Sitting of 19 March 1975

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

    Water Charges
    Mr. Watkinsonasked the Secretary of State for the Environment if he is satisfied that water authorities are exercising due economies in order to keep increases in water charges as low as possible.
    The Under-Secretary of State for the Environment (Mr. Gordon Oakes): My right hon. Friend has asked water authorities to do everything possible to keep down their charges. I have no reason to believe that they are not heeding that advice.
    Mr. Watkinson: Is my hon. Friend aware that the Welsh National Water Development Authority, through a process of equalising its costs in one year, has brought about a situation in which the rate increase in my constituency is over 143 per cent.? Is he able to do anything about that? Cannot he persuade the authority to equalise its costs, as other water authorities have done, over a number of years?
    Mr. Oakes: I have some sympathy with my hon. Friend. However, the Water Act 1973 requires authorities to break even taking one year with another. As regards equalisation, there is no way in which my right hon. Friend can intervene with a specific authority. Influencing the authorities is a matter for my right hon. and learned Friend the Secretary of State for Wales.
    Mr. Rathbone: Is the Minister aware that water authorities in various parts of the country have put up their rates,
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    and intend to do so again, to a degree which is extremely worrying both to those who are connected to mains water and drainage and to those who are not? Will he give a greater assurance than he was able to give in reply to the original Question asked by the hon. Member for Gloucestershire, West (Mr. Watkinson) that he will do his utmost to impress upon authorities the need to restrain short-term capital plans which are not essential?
    Mr. Oakes: I am certain that my right hon. Friend and the Minister responsible for water have done their best to impress that on the authorities. Unfortunately, under the terms of the Water Act 1973—which was not of our making—it is not possible for my right hon. Friend to intervene about charges levied by water authorities.
    Mr. Hatton: Is my hon. Friend aware of the serious concern which has been expressed to Members of Parliament representing Manchester at the continuing departure of the North West Water Authority from the national recommendations on the calculation of general service and water charges, and their failure to implement assurances which they gave to local authorities in December to rectify the anomaly caused in assessing charges for the current year? Is my hon. Friend aware that in the Manchester area the percentage increase in domestic charges in 1974–75 is 62 per cent.?
    Mr. Oakes: I am aware of the level of the increase and of the difficulties faced by some of the Greater Manchester districts. I shall look at what my hon. Friend has said.
    Mr. Shepherd: Is the Minister aware that the county of Herefordshire falls within the area of the Welsh National Water Development Authority? Will he consider increasing the rate support grant for Herefordshire to that for Wales, which currently receives 37p in the pound compared with 18·5p in the pound received by Herefordshire, thus equalising the water rate burden?
    Mr. Oakes: I am aware of the anomaly. Herefordshire and Worcestershire come under the Welsh National Water Development Authority. I cannot give that assurance today. However, as

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    the hon. Gentleman knows, I am meeting a delegation from Herefordshire tomorrow.
    Mr. Gowasked the Secretary of State for the Environment whether he will make a statement about the cost of the supply of water ; and what is the average increase in the cost of water rates in the United Kingdom during the year ending 5th April 1976.
    Mr. Oakes: The 1973 Water Act provides that it is for water authorities to decide what level of charges is required to meet their statutory obligation to break even, taking one year with another. I understand that the average increase in the authorities' water supply charges in England and Wales is likely to be of the order of 41 per cent.
    Mr. Gow: Is the Minister aware that the increase in the domestic water rate for water supply by the Eastbourne Waterworks Company for the current year is 53 per cent.? Does he agree that the present system for levying water rate is regressive, unjust and unfair and should be scrapped?
    Mr. Oakes: We are looking at all the water authorities in the course of a two-year review. I repeat, however, that the creation of water authorities is not our doing. Many of the difficulties which this House and ratepayers face result from the Water Act 1973. I am aware of the position in the hon. Gentleman's constituency. However, in defence of water authorities, I must say that they were left with a considerable burden since 47 per cent. of their expenditure is to service capital debts. They were created naked by our predecessors, and now the public,have to pay for that creation.
    Mr. Ronald Atkins: Is my hon. Friend aware that there is a difference in the amount of water used for flushing lavatories in Scotland and England? In the interests of achieving lower costs, will he press for uniformity between the two countries on the lower level, even if he gets opposition from the Scottish National Party on grounds of devolution?
    Mr. Oakes: I am afraid that water is a subject which I never think of in connection with Scotland.

    Land
    Mr. Sainsburyasked the Secretary of State for the Environment when it is his intention to introduce the Bill on Land.
    The Secretary of State for the Environment (Mr. Anthony Crosland): The Community Land Bill was introduced on 12th March.
    Mr. Sainsbury: Does the Secretary of State accept that the supply of land is vital to the continuing supply of houses and of industrial and commercial developments and that the uncertainty following the delay in bringing forward the Bill has had a further unsettling effect? Does he recognise that the previous changes in policy have been extremely unsettling as regards the continuing supply of houses? In view of the reservations and counter-proposals which have been put forward by the professional bodies and others concerned with land, would it not be appropriate to refer this Bill to a Select Committee of the House to see whether we can arrive at a policy which will be generally acceptable instead of one which is subject to further change?
    Mr. CroslandI accept that the supply of land for building and development is vital. I cannot accept that last suggestion about arriving at a non-party agreement, since the land issue has traditionally divided the parties, right and left, in this and in many other countries. As regards his other supplementary question, I do not share the hon. Gentleman's anxiety, because we have taken great trouble in the transitional provisions and in other ways to make certain that the supply of land will not be inhibited or held back by the Bill.
    Mr. Frank Allaun: From the opposite point of view, may I ask whether my right hon. Friend agrees that it is vital to take into public ownership quickly and cheaply a large amount of land which is needed for housing, with a short transitional period and with few exemptions? Would not that show the public the great benefit that would ensure and also make it much harder for a Conservative Government, should there be one, subsequently to unscramble the Act?
    Mr. Crosland: I think that the transitional provisions that we have made are

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    essential to avoid the risk to which the hon. Member for Hove (Mr. Sainsbury) drew attention. Like my hon. Friend the Member for Salford, East (Mr. Allaun), however, I should like the transitional period to be as short as possible. How long it lasts must depend not on the Government but on how quickly the local authorities can gear themselves to carry out the task laid down for them in the Bill.
    Mr. Evelyn King: Is the right hon. Gentleman aware that what he has said is not historically true? The 1947 Act, probably the greatest Act in the last two decades, was passed with the consent of both parties. Can the right hon. Gentleman say how many Acts since then have been passed by one party or the other? Whichever side was right or wrong, this perpetual change from year to year has done more harm than anything else.
    Mr. Crosland: The House always respects the hon. Gentleman's non-partisan attitude to our political affairs. However, the guts of the 1947 Act were repealed as soon as the Conservatives came back to power, and the 1967 Land Commission Act was also repealed as soon as the Conservatives came back to power.
    Dr. Phipps: Is not one of the principal difficulties faced by local authorities in solving the severe housing crisis the high cost of building land? Until it is brought into public ownership the problem will not be solved.
    Mr. Crosland: My hon. Friend has put the matter extremely lucidly and accurately.

    Regents Park (Tree Felling)
    Sir George Youngasked the Secretary of State for the Environment how many more mature trees in Regents Park his Department is proposing to fell.
    Mr. Oakes: Two poplars which are leaning dangerously at the edge of the lake near Flower Bridge in the Clarence Gate area. The remaining 22 horse chestnuts in Broad Walk (South) are coming to the end of their life and will probably be replaced within about five years.
    Sir G. Young: Can the Minister explain why only visual inspection was made of the trees before they were pulled down and why there was no tree surgery to protect the public from falling branches when they were being pulled down? Can he explain, further, why he failed to consult Westminster City Council and Camden Borough Council before taking the action he did?
    Mr. Oakes: The park superintendent inspects all trees twice a year, and the Department is advised on these matters by the Committee on Forestry of the Royal Parks. It is that committee's recommendation that we are following.

    Housing Land
    Mr. Loyden askedthe Secretary of State for the Environment what steps he can take to assist local authorities suffering from land shortage for house building within their own boundaries.
    Mr. Crosland: I am not aware of any additional assistance which is required by local authorities to ensure that they make the most appropriate use of available land within their boundaries or beyond them. The Housing, the Town Development and the New Towns Acts all make provision for housing development elsewhere to meet housing needs which cannot be satisfied locally.
    Mr. Loyden: Does my right hon. Friend agree that if the aims and objects of the 1974 Housing Rents and Subsidies Act are to be met, the effects of the reorganisation of local government mean that many local authorities now find it difficult to provide land within city boundaries? Will he take into account one of two alternatives? The first is to consider the amount of land at present occupied in my constituency by British Rail, the gas board and the British Docks Board. They occupy areas capable of providing sufficient land for the development of 6,000 houses. The second alternative is to give local authorities a wider choice of land by transferring the responsibility to the counties in the interim period.
    Mr. Crosland: On that latter point, I have no intention at present of making any further changes in the distribution of duties between counties and districts.

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    Dealing with the first part of my hon. Friend's supplementary question, I accept what he says about disused land. The South Docks in Liverpool cover a very large area of land. My hon. Friend the Under-Secretary recently met representatives of the Docks and Harbour Board, Merseyside county and Liverpool city, and a working party under my regional director's chairmanship is exploring all the possibilities as to how this land could best be utilised by local authorities.
    Mr. Beith: Is the Secretary of State aware that local authorities with insufficient land in both urban and rural areas will not be assisted by any cutback in the money available for improving housing stocks, and that in a time of economic crisis we should be placing emphasis in that direction rather than moving towards more new building?
    Mr. Crosland: I cannot agree. Within the total amount of money available for public sector housing—which, incidentally, is far greater than it was a year ago—our priorities are, number one, new additional housing ; number two, the improvement of the worst part of the existing housing stock, which is typically in the private sector ; and, I regret to say only number three, the improvements on which huge sums are being spent on purpose-built local authority estates.

    Rented Accommodation (Municipal Purchase)
    Mr. Norman Lamontasked the Secretary of State for the Environment what reductions he plans in the finance available to local authorities for purchasing privately-rented accommodation.
    The Minister for Housing and Construction (Mr. Reginald Freeson): None. Sir.
    Mr. Lamont: Will the hon. Gentleman accept that, with the Greater London Council rate precept planned to rise this year by nearly 80 per cent., it is unjustifiable to spend large sums of money purchasing blocks of flats many of which have very few vacant tenancies? How can the hon. Gentleman justify the GLC's expenditure of £350,000 on a block of flats in my constituency in which there are only two vacant tenancies? This does nothing for the home-seeker and adds
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    considerably to the burdens on ratepayers.
    Mr. Freeson: In our view, the purchase of occupied blocks of flats is not the first priority for municipalisation expenditure. The vast bulk of expenditure which has been provided has gone in the purchase of empty properties or blocks of flats in which there is a very high proportion of empty properties. That goes for the GLC as well as for any other local authority which has embarked on this policy. If the hon. Gentleman has specific cases in mind such as the one to which he referred, I shall be glad if he will let me have details.
    Mr. R. C. Mitchell: Is my hon. Friend aware that many local authorities have virtually run out of land within their boundaries on which to build new houses, and that the only way they can hope to reduce large waiting lists is to buy up empty properties offered to them? Will he ensure that adequate funds are available to those authorities which want to buy up empty properties in order to rehouse people on their watiing lists?
    Mr. Freeson: Unfortunately, in the present financial situation, I cannot say that there will be no ceiling on total national expenditure. However, provision will be made to maintain the level of municipalisation which local authorities have embarked upon, and we hope in the future to increase it by various means which I am now examining.

    Thorne
    Dr. Edmund Marshallasked the Secretary of State for the Environment whether he will make an official visit to Thorne
    Mr. Crosland: I have at present no plans to do so.
    Dr. Marshall: Is my right hon. Friend aware that 43 residents of Corona Drive, Thorne, who have paid their rates along with the weekly rent for their homes, had not up to last Saturday received any of the rate relief provided by the Government for the current year, even though the local authority paid the appropriate lump sum last autumn to the landlord's agents, who are Corona Properties of Manchester? Is not this blatant robbery by the landlords?
    Mr. Crosland: I regret that I have not had the pleasure of visiting Corona Drive in Thorne. I am always sorry that my hon. Friend, who was practically born and bred in Grimsby, moved so far away. If he will send me, as I would like him to, the details of the point he is making, I will look into it at once.

    Rates
    Mr. Michael Lathamasked the Secretary of State for the Environment whether he will now make an estimate of the number of local authorities whose rates will show an increase next year of more than 25 per cent.
    Mr. Oakes: Less than half of local authorities have so far given us the information for which we asked. It would therefore be premature to give a figure.
    Mr. Latham: Is it because of the absence of a General Election this year that the Secretary of State is not prepared to give any help to ratepayers, such as those in my constituency, who face swingeing increases in rates and real cuts in services?
    Mr. Oakes: No, Sir. The reason why the special relief was given last year was that ratepayers and local authorities had been grossly misled by the estimates of the previous—Tory—Secretary of State for the Environment.
    Mr. Raison: Is it not a curious coincidence that both last year and this year the areas which have benefited most from the Secretary of State's rate support grant, and which have therefore been able to keep their rates down, are those which happen to have had local elections?
    Mr. Oakes: That, incidentally, is not at all true. The area which benefited most from the needs element in the rate support grant was West Sussex.

    Speed Limits
    Mr. MacGregorasked the Secretary of State for the Environment whether he will introduce greater flexibility into his Department's criteria for speed limits for principal roads, and in particular more discretion for local authorities concerned.
    \The Under-Secretary of State for the Environment (Mr. Neil Carmichael): I
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    see no reason at present to change the general criteria but I am always ready to take account of special factors in a particular case.
    Mr. MacGregor: Is the hon. Gentleman aware that there are local areas, some in my constituency, which do not meet the criteria and, therefore, do not have limits but which, because of local changes in traffic conditions, present serious road safety hazards for the inhabitants? Is he further aware that it will be cold comfort for these inhabitants to know, if serious accidents occur, that it will be those accidents which produce the criteria? Will he let me know whether it would be correct to write to him about this situation or whether I should go through the normal processes? I welcome his assurance that he will give the subject sympathetic consideration. Above all, it is the local inhabitants who know how situations change.
    Mr. Carmichael: I accept that local inhabitants know a great deal about local conditions. My principal concern is to safeguard the general value of speed limits throughout the country. If they are not safeguarded, their value can be debased. We should then be worse off than we were when we started. I shall be pleased to look at particular cases in which the hon. Member feels that there has been a considerable and noticeable change in traffic conditions.
    Mr. Lee: Does not the whole question of road speed limits need overhauling? Are there not many instances where speed limits are too high and others where they are too low? Is this not a general situation, and is not the law flouted for that reason?
    Mr. Carmichael: The basic reason why we have criteria is to try to get some sort of standard throughout the country. We find that the law is not flouted if the speed limit is realistic and motorists feel that it is reasonable for the area. We work on an 85 per cent. observance of limits. If a limit is unrealistic, motorists will take a chance no matter how great the penalties.
    Mr. Freud: While I appreciate that the Minister has to change speed limits every now and then, would it not be possible to have a simple and more satisfactory arrangement whereby the voices of the

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    people in the district, who were to be the victims of a change in the speed limit. could be heard?
    Mr. Carmichael: There are opportunities for local people to make representations about speed limits. If the hon. Member looks back to the period before there was any question of speed limits and such things as pedestrian crossings being the responsibility of the Government, he will find that sometimes, while local people knew an area, they were not always able to assess the difficulties of the area. There was a general debasement of limits. Something had to be done nationally. Criteria had to be introduced. I hope that we make every effort to make them sensible.
    Mr. Cryer: Is my hon. Friend aware that in addition to the use of speed limits to reduce road hazards he ought to introduce guard rails on pedestrian refuges in the centre of roads? Is he further aware of a tragic fatal accident in my constituency in Bradford Road, Riddles-den, when a girl was killed even though she was acting perfectly properly and was on the central island reservation? Can my hon. Friend assure the House that he will investigate the possibility of providing protective diversionary guard rails on such central islands so that traffic is prevented from striking pedestrians seeking refuge there?
    Mr. Carmichael: I am aware of the tragedy that took place in my hon. Friend's constituency. I have seen some of the newspaper reports on it. I shall look at the question of guard rails. It is important to realise that the rails on central islands or before pedestrian crossings are principally to make sure that pedestrians do not try to nip across the road at any place other than that area which is designed to give them maximum safety.

