Sitting of 2 February 1970

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
ORAL ANSWERS TO QUESTIONS
  FOREIGN AND COMMONWEALTH AFFAIRS

    Greece
    Mr. John Fraserasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement about the discussions he had on Greece at the Council of Europe on 12th December, 1969.
    The Chancellor of the Duchy of Lancaster (Mr. George Thomson): I have nothing to add to the statement I made to the House on 16th December, 1969.— [Vol. 793, c. 1137–8.]
    Mr. Fraser: Will the discussions on Greece be carried forward into N.A.T.O.
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    councils on the ground that freedom is not best defended by the political Mafia in Greece remaining a member of N.A.T.O.?
    Mr. Thomson: No, Sir. I have really nothing to add to what I said on this matter to my hon. Friend on 16th December. N.A.T.O. is a collective security alliance. The Council of Europe is essentially a parliamentary body pledged to support the ideals of parliamentary democracy. If one were to allow this to spill over into N.A.T.O., one would put at risk democratic freedoms over a much wider area than simply the Eastern flank.
    Mr. Wingfield Digby: Is it not a fact that Greece will continue to be represented on many of the Council of Europe bodies, from which she cannot be expelled, alongside other countries which have democratic government?
    Mr. Thomson: No, Sir, not within the Council of Europe bodies. It is true that the Greek case is still before the European Commission on Human Rights. If it comes before the Council of Ministers, Greece will have the right to appear there. Apart from that, however, she stands suspended by her own declaration from Council of Europe activities.

    Nigeria
    Mr. Winnickasked the Secretary of State for Foreign and Commonwealth Affairs what further steps are being taken

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    by Her Majesty's Government to try to bring relief supplies to Biafra.
    Mr. Frank Allaunasked the Secretary of State for Foreign and Commonwealth Affairs what further steps are being taken by Her Majesty's Government to bring food and medical supplies to Biafrans.
    The Secretary of State for Foreign and Commonwealth Affairs (Mr. Michael Stewart): The Questions relate to the East Central State of the Federation of Nigeria.
    We have now sent to Nigeria a total of 50 Land Rovers (15 given by BEWAC Ltd.), 102 4-ton trucks, 44½ tons of drugs and medical equipment, 29 tons of vehicles spares and 642 tents and marquees.
    The Government have decided to give, from the £5 million extra provision announced by my right hon. Friend the Prime Minister on 19th January, £250,000 to the League of Red Cross Societies (for the Nigerian Red Cross), £250,000 to U.N.I.C.E.F. for the special U.N.I.C.E.F. relief and rehabilitation programme in Nigeria, and £150,000 to the International Committee of the Red Cross, towards the cost of their Nigerian relief activities. Supplementary Estimates will be presented in due course and, in the meantime, advances will be sought from the Civil Contingencies Fund if necessary.
    Mr. Winnick: Is my right hon. Friend now satisfied that those most desperately in need in the former Biafran-held areas are being helped and fed? Secondly, do the Nigerian Government recognise and accept that the concern which we have expressed in the House of Commons in no way denies their independence but is an expression of our humanitarian concern about people who are desperately in need after the civil war?
    Mr. Stewart: I hope it is fully understood that no one in this House questions the sovereignty and independence of Nigeria and that the responsibility for the administration of relief is theirs. What I have to answer for in this House is the extent to which I can give expression to the good will of people in this country who want to give help. All our information is that although difficulties
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    remain, particularly in certain areas, we have been able to give substantial help and the Nigerian Government are making good use of it.
    Mr. Allaun: Will my right hon. Friend give the House an assurance or some satisfaction that the available food stocks are reaching all the parts of the former enclave, since apparently, 16 days after the fighting has stopped, only one truck load had got through to Orlu?
    Mr. Stewart: I can only repeat what I have just said. All our evidence is that the Nigerian Government are doing their best in an extremely difficult situation following the end of the war to get relief through.
    Mr. Tilney: Is it not time that everyone gave up using the word Biafra, which never properly existed except as part of the sea?
    Mr. Stewart: I hope that that advice will be generally accepted. The continued use of words and phrases that stir up memories of this bitter conflict can do nothing but harm.
    Mr. Frank Allaunasked the Secretary of State for Foreign and Commonwealth Affairs if he will now help Joint Church and Commonwealth Aid to increase its supply of food to Biafra by providing it with additional transport aeroplanes and with finance to cover the cost of additional flights.
    Mr. M. Stewart: No, Sir. The situation in Nigeria has changed with the end of the fighting and of the Joint Church Aid flights.
    Mr. Allaun: Does the Foreign Secretary know what is happening to the 15,000 tons of food at São Tome?
    Mr. Stewart: I understand that arrangements are being made for its transport to where it will be needed.

    Middle East
    Mr. Martenasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the Middle East situation.
    Mr. M. Stewart: Her Majesty's Government are continuing to play a full part in the Four Power talks whose aim is to devise as soon as possible fresh

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    guidance for Dr. Jarring. As my hon. Friend the Under-Secretary told my hon. Friend the Member for Newark (Mr. Bishop) on 21st January, I believe that the early resumption of Dr. Jarring's mission provides the best hope for progress.—[Vol. 794, c. 152–3.]
    Mr. Marten: What discussions did the Foreign Secretary have on the Middle East in Washington last week, and what views were expressed about the Russian proposals for a settlement in the Middle East?
    Mr. Stewart: I think the hon. Member understands that conversations of this kind are confidential. What we firmly believe, and what our American allies believe, is that the Security Council resolution provides the proper basis for progress. We are endeavouring on that basis to work out instructions which will enable Dr. Jarring to resume his work.
    Mr. George Brown: Is my right hon. Friend aware that there is no real connection between the Security Council resolution and the Four Power discussions? Is he further aware that there is no country in the Middle East—neither Israel nor the Arab countries—which has any regard for or faith in the Four Power discussions. Would he, therefore, please try to get Dr. Jarring back to operating Security Council Resolution 242?
    Mr. Stewart: I agree with my right hon. Friend to this extent, that the Security Council Resolution has got to be the basis of any settlement, and that the best available instrument for that purpose is consultation between Dr. Jarring and the parties concerned. I would not accept what he said about the Four Power talks. We found earlier that Dr. Jarring was able to make very little progress. What I hope is that out of the Four Power talks will come such measure of agreement as will enable Dr. Jarring to resume his work between the parties concerned.
    Mr. Wood: Can the right hon. Gentleman say when he proposes to announce and to have discussed in the House of Commons the precise proposals which the Government have to try to bring to an end a situation which is becoming very dangerous?
    Mr. Stewart: I do not think I can give an answer to that. We have got to work
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    with the other three of the Four Powers and see where we can get.
    Mr. George Brown: I am sorry, Mr. Speaker, to intervene again, as I do only by your graciousness, but will my right hon. Friend please take it from me that there is no Power in the Middle East willing to accept the Four Power discussions, that Russia has no interest whatever in helping? Will he, therefore, please persuade his colleagues to drop this nonsense and get back to the Security Council resolution and get Dr. Jarring in business on that basis?
    Mr. Stewart: This is exactly what we want to do, but this is a Security Council resolution and the four permanent members of the Security Council have a special responsibility in this field. I do not think that I could accept my right hon. Friend's view that no Power in the Middle East has any regard for the Four Power discussions. I think we have all been disappointed both at the slow progress made by Dr. Jarring earlier and then the difficulties of the Four Power discussions. I believe our present task is, through the Four Powers, and with the help of Dr. Jarring, to try to turn the Security Council resolution into a practical programme of action which all the parties would be prepared to implement.
    Mr. Dodds-Parkerasked the Secretary of State for Foreign and Commonwealth Affairs whether he will now consult with the United Kingdom's allies in Europe, with a view to proposing a European guarantee for any settlement in the Middle East.
    Mr. M. Stewart: We shall of course continue to consult with our European allies on foreign policy questions. But I see no advantage in initiating consultations on the basis proposed, at least for the present.
    Mr. Dodds-Parker: In view of the widespread support which this proposal has had at the Western European Union Assembly for a number of years, will not the right hon. Gentleman take action which will encourage those in the Middle East who want to find a peaceful settlement?
    Mr. Stewart: It may be that this idea will be helpful later, but what we must

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    try to do is to make progress, as I said earlier, through the four Power talks and through Dr. Jarring first.
    Mr. Snow: Is my right hon. Friend aware that, last week, hon. Members on both sides of the House heard first-hand evidence from people who had been the hostages of Egypt, Syria and Iraq and had been tortured and otherwise maltreated by those three countries? Will he undertake to ensure that any such agreement takes this sort of practice into account?
    Mr. Stewart: I sympathise with my hon. Friend's feelings, but what he has said goes further than this Question.
    Mr. Lane: Arising out of the right hon. Gentleman's original answer, can he assure us that when the French Foreign Minister visited London the other day Her Majesty's Government made cautionary representations to him about the sale of military aircraft to Libya?
    Mr. Stewart: I think that the hon. Gentleman knows that conversations of this type are always confidential. But we are trying with the French Government and with the other two of the Four Powers to reach an agreed solution.
    Mr. Mayhew: Will my right hon. Friend agree that Israel is entitled to the maximum security on her old frontiers in the event of a settlement? Is he aware that the conception that an international force could include British and French contingents would not be resisted by the Arab Governments?
    Mr. Stewart: This might prove to be so. However, our first task is to try to reach a settlement on the basis of the Security Council resolution.

    Anguilla
    Mr. Martenasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the situation in Anguilla.
    Mr. Henigasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement about constitutional progress in Anguilla.
    Mr. Fisherasked the Secretary of State for Foreign and Commonwealth
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    Affairs when he expects to receive the report of the Commission under the chairmanship of Sir Hugh Wooding upon the future of Anguilla.
    The Joint Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Maurice Foley): So far as the internal situation in Anguilla is concerned, I have nothing to add to the reply I gave to the hon. Member for Banbury (Mr. Marten) on 13th October.
    As regards the future, the Commission under the chairmanship of Sir Hugh Wooding which has been appointed to study the Anguilla problem is due to hold its first meetings today. It is not yet possible to say when we shall receive its report.—[Vol. 788, c. 16–17.]
    Mr. Marten: But as public safety and good order have now existed for nine months in Anguilla without incident, can the Minister say why the Government insist on keeping about 80 British policemen in Anguilla, particularly as the Government have pledged that the Anguillans will not be under a régime which they do not want, so that, therefore, there is no question of their going back to St. Kitts?
    Mr. Foley: There is at this moment no hostility against the police being there, and, in our judgment, it is desirable that they should be there.
    Mr. Fisher: Would the hon. Gentleman accept that many of us who know the West Indies welcome the Wooding Commission and feel that it will tend to associate the whole of the Caribbean in this problem without its appearing that Britain is taking too paternalistic an attitude towards West Indian affairs, and will he keep us in touch from time to time with the progress of the Commission?
    Mr. Foley: Yes.
    Viscount Lambton: Will the Minister give a reassurance that Anguilla will not be returned to the domination of St. Kitts without consultation with the electorate of Anguilla?
    Mr. Foley: I am quite willing to give the assurance which has been given on a number of occasions: it is no part of our policy that the Anguillans should be under a régime of which they did not approve.

    British Citizens, Europe (Accident Assistance)
    Mr. Tilneyasked the Secretary of State for Foreign and Commonwealth Affairs what arrangements he makes to assist United Kingdom citizens travelling in Europe when they are involved in accidents of any kind, and when the local British consulates are shut.
    Mr. Foley: I would refer the hon. Member to my reply to him on 13th October.—[Vol. 788, c. 13.]
    Mr. Tilney: Would the Minister remember the difficulties of a Lancashire doctor mountaineering when the British consulate in Barcelona was closed, and ensure that travellers know that the office of the Automobile Association in Boulogne is open for 24 hours a day?
    Mr. Foley: Yes, Sir. I am aware of the particular incident. We do not have, of course, the manpower, nor is it normal, to have round-the-clock manning of consular posts. However, arrangements do exist at career diplomatic posts for such arrangements, and they can be reached by telephone. I am aware, of course, of the services offered by the Automobile Association. Clearly, all people travelling overseas are advised to contact it, and insurance brokers, and so on.

    European Economic Community
    Mr. Turtonasked the Secretary of State for Foreign and Commonwealth Affairs (1) when the White Paper on the economic and financial effects of the United Kingdom joining the Common Market is to be published; and if he will arrange for the commissioning and publication of comparable studies by independent economists;
    (2) whether he will make a statement on the recent decisions of the European Economic Community regarding the financing of the Common Market agricultural policy, of which Her Majesty's Government have been informed.
    Mr. St. John-Stevasasked the Secretary of State for Foreign and Commonwealth Affairs whether he will make a further statement on British policy in relation to the European Economic Community.
    Mr. George Thomson: I would refer the right hon. and hon. Gentlemen to the reply which my right hon. Friend the Prime Minister gave on 20th January to my hon. Friend the Member for Croydon, South (Mr. Winnick). As to other studies, I suggest that we should await the White Paper, which will take into account the decisions reached by the Six in December on Community finance.—[Vol. 794, c. 250–1.]
    Mr. Turton: Will the right hon. Gentleman make plain whether in the course of the negotiations it will be open to Britain to contend that the proceeds of the levy on food, customs duties, surcharges or the value-added tax, after 1974, if we join, can be used by the British Government in order to mitigate for those least able to bear it the hardship arising from the enormous rise in the cost of living?
    Mr. Thomson: Yes, these are, of course, matters which must emerge during the course of discussions, but I take very careful note of what the right hon. Gentleman says. What will be important to us will be that the total cost of this should be reasonable, and that it should be fairly shared amongst the members, and what will be important will be the use to which the funds can be put.
    Mr. Peyton: Can the right hon. Gentleman say when we can expect the production of this White Paper? Will he not agree that its production is likely to be one of those minor miracles, which it is much more difficult to produce than the Prime Minister finds it to promise such things?
    Mr. Thomson: I think the hon. Member ought to preserve his carefully prepared supplementaries on the White Paper till he has actually read the White Paper.
    Mr. George Brown: May I ask whether the right hon. Member for Thirsk and Malton (Mr. Turton) put these points to Selsdon Park yesterday?
    Mr. Speaker: Order. That is not a question for the Government.
    Mr. Wood: Will the right hon. Gentleman say whether or not in his view the agricultural decisions which were taken at the end of last year have made an

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    agreement between Britain and the Six any more difficult to achieve?
    Mr. Thomson: In our view, the decisions that were taken on 22nd December, which have not yet been finalised, do not in themselves present any insuperable obstacles to British entry into a wider European Economic Community, although they leave a number of very important matters for negotiation.
    Mr. Moyleasked the Secretary of State for Foreign and Commonwealth Affairs how many regulations which have been issued since the inception of the European Economic Community by the Council of Ministers and by the European Economic Community and which are still in force will be required to be incorporated into British law in the event of Great Britain's becoming a member of the Common Market.
    Mr. George Thomson: It is not possible to state a number in advance of negotiations, since this will be affected by any exceptions or modifications which may be agreed during negotiations and any arrangements for a transitional period. Subject to these considerations those regulations in force at the time of Great Britain's accession to the European Communities will be required to be immediately incorporated into United Kingdom law.
    Mr. Moyle: Does the Minister agree that it would be a good idea for Her Majesty's Government to study the possible effects of the regulations on British law in depth before the negotiations reach finalisation so that the British people may know what they are letting themselves in for in going in for these negotiations?
    Mr. Thomson: Yes. These matters, with all other relevant matters, are being closely studied. I refer my hon. Friend to the fact that in 1967 the Government laid a White Paper, Command 3301, on the legal and constitutional problems of United Kingdom membership and the European Economic Community.
    Mr. Turton: Is not the time now ripe for an amended version of that White Paper giving details of the regulations which have been passed since 1967?
    Mr. Thomson: I think that the White Paper deals with the general principles
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    involved. If there are any particular matters in relation to particular regulations, perhaps the right hon. Gentleman will put down a Question.

    Libya
    Mr. Roseasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on developments in relation to Anglo-Libyan negotiations.
    Mr. Eldon Griffithsasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the progress of the British withdrawal from Libya, and on relations with the new Republican Government.
    Mr. M. Stewart: I would refer my hon. Friend to the reply my hon. Friend the Under-Secretary gave to my right hon. Friend the Member for Easington (Mr. Shinwell) on 26th January. Arrangements for the withdrawal of British forces from Libya are proceeding satisfactorily, and with the co-operation of the Libyan authorities. [Vol. 794, c. 244.]
    Mr. Rose: Will my right hon. Friend explain, after his supine failure to protest against the raping of British nurses in Libya and against our enforced withdrawal from Libya, and after his refusal to sell to Israel Chieftain tanks which were tested there, whether it is now his intention to proceed with negotiations for the sale of those tanks to Libya?
    Mr. Stewart: First, my hon. Friend has his facts wrong. We did make protests. This matter has been fully discussed, and I think the general decision of sensible people is that the advice given and the attitude taken by the British Government was right. We are now searching for a new basis for a relationship between ourselves and Libya, since the basis on the former treaty clearly cannot now stand. As my hon. Friend knows perfectly well, we do not disclose details of particular arms transactions.
    Mr. Scott-Hopkins: Will the Foreign Secretary confirm that he is negotiating to sell Chieftain tanks to Libya?
    Mr. Stewart: No, Sir. We are at present discussing with the Libyan Government all aspects of the relationship between our two countries.
    Mr. Mayhew: When my right hon. Friend is considering our arms policy towards Libya, will he bear in mind that Libya is not occupying tens of thousands of square miles of its neighbour's territory and is not bombing anybody's capital city?
    Mr. Stewart: Some months ago I set out in the House what I believed was the right basis for our arms policy in the Middle East. After the war of 1967, we sought to get a general agreement that no one would supply arms. That did not prove possible. We would still partake in an all-round arms embargo if it were possible. Meanwhile, our policy will be not to act in a manner which puts either side in a position to think that it can achieve an easy victory over its enemies. This seems to me a sensible and humane policy to pursue, and we shall stick to it.
    Sir B. Janner: Is my right hon. Friend taking into consideration in his arrangements with Libya the fact that Libya has entered into agreements with two States which have declared themselves direct enemies of Israel? Will he also take into consideration the fact that Israel is defending herself and that her opponents have deliberately set their minds against any arrangement consistent with the cease-fire agreement?
    Mr. Stewart: My hon. Friend will remember that when I spoke of our arms policy generally I made it clear that before reaching any decision, yes or no, on the sale of arms, we took into account both the factors mentioned by my hon. Friend and everything else that might affect the peace of the Middle East.

    European Security
    Mrs. Renée Shortasked the Secretary of State for Foreign and Commonwealth Affairs what proposals he has put forward to enable talks between the Warsaw Pact and the North Atlantic Treaty Organisation powers to take place in order to reach agreement on security problems; to whom these proposals were made, and what response they met; and what proposals he has made for the agenda of such talks.
    Mr. George Thomson: A number of important East-West exchanges on matters relating to security in Europe are already in progress. N.A.T.O. has
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    identified other possible issues for East-West talks including proposals for mutual force reductions. At the British suggestion, the Alliance is now also considering the question of the best methods of negotiation to make constructive progress.
    Mrs. Short: May I assume that what the Foreign Secretary said in the debate on 9th December, reported in column 265 of HANSARD, is the case, and that his Department is not allowing the erection of any barriers between the two sides to prevent them getting together to reach agreement on these important matters which the whole world wants to see resolved?
    Mr. Thomson: The speech of my right hon. Friend to which my hon. Friend refers made it clear that Her Majesty's Government were certainly not dragging their feet in any way in their search for a means of East-West détente. Whether it can best be done by a general conference, as the Soviet Union proposes, by a series of conferences, or, perhaps, in other ways, has to be looked at, and this is what, on our initiative, N.A.T.O. is actively investigating.
    Sir Alec Douglas-Home: Will the right hon. Gentleman bear in mind that there might be some advantage in having some of the unaligned countries present if there is to be such a survey of the European scene, and might not the identification of certain practical questions, such as the thinning out of arms between N.A.T.O. and the Warsaw Pact countries, help in this process?
    Mr. Thomson: Yes, Sir; this has always been our view. Naturally, the main approaches to this question of East-West détente involve the two main alliances, but I do not think there has ever been any doubt that if one is to make constructive progress one must bring in those European nations which are not members of either alliance.

    German Democratic Republic
    Mrs. Renée Shortasked the Secretary of State for Foreign and Commonwealth Affairs what criteria require to be satisfied before Her Majesty's Government recognise the German Democratic Republic as a sovereign State.
    Mr. George Thomson: In the particular case of the German Democratic Republic, apart from the normal general criteria for recognition as a state, Her Majesty's Government would also have to be satisfied that recognition was compatible with their international obligations and, in particular, with their special responsibilities for Berlin and Germany as a whole.
    Mrs. Short: Is my right hon. Friend aware that several of our European partners—West Germany, France, Italy and Sweden, to mention only some—have already gone beyond de facto recognition? If he looks at our export figures to the German Democratic Republic and those of the countries I have mentioned, he will see that we are suffering from our outdated attitude, and will he do something about it?
    Mr. Thomson: I cannot accept the premise on which my hon. Friend's supplementary question is based. If she will provide me with evidence, I will look at it. As I understand the position, Her Majesty's Government are entirely in step with our allies in this matter. On the main point on which my hon. Friend is concentrating, the question of trade between this country and the German Democratic Republic, I would remind her that there was recently concluded a three-year trade agreement between the C.B.I. and the East German Chamber of Foreign Trade, and there were announcements about the liberalisation of imports to the United Kingdom from East Germany. We are taking all proper opportunities to ensure that in the matter of trade we are on the same footing as other of our European competitors.

    Duncan Committee's Report
    Mr. Dalyellasked the Secretary of State for Foreign and Commonwealth Affairs (1) what systematic progress chasing he has now done on the recommendations of the Duncan Committee; and if he will make a statement;
    (2) if he will delay moves to create first- and second-class embassies, as a result of the Duncan Committee Report.
    Mr. Eldon Griffithsasked the Secretary of State for Foreign and Commonwealth Affairs when he expects to announce his proposals in regard to the
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    recommendations made by the Duncan Committee.
    Mr. George Thomson: The Government's views on the Duncan Report were set out by my right hon. Friend the Lord Privy Seal in another place on 19th November. In deciding on the scale of British representation overseas, the principal test is relevance to current British interests. In the Government's view, the distinctions in the Duncan Report between the so-called "area of concentration" and the rest of the world or between "comprehensive" and "selective" posts are too sharply drawn. A more refined scale is needed. For that reason a post-by-post examination of the application of the Duncan Report on the ground is now under way.—[Vol 305, c. 941–54; Vol. 787, c. 611–7.]
    Mr. Dalyell: Is my right hon. Friend aware that some of us are very unhappy about the concept of "area of concentration" as it affects the developing world? Is he further aware that many of us are less than convinced that embassies are suitable as glorified trading posts, and that this work is better done by big firms by direct contract and by small firm by other methods?
    Mr. Thomson: If my hon. Friend studies the rather lengthy answer I have just given, he will feel reassured about both these points. It is important to keep the diplomatic service representation under stringent review in relation to changes in foreign policy and Britain's position in the world generally. At the same time, it is important that in many overseas posts in the developing world, in the Commonwealth and elsewhere, we should have the representation adequate to our main interests there.
    Sir J. Rodgers: Would the Minister give an assurance that he will not implement even part of the Duncan Report, let alone the whole of it, without full debate in this House?
    Mr. Thomson: The question of debate in this House is not a matter for me, but I assure the hon. Gentleman that the report is looked upon by Her Majesty's Government as a whole not as a blue print, not as a specific list of recommendations down which to go and fulfil, but as a set of general guidelines for the organisation of our overseas posts for the 1970s.

    Aircraft (Hijacking)
    Sir R. Russellasked the Secretary of State for Foreign and Commonwealth Affairs (1) on what date the Legal Committee of the International Civil Aviation Organisation will meet to consider the draft convention on the prevention of hijacking of aircraft.
    (2) what consultations he has had with international organisations, other than the International Civil Aviation Organisation, about the need for action to prevent the hijacking of aircraft.
    Mr. Foley: The draft Convention will be considered by the Legal Committee at its next Session, due to start on 9th February. Her Majesty's Government have played an active part in the consideration of the hijacking problem in the United Nations General Assembly and at the ad hoc meeting in Washington in December, referred to in my reply of 26th January to my hon. Friend the Member for Leicester, North-West (Sir B. Janner).—[Vol. 794, c. 245–6.]
    Sir R. Russell: Since the number of planes hi-jacked has doubled every year since 1967, will the hon. Gentleman press the Legal Committee to exert some speed in dealing with this problem? Secondly, could he say what representations have been made to the Syrian Government, which treated as a hero the Frenchman who hi-jacked a T.W.A. aircraft in Damascus?
    Mr. Foley: On the latter part of the question, I would refer the hon. Gentleman to the debate in the United Nations General Assembly in December, when there was overwhelming support for a resolution condemning the hi-jacking of planes. On the first part of the supplementary, the Legal Committee will report by the end of March, and then under the rules of procedure it will be six months before the convention comes up for final ratification.
    Mr. Rankin: Has any thought been given to the arming of air crews on international routes?
    Mr. Foley: The matter was raised in the General Assembly in December. It has also been discussed in the legal committee of the appropriate airline pilots' association without any decision having been taken.

    Venice
    Mr. St. John-Stevasthe Secretary of State for Foreign and Commonwealth Affairs whether he will take the initiative in promoting international measures to prevent Venice from sinking into her lagoon.
    Mr. George Thomson: No, Sir. While recognising the importance of Venice as part of the cultural heritage of mankind, Her Majesty's Government regard the initiative as lying primarily with the Government of Italy, who have already set up, in co-operation with U.N.E.S.C.O., an international advisory committee and who are preparing a plan in the light of recommendations made by this committee.
    Mr. St. John-Stevas: But, in view of the unique beauty of Venice as a city and its value to the world and to the importance of Anglo-Italian friendship, and not least having regard to the capacity of the right hon. Gentleman for salvaging lost causes, would it not be appropriate for the British Government to take the initiative in this respect and to call an international conference on the matter?
    Mr. Thomson: I share the concern expressed by the hon. Gentleman about the situation of Venice. I am sure he will agree with me that the British interest in Venice, as in Florence, was fully illustrated in 1967 and 1968 when substantial sums were raised in this country to help both Venice and Florence in the aftermath of the floods at this time. I would add that my right hon. Friend the Minister of Overseas Development has been approached by the Director-General of U.N.E.S.C.O. about contributions, both private and public, and the matter is under consideration.
    Mr. Wood: In any event, would not this initiative come inappropriately from a Government that are sinking much faster than Venice?

    Genocide Conventions
    Sir B. Jannerasked the Secretary of State for Foreign and Commonwealth Affairs whether Her Majesty's Government have yet acceded to the Genocide Convention.
    Mr. Foley: The United Kingdom's Instrument of Accession to the Genocide Convention was deposited with the Secretary General of the United Nations on 30th January, 1970. The Convention will take effect for the United Kingdom on 30th April 1970.
    Sir B. Janner: I wish to express my thanks to the Minister for this somewhat belated accession, but nevertheless this step will act as an inducement to other nations that have not yet signed the convention to do so. I am grateful to him.
    Mr. Foley: The delay in ratification was due to the need to consult dependent territories and associated states to bring their legislation into line.

    Nuclear Weapons (Disarmament)
    Mr. Hugh Jenkinsasked the Secretary of State for Foreign and Commonwealth Affairs whether, in view of the development of the anti-ballistic missile system and the multiple-headed independently targeted missile, he will pursue a policy of nuclear disarmament.
    Mr. M. Stewart: It continues to be our policy to seek multilateral disarmament, covering both nuclear and conventional weapons, by international agreement.
    Mr. Jenkins: In view of the development of the I.B.M., in the event of any agreement on this basis, and if the United States goes ahead, as now seems to be the case, with some form of I.B.M., would not the position of any nuclear holding country outside the coverage of I.B.M. be even more exposed than at present?
    Would my right hon. Friend not reconsider our policy in the light of this development?
    Mr. Stewart: No, Sir. I do not see any reason, in the light of what my hon. Friend has said, to reconsider the general principles of our policy. My hon. Friend will know that considerable progress has been made in the signing and ratification of the non-proliferation treaty and that consersations are proceeding between the United States and the Soviet Union about nuclear weapons. These and other signs indicate that a genuine
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    attempt to get international disarmament by international agreement is the right policy.
    Mr. Scott-Hopkins: Will the Foreign Secretary confirm that in any agreement for general disarmament inspection and verification is absolutely vital to any future policy in this matter?
    Mr. Stewart: I do not know that I would lay that down for every possible disarmament agreement. But in general one must accept the proposition advanced by the hon. Gentleman that if we are to enter into disarmament agreements we must be clear that they are accepted and carried out by both sides.

    Rhodesia
    Sir F. Bennettasked the Secretary of State for Foreign and Commonwealth Affairs with which executive British authority the consular or administrative officers representing foreign powers, still operating in Rhodesia, have their official dealings in the conduct of their local duties and responsibilities.
    Mr. M. Stewart: None, Sir. How consular and administrative officers of foreign states deal with those who exercise illegal power in Southern Rhodesia in order to protect their nationals is a matter for them.
    Sir F. Bennett: Could the Foreign Secretary say whether the fact that diplomatic representatives of one sort or another have dealings with illegal representatives out in Rhodesia is or is not acceptable to Her Majesty's Government? If it is not acceptable, what is the right hon. Gentleman doing about the matter?
    Mr. Stewart: The important thing to notice is that it is steadily declining. At the time of the illegal declaration of independence there were 20 countries with consular representatives in Rhodesia. They have pursued various policies since, but only five of those 20 now maintain their representation at the same level as at the illegal declaration of independence. I imagine that will be welcome to the hon. Member and to all loyal subjects.
    Mr. Molloy: Would not my right hon. Friend agree that in so far as there have been even more distasteful drifts to

    21
    authoritarianism in Rhodesia with journalists and lawyers being harassed and evicted from that country, perhaps, despite the conflicting views on other issues connected with Rhodesia, my right hon. Friend, the right hon. Gentleman the Leader of the Opposition and the right hon. Gentleman the Leader of the Liberal Party in this House should make a joint declaration deploring such a disgusting attitude?
    Mr. Stewart: I think it is quite clear that if a régime first bases itself on a doctrine of racial supremacy, it ends up by tyrannising not only other races but also its own people.
    Mr. Braine: Will the Foreign Secretary come back to the question? Can he confirm that a consul can exercise his functions only by virtue of an exequatur issued by the host country. Who therefore issues exequaturs to the five consuls in Rhodesia, including that of the United States?
    Mr. Stewart: I must repeat the answer I gave, that the way in which consular and other officers of foreign States try to look after the interests of their subjects in a part of Her Majesty's Dominions where there is now usurped power is their own decision.
    Mr. Biffenasked the Secretary of State for Foreign and Commonwealth Affairs if he has now concluded his study of the feasibility of communications sanctions against Rhodesia; and if he will make a statement.
    Mr. M. Stewart: No, Sir; I have nothing to add to what my hon. Friend the Under-Secretary said in the House on 17th November.—[Vol. 791, c. 839–40.]
    Mr. Biffen: What are the factors which account for the inability of Her Majesty's Government to come to a conclusion on this subject, other than possibly a faltering realisation that communications sanctions, like economic sanctions, are nonsensical, self-defeating and should not be pursued?
    Mr. Stewart: If the hon. Gentleman is urging the abandonment of sanctions against the illegal régime, I am not sure whether that commands the support of all his right hon. and hon. Friends. However, he will know, as anyone who
    22
    has studied the subject does, that this sanction is an extremely complicated matter. There are arguments both for and against, and we shall require further time before pronouncing on it.
    Mr. Hugh Jenkins: Will my right hon. Friend resist the endeavours to bring aid and comfort to the racialist régime in Rhodesia?
    Mr. Stewart: I have no difficulty in doing that.
    Mr. Braine: Leaving aside the matter of sanctions against the régime, to which reference has just been made, is the right hon. Gentleman aware that any steps to cut off postal communication between innocent individuals in Rhodesia and their families in this country would be regarded with utter repugnance by the majority of British people?
    Mr. Stewart: I know that that is one of the arguments advanced in the whole discussion of communications sanctions. The hon. Gentleman knows that there are other matters to be taken into account. We are examining the question, and I will let the House know our decision as soon as possible.

    Gibraltar
    Mr. George Jegerasked the Secretary of State for Foreign and Commonwealth Affairs whether talks have now been resumed with the Spanish Government about Gibraltar; and whether he will make a statement.
    Mr. Wallasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a further statement about the Spanish blockade of Gibraltar and discussions with the Spanish Government.
    Mr. George Thomson: Diplomatic exchanges between our two Governments continue. These exchanges have created a better atmosphere in Anglo/Spanish relations. We welcome this as helping towards progress over Gibraltar and hope it can be consolidated by a lifting of the restrictions on Gibraltar.
    Mr. Jeger: Has my right hon. Friend had any signs from the Spanish Government that they intend to lift any of the restrictions? Are the discussions which are now going on in diplomatic circles

    23
    directed towards a solution of the Gibraltar problem, or are they the normal diplomatic talks which go on between various countries?
    Mr. Thomson: These are part of the normal diplomatic exchanges, but they are designed to try to improve the atmosphere surrounding our bilateral relationships, and an essential way of improving that atmosphere is for the restrictions on Gibraltar to be lifted.
    Mr. Russell Johnston: Are we to understand that Her Majesty's Government are not making specific attempts to get the restrictions on Gibraltar lifted?
    Mr. Thomson: No, Sir. I do not see how the hon. Gentleman read that into my reply. I said that we are conducting these exchanges and that, obviously, if the atmosphere is to be improved, the lifting of restrictions on Gibraltar is an essential, vital, and fundamental part of that process.
    Mr. Boyd-Carpenterasked the Secretary of State for Foreign and Commonwealth Affairs what relaxations he has now been able to secure in the measures taken by Spain against Gibraltar.
    Mr. George Thomson: I would refer the hon. Member to the reply I gave earlier today to my hon. Friend the Member for Goole (Mr. George Jeger).
    Mr. Boyd-Carpenter: Does not that answer amount to "None, Sir"? Does it not suggest that the Government's policy of turning the other cheek had better be reconsidered?
    Mr. Thomson: First, I do not accept the right hon. Gentleman's description of our policy. I remind him that after the difficulties of recent years, which I think were shared as much by the party opposite as by ourselves, it may take some time to achieve positive progress on the matter. I think that we want general agreement that it is worth while achieving progress in the interests of both Britain and Spain and, above all, in the interests of the people of Gibraltar.
    Mr. Houghton: May I ask my right hon. Friend whether statements made recently in Gibraltar by the Under-Secretary of State for Defence for the Army represent Government policy, and
    24
    also why naval exercises are being held near Gibraltar at present?
    Mr. Thomson: On the first part of my right hon. Friend's Question, yes, Sir, my hon. Friend's remarks to the Press represented Government policy. But I should not wish there to be any misunderstanding about what was said by him. There is no reason to believe that the Spanish Government are contemplating military action against Gibraltar. We are satisfied that they will seek a peaceful solution.
    The naval exercises, to which my right hon. Friend draws attention, are nothing to do with Gibraltar. They are taking place 80 miles away from Gibraltar. They relate to general N.A.T.O. defensive purposes, but Gibraltar is being used, as is normal, for recreational and revictualling purposes.
    Mr. Braine: Since the restrictions are not being lifted, may I ask what positive progress is being made to assist the Gibraltarians to overcome their effect? Surely the House is entitled to know what is happening in this sphere.
    Mr. Thomson: The hon. Gentleman may have forgotten the rather long statement that I made recently reporting on the constructive and positive results of the talks with the Chief Minister of Gibraltar, in which a whole series of particular schemes in which Britain is giving financial support were given to the House.

