician of a sort: a practical statistician rather than an academic statistician. The scale of evasion—in other words of illegality, of fraud—is by definition what we call an unknowable statistic. The calculations made are based on a comparison of the answers to the question in the general household survey, "How much do you drink?", with the amount of spirits on which duty is paid. If we search our consciences, whether we are talking to a doctor or to an interviewer, any of us will tend to underestimate rather than overestimate the amount we drink and therefore the estimates of fraud are likely to be too low rather than too high. I am insulting noble Lords; I can see that everyone is very shocked.
My noble friend Lord Sheldon and the noble Lord, Lord Newby, suggested that there had not been consultation on compliance costs. Consultation started in 2001 and took place on the options again in 2003; and a third set of consultations took place between last year's Pre-Budget Report and the Budget. With a central estimate of fraud at £600 million and the highest estimate of compliance costs at £50 million this strikes me as rather a good deal.
Lord Sheppard of Didgemere: My Lords, the Minister has either answered or dismissed many of the questions that we asked the Treasury. Does that make it doubly sad that the Treasury could not give us the answers if they were so simple?
Lord McIntosh of Haringey: My Lords, I followed my noble friend Lord Peston, who refrained from the kind of debate we had last year about the Treasury's attitude towards the Select Committee. I thought that it would be an advantage to your Lordships if I did not enter that debate. I could say many things on the subject, going back to the Commons' resolutions of 1671 and 1678, but if the noble Lord, Lord Sheppard, will forgive me, I am not going to do that this evening.
I accept that the committee reported and that it is proper for me to respond to what it said, which is what I have been doing tonight. It would be better for all of us if we left it at that.

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I turn to pensions. What the noble Baroness, Lady Noakes, called so-called simplification did not meet with the agreement of other speakers. If 170 pages of text replace 350 pages of primary legislation and also replace many thousands of pages of guidance, that cannot be called so-called simplification; it is real simplification.
The noble and learned Lord, Lord Howe, described that as a legitimate alibi for a part—I accept that it is only a part—of the length of the Finance Bill. I rest my case on his remarks. The noble Baroness, Lady Noakes, said that we were favouring public sector final salary pensions. I thought that the consensus was that the 20:1 factor had been accepted as being broadly accurate for both final salaries and defined contribution schemes and that any alternative put forward—and there were alternatives put forward—had been resisted as excessively complicated.
The National Association of Pension Funds said that there had been a good consultation with the Revenue and the Association of British Insurers described it as a very thorough and constructive consultation process.
So, on nearly all of the issues we have some worthwhile contributions from the committee, to which I have attempted to respond. I have discovered that it was the noble Lord, Lord Wakeham, who said that he had no difficulty with the objectives of the five topics that were covered. Of course, legitimate points were made by those who gave evidence to the committee.
I shall finish with a word about Finance Bills, particularly in response to the noble and learned Lord, Lord Howe, to whom we all defer, because of his experience in the Treasury and as Chancellor and because of his sterling work on the revision of tax legislation. Yes, of course there has been an increase in the sheer volume of the Finance Bill. We can see it there on the Table. Yes, there has been an increase in the length of the Red Book. The noble and learned Lord, Lord Howe, objected to what he called the self-congratulatory wording of the Red Book. I shall not attempt to give an aesthetic criticism of it, but I notice that the noble and learned Lord and other noble Lords have talked about the wording of it rather than attempting to rebut the facts in the Red Book.
When this party was in opposition, the noble Lord, Lord Eatwell, from the Opposition Front Bench used to take the Red Book every year and he would tear it apart. He would take it line by line, page by page, table by table until the Treasury spokesman for the Conservative government could hardly bear it. When we have an Opposition who are able to do that, when we have a Treasury which makes it possible by the degree of inaccuracy and over-optimism that was at
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times expressed in Red Books under the previous administration, then my task will be a good deal more difficult than it has been.
However, this evening it has been my privilege to listen to and congratulate three excellent maiden speakers. It has been my privilege and my pleasure to be able to respond, as far as I can within reasonable time limits, to the concerns of the Select Committee and it has been my privilege to present a Budget which is a tribute to the guardianship of our economy of the Chancellor of the Exchequer over a period of seven years.
On Question, Bill read a second time; Committee negatived.
Lord McIntosh of Haringey: My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Finance Bill, have consented to place their prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.

Finance Bill 2004: Economic Affairs Committee Report
Lord Peston rose to move, That this House takes note of the report of the Select Committee on Economic Affairs on the Finance Bill 2004 (First Report, HL Paper 109).
The noble Lord said: My Lords, I did not realise that I was to speak again. I add my voice to that of other noble Lords and say what an excellent debate we have had. I particularly thank those who made their maiden speeches. I beg to move.
Moved, That this House takes note of the report of the Select Committee on Economic Affairs on the Finance Bill 2004 (First Report, HL Paper 109). (Lord Peston.)
On Question, Motion agreed to.

Health Protection Agency Bill [H.L.]
Returned from the Commons agreed to with a privilege amendment; the amendment was considered and agreed to.

Public Audit (Wales) Bill [H.L.]
Returned from the Commons agreed to with amendments and with a privilege amendment; it was ordered that the Commons amendments be printed.
House adjourned at ten minutes past ten o'clock.