    Bus Services (Rural Areas)
    Mr. Hastingsasked the Secretary of State for the Environment if he is yet in a position to announce proposals for improving conditions in rural bus services, following his discussions with local authorities and bus companies.
    Mr. Carmichael: I appreciate the concern felt by the hon. Member and we will make a statement as soon as possible.
    Mr. Hastings: Does the Minister realise that many areas, particularly the small villages, will await his statement with the greatest interest because the problem is serious? Can he, when he comes to have these discussions, encourage the traffic commissioners to approach what is admittedly a difficult problem with a little more imagination than they have done to date, particularly with regard to specific ideas such as the merging of postal and bus services and the question of local mini-bus services? Is it not high time that these ideas were tried out?
    Mr. Carmichael: The hon. Member knows that there have been a number of Adjournment debates on this matter. We have discussed it fairly fully. I have travelled round the country and met a large number of traffic authority people, including traffic commissioners. Some of the ideas that the hon. Member has suggested are among those I hope to be putting forward.
    Mr. MacFarquhar: Is my hon. Friend aware that the recent increases in rural bus fares, coupled with the regulations enforced by local bus companies about when concessionary fares can be granted to children, mean that many of my constituents are paying enormous sums every week to send their children to school? Is he further aware that some of them are now sending their children to school an hour late so that they can get concessionary fares? Will he look seriously at the possibility of enabling local bus companies to give concessionary fares for all children going to school in rural areas?
    Mr. Carmichael: The question of concessionary fares for schoolchildren in rural areas, or any areas, is fairly well laid down in the Education Acts. Schoolchildren should not have any difficulty in getting such fares if they live a certain distance from the school. Some of the other points raised by my hon. Friend will be dealt with in reply to a later Question.
    Mr. Fox: The Minister's reply to my hon. Friend the Member for Mid-Bedfordshire (Mr. Hastings) is complacent in the extreme.
    Mr. Speaker: Order. Even on the Front Bench, questions must be asked.
    Mr. Fox: It is complacent in so far as if only the Minister had accepted—[Hon. Members: "Question."] Does the

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    Minister accept that if he had adopted what we proposed in our Road Traffic Bill, particularly the clauses which liberalised bus licensing, the tragic problem of rural areas would be well on the way to being solved? Can he give us an idea of when he intends to announce these relaxations?
    Mr. Carmichael: I assure the hon. Gentleman that, if I appeared complacent, my activities over the last few months have not been evidence of that complacency—at least, I hope not. I was aware of the proposals made by the Conservative Government in their 1973 Bill. In fact, I made a comment on them in the House. Since coming to power I have realised that, although the problem varies from one part of the country to another, getting a solution which will be generally applicable is not as easy as specifying the difficulty.

    Housing (Loan Sanction)
    Mr. Michael Marshallasked the Secretary of State for the Environment whether he will amend the present regulations so that loan sanction for local authorities may be given for both the purchase of second-hand as well as new houses.
    Mr. Freeson: Local authorities already have powers to buy new and second-hand houses, subject to Government financial controls and policy guidelines such as have been set out in Circular 70/74.
    Mr. Marshall: Is the Minister aware that this Question is prompted by the experience of my local council, which recently sold one of its council houses to a sitting tenant? The sitting tenant having been transferred to another part of the country, the council is unable under the present regulations to repurchase the house. Will the Minister look at the matter and consider whether amendment of the regulations could ease the problem?
    Mr. Freeson: I cannot answer that question fully without more detail. Under the general consent laid down in the circular to which I have referred, properties which stand empty for six months or so can be purchased without specific application to the Department anyway. Other applications outside the general consent, such as are described in the cate-
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    gories in the circular, would need to be made to the Department.
    Mr. SkinnerDoes my hon. Friend agree that the Question on the Order Paper asking that local authorities should have the power to buy both new and second-hand properties makes the very idea propounded by the Opposition that councils should sell off council houses ludicrous in the extreme? How on earth can local authorities buy second-hand and new houses out of the private sector when they have only half the money that they would otherwise get by selling off council houses at about 30 per cent., 40 per cent. or 50 per cent. below the market price, which is what the Opposition want?
    Mr. Freeson: The policy of indiscriminate selling-off of council houses, such as was practised by the Opposition when they were in a position to practise it and which is still advocated by them, is to be deplored. I am unable to quote figures without notice, but there has been a considerable reduction in this practice by local authorities. There has been a massive run-down of this practice. There should be a policy of flexibility in housing provision relating to the needs on the ground. This indiscriminate policy pursued like a political gimmick by the Opposition is now at an end.
    Sir Nigel Fisher: Returning to the original Quesion, I put it to the Minister that his policy is unrealistic in practice. Is he aware that in one block of flats in my constituency, bought by the GLC, not a single flat is vacant? All the flats are tenanted. Are the tenants to be evicted? If that is not the case, not one homeless family in the GLC area will be rehoused. Furthermore, does the hon. Gentleman agree that this is an extra burden on the already record rise in the GLC rate which my constituents have to bear without benefiting a single homeless family?
    Mr. Freeson: As a matter of fact, the hon. Gentleman has not returned to the original Question. I have already indicated to one of his hon. Friends that I shall be glad to consider the details of such cases. I repeat that among the priorities in expenditure for public ownership in this sector is the purchase of empty or largely empty properties—there are other factors as well—and not the purchase of properties in good condition

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    and fully occupied. That may come later, but that is not the priority now. The hon. Member for Arundel (Mr. Marshall) asked whether further powers could be made available for local authorities to buy properties.

    Palace of Westminster (Oliver Cromwell Statue)
    Mr. Crouchasked the Secretary of State for the Environment when he expects to see Oliver Cromwell outside Westminster Hall again.
    Mr. Crosland: Early in 1977.
    Mr. Crouch: Does the right hon. Gentleman agree that the presence of Oliver Cromwell standing outside this House was never so necessary as at this time as a reminder of the supremacy of Parliament, particularly when so many persons both in the Government and outside this House fail to appreciate where ultimate power resides?
    Mr. Crosland: I am delighted to agree with the hon. Gentleman that Oliver Cromwell was a stern defender of our constitutional liberties.
    Mr. Dalyell: If my right hon. Friend is seeing Cromwell shortly, will he have a word with him about Question No. 36 and get his advice on the practicality of hiving off the railways in Scotland to a Scottish Assembly?
    Mr. Powell: Does the Secretary of State agree that the man who superseded the House of Commons would certainly be among the minority voting "Yes" in the forthcoming referendum?
    Mr. Lipton: Will my right hon. Friend assure the House that the Cromwell statue is in safe keeping because in a recent broadcast the hon. Member for Cornwall, North (Mr. Pardoe) said that Parliament was diseased, that we wanted a new Cromwell and that he was prepared to melt down the Mace for that reason?

    Concessionary Fares
    Mr. Gwilym Robertsasked the Secretary of State for the Environment if, in view of the representations made about the difficulty of operating concessionary fares schemes for retirement pensioners, evidence of which had been supplied to him by the hon. Member for Cannock,
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    he will now decide to introduce a uniform nationally financed scheme to provide concessionary fares for retirement pensioners and the disabled ; and if he will make a statement.
    Mr. Carmichael: No, Sir. I have nothing to add to the reply given by my hon. Friend the Under-Secretary of State for Health and Social Security to the hon. Member for Berwick-upon-Tweed (Mr. Beith) on 11th December 1974.—[Vol. 883, c. 190–1.]
    Mr. Roberts: Is my hon. Friend aware that I read that reply with some dismay? Does he accept that the present situation is one of absolute chaos? The concession depends on where a pensioner lives. In some areas pensioners get entirely free travel and in other areas, mostly Tory-dominated, they get nothing at all. The concession also depends on the bus route as a pensioner moves from one area to another. Does my hon. Friend accept that a simple solution would be to have an automatic system for old-age pensioners applicable both to buses and to rail?
    Mr. Carmichael: My hon. Friend is calling for a national scheme. I think he should realise that the joint circular on local expenditure which went out to local authorities showed that present expenditure amounted to about £35 million. This varies throughout the country. Not all authorities have these schemes, and there are marked differences between them. It would not be practical in the present state of our economy to introduce a national scheme, because it would cost much more than £35 million.
    Mr. Fry: Does not the question posed by the hon. Member for Cannock (Mr. Roberts) illustrate the chaos existing in public transport when some fares are subsidised by ratepayers, some are subsidised indirectly by taxpayers and others are not subsidised at all, and when services are being reduced and many people are finding it impossible to afford to travel on public transport? Is it not time that the Government, having been in office for over a year, got down to producing a coherent policy on public transport?
    Mr. Carmichael: The hon. Gentleman should realise that we have been in power for only a year. During that year the cost

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    of public transport has increased tremendously. Oil and petrol have multiplied the cost factor by five during that period. We must accept that mobility will in future be more expensive all over the world. The Government have tried to help. For instance, there is a general scheme for rebates on fuel duties and the purchase of new buses. Local authorities are empowered to operate their own local services under the transport supplementary grant.
    Mr. Tomlinson: Does not my hon. Friend agree that there is something basically absurd about priorities when we can find resources for mile after mile of motorway which communities do not want and for supersonic air transport but not for decent, basic rural transport for those who cannot afford motor cars, especially when we do not want them to run motor cars in view of the energy crisis?
    Mr. Carmichael: There are always ways of getting better services by pouring more and more money into them.
    Mr. Tomlinson: It would be cheaper than Concorde.
    Mr. Carmichael: The problem is in deciding on the best value to be obtained from any expenditure. That is what the Government intend to do. I know my hon. Friend's attitude to a particular motorway, but I get many delegations asking for motorways because they are the only way of making life tolerable in certain parts of the country.
    Mr. Wigley: Is the hon. Gentleman aware that pensioners find it difficult to understand why, when they go to urban areas like Merseyside, they can have free travel at certain hours whereas companies in the same National Bus Company in rural areas not only offer no free transport but are closing down services? Will he reveal the Government's transport policy in this area?
    Mr. Carmichael: This is, of course, a question for local authorities. The National Bus Company does not pay for concessionary fares ; it is the local authority which has this power. It must be realised that bus operators are working on a very slim margin all over the country, so that any concessions in one part of their services must be made up by the local authorities or by other travellers.

    Battered Wives and Children (Accommodation)
    Mrs. Wiseasked the Secretary of State for the Environment if he is satisfied with the progress being made on the provision of refuge accommodation for battered wives and their children.
    Mr. Freeson: No, Sir, I am not satisfied but think it best to await the recommendations of the Select Committee, to which my Department yesterday submitted a memorandum, before deciding on future policy. Meanwhile, as an interim measure, I have agreed that housing for battered wives and their children, including hostels, should be eligible for local authority subsidies and housing association grant, and I hope that councils and housing associations will make the necessary provision wherever possible.
    Mrs. Wise: I thank my hon. Friend for that reply. Will he recognise, however, that this is a matter of immense urgency for many women who daily face terrible injuries in their homes? Would he also recognise—[Laughter.] I am surprised that some hon. Members regard this as comic. I suggest that they attend the Select Committee on Violence in Marriage, where they will hear evidence which will put them right. Will my hon. Friend recognise that the valuable work done in this field so far has been done by groups of women on a help-one-another basis and that they work in difficult conditions? Will he ensure that local authorities do not harass them in any way on top of their present difficulties?
    Mr. Freeson: I certainly take the matter seriously and am trying to treat it as urgently as 1 can. The difficulty is that I am waiting for the results of the Select Committee's consideration and examination of all the evidence given it, not only by my Department, before reaching a view about the longer-term aspects of housing policy and how I can help to deal with this problem. The urgency is reflected in the fact that we have already agreed to provide the necessary subsidy facilities for the provision by local authorities and housing associations of appropriate accommodation for such people who live in tragic circumstances, as I know from cases with

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    which 1 have had to deal as a constituency Member. For the rest we must await the future, but I assure my hon. Friend that I am not complacent.
    Miss Fookes: Does the hon. Gentleman have any idea of the numbers of wives and children involved? This must obviously have a bearing on the kind of accommodation required.
    Mr. Freeson: No, 1 have no idea of the size of this problem or of its variation. This is a matter which I imagine will be dealt with much more adequately, at this stage at least, by the Select Committee. But we should not wait for some kind of national assessment of the scale of the problem before trying to provide facilities wherever possible, certainly in the field of housing for which I am responsible. To this extent I am happy that, as a result of what I have said today and contacts that we have with local authorities, facilities will be provided wherever possible under housing subsidy arrangements.
    Mrs. Winifred Ewing: I welcome all that the Minister has said. When the Select Committee reports, which it is hoped we will do as quickly as possible, will the Government find time there and then to implement any recommendations we make, even if they require legislation?
    Mr. Freeson:The hon. Lady will realise that I am concerned with one particular facet of policy and administrative practice—that relating to housing. We should have to await the examination which my right hon. Friend the Secretary of State for Social Services will give to the report when it is forthcoming before deciding what legislation will be introduced and what policy decisions will have to be taken.

    Licensed Premises (Rents)
    Mr. DavidWatkins asked the Secretary of State for the Environment what representations have been made to him about the proposals of brewing companies to increase the rents of public houses following decontrol.
    Mr. Oakes: I would refer my hon. Friend to my right hon. Friend's reply to the hon. Member for Braintree (Mr. Newton) on 3rd March.—[Vol. 887, c. 342.]
    Mr. Watkins: I thank my hon. Friend for that illuminating answer. Is he aware
    1636
    that evidence has been brought to my attention that brewers are proposing increases of as much as 250 to 300 per cent.? Is it not therefore time that their monopoly was cracked down upon instead of being unleashed?
    Mr. Oakes: As my right hon. Friend the Secretary of State explained on 19th December, the Government considered that the control of business rents was having an unintended effect on some parts of the economy. As for the general level of rents, particularly the example that my hon. Friend has given, I understand that a code of practice on tenant security, accepted by both sides of the licensed trade, provides for disputes which cannot be settled by negotiation to go to arbitration.