    South-East Asia (Withdrawal of Forces)
    Mr. Molloyasked the Secretary of State for Foreign and Commonwealth Affairs what were the results of the consultations held between Her Majesty's Government and Governments in the Persian Gulf and South-East Asia about the maintenance of a military presence in South-East Asia after 1971; and if he will make a statement.
    Mr. M. Stewart: As my right hon. Friend the Prime Minister said in the House on 16th January 1968, following the review of the commitments the Services are required to undertake, we intend to withdraw British forces from their stations in Malaysia, Singapore, and the Persian Gulf by the end of 1971. We are in close consultation with our friends

    25
    in the Persian Gulf and South-East Asia about matters arising from our military withdrawal.
    Mr. Molloy: While thanking my right hon. Friend for that reply as one of those who agree with the intelligence of that approach to our commitments in that part of the world, would not my right hon. Friend agree, nevertheless, that it is specially repugnant to see some hon. Members opposite making charges that this sort of policy could endanger British lives? Not only does it make no contribution, but it is pretty thick coming from right hon. and hon. Gentlemen opposite, of all parties in the country.
    Mr. Stewart: In general, I agree with my hon. Friend. As far as I or anyone else can understand the policy of hon. and right hon. Gentlemen opposite, it could mean putting the lives of British Servicemen in very serious danger through a half-hearted policy which we could not back up.
    Mr. Tapsell: Will the right hon. Gentleman at least assure us that there will be no major rundown of forces before May, 1971, so that the British people can pronounce on this issue at the next General Election?
    Mr. Stewart: We have announced clearly that the withdrawal is to be complete by the end of 1971. The details in each case are a matter for my right hon. Friend the Secretary of State for Defence and have to be carried out with regard to efficiency and safety.
    Sir Alec Douglas-Home: Can the right hon. Gentleman tell us whether the defences of the embryo Federation have made any progress? If they have not, is it not very dangerous to leave a vacuum in an area by taking away British troops before there is anyone to replace them?
    Mr. Stewart: It is clear that the defence of the area must depend on regional co-operation among the parties concerned. Nothing could be more disastrous than for this country to pretend that it could give support which hon. Members in all parts of the House know in the last resort it could not.

    Rudolf Hess
    Mr. Dodds-Parkerasked the Secretary of State for Foreign and Common-
    26
    wealth Affairs whether he will now propose to the other three Powers concerned that Herr Hess be allowed to visit his family at Easter.
    Mr. George Thomson: The hon. Member will appreciate the difficulty of making plans of this sort for Hess at this stage. My latest medical information is that he requires some weeks further hospital treatment. Meanwhile the hon. Gentleman will be glad to have confirmation of newspaper reports that Frau Hess and Herr Wolf Hess will be visiting Rudolf Hess this afternoon.
    Mr. Dodds-Parker: Which of the four Powers refuses to look at this case on humanitarian grounds?
    Mr. Thomson: I think that previous answers have shown that, for some time, the three Western Powers have felt that the time is ripe for Hess's release and that, so far, the Soviet Union has refused to agree with that view.
    Mrs. Renée Short: Nevertheless, will my right hon. Friend be very careful about allowing right hon. and hon. Gentlemen opposite to manoeuvre him into a position which is likely to create difficulty between ourselves and any of the other three Powers concerned?
    Mr. Thomson: I think that the feeling on this matter lies on both sides, as the Motion on the Order Paper at the moment shows. There is an important distinction to be drawn between sentimentality, of which I think that my hon. Friend is afraid, and humanitarian feelings. Hess is one of the principal architects of the Nazi régime which caused such suffering to Europe. But he is now an old and sick man, and I think that the very humanitarian values for which we went to war against Nazism now leads us to believe that the time has come for his release.
    Mr. Neaveasked the Secretary of State for Foreign and Commonwealth Affairs (1) what is Her Majesty's Government's policy on the detention of Rudolf Hess;
    (2) what is the latest report from the British Military Hospital, Berlin, on the health of Rudolf Hess; and whether he will seek to arrange for Professor Rudolf

    27
    Zenker of Munich to conduct an independent examination.
    Mr. George Thomson: I would refer the hon. Member to the answers given in the House by my hon. Friend the Under-Secretary on 19th January. Latest reports on the health of Herr Rudolf Hess are encouraging; his ulcer has responded to treatment and there is no need at present for examination by an outside specialist.—[Vol. 794, c. 20–1.]
    Mr. Neave: As this is a question entirely of humanity, will the right hon. Gentleman invite the Prime Minister to raise this matter on his next visit to the Soviet Union?
    Mr. Thomson: I am ready to consider that and any other suggestions. The immediate concern is to make sure that Hess's health is looked after by the British Military Hospital. I take this opportunity to assure the House that the Chief Medical Officer of that hospital is in charge of the medical considerations there and that Hess is receiving medical treatment of the same standards that any other patient in that hospital would receive.
    Mr. Winnick: While there may be a case on compassionate grounds for Hess's release, is it not a fact that he was one of the most notorious Nazi leaders responsible for tortures, the concentration camps and the general barbaric rôle of Nazi Germany? Are there not more worthy political prisoners about whom we should be concerned?
    Mr. Thomson: I do not dissent from the basic proposition put forward by my hon. Friend. However, as I told him earlier today, I do not approach the matter as a question of sentimentality. I have no illusions about the historic rôle that Hess played as one of the founders of the Nazi régime. But, for the reasons that I gave, I think that humanitarian considerations should prevail.
    Mr. Peyton: Hess may, and does, have responsibility for his part in the founding of this evil régime, but will the right hon. Gentleman remind his hon. Friend that Hess spent most of the war in this country? Will he therefore ensure, if this cruel and barbaric sentence is to be continued, that future visits from his
    28
    family are conducted in a decent and civilised manner?
    Mr. Thomson: Speaking for myself, and, I think, for right hon. and hon. Members on both sides, our opposition to what Nazism meant started a long time before Hess landed in this country. I do not wish to take away anything from what I have said on that aspect of the matter, but I think that the time has come for humanitarian considerations to prevail.
    The arrangements for visits to the hospital are bound by prison regulations which are the subject of quadrupartite agreement. I am sure that the medical officer in charge has behaved in a most humane manner, as anyone would in these circumstances, in regard to giving Frau Hess proper information about the medical condition of her husband.

    British Solomon Islands Protectorate (Pincombe Report)
    Mr. Bryant Godman Irvineasked the Secretary of State for Foreign and Commonwealth Affairs what action has been taken as a result of the Pincombe Report of the Commission on the Civil Service of the British Solomon Islands Protectorate.
    Mr. Foley: The report's recommendations were accepted subject to modifications which were approved by the Legislative Council of the British Solomon Islands Protectorate. The introduction of the new pay-scales (and payment of back-pay) in respect of local officers was completed in December last, and other changes became effective from 1st January. Legislative Council Paper No. 87 of 1969 and the Pincombe Report, copies of which have been placed in the Library of the House, together constitute a detailed statement of the new conditions of service.
    Mr. Irvine: As the Commission was set up in September, 1968, may I ask whether the recommendations are backdated to October, 1968, as recommended? Further, has the recommendation that local leave should not be dealt with except under an overall review of the overseas service aid scheme also been accepted?
    Mr. Foley: On the first point, the salary awards were not back-dated.

    29
    On the second point, I can assure the hon. Gentleman that local leave and salaries will form part of the review of overseas service.

    North Atlantic Assembly
    Mr. Peelasked the Secretary of State for Foreign and Commonwealth Affairs whether he will take the initiative with the other Governments of the North Atlantic Alliance to bring about the official recognition of the North Atlantic Assembly as the Parliamentary consultative body of that alliance.
    Mr. George Thomson: We have always supported the view that the Assembly should be given official standing subject to the necessary unanimous approval of the North Atlantic Council. There is I am afraid, no sign that such approval would be forthcoming. In the circumstances I do not think that an initiative by Her Majesty's Government would achieve the desired effect.
    Mr. Peel: Is the Minister aware that the great majority of Parliamentarians who are members of this Assembly are anxious that this should be done? As the French are members of it, and therefore it represents the North Atlantic Alliance, of which they are members, and in view of the success of the official assembly of the Western European Union and the possibility that we might get liaison between the two in due course and thus reduce costs, should not this be pressed?
    Mr. Thomson: I am in no doubt about the importance of this matter, nor about the degree of support for it amongst parliamentary delegations associated with the North Atlantic Treaty Organisation. But it requires unanimity of 15 members of N.A.T.O. and that unanimity is not a prospect.
    Mr. Hugh Jenkins: Is my right hon. Friend aware that even if the hon. Gentleman speaks for right hon. and hon. Members opposite, he by no means speaks for right hon. and hon. Members on this side?

    World Youth Assembly
    Mr. Peter Archerasked the Secretary of State for Foreign and Commonwealth Affairs on what basis he proposes to select the United Kingdom delegates
    30
    to the World Youth Assembly to be held in August 1970.
    Mr. Foley: No invitation has yet been received from the United Nations Secretary General to select delegates to the projected World Youth Assembly. When it is received, there will be full consultation with major youth interests in the United Kingdom.
    Mr. Archer: Before it is received, may I ask the Minister to direct his mind to the way in which he will select delegates, or does he appreciate the danger that a great opportunity will be frittered away by simply gathering together a mini-establishment?
    Mr. Foley: Yes, Sir. I take the point.

    Pakistan, India and Cyprus (Select Committee's Visit)
    Mr. Hector Hughesasked the Secretary of State for Foreign and Commonwealth Affairs if he will state the purposes and the results of the recent visits of his representatives to Pakistan, India and Cyprus.
    Mr. Foley: If my hon. and learned Friend is referring to the Select Committee on Race Relations and Immigration, and the recent visit to Pakistan, India and Cyprus, made by Sub-Committee B, it is not for me to answer the Question.
    I have no doubt that the Select Committee will be making a report to the House in due course.
    Mr. Hughes: As the mission is particularly important geographically and otherwise, may I ask the Minister to take the earliest opportunity of bringing its work and its results before the House for debate?
    Mr. Foley: That is a matter not for me but for the Chairman of the Committee.

    Belgium (Detained British Citizens)
    Mr. Boyd-Carpenterasked the Secretary of State for Foreign and Commonwealth Affairs what assistance he has given to the two citizens of the Royal Borough of Kingston-upon-Thames who have been detained by the Belgian authorities since their aircraft landed in Belgium at the beginning of December, 1969; whether they have been visited in

    31
    gaol by an officer of his Department; and when it is expected they will be brought to trial.
    Mr. Foley: The two British subjects have been given all normal consular assistance. They were visited by the British Consul on 13th December and again on 22nd January. A trial on the exclusively customs charges started on 26th January but at the request of the prosecution it was adjourned until today. Other charges are pending.

  QUESTIONS TO MINISTERS
  Mr. Moonman: On a point of order, Mr. Speaker. Would you say whether any representation has been made by the Secretary of State for Social Services to answer Question No. 85, because of the gravity of this issue, and because of the projected airlift of women from the United States seeking abortions, in order to relieve the anxiety of many hon. Members, and, indeed, a large section of the population?
  Mr. Speaker: I have had no such request from the Minister.
  Sir D. Walker-Smith: On a point of order. Mr. Speaker. May I respectfully ask you whether, having regard to the constitutional and Parliamentary importance of Question No. 73, and having regard to the obscurity of Ministerial Answers so far, and the desirability of Ministerial candour in their dealings with the House, the Foreign Secretary has asked permission to answer it orally?
  Mr. Speaker: Many hon. Members whose Questions have a low place on the Order Paper would like to elevate them. I cannot do that unless the Minister asks me to.

NIGERIA (BRITISH MISSIONARIES)
Mr. Edward M. Taylor Mr. Edward M. Taylor (by Private Notice) asked the Secretary of State for Foreign and Commonwealth Affairs whether he will make a statement on the position of the British missionaries who are reported to be imprisoned or under house arrest in Port Harcourt, in Nigeria.
The Secretary of State for Foreign and Commonwealth Affairs (Mr. Michael Stewart): As soon as reports were received of the presence of four Marist Brothers and two Presentation Sisters in Port Harcourt, our High Commission sought from all possible sources information about their situation.
The four Marist Brothers were located on 24th January in a hotel in Port Harcourt, where they were comfortably lodged.
Following the reports of their detention, the High Commissioner made contact with the Nigerian authorities, but has not yet received confirmation of the reports.
Mr. Taylor: Have any of our representatives in Nigeria actually seen the Marist Brothers concerned, and has the right hon. Gentleman any guarantee that they will be able to return safely to this country? Further, in view of the wonderful contribution made by schools run by these Marist Brothers in Nigeria, may I ask the right hon. Gentleman whether there is any guarantee that they will be able to return to the former war-torn areas to carry on their work?
Mr. Stewart: I think I made it clear in my original answer that the four Marist Brothers were located by one of the staff of our High Commission in an hotel at Port Harcourt on 24th January. There are at present unconfirmed reports that they have been convicted on charges of illegal entry into Nigeria. I cannot at present confirm those reports. According to a statement of the Federal Ministry of Information, the cases of persons convicted of illegal entry are being reviewed.
I cannot give the House further information than that at present, but I shall keep the House informed.

BILL PRESENTED

  CONVEYANCING AND FEUDAL REFORM (SCOTLAND)
  Mr. Secretary Ross, supported by Mr. Norman Buchan, presented a Bill to provide as respects Scotland for the variation and discharge of certain obligations relating to land; to facilitate the allocation of feuduties and ground annuals; to

  33
  reduce the period of positive prescription of 20 years to 10 years; to provide for a new form of heritable security; to make certain amendments to the existing law relating to heritable securities; to make certain other amendments to the law relating to conveyancing, to abolish the rights of pre-emption of heritors in respect of glebes; to amend the Lands Tribunal Act 1949; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 90.]

  SCOTTISH AFFAIRS
  Ordered,
  That the Report of the Royal Commission on Local Government in Scotland, being a matter relating exclusively to Scotland, be referred to the Scottish Grand Committee for their consideration.—[Mr. Peart.]

ORDERS OF THE DAY

  EXPORT GUARANTEES AND PAYMENTS BILL
  Order for Second Reading read.
  3.35 p.m.
  The President of the Board of Trade (Mr. Roy Mason): I beg to move, That the Bill be now read a Second time.
  My main purpose today is to move the Second Reading of the Export Guarantees and Payments Bill, which will raise the statutory limits on E.C.G.D. guarantees to enable the Department to keep pace with the ever-increasing business offered for insurance, and will also extend the Department's powers to enable it to meet certain forms of foreign competition which cannot be matched under the existing powers.
  But I would like, first, to say something about our export performance generally and how we have organised ourselves in the Board of Trade to assist British exporters.
  First, a word about the excellent performance in exports we have already achieved. For two years now our exports have been growing vigorously. Last year, the value was 14 per cent. higher than in 1968. By the fourth quarter of last year the rate of our exports was 46 per cent. up in value compared with the summer of 1967 before devaluation; the increase in volume was 28 per cent. This steep rise has been a major factor in the great turn-round we have achieved in the balance of payments over the last two years. Indeed, the increase in exports for 1968–69, both by value and by volume, was the largest since 1951.
  There were also a number of very encouraging features about our export performance in 1969. The value of our shipments to Western Europe was up by 19 per cent. with large increases to E.E.C. countries and to our E.F.T.A. partners. There was also a very marked rise in our exports to the sterling area, particularly to the developing countries, and a little later I shall mention the possibilities I saw for myself recently in South East Asia.
  Amongst individual countries, there was a remarkable rise, of nearly one-third, in our exports to Japan. We did

  35
  less well in our sales to North America, which showed only a small increase, but many of our competitors had similar experience in this market.
  Many key sectors of British industry were well to the fore in the growth of exports last year. Deliveries of motor vehicles rose by 20 per cent., and there was an increase of 12 per cent. in exports of machinery, 29 per cent. in aircraft and aircraft parts, and 21 per cent. for scientific instruments.
  The growth in our exports last year coincided with an exceptionally rapid increase in world trade. However, there was this important difference compared with our experience in the past. On previous occasions of strong growth in world trade, our share has tended to fall sharply. But last year, as far as we can tell at present, we came very close to holding our share of world exports.
  I should like to pay tribute to all the exporters in this country whose efforts are reflected in our export achievements last year. They have seen the opportunities provided by devaluation for profitable business in the markets of the world and have gone out to exploit them with vigour and far-sighted enterprise.
  Though I have given praise, rightly, for the achievements in 1969, I do not wish to appear complacent. There are signs that in 1970 increases in exports may be more difficult to win. Much will depend on the rate at which world trade grows. Some slowing down from last year's exceptionally fast rate seems inevitable, with the behaviour of the United States economy especially important. On the other hand, primary producers' earnings have been buoyant recently, and this should enable us to achieve a substantial increase in our exports to them this year.
  A considerable price advantage from devaluation remains, and I urge exporters to take every advantage of this. We can all be encouraged by the fact that since devaluation our exports have been doing so much better in world markets. We must avoid becoming complacent, but, equally, we have solid grounds for optimism.
  I intend that my Department, and, indeed, all the Government services, will play a full part in the effort we still need. To this end, I have implemented a
  36
  major reorganisation of the Board of Trade export services. My predecessor informed the House on 12th June last that he had invited a review of the structure, staffing and method of working of the Department's export services.
  I am grateful to Sir Hector McNeil, the Chairman of Babcock & Wilcox, to Professor Elliott Jaques, of Brunel University, and to Mr. William Nicoll, of the Department, for the thorough and energetic way in which they tackled the task. They took into account all the points made on the promotion of exports in the Sixth Report of the Estimates Committee and the evidence put by the Confederation of British Industry and other bodies. Clearly, it was appropriate that we should review the home side, while Sir Val Duncan had under review the overseas side of the Government's commercial services. I have now received and considered this report.
  I am satisfied that export services must remain a part of the Government machine. There have, of course, been suggestions from time to time that we should give the job instead to some outside agency. But the Government are firmly of the view that export policy and promotion cannot realistically be separated from commercial policy and relations with other trading nations. It is the rôle of commercial policy to break down trade barriers and open up opportunities for new trade; it is then the job of the export services to help take advantage of these opportunities. We cannot really divorce one of these tasks from the other.
  These are the main features of the export reorganisation which I have now approved: first, a new Second Secretary post has been created to take charge of the revised organisation dealing broadly with industry at home. Under this Second Secretary will be an Export Services Division, consisting of headquarters staff, two offices for Scotland and Wales and seven regional offices. The headquarters staff will consist of three branches, one dealing with general services to industry, a second co-ordinating work at headquarters, including special services with work in the regions, and the third responsible for data handling.
  These services until now have been concentrated in what is known as the Export Services Branch, but the work is

  37
  being strengthened and reorganised to give direct points of contact with individual industries. The data handling branch, for example, will contain an information centre using the most up-to-date equipment, particularly for ensuring that export opportunities reach subscribing firms as rapidly as possible.
  In Scotland, Wales and Northern Ireland and in seven regional offices the Board of Trade is making a big effort to improve direct contacts with exporters. Regional export directors have been or are being appointed, and local staff is being strengthened where necessary. The Overseas Projects Group keeps a close watch on the world market for major capital contracts and provides support for British industry's efforts in this field. It is already working effectively and is developing. It will come under the new Second Secretary post.
  The other Second Secretary will have responsibility for the overseas part of the Department's work. There is a spread of responsibilities on this side of the Board of Trade's work, and so the staff has been strengthened at senior levels. This will produce an organisation which can work closely with the revised export services. In the centre of the organisation, working to both Second Secretaries, I have created the Export Planning and Development Division. This will determine the priorities. It will also draft programmes for export promotion, review and develop export services and plan trade fairs and similar activities. Details of the organisation will be set out in an article in this week's Board of Trade Journal and in a leaflet I hope to publish shortly for exporters and potential exporters.
  I am taking every opportunity to see at first hand some of our important export markets. I have just returned from a tour of a vital area for us—Thailand, the Philippines, Singapore and Malaysia. My purpose was to familiarise myself with the changing patterns of economic development and trade in the four countries. I wanted to find out the reasons for the recent decline in our share of the South-East Asian market and what opportunities existed which we might be missing. Above all, I wanted to discover whether there was any action that the Government might take to remove obstacles which might be preventing British
  38
  exporters from taking full advantage of these opportunities.
  Since my return I have discussed my experiences very fully with the active Asian Committee of the B.N.E.C. and drawn the attention of industry to various specific points. I would only wish to make to the House two points which are fundamental to the Bill.
  Everywhere I find the utmost good will for Britain, and British exports, but everywhere I find our competitors—and particularly the Japanese—attacking these markets with real persistence and aggression. In fact, I noticed some disquiet about the level of Japanese penetration which could cause a reaction favourable to our exporters. Credit was a main weapon of competition and some of the practices of our competitors are not likely, in the long run, to be much of a bargain for their customers. But we cannot afford merely to sit and watch.
  The Bill before the House is relevant in this context, but of more immediate effect, I am sending a senior official from E.C.G.D. to these important markets. His purpose will be to discuss at first hand some of the credit problems put to me by British and local businessmen. His visits will be all the more important if the Bill receives approval.
  I have no intention of letting our competitors beat us—either in South-East Asia or anywhere else—in the matter of Government-assisted credit competition. We shall meet such competition squarely. Unless, of course, we face credit terms which really amount to a give-away, so that it would not be in our national interest to win the business.
  Mr. John Nott: Did the Minister come across any examples where people in South-East Asia were suggesting that if only it were easier for British companies to participate in joint ventures with Japanese companies a much better exploitation of Far East markets might come about from direct investment in Japan?
  Mr. Mason: No, that was not raised with me. But on the point of joint ventures with participating countries, in respect of Singapore and Malaysia, where it would be possible, with British technical know-how and British managerial experience, allied with labour and raw materials from the country concerned, useful joint

  39
  ventures could develop. This they are particularly interested in, and I came back with that sort of message to our Export Credit Guarantees Department and also to the B.N.E.C. Asia Committee.
  Mr. Nott: I am sorry to interrupt the Minister again, but in that case he will presumably have recommendations to make to the Board of Trade and to the Chancellor that there should be a more easy attitude on the part of the Treasury towards joint ventures, because at the moment British companies cannot enter into them. They are not allowed to.
  Mr. Mason: But they can do so in the case of Malaysia and Singapore. I admit that it is more difficult in the case of Thailand and the Philippines. I did not want the hon. Gentleman to mislead the House about overseas investment. I have the figures in my head, and if I remember them correctly, in 1966, 1967 and 1968 direct investment abroad amounted to £929 million, which was a 15 per cent. increase over the previous three years.
  Sir Keith Joseph: If the Minister is going to produce figures, will he also confirm that the vast bulk of such increase as there was was due not to expenditure from this country, but to the investment of unremitted profits from overseas territories?
  Mr. Mason: Certainly there was some investment of that kind, but I remember the figures for direct investment, and I thought I should let the House know about them—because it is not true that there is a total restriction on investment. Investment is regulated, but there is no complete restriction.
  As I said at the beginning of my speech, the main purpose of the Bill is to raise the statutory limits which are set on E.C.G.D.'s liabilities. It has been the practice of this and preceding Governments to set these limits with the intention that they should stand for a few years. When they are nearly reached, E.C.G.D. asks Parliament for authority to raise them.
  The reasons we are asking Parliament for higher limits after only three years are, first, that British exports have rapidly risen since 1967, and that E.C.G.D. is insuring a steadily greater
  40
  proportion of them year by year. Before the limits were increased in 1967, E.C.G.D. was covering about 30 per cent. of British exports; it is now covering 35 per cent. of a larger trade. Since we expect these trends to continue, we must make provision in the limits.
  Like any other insurance institution, the Department charges a premium for its guarantees. If any of the transactions insured lead to losses, these are met out of its income. What is more, as a trading Department its income is sufficient to meet all its administrative expenses, including accommodation and the salaries of the civil servants who staff it. The Exchequer, of course, stands behind the Department, but the Department pays its way taking one year with another.
  Over the years the Department has built up small favourable balances—very small in relation to its liabilities—and does not cost the taxpayer a penny. E.C.G.D.'s normal insurance operations are carried out under two Sections of the Export Guarantees Act, 1968, which consolidated all previous legislation. The Bill provides for increases in the limits on business under both Sections.
  Section 1 of the Act empowers the Department, with the consent of the Treasury and the advice of the Exports Guarantees Advisory Council, to give guarantees for the purposes of encouraging overseas trade. Business insured under Section 1 is known as the Department's "commercial" business, because the risks can be justified on normal commercial grounds. The Advisory Council consists of eminent bankers, businessmen and others. I am pleased to have this opportunity of thanking the Chairman, Sir Frederic Seebohm, and all the members, for the very valuable work they are doing. They freely give their time and wise counsel and we have every reason to be grateful to them.
  The present limit in the liabilities which E.C.G.D. may assume under Section 1 was raised to £2,400 million in 1967. At the end of 1967, actual and contingent Section 1 liabilities stood at £1,571 million; at the end of 1968 they were £1,732 million; and at the end of last year £2,077 million. If the present rate of increase is maintained, and I have no reason to expect any substantial slackening, the limit could be reached by the end

  41
  of the year. This would mean that E.C.G.D. would then be unable to insure further exports, except to the extent that existing liabilities ran off.
  Section 2 of the 1968 Act provides for E.C.G.D., with the consent of the Treasury, to insure export business "in the national interest". This is business which, although it does not require the backing of the commercial advice of the Advisory Council is, nevertheless, regarded by the Government as advantageous on national interest grounds. E.C.G.D. applies its normal underwriting judgment. Section 2 business is not, therefore, unsound business, and Ministers have promised that the powers will not be used to undertake any "unduly hazardous" risks.
  Section 2 can also be used with Section 3 to make loans to help buyers to make payments due under export contracts. At present loans by E.C.G.D. under these powers may only be made where the purpose is to provide economic assistance to another country, but, as I will explain shortly, we are proposing, in the Bill, to extend those powers. In the past, these powers were used to provide aid loans to a wide range of developing countries, but when the Ministry of Overseas Development was established, in 1964, responsibility for virtually all types of economic aid, that is, excluding military aid and military technical assistance, was transferred to that Department. E.C.G.D.'s powers to make loans have not since been used except to administer past loans.
  The limit on E.C.G.D.'s liabilities under Section 2 was raised to £1,500 million in 1967. At the end of 1967, actual and contingent Section 2 liabilities stood at £991 million; at the end of 1968 they were £1,233 million, and at the end of last year £1,383 million. Those figures have risen particularly rapidly in the last six months, and if that rate continues the limit could be reached before the middle of this year. Provision for an increase must, therefore, be made if E.C.G.D. is to be able to continue to insure business "in the national interest" under this Section.
  Projections into the future based on the rise in E.C.G.D.'s liabilities over the past year or so could prove over-optimistic; but the recent strong growth in exports and the increasing proportion of
  42
  export business being covered by the Department certainly give us reason for being optimistic. We have, therefore, provided in the Bill for an increase of £1,600 million in the Section 1 limit, from £2,400 million to £4,000 million, and an increase of £1,000 million in the Section 2 limit from £1,500 million to £2,500 million. These limits should accommodate the expected increase in business over the next three to five years.
  I now turn to the new powers proposed in the Bill to allow E.C.G.D. to match foreign credit competition. One of the facts of life in the post-war world over the last 10 to 15 years, and particularly for major capital projects, has been the pressure to sell on terms of credit very favourable to the buyer. With a continuing balance of payments problem it has sometimes been difficult for us to compete fully with the terms offered by other countries. We have not wanted to lead the credit race, but have, in general, sought to match terms which foreign competitors were able to offer with official support—unless those terms were outrageous.
  Some countries have made their offers particularly attractive by mixing commercial money with Government money on long terms, and possibly at concessionary rates of interest, sometimes described as aid. We have not liked this development and would have much preferred that it did not happen. But, as other countries show no sign of abandoning their practices, we have decided that we must be able to act likewise in suitable cases. By this, I mean where we consider it highly desirable in the national interest to compete for a particular piece of business and can see no other way of doing so.
  In the Bill, therefore, we propose to extend E.C.G.D.'s powers in two ways. First, to widen its powers to make loans, and, secondly, to introduce a new power to make payments to reduce the cost of interest.
  As I mentioned earlier, under Section 2 of the Act, E.C.G.D. already has power to make loans to help buyers to make payments due under export contracts, but only where the purpose is to provide economic assistance to another country. This power, in conjunction with the power to acquire securities—in Section 3 of the 1968 Act—was used for many years as

  43
  the normal way in which Her Majesty's Government gave tied aid to developing countries.
  Since the Ministry of Overseas Development took over responsibility for aid, no new loans have been made using E.C.G.D.'s powers; they have remained in the Act to enable the Department to continue to make advances under agreements previously entered into. It is now proposed to extend these powers under Clause 2 of the Bill to make loans in this way where the purpose is not the provision of economic assistance, but the encouragement of trade.
  Sir K. Joseph: Under Section 2 of the underlying Bill, and Clause 3 of this Bill, surely?
  Mr. Mason: Under Clause 2 of the Bill, where we are now to allow E.C.G.D. to make loans for the encouragement of trade; which is an extension of the power, as distinct from what was previously a provision for economic assistance.
  A typical use of the new power would be for E.C.G.D. to make a loan to a foreign buyer in conjunction with a normal commercial export contract for a major project. I have in mind here big projects of the kind that our Overseas Projects Group are concentrating on. The loan would not be for the whole amount due under the export contract, but for a proportion of it, sufficient perhaps to enable the buyer to make the payments due by delivery and possibly some of the early credit instalments. The balance of the contract would be financed in the ordinary way and the buyer would pay the supplier on commercial credit terms. He would repay the E.C.G.D. loan over a longer period.
  The effect of these arrangements would be that the buyer would not have to find any of his own money until the goods had been delivered, or, possibly, some time after. This would match similar arrangements which some countries have been making for some time on major projects and which we have not previously been able to match. We have thus lost business to them so we are now moving to restore the balance. Any money required for this purpose will have to be voted by Parliament in the normal way.
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  An important element in the winning of an export contract may be the cost of interest. The United Kingdom rate of interest for long-term export finance is, in general, competitive with other countries' export rates. But there are times when other countries charge lower rates for particular pieces of business, again by mixing commercial and Government money.
  When the contract is being financed entirely from commercial sources, some means may have to be found to reduce the cost of interest to the buyer where foreign competition makes this necessary. Clause 3 of the Bill will enable this to be done in one of two ways.
  One way would be for the contract to provide for the normal export credit rate of interest to be paid and for E.C.G.D. to make payments to the buyer sufficient to reduce the effective rate to the lower rate which it has been decided to charge. The other way would be for the contract to provide for a lower rate of interest and for E.C.G.D. to make a payment to the United Kingdom lending bank equivalent to the difference between that rate and the export credit rate which the bank would normally charge.
  The effect of the two methods is the same: the United Kingdom lending bank will have received the normal export credit rate, whereas the money has cost the buyer only the reduced rate agreed upon. E.C.G.D. will have made up the difference. As with the loans under Clause 2, this power will be used only to match foreign competition on similarly favourable terms, and any money required for this purpose will have to be voted by Parliament.
  I should stress that these are enabling powers and that we have, at present, no specific cases in mind in which we intend to use them. It would, therefore, be misleading were I to attempt to estimate what the annual Vote for these purposes is likely to be. The powers will, however, be used sparingly and only where there is a clear national interest in doing so.
  The House will also notice that now that E.C.G.D. finances its loan operations from moneys provided by Parliament, and accounts for them accordingly, the Acquisition of Guaranteed Securities' Fund is no longer necessary. Clause 4 of the Bill, therefore, proposes that it

  45
  should be wound up. The change will not affect the substance of E.C.G.D.'s operations or the Department's accountability or use of public money in any way.
  My speech has inevitably been of a somewhat technical nature, but these are really vital matters which are of great concern to us all and I thought that the House would like a full explanation of the raising of the limits and the new powers that we are giving to E.C.G.D. In brief, however, the changes I have made in the Board of Trade and the proposals in the Bill are all designed to support the very fine efforts which our exporters have been making and which are reflected in the excellent trade figures.
  We have the finest credit insurance system in the world and we intend to keep it that way. This is really the cutting edge of the Government's export promotion effort and it is fully backed by the commercial representation overseas reporting to the Board of Trade, while at home we will shortly have in operation a computerised export information service.
  In total, therefore, we will have a more powerful E.C.G.D. service, a reorganised and much more effective Export Division of the Board of Trade, and an establishment of regional export cells manned by officers who will have closer contact with industry, backed very soon with a computerised operation which will be receiving trade opportunities and economic intelligence from all our overseas posts and feeding our exporters with the information they specifically require.
  With exports still running strong, and no hint of a let up, this is a fresh launching pad for future efforts and should augur well for Britain's future.
  4.2 p.m.
  Sir Keith Joseph: We note that the Government back benches are virtually empty and that only one Minister, the right hon. Gentleman who has just spoken, occupies the Government Front Bench. We hope that this does not mean that the Government will be in difficulty in answering the many questions which we are bound to ask about the Bill. The Minister read his speech. We hope that he will be able to answer, either by reading from something
  46
  else or by improvising, some of the important points that my hon. Friends and are bound to make.
  I wish at the outset to join with the right hon. Gentleman in taking pride in what is, we believe, the finest export credit organisation in the world. In the light of the figures which the right hon. Gentleman gave, it obviously makes sense for the Government to introduce a Bill designed to raise the limits within which E.C.G.D.'s operation works, and to that extent we welcome the Measure in general.
  We also welcome the annual evidence that E.C.G.D. is constantly improving its methods. The fact that virtually each year it is able to produce improvements shows that there is always, in this highly competitive world, more to be done; and we congratulate E.C.G.D. for the way in which it has constantly been improving its services. My hon. Friends and I are aware that even in a perfect world there would be much to be done, but that will be practicable only when a Government with a different complexion produce a different economic and financial climate.
  Before coming to the strategy of the Measure, there are a number of questions needing to be answered about its details. The Minister got into water that was, I suspect, deep for him—it is certainly deep for me—when he described the purposes of Clauses 2 and 3. We recognise that E.C.G.D. has been moving with understandable delicacy from its old practices of concentrating on supplier credit towards more buyer credit in recent years, and Clauses 2 and 3 strengthen its capacity to provide buyer credit.
  The Minister explained that the buyer credit proposed would not principally be of the tied-aid variety, which is now looked after by other methods under a different Ministry. He spoke of buyer credit principally in connection with project credit. Would the right hon. Gentleman explain to what extent the proposals in Clauses 2 and 3 will finance, or make possible the financing of, what I believe is technically called "shopping-basket buyers' credit"? I refer to cases where a big buyer abroad wants to buy a range of, say, machine tools, transportation or communications equipment, but does not want to make his final decision on particular items before fixing his credit. In

  47
  such a case he obtains buyer's credit on a shopping-basket basis, as it were, to be identified when he has done his shopping in this country.
  To what extent will Clauses 2 and 3 service that purpose and what growth has there been, or is taking place, in buyers' credit lines? A recent E.C.G.D. report stated that in the last year for which the Department reported there were five buyers' credit lines already agreed and 12 more under negotiation. Under what powers would those buyers' credits be arranged, what has happened to the 12 that were under negotiation and what new credit lines within Clauses 2 and 3 that are now subject to the passing of the Bill are under discussion? We appreciate that they cannot be formally committed, but preliminary discussions may have taken place.
  I come to the more technical questions raised by Clause 3, and we understand that, for the first time, we are to go in for a subsidised rate of interest. In other words, we are to have a rate of interest which is below even the fixed scale of interest which the banks supply for their medium and long-term export finances, that fixed rate of interest by the banks being well below the national, let alone the international, rate of interest.
  Neither the Minister, nor the Financial Memorandum to it give an indication of the scales of magnitude. If this new power is so important, the Minister must have some idea of the scales of magnitude. The subsidised interest rates of which countries are we particularly anxious to compete with? We admire E.C.G.D.'s tight-rope act, when the Department matches but does not out-bid foreign offers, and we realise what a delicate balancing act this must be, but it will be difficult to identify the degree to which we must subsidise the rate of interest. For this reason, the Minister should give some idea of the scales of magnitude.
  The Bill raises a number of big issues. The Minister spoke for 25 minutes and spent about 10 minutes of that time not discussing the Bill but on a general survey of British balance of payments performance and the tactics of his Department. As usual with Ministerial speeches, it was a one-sided presentation.
  48
  We acknowledge with gratification the enormous increase in exports in financial terms and the substantial increase in exports in real terms that has occurred during the last two years. The Minister was gracious to acknowledge that much of that had been due to a world trading boom. Indeed, it would be impossible to deny that that provided a climate, without which we could not possibly have achieved what has been achieved.
  Perhaps the right hon. Gentleman could not have been expected to have brought out the other main contributory factors to the export leap and dramatic transformation in our balance of payments acccount—the fact that Britain has benefited in its balance of payments operations from three overlapping and simultaneous phenomena—first, devaluation; secondly, the world trading boom; and, thirdly, stagnation in the home market. Stagnation in the home market has reduced the growth of imports and freed resources for exports.
  There are a number of other factors which the Government have brought into play to improve the balance of payments. They should be described in a fuller picture in the light of what the Minister rather distortedly described. We are, after all, still suffering from multiple exchange rates. We have import deposits which are, in effect, a partial further—I hope, temporary—devaluation. We have window dressing by nationalised and local authority borrowers borrowing in overseas markets: increasing our debt overseas to window dress the capital account. We have such stagnation at home—oddly enough coexisting with such inflation at home—that stocks have fallen sharply as a proportion of gross national product.
  In normal circumstances we on this side would welcome a fall in stocks—it would be a sign of better turn round of work in progress—but when they have fallen because of credit squeeze, high interest rates and general stagnation the probability is that stocks will rise again as consumption rises at home, and thus begin to erode the balance of payments improvement which we all welcome. So I have tried to set the balance right in the very one-sided picture which the right hon. Gentleman for ten minutes gave the House.