    Furnished Lettings
    Dr. Hampsonasked the Secretary of State for the Environment how many furnished lettings were available in England and Wales in each year from 1969–70 to 1974–75.
    Mr. Freeson: 763,000 households, 4.6 per cent. of all those present on census night in April 1971, were occupying furnished accommodation. Comprehensive information for other years is not available.
    Dr. Hampson: That seems a remarkable answer, because the Minister is basing quite a lot—[Hon. Members: "Question."] Does he not realise that what is, I believe, a stable situation will collapse dramatically because of the disincentives incorporated in the Rent Act? Will he stop deluding himself that the only thing that is falling off is the number of newspaper advertisements? The disincentives are forcing landlords to close down the lettings they have been offering.
    Mr. Freeson: If the hon. Member has specific information rather than generalisations, I shall genuinely be glad to receive it so that we may more effectively monitor what is happening in the wake of the Act. As for the absence of information for other years, there is nothing startling about that. A census will be taken in 1976 upon which basis we shall be able to update information. It is true that some sample surveys have been taken, but they are hardly an adequate basis for comprehensive statistics.
    Mr. Raison: Will the Minister take seriously the point raised by my hon. Friend? Will he apply some common sense to the whole problem of furnished lettings? Will he now set up an inquiry into the effect of the 1974 Rent Act and apply serious thought to the possibility of providing a new form of short-term tenure?
    Mr. Freeson: On that last point, as I made clear in an answer a week or two ago, the answer is No ". I do not think that an inquiry is warranted. [Hon. Members: "Oh."] The Opposition, particularly hon. Members with knowledge of property dealings, would do well to stop playing politics with this issue.

    Waste Material
    Dr. Phippsasked the Secretary of State for the Environment if he will consider introducing incentives for the separation and collection of waste by local authorities.
    Mr. Oakes: I have asked the recently-appointed Waste Management Advisory Council to consider to what extent incentives may be needed. Some schemes already make a profit and I hope that we can help local authorities to make others do so too.
    Dr. Phipps: I thank my hon. Friend for that reply. May I urge upon the Government the setting up of an advertising scheme similar to that used for the litterbug campaign in the 1960s, to give people the incentive to carry their waste to central receptacles? I understand that that would be the only economic way of collecting much of the recoverable waste.
    Mr. Oakes: I agree with my ron. Friend about litter. I encourage all local authorities to make adequate provision for such waste receptacles so that litter need not deface our streets. However, I think that that is rather away from the original Question on recycling.
    Mr. Winterton: Will the hon. Gentleman confirm that his Department is spending about £2 million to advertise the need for waste separation? Does he think that that can be justified at present? Should not the money be allocated to local authorities for other things that they need to do, bearing in mind that they cannot at present find the money to set
    1638
    up the expensive plants that are necessary?
    Mr. Oakes: I do not know where the hon. Gentleman gets his figures from. No such expenditure is being made or is envisaged.
    Mr. Jim Marshall: Is my hon. Friend aware of the difficulties that many groups which collect waste paper are experiencing as a consequence of the cyclical nature of the waste paper industry? Will he investigate ways of alleviating the difficulties and giving local authorities further power to store and dispose of waste paper?
    Mr. Oakes: I am aware of the problems They arise in the main from voluntary organisations which, properly and public-spiritedly, decided when the market was high that they would have collection schemes and so on. Because of the cyclical nature of the market, the price is temporarily low. I am convinced that the answer is to have longterm agreements between local authorities and the industry. My right hon. Friend the Secretary of State for Industry is considering Government assistance for storage by industry.
    Mr. Speed: What progress has been made on an excess stock support scheme for waste paper? Proposals from the industry have been before the Government for many months.
    Mr. Oakes: That is more a question for my hon. Friend the Under-Secretary of State for Industry. It is one of the matters being considered by the Waste Management Advisory Council. We hope for a report within the next month or two.

    Local Authority Mortgages
    Mr. Frank Allaunasked the Secretary of State for the Environment if he has now completed his consideration of the proposal to provide Government loans at lower interest rates to local authorities for the purpose of granting mortgages to would-be house buyers ; and if he will make a statement.
    Mr. R. C. Mitchellasked the Secretary of State for the Environment if he will list those local authorities which have since 23rd January 1975 announced their

    1639
    intention of charging mortgage lending rates above 11 per cent.
    Mr. Freeson: On the general issue, I would refer my hon. Friends to the answer I gave to my hon. Friend the Member for Nelson and Colne (Mr. Hoyle) on 10th March.—[Vol. 888, c. 31–2.]
    I will, with permission, circulate in the Official Report a list of 18 local authorities in England which have to my knowledge announced decisions to raise their variable mortgage rate above 11 per cent. in the last eight weeks.
    Mr. Allaun: Is it not a fact that many local authorities which help people who cannot obtain mortgages elsewhere are having to pay more than 15 per cent. on their current borrowings, whereas building societies can get money in at less than 11 per cent.? Could not the Government—at little cost to themselves, as they can obtain money cheaply—provide loans equally cheaply to the local authorities for this most valuable purpose?
    Mr. Freeson: Applying to local authorities what one might loosely call the building society scheme that we adopted a year or so ago would not be of much help, even if it were acceptable to operate it, because £500 million loaned to building societies must be seen in relation to the £2,500 million loaned by them. The application of that kind of proportion of lending to local authorities would not produce the desired results. The figures have been worked out. In any case, in terms of public expenditure our housing priorities lie elsewhere.
    Having made those two points, I want to make it clear that we are still carefully examining ways in which we might be able to deal with this serious problem, serious particularly for a minority of borrowers from the local authorities concerned.
    Sir D. Walker-Smith: While I appreciate that there are differences between the position of building societies and the position of local authorities in some respects in regard to mortgage interest rates, may I ask whether constructive action will be taken to help authorities which are encountering special difficulties? Has the Minister yet concluded consideration of, and given sympathetic attention to, the representations made to
    1640
    him by the Broxbourne District Council over its special difficulties?
    Mr. Freeson: We have had a number of representations, not from all the local authorities affected but from quite a few. Except in certain marginal respects, we have not been able to be of immediate assistance to the local authorities concerned, but we are still looking into ways in which we may be able to help in the matter.
    Mr. R. C. Mitchell: is my hon. Friend aware that with every month that goes by more local authorities will have to change more than the 11 per cent. building society rate for their mortgages? This is inevitable because of the nature of local authority financing. May I stress that many of the people who take up local authority mortgages are in the lower income groups and could not obtain mortgages from the building societies? Is it not essential that they should be treated fairly, as were the building society borrowers?
    Mr. Freeson: I take the point my hon. Friend is making about the policy practices of local authorities in the issuing of mortgages, although, as a result of recent analytical examination, I would not go too far down that road in a general way. There is evidence of a considerable overlap in the kinds of customers covered by local authority provisions and those covered by building societies—far more than I had thought until quite recently. Nevertheless, we still take the problem seriously. I cannot promise that there will be an immediate answer. We shall try to find an answer, but it must be one which does not involve public expenditure being redirected from higher housing priorities.
    Mr. Rossi: In view of the many thousands of empty houses in local authority ownership, does the Minister accept that the proposal contained in Question No. 20 is a far more sensible way of deploying public resources than a programme of municipalisation? Will he have regard to those authorities which are finding it difficult to recruit teachers or to provide homes for public service employees, because those employees do not wish to be council tenants but cannot afford to buy their own homes at the high level

    1641
    of mortgage interest proposed by local authorities?
    Mr. Freeson: The hon. Gentleman has raised some cases demanding sympathy in the coverage that has been given to the matter. The housing difficuilties which teachers and other public service workers in London and some other places have experienced did not start with the increase in mortgage rates in recent months. They started a considerable time ago during the great boom in house prices under the previous Government.
    The hon. Gentleman's introduction of the issue of municipalisation is a red herring. There are considerable pressures form public service worker's organisations for local authorities to buy even more properties in oreder that they may make vacant property available for such workers.
    Following is the list:

    Bolton DC.

    Luton DC.

    Bournemouth DC.

    Melton DC.

    Bracknell DC.

    Middlesbrough DC.

    Brent LB.

    Milton Keynes DC.

    Cambridge DC.

    North Herts DC.

    Chichester DC.

    Reading DC.

    Eastbourne DC.

    Suffolk Coastal DC.

    East Staffordshire DC.

    Tendring DC.

    Langbaurgh DC.

    Uttlesford DC.

    Sports Council
    Mr. Monroasked the Secretary of State for the Environment how much of the increase in grant to the Sports Council of £1.15 million for 1975–76 is in respect of inflation ; and how much is intended for the growth of facilities.
    Mr. Crosland: The difference between the grant for this year and that proposed for next can be accounted for by inflation, but the council's estimates for next year include over £3½ million towards capital schemes already under construction or ready to start in that year.
    Mr. Monro: Is the Secretary of State aware that his reply is totally inadequate? Is he further aware that the amount for the increased grant certainly will not cover inflation and will not allow for any expansion of facilities? What is most important, will he accept that the country cannot understand his Government's priorities, because on the one hand they give away hundreds of million of
    1642
    pounds for nationalising industry but on the other hand they cannot afford £2 million for sport?
    Mr. Crosland: It is always curious to hear Opposition Members calling for increased public expenditure. The hon. Gentleman debated this matter on Monday night with my hon. Friend the Minister of State with responsibility for Sport. If he is saying that the present Government's record on sport is inadequate and unsatisfactory, I must tell him that when my hon. Friend the Minister of State resumed his responsibility for sport there was a sensational improvement in the morale of the entire sporting world.
    Mr. Canavan: While recognising that more public expenditure is necessary for sport and recreation, may I ask my right hon. Friend to remind the Sports Council that in the financial year 1973–74 it spent £1·6 million in administrative costs in order to disburse a mere £2·1 million? Does not my right hon. Friend consider that instead of handing out public money to non-elected and non-accountable bodies it would be far better to have an integrated Ministry of Recreation, answerable to Parliament, which would be responsible for organising and financing recreational and sporting facilities throughout the country?
    Mr. Crosland: My hon. Friend has made a very interesting proposal. I would remind him that the fact that the Sports Council is now at such a distance from Parliament—and, indeed, from anywhere else—was due to the reconstruction of the Sports Council by the previous Conservative Government. We should all, of course, like more money for sport. I should like a large sum of additional money for Grimsby Town Football Club—which is a cold place on a windy day. But much as I should like that, we must nevertheless stick to our basic national priorities.
    Mr. Michael Morris: What guidance has the Secretary of State given to local authorities concerning the priority they should give to expenditure on sports facilities?
    Mr. Crosland: The guidance was given in Circular 141/74.

QUESTIONS TO MINISTERS
Mr. Adley: On a point of order. May I raise with you, Mr. Speaker, a point of view that is fairly widely held in the House—that there is inadequate time for Questions to the Department of the Environment? Housing, transport, local government and planning all have to be grouped into one day. There are 66 Oral Questions on the Order Paper. Whereas under the previous Conservative Government, energy, trade and industry were initially, for instance, all part of the responsibility of the Department of Trade and Industry they now have their separate days. Will you, Mr. Speaker, see that this matter is brought to the attention of the relevant authorities?
Mr. Skinner: Further to that point of order. When you are considering this matter, Mr. Speaker, I hope that you will bear in mind that during the 31 years of the previous Conservative administration and certainly for the first part of it, this Question hour was dominated by many planted Questions, which were tabled by hon. Members of the present Opposition, including possibly the hon. Member for Christchurch and Lymington (Mr. Adley). It may be just possible that he is a little aggrieved because he cannot now put down his planted Questions.
Mr. Speaker: No doubt the Leader of the House will consider this matter. It is not a matter for me. It is a matter for discussion through the usual channels.
Mr. Mather: On a point of order. Have you any information, Mr. Speaker, whether the Home Secretary intends to make a statement tomorrow on the transfer of the Price sisters to Northern Ireland?
Mr. Speaker: No. That is a bogus point of order.
Mr. Kershaw: On a point of order. We have today, Mr. Speaker, the statement on the Defence Estimates. Is it not usual for a statement to be made in the House when they are published? Are we to have a statement today or tomorrow?
Mr. Speaker: Again, that is not a matter for the Chair. I do ask the House to support the Chair. I am trying to stop what are in fact false points of order. I can only do that with the assistance par-
1644
ticularly of experienced hon. Members. As the hon. Member knows, that is not a matter for the Chair. [Interruption.] In the last Parliament the other side were just bad.

BUSINESS OF THE HOUSE (OIL TAXATION BILL)
Ordered,
That the Third Reading of the Oil Taxation Bill may be taken immediately after the consideration of the Bill, notwithstanding the practice of the House as to the interval between the stages of Bills brought in on Ways and Means Resolutions.—[ Mr. Coleman.]

STATUTORY INSTRUMENTS
Mr. Speaker: In order to save the time of the House, I propose, unless there is any objection, to put together the Questions relating to the two statutory instruments.
Ordered,
That the draft Redundant Mineworkers and Concessionary Coal (Payments Schemes) (Amendment) Order 1975 be referred to a Standing Committee on Statutory Instruments.
That the Rating (Water Hereditaments) Order 1975 be referred to a Standing Committee on Statutory Instruments.—[Mr. Edward Short.]

SOCIAL SECURITY (ABOLITION OF WAGE STOP RULE)
3.34 p.m.
Mr. John Ovenden: I beg to move,
That leave be given to bring in a Bill to abolish the wage stop rule in relation to the payment of social security benefits.
The wage stop rule is the rule contained in paragraph 5 of Schedule 2 of the Supplementary Benefit Act 1966.
Mr. Speaker: Order. Will hon. Members who wish to conduct loud conversations do so outside the Chamber.
Mr. Ovenden: The rule applies to all men who have to register for work as a condition of receiving supplementary benefit. The rule demands that unless there are exceptional circumstances the amount of supplementary benefit payable shall not exceed what would be the individual's net weekly earnings if he were engaged in full-time work in his occupation. I am asking leave to introduce the

1645
Bill firstly because I believe it is fundamentally wrong that we should deliberately condemn families to a life below the poverty line, which is precisely what the wage stop rule was about.
In November 1974 there were 8,000 supplementary benefit claimants subjected to the wage stop. The figures for family size, which are available only for November 1973, show that 60 per cent. of claimant families then were families with five or more children, and that another 30 per cent. had three or four children. On that basis we can calculate that in excess of 35,000 children are affected.
It is also evident that the larger the family the larger will be the wage stop deduction, and the further below the poverty line the children will have to live. The average wage stop deduction at present is about £2. But in the case of three-, four- or five-children families it is quite possible that this deduction can be three or four times the amount.
The rule is often misunderstood. It is not supposed to be a weapon against the work-shy. The Supplementary Benefits Commission has enough weapons in its armoury to deal with that problem without needing the wage stop rule.
In its 1967 report the commission stated:
" The purpose of the wage stop is not to provide an incentive for a man to get work. The wage stop does not require a man to get less than he would when working. What it does do is to ensure that an unemployed man's income is not greater than it would be if he were in full-time work."
The question we must ask ourselves is this. Are we justified merely because some families have to live in poverty when the breadwinner is in full-time work in condemning them to live in poverty when they are eligible for State benefits? The question really is this. In a humane Welfare State, can we tolerate a rule which means consciously and deliberately deciding that certain people should live below a level that we have ourselves decided is the poverty level? We are accepting a situation in which parents cannot afford to feed or clothe their children decently because of a rule which belongs more to the days of the Poor Law then to the days of an enlightened Welfare State.
1646
It is right that we as a society should be concerned about a situation in which a man may earn less in work than he can receive in State benefits. However, the reason why we should be concerned is that we should question the type of society which pays a man less than a living wage for doing a week's work. The continuation of the wage stop rule will do nothing to change that society. It will only continue to mask the injustice. I believe that the abolition of this rule will give a boost to the implementation of a system of family benefits that is needed by families in work to move them above the poverty line.
Above and beyond the moral argument on this question there is a problem of administration. The wage stop rule places an impossible burden upon the officers of the Department of Health and Social Security, because it is virtually impossible to administer fairly. First, it must be decided what an unemployed man's normal earnings would be. This means, I understand, that regard must be had to likely future earnings and that judgment must be exercised—I am told—over past earnings. Past earnings, of course, particularly in the days in which we are living now, can often be rendered meaningless by inflation.
The commission's rules state that any skill or experience should be taken into account in assessing a man's earning power and that there should be discussions with the claimant about his normal earnings. Yet in the majority of cases investigated by the Child Poverty Action Group, it was found that this was not done. The vast majority of wage-stopped claimants are assessed on the National Joint Council rates for light labourers, and, although these rates now include a guaranteed minimum income, they take no account of overtime. We all know that to a man with a large family it is the overtime earnings which make the difference between living and existing. The commission's rules mean that the National Joint Council rates are applied to all men after a year's unemployment, irrespective of their past earnings.
The rule is particularly harsh when applied to the disabled. Some men are no longer able to continue their former jobs because of disability, and not only suffer the drop in living standards to supplementary benefit rates but if they

1647
register for work they become candidates for the wage stop.
There are numerous examples which the Child Poverty Action Group has quoted. There is the case of Peter Rothman, who had earned good money as a skilled gas fitter in Liverpool until he had to leave the job because of osteoarthritis. Stuart Brown was a well-paid lorry driver until he suffered a heart attack. Ray Jameson had been a £40-a-week sanding machine operator when a stroke left him partially paralysed. Mike Bracken, who had been doing a skilled manual job, is no longer able to do that because of cervical spondylosis. Robert Chaffer, who had infantile poliomyelitis and now suffers from partial but progressive paralysis, continued to work, against medical advice, as a process operator in a steel works until his health gave out.
All these cases produced by the Child Poverty Action Group have been affected by the wage stop rule. One of them was told "There aren't any jobs for you, so you might as well sign on." By signing on, he made himself a candidate for the wage stop, and this was promptly imposed. All these cases, who were formerly skilled men, are classified according to the earnings of light labourers, jobs they never did previously.
The proper administration of this rule demands that due regard should be paid to rent and rate rebates and family income supplement due to the man concerned when in work. It is impossible to say whether this happens.
Recently I asked my hon. Friend the Under-Secretary of State to give
1648
information on how the introduction of rent and rate rebates had changed the number of people affected by the wage stop. He was unable to provide me with precise figures. I do not blame him for that, because I believe that it would be a massive task properly to monitor the rule.
Undoubtedly if the rule were carefully applied some injustices could be avoided. but at the same time that would reduce the saving to public funds of the wage stop rule and increase the administrative costs. We could well reach a point where the rule actually cost the Exchequer money, and I am sure that it would then be scrapped.
How, then, can there be any justification for keeping a rule which saves us money merely because it is applied over-harshly and haphazardly and is improperly administered?
Question put and agreed to.
Bill ordered to be brought in by Mr. John Ovenden, Mr. Ivor Clemitson, Mrs. Maureen Colquhoun, Mr. Robin F. Cook, Mr. Robin Corbett, Mr. Bruce George, Mr. Bryan Gould, Mr. Eddie Loyden, Mr. Max Madden, Mr. Stan Newens and Mrs. Audrey Wise.

SOCIAL SECURITY (ABOLITION OF WAGE STOP RULE)
Mr. John Ovenden accordingly presented a Bill to abolish the wage stop rule in relation to the payment of social security benefits, and the same was read the First time ; and ordered to be read a Second time upon Friday 11th July and to be printed. [Bill 1171

OIL TAXATION BILL
As amended (in the Standing Committee), considered.

New Clause 1

OIL ALLOWANCE

5

' (1) Subject to the provisions of this section and paragraphs 10 and 11 of Schedule 3 to this Act, where a participator in an oil field would, apart from this section and section (Annual limit on amount of tax payable by participator) of this Act, be chargeable to tax for any chargeable period on an amount (" the said amount ") consisting of the assessable profit accruing to him in the period from the field or that profit as reduced under section 7 of this Act by any allowable losses, then for the purpose of determining his liability, if any, to tax for that period, the said amount shall be treated as reduced or further reduced as follows, that is to say—

10

(a) if the said amount exceeds the cash equivalent of his share of the oil allowance for the field for that period, to an amount equal to the excess; or

(b) if the said amount does not exceed the cash equivalent of his share of that allowance, to nil.

15

(2) The oil allowance for an oil field is, for each chargeable period, 500,000 long tons, and shall be divided between the participators in shares proportionate to their shares of the oil won and saved from the field during the period.

(3) For the purposes of this section the cash equivalent of a participator's share of the oil allowance for an oil field for a chargeable period is (subject to subsection (4) below) the amount given by the formula:—

£(A x B/C)
where—

A is the gross profit accruing to him in the period or, if a gross loss (or neither a gross profit nor a gross loss) accrues to him in the period, nil (in which case the cash equivalent itself will be nil);

25

B is his share of the allowance, in long tons; and

C is his share, exclusive of excluded oil within the meaning of section 8 of this Act, of the oil won and saved from the fields during the period, in long tons.

30

(4) If a participator in an oil field so elects by notice in writing given to the Board at the time when he makes his return under paragraph 2 of Schedule 2 to this Act for a chargeable period, then the cash equivalent of his shale of the oil allowance for the field for that period shall be determined under subsection (3) above

35

(a) to the extent that his share of that oil allowance does not exceed his share of the oil (other than gas) won and saved from the field in the period, as if in computing the gross profit or gross loss accruing to him in the period all amounts relating to gas fell to be disregarded; and

(b) to the extent, if any, that his share of that oil allowance exceeds his share of the oil (other than gas) so won and saved, as if in computing the gross profit or gross loss so accruing all amounts relating to oil other than gas fell to be disregarded.

40

(5) For the purposes of this section the amount of the oil allowance for an oil field utilised by a participator in any chargeable period is

(a) if in his case a reduction is made for that period under subsection (1)(a) above, an amount in long tons equal to his share of the oil allowance for the field for that period;

45

(b) if in his case a reduction is made for that period under subsection (1)(b) above, the amount in long tons arrived at by multiplying his share of the oil allowance for the field for that period (in long tons) by the fraction of which the numerator is the amount of that reduction and the denominator is the cash equivalent of his share of the said oil allowance;

(c) in any other case, nil.

50

(6) The total oil allowance for an oil field shall not exceed 10 million long tons, and accordingly

(a) for each chargeable period there shall be determined the aggregate of the amounts of the oil allowance for the field utilised by the participators in that period; and

55

(b) as regards the earliest chargeable period such that the sum of the aggregate determined under paragraph (a) above for that period and the aggregates so determined for each earlier chargeable period would, apart from this subsection, exceed 10 million long tons, the necessary restriction shall be apportioned between the participators in such manner as may be notified to the Board by the responsible person or, in default of such notification, as may be determined by the Board.

60

In this subsection "the necessary restriction "means the restriction necessary to secure that the aggregate determined under paragraph (a) above for the chargeable period to which paragraph (b) above will, when added to the sum of the aggregates so determined for each earlier chargeable period, produce a total of 10 million long tons.

65

(7) For the purposes of this section 40,000cubic feet of oil consisting of gas at the temperature and pressure mentioned in section 1(4) of this Act shall be counted as equivalent to one long ton of oil other than gas.

(8) Any reduction to be made under subsection (1) above shall be made before applying the provisions of section (Annual limit on amount of tax payable by a participator) of this Act'.—[Mr. Dell.]

Brought up, and read the First time.
3.43 p.m.
The Paymaster-General (Mr. Edmund Dell): I beg to move, That the clause be read a Second time.
Mr. Speaker: On Clause 1, I understand that there is to be a general debate on various other matters.
Mr. George Reid: On a point of order, Mr. Speaker. In view of the indistinct printing of the Notice Paper, may I confirm with you that Amendment No. 230 will be called? It deals with the establishment of a Scottish oil fund.
Mr. Speaker: That is an amendment which is beyond the scope of the Bill. It is out of order.
Mr. Gordon Wilson: On another point of order, Mr. Speaker. In view of the importance of the Scottish oil fund to the Scottish economy, will you rule on whether it will be possible for some of the arguments in favour of the fund to be adduced on any other amendments and, if so, on which amendments?
Mr. Speaker: I should be in grave difficulty if I were to allow discussion of matters outside the scope of the Bill. Let us see how we get on. My preliminary reaction is that, if the amendment is outside the scope of the Bill, the argument in favour of it is irrelevant to our discussion.
Mrs. Winifred Ewing: Further to that point of order, Mr. Speaker. Will you please press the Select Committee on Procedure to hasten its recommendations so that amendments lodged by minority parties, particularly parties that are not minorities in the countries from which they come, can get some rights to be heard in the House?
Mr. Speaker: I do. not think that any Select Committee on Procedure would
1652
ever recommend that amendments outside the scope of a Bill could be included in the discussions on the Bill.
Mrs. Margaret Bain: Further to that point of order, Mr. Speaker. If there are to be no discussions today on the setting up of the Scottish oil fund, may we be given a guarantee that such a matter will be discussed at a future date, as it is vital to the Scottish Assembly, which will be set up under this Government's legislation, that this matter be discussed?
Mr. Speaker: That is not a matter for me. It appears to be an appropriate matter to be raised at business questions on a Thursday.
With this new clause it may be convenient to discuss the following amendments:
Amendment (a) to the new Clause 1, in line 69, at end add—
' (9) Notwithstanding subsection (1) above a participator shall be entitled to the cash equivalent of his share of the oil allowance for a field for each chargeable period from and including the first chargeable period (as defined in section 1(3) of this Act) and if for any chargeable period a participator is not able to utilise or fully utilise under subsection (I) above his share of the cash equivalent of the oil allowance calculated under subsection (3) above, and for which an election has been made under subsection (4) above, he shall be entitled on so claiming to carry forward such unutilised cash equivalent to reduce the said amount of any succeeding chargeable period '.
Amendment (b) to the new Clause 1, in line 69, at end add—
' (10) Notwithstanding subsection (1) above a participator shall be entitled to the cash equivalent of his share of the oil allowance for a field for each chargeable period from and including the first chargeable period (as defined in section 1(3) of this Act) and if for any chargeable period a participator is not able to utilise or fully utilise under subsection (1) above his share of the cash equivalent of the oil allowance calculated under subsection (3) above, and for which an election has been made under subsection (4) above, he shall be

1653
entitled on so claiming to carry back such unutilised cash equivalent to reduce the said amount of any earlier chargeable period '.
Amendment (c) to the new Clause 1, in line 59, leave out ' as may be determined by the Board ' and insert:

New Clause 2

ANNUAL LIMIT ON AMOUNT OF TAX PAYABLE BY PARTICIPATOR

' (1) The total tax payable by a participator in an oil field for the chargeable period or periods comprised in any calendar year shall not exceed 80 per cent. of the amount (if any) by which his adjusted profit for that year (as defined in this section) exceeds 30 per cent. of his accumulated capital expenditure at the end of that year (as so defined).

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(2) For a participator in an oil field, his adjusted profit (if any) for any calendar year shall be determined as follows—

(a) for each chargeable period comprised in that year there shall be ascertained—

(i) the assessable profit (without any reduction under section 7 or (Oil allowance) of this Act) or allowable loss accruing to him in that period; and

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(ii) the total amount taken into account under section 2(9)(b), (c), (d) and (e) of this Act in computing that profit or loss, excluding expenditure so taken into account under section 2(9)(b)(i) or (c)(i) which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii);

(b) in the case of each such chargeable period—

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(i) if there is a profit under paragraph (a)(i) above, the sum of that profit and the total ascertained under paragraph (a)(ii) above is his adjusted profit for the period;

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(ii)if there is a loss under paragraph (a)(i) above smaller than the total ascertained under paragraph (a)(ii) above, the difference is his adjusted profit for the period ; and

(iii) if there is a loss under paragraph (a)(i) above greater than the total so ascertained, the difference is his adjusted loss for the period;

(c) if the year comprises only one chargeable period, his adjusted profit (if any) for that period is his adjusted profit for the year;

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(d) if the year comprises two chargeable periods then—

(i) if for each of them he has an adjusted profit, the sum of those profits is his adjusted profit for the year;

(ii) if for one of them he has an adjusted profit and for the other an adjusted loss smaller than that profit, the difference is his adjusted profit for the year;

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(iii) if for one of them he has an adjusted profit and for the other neither an adjusted profit nor an adjusted loss, that profit is his adjusted profit for the year;

(iv) in any other case, he has no adjusted profit for the year.

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(3) For a participator in an oil field his accumulated capital expenditure at the end of any calendar year is the total amount of expenditure taken into account under section 2(9)(b)(i) and (c)(i) of this Act in computing the assessable profit or allowable loss accruing to him in each of the relevant chargeable periods, that is to say the chargeable period or periods comprised in that year and all earlier chargeable periods, excluding all expenditure so taken into account which was not allowed as qualifying for supplement

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under section 2 9)(b)(ii) or (c)(ii):

Provided that in the case of a participator who has made an election under paragraph 9 of Schedule 3 to this Act, his accumulated capital expenditure at the end of any calendar year shall be taken to be what it would have been if he had made no such election.

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(4)Any reduction necessitated by this section in the total tax otherwise payable by a participator in an oil field in respect of a calendar year comprising two chargeable periods shall be made as far as possible by reducing or extinguishing the tax otherwise payable by him for the later of those periods.

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(5) In the case of any oil field the preceding provisions of this section shall have effect as if the calendar year which comprises the critical half year as defined in section 1(4) of this Act comprised the whole of the first chargeable period '.