  49
  I want to turn to another factor of the right hon. Gentleman's remarks, because it ties up closely with the strategic issues raised by the Bill. He rather dismissed any thought that overseas investment is being restricted. He said, "Oh, there are regulations, but there is virtually no restriction", and he produced a single figure by, I suspect, aggregating three years' net increase of overseas investment outwards.
  There are a number of points to be made there. First, overseas investment inwards to this country is not restricted. Foreign investment, whose intrusion here in most cases we—and, I think, the Government—very much welcome, is rising fast, so that our outward flow of dividends, profits and interest is increasing without restraint, but, simultaneously, the Government's restrictions are restraining our overseas investment outwards. So the interest, profits and dividends which should be counterbalancing inwards the flow of interest, profits and dividends outwards are not being fertilised by new production and investment.
  The President of the Board of Trade should study, as I am sure he has, tables 19 to 25 in his own 1969 "Pink Book". He will find there that such increase in overseas investment as is still going on—and there is a substantial amount, we are always delighted to see, going on—is almost entirely financed by unremitted profits from overseas companies. If the Minister looks at the table that shows what has happened to unremitted profits, he will see that those unremitted profits have leapt, partly due to devaluation, but partly, also, because once the Government restrain capital moving outwards from the country, no doubt the companies abroad do their very best to have more unremitted profits overseas.
  These are very complicated matters that I for one do not begin to understand in depth, but the Minister's assurance that overseas investment is not restrained was far too simple. I am sure that he will be reading the industrial Policy Group's "The Case for Overseas Direct Investment", which came out a few days ago. There is a very powerful trading case on balance of payments grounds for relaxing as soon as we can the restrictions on overseas investment—and I do not talk here of portfolio investment, but of non-portfolio investment
  50
  because, in the tough trading world, if one country denies itself the trading opportunities that in many cases have to be taken only by overseas investment, that country will soon begin to lose its world market and its world opportunities.
  The reason this is so important for the Bill is that the funds being devoted by the country by way of export guarantees to improving our exports are of precisely the same nature as the funds which the Government are denying to overseas investors. They have the same effect on the balance of payments. Since the Government came into office they have been intellectually persuaded—and I am sure that they are absolutely sincere—that overseas investment is wrong and that export credits are right.
  As I understand—and I am sure that if I am wrong the President of the Board of Trade will correct, or, if not he, then the hon. Lady the Parliamentary Secretary—and we are all glad now to see a second Minister on the Treasury Bench—these have precisely the same effect over a period the one as the other. In each case, whether it is export credits or overseas investment, this country is out of its money for a given number of years. In the first case, export credits, we earn interest and, perhaps, instalments as the credit is paid off over the period for which it is made, and that is the end of the matter. The most that can happen is that the country will be paid back its debt. I hope that the right hon. Gentleman is taking in this argument.
  In the second case, however, if precisely the same national resources were used for overseas investment on a larger time scale than the supercriterion—that is, the criterion of the 18 months and the three years now imposed for the total return of overseas investment—if it was allowed for the same time and to the same extent as money devoted to the national economy by export credits—not only would we get, if all was well—and generally it is well—interest on that money flowing back to this country, but some exports and a flow of profits for generations to come. It needs a very skilled mathematician to tell which is the better over a period, but if the investment is well made there is no doubt which over the long term is better—overseas investment is overwhelmingly the better.

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  In the light of this argument, we want to ask the Government why they are still so tough in their restraint of overseas investment and why they still make no apology for using more national resources for export credits. This is not a polemical argument, but a use of national resources argument. It is not as though export credits were being restrained, or that the Minister or his right hon. Friend the Chancellor of the Exchequer was explaining having to devote another £50 million over the exchanges to export credits. No one seems to mention it, but if I were to ask the Minister to tell us how much export credits were tied up for what time and what were our bad debt experiences on them, I doubt whether he would have a figure readily to hand.
  Certainly, as a student from outside, I find it difficult to get the total picture but as far as I can see from the Board of Trade Journal for September, 1969, there has been an increase in total net credit extended during each of the last four years. We know from the Bank of England Survey, and the Bank of England Bulletin of December, 1969, that the Bank itself is worried about the rise in the volume of export credits and the stretching of export credit terms, both of which cost us, across the exchanges more money.
  We know from the Board of Trade Journal that the volume of credit extended for over a year has increased by no less than 20 per cent. in the last two years. Admittedly, as a proportion of total exports the credit for each year is still puny—the rise to 20 per cent. to which I have referred involves only a rise from 5·4 per cent. to 6·6 per cent.—but, because of the magnitudes of the underlying figures, these are quite large sums of money.
  The question to the Minister is: why approve of them—at best, you only get your original price paid back, plus interest—when overseas investment, which could have such much bigger benefits for the economy, is still frowned on? I hope that we shall be given an answer. Why is one evil and the other good? We know that the Bank of England itself is worried. Will the Minister tell us to what extent he expects the scale and the length of time of export credits to continue being stretched, the way that we fear?
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  I turn to the other big question. The Minister allowed himself from time to time to speak of E.C.G.D. money being used for exports. Such money is, of course, used from that source from time to time and there may now be money generated through E.C.G.D. for Clause 3 operations. But, surely, what the President of the Board of Trade was referring to was bank money guaranteed by that Department. That much is agreed between us.
  The second big question to the Government is: what do they intend to do about the dependence of this country on the willingness of the banks, their shareholders and depositors to subsidise British exports? The country owes them a great debt since voluntarily—and it was the Conservative Government that persuaded them to do it—they co-operate at their own cost in supporting our exports. I must be careful what I say, because I can see that a Conservative Government might again want to ask them to continue this patriotic practice.
  This is a complicated arrangement. One reads in the Bank of England article about all sorts of devices which are arranged to cushion the implications for the bank of their use of this money at a time of liquidity ceilings and pressure on reserve ratios. The fact is that banks finance the middle and long-term exports. What are the figures involved? I note that bank finances under firm guarantees leapt up by no fewer than 67 per cent. between the years 1968 and 1969. The fixed-rate longer term transactions financed by banks increased by £70 to £274 million. My studies probably may not be good enough to give me the total picture. Therefore, may we be told how much money is involved? I do not wish to give the wrong impression. We should be grateful to the banks, the shareholders and depositors, since it is they who are losing. Are the Government sitting supine on this problem, or are they doing anything about it? Through the Berne Union, E.C.G.D. is playing its part in trying to restrain the export credit race. That is fine and we wish them well.
  Another race that is going on is the race of subsidised exports by banks, often by the central banks—though this does not happen often in this country—in credit arrangements. We on this side of

  53
  the House have noticed that recently the Common Market countries have banned cheap export credits. I do not know how effective the ban is, but are the Government initiating any attempt to get other countries to cut short, curtail and even reduce the degree to which export credit is subsidised through central banks or taxpayers or, as in our case, bank shareholders' and depositors' money? We should feel far happier if, parallel to the Bill, we had some assurance that the Government were trying to do something on that front.
  That matter is far less urgent than the first big issues we have raised. To some extent export credits are all to the good, but in regard to overseas investment the situation is bad. We hope that when the Minister replies we shall have an answer both to the detailed questions and to the big issues, as well as on the other points that will be raised in the debate.
  4.26 p.m.
  Mr. John Nott: I welcome those parts of the Bill that extend the amount of credit which E.C.G.D. can give to the British exporter. Indeed, the current achievement of British industry in increasing exports in spite of all the restrictions which are placed upon them is something of which the country should be proud.
  The figures of the rise in exports embrace, I believe, a fundamental change which is taking place in British industry at the present time. Although our exports are going up fast following devaluation, more importantly over the last few years there has come about in industry, to a large extent because a new generation of management has now arrived, a change in attitude towards exports and indeed towards management. This change has been needed for very many years.
  One of the interesting things regarding the quality of management, which is very much related to the export question, is that in the United States the older generation of management which took over after the war is still very much in command. If this country can develop a new type of manager at a time when the United States industry is still being run by those who took over American industry after the war, we have great prospects over the next few years if only the Government will get off industry's back and allow it to go out after busi-
  54
  ness overseas with a much greater degree of freedom than it has at present.
  I also wish to emphasise the high quality of service provided by E.C.G.D. For a quasi-governmental Department, it is remarkably flexible and, on the whole, takes a very sound attitude to commercial risks. The fairly rapid decision-making that can be obtained by British exporters from E.C.G.D. is welcome indeed. I know of many American corporations which would very much prefer to deal with E.C.G.D. than with the Export-Import Bank, which is the equivalent in the United States.
  Although there is always room for improvement in the provision of credit facilities, the fact remains that we have a first rate system of credit insurance in this country. I hope that the basic way in which it now operates will continue without a trend which I see beginning in the Bill, towards Government financing of British exports. I believe that the Export-Import Bank now finances approximately 20 per cent. of American exports, whereas up to now the Government here have financed only 2 per cent. Yet I personally do not know of any sound export contract in this country which has failed to obtain finance from the private sector.
  I take the point made by the President of the Board of Trade about what he believes to be the need to lengthen credit and to reduce interest rates by means of subsidy. Could the right hon. Gentleman say which specific countries have a lower fixed rate of interest than 5½ per cent.? I san see that perhaps Japan, or France in regard to certain industries may have slightly lower interest rates on a fluctuating basis. However, I know of no country with a lower fixed rate than 5½ per cent.
  I must support my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) in saying that the developments in the Bill which have been described by the Minister must be regarded with some suspicion. In a situation in which we depend on exports probably more than any other country in the world, I cannot see what advantage will be gained by entering into and provoking a credit race in terms of subsidised interest rates and a further lengthening of terms. It must be in our interests more than those of any other country

  55
  to act in the other direction and to try through the Berne Agreement and G.A.T.T., if that is relevant here, to bring other countries more into line with present world interest rates.
  I come to what I consider to be the most important aspect of the Bill, to which my right hon. Friend the Member for Leeds, North-East referred. I believe that the Minister was wrong in not dealing with it. There is plenty of evidence to show that all over the world direct exports are playing a declining, and not an increasing, rôle in the balance of payments of the main industrial nations. The figures show that exports to subsidiaries and to affiliants of companies have been growing at more than double the rate of direct exports. Those of us with some experience of exporting overseas know from personal experience that the percentage rise in exports from a United Kingdom company to its subsidiaries tends to be far higher than it is with direct exports which it sells through agents.
  I support entirely my right hon. Friend's view that, because of the restrictions and bans—and they are bans of a type—on direct investment overseas, there is constantly around the neck of British industry a tedious burden in obtaining permission to invest directly overseas. I give just one example. A company with which I am associated had some difficulty in obtaining permission even to get a few tens of thousands of pounds to set up a sales subsidiary in Japan. It is a medium-sized engineering company in the Midlands. After a great deal of trouble it was allowed to remit abroad a few thousand pounds through the investment dollar market, which cost up to 30 per cent. above prevailing rates of exchange. The rest it was forced to finance in the Eurodollar market at interest rates of about 8 or 9 per cent.
  Over the last three years, that subsidiary has had its exports rising at a compound rate of 40 per cent. per annum, and, admittedly starting from a very low base, it is still growing from at a remarkably rapid rate. In every country overseas where we have our own sales subsidiary, such as Germany or France, we have had needless administrative problems in obtaining permission to retain full
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  earnings in that country and build the sales subsidiary into a still more effective and aggressive organisation. There has been a tremendously rapid rate of increase in exports to these sales subsidiaries, far greater than that in direct exports. Therefore, in welcoming the E.C.G.D. proposal, we cannot ignore the much more major factor for the future balance of payments of this country, namely, direct overseas investment, which has been sadly neglected in this country for the last four or five years.
  The United States value of overseas production of goods is six times greater than its direct exports. This is a trend to which we shall move in this country. The latest figures which I have available show that 22 per cent. of all exports in 1966—and the figure must be higher now—were between associated companies and subsidiary companies. In 1966, 56 per cent. of the exports of United States-controlled companies in this country went to sister companies abroad. Therefore, this is a crucial area for the future of British exports.
  Mr. Robert Maclennan: I do not wish to dissent from what the hon. Gentleman has said, but would he not agree that a balance must be struck on the Question of overseas investment? It has some implications, which neither he nor the right hon. Member for Leeds, North-East (Sir K. Joseph) has drawn attention to, for the level of investment in our own domestic industry, which, in turn, has an effect on our exports.
  Mr. Nott: Ministers and hon. Members opposite must leave it to industrialists to decide where they should place their investments. There is a great feeling of self-confidence among Socialist Ministers that they know where to place an investment better than an industrialist who has specialised in these matters all his working life. I take the point that the feeling is widely shared by hon. members opposite. But I do not share it.
  Sir K. Joseph: Would the hon. Member for Caithness and Sutherland (Mr. Maclennan) accept that Professor Reddaway's Report, which was, on the whole, against overseas investment, conceded that it did not compete with home investment?
  Mr. Nott: I take the point about Professor Reddaway's Report. My comment is that this judgment must be left to industrialists. Surely what this country requires is the highest possible return on whatever investment is made. In the end, the industrialist making that investment must judge where he will get the highest return, because it is impossible to devise a system, even in a completely totalitarian State, under which every investment decision is made or checked by central government.
  Over the last few years British investment overseas, and our position as a trading nation overseas has been slipping back rather seriously. During the last few years, France, Germany, the Netherlands and Sweden, all countries which have had a much lower holding of direct investment in the United States, have been catching us up extremely quickly in investment in the United States. All our trading competitors are building up direct investments overseas at a time when this country has been cutting back on the rate of increase.
  In 1968, about 69 per cent. of our investments overseas came from unremitted profits. At the end of the year, industrialists have to try to decide what dividends they will remit from their overseas subsidiaries. They say, "We will not remit from this country any more than we are forced to remit by the Bank of England because if we do we will never get it back again" except through the premium dollar market.
  If there were a system like that operated, for instance, by Shell, whereby the Treasury said, "Let these companies bring in whatever they want", I believe that more would go out in direct overseas investment, but I doubt whether it would have such a great effect on the balance of payments on capital account as many people suspect. In 1968, only £135 million in outside unremitted dividends was invested abroad by direct investment from this country. That is completely inadequate.
  The screening process operated by the Bank of England is time-consuming and very restrictive for British companies. Investing overseas requires imaginative thinking, which involves risk taking. Under the present system, there is no doubt that risk taking is discouraged because a company is asked to recoup
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  within a very limited time an amount equivalent to the sum it invests overseas.
  I therefore ask the Minister what conceivable advantage there can be in allowing state agencies, which is the trend in this Bill, to invest abroad either through subsidised interest rates or by lengthening credit instead of lifting some of the restrictions on private industry investing abroad.
  I raised my final point in a debate on the Export Guarantees Bill when it was in Committee in 1968, and I should like the Minister to comment on it. The Agency for International Development in the United States provides a comprehensive system of investment guarantees. When there is thought to be a specific political risk, a political risk guarantee can be granted to a United States company in making its investments overseas. A British company which decides that it wants to build up a subsidiary in India would be able, through A.I.D., to obtain a political risk guarantee to safeguard its investment in India.
  Why do we not consider in this country some kind of political risk guarantee for investment of moneys abroad? We now have a system whereby the Minister is to find money and subsidise interest rates and lengthen credit. Cannot we look at some form of investment guarantee whereby E.C.G.D. would carry out its present type of insurance function by protecting companies against expropriation? Companies could invest by cash materials, patents, or whatever it might be. We are moving into the era of the joint venture and the multi-national companies which locate plants in the cheapest cost production areas. If British companies are to compete with the big multinational American companies, they must be able to enter into joint ventures by investment overseas.
  If we are thinking of the underdeveloped countries, it would be an enormous help to have some form of investment guarantee. If such a scheme were promoted, it might be a means of reducing the volume of Government to Government aid and replacing it to some limited extent by private sector to private sector aid. I think that that would be a beneficial trend because, in the end, I believe that private sector to private sector aid leads to more going into the

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  pockets of the people than happens with Government to Government aid which can be, although is not in all cases, squandered on prestige projects.
  I welcome the Bill in so far as it increases the amount of money available for export credits. I am highly suspicious about subsidising interest rates. I do not think that our interest rates are all that uncompetitive with those of other countries. I see not advantage to this country in beginning to indulge in a credit race. Our interest rates are highly subsidised now. The Bank of England is providing a refinancing facility and in the last few years allows the clearing banks to regard the export finance which they have provided as part of their cash ratio.
  This, in fact, is subsidising interest rates already and now the Minister is extending the system further. If the E.C.G.D. is to advance money, it will be performing the function of a bank. If the E.C.G.D. decides in a particular case that it will help to lower the interest rate to make a company competitive internationally, will that amount of money go to the British banking institution arranging the finance, or be advanced directly to the foreign buyer to reduce his interest rate cost. Who will perform the banking function and assess the commercial risks of advancing the money? I do not think that E.C.G.D. claims to be a banking institution; it assesses insurance risks.
  While I welcome the Bill in certain respects, I am rather suspicious of certain of its aspects.
  4.45 p.m.
  Mr. Kenneth Baker: Last week, I whiled away a few idle moments looking through the debates on the two previous Export Credits Guarantee Bills. One came up in 1964 under a Conservative Government and the other in 1967 under this Government. Now we have this present Bill.
  I found, first, that all the debates were short. Secondly, they were basically non-contentious and, thirdly, the speeches of the Ministers introducing the Bills were almost exactly the same. I suspect that there is someone in the Board of Trade or the E.C.G.D. who drafted all three speeches and what is rather depressing is that the 1973 speech is probably in draft as well.
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  To the extent that the Bill increases the powers of E.C.G.D. to conduct its normal insurance business, I welcome it. E.C.G.D. has done a magnificent job and now covers 34 or 35 per cent. of total British exports of goods.
  But the Bill also takes the powers of E.C.G.D. very much further, as the Minister made clear. Its normal insurance business is basically, for example, that of a British firm selling goods to a Rome firm and getting the guarantee from E.C.G.D. and using it to go to its own British bank which will then lend to the British firm at a highly subsidised 5½ per cent. rate of interest, which has been the rate prevailing since 1962.
  I should be grateful if the Minister could let us know whether the Government are to allow banks to raise this rate, because this is the export subsidy which British banking has provided, with very little grudging for the last eight years. Will this continue or not? That is the normal business of E.C.G.D., but the Bill takes it further and moves it from an insurance business to a banking business and there is a great gulf between insurance and banking.
  Taking this simple transaction of the British firm selling to Rome, the Minister made clear that in future the Italian buyer in Rome will be able to borrow money from E.C.G.D. at a subsidised rate for an unspecified period of years and there will be a movement of money from London to Rome. This will create a situation in which both the British end and the Italian end will be subsidised on the same transaction. It is the British taxpayer or the British banking system which will have to meet the subsidies eventually.
  The Minister was right in saying that these powers used to be exercised by E.C.G.D. before the Ministry of Overseas Development came on the scene. The transactions were then Government to Government transactions. The big difference is that they are now firm to firm transactions. This has been justified quite simply on the grounds that other countries do it that way and, therefore, we should. But before we do so I think that we should pause before we climb on this band-wagon of finding easier and slicker and almost sharper ways of giving cheap credit. We should

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  ask whether we are not getting into a race to which there is no end.
  If we do this there is nothing to stop the French Government, the Japanese Government, or the German Government from saying tomorrow that they will subsidise their German, Japanese or French exports by discounting export bills at 1 per cent., and wipe out the benefit of this Bill completely. Then the Minister would have to come back next week and say that he had found an even better way and give bigger subsidies and so it would go on. There would be no end to it, because there is no end to the queue of people waiting for cheap money.
  The Government would have been better advised to call an urgent international conference of the main capital exporting countries and say, "Cannot we talk sense about this subject? Here we are engaging in a race to give cheap credit and are all under-cutting each other. It is an expensive business." I ask the Government seriously to consider this.
  I do not know whether the Berne Union of International Credit Suppliers still exists, and whether it meets and whether we are still a member, or whether it has been asked for its views on this. I hope that the right hon. Gentleman will consider this.
  Mr. Mason: I think that the hon. Gentleman is making an informative speech in keeping with what his hon. Friend the Member for St. Ives (Mr. Nott) said before him. We are afraid of the subsidy race and it would be our intention as much as possible to be able to stop any credit race developing.
  The Berne Union still meets four times a year. Some countries and major institutions are not members and are not bound by the Berne Union rules, and could, if they wished, and no doubt some do, mix aid with credit and, therefore, we could lose many major overseas capital projects.
  All we are asking is to be able to give the E.C.G.D. the power, if necessary, to match and match only. We do not wish to encourage a credit race, but we cannot continue to be unable to match facilities offered when these major projects abroad come up for contract when aid is mixed with credit.
  Mr. Baker: I take the point of the difficulties in which many British firms
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  find themselves with major projects, but I hope that the powers being taken under the Bill are something of a stopgap to a period of greater sanity in this area, because otherwise there will be no end to the process. We will match it today, but tomorrow someone will outbid us and we will have to match that again.
  The right hon. Gentleman said that because the Bill gave enabling powers, he could not say how much was involved. I think that he owes it to us to give some idea of how much is likely to be involved. He must have some sum in mind as that likely to be involved in subsidised interest rates.
  Secondly, how would the Bill affect our balance of payments? By giving loans to the firm in Rome, for instance, there will be a transfer of money over the exchanges. It may be very small to begin with, but it may become large over the years.
  I have four reservations about the Bill. First, I believe that export subsidisation is contagious. There is no end to the credit race or the queue for cheap money.
  Secondly, I wonder whether this is the best use of British capital. The Minister has told us that we are to give exports such a high priority, that we are to subsidise them, and to subsidise them substantially. We are to subsidise them by making loans overseas and by having subsidised interest rates at home. If that is the case, has he in mind any other categories for cheap money, other sources where this capital could be used? There are plenty in the home market and housing is one. Presumably the Government have dismissed that possibility.
  My third reservation concerns a major ommision. As my hon. Friend the Member for St. Ives (Mr. Nott) has said, there is no provision for investment insurance, as it is called, insurance against political risks to the investment of British money overseas. It has been argued before in the House, and the case is convincing. I would have thought that the E.C.G.D. and the Board of Trade between them could have come up with some sort of plan for investment insurance. After all, if A.I.D. in America can do it, our own Government Departments should be able to do so. This would be a tremendous advantage to British firms wanting to invest overseas.

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  My fourth reservation is that I object to allowing the Government, or their agency, the E.C.G.D., to do what British industry is discouraged by the Government from doing, namely, investing overseas. I am not here talking about portfolio investment, not about buying shares on Wall Street or in the Australian nickel boom. I am talking about direct overseas investment. I concede at once that there has been an improvement in the figures of direct overseas investment since 1966, but that improvement is attributable entirely to portfolio investment, in effect to the Australian nickel boom. There has not been any real improvement in direct private overseas investment.
  As the Industrial Policy Group pamphlet made clear last week, this is regrettable and dangerous. I urge the right hon. Gentleman and the Treasury Ministers to lift restrictions on private overseas development as quickly as possible, and also to remove the penalties which were imposed upon overseas investment by the 1965 tax changes.
  With my hon. Friend the Member for St. Ives and my right hon. Friend, I hope that direct overseas investment will no longer be used as a scapegoat. The Government have a mental blockage about direct overseas investment. As my right hon. Friend said, there is a clear choice between exports subsidisation and the stimulation of direct overseas investment, but they are sides of the same coin. The Opposition much prefer less export subsidisation, because of its inherent dangers, and more encouragement of direct overseas investment.
  Unless the restrictions are removed and the penalties are mitigated, the country will suffer in three ways. First, other capital markets will develop at the expense of the City of London, and this is already happening. Secondly, the investments which would produce invisible earnings in the 1970s, 1980s and 1990s will not be there. Thirdly, Germany, Japan and America will beat us in securing overseas assets. As my hon. Friend said, the production of American-owned subsidiaries outside America—Rootes, S.T.C. and others all over Europe—now exceeds American exports by six times.
  By subsidising exports in a rather old-fashioned way, we are out of step. The
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  Government believe that the rest of the platoon is out of step, but it is the Government who are out of step by going for export subsidisation. The Government should think very hard before pressing on with the Bill. Even if they get their enabling powers, as they probably will, I hope that they will never use them. I hope that the right hon. Gentleman will call an international conference of the major capital exporting countries this year—and that is not too soon—in order to bring a degree of sanity back into this whole arena.
  We hope that the Government will think again on their policy towards direct overseas investment and will start to encourage instead of discouraging it.
  4.57 p.m.
  Mr. Nicholas Ridley: All my hon. and right hon. Friends have paid tribute to the way in which the E.C.G.D. has done its work in the past. It is true that it is held in high esteem. What singles it out from any other quasi-Governmental organisations, as my hon. Friend the Member for St. Ives (Mr. Nott) called it, is that it responds to criticism, and when complaints and criticisms about its service arise, they are speedily put right. The Opposition wish that the rest of the Governmental and quasi-Governmental machine were as quick to react as the E.C.G.D.
  It is also clear that the E.C.G.D. has got itself firmly into the black. It now has about £65 million worth of reserves which stand ready to meet possible claims at any time. I hope that the right hon. Gentleman will comment on that figure. To use the right hon. Gentleman's words, the Exchequer stands behind the Department and one wonders why it needs to run up a surplus of that size when it has the Exchequer standing behind it. With such a substantial buffer, would it not be possible slightly to reduce cover rates to a slightly more realistic level. I do not claim to be an expert in these matters and perhaps the right hon. Gentleman or the Parliamentary Secretary will comment on them.
  My hon. Friends have not been too pleased with what they think Clause 3 may mean. This is the Clause which brings subsidised loans to buyers abroad. I hope that we shall be told how much

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  it is envisaged that this will cost. Both my hon. Friend the Member for St. Ives and my hon. Friend the Member for Acton (Mr. Kenneth Baker) pressed the Government to give some idea of the magnitude of scale.
  I do not know what would be the parliamentary procedure for presenting a Vote—nor when we are likely to have it—by which the E.C.G.D. could have this money, but it is clear that Parliament will want to know more about this power before we are happy to leave the matter as the right hon. Gentleman presented it.
  My hon. Friends were right to say that there is no point in indulging in a mad credit race. It must be admitted that the point could come when the terms of credit offered by a foreign competitor which we had to match made it simply not worth while obtaining the business. If, at the extreme end, we were to give money away at no rate of interest, it would be clearly not in our interest to get the business. Indeed, one wonders what change in the value of such business must have taken place since the Government achieved a surplus on the balance of payments. Surely, they are not quite so keen to obtain the last marginal scrapings of export orders when we are in surplus. Indeed, the time could come, as it did in Germany, when we need to penalise exports and to subsidise imports by taxation policy. This, therefore, is an odd time to take power to phase down the rate of interest on marginal export orders.
  To turn to the main element of subsidy—that is, the subsidy by getting the banks to provide credit at 5½ per cent.—we would like to hear a little more about the future in this connection. This was a perfectly reasonable thing to do when Bank Rate was at 5½ per cent. or 6 per cent., as it was at the time it was started, but now that it has gone up a good deal higher the burden on the joint stock banks has become a quite substantial sum of money. As far as I can make out, the gross burden, as one might call it, was last year about 4½ per cent. of subsidy on something like £274 million, which works out at about £12½ million. That is not a true figure, however, because of the advantages of the refinancing facilities, to which my hon. Friend the Member
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  for St. Ives referred, which will bring the figure down.
  One of the other disadvantages, which my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) did not touch on but which is a very real one to the customers of the banks, is that the £274 million has to come out of their fixed lending ceilings. In terms of availability of credit, therefore, this is not available to other customers to the full extent, although I must admit that the refinancing arrangements to some extent mitigate its effects. This has, therefore, become a fairly major element in the banking system and one which, quite definitely, is a sacrifice on the part of the shareholders and depositors with the banks.
  The major understatement of the year is contained in the Bank of England Quarterly Bulletin which said:
  "This rate is low in relation to the current level of interest rates, and there is no doubt that the willingness of the banks to continue to provide finance at 5½ per cent. for the whole term of an eligible credit is of great benefit to exporters."
  That is the most grudging acknowledgment of the considerable self-sacrifice which is being made that I have heard for a long time.
  My hon. Friends were right in suggesting that credit subsidisation is becoming a growing menace. Anything which is a normal commercial credit and any form of guarantee which is commercial and produces, on the whole, a favourable balance is absolutely right, but in place of diminishing tariffs there has been an ever-growing acceleration of credit subsidisation, which is a threat to sane and orderly trading.
  The Berne Union exists and we need to pursue this point in international negotiations. The President of the Board of Trade said in an interruption that some countries were not members of the Berne Union. Surely, it would be possible to invite them to join the Berne Union or to call a special conference to discuss these matters. If we are to have not only the fixed 5½ per cent. credit rate, but also specially subsidised individual projects, the whole field opens up as one of considerable importance and one which is becoming a much more serious distortion of world trade than tariffs. The two go hand in hand. As we have driven down

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  tariffs, we have driven up non-tariff barriers to trade.
  I saw an article in The Times which said that the Paymaster-General
  "is carrying out a major review of the need for credit for home shipbuilding orders."
  These two fields go closely together. The same lines of credit are made available for exports as for shipbuilding. I hope, therefore, to hear from the Parliamentary Secretary that the Government will redouble their efforts to do something internationally to bring this situation under control.
  I should like to give an instance of how this sort of race is doing damage to us in particular. On the River Clyde there are several American-owned oil companies which have been attracted by the high rates of investment grant and will collect 40 per cent. of very large capital expenditure if they build refineries there. I understand that they have been putting out instructions that none of the equipment for building those refineries is to be bought in Britain because the cheap 5½ per cent. credit is not available to them if they order in Britain whereas it will be available to them if they order the equipment from abroad. Therefore, not only are they taking 40 per cent. of our money on their investment, but they are refusing to order here for the reasons of the cheap credit which is offered by other countries. That is clearly an absurd situation.
  The fact that the Common Market has turned towards hostility to subsidised credit rates should encourage the Government to do exactly the same thing. I hope, therefore, that the Government will join the Common Market in leading a campaign to have international policing of these arrangements so that everybody is on the same footing.
  The other main theme which has run through the debate has been that of overseas investment. We all know that those engaging in direct investment overseas have been penalised. I have heard the Government describe it as removing incentives to overseas investment, but a much more accurate description would be to call it a penalty, not only a fiscal penalty, but a penalty in terms of such matters as selective employment tax and all sorts of other discriminations against
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  that sector which has been responsible for a lot of our private investment.
  It is curious that the Labour Party should have these two prejudices: one against the service side of economic life and the other against overseas investment. Those two themes have run through all Labour Party policy since the Government came to office. There is no doubt that they are trying to back the declining form of overseas earning which comes from direct trade and in the process they are attempting to strangle the only forward-looking and expansive element in our overseas trade, which is that which comes from overseas investment.
  The comparison is striking. To pass the voluntary programme, overseas investment must produce a return within two to three years, yet here we have E.C.G.D. with power to guarantee cheap credit loans for a period of up to seven years. Then, of course, the rate for the E.C.G.D. guaranteed loans is 5½ per cent., whereas overseas investment may have to be borrowed from banks or finance houses at rates over 10 per cent. We therefore have double the rate of interest and half the period of credit. On balance of payment grounds, the two should be exactly the same.
  Professor Reddaway's objection to overseas investment was that in the short term it produced an outflow across the exchanges. The same criticism, such as it is, applies to export credit extended over a long period, because in passing the credits to recipient companies or firms the same amount of money must pass over the exchanges and flow out. Therefore, it has a net short-term adverse flow and a net long-term beneficial flow as interest and repayments begin to come in. However, at the end of the day, as my right hon. Friend said, if we make an overseas investment, it belongs to this country and continues to earn profit for generations to come; if, on the other hand, we simply guarantee an export sale we end the process at the last repayment of principal and there is nothing more to come and we have no continuing profit.
  I think the case which has been made from this side of the House is very strong indeed, and we shall want a good deal of convincing by the Parliamentary Secretary that this is the right way of going