Amendment (a) to new Clause 2, in line 43, at end add:
`and provided further that the Treasury may from time to time increase the accumulated
'shall be so apportioned as to divide the total oil allowance for the field between the participators in shares proportionate to their shares of the total amount of oil own and saved for the field during the chargeable period to which this paragraph applies and each earlier chargeable period.'.
capital expenditure in the case of any participator to take account of such alterations in the rate of inflation as may be evidenced by such index as the Treasury may from time to time determine to be appropriate '.
Government Amendment No. 1.
No. 231, in Clause 1, page 2, line 5, leave out:
'such rate as Parliament may hereafter determine' and insert 'the rate of 75 per cent.'
Government Amendment No. 2.
No. 13, in Clause 2, page 5, line 14, after '(ii)', insert:
'Subject to subsections (4A) and (4B) of the said section 3.'
Government Amendment No. 14.
No. 18, in page 5, line 29, after '(ii)', insert:
'Subject to subsections (4A) and (4B) of the said section 3'.
Government Amendment No. 19.
No. 22, in Clause 3, page 7, line 39, after '(a)', insert:
' Subject to subsections (4A) and (4B) below,'.
No. 24, in page 8, line 17, at end insert:
' (4A) If a participator in an oil field so elects by notice in writing given to the Board before 1st January 1976 or not later than one month after the end of the first chargeable period in which he is a participator in that field, the following subsection shall apply in his case as regards that field ; and an election under this subsection shall be irrevocable.
(4B) Subsection (4)(a) above and section 2(9)(b)(ii) and (c)(ii) of this Act shall not apply but where the creditor is a person connected with the participator within the meaning of section 533 of the Taxes Act the expenditure allowable in respect of interest or other pecuniary obligation shall not exceed the amount which would have been incurred in a transaction with an independent person made at arm's length '.
No. 25, in page 8, line 28, after 'works', insert:
'or acquiring an asset or any interest in an asset '.
Government Amendment No. 168.
Government Amendment No. 169.
Government Amendment No. 232.
Government Amendment No. 239.
No. 26, in page 8, leave out lines 32 and 33.
No. 61, in Clause 5, page 12, line 41, at end insert:
'(5A) The abortive exploration expenditure allowable under this section shall be increased by an amount equal to the relevant percentage of the expenditure allowable by virtue of the preceding provisions of this section '.
No. 62, in page 12, line 45, leave out 'and'.
No. 63, in page 13, line 11, at end insert:
'; and
(d) "the relevant percentage "is the percentage mentioned in section 2(9)(b)(ii) of this Act '.
Government Amendment No. 108.
Mr. Dell: I hope to introduce this large group of amendments at not too great length, but there are many points to explain and criticism from both points of view to deal with.
Today we come to the final phase of the Bill, exactly four months after its introduction and after the beginning of the consultations which have gone towards fashioning it. This group of amendments deals primarily, though not exclusively, with the implementation of my statement to the House on 25th February.
New Clause I introduces an oil allowance which is designed to assist primarily marginal fields—in other words, 1 million tons of oil allowance per annum or 500,000 tons as the maximum allowable in any chargeable period.
I emphasise that the oil allowance is not 10 million tons. That is simply the limit. It is not a ration. The 10 million tons limit was placed in order to limit the benefit to large fields. The oil allowance—that is, the 500,000 tons per chargeable period—acts to reduce proportionately the PRT burden on smaller fields and it acts so that the smaller the field the greater the proportionate relief. This does not depend on a field getting or using the whole 10 million tons within the limit. There is or should have been no misunderstanding on this point, which was made perfectly clear to the industry.
I should, however, refer to the fact that there have been reports in the Press which give a misleading impression of the effect on a small field of the operation of the oil allowance as defined in the clause. I quote from the Daily Telegraph of 8th March. There was a similar report in The Times of the same day, and therefore one may take it that it is an accurate report. The report in the Daily Telegraph said that figures had been produced
" to show that a small field with reserves of 300 million barrels and with investment costs of £250 million would now be able to recover only 1·7 million tons of tax-free oil ".

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That calculation has never been put to us by the industry. Indeed, from within the industry the figure which we have received is that more like 8·6 million tons of oil allowance would be used in respect of such a field in normal circumstances. All these calculations depend upon costs, prices, the profile of production, and so on, which cannot be accurately forecast in respect of any field at this stage.
The important question about the oil allowance is whether it adequately relieves the tax burden. I believe that it produces a heavy reduction of the tax burden on smaller fields. Moreover, on a 40 million-ton field a relatively small further reduction in tax burden would be available even if all the oil allowance was used, and I do not believe that this would be the kind of difference which would decide whether a field was developed. All this is without taking account of the effect of the safeguard, which can give some assistance to marginal fields.
The right hon. Member for Wanstead and Woodford (Mr. Jenkin) has put down an amendment which echoes the view expressed vigorously by one section of the industry and perfunctorily by other sections to the effect that we should so arrange matters that if it is possible all the 10 million tons should be used. The effect of that, apart from being different from the Government's intention, would be to give great help to the few small profitable fields, and equally it would give great help to large profitable fields by deferring PRT liability. I therefore see no justification for this proposed amendment, although I shall listen intently as always to the right hon. Gentleman's arguments.
Mr. Tam Dalyell: Will the Paymaster-General confirm that the oil allowance will be sufficient to allow exploitation of the Andrew Field in connection with Forties, and is he in any position to say whether the oil companies have accepted this as sufficient to exploit the marginal fields?
Mr. Dell: On the Andrew Field, I imagine that the companies are now assessing its economics on the basis of the information they have about the tax system we propose to introduce. I can give no assurance until the companies
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involved tell me what they have found. However, our assessment of the matter is that these aids to marginal fields will be of great assistance in ensuring that these fields are developed. As to the oil industry's reaction to the marginal field provisions, as I pointed out, I have had very vigorous reaction from certain quarters and more perfunctory reaction from other quarters, but some of the criticism I am receiving from elsewhere is that I have gone too far to assist the oil industry. I will come to that point in due course.
I hope that the House will forgive me if I do not give way too much. I have a long list of amendments to introduce and it will be for the assistance of the House if we get ahead.
I should like to compare what we are doing over marginal fields with what is proposed by the Norwegian Government should be done in their waters. They intend to give 150 per cent. over 15 years. We are also conceding a further allowance on capital expenditure, what is other than the 25 per cent. further uplift which comes in one of the amendments grouped with the new clause. However, according to our calculations our proposal gives more help to smaller fields and probably less help to profitable large fields. The right hon. Member for Wan-stead and Woodford wants me to go further than that. I see no justification for so doing, but I will listen to the arguments.
Government Amendment No. 108 is designed to ensure that the participator cannot increase his oil allowance by the device of spreading an expenditure claim for PRT or by holding up his claims for capital expenditure. That is a necessary consequence of the introduction of the oil allowance.
Government Amendments Nos. 14 and 19 increase the uplift from 50 per cent. to 75 per cent. This will help marginal fields, notably those with large capital expenditure. It gives greater assurance that uplift will cover interest. It gives the companies a better opportunity even than was originally provided by the Bill of an early pay back of capital, but I must emphasise, because it appears that some commentators have not fully appreciated this point, that uplift is in replacement of interest and therefore the figure of 175 per cent., that represents the total

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capital allowance, includes interest, a fact which has misled some commentators. It should also be remembered in considering the adequacy of the provisions in respect of interest that interest relief grants are also available from the Offshore Supplies Office.
I now come to new Clause 2 which introduces the safeguard that I announced on 25th February. As I said in my statement then, the clause has been introduced to provide some automatic protection against a fall in the real price of oil, or what amounts to the same thing—movements in domestic prices unfavourable to oil. One can hope that at any rate by the early 1980's the present uncertainties surrounding the price of oil will have been resolved and that the relationship between oil prices and other prices will be seen to be on a firmer basis.
The Government of the day would then have to consider whether the protection offered by the safeguard clause remained appropriate to the particular circumstances of some quite profitable fields late in their life. I can perhaps best explain this point by reference to the hypothetical field which was taken for the purpose of illustration in a Treasury Press Notice issued on the day of my statement. The footnote to the illustrative table said that the safeguard provision would not be necessary for the hypothetical field.
Like all such illustrations, this was based on certain underlying assumptions about relative costs, prices and the profile of production. It is, however, possible by varying these assumptions, to arrive at a situation where the safeguard might affect such a field. Even on such assumptions it would be unlikely to affect such a field during earlier years of productive life, but during the later years, as production began to decline, such a field could well benefit from the safeguard to some extent.
It would be for the Government of the day, in circumstances, one hopes, of greater certainty about relative prices than now exist, to decide whether they should permit a field of this kind to benefit towards the end of its life from the safeguard provision after it had yielded substantial profits on the investment earlier on. I in no way prejudge that issue. It might be sensible to reduce PRT to
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encourage the bringing out of residual oil, but this matter should be drawn to the attention of the House as a question which may need to be examined at some further stage.
None of this affects the statements 1 made in this House about the Government take over the next ten years, which I believe to be a figure of about 70 per cent., or the figure I have given of the total estimated take up to the early 1980's The right hon. Gentleman has suggested that we should index the capital base. I will listen to the arguments in favour of that suggestion. but I emphasise that the clause already gives protection against a change in the relative price of oil. This will be a very expensive procedure especially later in the life of the field. The right hon. Gentleman has been unable to tell us in the amendment how he proposes that the capital base should indexed, and we await that information with interest. However, the whole concept of the safeguard rests on the capital base not being indexed. In my statement I emphasised that historic costs would apply. In response to the right hon. Gentleman's proposal I must point out that even the oil industry has not proposed to me that the capital base of the safeguard should be indexed.
Government Amendments Nos. 168 and 169 relate to Clause 3. They are to meet points raised by the United Kingdom Oil Industry Taxation Committee. The amendments extend the provision to cover the purchase of ready-made assets so that it applies not just to the carrying out of works. I hope and believe that the amendments meet the point of Opposition Amendment No. 25. Government Amendment No. 29 deletes the rule that no payment for the hire of an asset shall qualify for uplift but provides that the payment shall qualify broadly if the the asset is used constructing initial treatment, storage, transportation and production facilities in the field. Again, I believe that that substantially meets the point of Opposition Amendment No. 26. No doubt we shall see.
4.0 p.m.
Government Amendment No. 232 follows Government Amendment No. 186 on Clause 3 and the related amendments to Clause 10 making the initial treatment and storage of oil allowable for PRT and

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provides that expenditure on installations for these purposes should qualify for uplift.
We have the interesting parallel of the Norwegian tax proposals and can compare the structure of our tax with what the Norwegian Government have proposed to the Norwegian Storting. Some commentators appear to believe that the Norwegian proposals are already legislated, whereas we are likely to be ahead of the Norwegians in getting this Bill through. The Norwegians do not propose to introduce an excess profits tax, and certainly not an excess profits tax of the kind recommended by the right hon. Member for Wanstead and Woodford. It is, in effect, an additional slab of corporation tax. It is a single-rate tax—a characteristic of our proposals which the right hon. Gentleman has found particularly abhorrent. It is largely on a field basis because the depreciation provisions operate only against the income from the field to which they apply. Therefore, again, substantially it is similar to our proposals, which the right hon. Gentleman has found abhorrent.
There is a difference in that the additional tax—the special tax—does not have priority over the Norwegian corporation tax or income tax, whereas ours does. As I have explained to the House and to the Committee, the object of priority is to bring in the revenue earlier, and we think that we are right to differ from the Norwegians in this respect. There are, nevertheless, remarkable similarities between the structure which they have adopted and the structure which we, quite independently, have adopted.
I come to one of the questions which have worried many hon. Members considerably, and that is the rate of tax, 45 per cent., which is implemented by a Government amendment. I wish to explain the considerations upon which it is based and its consequences for Government take.
I should like to give the House some information about the background to the consideration of an appropriate rate of PRT. The first is the considerable escalation in costs which has taken place over the last year or so. The House should bear in mind that we are dealing, even now, with estimates of costs for all fields with the exception perhaps of one. These
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costs have not yet been finalised in the sense that they have been committed or spent. There is, therefore, considerable uncertainty in that respect.
Secondly, there is inevitably a question mark over the price of oil, and the current discussions throughout the world about whether there should be a floor price emphasise the question mark and suggest that it is not unreasonable if certain oil companies are concerned that a fall in the price might operate to the detriment of their profits. That is a justification for the safeguard which we have introduced as well as for the assurance which I have given in respect of substantial changes in the real price of oil,
The third consideration is the level of return necessary to achieve financial investment in the North Sea. One of the tragic facts about the present situation is that so much of the finance is coming not from this country but from overseas. Therefore, adequate encouragement must be given if the oil resources are to be exploited at an appropriate rate.
Finally, there is the problem of slippages in the programme which have an adverse effect on the rate of return which companies can expect from their operations. Due to many circumstances, largely technical, and the weather, and difficult conditions in the North Sea, there have been slippages in the programme.
Various criteria are used by the companies and the banks in determining whether development should be financed. There is the internal rate of return which can be expected. There is the profit/ investment ratio. There is the pay-back period. The rate of tax must be designed to accommodate all these considerations and permit a return on an acceptable level.
The hon. Member for Dundee, East (Mr. Wilson), together with his colleagues, has issued an interesting Press notice in which he criticises the calculations upon which the 45 per cent. rate is based and proposes an alternative rate of 75 per cent. He suggests that $1 profit per barrel for the companies should be sufficient. The trouble with such a simple criterion —profit per barrel—as a measure of the rate of tax which is appropriate is that it ignores the time function, the rate of return on capital, and the profit/investment ratio and, therefore, should not be regarded as an acceptable basis for investment.