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  on from here. It is not as though we are against the extension of E.C.G.D. cover; it is much more as though we are against the retention of the inhibitions on overseas investment just at a time when the President of the Board of Trade spent the first 10 minutes of his speech saying how marvellous the balance of payments was and how the situation had dramatically changed. It is a crazy policy to pursue to the point where we are greatly subsidising the export of goods and at the same time penalising the export of capital which will help to improve the balance of payments for generations which are as yet unborn.
  Then there is the point which my hon. Friend the Member for St. Ives raised, and that is, why do we not guarantee overseas investment? The kind of guarantee required is against political risks, war, confiscation, or nationalisation on unfavourable terms. I was tempted to wonder whether we should not have such facilities in this country for our own internal use, but that, perhaps, would not be in order in this debate. Nevertheless, there is a good deal to be said for considering this credit race, and it ties up with all that has been said before.
  I hope that the Parliamentary Secretary will respond to the very wise suggestion put by my two hon. Friends and which has great validity. I am glad that there is no proposal for a State import-export bank. I would only say that if the President of the Board of Trade had made any such proposal there would have been strong opposition from this side. I think he is proceeding in the right way in backing the E.C.G.D. and in making sure that sufficient cover is available for British exports.
  We welcome this Bill as far as it goes. There will be questions which will need to be probed in Committee, particularly in relation to Clause 3. I think the Government have got a substantial case to answer: they are, in this further Measure, increasing guarantees in the Export Guarantee Department and prejudicing overseas investment in the form of direct exports.
  5.12 p.m.
  The Parliamentary Secretary to the Board of Trade (Mrs. Gwyneth Dunwoody): I must admit that I have found this debate very interesting. I
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  begin by apologising to the House for a seeming discourtesy in not being here at the beginning, but I was opening an export fair in Blackpool which, I hope, will contribute to the interests of the Bill we are discussing tonight.
  I have found the general tone of the debate to be of greater or lesser approval of the activities of E.C.G.D. In spite of one or two peevish remarks I really believe that the House sincerely sees this Bill as a very effective means of action. I shall try to deal with as many of the individual points as I can, but I think it would be wrong for me to go into individual cases.
  Let me, first, answer some of the general points and try to fit the Bill into the general context of the Government's economic policy. As my right hon. Friend the Chancellor of the Exchequer explained to the House on 21st January, the message of the White Paper on Public Expenditure is that the Government intend to maintain their policy of relating the growth of public expenditure to the existing growth of the nation's resources. Any growth of public expenditure arising from this Bill will be small and will not conflict with this policy. Any direct public expenditure which is involved will of course have to be fitted into the limits which the Government have determined after an assessment of the priorities involved.
  Several hon. Members have made the point that they were worried about the beginning of an export credit race. It is our general aim to strengthen still further our balance of payments by improving our exports without leading to or stimulating a credit race. This Bill is consistent with these objects. The higher limits we have are for higher exports, and we shall, of course, continue to do all we can to maximise the direct and immediate returns which we expect from exports.
  The new powers which the Bill gives will be used to match any reasonable limits which our competitors are setting and not to outstrip them. I do not, therefore, expect that this will lead to any extension of a credit race and we shall be pleased to join any discussions in O.E.C.D. or elsewhere aimed at bringing about a proper control of credit competition. Our aim is to prevent a further escalation of the credit race. The

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  provisions of the Bill are not inconsistent with the Government's policy of improving credit arrangements and the higher limits will allow for greater exports to be guaranteed.
  It is not the Government's policy to apply a ceiling or for it to act in such a way as to restrict—
  Mr. Kenneth Baker: One the point of-the credit race, the hon. Lady said the Government would be pleased to take part in any negotiations which happen to be going on. Will the Government initiate a series of negotiations or discussions?
  Mrs. Dunwoody: I had meant to deal with this in rather full detail if the hon. Member will allow me to continue.
  The new powers will involve extension of credit. What we intend is to use it for worthwhile business to enable our exporters equally to compete in world markets.
  The right hon. Member for Leeds, North-East (Sir K. Joseph) claimed that the effects of export credit as compared with overseas investment were equal from the balance of payments point of view. I am afraid that that is not true, for two reasons. I hope that hon. Gentlemen will accept that there is a difference between prejudice and a clear case for non-involvement occasionally. What the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has called "prejudice" can very well be a clear assessment of the situation.
  Firstly, overseas investment may involve direct drawings on the reserves, whereas export credit usually means only an allocation of productive resources with provision for deferred payments. Secondly, overseas investment does not provide an assured short-term return. We know exactly the returns we shall get for export credits. The Reddaway Report, as the right hon. Gentleman has himself said, showed that in the past direct returns on overseas investment were considerably lower than for export credits. We have not been able to afford long-term investment represented by average overseas investment and the majority of export credit cases involve credit for periods of up to two years.
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  Finally, overseas investment is in practice freely allowed provided it is financed in Eurodollars, that is, if it is not financed from the reserves, and in practice this allows most worthwhile investment to proceed, although I take the point that in individual cases, as that particular one raised by the hon. Member for St. Ives (Mr. Nott) there may be individual difficulties.
  The new powers can be used to assist lines of credit. Up to the end of 1969, 14 lines of credit had been negotiated, to a value of £112 million. These were guaranteed under our existing E.C.G.D. powers. The right hon. Member for Leeds, North-East wanted to know the order of magnitude by which we might need to subsidise the rate of interest below the normal United Kingdom rate of 5½ per cent. We are reluctant to commit ourselves to an estimate of the total amount for a very simple reason. It is very difficult to say what we shall have to deal with, what we shall have to match and how successful we shall be in operating under these terms.
  On the other point raised by the right hon. Gentleman, the burden of 5½ per cent. money, it is recognised that the grant of money at this rate represents an allocation of resources on favourable terms, and Her Majesty's Government are anxious to ensure with the major credit companies that export credit terms which involve too burdensome problems are not provided generally. The answer is to provide for general collective action based on understandings between the Governments concerned. I hope this will answer the points raised by more than one hon. Gentleman. This we are attempting to achieve by means of general discussions particularly in the O.E.C.D. forum and also through bilateral dialogues. What we have to achieve is a sensible economic policy related to the real cost of providing credit without loss of competitive position. We are actively engaged in discussions over the whole of this area.
  The hon. Member for Cirencester and Tewkesbury suggested that the Berne Union would be an existing means of dealing with one of the problems. The difficulty is that, although most countries have some representatives in the Berne Union, they do not represent their

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  Governments and cannot commit their Governments. We take the hon. Gentleman's point, but this needs to be discussed internationally and can hardly be done in a piecemeal fashion. Nevertheless, one has to accept that our membership of the Berne Union provides no more than an opportunity for discussion with individual members, and does not necessarily allow us to reach agreement with the governments concerned.
  Sir K. Joseph: The Paymaster-General undertook recently to review the possibility of initiating further discussions with O.E.C.D. about credit for shipbuilding. Will the hon. Lady discuss with her right hon. Friend the possibility of broadening the discussions with O.E.C.D., if necessary by taking the intiative, on all these aspects of credit stabilisation—shipbuilding and export credit insurance. Here is an initiative which the United Kingdom could take; will she consider it?
  Mrs. Dunwoody: This is a very valid point. If I may digress for a moment, I had intended to point out that the Shipbuilding Industry Act, 1967, which has been discussed today, authorised the Ministry of Technology to guarantee loans made by banks towards the purchase of ships by British ship-owners or British yards, and it is true that this money is also advanced at 5½ per cent. The limit on the liability of the Minister of Technology for these guarantees is £400 million, but the limit is now practically reached, and we have to face the question that at some point, if it is totally used up, orders will be lost by British yards, so this may well be the time to initiate joint action along these lines.
  The hon. Member for St. Ives, whom I am glad to see back in his place, said that he was suspicious of the Bill and asked why we were so concerned to go below the 5½ per cent. rate, and which countries had lower fixed rates of interest. Other countries' normal fixed rates are in line with our 5½ per cent. rate, and the new powers are not needed to match them, but other countries sometimes agree to credit at exceptionally low rates—the French, for instance, at 3½ or 4 per cent. and the Japanese at 3½ per cent. for part of a credit. This is what we expect to match under the new powers. May I emphasise that we are hoping to use the Bill not necessarily to initiate
  74
  movements of this kind, but to enable us to offer our exporters equal benefits.
  The hon. Member for St. Ives also asked whether, if the E.C.G.D. decided to subsidise rates of interest, the money would be paid to the United Kingdom bank or to the overseas borrower. Under the Bill this can be done in either way, and a commercial assessment will be made by the E.C.G.D., as it is now. The hon. Member will know that this is done in association with the Council, which has detailed experience of this.
  The hon. Member for Acton (Mr. Kenneth Baker) made a very interesting speech in which he said, rather unkindly, that Ministers quite frequently sounded alike. This seemed to indicate to me that even Conservatives could be quite bright if they were briefed by the Board of Trade. He asked about the 5½ per cent. export finance. The continuation of the 5½ per cent. rate is negotiated with the banks from time to time. All I can say now is that the present rate is subject to review but is being continued for the time being. All the relevant considerations to which hon. Members have referred will be taken into account during such reviews. He also asked about the Berne Union, and I hope he will accept my explanation on that point.
  Mr. Ridley: Will the Parliamentary Secretary say whether we shall be told about the rate? She has left it absolutely open. Here is a possible further £1,600 million in guarantees for which the banks have to find the money, and we should know what is happening and when an answer will be given about the rates.
  Mrs. Dunwoody: The hon. Member may rest assured that the House will be informed at the earliest possible moment after discussions have been held with the banks. It would be wrong for me to say, before we have entered into these discussions with the banks, what action, if any, will be taken after those discussions have been completed. He may rest assured that, when the time comes, he will be speedily informed of the outcome. He also would have asked whether the 5½ per cent. was outside the ceiling of bank spending, and I hope that I have explained that this is so.
  What we are endeavouring to do in the Bill, which is a very technical Bill but

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  one which is desperately needed, is to offer to our exporters the chance to compete in world markets. The Board of Trade, in the export services that it provides, offers skilled assistance to our business men in all the markets of the world, but there will be real difficulties if other Governments are able to offer better credit terms, and this is a problem which we will come up against increasingly in the coming years.
  We take the point that we are not anxious to get into a wild race along the lines discussed in the House today. Nevertheless, it would be wrong, by restricting the activities of E.C.G.D., for Her Majesty's Government to make it impossible for those of our exporters who are doing so well to gain the orders that they are obtaining by making the credit terms unacceptable. I therefore commend the Bill to the House. As with all the other E.C.G.D. debates this one, although short, has nevertheless been effective, and I hope that by the next time we discuss the whole problem of E.C.G.D. we shall be able to point to an even more successful history of the efficient unit run by this Government through the Board of Trade.
  Question put and agreed to.
  Bill accordingly read a Second time.
  Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).

  EXPORT GUARANTEES AND PAYMENTS [MONEY]
  Queen's Recommendation having been signified—
  Resolved,
  That, for the purposes of any Act of the present Session to amend the Export Guarantees Act 1968, it is expedient to authorise—

  (a) the payment out of moneys provided by Parliament of any expenses incurred by the Board of Trade under the Act of the present Session, in making grants for the purpose of reducing interest costs incurred or to be incurred, under export contracts or contracts related to export contracts, by persons carrying on business or other activities abroad;

  (b) if, in accordance with any provision of the Act of the present Session, the Acquisition of Guaranteed Securities Fund maintained under section 3(2) of the Export
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  Guarantees Act 1968 is wound up, the payment into the Consolidated Fund of any sums then standing to the credit of the first-mentioned Fund, and of all sums received thereafter by the Board of Trade in respect of securities acquired by them under section 3(1);

  (c) any increase in the sums which, under section 3 or section 9 of the Act of 1968, are payable out of moneys provided by Parliament or chargeable on and payable out of, or payable into, the Consolidated Fund, being an increase attributable to the provisions of the Act of the present Session—

  (i) amending section 4(1) of the Act of 1968 by the substitution, in paragraph (a) of that subsection, of the words '£4,000 million' for the words '£2,400 million', and, in paragraph (b) of that subsection, of the words '£2.500 million' for the words '£1,500 million';

  (ii) extending the power of the Board of Trade under section 2 of the Act of 1968 to make arrangements for facilitating payments under contracts with persons carrying on business in the United Kingdom, the Isle of Man or the Channel Islands to the making of such arrangements for the purpose of encouraging 'trade with other countries' within the meaning of section 1(3) of the Act of 1968.—[Mrs. Gwyneth Dunwoody.]

  FILMS BILL
  Order for Second Reading read.
  5.27 p.m.
  The Parliamentary Secretary to the Board of Trade (Mrs. Gwyneth Dunwoody): I beg to move, That the Bill be now read a Second time.
  It will, I think, assist the House if I give a brief account of the background to the present proposals. Since 1927 the basic instrument of Government support for the film industry has been the screen quota. This country was among the pioneers of film production in the early years of this century, but the 1914–18 war dealt our industry a severe blow, and by the mid-twenties less than 5 per cent. of the films shown to the public were made here. The 1927 Act required exhibitors to devote a minimum proportion of their screen time to the showing of British films, and this arrangement has ever since remained the main protective measure. The proportion itself is prescribed by order of the Board of Trade, and an order varying the percentage requires the approval of each House of Parliament.
  The proportion, expressed as a percentage of screen-showing time, was at first a small one, because of the need to

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  develop film production here. It reached 30 per cent. for first-feature films in 1950 and was set at 25 per cent. for supporting programmes in 1948. These percentages have remained unchanged since then. There is provision for exemption for cinemas with low weekly takings and for cinemas in special situations. By and large, the requirement has not been onerous. Quota achievement has regularly been somewhat above the prescribed minimum. Thus, achievement in 1966, 1967 and 1968 was 39·2 per cent., 39·7 per cent. and 34·2 per cent. respectively for first features, and 33·3 per cent., 34·8 per cent. and 36·2 per cent. for supporting programmes. The returns for 1969 have not yet been fully analysed, but preliminary indications suggest that the percentages may be slightly higher.
  The second main instrument of support for film production is the British Film Fund. This is an arrangement whereby exhibitors are required by law to pay a small proportion of their box-office takings into a Fund, which is then distributed to the producers of British films in proportion to those films' earnings in this country. This arrangement began as a voluntary scheme in 1950, and was made statutory in 1957. I would like to make it clear that this is not a Government subsidy. It is a scheme for redistribution of the industry's own income, and since the expenses of running it are met from the fund itself, there is no charge on the public purse.
  The third instrument of Government support is the National Film Finance Corporation. This was set up in 1949, at a time of severe shortage of finance for film production, to lend money to prospective film producers. I shall say something about its history and prospects when we come to those sections of the Bill which provide for its continuance.
  Thus, for many years now Government support for this industry has been threefold—that is to say, legislation has provided for the screen quota, the levy on exhibitors' takings, and the National Film Finance Corporation. The enactments which embody these measures of support are the Films Acts, 1960–66, the Cinematograph Films Acts, 1957 and 1966, and the Cinematograph Film Production (Special Loans) Acts, 1949 to 1966.
  The most important provisions in these Acts were due to expire at the end of
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  1967. It will be recalled that in 1965 the subject of the supply of films for exhibition in cinemas had been referred to the Monopolies Commission, and in order to allow time for a comprehensive review of films to be undertaken in the light of the Commission's report, a Bill was brought before the House with the object of extending the life of the then existing films legislation for three years. This Bill became the Films Act, 1966, which prolonged the life of the legislation until the end of 1970 as regards the N.F.F.C. and Quota and until October, 1970, as regards the Levy, and at the same time made one or two minor amendments.
  The promised review of legislation has now been completed, and the present Bill is the outcome. The purpose of the review was, of course, to consider whether all or any of the present measures should be continued after 1970, either in their existing form or subject to amendment, and the first question which we had to consider and to which the House has to address itself, is whether it matters if this country has a film industry or not.
  Of course it matters. Although, because of the growth of television, the cinema has lost a good deal of its former pre-eminence in the field of mass entertainment, it is still a powerful medium of communication across the world. The film is a means whereby British culture and British ideas can be spread throughout the world, and though some might argue that the more extreme films can hardly be said to make much of a positive contribution in this direction, by and large the film continues to be a valuable means of presenting Britain to the world. And not only that.
  The film industry makes a considerable contribution to our export earnings. In 1967, overseas transactions in respect of cinematograph films resulted in a surplus of £24 million over payments, and the corresponding figure for 1968 was £23 million. These figures show a notable improvement over 1966 and 1965, when the surpluses of overseas earnings over expenditure were £9 million and £6 million respectively. A healthy balance of payments is of course vital to the future prosperity of this country, and I am confident that this industry, by its efforts in export markets, will continue to make a direct and substantial contribution. Nor must we overlook that there

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  is undoubtedly also an indirect contribution. We cannot measure this, but it is still true that, to some extent, trade follows the film.
  Mr. John Hay: It would help if the hon. Lady would go a little slower, particularly in dealing with some of these figures.
  Mrs. Dunwoody: I am sorry. The second question we have to ask is whether the industry needs Government support. Would it continue to be active and be able to make its contribution to the national effort if all forms of Government support were withdrawn? We think not yet. The American industry has a home market many times the size of ours, and this enables it to offer powerful competition. Most Western European countries have found it necessary to afford support to their native film industries, and we in this country are especially vulnerable because we share with the Americans a common language.
  The third main question is whether the industry has shown itself, by its efforts to improve productivity and contain costs, to be worthy of support. Filmmaking—this is worth emphasising—is an art as well as an industry, and we cannot expect the mechanical production methods of a factory. But the very fact that the industry has this dual nature makes it more than ever important to ensure that economies are made wherever this can be done without impairing quality. I myself visited the main studios and I have impressed upon the managers the need for the most efficient use possible of both manpower and equipment. I am glad to say that the industry has shown itself to be aware of its responsibilities in this connection.
  The activities of the Productivity Committee of the Film Production Association, the organisation of, and the success of the International Film and Technology Conference and Exhibition known as Film '69, are evidence that the industry is fully conscious of the need to keep down costs and at the same time to stay in the forefront of modern technological advances.
  Another criterion by which the performance of any industry must be judged is its contribution to overseas earnings. Here again, the industry can I think be
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  said handsomely to earn its keep. As I have already said, its overseas receipts in 1967 and 1968 were substantially higher than in previous years. British films are increasingly making their way in world markets and I am confident that in the coming years they will make a growing contribution towards the solution of the vitally important problem of the balance of payments.
  Finally, we must always bear in mind the cost to the public purse of maintaining Government support measures. The House is, of course, aware of the continuing need for economy in public expenditure, and members will accordingly be glad to know that the expenses involved in licensing exhibitors and renters, in registering films and administering the quota provision, are met from fees charged under the Act. As regards the levy, administrative expenses are a first charge on the Film Fund. Thus the industry itself pays the cost of administration of these two support measures.
  Nor is there any element of grant or subsidy in the finance made available to the N.F.F.C. The Corporation has a duty to pay its way. It is true that it has lost the greater part of the £6 million advanced to it in its early days, but if we exclude the losses attributable to the loans made at the Government's behest to British Lion in and immediately after 1949, the loss, over twenty years, has been only about £3 million or an average of £150,000 a year.
  Bearing in mind the near total collapse of the British film production industry in 1949 and contrasting it with the high level, both of activity in the industry and as regards the quality and popularity of British films in recent years, I think that it can be said that the money has been well spent. There is every reason to hope that the Corporation, with the increased scope proposed in this Bill, will in future years at least break even.
  In the Government's view, therefore, this industry is one which merits continued support measures. In our review of the working of the existing legislation we had naturally to consider whether the measures, all of which have now been in operation for many years, are still needed and are still appropriate. We have come to the conclusion that they are both necessary and appropriate. They have stood the test of time and have

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  worked well. This country is now without doubt one of the major centres of film production in the world, and the industry has won this position for itself against the background of the present support measures. There is no virtue in change for the sake of change, and the broad proposal in this Bill is that the life of the present legislation should be prolonged for another 10 years, that is to say until the end of 1980. This is an industry in which technical advances can bring about fundamental changes. We have only to remember the advent of "talkies" and later of colour. We would not therefore think it right to prolong the life of the legislation indefinitely. No doubt before it is due to expire, the Government of the day will conduct their own review of its operation during the 70s so as to decide what will be suitable in the years after 1980.
  I should like now to tell the House how the review of legislation was conducted. All organisations in the trade were invited to let us have their views and suggestions on future legislation, and there was a ready—nay, a voluminous—response. All the representations which we received were made known in full to the Cinematograph Films Council, which then made its own review, and its findings and recommendations were summarised in a Report of the Council which was published in 1968 as Command Paper 3584. Eight out of the 22 members of the Council signed a Minority Report, the text of which was included in Cmnd. 3584. I would like to take this opportunity of thanking the Chairman and members of the Council both for the thoroughness with which they carried out their task and for their continuing service. Except for a small remuneration paid to the Chairman, the members are unpaid, and I am most appreciative of the time and energy which they devote to this work.
  Broadly, the Council recommended that the life of the present support measures should be prolonged, and, as I have said, the Government propose to accept the Council's advice. The Council has also recommended a number of Amendments to the present legislation; for the most part these are of a technical nature. None of them in any way affects the basis or method of operation of the support measures. In only one instance does the
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  Bill reject the advice of the Council. The functions of the Council are set out in Section 41 of the Films Act, 1960. Among the duties there set out is that of keeping under review the progress of the film industry in Great Britain, and the Section continues with the words:
  "… with particular reference to the development of that branch of the industry which is engaged in the making of films".
  The Council recommended that these words should be deleted from the statement of its functions. I do not think that such deletion is necessary or desirable. Ever since 1927, the basic purpose of our films legislation has been to encourage the development of a film production industry in this country, and I think that the Council's terms of reference should stay as they are. This is of course not to say that the Council should in its deliberations overlook the problems of renters and exhibitors. Although there may be differences between the sections of the industry as to the best way of tackling particular problems, it remains true that fundamentally all three sections have the common interest of maintaining and, if possible, increasing the level of attendances at the cinemas. Everyone in this industry depends on the money taken at the box-office. It follows that, in considering the industry's problems, the Council is bound to pay proper regard to the interests of all three sections of the industry, and examination of its annual reports and its special reports over the last 20 years will show that the Council has in fact done this. I propose therefore to leave the terms of reference of the Council as they stand. In this matter, I share the view expressed in the Minority Report which was appended to the Council's Report on the review of films legislation.
  It will perhaps be convenient if, at this point, I deal also with the question of the constitution of the Council. In the course of the review, we had several proposals for changes. Not unnaturally, each section of the industry would like its own representative membership to be increased. The unions would like to have more employee representatives, the producers more producer representatives, and the renters asked for increased renter representation. We have given very careful consideration to this problem, and our conclusion is that no convincing case has been made out for any change. The

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  Council at present consists of 22 members, of whom seven, including the Chairman, are independent, five are representative of exhibitors, four of producers, four of employees, and two of renters. I think that this is as appropriate a constitution as can be devised, and I am fortified in this view by experience of the working of the Council. I believe that, over the years, the Council has avoided bias one way or the other and that, almost without exception, its recommendations have been in the best interests not of any particular section of the industry, but of the industry as a whole.
  It is of course not possible to prove that the present constitution of the Council is ideal, but one test which can fairly be applied is the progress of the industry. The constitution has been unaltered since 1948, and during the last 20 years the Council has kept the progress of the industry under constant review and has made numerous recommendations for changes both in the law and in the regulations made pursuant to the legislation. As I have said, almost all of these recommendations have in fact been accepted and acted upon by my right hon. Friend the President of the Board of Trade and his predecessors.
  It seems to me that one reasonable way of assessing the Council's performance is to look at the progress made by the industry during the last 20 years. In 1948, the film production industry in this country was on the verge of collapse. It was to avert disaster that, on the proposal of the present Prime Minister, the National Film Finance Corporation was established. This, together with the introduction, on a voluntary basis, of the levy on box office takings and maintenance of the quota, did the trick. This country is now without doubt one of the major centres of film production in the world. There have been setbacks, and there are signs at the present time of some falling-off, which we all hope will be only temporary, in the high level of activity of recent years. But the total record is one of progress and a growing reputation for excellence of production. Films made in this country have in recent years won many Oscars and have carried off numerous prizes in international film festivals. We enjoy now an enviable reputation for the excellence of our actors and actresses, technicians, script-writers,
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  musicians and all who participate in the making of films. Our studios are among the best equipped in the world and have kept abreast of, and in some cases led the way in, the practical application of modern technological advances.
  This achievement is all the more remarkable because, mainly owing to the advent of television, there has been a very big decline in the number of attendances at the cinema. In the years following the end of the war, there were around 1,500 million attendances a year. By 1960, the figure had fallen to about 500 million, and in 1968 it was about 250 million. It is remarkable that, against this background of declining audiences, production of British feature films has remained comparatively steady, and for each of the last seven years roughly 70 have been registered.
  The legislation and regulations made by the Board of Trade after consulting the Council have, of course, a controlling influence on the activities of the industry, and in my view the Council's advice has served the industry well. We do not intend to tamper with its constitution.
  In brief, therefore, the effect of this Bill is to prolong for another decade the present measures of Government support for the film industry. Exhibitors are to continue to be required to devote a minimum proportion of their screen-time for the showing of British films. Secondly, the arrangements for imposing a levy on exhibitors' takings and for distributing to producers of British films the resultant fund are to be continued. Thirdly, the National Film Finance Corporation is to be re-financed and its powers are to be somewhat widened so as to afford it the maximum chance of operating profitably.
  There are a number of minor changes, most of which are of a technical nature and suitable for discussion in Committee. I do not propose at this stage to weary the House with a full explanation of the effect of these changes. They concern, for example, length of quota life of a British film, extension of quota life, treatment of late-night showings when calculating days on which British films have been shown, relief from quota obligation, determination of labour costs for the purposes of deciding whether a film qualifies as British, penalties for infringements, and fees payable for licences. We shall have full opportunity to examine

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  these proposals later on. For the present, I assure the House that none of them in any way affects the main purpose of the Bill.
  I should, however, mention three Clauses affecting the levy which are of rather more than a technical nature. As I have already said, the levy is not a subsidy. It is an arrangement, begun on a voluntary basis in 1950 and made statutory in 1957, for re-distributing part of the income of the industry. A levy is imposed on exhibitors' takings at the box office, and the money is paid into the British Film Fund, which is administered by the British Film Fund Agency, a statutory body created by the Cinematograph Films Act, 1957. The Agency distributes the Fund to film producers in proportion to the earnings of their films at the box office. The money is not public money; the expenses of the Agency and of Her Majesty's Customs and Excise, who collect the money from the cinemas, are a first charge on the Fund, so that the scheme runs at no cost to public funds. The levy has undoubtedly made a substantial contribution to the industry and to the emergence of this country as a major centre of world film production. The Bill will extend the relevant provisions of the 1957 Act for another 10 periods of 52 weeks—that is, until 20th September, 1980—subject to three amendments which I will now explain.
  In the present legislation there are statutory limits on the yield of the levy in any one period of 52 weeks. The lower is £2 million and the upper is £5 million. These figures were included in the 1957 Act as an assurance to producers as to the minimum amount available for distribution and to exhibitors as to the maximum burden which the levy could place on them. The Board of Trade regulations governing the collection of the levy must provide for a rate of levy estimated to achieve a yield within the limits.
  The Cinematograph Films Council recommended that the legislation should continue to prescribe a maximum and a minimum for the yield of the levy, but did not express a view on whether the present limits are appropriate. It is possible that, within the life of new legislation, the present limits may become outmoded, and Clause 5 of the Bill, while retaining the existing limits, provides that the Board of Trade, after consulting the Cinematograph Films Council, may
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  amend them by Orders requiring approval of each House of Parliament. This will avoid the need for new legislation if at any time it appears desirable to alter the limits, but it will ensure that no alteration can be made without the approval of each House of Parliament.
  The second amendment concerns the proposal in the report of the Lloyd Committee that a National Film School should be established. Section 1(1)(b) of Cinematograph Films Act, 1957, already provides that the Board of Trade may authorise the British Film Fund Agency to make payments to the Children's Film Foundation Ltd. An annual payment has been regularly made to the Foundation, and it has been the practice of the Board of Trade to consult the Cinematograph Films Council on the amount each year. The work being done by the Children's Film Foundation Limited seems to be of an exceptionally high quality of which we should be proud.
  Clause 6 will enable the Agency, with the approval of the Board of Trade, to make an annual grant towards the running costs of a National Film School. In its report, the Cinematograph Films Council expressed the view that the B.B.C. and the independent television companies, who would employ graduates from the school, should also contribute to its annual cost. The Council recommended that the running costs of a National Film School should be met only partly from the levy. Clause 6 will enable this recommendation to be implemented. It is the intention of my Department, as in the case of the grant to the Children's Film Foundation to consult the Cinematograph Films Council before authorising the Agency to make the payment.
  Thirdly, in relation to the levy, Clause 6 makes similar provision as regards payment of a modest grant from the levy to the British Film Institute Production Fund. This exists to give practical help to new talent and to encourage new ideas in film making. At one time it depended entirely on voluntary contributions, but now it receives a small part of the British Film Institute's annual grant from the Department of Education and Science. Here again my Department will consult the Cinematograph Films Council on the amount of the grant to be made from the British Film Fund.

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  I should mention that some exhibitor members on the Council dissented strongly from the Council's recommendations for these two additional grants from the levy on the ground that they are opposed to any extension of the purposes to which the proceeds of the levy are devoted. While I fully understand the anxiety of the exhibitors on this score, I believe that it is in the best interest of the industry as a whole that the provisions in the Bill should stand.
  I turn now to the National Film Finance Corporation. I have already briefly summarised why we have decided that the Corporation should be refinanced, and I will now go into this in a little more detail. The Corporation was established in 1949, at a time when the film production industry in this country was facing collapse owing to a shortage of finance. Under the Cinematograph Film Production (Special Loans) Act, 1949, £5 million was lent by the Government to the Corporation, whose duty it was to make the money available in the form of loans to film producers or distributors. The figure of £5 million was in 1950 increased to £6 million. The Corporation was authorised to lend only to producers or distributors who, while having in the judgment of the Corporation reasonable expectation of commercial success, could not obtain finance from other sources.
  In the Cinematograph Films Act, 1957, these terms of reference were amended by the omission of the requirement that the Corporation was authorised to lend only to producers and distributors who could not get financial facilities from other sources. Since 1957, the statutory function of the Corporation has been to make loans for the production or distribution of cinematograph films to persons who, in the judgment of the Corporation, have reasonable expectations of being able to arrange for the production or distribution of cinematograph films on a commercially successful basis. Thus, there has never been any element of Government subsidy in this arrangement.
  To ram this home, the 1957 Act included a Section—Section 11—specifically stating that it was the duty of the National Film Finance Corporation to pay its way. In the last 20 years, about £5 million of the N.F.F.C.'s fund has been
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  lost. But of the loss, we must recall that nearly £2 million represents the net loss on the loan of £3 million advanced, at the Government's behest, to British Lion. Excluding this, the losses of the Corporation have averaged no more than £150,000 a year, and in recent years the bulk, and in the year 1968–9 the whole, of this loss is attributable to the Corporation's liability to pay interest on moneys advanced to it by the Board of Trade, including moneys which the Corporation regards as irrecoverable. The Corporation has always met its obligations in full as regards payment of interest.
  As I remarked earlier, in 1949 the film production industry in this country was facing total collapse. At present the United Kingdom is without doubt one of the major centres of world film production. Of course, many things have contributed to this transformation, not least, I think, the levy. But during this period of 20 years, the Corporation has helped to finance over 700 feature films, as well as several hundred lesser productions. It can, I think, rightly claim to have made a substantial contribution to the re-vitalisation and growth of the British film industry.
  There is at present nothing like the shortage of finance for film production which led in 1949 to the establishment of the N.F.F.C. But a very high proportion of investment in film production in the United Kingdom in recent years has been supplied by the British subsidiaries of the big American companies. No official figures are available, but the National Film Finance Corporation, in its Annual Report for the year ended 31st March, 1969, estimated that in 1968 the proportion was about 90 per cent., and it expected it to be the same in 1969. I have no reason to doubt that these figures are a fair estimate. In recent months the level of this investment has fallen, and in the Government's view the continued existence of the Corporation is a very desirable measure of support for the industry. I am pleased to notice that recent reports in the trade Press suggest that more finance from native sources is being put into film production. But the Corporation still has an important rôle to play.
  Another important consideration is that there is now an established market for British films overseas. I have already

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  referred to the substantial benefit to the balance of payments resulting from the industry's operations in recent years. Much higher foreign earnings would accrue to this country if a bigger proportion of the films which are successful overseas were financed from native sources. The Corporation can help not only by making loans, but also by inspiring confidence and attracting to the industry private investment which might not otherwise be forthcoming.
  For all these reasons, we have decided that the public interest will be well served by the re-financing of the Corporation. The Bill provides accordingly for the continuance for another 10 years of the loan-making powers of the Corporation; for the loan to the Corporation of a further £5 million; for relieving the Corporation from its obligation to pay interest on money already advanced and lost; and for an extension in the scope of the Corporation's permitted activities.
  As regards the £5 million, I would repeat that this is a loan and not a grant. The Corporation would, under the Bill, continue to be charged with the duty of using its money in such a way as to be reasonably sure of getting it back. Nor will the Corporation get the £5 million at once. Advances will be controlled administratively and will be determined in the light of prevailing economic circumstances.
  As hon. Member will recall, there was appended to the Report of the Cinematograph Films Council on its Review of Films legislation a minority report, signed by eight out of the 22 members of the Council.
  I have given careful consideration to the Minority Report, and indeed, as I have already explained, I share the view expressed in paragraph 8 of that report that the Council's terms of reference should not be changed. Its functions will, under the Bill, continue to be to keep under review the progress of the film industry in Great Britain, with particular reference to the development of that branch of the industry which is engaged in the making of films.
  For the reasons which I have already given, I do not agree with the minority report's contention that the constitution of the Council is unsatisfactory. It seems to me that it represents a fair balance between the various sections of the indus-
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  try. I think that in its main report, the Council tried to steer a course in the best interests of the industry as a whole and to hold a balance between the special interests of the different sections of the industry. I do not think that it is necessary or desirable, as the Minority Report recommends, to reconstitute the Council and then to ask a re-constituted Council to conduct a fresh review of films legislation. In my view, the proposals in the Bill represent a well-balanced compromise between the interests of the producers, distributors, exhibitors and employees, and I am confident that within the framework of this legislation the industry, so long as it continues to pay proper regard to the need for efficient use of both manpower and equipment, can look forward to a prosperous decade.
  I commend the Bill to the House.
  6.0 p.m.
  Sir Keith Joseph: We agree with the hon. Lady the Parliamentary Secretary that the film industry is very important to this country. We welcome the growth of Britain as an international film-making centre. We recognise the part which British-made films play in presenting to the world different visions of British interpretation of experience of life. We delight in the great range of entertainment and documentary films which go out from this country, and we entirely acknowledge that all this is due to the native talent available here.
  We want the industry to be a busy one. We welcome its contribution to the balance of payments. But we recognise that there are difficulties inseparable from the grandiose past of the industry which makes it difficult to be independently profitable. We understand that half the market for films in the free world is in America; that it just is not practicable for a British film industry to pay its way if it serves only a home market. We understand that more and more film makers will have to identify the markets for which they are making films, and that other parts of the industry, particularly those which invest in the exhibition facilities, will have to meet the needs, the requirements, the appetite for higher standards and greater variety, which generally means smaller, more modern, cinemas. All this implies that there should be a healthy financial background.