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However, leaving all that aside, the hon. Gentleman's calculations of costs are excessively optimistic. I wish that they were right. If they were, the Government take, on the Government's proposals, would be much higher than we shall achieve as they are. It would greatly change the situation and might well make appropriate a different rate of tax from that which we have proposed. I say that his calculations are excessively optimistic except perhaps for a very large field on which capital expenditure has already largely been made.
Moreover, the hon. Gentleman's figures include errors about the results of the Government's measures. For example, according to our calculations, he is wrong about the Government take, which, as I have said, we reckon will be about 70 per cent. over the next 10 years. The hon. Gentleman gives the figure of 65 per cent. According to our calculations, he is wrong about the profit per barrel likely to result from the Government's proposals.
Moreover, although it is a little difficult to understand the hon. Gentleman's calculations, and, therefore, I make this point with some caution and, as always, I shall be delighted to discuss it with him because he has devoted some attention to this matter and has studied with care the Public Accounts Committee's report with which I had something to do, it appears to us that the 65 per cent. figure which he gives for Government take is based on gross revenue—that is, before deducting costs from the company share. According to our calculations, and applying our methods, the Government take would be about 75 per cent. Evidently that is the figure for which the hon. Gentleman is looking. Therefore, he will perhaps not press his amendment and will vote for ours.
I appreciate that it is very difficult to calculate the results of a complex tax system, and, therefore, I blame no one for getting the matter wrong at the first attempt, but we have devoted considerable attention to working out the take. There was an article in the Scotsman on 18th March written by Mr. Frank Frazer, who, as far as I am aware, also has great experience in these matters. It is difficult to see how he has come to his conclusion, but he says that the percentage Government take will be 60 and that the per-
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centage company profit will be 40. As far as we can see—and I say this with reservation and caution because Mr. Frazer did not set out his complete calculation —he achieves that result by not deducting the capital cost and interest from the companies' share of the revenue. On our basis of calculation the Government take would again, on his essential figures, be around 75 per cent., not around 60 per cent.
The real question is whether the 45 per cent. is fair as a share for the British people in the development of these resources and the profits that are being made and whether it also gives adequate profit to encourage North Sea development so that we do not have a peak of production in the early 1980s followed by a rapid falling off thereafter.
Comments have been made by stockbrokers and others about the Forties, Piper and Argyll fields. All these are early fields for which a great deal of expenditure was entered into before the recent escalation of costs. I cannot go into the confidential information I have been given by the companies but certain facts are relevant. Argyll is a very small field and the profit made on it does not affect significantly the overall take. I do not regret that such a large and profiable field as Forties is in British ownership.
In reply to those critics who say that these proposals allow an inadequate Government take I would again make a comparison with Norway. The Public Accounts Committee had Norway very much in mind when it was drawing up its report. Norway has been described in many journals, particularly in the United States, as a land of blue-eyed Arabs. Let us compare—in so far as we can compare different tax systems one with the other—what our take is likely to be with the likely Norwegian take.
Some figures that have been published appear to be based on a misunderstanding of the Norwegian tax system. Figures have been given which suggest that the Norwegians can expect a take of 80 per cent. or 75 per cent. An editorial in the New Statesman suggested that the Norwegians would achieve a 75 per cent. take on average from their proposal. We do not believe those figures to be true of the Norwegian tax proposals. With all the uncertainties which operate when one calculates the effect of different tax

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systems—I am talking not of special taxes so much as the total tax and related system that operates throughout —we believe that our take is comparable with the Norwegian take and possibly a little higher. I do not believe that the 45 per cent. which we propose is inappropriate in the light of the facts and considerations which I have outlined to the House.
We are establishing within the Inland Revenue a substantial centralised office with highly qualified staff to deal with petroleum revenue tax assessment and expenditure claims and with the oil companies' liabilities to corporation tax. That should enable specialised questions on oil taxation to be handled expeditiously and it will bring together in one place experts in oil taxation. That is a highly desirable development given the new era which we are entering.
4.15 p.m.
Mr. Patrick Jenkin: Before I come to the clause, I should like to express my thanks and those of my hon. Friends to the Paymaster-General and to his private office for having helped us to overcome the considerable difficulties which stand in our way in dealing with what is by any standards, apart from the Finance Bill, a massive Order Paper for a Report stage.
I shall be dealing with many of the matters on which the right hon. Gentleman spoke but I should like to say at the beginning that, while I understand his anxiety in wishing to establish to some of his hon. Friends that the Government are being as rough and tough with the oil companies as are the Norwegian Government, I beg him to treat those arguments with a great deal of caution.
The Norwegians are likely to be self-sufficient in oil this year. The whole of their policy has been directed to slowing down the pace of exploration and development. Their whole licensing system, their attitude to STATOIL and their heedlessness if companies decide that it is not worth exploring in Norwegian waters are all aimed at the same purpose ; namely, to make sure that Norway does not achieve too substantial a surplus on oil account leading to a major revaluation of the krone and so disrupting established industry which depends on the
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balance of payments. That is the Norwegian policy, and the right hon. Gentleman should be a little cautious before suggesting that the same policy might be appropriate for this country. It is not. We shall not be self-sufficient for at least five years, and we shall need a continuing major effort in exploration and development if our offshore oil is to pay for the massive debts which we shall by then owe overseas.
I wish to avoid repeating all the arguments that we developed at some length in Committee and I shall try to be brief. I acknowledge that the Government have moved a long way from the form in which the tax was first introduced. Instead of the flat-rate, field by field, prior charge tax, we have a Bill which makes some attempt to tailor the burden to the variable circumstances of the fields, which imposes a proportionately heavier take from the prolific fields than from the marginal fields, which may exempt the smallest fields altogether from any charge to PRT and which has made considerable inroads into the original principle of field by field. We shall see that when we come to new Clause 3.
In short, PRT is now a tax the substance of which has changed out of all recognition from the tax as first introduced, although the form is still there. There is the £10 million oil tax allowance —and I take the right hon. Gentleman's point on the ½million tons in each period. There is the 30 per cent. safety net, the new reliefs for losses, the increased uplift in Amendment No. 14, the exclusion of gas contracts, the allowance for the initial treatment of storage plant, the allowance on shared costs, the uplift for additional expenditure and the uplift on hired assets. I could go on. All these represent a welcome change of mind on the part of Ministers. They perhaps do not go quite so far as the Treasury went on capital transfer tax, but they are coming a close second.
The announcement of 25th February was greeted somewhat to my surprise—and not by myself—as though it conferred an almightly bonanza on the oil companies.
Mrs. Maureen Colquhoun: It does.
Mr. Jenkin: There may be some who think it does. Perhaps I may quote some

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figures to reinforce what the right hon. Gentleman says. The companies have since been looking at the small print of the amendments as they have appeared on the Notice Paper and have been working out their own figures. For companies with medium or small fields there is no question of there being any bonanza. Indeed, many existing fields may still be highly marginal and may not be developed. I quote Mr. Reynolds from the report in The Scotsman:
"Conoco announced that their economists had concluded that some of the smaller schemes might not benefit fully from the allowance of £10 million free from petroleum revenue tax."
That is right as the Bill stands, and the right hon. Gentleman has confirmed that that is his intention. Later Mr. Reynolds said that, although the company would not withdraw its participation it seemed unlikely that the field could be developed economically.
Conoco is a highly respected oil company, and I have been making my own inquiries. I am grateful to one of the smaller United Kingdom companies which provided me with a special set of figures—[HON. MEMBERS: "Oh."] I am prepared to discuss the assumptions with the hon. Member for Aberdeenshire, East (Mr. Henderson). They are entirely reasonable. That company provided me with figures for a hypothetical oil field which it christened the Patrick Jenkin Field. The company assumed two fields, a 500-million barrel field and a 300-million barrel field, and assumed in the one case a figure of $10·5 per barrel of oil and in the other case a figure of $9 per barrel. It assumed that there was no loan interest at all—in other words, that the whole development was to be financed internally.
To take the most favourable situation, the 500-million barrel field at a figure per barrel of $10·5, there would be a payment of $320 million PRT and $1,623 million corporation tax. The Government take would be 63·8 per cent., and the DCF rate of return to the company would be 24 per cent.. That is dealing with the most favourable case. Assuming $9 per barrel oil, the Government take falls to 61·9 per cent. and the DCF return would amount to a bare 20 per cent. I am sure the Minister will accept that at that level is is becoming barely ecenomic.
Dr. Colin Phipps: Does the total take include royalties?
Mr. Jenkin: Indeed it does. I did not mention royalties since they are a standard figure on output. In regard to the 300-million barrel field, there is no PRT at all, and to that extent the right hon. Gentleman's point is clear. I wish to emphasise that there is no bonanza in these proposals. In that case, assuming $10·5 per barrel, the Government take is 65 per cent. and the DCF return is 17 per cent.. In regard to the $9 oil the DCF falls to 13 per cent.
I must remind the House that I am discussing a 300-million barrel field. [Interruption.] The hon. Member for Bolsover (Mr. Skinner) should realise that in most other parts of the world even a 100-million barrel field is regarded as a large one. These calculations envisage a field that is three times that size, and with a 62 per cent. Government take it yields only a 13 per cent. return to the company. At that rate nobody will bother to find the oil.
Mr. Dennis Skinner: The right hon. Gentleman is talking about theory, and I have no doubt that in special circumstances such a field as he envisages could be found. However, he should concern himself with the fact that immediately following my right hon. Friend's statement a few weeks ago the general view of the market and of the people in the oil companies was very favourable indeed. The view from the Tory Front Bench, including the right hon. Gentleman, also was favourable, although perhaps in some cases a little muted. The only occasion I can find in the past few weeks of an outcry of any kind from the oil companies was the quotation the right hon. Gentleman gave from Mr. Reynolds of Conoco. The fact is that the oil companies are squealing all the way to the bank, and the right hon. Gentleman knows it.
Mr. Jenkin: I have no doubt that the hon. Gentleman will be able to make the same point at rather greater length if he catches Mr. Deputy Speaker's eye. We shall listen to him—or at least I suppose we shall.
Mr. Skinner: Answer the question.
Mr. Jenkin: On 25th February I said:
"I accept that the Paymaster-General's purpose is to achieve both profitability and incentive for the industry, but is he aware that we entertain serious doubts whether his reliefs are adequate and whether they will be enough to restore confidence… "—[Official Report, 25th February 1975 ; Vol. 887, c. 292.]
I am now saying that the companies have looked at the figures and there is serious doubt whether that will happen. The hon. Member for Bolsover said it was possible that such a field might be found. Such fields are littered throughout the area, and the question is whether it will be worth while to go out and explore for them. I he figures I have just given were reinforced by some figures supplied to me by a small American company. Those figures show that the DCF rate of return, assuming $10 oil in a 400-million barrel field, would be 18 per cent., in a 340-million barrel field 16 per cent., and in a 275-million barrel field 13 per cent.
A Canadian company has submitted figures in the same sort of conditions showing returns between 18 and 8 pet cent. That is no bonanza when talking about a field of that kind.
The concessions made by the right hon. Gentleman, the 45 per cent. rate—lower than expected—the 75 per cent. uplift and the 10-million ton oil allowance go equally to the major fields. They are of considerable value to those larger fields. One company, which I should prefer not to name, says that the rate of return with PRT will be 35·3 per cent. Even assuming no PRT at all, the figure would be 40·3 per cent.
It seems to me that these are great defects in the tax, but they are defects which stem from the structure of the tax to which the Government are committed. From the start that structure has been hopelessly and irremediably wrong. Despite dozens of amendments in Committee and over 100 Government amendments which face the House today. PRT is still a miserable fiscal animal. As the Financial Times rightly said following the announcement
" A job once botched cannot be unbotched quickly."
Mr. Dell Mr. Dell rose—
Mr. Jenkin: Perhaps I may develop my argument. It started as a hideous monster that frightened the life out of the industry. Not all the cosmetics of
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the Inland Revenue, parliamentary draftsmen and Treasury Ministers to try to turn it into the kind of sleek thoroughbred which the Paymaster-General sought to describe can prevent its emerging as a horrid, misshapen beast. It is not so much the inelegance of which one complains as the fact that the changes made simply fail to achieve the fundamental purpose of the right hon. Gentleman. They have failed to turn it into a tax which creams off the true windfall profits in the rich prolific fields, but have left a tax which will be more costly in marginal fields. It leaves them in a difficult or even impossible position in regard to finance.
Let us take new Clause I which deals with the oil allowance. The large field will get the full benefit of the 10-million ton allowance, but the small field will be able to use only part of the benefit while still becoming liable to PRT. The reason is that the rules have been deliberately drawn up to prevent any carry forward of the oil allowance. Assuming a constant crude price of $12 a barrel, a marginal field with reserves of 225 million barrels and an investment of £230 million, the company would be able to use only 67 per cent. of the oil allowance—only 6·7 million tons of the 10 million available over the full life. It would be paying during its lifetime £43 million in PRT. If we take a 450-million barrel field and an investment of £263 million, it would be able to use the whole of the return and pay PRT of over £340 million.
We have tabled two amendments, one to carry unused balances forward and the second to carry them back. The one carried forward is important. If this proposal is accepted, the marginal field will be allowed to use the full amount of the oil allowance and will receive a bigger proportionate benefit than the prolific field. It might have the effect of eliminating the charge to PRT and might make the field economic. Our amendment would have no effect on increasing the return to the large field. I accept that for one year, or possibly six months, it might have the effect of delaying the revenue, but no additional oil allowance will become available to the major field. That is the purpose of Amendment (a) to new Clause 1. That is why we say that while the oil allowance

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is an attempt to turn this tax into a kind of excess profits tax it is a crude and clumsy weapon.
4.30 p.m.
This amendment is the most important amendment that we shall discuss today. It bears keenest on the question whether the small marginal fields will be economic. If the Government do not accept the amendment we shall have once again to wait to hear what the Paymaster-General says in winding up—we shall have to level at the Government the accusation that they are more interested in raking in revenue for the Exchequer than in winning oil for Britain.
Amendment (c) to new Clause 1 is a minor point, although it has some importance. When each participator in a field uses the full oil allowance there is no difficulty. But if some use it in full and others used it in part—for instance, because some have offsetting losses or unrelieved losses from other fields, or abortive exploration expenditure—there will be problems. The clause provides for the fact that the oil allowance will not necessarily be shared proportionately. Therefore, we have tabled Amendment (c) to seek to ensure that the oil allowance is fairly divided between the participants. I hope that the Paymaster-General will deal with that when winding up.
Our objections do not stop there. I turn to new Clause 2 and the 30 per cent. safety net. Here it is intended to provide protection for the oil companies if their returns fall below 30 per cent. before corporation tax. We live in an inflationary era. In the future we can expect, although we cannot be sure, that as costs rise in the industrial countries so will oil prices rise. Therefore, the safety net, which is tied to historic cost, will become less valuable, in the proportion which the historic cost of the capital will bear to the costs, and the revenues of the company become less.
Whatever the Sandilands Report may have to say about inflation accounting in general, this is a unique case of a relief intended to ensure for the companies a long-term safeguard against a relative fall in oil prices. However, oil prices can still fall relative to costs, even though they rise in money terms, because of the general effect of inflation. If the safety
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net is fixed by the historic cost, after a few years it will become a virtually valueless protection. There must be some form of escalator.
The wording of the amendment has been left vague since there is no proper index yet to which it can be tied. Therefore, we say that the Treasury should be able to designate an index and perhaps even compile one.
There is also the question of interest, with which we are dealing in this group of amendments. There must be an option for companies either to take the 75 per cent. uplift or to claim the real cost of their interest charges which they incur in financing. In some cases 75 per cent. may be enough to cover the cost. In other cases it will be over-generous because the greater the use of internal finance the less interest companies incur. Therefore, while the 75 per cent. uplift is a valuable benefit, it is monstrously unfair that everybody should be fitted into this Procrustean bed of 75 per cent. uplift whatever their financing costs.
I take the example of two companies developing the same kinds of field, which have the same capital costs, and which are both borrowing all their development costs. If there is a delay of one year and one company has to bear higher interest costs, no allowance is given to cover that cost. The company is entitled only to the bare 75 per cent. uplift. That is of importance to the smaller British companies which are seeking to establish themselves in the North Sea. I refer to companies represented by BRINDEX. I have seen a letter which was written to the Paymaster-General by Mr. Goodfellow, the Chairman of BRINDEX, in which he makes a powerful plea for an option for the smaller companies. Otherwise those companies will find themselves even more at a disadvantage vis-a-vis the multinational companies when competing for development finance.
If account is not taken of those factors we run the risk that many of the small fields on which this country will depend in the 1980s and the 1990s will never be prospected and will never be found. It will not be worth while for the industry to seek such fields, because, if found, such fields will provide a lower return to the industry than that which could be earned elsewhere in the world. The incentive to explore is crucial.
Mr. Dalyell: Will the right hon. Gentleman make it clear why he thinks the relatively smaller fields are better exploited by smaller companies than by the larger companies?
Mr. Jenkin: I do not say that of course, there is no correlation between small fields and small companies. Large companies find small fields, while the smaller —such as Thomson Scottish Petroleum, Occidental Petroleum (UK) Ltd., and Piper Consortium—have found prolific fields.
The interest factor is important to the smaller companies because they do not have the internal resources with which to finance their development. If they are unable to undertake exploration because it is not worth their while, many of the small fields which remain will not be found. Nobody expects any more bonanzas in the North Sea. If small fields are not found we shall be back in the hands of OPEC by the middle of the 1980s.
There are three reasons why the allowance, is inadequate. It cannot be carried forward, the safety net affords no protection from inflation, and there is no option for interest. We entertain the gravest doubts whether, even after all the massive changes which the Treasury has made to the PRT, an environment will be created in which the industry will wish to continue to operate at full blast in future.
We shall listen with care to what the Paymaster-General has to say. However, if he does not meet my arguments, the Opposition will seek to divide the House on Amendment (a) to new Clause 1.
Dr. Phipps: I am glad to see that the Government benches are slightly more populous than on the last occasion when I spoke about the petroleum revenue tax. They are not as populous as I should have liked, but at least I have some support, whereas on a previous occasion I stood almost in isolation.
I begin by declaring my interests, which are well known.
I do not accept the last comment of the right hon. Member for Wanstead and Woodford (Mr. Jenkin) that there are no more bonanzas left in the North Sea. I hope that one of my interests will be in a position to declare such a bonanza
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resulting from discoveries in 1975 and 1976, since we are involved in two wildcats which I hope will find large accumulations of oil, to the benefit of my associates and the nation.
A large number of points were raised which we discussed on previous occasions. The point was raised by my hon. Friend the Member for West Lothian (Mr. Dalyell) concerning the nature and size of marginal fields. It is important that the House should appreciate that it is not the size of the field that is of vital importance. It is the size of the modules of production and number of platforms which is important. It is the amount of oil which can be produced and recovered through a single platform unit which is important. If there is a field of optimum size for drainage by one platform, the economics of the field can be very good even if it is only a 300 million or 350 million barrel recoverable reserve. Equally, a field of intermediate size can have its economics impaired because it might necessitate two platforms at less than the optimum usage required for two platforms. The industry has tended to look at economics in terms of the size of accumulation which can be drained and exploited at an optimum rate by a single platform. This has tended to be about 300 million to 350 million barrels a day.
Mr. Patrick JenkinThe hon. Gentleman has contradicted himself. He has just referred to a figure of 350 million barrels a day. Earlier he spoke of a 350-million barrel reserve, and I think that is what he really means.
Dr. PhippsI stand corrected if I said that. I meant 350 million barrels of recoverable reserves in an accumulation.
Taking an optimum accumulation and conducting an economic evaluation on the basis of that size, it is possible to come to a figure for return on capital invested in the region of 26 to 30 per cent. It is possible to vary any number of the factors which go into making up such an economic analysis, but, taking what can best be described as average North Sea parameters for all these, one comes to a figure under the provisions of this Bill of between 26 and 30 per cent. on capital invested. I doubt whether there is a single oil company which would be disappointed with such a return on its