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  From reading material about it, those who are outside the industry realise that the film industry, which, as the hon. Lady rightly said, is also an art, seems to lurch from one fashion to another. There is a fashion for the epic, a fashion for the historic film, and then there is a fashion for some other sort of film. I understand that at the moment the new wisdom is to go for high quality, low budget films and that all over the film-making world tycoons are climbing on to motor bikes. Far be it from me, as a layman, to prescribe what the right answer is, but, in general business terms, the only reliable method of identifying the right combination of answers is to use market research, and I understand that this is what the industry is doing more and more.
  The hon. Lady referred to the shadow which is over the British industry at the moment. As she rightly said, the huge United States funds which have provided so much of recent film finance in this country through British subsidiaries have for the moment declined. We all know that many American film companies have come into the ownership of finance-minded American conglomerates, no one of whom yet seems to have succeeded in making films profitably. We all hope that American managements, attracted by the talent that is here, and by the share of the levy, will soon restore the full level of finance that was recently available.
  The hon. Lady would be wrong to pretend—and I am sure that she would not—that the only shadow over the industry is due to the new American managements of film companies. The fact is that this has combined simultaneously with two other factors. One is the squeeze—and I cannot measure the influence of this—on television companies due to taxation and the television levy. The other is the effect in America and here of high interest rates. Huge sums of working capital are tied up in the stocks of films made in the past, and in the capital employed in making films at the present, and with interest rates as high as they are both in America and here there must be a great discouragement to film making.
  Those three factors together have created some slack at the British end
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  of the industry, and fear of a continuing slack. I have only the film Press to go on, but I hope that the quality of our talent, our facilities, and the share of the levy, plus the hope that United States managements will get their own problems under control, will lead to a revival of American investment. We do not want to cast any doubt on either the levy or the quota. We accept both. I do not say that in Committee my hon. Friends will not have comments to make in detail, but in substance we accept both.
  I understand from reading about this industry that its finance is very strange. I read recently a description, which may be familiar to hon. Members, that film production is like a mouse which carries an elephant on his back. For every £ that goes to repay production costs, E6 have to come into the box office. We have, therefore, to try to understand the factors at work in financing films.
  There is, first, of course, the exhibitor who rightly takes the first slice of box office money, a substantial slice, subject to the levy. We cannot accept that it is right further to reduce the money going to the exhibitor by adding to the levy that goes to the producer, and which the exhibitor has come to accept as part of the necessary payment to keep a viable industry, a further sum which will go to the themselves admirable projects, the British Film Institute, and the National Film School, which come much more closely within the province of the Minister of State, Department of Education and Science, whose presence today we welcome. I am almost a lifelong member of the National Film Institute. It does a spendid job, but I cannot see that the exhibitor should be expected to pay the extra moneys, and I warn the hon. Lady that in Committee my hon. Friends will make strongly the case which the exhibitors have put.
  There is, second, a slice, smaller than that of the exhibitor, which goes to the distributor, who, in the ultimate, when he has provided a guarantee, takes the risk to the extent of that guarantee. The distributor gets a share of the last one-third of the box office takings, to which he adds his own expenses, and at the end of that operation there is left only about 15 per cent., on average, for production finance.

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  To the layman, the extraordinary thing is that despite this elephant on the back of the mouse, within the mouse's own sphere there is still great extravagance. I do not presume to judge extravagance for myself. I get it from the reading and listening that I do to those in the film world. I mean no disrespect to the hon. Lady, but I do not think that her homily to those in the studio that she visited will turn the tide of history.
  Mrs. Dunwoody: Is not the right hon. Gentleman aware of the enormous breakthrough in electronic equipment in this industry, so that increasing investment in new equipment is making it not only more efficient to make films but saving a lot of money on products costs?
  Sir K. Joseph: I am sure that that is true. I am only aware, however, that a secretary who works for a film company is likely to get several times the reward available for working in some more prosaic occupation. There is some legacy from the golden era, no doubt. I am sure that there is an infection of high costs from American standards, and also an atmosphere that a film may make a fortune for the people producing it, or a loss. In such an atmosphere of risk-taking I can imagine people saying to themselves, "What is another few pounds a week?" But there is clearly scope for financial invention and initiative in this industry.
  We recognise that the levy is vital to producers, but I wonder whether the hon. Lady, or whoever replies, will explain to those of us who do not fully understand how 70 British feature films attracting, in a recent year, about £4 million in levy, can be said to be getting, through that levy, as much as 50 per cent. on their other production income. I believe that I have the figures right. Perhaps the hon. Lady will explain what proportion the £4 million payable to producers of British feature films bore to the income they received through the linkage and ultimately from the box office.
  I now turn to the principal feature about which we wish to comment—the National Film Finance Corporation. The hon. Lady made it very easy for me to state our position. We recognise that this corporation was originally intended
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  to be temporary. It was a bridging operation until private enterprise finance from this country came into the industry. What has happened is that British risk capital has not come in in nearly sufficient quantities to maintain a successful film industry, but American money has.
  We believe that it is healthy for an industry to have a variety of sources of finance. We are therefore glad to welcome the hon. Lady's assurance that the corporation intends to continue to be a catalyst in bringing in private enterprise money by its best efforts. We do not wish to hamper the corporation in this work. We realise that any thought of ending its operation abruptly—particularly at present—would be entirely wrong. But we still adhere to the hope with which the right hon. Gentleman the present Prime Minister founded the corporation, that in the right climate the film industry will be self-financing from private enterprise sources largely—not entirely, because we welcome money from outside as well—from this country.
  But we should like to know to what extent the corporation is shifting its financial operations from what I understand is called "end money" to less precarious financial arrangements. We understand that the corporation is not intended to finance non-commercial films. Perhaps the hon. Lady will correct us if we are wrong about that. We understand that anything for non-commercial films would have to go through the Department of Education and Science budget. We acknowledge what a difficult task any investor in films has, whether it be private enterprise or the National Film Finance Corporation, but we believe that private enterprise in this country should be able to provide a far larger proportion of the money needed for a flourishing British film industry, gradually coming in to offset American money.
  There are hopeful signs. A considerable programme has been announced by E.M.I. with Bryan Forbes in charge and there is the continuing production programme of British Lion. There is the new initiative from London Screenplays and the de Grunwald programme backed by Morgan Grenfell. We were glad to know that this operation seems to have got an American outlet—albeit not a major one—through the Winthrop Lawrence connection.

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  We do not oppose the Bill, but we want to make it clear that when we are in office we shall examine the whole position. We shall examine the performance of the corporation and the prospect of adequate private enterprise finance coming from this country and America to maintain a flourishing British film industry. If, as we hope, the prospects are good, we shall—subject to due warning—phase out or taper off the corporation, or in some other way—we shall not tie our hands—move progressively from taxpayers' to private risk capital. We shall do nothing abrupt. We shall take carefully into account the various prospects of finance for the industry. In the meanwhile we wish the corporation and the entire industry well.
  We have some detailed points to raise in Committee, but we shall not oppose Second Reading of the Bill.
  6.16 p.m.
  Dr. David Kerr: I am at a loss to understand the plea for a new policy which seemed to be about to come from the right hon. Member for Leeds, North-East (Sir K. Joseph). The film industry is readily able to command sources of private capital. The National Film Finance Corporation exists as an insurance against its inability to command this risk capital. Although the Opposition, if fortunate enough to command a majority in the House after the next election, may re-examine all sorts of policy, I cannot see how the corporation can be phased out save by the film industry itself achieving such success in commanding private investment resources as would allow the corporation to disappear from sheer inanition.
  The right hon. Member also forecast some opposition to the provision that the British Film Fund Agency's Eady money should now be allocated, presumably at a fairly low level, to two major developments in the film industry. One of them—a new development—the National Film School, to whose inauguration we all look forward with interest and enthusiasm. This might well contribute an indirect subsidy to the industry by providing some of the much needed staff within the industry from funds which are available currently only for direct production purposes.
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  But the specific objection which the right hon. Gentleman raised—and he warned that there might be some discussion in Committee about it—was the allocation of funds to the British Film Institute's Film Production Board, which is a transmogrification of the Institute's old Experimental Film Board. It now merits recognition as a small but integral part of the film production industry and is no longer to be thought of—if, indeed, it ever was justifiably thought of—as a "way-out", heterodox group of wild youngsters led by the wildest of all youngsters, Sir Michael Balcon, busily engaged in producing something which is not the least interesting to film audiences.
  I will cite only one example, namely, the success everywhere of the Film Production Board's "Herostratus" which has achieved commercial showing all over the world and is widely recognised as an important contribution to cinema techniques and to the art of the cinema. It was a feather in the cap of the Film Institute to have had some responsibility for it.
  So, for this reason, it will be very difficult to argue that the Film Production Board should not have at least a bite at this cherry. Sometimes I feel that the British film industry is never so busy as when strangling itself in the strings of its own money bags. The new developments in film mean a new kind of audience. I am not talking about the much larger audiences who, in ever-increasing numbers, are staying away—this is something of a problem for all of us—but of the new kind of audiences who are not seeking the great epic or the heavily-costumed, under-scripted historical film. They are interested in new kinds of realism.
  Nor are they so interested in the way that Britain mirrors herself to the world, so much as the success and the impact of the way in which our films reflect us to ourselves. This is what is important about the cultural aspect of a film industry, and to this the Bill contributes more significantly. It is greatly to be welcomed.
  I have two points to make on the cultural aspect of films, as opposed to the commercial, which has occupied the discussion up to now. First, as I said a year ago, when I introduced my Films (Statutory Deposit) Bill, I welcome the decision not to extend the money

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  available under this Bill for statutory film deposits. Anxieties were expressed that the money coming either through the Film Fund Agency or possibly being made available to the N.F.C.C. might be diverted to statutory film deposits. I would oppose this, and I hope that the industry's fears will have been given the quietus by this Bill.
  There is a reference in Clause 6(d) to the allocation of money to a film school. It refers to carrying on "any school" and not specifically to the National Film School which we hope will be set up as a result of the Lloyd Committee's report. I wonder whether this may mean that money will be made available for the Royal College of Art's film production unit, which has produced some first-class stuff, or the Polytechnic's unit, or to University College. This is of some significance, since, by a curious paradox, hand in hand with the decline in film audiences, we are watching a growth of interest in the production of films by academic and even non-academic groups.
  The second question which should be raised is the way in which the money to be allocated to the British Film Institute for its Film Production Board should be treated. At the moment, the B.F.I. has to deal with a global budget and allocates part of it to Film Production Board purposes. Will we have the benefit of the "Eady money" going to the B.F.I. without affecting its global sum, or will the global sum from the Department of Education and Science be reduced by the equivalent of the "Eady money", which I would vigorously oppose? If the latter is to be the case, and my vigorous opposition is unsuccessful, how will this be decided between the Department of Education and Science and the Board of Trade?
  Another matter dealt with by the Bill is the acquisition of copyright by the National Film Finance Corporation. This bothers me a little because the copyright of films is such a vexatious question. I hope that we may have a socially expert departmental committee to consider the whole question. At the moment, copyright exists for 50 years in any film and there is a suspicion that some of the film distributors—not so much the producers—would like to see that copyright term extended, because some 50-year-old films
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  whose copyright should have expired are achieving a new market thanks to their exhibition on television. Copyright questions could well be examined closely and the appropriate report made.
  In the last couple of weeks, there has been one important disappearance from the film industry. That is the sad demise of Pathé News. This is perhaps significant and I should like to refer to Pathé News in the context first of the rôle of short films in film programming. In the first place, the Monopolies Commission Report made some useful reference to short films. In what way is the report being implemented by the industry, and could anything more usefully be done to stimulate its co-operation?
  But there can be no doubt that this search for high quality short films is vain. Nor is this surprising: they are remarkably effective instruments for losing money. No one wants to show them, and, perhaps, the better they are, the less likely they are to command audiences. This is a responsibility which the industry itself must face—assured that the Government understands the problems of short film makers and will do everything possible to co-operate with the industry to make short films a thriving part of it.
  The disappearance of Pathé News may be only one pointer. Another aspect of the disappearance of this always valuable and amusing part of a film programme is the archiving of material. This is not the moment to seek more help for archiving, except to remind the House that this is one of the most important functions of the British Film Institute. My hon. Friend the Parliamentary Secretary will know this, because she opened the new buildings to house the archives some months ago. At the British Film Institute, this is regarded as a very important historical and social contribution. With the disappearance not only of Pathé News but, perhaps more important, of black and white material, as television goes highly coloured, we may face considerable difficulties in collecting the socially important material which should be going into the archives. I have no ready solution within the context of this Bill, but I hope that this will be remembered in the discussion between the two Departments, so that more can be done.

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  There are important omissions from the Bill. A considerable school of thought is that the Sunday levy could be abolished. Although the British Film Institute benefits from it, I know that it will support its disappearance. I enter an emphatic plea that—not in this Bill but in one to come in a few months—the question of Selective Employment Tax as it applies to this industry should be reconsidered and the industry regarded as a manufacturing industry, particularly bearing in mind its contribution to exports.
  Reference is made in this welcome Bill to the importance of maintaining outlets for the films produced. The plain fact which the industry and all of us concerned with film exhibition must face is that distribution outlets are slowly and quietly folding their tents and stealing away. A very minor measure to offset that has been the success of the B.F.I.s regional theatre development programme.
  To suggest this may be to invite a series of hands raised in horror, particularly among hon. Gentlemen opposite, but if Eady money were appropriately devoted to the production of films, might we not spare a thought to the usefulness of producing films and, perhaps, of using Eady money to support cinemas which are in danger of closing? If it could be shown that a cinema was in danger of closing—if this could be proved by any set of rules which the industry and the Government might lay down—perhaps that cinema could be exempted from the Eady levy. This should particularly apply to well-populated areas which have only one cinema.
  What about using Eady money directly as a subvention to cinemas that are in danger of closing, perhaps in collaboration with local authorities which would use those cinemas for educational purposes? They could make a direct grant from the rates so as to maintain the continuation of an important cultural activity.
  Mr. John Hay: The hon. Gentleman will appreciate that the Eady levy is a levy on money taken at the box office for exhibition. The proposition which he is putting would, therefore, lead us into some strange byways.
  Dr. Kerr: I accept that it is a contentious and complex suggestion, but I do not think that either should force us to dismiss the idea straight away. Indeed, if Eady money were not used in this way, I would favour a local authority direct grant, in collaboration with exhibitors, with a guarantee that that grant would attract a Government block grant as part of local authority expenditure.
  These are ideas which the industry should not be afraid of expounding. They may get kicked around a little in the process of discussion and become rather bruised, but they could be important. These, among other ideas for maintaining distributive outlets, should be discussed; and it would be helpful if we could have that discussion in the context of this Measure.
  I congratulate, and to some extent sympathise with, my hon. Friend for what is, considering the Bill, a stupendous production. Unfortunately she made her speech at rather great speed. I welcome the terms of the Bill and, in common with the views expressed by the right hon. Member for Leeds, North-East, I am sure that my hon. Friends are anxious to ensure every possible means of having a prosperous and tasteful film industry.
  6.33 p.m.
  Mr. John Hay: According to its Long Title, the Bill is concerned with the "financing and exhibition of films". I have an interest to declare, which is not a direct financial one in either production or distribution, in that I am a director of a company which is engaged in the film trade, but in ways which I will not weary the House by explaining.
  The Bill comes forward at a moment when the British film industry as a whole is talking about crisis. If one reads the trade Press one sees the word "crisis" used frequently, but I believe that that is an exaggeration. The industry is at present undergoing exactly the same kind of change which is affecting many other industries throughout the world, particularly in the film industry in North America.
  These changes are occurring in several related areas. There is a change in the methods and type of production. My right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) pointed out

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  how big American conglomerates now have a financial interest in a large number of film production companies, and this has led to what is called the "slide rule approach". The days of the old-fashioned film maker who backed his hunch and either made a million or lost it have gone. This is a vital change for the British film industry because American financial interests in this country's film industry are substantial.
  A change has occurred in the method of production. People are getting away from the idea of making films largely in studios. In the past it was customary for a film to be made virtually almost entirely inside the studio, with some of the exteriors being shot on location. Today, because of the high cost of studios, it is becoming normal for films to be made basically on location, with the number of studio scenes being kept to a minimum.
  Another change in the method of production is that in the past the big film companies employed executive producers whose job it was to put a film together for them. Today there are far more independent film producers who collect an idea or buy a "property", as it is called, and, having assembled the necessary parts, take it round to various big companies—for example, to all the major American production companies—and sell it. This is a trend which I believe will develop in the next few years.
  In this country there has been a substantial change in the method of distribution. The Parliamentary Secretary did not refer—perhaps this subject is not entirely relevant to the context of the Bill—to the Report of the Monopolies Commission on this subject. A number of criticisms of the methods of distributing films in Britain were made in that Report, and most of the recommendations have been implemented on a voluntary basis by the various renters. There is not complete unanimity among renters, or distributors as they are called, and exhibitors, who own and run cinemas, but a good deal of change has taken place, and more change can be expected.
  Many changes have also occurred from the exhibition point of view. As the Parliamentary Secretary reminded the House, we are in the presence of a picture of declining attendances at the box
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  office. The hon. Lady quoted the figures. As the hon. Member for Wandsworth, Central (Dr. David Kerr) pointed out, the type of audience has changed. Far more young people are going to the cinema these days and because of this—this applies not only here but on the Continent and in the United States—more films are being made with that type of audience in view.
  This is, in some ways, unfortunate because it keeps out many of the "mums and dads" who would prefer not to see the more with-it and modern types of film but something of an escapist nature. The producer who wants to make a film with a message should sometimes pay attention to the famous words of Sam Goldwyn, "If you've got a message, send a telegram". Unfortunately the effect of this change is that many people are being driven away from cinemas because they do not get what they expect from them. They find that they are watching films that have been made in a particular way on subjects about which they do not particularly care.
  The type of cinema in which films are being shown has been changing, I think very much for the better. We have what is known as the "twinning" arrangement and in some cases the "tripling" of cinemas by converting vast old picture palaces which used to contain up to 2,000 seats into smaller cinemas with a smaller number of seats but with an atmosphere which is more attractive.
  Another big change—this is all part of the background to the Bill—is represented by the important technological developments that have been taking place. For example, we have what is called the "cassette" development which involves the possibility of using electronic means for recording a film in a closed plastic container and playing it back through one's domestic television receiver.
  This is a big development, if it comes about on anything like the scale that is envisaged, because it means that by selling or renting cassettes a film producer may be able to recover world-wide in one night the many millions of pounds that he may have spent making a film, instead of having to wait perhaps years to get his money back. There is also the development of super-8 mm. film which, I believe, will in the next ten years be

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  another method of competition with television; of seeing entertainment in one's own home.
  A further change which has already been referred to in this debate, and which is an essential part of the background to the Bill, is the reduction in the quantity of American money which is being put into production in the British film industry. We must keep this matter in perspective. The amount of American money which has been going into British films in the last few years has been quite substantial, principally because of the effect of the quota and the levy. As far as I can measure it, the reduction is still very small in cash terms but, as it used to be said at one time, "When the dollar catches cold, the pound catches pneumonia." What to the Americans is a comparatively small reduction in overseas spending on making films represents a very substantial amount to us in Britain.
  I had the opportunity in October of a business visit to the United States, where I was able to discuss the continuance of American film production in Britain with a number of leading figures in the industry there. Almost unanimously they said that provided Britain continues to give the excellent facilities that we do provide, that the quality of our artists and technicians remains as high as it is, they will go on wanting to make films here. They do not intend to withdraw completely from making films in Britain, but they place a very high priority upon the continuance of the quota and the levy. I am glad to see, as my right hon. Friend has said—and as all of us, I think, on this side feel—that the levy and the quota are being continued. I make my necessary genuflections in the direction of Sir Arnold Plant who did not like the levy when it was discussed in the Cinematographic Films Council.
  Let us consider what we are aiming at. There is a risk here that we may, when saying to ourselves that we must have British production, be meaning two different things. If we are talking about making British films which, as the hon. Lady said, try to represent Britain and the British way of life; which are made exclusively in Britain, with British artists and writers, and so on, and with, as it were, the Union Jack put upon them, that is a very different thing from the con-
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  tinuance of British film production or the continuance of support of the British film production industry. It seems to me that however one may wish for some degree of patriotism to be involved in this matter, our basic function and duty must be to ensure the continuance of employment in the British film industry of the people in the studios and the artists, and also, as far as we can, the continuation of films being made here which might otherwise be made elsewhere.
  Looked at against that background, we need to consider each of the points that the Bill makes. I do not intend to go into detail over the various Clauses, but the reason for the levy and the fund is, in my opinion, that they continue to be not only a powerful inducement to American producers to make films in Britain, but are a very convenient method, to put it no higher, of siphoning off to the production area money taken at the box office.
  I wonder why the Government, in drafting the Bill, chose to ignore the advice from several sections of the industry that the Board of Trade should take power at a suitable moment, and if it were necessary, to suspend the operation of the quota? The plain fact of the matter at the moment is that any film made in a British studio stands a very good chance of being shown in British cinemas. The demand for "British product", as it is called, is very great, and the trouble with those of us who have to book films is that we cannot get enough British films. We would like to have them shown, but not enough of them are being made.
  When one talks of British films one needs to put the word "British" in inverted commas, because the very nature of the levy and quota is that a film which any of us may regard as British is regarded on the other side of the Atlantic as American, because 80 per cent., or perhaps more, of the money that has gone into the making of the film originally came to these shores from American sources. The film may count for British quota, may meet all the statutory tests and get the levy, but to us it is British, while to the Americans, since they have financed it, it is American. I do not think that there is anything we can do about this aspect in the Bill, but we must

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  bear it in mind when we talk about "British" films.
  The hon. Lady the Parliamentary Secretary will doubtless agree that the National Film Finance Corporation is the heart and centre of the Bill. It is really a kind of bank of last resort for the film maker who finds that he just cannot raise the extra 10 per cent., 20 per cent. or perhaps 30 per cent. of the money he needs to make his film in Britain. The idea that one can have a bank of last resort of this kind is attractive, particularly to the man who has a product which is not readily commercially viable.
  I realise that the legislation contains all the necessary qualifications to which the hon. Lady drew attention; that the Corporation, when making the loan, must have regard to the commercial viability of what it is asked to lend on, but one has only to look at the various appendices in the reports of the N.F.F.C. for the last few years to discover quite a number of films mentioned as having been supported or as having been considered by the Corporation for assistance which one does not ever remember seeing in the commercial cinema. They may have been films which were short and which, perhaps for the reasons mentioned by the hon. Member for Wandsworth, Central (Dr. David Kerr), have not easily secured a showing, but, on the other hand, there are quite a number made with N.F.F.C. support and help which seem never to have seen the light of day, except perhaps for registration, because they were not really commercially viable product.
  That leads me to an important matter which I want briefly to mention and which I urge on the hon. Lady. It is the recommendation she has heard of from the Film Production Association—and, I think, from the K.R.S. and the C.E.A. as well—that further thought should be given to the composition of the N.F.F.C. itself; that it should be more representative of the practical and commercial people who are involved in the film trade. I mean no disrespect at all to the people who at present run the Corporation—I think that, within their limits, they have done an extremely good job—but we are being asked to continue the Corporation for another ten years, to 1980, and I believe this to be an appropriate moment to suggest that, if possible,
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  it should be arranged that slightly more commercial management should be given to the N.F.F.C. The Bill gives the Corporation greater powers, greater flexibility, wider opportunities: should not those powers and opportunities be matched by a more commercial approach by those who actually preside over its affairs from day to day?
  I back up what my right hon. Friend has said about the need for a review. Because of the changes that are taking place in the industry, a review of the Corporation's position in the next few years, whichever party is in power, makes a lot of sense. It may be that in a different economic and financial climate in Britain the place of the N.F.F.C. will become no longer nearly so important as it now appears to be. If, for example, American and even continental money came back into this country for film-making on a very large scale, the need for a N.F.F.C. might speedily disappear and therefore. I support what my right hon. Friend said. It is important that we should keep under constant review the activities of the N.F.F.C. and confine it to its job of finding the bridging finance between production guarantees and the box office end product.
  Mrs. Dunwoody: Is the hon. Gentleman arguing, on the one hand, that the N.F.F.C. should be more commercial and, on the other, restricted to bridging loans?
  Mr. Hay: The hon. Lady has misunderstood me. First, its position should be reviewed. Secondly, it should be more commercially managed. It should be able, because of the greater commercial management proposed, to identify, somewhat more successfully than it has been able in the past, what are likely to be box office winners to back, providing the bridging loans against that background. Basically the job of the Corporation is to provide something like a bridging loan. In effect, its function is as a bank of last resort. That has been its function since 1949. That is what the Corporation itself says is its function in its Report and Accounts. That is why it has incurred the loss of money and arrears of interest which we are being asked to write off.
  There has been a report in the trade Press recently that discussions are going

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  on between the Ministry of Posts and Telecommunications, the Board of Trade and, presumably, the Treasury, to see whether some of the television levy should be siphoned off and given to the N.F.F.C. There is nothing about that in the Bill and I would be glad if the hon. Lady could tell us what truth there is in the report. If some of the absurdly high amount of money raised at present from the television business is to be siphoned off into the N.F.F.C. it puts a different complexion upon both the rôle of the Corporation and what we are asked to do in the Bill.
  There is another matter which I hope we will have the opportunity to probe a little further in Committee. It depends on what view the Chair will take of the scope of the Bill as outlined in the Long Title. This is the composition of the Cinematograph Films Council. The hon. Lady referred to the recommendation made by various trade associations in the industry that the composition of the Council should be altered because, it was said, as it stands it is unbalanced. I had hoped that she would go a little further than she did and explain why the Government came down against a change in the composition.
  The situation is in some ways farcical. On that august body, one of the representatives is a representative of Associated British Picture Corporation, which at the moment is very much engaged in production. It is also engaged in exhibition, owning a chain of cinemas. But the person who represents the A.B.P.C. on the Council is there in title of an exhibitors' representative, whereas the balance is tilting inside that company towards production more than exhibition. The other side of the coin is that another representative sits on behalf of the Rank Organisation, which is now engaged only minimally these days in film production. But he represents producer interests whereas everyone knows that the Rank Organisation is principally involved in exhibition.
  It seems nonsensical to people outside, and will continue to do so when they read the hon. Lady's words in HANSARD, that no adjustment has been made to this situation. It would surely have been sensible to allow the major circuits—Rank and A.B.P.C.—to be represented
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  separately and also to concede the request of the Kinematograph Renters Society for one additional seat, because the renters are under-represented. We may be able to deal with this in Committee. I hope so. We shall certainly want a better explanation than the hon. Lady gave today.
  This is a fascinating and in some ways a crazy industry. Everyone connected with it always says that. But this is a useful Bill in many ways. Its success in the future will be something we cannot prophesy. We can only say that we believe at this moment of time that we propose to continue the arrangements which have been very successful in the past. As my right hon. Friend has said, we on this side must reserve our position, particularly vis-à-vis the N.F.F.C., and see whether it continues to fulfil the task for which it was originally set up. What we can be sure about is that it still will be, whatever statutory arrangements we make, very much to the advantage of film-makers to make their films in Britain, and I hope that people will continue to come from abroad, particularly the United States, to make their films in Britain because of the excellence of what we do.
  6.56 p.m.
  Mr. Hugh Jenkins: To describe this Bill as being useful in many ways, as the hon. Member for Henley (Mr. Hay) did, seems to me to be damning with faint praise what is an extremely good Bill. I shall be suggesting that this is the best piece of films legislation this House has ever tackled. It is not without fault, and I shall have certain proposals to put in Committee, but it is worthy of being described without qualification as a good Bill. I believe that my hon. Friend the Parliamentary Secretary to the Board of Trade who, in the course of producing the Bill, may have had her problems and difficulties in getting it as good as it is, deserves personal congratulations upon it.
  The hon. Member for Henley declared an interest in the film industry. I sometimes feel that it would be a good idea if we could get that certain document wherein we could state our interests, because that would save me from telling the House, as I so often have to do, that I was a full-time official of British

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  Actors' Equity Association and am now a part-time officer, and might reasonably be regarded, therefore, as having an interest on the side of the employees of the industry.
  The Bill is not perfect, but my hon. Friend is right in saying that she has kept in close touch with all concerned in the industry in preparing it. I am not saying that in doing so she has taken all the advice tendered to her. In some cases that is regrettable and in other cases I think it fortunate. I found myself in agreement with what the hon. Gentleman said at the beginning of his speeoh—he has a great knowledge of the industry, which he correctly described as fascinating—but I found myself parting company with him on most of the specific proposals he put forward.
  I agree, incidentally, that probably the Cinematograph Film Council's membership should be looked at again. But I have a feeling that if he and I put forward proposals as to how changes should be made we might find ourselves proposing different changes. We may have the opportunity of discovering that in Committee.
  If the Minister had not been persistent, she might have found herself left with the sort of proposals which I suspect the hon. Member for Henley would put forward if, unhappily, he were in charge of the Bill, namely, to diminish the rôle of the Government in relation to the film industry, which he would regard, I think, as a good development. This is unlikely to come about, whether good or bad. I do not favour a diminution of Government interest in the industry. On the contrary, the right development, and indeed the inevitable development in the sort of society in which we are living, is towards increasing Government involvement in the industry.
  I therefore welcome without qualification the proposals in the Bill to give the National Film Finance Corporation a wider and more useful and less restricted rôle. I do not support the view of the hon. Member for Henley that the Corporation has thrown money away. By and large, its money has been invested correctly and properly, although I think that everyone who knows anything about the industry realises that from time to time it is almost inevitable that mistakes
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  are made. The only way to prevent mistakes being made is by doing nothing at all, which would be a poor rôle for the Corporation.
  My hon. Friend the Minister could have put forward proposals which would have pleased the Treasury and perhaps the exhibitors but no one else. I am glad that she has not done that but has put forward a Bill which keeps the balance fairly between the various interests in the business, and, above all, does a service for the industry. The broad outlines of the Bill are generally acceptable, but it requires some amendments and additions. I hope that my hon. Friend will prove to be as open to conviction in Committee as she has been convincing, if somewhat rapid, in her presentation of the Bill today.
  Broadly, the Bill implements in part the recommendations of the majority of the Cinematograph Films Council and in at least one or more important respects takes something from the minority Report, which was I think presented to us in 1968. The fact that there was a minority Report of the Council indicates that the constitution of this body needs looking at. The fact that it split in two suggests that everything is not well on that body, and changes have taken place in the industry which render it desirable to look at it again. If I have the opportunity, I shall at a later stage put forward specific proposals to that end.
  The Bill enlarges and makes possible Government support for the industry at a time when the continuation of the flow of dollars from Hollywood has been held to he in question. We should not regard that flow as being turned off. There is no need for such an alarmist approach. There is likely to be some diminution, but in recent years the graph has gone up all the time. There must come a time when it is desirable from the point of view of the British film industry as well as inevitable from the point of view of the American industry that a plateau is reached. I hope that a similar plateau will he found before long in cinema attendances and that the drop in attendances will stop.
  The Government have demonstrated their confidence in the British film industry. As the right hon. Member for Leeds, North-East (Sir K. Joseph) pointed out, E.M.I., among others, has evinced

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  an intention to bring forward British private capital. I welcome that. It is a healthy development. We must hope that other people will follow this example.
  Business confidence is an irrational and almost hysterical element in a market economy. Anyone who seeks to undermine business confidence must be careful lest in raising a wind of doubt in order possibly to bring pressure to bear on the Government he ends by reaping the whirlwind and he finds himself on the rocks. The Government should look carefully at any concession on the point of allowance in the way of the levy. It was suggested by an hon. Member opposite that some arrangement might be made whereby the I.T.V. levy found its way into the film industry.
  Mr. Hay: I did not make the suggestion. I asked the Minister to comment on reports in the trade Press that the Government are discussing this possibility.
  Mr. Jenkins: The Government can speak for themselves, but my impression is that this proposal emanated, not from the Government, but from the industry. If this were to occur, the Government would have to be absolutely sure that any such levy was ploughed back into film production and was not merely added to the profits which are still made in some parts of the film business.
  Attention is sometimes drawn to the huge sums received by famous film stars. Although there is, of course, no specific reference to it in the Bill, it should be mentioned in passing, because it is part of the atmosphere of extravagance which is generally held to characterise the industry. If one goes shopping in the international market for a Burton or a Taylor, one has to pay the international price for the article. But most players receive much more modest payments, and many of them would prefer to receive their money as the film is shown throughout its life provided it could be expressed as a percentage of the gross takings and not as a percentage of profits, which have a curious habit of disappearing when anyone has a claim on part of them.
  The House will recall that it has been suggested that the I.T.V. levy should be charged, not, as at present, on the
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  gross income of the companies, but on the net income after production costs have been met. In case anyone should think that the point I have just made is an argument against this proposal, may I point out that the Government are in a much stronger position in relation to the programme companies than is the ordinary featured player in relation to the company owning the film, which may not be, and indeed is even unlikely to be, the company with which he has a contractual relationship.
  If there were any suggestion of television money going into the film industry, the right recipient of it would be the British Film Fund Agency, which receives the Eady levy. The fact that there was a minority report of the Films Council reflects the weakness in the composition. I believe that the Films Council is over-weighted on the side of distribution and exhibition.
  Equally there are no proposals in the Bill to deal with the problem of the vertical integration of the industry, which will still be in two main groups which substantially control production facilities as well as distribution and exhibition. It might be said that the exhibition monopoly is changing and that it is showing some signs of fragmentation in the process.
  We shall want to look at these matters in Committee and shall also want to look to what degree the recommendations of the Monopolies Commission have been met by the companies chiefly concerned. Even the recommendations themselves do not seem, to me at any rate, to go as far as the findings of the Monopolies Commission.
  The Bill says nothing about the recommendation of the minority of the Films Council on the question of reciprocity in relation to Commonwealth countries and Eire. For example, a film made at the Ardmore Studios in Dublin or in Canada can qualify for aid from the British public as cinema goers through the Eady levy and as taxpayers. But there is no reciprocity. There is no Irish or Canadian money coming into the British film industry or any levy from exhibition in Commonwealth countries.
  Again, when British companies receive returns from the British Film Production Fund, what do they do with the money? There is no statutory obligation that it

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  should be reinvested in production. Perhaps there should be. There seems to be no reason to exclude 70 mm. films from the quota. At present the main West End cinemas need never show a British film. Should that be the case? Those are some of the questions we shall need to examine.
  I should like to dispute one point in the document circulated by the Film Production Association in which the Eady levy is referred to as industry money. I suggest that it is public money in the sense that it is money paid by the public for compulsory redistribution within the industry, and it does not become the property of the industry. The British Film Fund agency is not, I think, a trustee in that sense and, so long as it operates within its terms of reference, I do not think it can be answerable to the industry which I am afraid, left to itself, would long ago have killed the production goose which in its time has laid many golden eggs as well as a few eggs which, as the hon. Member for Henley (Mr. Hay) suggested, might be described in more ecclesiastical terms.
  It is rather sad that British film distributors and exhibitors seem to be a little unconcerned with British films production as such. If a proposal is made to reform the British Cinematograph Films Council I shall certainly support it, but it may well be that the nature of a reform will be a matter which we shall wish to talk about.
  With those additions and one or two other changes, I think this will become the best piece of film legislation that we have had. I look forward to its return to the House and a National Film Finance Corporation which, being invigorated and with more flexible powers, will play a growing rôle in a medium which remains the main source of collective entertainment experienced by our people.
  This is an important matter which has hitherto not been stressed. The cinema is still the main place to which people go for collective entertainment at least indoors. I do not share the view that television will become all-embracing. It will certainly continue to be our daily bread and butter source of information and entertainment and perhaps education. But people have always needed to go out, to assemble together to enjoy
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  something larger or something more concentrated than can be encompassed within the small screen or can be enjoyed amid the distractions of home life.
  Just as the theatre is a permanent institution and a necessary part of our activity which, whether we attend it regularly or not, we know must be available somewhere within range, the same is true of the cinema.
  I think the cinema will change. I believe that the great mausoleum will become—and it is already becoming—the multi-cinema with two or more auditoria, or what the hon. Member for Henley referred to as the twin cinema, or what the President of the Association of Cinematograph, Television and Allied Technicians referred to accidentally recently as a "sin twinema", perhaps an understandable slip of the tongue.
  But in whatever form it comes I think it will remain, for humanity is fundamentally gregarious and if we are confined too much within our four walls, we tend to mope. The weekly football match and the occasional visit to the "flicks" are occasions which become part of our pattern and we should feel sorely deprived, and we would be sorely deprived, without them.
  So what was said by the Palache Committee in 1944 is still relevant. The Committee said:
  "The view is held in some quarters that the British cinematograph business is to be regarded merely as one business among others, which may claim no special consideration, and that it is out of place for Parliament to show special concern for its conduct and future development. We do not share that view, and we are confident that Parliament will continue in its endeavour to safeguard its future by means of special legislation not applicable to industry in general. A cinematograph film represents something more than a mere commodity to be bartered against others … the screen has great influence both politically and culturally over the minds of the people. Its potentialities are vast, as a vehicle for expression of national life, ideals and tradition, as a dramatic and artistic medium, and as an instrument for propaganda."
  That is still true. No one who saw that magnificent French film about Greece called "Z" at the Curzon cinema, a film which I understand—and this is to the credit of the British distribution industry—is to have a general release can doubt the continuing power of the

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  film. I conclude with the words of the Palache Committee:
  "We have therefore approached our task in the belief that Parliament will insist that the Government shall exercise continuing vigilance over all developments in this industry and take prompt measures to preserve and foster its independence from sectional and foreign control. In our opinion, a healthy British film industry can be built up from the remnant existing at present"
  —and this was in 1944—
  "only on condition that independent production remains in being and is properly safeguarded."
  It is in the belief that my hon. Friend the Parliamentary Secretary and the Government have carried that pledge forward into 1970 that I welcome the Bill.
  7.20 p.m.
  Mr. Michael Shaw: When one has listened to the hon. Member for Putney (Mr. Hugh Jenkins), one always has the feeling of having listened to someone with great knowledge of this subject. Whilst both sides of the House are in general agreement about the Bill, his speech brought out the underlying differences in approach between the two sides.
  I do not accept that we have to assume that for all time it will be necessary for the Government to protect and support this industry. The hon. Gentleman claimed that the pattern was for there to be more Government involvement in industry, that that was the way things were going. I agree that it is the way in which we are going, but my hope and conviction is that we shall soon be in a position to alter that. I hope that it will be possible in future to find this industry able to stand on its own feet.
  The Bill is mainly to renew powers which have now existed for some time, to prolong the rights of the National Film Finance Corporation to make loans, to continue the levy on exhibitors and to continue the quota system, all this for another 10 years. My first reaction to the Bill, as to any Bill of this sort, was to ask why the industry should continue to enjoy this special assistance. Why should not the normal forces of competition be allowed to work in this as in other cases? Why should the N.F.F.C. lend money when usual commercial sources of capital were unwilling to do
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  so? These are the sorts of questions which immediately come to mind.
  My hon. Friend the Member for Henley (Mr. Hay) called the National Film Finance Corporation a bank of last resort. The hon. Member for Wandsworth, Central (Dr. David Kerr) said that he could not understand our qualms about the Bill, because he felt that the N.F.F.C. would disappear if there were found to be enough finance available from other sources. My hon. Friend brought out the point very clearly when he referred to the corporation as a bank of last resort, namely, that there are occasions when commercial sources conclude that a project is not likely to be successful. In such circumstances, those responsible for the project would turn to the N.F.F.C.
  I do not believe, however, that we must for ever perpetuate these powers to lend money if in general circumstances there proves to be money available for most projects, which would be a matter of judgment. Then would come the time to review the situation. Of course there would be borderline cases, and if the lending powers of the N.F.F.C. were removed, some projects might be left out for lack of finance which under the Bill would have gone ahead. But that is a normal commercial risk which must be taken. At present, even projects which would appear to be reasonably viable have no possibility of attracting sufficient commercial money, which is why the lending power of the N.F.F.C. should continue in present circumstances.
  Certain special difficulties face the industry. They are partly historic and partly self-created. It would be a great pity if the British industry failed and we ceased to have a film industry in this country. It has a valuable contribution to make in the pattern of our life and economically in our trade throughout the world, and it is therefore right that it should be helped. But I do not see why it cannot be made to run successfully and to stand on its own feet in the long run, and we should therefore emphasise that we are giving it a helping hand and not a wooden leg.
  A major problem has been that 90 per cent. of British films have been made with American money. The American industry is now suffering heavy losses and, as a consequence, has to make significant changes in its own financial arrangements,

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  and to make big economies, which appear to be more than overdue. That is bound to have a significant effect on American investment in the British industry. If the Americans alter their policy by only a minor extent, "minor extent" in American terms can mean a major change, almost a disaster, for the British industry.
  Another important factor is that of costs. There must be a permanent change in the industry's outlook. It is a curious feature that people in the industry can earn tremendous sums of money for playing a part or directing a film, and yet at the end of the day their salaries represent only a small part of the total costs. To pursue a metaphor which has been used earlier, the vast elephant of the production section of the industry depends on the mouse, and a little extra for the mouse, if the production is successful, means that the mouse can support the large elephant of overheads. Therefore, curiously enough, the mere fact that a star is paid a million dollars does not make the difference to the cost of the whole effort which one would normally expect it to make.
  If in the mind of the producer the whole operation depends upon one star, it can quickly be seen what leverage that star has to get the sort of remuneration that he or she wants. Once one starts talking in these large terms, it means that everyone else connected with the industry begins to think along the lines of the same magnificent remuneration. We thus get inflated costs running all the way through the industry. It is little wonder that merchant banks and the more traditional sources of capital have been chary of investing their money.
  Incidentally, I fully accept Clause 3 of the Bill, which relieves the National Film Finance Corporation of the liability to pay interest on advances made to it by the Board of Trade in the period to 1964. What is now being done is to acknowledge that advances made prior to that date have been lost. Whilst the N.F.F.C. must take the rough with the smooth, in its general investment policy there comes a time, as in any business, when it must be accepted that the capital has been lost and has to be written off. Otherwise, the picture is completely false and one cannot form an accurate view of the current operations of the Corporation.
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  It is interesting to note that as my right hon. Friend mentioned, British finance is now appearing to become more interested in the film industry. This in itself gives a clear indication of confidence in the industry's future. I want to see that confidence growing and a greater willingness by financiers to invest in the industry.
  We in this country have built up a very deserved reputation for the quality of our productions. Quality is not dependent solely on the size of budget that goes into a production. The realisation that there is no inherent right for all those engaged in the industry to earn fees quite out of proportion to those earned by other people and that costs in the industry matter should give confidence that our industry not only can lead in quality, but can, at the same time, be a paying proposition.
  The industry is a curious one. It is a complex of art and commerce. We have the actors, we have the producers and we have the writers. We also have, in normal times at least, the commercial resources to back up their efforts. What the artists, on the one hand, have to realise is that while they must be creative and are not merely bound by the dictates of commerce but have to fulfil their art, they cannot act regardless of commerce. There is an end product which must pay off.
  So, too, the commercial sources have to accept that while they want to profit, they are doing more than simply earning a profit: they are fostering an art that is of real benefit to the country and to wider audiences outside the country. They have to work together; and to work together they must have confidence.
  I believe that confidence is growing and I hope that the time will not be long distant when the Government, in reviewing the situation, will be able to say, "You are now a strong and independent industry, fully viable and now able to stand on your own feet."
  7.35 p.m.
  Mr. Joseph Ashton: The hon. Member for Scarborough and Whitby (Mr. Michael Shaw) said that the industry has the necessary actors, technicians, producers and other requirements. He omitted one important category, and that is the necessary customers to visit the cinema.

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  I am not an expert on the financial or commercial set up or even the artistic set up of the cinema, but I speak from the consumer's point of view. During the last eight days, I have been to the cinema three times, which is not unusual. On Sunday a week ago I went to see "Midnight Cowboy", on Wednesday I saw "Hang Them High" and last night I went to see "Women in Love". On Friday I went to the theatre and on Saturday I went to see a team at the bottom of the First Division playing football. I am, therefore, the biggest sucker in the business in supporting lost causes.
  One of the things which has not been emphasised tonight is the position of the consumer. I have listened with great interest to the experts, and I value their knowledge and know-how of the business, but what I do not accept is that the Bill will do a great deal to benefit the customer.
  The quota system in the Bill is a very good one and I recognise that it is necessary to protect the industry and to perpetuate for it a fair share in the showing of films. The quota system should, however, be changed so that it is a quota system for new films. All too often, cinemas get round the quota by showing at midnight on Friday and midnight on Saturday films like "Horrors of the Black Museum" or something like that, 10 years old, which have no interest to anybody. They seem to be put on at that time simply to fill the quota system or to satisfy the few customers who want somewhere to go when the "pubs" shut.
  It is not a quota system which is fulfilling what it should be doing to help the genuine film makers in the industry. All too much of the Bill will have virtually no effect on the distribution or exhibition of films against the monopoly set-up that prevails in this country. It is the monopolies of Rank and A.B.C. which dominate the industry, particularly outside London.
  Many hon. Members who have spoken tonight, who live in London or represent London constituencies, seem to forget that the situation in the rest of the country, particularly in the North, is very different from what applies in London. A cinema-goer in London tonight might have the choice of 50 or 60 different cinemas showing 20 or 30 different films. In the North,
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  in cities the size of Leeds, Sheffield, Nottingham, Newcastle or places which are not villages but which have a population ranging from 300,000 to half a million, we are now down to perhaps seven or eight cinemas, of which three or four will be showing exactly the same film. There is, therefore, virtually no choice for the customer. Competition between distributors and exhibitors virtually does not exist. It is a monopoly situation.
  Hon. Members tonight have spoken of the changes in the industry whereby cinemas which used to be huge mausoleums are now being converted into a double cinema set-up. This makes hardly any difference. I am sick to death of my local Gaumont trying to charge 15s. for films like "The Jolson Story" and "Ben Hur", which are 15 to 20 years old, and thinking that they can get away with that sort of price simply because they have converted the cinema and spent a lot in redecorating it. They will not convert me to going back to see those films at those prices, but there are some people who go simply from lack of choice, if only because courting couples, for example, like courting couples through the ages, have to go somewhere to get out of the snow and the rain and, therefore, go to the cinema.
  We have the set up that people who run the monopolies dominate the choice of what the customer has to see. If he does not like it, he can watch television. We are setting up a system whereby the goose that lays the golden eggs will be killed.
  The Bill will help to produce good-quality small films, films probably like "Kes", from a very fine book, about a young boy in Barnsley who owns a kestrel. Every critic who has seen the film says that it is a small masterpiece. I have heard experts on television say that it looks very good, but there is virtually no chance of cinema-goers in Barnsley seeing the film because the moguls who control the industry say that it is not sufficiently commercial. It is a fact that people in Barnsley, even Councillors in Barnsley, who tried to arrange for some sort of choice and film exhibition found the film industry dominated by the people in Wardour Street who said, "Oh, no, they are not going to see that; they are going to see 'Carry On,

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  Doctor' for the fifteenth time." This is what is the trouble with the industry.
  I do not expect the Government or any public body to plough millions into an industry which is obviously in a state of decline, but what I am saying is that there are other avenues through which films can be shown, and avenues which have been stopped from the start. Working men's clubs are very popular institutions in my part of the world, and they provide such entertainments as bingo, and also live entertainments presented by artistes in person. Two or three years ago an experiment was started for the showing of films at the clubs, and films to which it was appropriate to take the kiddies. One could have a pint of beer and watch a film being shown. The experiment at first proved very popular, but it died a natural death because the distributors would not allow those people to have films it was really well worth while seeing, because, they said, the clubs thus provided a form of competition with the cinema set-up. The only films which the clubs could see were old Laurel and Hardy epics, and so on, which, anyway, can be seen on the television.
  Exactly the same thing happened when there were mobile cinemas. A mobile cinema would go round the mining villages and mining towns, places in which there was no other form of entertainment, but the mobile cinemas were restricted as to what films they could show—restricted, again, by the people down in Wardour Street, who said, "You are not going to show the latest James Bond film, because if you do you will compete with the cinema in the town 15 or 20 miles away."
  It is a greedy industry, a very greedy industry, in which the greed stems from the top, with the film stars, and extends to the distributors who think they are entitled to take these kind of profits out of a smaller capital layout despite the fact that the industry is declining.
  This is a small Bill. As I say, I welcome it as a Measure which will help artistic producers who are at present short of money; it will help them to get a start in the industry. However, it is a Bill which will not have the greatest possible effect. The right hon. Member for Leeds, North-East (Sir K. Joseph) said that only one-sixth of the money which comes into the box office goes towards the cost of
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  making films; the rest goes to distribution and exhibition. If we want to see the cinema preserved in this country it is that other five-sixths which must help, and we must take the industry by the scruff of the neck and insist that there is a quota system on distribution, not only of British films but of all new films, to ensure that competition is true competition, so that the industry is efficient and can survive, and so that it is not only the monopolies which survive simply because they have the power. To this end we have to explore other avenues of film making and distribution.
  The hon. Member for Henley (Mr. Hay) said that it was time that some of the television levy should go to the film industry. I agree. Television is making fantastic profits out of films. There was a very good article in Private Eye last week which showed that, despite television companies' protests against the levy, they had distributed something like 80 per cent. to 90 per cent. of profits. Certainly the profit from the showing of old films has been very great indeed. We want in the Bill something to say that television, including the B.B.C. if it wishes to take the products of a declining industry, should pay something back to that declining industry.
  While the Bill will help new film making it will do nothing to help people like me in the frozen North and other outposts of cinema enthusiasts who will still be condemned to no choice in films but just sharing in repetitious showing of old films.
  7.44 p.m.
  Mr. Frederick Silvester: I agree with the hon. Member for Bassetlaw (Mr. Ashton) that this Bill does not touch many of the problems confronting the film industry, but I shall limit myself to remarks about what the Bill does do and come at the end to some of the wider problems with which it should deal but does not. The hon. Member for Putney (Mr. Hugh Jenkins) said it was a good Bill. I would describe it as a good interim Bill. It is a good Bill because while it follows the existing pattern Clause 1, for example, makes the N.F.F.C. better than it was before, but it is an interim Bill because it simply prolongs something which we have

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  historically got use to but which I am not sure nowadays meets the situation.
  We begin the debate, as is right and proper, with acclamations of the way in which the British film industry is conducting itself, saying how proud we are of its record of achievement, and so on. I agree with all that, but it does not follow that every part of the existing set-up is equally responsible for that success. We would, therefore, be illogical to say that because we wish to maintain the success which the industry has had we should necessarily retain every part of the present system. I shall begin, therefore, I am afraid, by making some critical remarks on the National Film Finance Corporation.
  Before I do that, may I preface what I am going to say by saying that I do not detract in any way from the very important part which the Corporation played when it was set up. I fully appreciate that in the years following 1949 when, I believe, unemployment in the studios was 15 per cent. or more, it played a very valuable part, a crucial part, in keeping the industry going. However, this Bill is talking about prolonging the life of this Corporation by 50 per cent. and is extending its life for another 10 years when times have changed, and the question I should like to examine is whether times have changed sufficiently for us to regard this still as a satisfactory solution to the problem.
  I acknowledge that most Western countries have some sort of subsidisation for their film industries, but I do not think that this is a proper analogy for this country to determine its policy by, because the size of the industry and its history in this country is somewhat greater than it is elsewhere. Although the hon. Lady's brief said—and I noticed that she pulled a face when she came to the point—that we might, therefore, be said to be vulnerable, it could also be said that it provides us with special opportunities, and I think that that is, perhaps, the more valuable point.
  I came to this industry having no interest in it at all other than as a consumer. I had no financial interest and no background in it. My interest arose primarily because, like the hon. Member for Bassetlaw, one was impressed by the
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  way in which the cinema industry was diminishing. Indeed, I am sorry to say that I have no active cinema in my own constituency. So I started with no preconceived notions, and I started in favour of the N.F.F.C., if anything at all, largely, I think, because people I met in the industry supported it with such fervour that I was carried along with them. Therefore, I examined fairly closely some of the arguments which were put to me in favour of the N.F.F.C. and I should like, with the House, to consider in turn some of the arguments adduced.
  Some people in the industry support it because—I cannot think of a better word—because it sustains the Britishness of the industry. My hon. Friend the Member for Henley (Mr. Hay) dwelt at some length with that and so I am not going over it all in detail. However, one would expect if that were true, that British influence in films would be greatest when the activity of the N.F.F.C. was greatest, but I think it would be accepted in the House that in recent years the British influence upon the industry has been greatest at times when the N.F.F.C. has been least active. It was most active in the early part of its life when the influence of the British film industry was much smaller. Therefore, it does not seem to me to follow automatically that the N.F.F.C. and the British influence in the film industry go hand in hand. I think that, perhaps, what the people who were speaking to me were thinking about was that if there was American money they might be subject to pressure in favour of the American market and that that would make them alter the tone of their films. I think that this is most unlikely.
  The acceptability of Britishness depends not upon the N.F.F.C. but on the fact that British films are fashionable in the United States, where other British things are currently fashionable. It is difficult to say which comes first. It depends on the fecundity of talent in this country and very little upon whether the money which is being put up comes from American or British sources. The point to be watched is where foreign money produces a situation in which the skills which this country would like to retain within its borders are expatriated, but there is no sign of that. The money coming into this country, on the contrary,

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  seems to concentrate the British skills and help them to remain in this country.
  The second argument which was put to me was that the N.F.F.C. was essential to maintain the levels of production. I have here some figures which I have worked out from the last printed report of the N.F.F.C. Of the films shown on the two main circuits in 1968, 63 per cent. were wholly financed from American sources, 25 per cent. were American and British financed, 4 per cent. were British financed with the assistance of the N.F.F.C., and 8 per cent. were British independent and foreign. In 1968 the N.F.F.C. was providing finance only for 4 per cent. of the films shown on the main circuits in this country.
  We have just been through a boom time in the film industry, some might say an over-extended time. It is clear from these figures that that boom has depended almost entirely, except for 4 per cent., upon sources other than the N.F.F.C. There is a catalyst element to which I shall return later, but in the matter of hard cash the N.F.F.C. has contributed to about 4 per cent. Therefore, in the immediate past, when things have been good, the N.F.F.C. has contributed a small part only.
  According to one Press report, in the six months ending April, 1969, the studios were making 27 films, and the estimate for the six months ending April, 1970, is that they will be making 17 films. That is a drop of over one-third. This has arisen because of the retrenchment predominantly of the American majors. If we recover—and the industry seems to think that we shall be back on steam again by June or the summer of this year—it will be in part because of the return of American money and because of the increase in the current interest of British finances in this area. We have already spoken about E.M.I., which is putting £15 million into production. When the N.F.F.C. gets its extra money, it will provide perhaps £3 million out of the £6 million in the first two years. It presumably will not spend all the money at once. I am told that that will provide it with a share of perhaps 18 films. That means that with not all the money but part of the money, something like 20 per cent. of the British films will then be provided, even after the Bill is passed.
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  That will be the scale of the N.F.F.C.'s contribution.
  The third argument which was advanced to me was that the N.F.F.C. is getting better. It claims that in 1964–68, on 62 films, 111 per cent. of what had been spent on the films was received back. I think this result leans heavily on a few films, but there is nothing wrong with that, as most companies lean on the ones that do well. We are asked to conclude that this is a spate of progress and that, therefore, the future will be better than the past. But if one looks back over the records, one will find that there were good periods and bad periods. I have not access to all the details, but from the published figures the years 1956–57, 1961–62 and 1967–69 are good periods, and the years 1951–54, 1958–60 and 1963–67 are bad periods. There were alternating good and bad periods, so we cannot conclude that, because the current figures are better, they will automatically remain so. I am not criticising the management, I do not think it is a bad record, but it is silly to dodge the issue that the N.F.F.C. is costing about £150,000 per annum, excluding the British Lion arrangements.
  Mr. Hugh Jenkins: Before the hon. Gentleman leaves the N.F.F.C., does not he agree that the rôle of the N.F.F.C. might be regarded as a pump-priming operation and that therefore its value cannot necessarily be measured solely by its financial contribution to the production industry?
  Mr. Silvester: I hope the hon. Member will find me agreeing with him. I am not leaving the N.F.F.C., I am going steadily through the arguments which were advanced to me, if he will bear with me.
  On the point that the N.F.F.C. is getting better, I applaud the provisions in Clause 1 which will make it easier for it to improve its methods, but it is important to recognise that those who support the N.F.F.C. most strongly do so not so much on the basis of past performance but because of the more commercial operation which they expect to see in the future. Therefore, people are supporting the N.F.F.C. because of what it might do under a different kind of management.

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  Another argument which was put to me in favour of the N.F.F.C. and which I find the most attractive one is that it has supported new producers. The evidence is that Schlesinger, Rice, Reed and Richardson have all had their first major films supported by the Corporation. In choosing those people I recognise the corporation's skill, but over 20 years, on the law of averages, one would expect the N.F.F.C. to find some leading producers. There are also leading producers who produced their initial films outside the N.F.F.C., so it is by no means a conclusive argument. The Corporation also claims to choose its producers on the basis of work previously done, for example, with the N.F.I. experimental fund, sponsored films, television commercials and so on. It is therefore finding new producers in the way in which any good private company should do, and in which a large number of private companies have done. Although I applaud the skill in doing this, I do not think the N.F.F.C. has done anything which is peculiar to the Corporation and not common to other private enterprise elements of the industry.
  I am now coming to the point raised by the hon. Member for Putney. Another argument which was advanced was that it was to act as a catalyst, a pump-primer. This again I think has been true in the past, and I pay tribute to the way in which the Corporation has tried to find other sources of finance. We have been well aware, both in the original debate in 1949 and in subsequent debates, of the temporary nature of the original proposal. An argument may be made for a pump-primer provided it primes the pump and the pump then continues to work. It is extremely difficult to argue for a pump-primer which is still required after 20 years. The Corporation has tried. It has done a good deal of work with British Lion and has had a joint financing scheme with Ranks, which I understand has not been particularly successful.
  I believe from the trade Press that the Corporation is interested in the first two films to be made by the new E.M.I. Group, and the 1966 report states that it has had some success in enabling producers to obtain up to 100 per cent. finance from British sources, or a mixture of British and United States sources,
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  for individual films without it having to pursue complicated negotiations with a variety of financing parties. That argument still holds good. I personally have not rejected it, since it still seems to be valid out of all those I have examined.
  These arguments leave the N.F.F.C. in an impossible position. It is being asked to do two conflicting things. In the first place, it is being asked to justify its future particularly on the basis that it will be commercial, profitable and prudent in studying the previous work of producers and directors whom it wishes to support. It is then being asked to work as a profitable commercial organisation and in these circumstances it is talking itself out of a job. Given the right pressure, these are things that can be done by private resources. On the other hand—and this is where the dilemma arises—it is regarded as a friend in time of trouble, as a supporter of new and worthwhile projects which do not ultimately command popular support. It is as my hon. Friend the Member for Henley (Mr. Hay) said a bank of last resort.
  These are not the sorts of things that a commercial organisation will undertake and this dilemma bedevils the whole situation. It confuses the whole problem of films policy in this country and also affects another part of the Bill.
  I turn my attention to the diversion of levy to support the National Film School. Here again is a confusion of the two elements. The levy was originally a voluntary subscription agreed to by exhibitors for the assistance of British film productions.
  Mr. Hugh Jenkins indicated dissent.
  Mr. Silvester: The hon. Member for Putney does not agree, but that is what universally I am told and I understand that it is agreed to by all the members of the Film Industry Committee. We are therefore asking Parliament to take from that which is now admittedly a statutory levy, but which originally was a voluntary levy, for the purpose of diverting it to another purpose. This can be done with the agreement of the people concerned, but it is improper for this House to divert money intended for film production and the commercial side of the operation, to the training and arts side and the bringing on of new people.

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  This dilemma is a danger running through the whole Bill.
  I am not enamoured of the National Film School, and it would be out of order to discuss that matter at present. However, this matter causes a great deal of trouble. It could be argued that it would be more suitable for all training in the film industry to be done under the provisions of the Industrial Training Act, which would enable feature films, television, educational films, as well as the B.B.C., to contribute.
  As I have said, I feel this to be a good interim Bill and therefore am happy to support it because not to do so would create an undesirable vacuum. It is up to us who argue that private resources could provide the money to see whether or not they will. It is important to take the catalyst argument. It must be the first duty of the N.F.F.C. to use its remaining life to work itself out of existence and to use its experience and expertise to bring together financial resources and an understanding of films. This could be done at a time when the British films industry is widely accepted and at a time when the American majors are not in good shape, with corresponding opportunities in the American market. I hope that within three or four years they will seek to achieve this task. I feel that, in doing so, they will do much better to spend their efforts and experience rather than their money.
  8.6 p.m.
  Mr. Nicholas Ridley: We have had a very good debate on the complicated and difficult subject of the film industry. I have spent quite a lot of time in the last month or two exploring the industry, which I began on a basis of practically zero knowledge. I must continue to talk with the greatest of hesitancy and delicacy, because this is one of the most complicated subjects I have ever encountered, in an industry which relatively is of small total size.
  So far as I can make out a producer is a director, or the other way round, contrary to the situation in the theatre. Each project is a separate enterprise on its own. Each film is a separate profit-making centre. But the most complicated parts of the industry are the endless quotas, rules, laws, regulations,
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  levies which surround the two main stages of production and exhibition. It is an example of the extent to which once government gets involved in an industry intervention feeds on itself and the matter becomes more and more complicated and involved.
  I feel we should look at how in the years to come we can simplify the involvement of government even if, as the hon. Member for Putney (Mr. Hugh Jenkins) thinks, it will always be necessary for the Government to be involved.
  Mr. Hugh Jenkins: The complication of the film industry is by no means the creation of government. It exists even in the United States film industry where government intervention is much less.
  Mr. Ridley: That may well be true, but it is a little unwise, and this is a moral we should perhaps draw, to ask Parliament, which is not well versed in these matters, to make frequent value judgments in an industry in which the complications are very great. This is one of the difficulties that confronts us.
  As my hon. Friend the Member for Henley (Mr. Hay) said, the industry has been going through a series of dramatic changes. He described the new situation with great accuracy. In the course of the debate there emerged a basic thread of disagreement between the two sides of the House. On the one side hon. Gentlemen opposite tend to want to apply the resources of the film industry to purposes, however worthy, such as cultural films, or the British Film Institute, or the National Film School, or the sorts of projects mentioned by the hon. Lady the Parliamentary Secretary, whereby the British way of life will be rammed down the throats of everybody, whether they want to see them or not—a sort of Union Jack attitude.
  My hon. Friend the Member for Walthamstow, West (Mr. Silvester) mentioned the fostering of new producers. All of these sorts of aims and ambitions, worthy though they are, are not strictly speaking the responsibility of the commercial part of the British film industry. We on this side of the House would like to see those aims supported. But we believe that those who wish to see them supported should be made responsible for paying for them in the long run, rather than that they should be put, as it were,

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  as burdens on the commercial viability of the film industry itself.
  The hon. Member for Bassetlaw (Mr. Ashton) hit the nail on the head. He said that his interest was just that of a consumer. Of course, in every industry the consumer's interest counts first. The discipline of the box office is the surest financial discipline that can ever exist. We must be very careful indeed if we are to depart from that.
  That seemed to be the background of the debate. There was the basic feeling among hon. Members opposite that from the film industry there should be split off certain subsidiary aims which the Government would control. We on this side of the House felt that, on the whole, the film industry should be made to be commercial and to earn its living, and that those who wanted to pursue these objects should be asked to pay for them.
  Coming first to the financing of the film industry in the future, there have been two major developments in the last few months. The market has been definitely inflated by the Americans who have financed 90 per cent. of British films for some time past. Now, due to changed circumstances on the other side of the Atlantic, they are tending to regroup and change their attitude to a small extent. Whether they come back later remains to be seen, but certainly there has been a major change. While the Americans were financing British films with their vast profits from real estate in Los Angeles and other such places, there was a swarm of money available for making films.
  The second factor which was touched upon by my hon. Friend the Member for Walthamstow, West was that the National Film Finance Corporation ran out of money. We had these two recent developments in the last few months whereby the Americans pulled out and the N.F.F.C. got rather short of money. As a consequence of that withdrawal of alternative sources of finance, there has been a dramatic increase in the amount of private finance which has been made available. There may be no connection between the two. It may be pure coincidence. But I doubt it. My right hon. Friend referred to the very big programme which E.M.I. and A.B.P.C. have put together. Morgan Grenfells are currently supporting about
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  10 per cent. of the British home-made film industry. On top of that, there are no fewer than four merchant banks which have recently shown interest in financing British films and which already are signing cheques to start an experimental period of investing in films.
  That is a big contribution in toto, and I hope that it will continue. However, one is a little inclined to wonder whether it is not caused by the withdrawal of finance from other sources which has made it a useful and profitable opportunity for the commercial interests. Talking to a merchant banker who has managed to finance films, I was interested to hear the conditions upon which it is worth investing in films. They are as follows.
  First, there must be tight budgetary control. The estimate of cost of the film must be prepared carefully and stuck to. Therefore, he makes sure that the control of the costs of making a film is handled by experienced people.
  Secondly, there must be extremely good selection of the sort of film which is to be made. This is the most risky part of the business. Unless the selection is based upon its commercial prospects, having in mind particularly the American audience, he is likely to get a greater share of the duds than he can afford.
  Thirdly, the risk must be spread over several films, and it is not profitable to put all the eggs in one basket. Several eggs must be put in at one time.
  Fourthly, the whole attitude of the past about inflated wages and film stars' salaries must be abandoned. Films must be produced at economic minimal costs if they are to be profitable in the future.
  It is a fairly tight definition, and it amounts to good sound financial practice in the hard competitive commercial world. This basic standard is what will be necessary to make the film industry commercially profitable with private money. If we are to get the taxpayer out of a direct involvement with film finance, we have to allow these commercial criteria to run, otherwise it will always be more attractive to go to the slightly "softer" money which might be available from other sources, especially that of the N.F.F.C.
  I do not deny that the various worthy objects of the British Film Institute, the National Film School and many others

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  should be pursued by the State. However, I believe that the basic economic management of the investment policy of the industry should be separated from these other activities, and that the latter should be financed by the Minister of State at the Department of Education and Science, if she believes that they are activities in which she should indulge. If that were done, there would be no need eventually for direct State finance.
  We all have a slight worry that taxpayers' money will find its way into the inflated salaries of film stars and technicians, who receive far higher levels of remuneration than many others in the economy. That aspect would be taken care of if the way of running the investment that I have suggested was borne in mind. My hon. Friend the Member for Walthamstow, West pointed to this dilemma in his very interesting speech. He came down on the side of saying that the N.F.F.C. should be used to promote these extraneous activities and should not try to be a purely commercial organisation.
  Mr. Silvester: That is not quite what I said.
  Mr. Ridley: I apologise to my hon. Friend if I have got him wrong. In that case, it will be very difficult to lay down criteria when the Corporation itself is trying to be a merchant bank financing films. In view of that, it is right that we should plan to phase out its activities and require it to be entirely commercial meanwhile so that, when the time comes, it will be a painless operation both for the N.F.F.C. and for the film industry.
  I am certain that it can act as a catalyst in bringing in private finance. The industry is short of people who know about film making and which films to back. I am certain that this is the most useful function which it can perform. My hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) discussed this point and was convinced that the N.F.F.C. could use its expertise to help those in the City without it to get used to investing in films. I am sure that he is right.
  There is one dilemma which seems to be unresolved. My hon. Friend the Member for Henley suggested that the N.F.F.C. should be used as a bank of
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  last resort, whereas it is clear that if it is to pursue a purely commercial policy, it may be to some extent in conflict with being a bank of last resort which is providing bridging finance at the end. Where-ever possible, it should provide the first slice of finance rather than the last slice. I hope that the hon. Lady will be able to say which it will be asked to do.
  It is our hope that, gradually, the N.F.F.C. will bring itself to the position where it becomes a commercial profit-making investment organisation which can be merged generally into the pattern of City investment so that we no longer have to require the taxpayer to put up more money to finance it. I am sure that that was the original intention. Although the pump has been being primed for a long time, we hope that the next few years will be enough to have the pump properly primed.
  Turning to the distributing side of the industry, my impression is that the Eady levy has general agreement and acceptance on both sides of the House and also on both sides of the industry. There is no great strength of complaint of any kind. However, we will want to pursue strongly, in accordance with our philosophy, the siphoning off of money to the British Film Institute and to the National Film School from the levy. The Minister of Technology is always talking of Government and industry being hand in glove. This seems to be an instance where they are hand in pocket.
  The hon. Member for Bassetlaw (Mr. Ashton) raised some interesting points about the Monopolies Commission's Report into the whole structure of the exhibitors' side of the industry. I have read the Report, and I was impressed by the clarity with which it went into the matter and the strength of the arguments both ways concerning alleged monopolies. The argument boils down to whether the vertical integration with a strong sector of market power is something that we can tolerate, despite the fact that it is the most successful way and has saved the industry from severe depression in the past.
  The Monopolies Commission concluded that machinery should be set up to deal with complaints about allocation of product. Action has been taken, and the exhibitors have set up such machinery. I wonder whether the poor

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  level of films produced by the cinemas in Nottingham could be referred to this machinery. Perhaps the hon. Gentleman would like to refer his complaints to the machinery to see whether something can be done about his disappointing evenings. Incidentally, I was impressed by and even envious of the number of evenings that he was able to spend in the cinema.
  The Monopolies Commission suggested that a system of competitive bids by exhibitors for films should be examined. A far as I can make out, no action has been taken on this by the industry. It was a purely voluntary suggestion. There was nothing mandatory about it. But I wonder whether the hon. Lady will tell us what the Government's view is about the proposal for a system of competitive bids by the film industry. We know the difficulties. On the other hand, it would be interesting to have a statement of Government policy on that recommendation of the Monopolies Commission.
  There has been a period of sharp decline in the film industry, caused by television and all the other factors which hon. Members have mentioned. Indeed, we do not know whether we have hit the bottom. It seems that there is now a famine of films and there will be a shortage of good new films in the first half of this year.
  No industry ever achieves stable conditions. It is either going up or going down; doing better or doing worse. I think that a stable level of employment, production, profits or anything like that is unthinkable. We can only react to the situation as it is when we have to legislate upon it. However, it would be nice to get back to conditions where the normal criteria can apply. If, as I think the whole House hopes, the industry has ceased to decline in size, it might be that a period of growth and prosperity lies ahead. That would be the period when the market could take responsibility for the financing of films and when the complexities of this whole subject could be slowly and gently unravelled. The public would be beneficiaries from that as well as the taxpayer.
  We view the Bill as making a good holding operation at a time when it is still necessary to make a holding opera-
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  tion. We wish the industry well. Indeed, we wish it so well that we hope we shall not have to debate it again too often in future.
  8.25 p.m.
  The Parliamentary Secretary to the Board of Trade (Mrs. Gwyneth Dunwoody): I ask leave to speak again.
  I have listened with great attention to the debate. Although I was fascinated by the metaphors used by the right hon. Member for Leeds, North-East (Sir K. Joseph), who seemed about to get himself into a dangerous situation with mice and elephants at one point, I think that the debate owed more on the Opposition benches to the Red Queen than to mice and elephants, because hon. Gentlemen appeared to be saying "Off with his head, off with his head", secure in the knowledge that everybody would fall down flat and within five minutes get up again untouched. This just is not on. We are talking about an extension of existing forms of legislation. It is clear, and it has been clear from the progress of the debate, that the important part of the Bill in many ways is the refunding of the National Film Finance Corporation.
  We ought to get one or two things clear about the industry. I was very much taken by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) saying that he knew nothing about the industry and going on so conclusively to prove it. Let us not drag in this business of film stars and their enormous wages and the difficulties that they cause in production costs.
  I said in opening that we were concerned that the industry should look at its efficiency rating. We want it to use the new equipment, the new and effective means that it now has, for making films more efficiently and cheaper. We want it to look at its overall production costs. But we should not run away with the idea that people in the industry are grossly overpaid in relation to people outside. The industry consists of many actors, writers and technicians who do not receive inflated wages. These are the people whose interests we must preserve. It is, after all, a large industry, not in terms of numbers, but in terms of what it does in overseas markets, in the return that we get on the investment, and the effect

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  that it has on this country's overall advantages.
  Various points were made by hon. Members, to most of which I shall be able to reply. I begin by taking up the point about Patté News raised by my hon. Friend the Member for Wandsworth, Central (Dr. David Kerr). Patté News has become almost an institution in this country. It has been a model of what short film making ought to be. The men who have turned it out year in, year out, have done a great job, not just in cinema terms but in the service that they have offered to the community. I remember that during the war the facilities that they gave to people to realise what was going on in world terms were about the only means of getting over to the general public many of the situations that were being faced in wartime. I should like to pay a sad but heart-felt tribute to the men of Pathé News. I am sorry that we have reached the stage where they are no longer able to continue. The Government felt that possibly they should have been able to carry on, but we have to say that they have reached the point where they cannot do so. I pay them a worthy tribute, because what they have done has been important, and they have done it well and with imagination.
  Having said that, I come back to the Bill. There has been a considerable amount of discussion about the film school. One hon. Member said that the difficulty he faced was that we were talking in the Bill about any film school, not about the National Film School. That is simply answered, because the National Film School has as yet no legal personality. This is a drafting question, although there will be people who will want to express their views, one way or the other, when the setting-up of the National Film School is considered.
  Whatever we have in this country as a National Film School, it will produce people to work in the commercial industry. It will train men who will be used to produce more films, and it seems to me that we are talking about a very small alteration, because there has been no discussion as yet about what proportions we shall offer, or how this levy will be altered. It will naturally go to the Cinematograph Films Council before any decisions are taken. One feature
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  of the pattern consistently operated by the Board of Trade has been the constant and, I hope, sincere relationship which has existed between the C.F.C. and the Board of Trade in the way that we have been able to discuss, to examine, and in many cases to agree, about the right sort of plan for the industry as a whole.
  That brings me to another matter. I do not find it altogether surprising that hon. Gentlemen opposite do not listen to what I say, but it is a trifle unflattering when they make it so obvious. The hon. Member for Walthamstow, West (Mr. Silvester) staggered around and came up with the figure that £150,000 was, on average, the amount of money that had been lost. I gave that figure in my opening speech. He went through the various reasons why he felt that the N.F.F.C. should be continued, but he did not express himself too strongly about the C.F.C.
  I hope that the hon. Gentleman will agree with me that the one thing which the industry has in abundance is a firm belief in holding forth at great length about its own interests. The one thing that I do not lack in dealing with the film industry is advice. I receive advice from all sections of the industry, much of it directly conflicting. I am a very reasonable woman, but, while I am prepared to listen, I must on occasions try to make up my mind about what is an efficient way of coming to a happy conclusion. This does not mean that we are always able to please all of the people all of the time. Sometimes, in relation to this industry, one suspects that one never pleases any of the people any of the time.
  The constitution of the C.F.C. is a case in point. All the sections of the C.F.C. would like to have more representations. The hon. Member for Henley (Mr. Hay) made the point very strongly that in the film producers' section of the C.F.C. we are dealing with two major companies who themselves put up people who could be held to be representing other sections of the industry whilst they sit as film producers' representatives. The unions feel that possibly they would be justified in asking for further representation, because, although there are many unions in the industry, some of them do not have direct representation on the C.F.C.