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capital invested, looking at units of this size.
When we come to units which are not of optimum size—and most of them are not of optimum size—we find that the amount of return on capital invested varies according to the departure from the optimum number of platforms. The degree of departure affects the degree of capital investment.
The importance of PRT as we now have it, as opposed to an excess profits tax, is that, willy-nilly—and whether it was intended to do so I am not altogether clear—it is an extremely powerful weapon in the hands of the Government in terms of the exploitation of marginal fields. The Government are able to have fields exploited which previously might not have been exploited. We may well get marginal fields exploited which, prior to this legislation would have been unecomic—even under the previous legislation, which included no PRT. We must regard this as a very significant advance, especially for the country at large.
The fact is that most of the oil—certainly half of it—in the North Sea will be found in fields of 350-million barrels recoverable reserves or less, and it is important that these fields are exploited over a period to the year 2000. Therefore, it is important that the Government have a weapon which can ensure that any fields which are economically exploitable are exploited if the Government decide that it is in the national interest that these fields should be exploited. We now have a weapon which we did not have before for making sure that they are exploited.
I want now to touch upon one small technical point. It concerns the oil allowance. The provision of a similar gas allowance is not explicit in the Bill. It is worth pointing out that if a gas allowance is to be calculated on the calorific or heat equivalent of the amount of gas required to produce the same amount of energy as 10 million tons of oil or 500,000-ton tranches of oil, it will be found that the value equivalent of gas is a good deal less than the oil equivalent. I suggest to my right hon. Friend that he should look again at this provision in the Bill to see whether the equivalents
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cannot be made value equivalents rather than energy equivalents.
4.45 p.m.
Mr. Patrick Jenkin: Does the hon. Gentleman also agree that there is a case for making it measured in barrels rather than in tons so that account may be taken of different specific gravities, which also make for differences of value?
Dr. Phipps: I am grateful to the right hon. Gentleman. This is one of the problems that people active in the international oil industry face constantly. A barrel is a measurement of volume. A ton is a measurement of weight. Different oils have different gravities. Therefore a ton of one kind of oil can be of a quite different volume from a ton of another. Since the specific gravities of oil can vary from less than 0·8 to 1 or more, there can he considerable differences between the volumes concerned, which in turn affect the calculations.
Having been brought up originally on barrels, I find it very difficult to translate into tons, and I join the right hon. Gentleman in suggesting that in future we describe everything in barrels, and cubic feet per barrel in terms of gas, and stop talking about weight.
We have an even more complex situation with gas when we talk about its energy value. We measure gas in BTUs, and the conversion of BTUs into thousands of cubic feet often is beyond me. Because of these slight technical difficulties a company may find that 10 million tons of oil means more to one company than to another and, in the case of gas, when one is looking at energy or some other equivalents other than value—and because gas is very much cheaper still in the United Kingdom the price paid for the gas contracts is very much lower than the international price of oil—a gas producer is less well-off than an oil producer.
There is one other matter which I wish to raise about gas contracts. We have excluded existing gas contracts from PRT. Future gas contracts are not to be excluded. This is likely to raise problems as long as the gas price remains relatively low in comparison with the energy equivalent of oil. We may find gas fields which in the interests of the country we want to have produced because our gas reserves look like being

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less than our oil reserves, and there may be a strong case either for exempting gas from PRT or for introducing some form of allowance which will allow gas fields to be produced, otherwise even large gas fields will prove to be marginal as the Bill stands at the moment. This is a matter of some urgency for the country, and I ask my right hon. Friend to look at it again.
Finally, on the oil allowance, the possibility of allowing the oil allowance to he taken as the first allowable overcomes the objection of the right hon. Member for Wanstead and Woodford, if it is possible to do it. If companies are not allowed to accumulate an oil allowance, they will lose out especially in the early stages of a field. It would help if the oil allowance could be one of the first allowances and they could carry some of their other allowances.
I welcome the price movement safeguard. This is vital for investment confidence in the industry and for the balance of payments position. Practice will show whether it will work out satisfactorily. I understand that the Treasury is prepared to look at this over a period and that the national interest will take preference over any other interest in deciding exactly what form it will take.
Much has been made both by Labour Members and by Members of the Scottish National Party of rates. There has been an astonishing amount of misinformation published in the newspapers, including the articles quoted by my right hon. Friend the Paymaster-General. I can produce a number of other articles purporting to be an analysis of what the national take would be, all of them equally fantastic in their calculations and in the parameters they have used.
My calculations indicate that the Treasury figure of an average of 75 per cent. is the most accurate in the current climate. In certain cases it will be lower and in other cases it will be nigher. I say to my hon. Friends that the reason it is 75 per cent. is that it is an average figure. I say to Members of the Scottish National Party that if we produce all the oil we require there will be a number of fields where perhaps PRT and other taxes will be levied at low rates.
There is an important distinction between taking 75 per cent. in tax from 2·5
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million barrels a day or 90 per cent. in tax from 1·5 million barrels a day. The country requires 2·5 million barrels a day, and 75 per cent. of that is a lot better than 90 per cent. of 1·5 million barrels a day.
Mr. Gordon Wilson: Will the hon. Gentleman accept that there is not the same stampede towards the high rate of production required by the United Kingdom since the Scottish requirement will necessarily be less?
Dr. Phipps: I prefaced my remarks by saying that they were directed towards Labour Members and Scottish National Members. The question whether we should conserve our production and save it for a future Scottish nation is not one to which I shall address myself. No doubt my right hon. Friend has this problem in mind.
Mrs. Bain: Would the hon. Gentleman not agree that it is a question not just of conserving production for the Scottish nation but of conserving it for the world? It is not in the world's interest for us to burn up these resources in a short time. We owe it to the developing nations to extract the oil slowly.
Dr. Phipps: If the hon. Lady had listened to a previous energy debate, she would have known that my concern for the way we are burning up energy reserves is as great as hers.
The reason why companies are showing a disinclination to explore in Norway at present is due to the nature of the Norwegian package. It is not merely a taxation package; it is a taxationparticipation-licensing package which inhibits enthusiasm. Companies with which I have spoken in recent weeks have said quite categorically that they prefer to spend their exploration moneys in the United Kingdom. As long as we require to discover and exploit oil at the rate which I believe to be essential, I hope that this situation will continue.
I turn to the question of allowance of interest. I would welcome an option for the smaller companies. This would be an extremely attractive advantage. It would be used in lieu of uplift.
Some smaller companies are not as confident as they might be about the

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question of waiving royalty. This would largely overcome many of the difficulties raised in the specific examples cited by the right hon. Member for Wanstead and Woodford. We have not sufficiently analysed just how powerful and important a weapon waiving royalty would be in the hands of the Government in getting marginal fields exploited.
All the examples quoted today would be transformed if royalty, either in total or in part, were waived. The return on capital invested would be quite different. This power is now in the hands of the Government. Any Government which wishes to encourage the production of marginal fields—when faced with figures showing that the economics are such that a company would not be prepared to go into production—would find that an ability to waive royalty, either in part or in whole, would be the weapon that would allow them to do so. I ask my right hon. Friend to enlarge on the Government's intention in this matter. This is one of the most significant measures affecting marginal fields development.
Despite the considerable pressure that has been applied to my right hon. Friend, the Bill has produced one of the best climates for Government take and for continued participation by the international oil industry of which I am aware. The average of 75 per cent. State take compares favourably with the percentage taken by any other country. It is a major take by the State. At the same time we shall be in a position to encourage continued exploration and the continued presence of the oil industry. The House should join me in congratulating my right hon. Friend on an excellent Bill.
Mr. Gordon Wilson: I should like to register my disapointment that Amendment No. 230 has not been called. In so doing I accept the statement from Mr. Speaker that he will allow some latitude in relation to benevolence towards a view which might be expressed in its direction.
Amendment No. 230 called for the setting up of a Scottish oil fund which would be under the control of Parliament or the Scottish Assembly.
Mr. Deputy Speaker (Mr. George Thomas): Order. To save the hon. Gentleman from being out of order later on, may I say that this amendment was
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ruled out of order as being beyond the scope of the Bill. Therefore, it is impossible for him to discuss the items in it.
Mr. Wilson: I appreciate, Mr. Deputy Speaker, that normally when faced with such a question of order you use your discretion. However, Mr. Speaker said that there might be some latitude.
Mr. Deputy Speaker: Order. I happen to be in the Chair at the moment. With respect, I can only abide by the ruling that Mr. Speaker has given formally.
5.0 p.m.
Mr. Wilson: Obedient as ever to the Chair, I will bow to your discretion, Mr. Deputy Speaker, and perhaps make my remarks in another forum.
We are not now discussing what might be a peculiarly Scottish matter since the earlier amendment has been ruled out of order. We are discussing the take which the United Kingdom might reasonably expect to get as a result of the Bill. Anyone who presents calculations of any sort on taxation matters to the House, or anywhere else for that matter, must be aware of the power of the Treasury and the resources at its disposal.
I appreciate the remark by the Minister to the effect that this is a complex matter.
I have thought from time to time as the Bill went through Committee that it might help if we were to be allowed charts or access to computer terminal points. Some better understanding of the calculations might have been reached. It is significant that the calculation the Government made on announcing the rate of PRT has been hoisted from 70 per cent., which I think was the average take, to 75 per cent. If this is correct I would be the first to congratulate the right hon. Gentleman.
Mr. Dell: Perhaps I ought to clarify this issue. My hon. Friend the Member for Dudley, West (Dr. Phipps) made an estimate of 75 per cent. The Government's estimate of the take over the next 10 years is around 70 per cent., but I have emphasised repeatedly that this is affected by uncertainties to do with costs, prices, profiles of production and so on. All these figures have to be treated with a certain care. That is our calculation of the average position, with some fields

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doing substantially better and other, marginal fields, obviously falling below that figure.
Mr. Wilson: I come to the question of the Scottish National Party calculations which were referred to by the Minister. It is true that we have projected that the jump in costs will not necessarily take place by the 1980s. It is true there has been a severe rise in costs over the last year or two, but there are new technologies beginning to emerge for the extraction of offshore oil. In particular, we have the Exxon sub-sea production system—SPS—a prototype of which is already in operation in the Gulf of Mexico. It has been estimated that this could—I emphasise "could "—reduce costs by as much as 50 per cent.
If the Minister is interested, there was a relevant report of this in the 7th March edition of Petroleum Times. The report paraphrased another report which had been taken from the Organisation for Economic Co-operation and Development. The article said:
" North Sea and Alaskan oil will be produced for as little as $125 to $1.50 a barrel by 1980 (taking the 1973 value of the dollar), offshore oil in depths of 300 to 400 metres at around $4 a barrel and oil in depths of between 400 and 2,000 metres at between $5 and $8 ".
It goes on to give the reasons for this view.
In advancing the argument that development costs might not continue their rocketing inflationary spiral that we have seen in the past two years, I am drawing upon other sources of information apart from those of the SNP. I hope that the Minister will give some consideration to them. I appreciate his argument that he would be delighted were the OECD to be proved correct and the extraction costs prove to be less than previously anticipated.
One of the criticisms we have made of the Government's figures concerns the amount of capital relief given. There is relief on the 75 per cent. uplift, which emerged during the course of the Bill with a promise for special relief for the smaller companies. There is a strong argument to suggest that the figure of 75 per cent. is excessive. Interest rates are beginning to fall world-wide. If we adopt a 30 per cent. guarantee return no tax would be paid on oil produced under PRT regula-
1682
tions until 175 per cent. of capital costs have been retrieved. After that it is argued that there would be a 30 per cent. guarantee on capital which has, in effect, been repaid.
I suggest that the Government have been extraordinarily generous during their negotiations with the oil companies. I hope to make reference to some of these negotiations later. In our study of comparative returns it was clear that in the Middle East the profit margin is currently set at $21·7 per barrel. This contrasted with our estimate, which the Minister disputes, of a net profit after tax of $2·15. In Noroil of March 1975 I noticed an estimate of $1·40 and $2·80 as a return which might be obtained from the United Kingdom sector of the North Sea.
While the Minister may object to the figure quoted by me about the North Sea, there are calculations by other observers which relate to the rate of profit. If it is said that a profit 10 times that which is capable of achievement in the Middle East is acceptable, in my opinion the Government are capable of accepting anything. I might add that we must expect a higher rate of return because of the risks inherent in the North Sea oil fields.
The multiplier of 10, taken as a form of criticism, is one which might be too simplistic. Therefore, in our calculation we have accepted that the multiplier by itself would be too high and have adopted a lower figure. It should be made clear that this is not a matter of semantics or calculations. It is a question of the money available to the British Government—the sole criterion, which we are forced to adopt in this debate—£6,700 million for the lifetime of the Scottish oil fields even allowing for the full 51 per cent. State participation which the Government have in mind.
It has been said that the Government are asking us to take their calculations as being correct. The Minister has referred to the fact that there are some differences in the calculations which have appeared in certain journals. So too has the hon. Member for Dudley, West (Dr. Phipps). He said that he could have produced other articles showing entirely different views. I accept that newspaper articles by themselves are not necessarily to be treated as tablets handed down from on