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  The one thing that all sections of the industry are agreed upon is that they should all have more people on the C.F.C. It seems to me, therefore, that we should say now quite clearly that we have looked at this system. We have examined who is represented, and how they are represented, and on balance, knowing that this will not be popular with everybody, we have come to the conclusion that we must leave the constitution as it is because it has been seen to be working efficiently, and because, in the long run, this is by far the best for all sections.
  One matter that was raised was the question of money from the television levy going to the N.F.F.C. I do not know where this story came from, although I know where it was printed. I say quite plainly that I am not aware of these talks in which, according to the Press story, I am involved.
  Hon. Members on both sides of the House are concerned about the fact that the Bill has not implemented the report of the Monopolies Commission. There is a review in progress at the moment by the Department of Employment and Productivity which has responsibility in this field, and all sections of the industry are being consulted. Every effort will be made to follow the recommendations in the Commission's Report, but this is not for me to discuss now. The Bill is not concerned with that. I am trying to give hon. Members some indication of how action will come about on the Monopolies Commission's Report.
  Mr. Hay: Which recommendation is the hon. Lady talking about? There are a number of recommendations, covering two pages. If the Department of Employment and Productivity is looking at some of these, can the hon. Lady say which they are?
  Mrs. Dunwoody: No. It is a comprehensive review by the Department of Employment and Productivity, and will cover all aspects of the Report. The Department will have consultations with all sections of the industry who will be given an opportunity to express their views before any decisions are taken. Competitive bidding is one of the things that is being reviewed by the D.E.P., and
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  it is not possible for me to make a statement while these talks are in their very early stages.
  My hon. Friend the Member for Wandsworth, Central said that he was worried about the effect of S.E.T. on the industry. S.E.T. was removed last year from the film production side of the industry, which I think was a considerable step in the right direction from the industry's point of view, and assisted it quite considerably. It meant that all the work done on the floor of the studio was acceptable as being part of a manufacturing process.
  The hon. Member for Scarborough and Whitby (Mr. Michael Shaw) said that one has to accept occasionally that money should be written off, and that this is done in any sensible business. I must correct the hon. Gentleman. The moneys are not being written off. It is the interest which is being written off, and should the N.F.F.C. find itself in the happy situation of having a vast surplus at any time, no doubt the Government will take a considerable interest in what happens to that surplus.
  My hon. Friend the Member for Bassetlaw (Mr. Ashton) painted a fascinating picture of the frozen north, and seemed to suggest that there were difficulties, particularly in relation to exhibitions. My hon. Friend made some very interesting points, but I am not sure that the Bill is the right way of dealing with them, and he might like to consider the whole problem of how the customer can be better catered for. I sometimes think that the industry has not got round to putting as much as it could into new cinemas, although there is a welcome move in this direction in the setting-up of the new twin and treble cinemas. The sin twin cinema is a wonderful title, only too accurate on some occasions.
  I come, now, to the remarks of the hon. Member for Cirencester and Tewkesbury. He made considerable play with the fact that the N.F.F.C. would be required to be a commercial unit. It has always been required to be a financial and commercial unit. Nobody consciously puts money into a film which he thinks will lose.
  Hon. Gentlemen opposite criticised, in various degrees of roughness, the administration of the N.F.F.C. It has

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  been working under considerable difficulties, and I should like to pay tribute to it. We demanded of it that it should be commercial. We have in the past made it difficult, because of its terms of reference, for it to be anything but the bank of last resort about which the hon. Gentleman was talking, and it is precisely because we want to alter its constitution that the Bill is drafted in the way that it is.
  We are now going to say to the N.F.F.C., "If you are going to be commercial,"—perhaps I should say "even more than in the past"—"if you are going to be effective in the way that you intervene in the industry, you should have the right to get the best financial deal that you can from the people who deal with you."
  After the publication of the Bill—but before it came to Parliament—the Corporation received tentative approaches from merchant banks and other city groups interested in the possibility of film financing. This had not happened before. In other words, once they knew that the corporation was to be refunded they were interested in putting up something. So we have the catalyst argument. At present the few merchant banks who have done some film financing are merely discounting part of the guarantee given by the major distributor and are therefore taking hardly any risk at all. In other words, private finance, about which hon. Members opposite have been waxing very eloquent this evening, has not been forthcoming to support British films—even those films which have made considerable sums of money elsewhere over the globe.
  Mr. Ridley: The hon. Lady is wrong about that. She knows that six or seven films have been financed by Morgan Grenfell and have covered the whole cost of the film by a complicated system of discounted guarantees round the world. They have provided the whole finance for the films, and nobody else has.
  Mrs. Dunwoody: My point is that we have been saying all along that once the corporation has more funds it will attract finance from other sources. That is what is happening. There is hardly any point in hon. Members opposite saying, on the one hand, that the Corporation must be there and that they hope that it will be so commercial that it will phase itself out
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  of existence and, on the other, going through a list of films and saying that it has financed only so many, and what is the point of its being there? If we are to use the insurance argument we must accept that if American investment ceased tomorrow the Corporation could not possibly provide enough finance to replace the 90 per cent. of American investment that we estimate came into this country last year. We have not pretended that that was so. It provides an opportunity for films to be made in this country and for employment to be offered to people in the industry. The industry would not exist at all otherwise.
  Hon. Members opposite would take a great deal of interest in any other industry in respect of which 90 per cent. of the finance was provided by America, so that it could be pulled out at short notice. The difficulties of this industry are such that in the past the entire corporation set-up has been bedevilled by the difficulty of having to pick almost instinctively what is going to be a paying propoposition. Given the difficulties of the industry the corporation has succeeded astonishingly well. It has done a very good job. In the past three years, if it had not had these heavy interest payments to make it would have made a small profit.
  What we are talking about when we say that we are going to alter the terms under which the corporation works is about giving it greater freedom to be a commercial unit. Hon. Members opposite demanded a review. Ever since I have been in the Board of Trade it seems to me that we have done nothing but review the film industry. The industry is not incapable of a good deal of ballyhoo. It is capable of expressing itself loudly, firmly and frequently. Hon. Members opposite may talk about a unit being so successful that it can phase itself out, but if we did not feel that the industry required this sort of insurance we would not be bringing the Bill before the House today. If we did not think that by giving the corporation these extra powers it would be commercial we would not be bringing the Bill before the House.
  There are still many points to be discussed in greater detail in Committee. I hope that hon. Members will not be quite so grudging there. This is a difficult

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  industry. It has contributed strongly to the balance of payments. It is sometimes its own worst enemy. When we talk about the British film industry we are not talking about a chauvinistic run of "Carry On" films—although there is nothing wrong with "Carry On" films; we are talking about providing employment for people of creative talent in this country—actors, writers, musicians and directors—some of them the best in the world. They could find employment elsewhere if we drove them out of this country. By maintaining the industry in this way I believe that we are acting not only in its best interests but in our best interests and I hope to see the rapid passing of this Bill on to the Statute Book.
  Question put and agreed to.
  Bill accordingly read a Second time.
  Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).

  FILMS BILL

    FILMS [MONEY]
    Queen's Recommendation having been signified—
    Resolved,
    That, for the purposes of any Act of the present Session to amend the enactments relating to the financing and exhibition of films, it is expedient to authorise—

    (a) any increase in the sums payable out of moneys provided by Parliament or into the Consolidated Fund which is attributable to an extension of the periods during which a levy is to be imposed under the Cinematograph Films Acts 1957 to 1966 or advances may be made under the Cinematograph Film Production (Special Loans) Acts 1949 to 1966 or to the raising to £11 million of the limit on the principal outstanding in respect of such advances;

    (b) the remission, in respect of such advances made after the year 1953 and before the year 1965, of any interest falling due after the end of March 1970.—[Mrs. Dunwoody.]

    Motion made, and Question proposed, That this House do now adjourn.—[Mr. Concannon.]

  ANGLO-JAPANESE TRADE
  8.45 p.m.
  Mr. Raymond Fletcher: This has been a day of very high productivity for the Board of Trade. Two Bills and what I hope will be a major statement of trade policy constitute a memorable hat trick for my right hon. Friend.
  I have raised this subject in no sense as a critic of the Board of Trade's policy in relation to trade with Japan. As my right hon. Friend will undoubtedly point out, there is a success story to be told. I believe in applying to politics and trade the good old military maxim, "Always reinforce success". What I shall be asking for is a reinforcement of what I believe to have been a successful policy.
  In some respects, I am a pupil addressing his master, because, in the happy association which I had with my right hon. Friend before it was disrupted by circumstances beyond my control, he encouraged me to think about Japan, to study the Japanese economy and, eventually, to go to Japan, to follow in his footsteps. I went, and I was astonished. One sees in Japan—one can almost feel it—a rate of economic growth which is unprecedented, I believe, in world economic history. It is in this context that I want to present my arguments.
  Economic growth can be charted in many different ways, and all statistics are dull, but I will cite one calculation from the Economic Planning Agency in Japan which gives some idea of where this economy is going and the fantastic rate at which it is expanding. It is calculated by that agency that, in 1985, the Japanese economy will have expanded by approximately four times over 1965 in terms of the gross national product. If this target is hit, and most Japanese economic targets are hit, it will mean that, by 1985, the Japanese economy will have multiplied tenfold in half a century. I am not an economist, although we all tend to be amateur economists in this House, but that, I think, is a rate of growth absolutely unprecedented in economic history.
  When we travel to foreign countries, there is forced upon us a secondary rôle in addition to those of politician and journalist which we naturally assume at first. As citizens of this country, we

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  must look at these other countries through the eyes of business men. This economic growth is actually creating problems, some of them very familiar to us in this House—problems of pollution and the whole range of problems which we encompass in the generic term, "the environmental problem", but it will also create serious gaps in the Japanese economic structure.
  New needs will be created which have to be satisfied by imports, and, to the business man, one country's need is our country's trading opportunity. This means that we can take advantage of two factors; first, the obvious desire of the Japanese Government to improve the industrial infrastructure of that country—the road network and so on—and, secondly, the visible and marked rise in pro-British feeling in Japan, as exemplified by the enormous success of the recent British Week. The success of that Week continues to reverberate in Japan.
  In addition, the potential for exports to Japan will undoubtedly be enormously increased by the Japanese Government having set a course towards trade and capital liberalisation. Japan is not only one of the world's major trading nations but is rapidly becoming one of the financial centres of the world. It has become in recent years a major capital exporter.
  In Japan this has created a problem—we can help to meet it by our exports—of labour shortage. There is a growing shortage of skilled labour in Japan and this has inevitably driven more and more Japanese industrialists towards automation as a solution. This opens up widening markets for automated equipment.
  I discovered when I was there—what I observed was subsequently confirmed by officials of the Japanese External Trade Organisation, a remarkably efficient body which was modelled on a comparable organisation in this country; as has so often been the case in Japanese history, the model has been outclassed by what was modelled on it—that there will be a growing market for, for example, numerically controlled machine tools and perhaps an even vaster market for packaging and food processing machinery, ship loading equipment and textile machinery. We can make these machines, and the Japanese not only need
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  them now but will need them more in future. As I said, their need is our trade opportunity.
  Tokyo is probably the most fantastic city on the face of the earth. It changes almost weekly and it suffers from all the problems of the twentieth century in such a highly concentrated form that it is almost frightening to contemplate those problems. I was struck by the many areas in that country's economy that are being opened up as the Japanese Government's new policy of paying more attention to domestic problems begins to emerge. It is obvious, for example, that anti-pollution equipment will be in increasing demand. The same can be said of chemical engineering equipment and medical electronics.
  A vast expansion in Japan's medical services is taking place. Scientific instrumentation is an obvious top priority for any industralist who wants to expand into the Japanese market. Also, we must not forget that Japan has an atomic energy industry which is totally committed, and is likely to remain so if the present state of public opinion prevails, to peaceful purposes. We must try to fit ourselves into their plans and export the sort of goods they need now and will continue to need.
  It was pointed out to me that both agricultural machinery and office equipment will be required in increasing quantities as the Japanese economy continues to expand. Here again, as my right hon. Friend knows far better than anyone else, we can supply the goods. We have the goods, and we must be ready to supply even more of them.
  One thing that was pointed out to me in Tokyo—and, again, this has been confirmed by the Japanese External Trade Organisation here in London—is that there is a growing international market in what the Americans call know-how: organisational skills; technical knowledge; all the arts of management. Here, we can get co-operation. Strange as it may seem when we contemplate the fantastic economic growth over there and feel that there is absolutely nothing we can contribute to it, there is in Japan a tremendous respect for and increasing knowledge of British managerial know-how. I believe that in engineering consultancy there is great scope for the expansion of invisible exports.

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  There is another respect in which opportunities exist and which ought to be seized. The Japanese have in recent years gone in for associations with outside firms, and some of our larger industrial concerns already have links with corresponding Japanese concerns. For instance, Imperial Chemical Industries, Dunlop and Shell are involved in joint enterprises with Japanese enterprises. This is a trend of our times, and it is a very healthy trend. I believe that this kind of association, this kind of expansion of trade, is possibly the most creative force operating in the world today, because it is axiomatic that whatever one may do with a good customer one never dreams of engaging in hostilities against him. Therefore, economics help politics, and both help to keep the peace of the world.
  It seems to me, however, that while opportunities for joint ventures are being seized by the big firms, they are not being seized to the same extent by our medium-sized firms. I should like my right hon. Friend to tell us what the Board of Trade's attitude is towards this trend; and what is being done to encourage medium-sized firms to achieve the same link-up with Japanese enterprise that is becoming fairly common with the industrial giants here, in America and on the Continent of Europe.
  Obviously, since I am calling for an expansion of exports to Japan and since I believe a vast expansion is possible, I have to take into account the other side of the trade balance, because trade is a two-way process. I do not intend to bore the House with figures—my right hon. Friend will no doubt quote those which are relevant—but whilst we have remarkably increased our exports to Japan there has not been the same rate of increase in our imports from Japan. This unbalanced situation must at some time be corrected.
  I notice from the statistics that I have available, though I shall not quote them, that where one expects, as we have seen from European experience, trade between industrialised nations in machinery to grow, there has been a lack. I wonder what obstacles still exist that are likely to be moved in the talks on trade liberalisation which my right hon. Friend has already had, and which all of us expect
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  to continue this year? What are those obstacles? To what extent can they be removed? At what rate are they being removed?
  It is important to stress a factor which I have mentioned earlier. It is something which strikes every British visitor to Japan these days. This is the rising tide of pro-British feeling. British Week, which I think has been the most successful of such enterprises, undoubtedly made a contribution. But British Week in itself was merely part of a larger process and I think that this process will also be accelerated and magnified by the undoubted success I expect from the British contribution to "Expo 1970" in Osaka. Having seen the British pavilion, I pay sincere tribute to the people who designed it and to those who erected it. It is a magnificent visual display of everything that is best in this country and everything of the best that British industry can do.
  This rising tide of pro-British feeling is there. It is something we can take advantage of. It is best typified by the simple fact that anyone who goes to the headquarters of Jetro, the external trade organisation in Tokyo, will see a familiar sight from the front window of the main office. They will see a British pub, the King's Head Tavern. If they look a bit to the left, they will see the American Embassy, which does not look very much like an American Embassy, but the first thing they will see is the King's Head Tavern. In other words, British business men can feel perfectly at home when discussing business in the appropriate section of the Japanese Ministry of Trade—which incidentally, is rather wider than our own Board of Trade, even wider than our Ministry of Technology, since it is the Ministry of Trade and Industry.
  I believe in a far closer association between our two countries than we have had so far and that rather pernicious myths about each country are fully propagated in the other. We are influenced by too many artistic films and tend to think that the Seven Samurai still ride through Japan and that the 47 Ronin still commit suicide every day. We have also believed too long that Japanese labour is sweated labour. I assure the House that it is not.
  If my word for that is not enough, I point out to the House that I was in

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  Japan at the same time as Mr. Clive Jenkins, who can detect exploitation with that sensitive nose of his at 3,000 miles distance. He confirmed my observations that in Japanese industry wages and living standards are rising very rapidly. In the Matsushita works—a remarkable works in many ways—trade union leaders told me that they had a programme to double real wages over five years and were bang on target. The Matsushita works, which is sometimes smiled at over here because the founder is regarded as a paternalistic kind of employer—I must say that I liked him very much—there has been equal pay since 1966. We plan to introduce it in five or six years' time. That is another myth about Japan. Undoubtedly, myths about this country are running about loose in Japan.
  So, the closer we are in trade the more these myths will be demolished. Japan and Britain, are in a sense, in comparable situations, for we are both off-shire islands struggling to find a new rôle for ourselves in a rapidly changing world, and the more this association grows the better it will be for the citizens of both countries. But the key to a better and healthier situation is trade, and I ask my right hon. Friend, who has a very good record in this respect, to keep improving on that record—improving, improving, and improving all the time.
  9.5 p.m.
  Mr. Julian Ridsdale: I congratulate the hon. Member for Ilkeston (Mr. Raymond Fletcher) on raising this very important subject. I should like to say how glad I am that the President of the Board of Trade himself is to reply to the debate. I know that the right hon. Gentleman has taken a very keen interest in expanding British trade with Japan and has paid a personal visit to Japan as a Minister, like I did when I was a Minister.
  I felt tempted to talk, as the hon. Member for Ilkeston did, about the success of the Matsushita Electrical Company, which I visited, in Japan. I thought that he might advocate one import from that company which I should like to see, which is its management-employee relationship. As the hon. Gentleman and the President of the Board of Trade know, having
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  studied trade union organisation in Japan, the negotiation there is done on a plant basis. Possibly one of the reasons for Japanese expansion is that trade union negotiation is done on a plant basis. However, I should be out of order if I were to continue to talk on trade union relations in Japan.
  The story of our trading relations with Japan is a success story. What is so good about it is that it is not a success story that has happened overnight. It is a continuing story which had gradually built up, and I am glad that there are no party differences in the House about that. Since 1960, when I went to Japan and helped to form the Anglo-Japanese Parliamentary Group, the background of political relations with Japan has improved all the time. Obviously we want to do everything we can to improve it still further, because it is the background to trade expansion. However, the expansion in trade with Japan has been steady and good. I cannot give exact figures, and they would not mean anything if I could, but trade with Japan has expanded from about £50 million a year to the present figure of about £120 million a year. It is a balanced trade between the two countries.
  I would give one warning about our trading relations with Japan. As the President of the Board of Trade and the hon. Member for Ilkeston know, the Japanese economy is becoming very sophisticated. We are no longer trading in textiles and iron and steel products and in the manufactures of heavy and old industries. We are now, rightly, at a new stage. We are in the age of computers. We are in the midst of a technical revolution. Japan's trade is expanding. Japan's investment in her industry is expanding. This is why she can achieve growth in her economy. The amount of capital investment which we made in manufacturing industry in this country last year was about £1,200 million. Japan's investment is double that amount.
  The hon. Member for Ilkeston said that Japan was short of skilled labour. He should have pointed out that the amount of skilled labour in Japan at present is much greater than the amount in this country. When we talk about increasing our trade with Japan in the future, let us look at our own house and realise

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  that we shall be trading with a sophisticated country which will have an expanding market and which, as the hon. Member for Ilkeston said, may be the financial centre of Asia, particularly the Orient. That is why I welcome the invisible links which have been developed between the City of London and Tokyo. It is vital that we continue to develop them.
  Japan is obviously a springboard for our own financial interests and I hope that we shall long continue our good relations with Japan, so that we have a trade and economic ally which will help us to expand our trade not only with Japan but with other Asian countries. That is the future I foresee.
  The hon. Member for Ilkeston referred to the opportunity of small firms to trade with Japan. I can speak only of some small firms in my own constituency. One is Vacumatic. I have been impressed by how its managing director has been out to Japan and by how many of the goods made in Harwich by that firm are exported to Japan. Another small firm, which makes marine engines, exports some to Japan. Not everything is right, but it is encouraging to see how small and medium firms are becoming export minded and outward looking.
  As one who has always taken a great interest in Anglo-Japanese relations and Anglo-Japanese trade, I should like not only to congratulate the hon. Member for Ilkeston on raising this subject, but to congratulate the many others who worked so hard in British Week in Osaka and who are now working for the Osaka Fair. Anyone who, like the hon. Gentleman, has seen what we are doing cannot help but be impressed. We are doing our best to continue and build on the good relations which we now have.
  I should like to make an important comparison.
  Our trade with Japan is about £120 million a year, balanced equally between imports and exports. Our exports to the Soviet Union are £120 million a year. Unfortunately, our imports from the Soviet Union are not nearly so balanced, and at present reach more than twice our exports. I am glad that that is not happening with our trade with Japan, and I hope that in the next few years we shall have the sort of expansion we have had in the last few years.
  9.13 p.m.
  The President of the Board of Trade (Mr. Roy Mason): As my hon. Friend the Member for Ilkeston (Mr. Raymond Fletcher) so rightly said, I visited Japan twice and took a great deal of interest in Japan prior to becoming a Minister. I have visited Japan as a Minister since when I was responsible for the shipbuilding industry.
  I sensed what my hon. Friend the Member for Ilkeston mentioned in his speech—the seething economic activity in the country. Anybody who goes from the Western world is bound to sense it, almost on arrival. Secondly, I have read reports of my hon. Friend's visit. It is always pleasing and informative to the House to listen to a fresh, objective analysis of our efforts in the Japanese market and to hear about the possibilities of further trade. I should also like to thank him for informing me of some of the points which he intended to raise.
  I shall not go into all the points made by the hon. Member for Harwich (Mr. Ridsdale), especially on man-management relations. I particularly studied that subject when I looked at the Japanese shipbuilding industry. The Japanese have a good industrial relations atmosphere and one of their good techniques is to have a strong middle management. That is a stratum in management which we do not have in Britain, but it assists the Japanese considerably.
  The continuing expansion of our exports to Japan, while gratifying, is not a sign that we can afford to slacken our efforts in this market. During the last decade, Japan's gross national product has increased at an average rate of more than 10 per cent. a year. It has become the second highest G.N.P. in the free world. The Japanese are confident that they can maintain this momentum and their estimates of future growth are impressive.
  It is likely that some time during the mid-70's they will surpass us in per capita income. Exports rose between 1955 and 1967 by 520 per cent. while imports increased by 470 per cent. Imports are expected to continue to increase. The average increase forecast for manufactured goods, machinery, etc., is 16·5 per cent. in the period 1967 to 1972. Up to now, the Japanese performance has

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  been consistently better than their estimates: there seems no reason why this should not continue.
  This economic growth has justly been called the Japanese miracle. Their achievements in the 25 years since the end of the war are indeed impressive. From our point of view, it means a rich market that is expanding rapidly. Its characteristics are that high quality consumer goods and luxury goods are in growing demand. The taste of the Japanese is growing for many western goods. The enormous pace of industrial development leads to a demand for advanced technology and know-how which can be met in full only by looking abroad. There are openings, too, for sales of the latest and most sophisticated machinery and equipment.
  It is interesting to see that the Japanese are concerned not only with material prosperity, but also with the quality of life in Japan. They are becoming increasingly conscious of the need to improve their urban environment. Rehousing, town planning, the problems of pollution of air and water brought about by the Japanese fantastic rate of industrial progress are demanding, and are now receiving, attention. In many of these respects there is scope for the sale of British know-how and British technology.
  The opportunities are there—broadly they exist across the whole range of British products and services. But it would be wrong to assume that the market is an easy one. There are obvious difficulties, such as distance and language. There is a complicated distribution system which must be contended with. But if the difficulties are substantial, so are the rewards. Careful study and preparation followed by perseverence in the cultivation of the market can pay valuable dividends.
  We are constantly urging businessmen to visit their overseas customers. This is perhaps more important than ever in the case of Japan where personal contacts count for a lot. The opening of the polar air route has made travel much easier.
  It was very encouraging news from Moscow last December that we had reached the basis of an agreement with the Russians whereby the Trans-Siberian
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  route between London and Japan is to be opened up to B.O.A.C. and Japan Air Lines later this year. This will cut more than 1,000 miles and approximately three hours from today's fastest time to Tokyo, the 17½ hour, 8,000 mile Polar flight via Anchorage in Alaska.
  The Board of Trade and the B.N.E.C. are ready and anxious to help all those tackling or thinking of tackling the market. In the last few years there has been built up a considerable volume of knowledge about selling to Japan which we are anxious to share with them. There is no lack of advice and assistance.
  During 1969, more than 30 selling missions sponsored by B.N.E.C. visited Japan, most of them during the period leading up to British Week. These missions consisted of exporters of consumer goods, but a number of them, particularly those from chambers of commerce, having among them exporters of capital goods. So far, B.N.E.C. is committed to sponsor in 1970 17 more missions.
  In the British Week year of 1969, our Tokyo Embassy's main promotional effort was directed at consumer goods. The follow-up to a British Week is, of course, extremely important. The Embassy plans to produce market reports at a rate of one every two months with a view to encouraging British manufacturers in selected fields to consider Japan as a potential market and to take part in trade exhibitions.
  Also, encouragement is being given to missions from Japan. For example—this should please my hon. Friend, because he specifically mentioned this—an inward mission to the United Kingdom covering water anti-pollution equipment is under consideration by the British National Export Council; and the Foreign Office and the Central Office of Information are making plans for a 60-strong urban study mission which will shortly be visiting the United Kingdom.
  Much has been written and said about the restrictions which the Japanese Government maintain on imports. The point should not be overstated. There are many fields—machinery is one, for instance—in which there are no quota restrictions. It is the declared policy of the Japanese Government to liberalise imports of goods and capital as quickly as they feel able to do so. We for our

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  part are seeking to negotiate the early liberalisation of the few remaining items which are still under quota, and where we have a substantial trade interest. Naturally, to do so will involve us in lifting restrictions which we maintain on Japanese exports to the United Kingdom. We have already offered a programme for this. Our aim is a complete removal of obstacles on both sides where either country has a trade interest, but of course this raises many complicated problems to which there is no easy solution. However, talks are proceeding and we hope that they will be successful.
  I am pleased to say that total Anglo-Japanese trade has been growing in recent years at a very encouraging rate.
  Our imports from Japan rose from £91·2 million in 1967 to £115·1 million in 1968. In 1969 they fell slightly to £104·4 million. This was primarily because reduced catches of fish led to a fall in imports of canned fish products—and this is a particularly important item for Japan. The import deposit scheme may have also contributed to this result. On the export side the corresponding figures, including re-exports, were £87·4 million in 1967, rising to £98·4 million in 1968 and to £128·6 million in 1969. In 1969, therefore, our exports to Japan increased by 30·7 per cent. over the previous year, compared with a decrease in our imports from Japan of 9·3 per cent., giving a visible trade balance in our favour for the first time since 1961.
  It is impossible to measure with any precision the effect of individual promotional efforts. But we are sure that the substantial increase in 1969 reflects the great effort which was put into the organisation and presentation of British Week Tokyo last autumn. This event was the most ambitious of its kind and it can, I think, be regarded as one of the most successful. The co-operation of the major Tokyo departmental stores—these are far and away the most important retail outlets—was wholehearted and gratifying.
  While the main emphasis fell on consumer goods, the capital goods side was not overlooked and a successful exhibition was staged as part of the Week. There was considerable emphasis on the cultural side, as befits a country where
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  this is regarded as very important. Both here and in Japan, our efforts were backed up by excellent publicity. The gracious presence of H.R.H. Princess Margaret and her husband won unstinted praise and admiration wherever they went. As a result, I think we can claim that the Week was as instrumental in furthering Anglo-Japanese understanding as in promoting trade. One important consequence was the great increase in business men visiting Japan. As well as attending the Week itself, many went in preparatory and follow-up missions. The Government scheme of contribution towards fares and expenses of missions was a great encouragement. There was a two-way movement with many inward missions of Japanese buyers.
  On this, I should like to pay tribute to all those many people, officials and others, for the effort which they put into organising this promotion; also to the British firms who supported it, in particular B.N.E.C. and its Asia Committee. The Chairman, Mr. Michael Montague, deserves special mention. Mr. Montague's drive and ideas were an inspiration to all concerned. It is now our task to ensure that the momentum generated is maintained and increased. Already nearly 20 missions, including several sample shows, are projected for 1970. Plans are well advanced for a number of store promotions and shopping weeks. In these we will be seeking to increase the demand for United Kingdom consumer goods in the main towns outside Tokyo.
  Mr. Tam Dalyell: As one who had the good fortune to visit Japan as a member of the I.P. delegation, of which my right hon. Friend was a previous, very successful, member, may I ask him to emphasise the importance of the point of going outside Tokyo, particularly to Osaka, where our excellent consulate is doing a very valuable job? The point which my right hon. Friend makes of the importance of working outside Tokyo could not be exaggerated.
  Mr. Mason: I am much obliged to my hon. Friend for his pleasing comments. I have myself visited Osaka, and Kyoto. My hon. Friend is quite right—we must make efforts outside Tokyo, as much as we have been making efforts in the major city during the past year.

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  We must also do everything possible to expand the sale of capital goods. The commercial department of our Tokyo Embassy has in hand a programme of market surveys. These will pinpoint those sectors where the opportunities are greatest, and provide basic information for businessmen. We shall continue to study the market and try to improve the information available. We are looking also to participation in trade exhibitions in joint ventures with industry as a means of increasing sales. Every encouragement and help will be given to suitable inward missions from Japan, both officially and by the British National Export Council. My predecessor visited Japan at the time of British Week in October last. I hope to go there myself before very long. I believe that inter-Ministerial visits are very important as a means of strengthening ties and of informing ourselves at first hand of the problems of commerce and industry.
  I am grateful to my hon. Friend the Member for Ilkeston (Mr. Raymond Fletcher) for raising this very important debate. Apart from the points I have covered he mentioned two or three specific matters. One was on know-how. Among the comprehensive lists of papers which we have prepared on various aspects of trading with Japan there is one on some of the special problems of trading in know-how. Those papers are available to any interested party.
  Secondly, on the question of medium sized firms and their possibilities since Japan started the process of liberalisation of inward investment, the extent to which any joint ventures or licensing arrangements is practicable or desirable must, of course, remain very much a matter for careful analysis and decision by the firms concerned. This type of arrangement might well be profitable for the B.N.E.C., and we would hope that any company with a good product to sell would be encouraged in investigating joint venture possibilities in Japan, and would not be discouraged just because of the size of I.C.I. or Shell. For small and medium-sized firms there are good opportunities now for joint ventures in Japan.
  Then, of course, my hon. Friend mentioned capital goods possibilities. The Asia Committee of the B.N.E.C. has decided to ask its Japan trade group
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  to study particularly the possibilities of capital goods exports to Japan and to stimulate the interest of the industries concerned in opportunities which exist for British products. In this context, the list which my hon. Friend referred to in his speech, and, indeed, in his notes he sent me in advance, will be helpful, and the attention of the group will be invited to the items he has already mentioned.
  I am pleased that this debate has given me an opportunity to indicate the importance which we attach to increasing Anglo-Japanese trade and to express appreciation of the efforts of all those involved. With their help we increased our share of Japanese imports in 1969, but this share is still only about 2 per cent. of the total. I believe we can and will improve still further our export performance in this rich and expanding market in the months ahead.
  There is still a long way to go. I do not think that we can ever match what the Americans have managed to do. They have managed to get 27 per cent. of the market. Our proportion of 2 per cent. is too low, but there is no reason now, with the increasing trade possibilities and liberalisation, why Britain should not in the years ahead do much better than 2 per cent.

  SCOTLAND (FEE-PAYING SCHOOLS)
  Mr. Deputy Speaker (Mr. Harry Gourlay): Any hon. Member who catches my eye on the Motion for the Adjournment of the House is entitled to be heard if he raises a proper subject, that is, one which does not involve legislation, but there is a convention which previous Speakers have always maintained that notice should be given to a Minister to enable him to reply. May I ascertain that this convention has been complied with this evening?
  9.30 p.m.
  Mr. Ian MacArthur: I am very grateful to you, Mr. Deputy Speaker, for reminding the House of the position which has arisen by convention and precedent. May I give you an assurance that I approached the Joint Under-Secretary of State for

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  Scotland at about 8.15 this evening to ask if he would be good enough to agree to reply to this debate.
  I wish to raise the matter of local authority fee-paying schools in Edinburgh and Glasgow. May I say at the outset that I am grateful to the Minister for being here at such short notice to reply to the debate. Although he and I disagree about the Government's approach to these schools and to the local authorities which run them, I appreciate very much his ready willingness to reply at such short notice and, I feel sure, at some inconvenience to himself.
  This debate may be our only opportunity to save the local authorities in Edinburgh and Glasgow from being crushed by the overriding will of the Secretary of State for Scotland. This may be our only opportunity to save some of the finest schools in Scotland from extinction by a Socialist Government.
  Mr. Tam Dalyell: What does the hon. Gentleman mean by the word "extinction"? He knows perfectly well it is nothing of the kind. This is grotesque language.
  Mr. MacArthur: The hon. Gentleman's view of the Government's proposals is clearly very different from mine. My view is that the Government's proposals represent the extinction of some very fine schools. If the hon. Gentleman disagrees, no doubt he may be able to catch your eye, Mr. Deputy Speaker, in the hour or so that remains to us.
  May I remind the House that this debate has its origin in the Education (Scotland) Act of last year, which provided for the abolition of fee paying in local authority schools in Scotland, the effect of which is to require the ending of the arrangement in Edinburgh and Glasgow whereby fees are charged in certain local authority schools. For the benefit of those hon. Members who may not be familiar with the position in Scotland, may I emphasise that these are local authority schools and that they occupy a unique position in the educational system not only in Scotland but in the United Kingdom. It is true that until just after the war there were also local authority fee-paying schools south of the border, and that they ceased to exist in
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  the 1940s, but they are not comparable with the fee-paying schools that exist in Edinburgh and Glasgow today.
  As I have pointed out before, the local authority fee-paying schools in Edinburgh and Glasgow provide a middle sector of education. There is no requirement on the grant-aided schools in Scotland to provide a proportion of free places, whereas in England and Wales direct grant schools have this obligation placed upon them. It is, therefore, the local authority fee-paying schools which provide this middle sector of education and make selective education available by merit to children in those two cities.
  The Government's proposal in the Act was to abolish fee paying. Our objection is not so much to the intention to abolish fees as to the clear indication given by the Government as to their intentions thereafter. During the Committee stage of the Bill we many times asked the Government what would happen to these schools once the fees were abolished. We were given a clear indication that the Government intended these schools to be brought within the comprehensive system as territorial comprehensive schools.
  If there were any doubt about the Government's intentions it was brusquely dispelled in a Written Answer given by the Secretary of State to the right hon. Member for Edinburgh, East (Mr. Willis) on Thursday last. The right hon. Gentleman asked the Secretary of State for Scotland:
  "… what approaches he has made to Edinburgh and Glasgow education authorities about the future of their selective and fee-paying schools after 1st August, 1970."
  The Secretary of State replied:
  "My Department has written to both authorities on 23rd January, 1970, telling them that I consider that with the abolition of fee-paying for school education from 1st August, 1970, that existing special arrangement for the admission of children to these schools must be discontinued. I have asked that they submit revised admission arrangements for my approval."—[OFFICIAL REPORT, 29th January, 1970; Vol. 794, c. 389.]
  We opposed from the beginning what we believed to be the intention. We oppose it now. The local authorities in Edinburgh and Glasgow oppose it in the interests of the people who elected them in their own local authority. The Government are seeking to override and to crush the elected representatives of the

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  people of Edinburgh and Glasgow. Their actions are totally opposed to our concept of democratic freedom.
  Furthermore, the Government are now actively cheating. When the Bill was originally before Parliament the intention was that fee paying should be abolished from a date to be fixed by order. We made it clear during the various stages of the Bill that a Conservative Government would restore to local authorities in Scotland their right to charge fees in their schools should they wish to do so. The Government promptly responded to that pledge by writing into the Bill the date 1st August, 1970, by which time, they insisted, the fee-paying system should cease.
  We said then, and I say again today, that the Government were trying to sabotage the next Government, a Conservative Government. We made it clear then, and I repeat now, that in Government we shall introduce the necessary amending legislation in order to restore this right to the local authorities.
  Mr. A. Woodburn: I am very interested in the hon. Gentleman's remarks about who is going to sabotage whom. Is he saying that it should be the declared intention of Glasgow and Edinburgh to disobey the decisions of Parliament and to try to frustrate what Parliament has passed in an Act of Parliament? Does he approve of Labour members of councils doing the same, should a Conservative Government ever come to power?
  Mr. MacArthur: The right hon. Gentleman has pinpointed the difference between us. There is no question of local authorities obeying or disobeying. What I object to is that the Secretary of State is giving orders to the local authorities which I do not believe he has the moral power to do. Secondly, I believe that it is wrong for the Secretary of State now to try to bludgeon the local authorities into a meek compliance with his will by insisting, only a few days ago, that they should come forward with their proposals on the reorganisation of those schools by the end of next month.
  I remind the House that throughout the Committee stage we asked the Minister over and again a number of questions on the future of these schools. We
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  asked how could they be turned into territorial comprehensive schools, and how could the Minister attempt to make a nonsense of the structure of these schools by forcing them into a system for which they are totally unsuitable, and the Minister knows it.
  The Minister, who rarely replied to the questions we asked during these debates, kept repeating parrot-like, "I am waiting for the local authorities to come forward with their proposals". We told the Minister that he was requesting the local authorities to do the impossible or, at best, the impracticable. It cannot be emphasised enough that these schools are not suitable for distortion in some way which will fit them into the territorial comprehensive system. Now, we find that the Government have taken their folly further by pointing a pistol at the heads of the local authorities.
  We believe that there is room in the education system for comprehensive schools and local authority fee-paying schools in these great cities. Comprehensive schools have been part of the Scottish educational pattern for a very long time. We support the development of comprehensive education where it is the wish of a local authority to pursue that pattern. We do not believe that it is right to force comprehensive education on a local authority which does not wish to observe it as the single pattern of education within the area for which it is responsible.
  Moreover, we believe that it is necessary for Scottish education to provide variety and choice because it is from variety and choice that comes the excellence which has been the hallmark of Scottish education over generations.
  Dr. M. S. Miller: Is the hon. Gentleman advocating to his own local authority a system such as that which he has just put forward?
  Mr. MacArthur: I would not dream of trying to ram my views down the throat of my local authority.
  Mr. Archie Manuel: It has no fee-paying schools.
  Mr. MacArthur: Whether it has fee-paying schools is not the point. Edinburgh and Glasgow have them and wish them to continue.
  Mr. Manuel: They also have Members of Parliament.
  Mr. MacArthur: We believe that we should support them in this House in their refusal to obey the orders issued by the Secretary of State against the wishes of the local authorities and against the wishes of the electors who put their local representatives into office.
  Dr. Miller: I am not arguing about that. If it is a good system, however, why is not the hon. Gentleman advocating it in his own local authority?
  Mr. MacArthur: These schools have existed in Edinburgh and Glasgow for a long time, in one case for eight centuries. They do not exist in Perthshire. The hon. Gentleman may think that it is a good idea to extinguish a school like the Glasgow High School, which is not far from his constituency, and to get rid of the excellence of the education provided by that school in its present form. I do not agree, and that is the difference between us.
  It is clear that the Government's assault on these schools does not spring so much from the existence of fee paying as from the fact that these schools are selective. They select children by educational merit. Not once during the passage of the legislation last year was there any criticism by the Government or by any supporter of the Government of the quality of education provided in these schools. There was no real educational argument advanced by the Under-Secretary of State and his supporters for the extinction of these schools. Indeed, tributes were paid by hon. Members on both sides to the excellence of the education which they provide. However, because right hon. and hon. Gentlemen opposite believe that selectivity in education is a sin, they propose to suppress the very qualities which have produced this excellence.
  Mr. William Hannan: While not joining in the hon. Gentleman's adulation of fee-paying schools, I am sure that he recalls that we defied hon. Gentlemen opposite to say that the kind of education provided in comprehensive schools in Glasgow was less good than that provided in selective schools.
  Mr. MacArthur: I am obliged to the hon. Gentleman for that intervention, and he will recall in turn that I joined with him in calling attention to the excellence of the education provided in all Scottish schools. However, that is no reason for the Under-Secretary of State to pluck out those schools which provide excellent education—simply on the ground that they are selective schools. This is the way that they operate and have operated for generations. It is wrong to pluck them out and try to turn them into comprehensive schools, a rôle for which they are totally unsuited.
  We asked time and again in Committee how the Minister proposed that this change should take place, and we had no reply. We asked the hon. Gentleman a great many questions. We asked him, for instance, how he proposed that the Notre Dame R.C. School for Girls in Glasgow should be turned into a comprehensive school. We asked whether he was aware of the contract which we understood existed between the Glasgow Corporation and the Notre Dame School which ensures the continuance of that school in its present form. But we had no reply from the Minister then, and we have had no reply since.
  On Friday, 30th January, 1970, the Glasgow Herald, in a leading article about this matter, said:
  "Most of the corporation fee-paying schools in the two cities are situated in areas which are already adequately served by existing non-fee-paying local authority schools or with declining populations. The integration of these schools within the comprehensive system could only be effected either by condemning the schools to less than their proper quota of pupils or the pupils to lengthy bus journeys. The case for the retention of schools like the Boys' High is that they have an exceptional academic record and that their doors are open to the bright children of parents who need have little money to pay the comparatively low fees."
  I remind the House that the fees at that school are roughly equivalent to the price of two packets of cigarettes per week.
  "Far from being socially divisive these schools have mixed populations and encourage social mobility. The neighbourhood comprehensive in the large city reflects the social bias of the area in which it is situated."
  That is the very point that we were trying to make to the Government during the Committee stage of the Education (Scotland) Bill.

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  If the Minister contemplates the area of Edinburgh in which the Royal High School stands, he will see that, by being made into a territorial comprehensive school, it would become socially divisive because it would draw its children from a wealthy class of parent. There would no longer be the social mix that there is today.
  Mr. Manuel indicated dissent.
  Mr. MacArthur: If the hon. Gentleman will bear with me, I will read a list of the occupations of parents at one of the schools. I am not being selective. This is part of a complete list.
  Mr. Manuel: Every one?
  Mr. MacArthur: Every one, as it were, in this order.
  Mr. Manuel: At that school?
  Mr. MacArthur: They are typical of all. These are the occupations of the parents: company director, police constable, pharmaceutical assistant, journalist, traveller, bookseller, draughtsman, solicitor, housewife, widow, another company director, inspector, welder, insurance inspector, civil engineer, inspector, doctor, teacher, mechanical engineer, joiner and widow. That is a typical list of the occupations of the parents of children at one of the schools which hon. Gentlemen opposite hate so much and regard as socially divisive. There is nothing socially divisive in that list.
  Mr. Woodburn: I do not know whether the hon. Gentleman knows where in Edinburgh the Royal High School is, but there is very little population there, so the pupils will have to travel.
  The hon. Gentleman makes two suggestions. First, that there is selection by merit. That would not be denied in a comprehensive school. Children in comprehensive schools go into streams according to merit. The second point is that the only selectivity objected to is that people will pay. If it is selection by merit the money should not matter; it should depend on brains.
  Mr. MacArthur: The right hon. Gentleman knows, or he should, that many places in these fee-paying schools are provided free. The Minister, who was
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  totally misinformed about this point in Committee, conceded it later. As the right hon. Gentleman knows, there are many free places, and even for those places in respect of which fees are charged the fees cannot be regarded as large, or as a heavy burden. The point of selectivity is not selection by wealth but by merit, as the right hon. Gentleman knows.
  It is abundantly clear from all the evidence we have, and from our knowledge of these schools, that if they were forced into becoming territorial comprehensive schools, which is what the Government wish, they would become far more socially divisive than they are and would draw their pupils from the neighbourhood in which the school stands, which in nearly every case is not a representative neighbourhood, and indeed in many cases are in neighbourhoods with declining populations, as the right hon. Gentleman rightly points out.
  It is wrong to propose this change. No explanation has been given by the Minister about how the change can come about. He is simply asking local authorities to propose the impossible. What will be the position if the local authorities are unable to come forward with proposals by 31st March? Has the Minister any statutory power to force them to obey his will? I do not believe that he has. Is it the Government's intention to wait until 31st March and then bring in yet another education Bill to force the local authorities to act against their better judgment in this matter? Is it the hon. Gentleman's intention to try to beat the General Election yet again by introducing an unjust law before the election is held and electors have an opportunity to express their wishes in this matter? I hope that the Minister will tell us what will happen on 1st April and thereafter if the local authorities in Edinburgh and Glasgow have not been able to produce the proposals on which the Government now insist.
  I ask the Minister, even at this late stage, to remove himself from this doctrinaire path of compulsion. I ask him, even now, to let the position stay as it is until the next General Election, after which the next Government can look at this problem afresh, and after which the next Government, a Conservative Government, can restore this long-standing

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  freedom to the local authorities in Scotland.
  9.52 p.m.
  Mr. William Hannan: I hope that the House and my hon. Friends will pay no regard whatsoever to the speech of the hon. Member for Perth and East Perthshire (Mr. MacArthur), which can be summarised as "cauld kail het again".
  This subject has been discussed interminably, and with only one object in view. Apparently the more often certain distortions are repeated the more likely they are to be believed. What are the facts? The Bill which we discussed and passed in the early part of last year, and in particular the Section under discussion, did no more than what was done for England and Wales in the 1944 Act under the guidance and statesmanship of one whose stature is not equalled on the benches opposite when one is talking about education, namely, Lord Butler.
  That Act took fee paying out of the area of public school education. All the arguments are there, and if my hon. Friends cannot convince the Opposition I hope that hon. Gentlemen opposite will read the cogent and lucid arguments which were adduced in respect of this principle.
  Mr. MacArthur: I am sure the hon. Gentleman will accept that the regulations which stemmed from the 1944 Act provided for free places in direct grant schools in England and Wales, and in that way provided the middle sector of education which local authority fee-paying schools provide in Scotland?
  Mr. Hannan: I do not accept that. As my hon. Friends have often argued, it is not a question of choice in this matter. There is no choice. The child is either in or out. Those members of our society who want to pay fees to educate their children have that choice. We agree with that—but let them bear the full cost and not expect the public purse in large part to subsidise their idiosyncracies about fee-paying schools within the public system.
  Mr. John Brewis: Does that mean that the hon. Gentleman is against grant-aided schools in Scotland.
  Mr. Hannan: Personally, I am. [HON. MEMBERS: "Oh!"] Hon. Members opposite may make exclamatory remarks, but that is my opinion as an individual. Those who represent the teachers in Scotland may pay attention to what the E.I.S. has said in this matter—
  Mr. MacArthur Mr. MacArthur rose—
  Mr. Speaker: Order. The hon. Member has made a speech. He must allow others to make their speeches.
  Mr. Hannan: That body is against fee paying in the public sector. That is all that this argument is about. The convenors of the Glasgow and Edinburgh education authorities are not making the question of fee paying an argument. The point is agreed among us even tonight. What is at issue is the question of selectivity. But in order to justify their consciences or attitudes in this matter hon. Members opposite must have some peg upon which to hang their justification of selectivity—and that peg is a small fee.
  The local authorities are not talking about fee paying. Hon. Members opposite are concerned with the question of selectivity, the honour of respectability and the elevation above the common herd. That is what is at stake for them. The justification for adopting that attitude is the payment of fees. The question of selectivity or choice is not determined by how much money parents are prepared to pay; it depends upon the intellectual capacity of the child. The same problem confronts all our children. Within the comprehensive schools children with aptitude and ability are catered for.
  Either a child has an aptitude or ability or it has not. It makes no difference how much money some people have; their children just have not the ability. In such cases rich parents look for special places where special attention can be given to their children. They can send their children to schools where the total cost is borne by them. The problem affects only five schools in Glasgow and three in Edinburgh.
  The hon. Member for Perth and East Perthshire did not answer the point made by my hon. Friend the Member for Glasgow, Kelvingrove (Dr. Miller). Is the hon. Member asking for similar facilities in Perth?
  Mr. MacArthur: Irrelevant!
  Mr. Hannan: It is very pertinent. The hon. Member cannot ride away on the excuse that it is only because this type of school has been in existence in Glasgow and Edinburgh. If the tradition is good—if it has certain virtues and values—why is the hon. Gentleman not urging his own local authority to provide similar facilities? Would the hon. Gentleman answer that?
  Mr. MacArthur: I do not want to interrupt—
  It being Ten o'clock, the Motion for the adjournment of the House lapsed, without Question put.
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Armstrong.]
  Mr. MacArthur: I do not want to interrupt the hon. Gentleman at length, but the question he asks is totally irrelevant. I gave the answer before; I have given it repeatedly in Committee. It is irrelevant to the matter we are discussing.
  Mr. Hannan: I leave the House to draw its own conclusions.
  If it is argued that it is right that it should be possible for a child to have a better education within the State system on payment of a small fee, that argument is reprehensible, because the comprehensive schools, like those in the constituency of the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) and my constituency, are producing, whether for the technical colleges or the universities, just as high a proportion and percentage of passes as the other schools—and why not? There may be differences in atmosphere and in environment, but the teaching ability is the same, and that is one of the reasons why the E.I.S. is so opposed to the idea that there should be selectivity in teachers and why many teachers, rather than face the difficulties and challenges of schools in other areas, are in selective schools and prefer to be there.
  It is not selection at age 12, as is commonly supposed: it is selection at age five, in some of the schools. One of the great things about Scottish education is that at least from age five until age 12 there is comprehensive education. Until
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  recently, most children have gone to the same kind of school. In any case, it is not a practical proposition in the public administration of a service which is, as a matter of policy, decided democratically by this Parliament that there should be a selective system within the comprehensive education system.
  We have heard some bitter words expressed, not only here, but in the Press, and I am not usually given to expressing views like those I am about to express, but the local authorities are being incited by hon. Members opposite to defy Acts of Parliament, whether it be in housing or education. It comes ill, and some of us take it very badly, when individuals not only parade their consciences but are critical of the consciences of others in the maintenance of law and order and yet consciously incite local authorities to break the law.
  I therefore hope that my hon. Friend the Minister will not have regard to the remarks of the Opposition but will see through to a successful conclusion the policies on which the Government have embarked.
  10.5 p.m.
  Mr. Edward M. Taylor: While the hon. Member for Glasgow, Maryhill (Mr. Hannan) always speaks with knowledge and sincerity about the problems of Glasgow, his speech tonight astonished me.
  The hon. Gentleman said that he did not object in principle to people paying for their childrens' education so long as they paid the whole cost. In other words, he does not object to people paying to send their children to Eton, Gordonstoun and other schools which charge extremely high fees, but he does object to corporation fee-paying schools which charge £20. £30 or £40. This means that hon. Gentlemen opposite have nothing against choice for the rich but object to choice for those who are not rich. This is precisely the issue before us.
  There are times when I despair of Parliament. Today in Scotland we have a record number—about 8,000—of children receiving part-time education. We also have a massive shortage of teachers, particularly heavy in some areas. The slashing of school approvals will have a substantial effect in future years.

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  Instead of concentrating on these urgent problems which affect all children, the Government are carrying out a vicious vendetta against a small number of Glasgow schools which cannot, by any stretch of the imagination, be called class selective or socially divisive. These schools have made a massive contribution to education in Scotland.
  What is the case against these schools? It is suggested that they divide children into classes. I am a former pupil of the High School of Glasgow. It has been argued that because these schools divide on what hon. Gentlemen opposite claim to be a basis of class, we should do something to ensure that there is equality; and the comprehensive system is said to provide that equality.
  I wonder what the hon. Member for Glasgow, Provan (Mr. Hugh D. Brown) would say about that, knowing his large constituency and the way in which he actively looks after his constituents? Would he consider, with the desperate teacher shortage, that the children of his constituency would have equal opportunity under a fully territorial comprehensive system? Would their educational opportunities be equal to those of children in the constituency of the hon. Member for Glasgow, Maryhill? I suggest that the answer is, "No".
  The sad fact is that, through the planning of our cities—we are talking only of Glasgow, Edinburgh and Aberdeen—we unfortunately have a straight division of class in this respect as well as in respect of employment comparing one district with another. If we imposed a territorial comprehensive system universally we would ensure that instead of having academic segregation we would impose class segregation.
  The fee-paying schools of Glasgow have been a major factor in ensuring a mixture of children from both within and outside the city and from all walks of life. It is obvious that the real objection has nothing to do with fees. Time and again my hon. Friends and I have made it crystal clear that if the Minister were to withdraw his objection to selection we would then be in favour of the abolition of fees. At least, then, these valuable schools could continue, but they would be kept out of politics.
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  How does the Minister expect Glasgow to react to the request which he made in a recent Written Answer to a Question from the hon. Member for Central Ayrshire (Mr. Manuel) and how does he think that Glasgow's fee-paying schools could fit into a territorial comprehensive system? The only way to make these schools territorially comprehensive and non-selective is to have a major bussing operation, bringing children from all parts of the city. Who would provide and pay for those buses? The Minister must answer these questions.
  The real argument against the fee-paying schools is that they cream off ability from the comprehensive schools. The hon. Member for Maryhill has said that in some cases we have examinations at age 5, at age 7, or at age 8, but his is the party that has said that the 11 plus examination is a disaster. Hon. Members opposite have said that we cannot select children at age 11 or age 12, yet they cheerfully say that the selective fee-paying schools can be successful in creaming off talent in children at 5 years of age. So we have the 5 plus examination which seems to work, and the 11 plus which does not.
  A law has been passed that local authorities may not charge fees, but no law has been passed giving the Government the right to force local authorities to abolish the selective schools. Hon. Members opposite are, it is crystal clear, making a nonsense of democracy by flying in the face of the declared opinion of the education committees in both cities, who know their cities, who know their children and who know the circumstances. The party opposite is making a desperate attempt to steamroller this provision through against the wishes of the councils and, I believe, against the wishes of education.
  I am by no means unsympathetic to the Secretary of State for Scotland in the tasks he faces in education. He has many important and urgent tasks to face, but I plead: for goodness' sake let us get on with the real problems of education—such problems as short-time education and of the shortage of teachers. Let us concentrate on those problems, instead of introducing chaos into a system which works well, and which has made a magnificent contribution to our education over the years.
  10.12 p.m.
  The Joint Under-Secretary of State for Scotland (Mr. Bruce Millan): I agree with the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) at least to the extent that we have spent a disproportionate amount of time discussing the affairs of these schools. I would respect the Opposition the more if they spent rather more of their energies on those problems of Scottish education which the hon. Member has just outlined, such as raising the school leaving age, teacher supply, and so on. We have now discussed this present matter on innumerable occasions. We have heard the same speeches. The hon. Member for Perth and East Perthshire (Mr. MacArthur) actually quoted the same lists that he quoted in Committee on the Education (Scotland) Bill. At the end of the day, we are dealing with a problem which has already been illuminated, and which we have already discussed to an extent which, as I have said, is completely disproportionate in terms of the issue in the context of Scottish education as a whole.
  The hon. Member for Perth and East Perthshire normally starts off with a couple of sentences that are reasonable. He then leaves reason altogether, and we then have the normal emotive language of "crushing schools" "extinction" "unique nature", "sabotage", "bludgeoning", "steamroller"—these are all words and phrases from his speech. I shall deal with their substance, as far as they have any substance, as I proceed.
  The real issue is that of selection. I am delighted that there seems to be greater realisation of this on the other side of the House than there was during the passage of the Bill. One could never have guessed from the many hours we then spent on fees that this was a minor issue in the minds of hon. Gentlemen opposite, and that all they were concerned about was selection. But I always made it clear—and I do not know why, since I repeated it time and time again, it should come as a surprise to hon. Members—that selection is the issue here, not fee-paying. Fee-paying is important only so far as it buttresses selection, but selection is the issue. I have always made clear my view that selection, whether at the primary or the transfer stage from
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  primary to secondary is completely discredited, and does not provide a school system which will give anything like equality of opportunity for all pupils. I am therefore committed, as are the Government, to the comprehensive principle.
  Hon. Members opposite have never come clean on this issue. Despite the fact that we have had hours and hours of constant debate about it, at the end of the day we are no clearer about what they feel about the selective principle than we were at the beginning. We have had it all again tonight. The hon. Member for Perth and East Perthshire manages to be in favour of fee paying simultaneously with saying that fees are not the important issue, and in favour of comprehensive reorganisation and selection simultaneously. This is the sort of stuff we have heard from hon. Members opposite during the whole of this controversy.
  The question of freedom of choice is another matter. We have debated that at great length and I shall not go into all the detailed arguments but, as my hon. Friend the Member for Glasgow, Mary-hill (Mr. Hannan) said so well, wherever freedom of choice resides it does not reside in the selective system. Whether the selection is by merit or the length of one's purse, selection excludes freedom of choice. One is either selected or one is not, and freedom of choice does not come into it. The reason why the comprehensive system is so widely recognised by parents as well as educationists as being a very considerable improvement on the selective system is because it does provide the opportunity for widening freedom of choice in a way that the selective system could not possibly, by its nature, ever do.
  It is also true that we are dealing here with matters which concern at the secondary level only two education authorities, Edinburgh and Glasgow. It is not irrelevant to mention the situation in Perthshire or Dumfriesshire or in Galloway. I take Perthshire as a good example. Perth City had a senior secondary selective system and is moving towards a comprehensive system. The principles involved in this, together with the practical problems, are essentially the same as we are now asking Edinburgh and Glasgow to

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  tackle for their existing secondary fee-paying schools.
  In principle, the problem is the same and if it has proved possible to eliminate selection and senior secondary selective schools in Perth City, why is it impossible in Edinburgh and Glasgow? Why is it impossible to do it in those two cities in particular when they are moving in any case towards a comprehensive system for the rest of their areas? This was the policy in Glasgow for many years under the Labour administration there and was inherited by the present administration, which, I understand, has no intention of changing the policy of comprehensive reorganisation, apart from this small sector we are discussing. Even Edinburgh, under its Conservative administration, has produced proposals, I am glad to say, and has been co-operative, apart from this one sector, in moving towards comprehensive reorganisation. So there is not an issue of principle between us. Both authorities, like all the other authorities in Scotland, have accepted the principle of comprehensive reorganisation.
  The hon. Gentleman talked about steamrollering and the brusque answer he said I gave last week. I remind him of some of the history of this. The issue of comprehensive reorganisation was raised as far back as October, 1965, in Circular 600 on comprehensive reorganisation. It was repeated in Circular 614 in June, 1966, on the transfer of pupils from primary to secondary education, asking authorities to look at their transfer schemes again in the context of the proposed secondary reorganisation.
  I discussed the matter of fee-paying selective schools with both Glasgow and Edinburgh, certainly twice with Edinburgh and probably twice with Glasgow —in the time available I have not been able to check the dates—long before the Bill was even contemplated. I discussed the whole matter again with Glasgow and Edinburgh just after the Bill was published and before any of the debates in the House. We debated the Bill for the best part of a year. Most of it came into operation in 1969. We deferred the abolition of fees to 1st August, 1970. To suggest that we have not given time to authorities, that we have steamrollered or are rushing this through is an arrant piece of nonsense.
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  The Scotsman, in its editorial last Saturday, expressed it very well when it said:
  "Edinburgh's inability to change the fee-paying schools into non-selective ones is not due to lack of time but to the corporation's policy".
  What applies in Edinburgh also applies in Glasgow.
  At all the meetings I said to both authorities—and I do not think they would deny this—that if they would make a genuine attempt to produce proposals for these schools I would judge them on their merits. We received no proposals from Edinburgh or Glasgow. We have had nothing since the passage of the Act. I do not know whether this amounts to what my hon. Friend the Member for Glasgow, Maryhill called defiance of the Act, to incompetence, to apathy or what. Some rather remarkable statements have been made by the convenor of the Glasgow Education Authority about defying the legislation and to the effect that it would not comply with the Act. It seems that this act of defiance has the authority of hon. Members opposite, which is extraordinary. [Interruption.] I am delighted to see the hon. Member for Perth and East Perthshire disowning his Glasgow colleague on this matter.
  Mr. MacArthur: The hon. Gentleman knows perfectly well that we are not encouraging or suggesting to local authorities that they should defy Acts. What we are suggesting to the hon. Gentleman is that he should not require local authorities to conform with a request which cannot be conformed with because of the nature of the schools.
  Mr. Millan: The hon. Gentleman is not encouraging and he is not disowning the convenor. He is in the same position on this matter that he is in on every other controversial matter, namely, that he will not state clearly what he believes in.
  I shall describe the powers under which we sent the letter to the authorities the other day. They are not new. They stem from legislation which we inherited from hon. Members opposite. The power to ask authorities to provide either schemes of provision or amended schemes of provision is under Section 7 of the Education (Scotland) Act 1962. The power to ask for amended schemes of

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  transfer is in Section 30 of the Education (Scotland) Act, 1962. We replaced that Section with a provision in the Education (Scotland) Act, 1969, and the Section by which we replaced it had the support of hon. Members opposite who voted for it in Committee. These are the powers under which we are asking the authorities to prepare the amended schemes.
  We said in the letter, and I said in reply to the Question last week, that the present arrangements in Glasgow are incompatible with the abolition of fee paying because the transfer schemes in Glasgow at the moment do not provide the normal arrangements for admission to fee-paying schools which apply to the rest of Glasgow, whether for comprehensive schools or the existing senior secondary schools in Glasgow. They provide basically that the appropriate head teacher is responsible for deciding which pupils are admitted to the schools. In the case of Edinburgh, no specific provision is made for the fee-paying schools in their transfer schemes. They work on the basis essentially that admission is by the headmasters concerned.
  I do not know whether hon. Members opposite think that that can be justified. I do not think that it could be justified even when fees were paid. I certainly do not think that it is justified when there is no fee-paying at all. This applies not just to secondary schools but the primary schools. Since there has been a good deal of nonsense talked about the practicability or impracticability of absorbing the fee-paying schools into the general system of education at primary or secondary school level in Edinburgh and Glasgow, may I say that the Edinburgh education authority thought it practicable from the primary school point of view and, to a limited extent, from the secondary point of view to absorb them into the normal system because it took a decision to that effect which was reversed on a political vote by the Edinburgh town council. That is the situation in Edinburgh.
  The present arrangements in Glasgow and Edinburgh are no longer compatible with the situation in which fees have been abolished. That is why under the powers available to us in the Education Act we have asked both Edinburgh and Glasgow to produce amended schemes of provision and amended schemes of transfer for the schools concerned.
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  The Government have not said to Edinburgh and Glasgow that they must convert all their schools into comprehensive schools overnight. Not only have we not said that to Edinburgh and Glasgow, but we have not said it to any other education authority in Scotland. Last year, of new entrants at the secondary level in Scotland to Scottish secondary schools as a whole about 60 per cent. went into comprehensively organised schools and about 40 per cent.—a figure which is dwindling and which I hope will dwindle more rapidly now—into senior secondary and junior secondary education.
  I hope that the latter will disappear as quickly as possible, but we have not asked any authority to do anything impossible. We have asked them genuinely to approach the question of comprehensive reorganisation and to let us have genuine plans. So far Edinburgh and Glasgow have not done that, although they have been given ample opportunity.
  It is not open to the convenor in Edinburg or anybody else to say that they are being asked to do something too quickly. They have had since October, 1965, to try to deal with the problem if there had been a willingness on their part to produce the proposals for the Government.
  Mr. John Brewis: can the hon. Gentleman explain how a comprehensive school can be organised except on a territorial basis?
  Mr. Millan: I have already said that the problem of dealing with fee paying and the hon. Gentleman to start with is altogether ignoring the primary situation—
  Mr. Brewis: The secondary.
  Mr. Millan: On the secondary side the problem is essentially the same and it is being dealt with not only in Glasgow and Edinburgh, but in every area of Scotland. Converting a senior secondary school into a comprehensive school is not essentially different in Edinburg and Glasgow from the problem anywhere else, and it has been successfully tackled elsewhere. What will happen after the schemes are submitted to us will depend on the adequacy of the schemes which Glasgow and Edinburgh submit to us by 31st March, 1970.

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  As I have said, we are acting under powers which are not new, but which are essentially powers which we inherited from hon. Members opposite. It is not for me to say now what is likely to happen on 31st March, 1970. The authorities now have responsibility for submitting these plans to us. We have asked them to do this under the powers available to the Secretary of State under the Education Acts and we expect to get revised proposals from the authorities by 31st March, 1970.
  Of course there are powers for education authorities under educational legislation, but powers are also given to the Secretary of State and I intend to see that those powers are fully exercised, if that should prove to be necessary. The hon. Member for Perth and East Perthshire need not look surprised about this. If he thinks that we put through the Education (Scotland) Act, 1969, with the intention of allowing it to become a dead letter, he is a good deal more naïve and innocent than I know him to be. The Act has gone through and it was debated at considerable length. All the issues have been ventilated. We now intend to see that the Act is implemented and not
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  frustrated by Glasgow or Edinburgh Corporation.
  What we are dealing with here is not basically the issue of fee paying. It was not even basically that issue while the Education Act was going through. It is selection. We have made our view on this clear time and again. Hon. Members opposite have fluffed the question, as they have fluffed again tonight. The decision has been made and the issue has been ventilated and we are now exercising the powers which we have under educational legislation including those which we have under the Education (Scotland) Act, 1969.
  Mr. Brewis: The Under-Secretary has shown no reasonable way whatever in which these schools could be reorganised on a comprehensive basis geographically. He is going against the whole of the local authorities in Glasgow and Edinburgh.
  The Question having been proposed at Ten o'clock and the debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
  Adjourned at half-past Ten o'clock.

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