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high. That does not necessarily mean that any statements from the Government must be accepted without critical study. If we examine this situation it will be found that there are a number of reports which have been building up and which show that other people—exclusive of political interests such as those of my hon. Friends and those of the Conservative Party who represent the oil interests—have come to the opinion that the rate of tax of 45 per cent. adopted by the Government is far too generous. The first and probably best test of this is to ask what happened to the market immediately after the Government made their tax announcement. The usual effect of such announcements is to drive shares down. In this case we found that there was a rise in share prices for most of the oil companies.
Mr. Peter Rost: Will the hon. Gentleman put the matter into perspective by explaining to the House by what percentage the share prices declined from the time that the Government first came into office with a mandate virtually to carry out this policy and the time when the details were announced?
Mr. Wilson: The hon. Gentleman will be aware that for a period all share prices were in considerable decline, including oil company shares. I cannot estimate to what extent the drop in the price of oil company shares was related to the Government's announcement or anything else. In fact, share prices rose after the announcement was made in appreciation by the investing public, including the institutions presumably, that North Sea oil operations would become more profitable as a result of the tax rate which had been adopted.
Dr. Phipps: Does the hon. Gentleman accept that the change in the value of oil shares could also have been related to the enormous bogyman that my right hon. Friend had been built up to be by the Conservative Party in the preceding six months and that we were seeing a recognition of his sensible and pragmatic approach to the whole problem?
Mr. Wilson: I am glad that the hon. Gentleman has come forward with rehabilitation of his right hon. Friend in the work that he has been doing. Some of the criticisms made in Committee by
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myself, if not by others on this side, were that the right hon. Gentleman was not doing enough to act as a bogyman.
Mr. Dell: It gives me no pleasure to make this point, but it appears that I am still a bogyman. Realising that the point about share prices was likely to be made, I had figures extracted for the share prices of many of the companies operating in the North Sea. The average increase in the value of share prices of those companies between 24th February—the day before I made the announcement—and 14th March was substantially less than the increase in the FT index generally. Therefore, it appears that I have not yet escaped from my character as a bogyman.
Mr. Wilson: I am sure that, after full appreciation of the tax rate had been taken in, much of the opposition expressed in the share markets towards the right hon. Gentleman must have gone and that, therefore, he can walk into the Stock Exchange at any time without danger of being lynched.
This is not purely a question of the stock market. There have been reports from stockbrokers looking at individual companies and working out their profitability with a view to encouraging business. Those assessments suggest that the professionals, having got out their slide rules and pocket calculators, or whatever they possess now, have calculated that the 45 per cent. rate is generous to the companies involved.
I move now from the general to the particular and comment on the article in the The Scotsman to which the right hon. Gentleman referred. That article brought out a company profit of 40·6 per cent. Some elements in the calculation were not mentioned directly in the figures. However, the right hon. Gentleman will see a reference to the method of financing:
"The method of financing the development—by borrowing 90 per cent. of the capital cost and repaying over six years after peak production was achieved — would mean that some £217 million would be paid in interest charges. This would raise development outlay to £557 million."
The article goes on to point out that 175 per cent. of total capital cost in lieu of interest charges which have been disallowed under the Bill could lead to £38 million more than the actual cost of providing and borrowing the capital being

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given as a tax concession. Therefore, there is reference to development and financing charges in that article.
5.15 p.m.
I should now like to move to an assessment which has been made by a trade journal. It is all very well to take a broad approach and to say that the market jumped when the announcement was made, that individual brokers have made their assessments or that political parties, such as the Scottish National Party, have made theirs, and that special figures have been provided for the official Opposition. The Petroleum Times, a trade journal well regarded in the industry, on 7th March was extraordinarily tough in its comment on the whole business. Under the heading,
" UK Government's ' give-away' tax ",
it states:
" The battle of the UK rate of petroleum revenue tax is now over"—
it was not referring to the amendment proposed by myself and my hon. Friends—
"and the oil companies operating in the North Sea can chalk up another victory over a European government. Their success in this sector contrasts strangely with their failure to cope with the governments of the OPEC nations."
Later, it states:
"Predictably, the oil companies began their intensive defence immediately—and few industries are so well organised in matters of propaganda and lobbying. In the UK the companies were further aided "—
I hope that I do not hurt the feelings of the hon. Member for Lanarkshire, North (Mr. Smith), who is not present—
"by muddled thinking in the Department of Energy, which seemed unable to decide on the right line of approach. More complications were introduced by the Treasury Department which appeared more interested in administrative convenience than in oil."
A few paragraphs further, it continues:
" Although the computers have yet to digest the new programmes, it is already clear that the manifesto policies "—
of the Government—
"have been diluted almost to the point where no flavour is left."
Referring to the work of the oil companies, the article states:
"But the weakness in this area must be compensated elsewhere "—
that relates to OPEC—
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"if the international oil industry is to maintain its comfortable position in world affairs. So it has not hesitated to exploit, directly and indirectly, the economic weaknesses and balance of payments difficulties that have, in large measure, been caused by a critical dependence on oil. Such a policy may be of benefit to the shareholders, and the recent rise in oil share prices suggests that it is, but it will bring the industry precious few friends."
That is a comment in a trade journal which is read and respected by the oil industry.
The Minister is asking us to believe that his calculations are correct and that everybody else's may be wrong and that the Government have, in his words, been fair but tough with the oil companies and have not given away more than they should.
On the other hand, we have had the various comments to which I have referred. We have a phrase for this situation in Scotland which I am sure will tax the efforts of Hansard, but I will try to provide a translation after the event' A' oot o' step but oor Jock." I suggest that the Government are trying to pretend that all those who have said that the Government have made a critical mistake in levying the PRT at 45 per cent. are wrong when all those people believe that they are right in their calculations.
I ask the Minister, even at this late stage, to consider adopting our amendment of 75 per cent., which, according to our calculations, would add effectively 10 per cent. to the total take over the lifetime of the fields instead of present Government policy. Otherwise, when the Government find that their policy on oil development has been wrong, as it has been on so many other aspects, they will be forced on some future occasion to bring about a change in the rate of petroleum revenue tax in one of the monthly Budgets which I am sure that by next year we shall be having.
Mrs. Colquhoun: The right hon. Member for Wanstead and Woodford (Mr. Jenkin) spoke of an oil field named after him. I, too, have this claim to fame in the Maureen Field, but I have no direct interest to declare except that of a £1 share in the Brighton Co-op.
One of the interesting things about the North Sea oil debate is the inconsistency of the experts to reach any consensus

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about how much oil will eventually flow. Speaking as an economist, I would say that they join those economic experts who can always supply a directly opposing opinion to one that someone does not like.
Dr. Phipps: I hope that my hon. Friend will accept that, speaking as an oil expert, I have always been consistent and that it is not my fault if my colleagues have been in error.
Mrs. Colquhoun: I have never seen my role as projecting the importance of my hon. Friend.
Some representatives of oil companies seek to make the most gloomy possible projection of profits. The oil companies can never have been represented with more vigour and concentration than they were by the Opposition in Committee on this Bill. I regret to say it, but the Government left the Committee with less than they went in with.
Some experts in Rotterdam put the potential of North Sea oil much higher than the Government, the Opposition or the companies:
"Whilst the conventional wisdom thinks in terms of a maximum total potential reserve of 40 milliard barrels, this study indicates the possibility of a range of 80–140 milliard barrels, with a mean figure of 110 milliard."
If that projection is only remotely accurate, if these forward complicated computer programme projections from Rotterdam come true, with all the concessions that the Government have made the Bill will have created only a further and bigger bonanza for the oil companies. What I wanted was a bigger bonanza for the people. The recent profits of the oil companies sicken me, as they do every other working person.
Mr. Dell: My hon. Friend will appreciate that if the existing fields should prove to have reserves substantially greater than is now stated, the Government take from those fields, the capital expenditure having been disposed of in the early stages and the oil allowance having fallen out, will be much higher than the figures which I have given.
Mrs. Colquhoun: I hope that my right hon. Friend will not be too upset if I speak frankly and fully today.
Developing my theme, the greed of the oil companies knows no bounds. The
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extent of Government control now proposed is a great disappointment to me and some of my hon. Friends. I ask the Government even at this late stage not to be so bemused by the pressures for private profit but to stick by and consolidate North Sea oil on behalf of the people.
When I went in to the Committee on the Bill, I believed that we were about to impose a substantial extra tax on the oil companies' profits from the North Sea and to plug the loopholes in existing taxation. That was the promise in our manifesto:
"The discovery of oil off our shores dramatically changes not only the country's energy prospects, but our whole economic future. Because its importance cannot be overestimated it is essential that its development should be under public control in the interests of the whole community, and with regard to the future. The Labour Government will… Take majority participation in all future oil licences and negotiate to achieve majority state participation in existing licences."
Perhaps the Minister will say what he believes the Committee achieved and why, when it was actually sitting working out the nitty-gritty of the Bill and the hopes for ordinary people which we all had then, the Chancellor of the Duchy of Lancaster was in America, with no knowledge of what the Committee was doing, while the Committee had no knowledge of what he was doing, even more avidly negotiating more concessions to oil men.
The way in which this situation has been and is being handled makes one realise what a poor and ineffective role a back bencher has and what a sad story and miserable contribution he has to accept. All that back benchers are really needed for on a Bill is to be Lobby fodder, passive players in a drama the main part of which takes place in another country, certainly not in the British House of Commons, and over which we have no control.
To that extent, the only tiny bit of democracy left is here today, so that in the last hour one can say "I do not like what has happened." I hope that I am saying that fairly effectively and forcefully.
Mr. Alexander Wilson: Would my hon. Friend agree that if anyone ever saw capitalism entrenched for

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the benefit of profit against the wishes and interests of the British people, hon. Members on the Committee on this Bill certainly saw it? It was openly portrayed that the oil companies operating in the North and Celtic Seas and elsewhere were concerned only with profits and not at all with the interests of the ordinary people of this or any other country.
Mrs. Colquhoun: I thank my hon. Friend for his intervention. I agree that the Government do not have the best deal that they could have got for the people of Britain. Time and time again they were outwitted by the Opposition's advisers, gentlemen from the oil companies who sat in the front row of the public seating in the Committee every day. They certainly occupied the undying and reverent attention of Conservative Members.
This American-type lobbying at the very source of parliamentary power has to be stopped. It was admittedly open to members of the Committee to observe what a tragedy it was that television cameras could not enable the amazed British public to observe this process too.
Mr. Rost: Would it not have been a good thing if television cameras had been in the Committee, because people might then have seen how little the Government knew about the legislation which they were putting forward?
5.30 p.m.
Mrs. Colquhoun: People also might have seen how little the Opposition knew, and how much they had to rely on the American oil companies' lobbying for their speeches.
On one occasion the Opposition Whip circulated documents from the American lobby to the Opposition. I eventually named them the "American-suited bandits ", as I began to think of them increasingly in that role as the Committee proceeded. The whole shabby set-up should have been televised. If people could see the extent to which this American-type lobbying has permeated Parliament and the very heart of parliamentary power, they would be extremely distressed. I hope that at some stage we shall be able to take the matter up. I blame the Opposition, because hour after hour, in Committee session after Committee session, they spoke up on behalf of the oil companies and only
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occasionally, when reminded, did they speak on behalf of their constituents.
Too much encouragement has been given to the expertise of the oil companies, and not enough recognition has been given to the indisputable fact that North Sea oil belongs to the people. Having gone through the machinery of the Committee, I feel that it would have been better if progress towards winning the oil had been directed less to national or company greed, and if there had been careful and painstaking consideration of the environment, the beautiful coast of Scotland and the long-term right of the people to benefit more fully from the enormous profit that will eventually be won from the North Sea.
I fought two General Elections on a promise of oil profits for the people. However harsh this may sound to the Government, I am not certain that we have even begun to achieve that with the Bill.
Mr. John Hannam: The hon. Member for Northampton, North (Mrs. Colquhoun) has poured her heart out against her own Front Bench and the Opposition, mainly over the inability of back benchers to take part in the decision-making processes. But I am surprised to hear such comments from the hon. Lady, because she attended the Committee throughout all it deliberations, and that would have been the place for her to make such a speech. However, she was conspicuous by her silence during those debates.
I do not bear any malice against the hon. Lady for taking the opportunity to make these points now, but the Committee stage offers back benchers the opportunity to alter legislation as they examine it word by word and line by line. I regret that it is only now that we have heard her complaints about the system. For example, I should have expected in Committee to see an amendment allowing members of her sex to be on oil rigs. It has always struck me as one of the anomalies of the oil industry that it does not allow members of the fair sex to take part in its activities or to arrive on oil rigs, even in the capacity of Press correspondents.
I commend the Treasury Ministers for their considerable movement away from the original, harsh anti-oil-company

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approach establised by Lord Balogh in those heady days when the Government were in opposition. With massive increases in costs and inflation, it became apparent to Treasury Ministers that action would have to be taken to change the Bill in Committee to produce a workable tax system to enable exploration and development to continue in this vital area of our economy. I welcome the fact that the flexible and understanding Treasury Ministers have got the message from both Opposition and industry.
I turn to the question of the attendance at Committees of representatives from outside Parliament. I have since been a member of the Committee considering the Coal Industry Bill, and I recall that members of the National Coal Board sat in during the whole of the Committee stage, offering advice to both the Government and Opposition. This is an essential part of the procedure.
This Bill started life as one sort of animal but it returns today as a much less fierce creature. The scavenging wolf, which it appeared to be to the oil industry at the beginning, has now become an Alsatian, friendly enough to all appearances, but still possessing a dangerous streak which is enough to frighten prospective oil developers away from the front gate.
The original Bill would, I am sure, have effectively stifled our North Sea adventure and forced a number of oil companies away from Britain. This may be what the members of the Scottish National Party would like to see, but it is certainly not what I and, I believe, the majoirity of hon. Members would like to see. It must be remembered that North Sea development depends mainly on the willingness of American oil companies to explore and exploit our fields as against other parts of the world.
The introduction of hasty, ill-drafted legislation would have stopped all those companies dead in their tracks, especially if the details had not been finalised before being presented in the form of the Bill.
Mrs. Bain: The hon. Gentleman has referred to the Bill as now being an Alsatian. Scottish National Party Members think that it is a fairly toothless Alsatian. The idea that it would frighten
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off oil companies is incredible, because in Norway, where there are more stringent terms, 10 out of the 11 companies have accepted the terms readily and happily.
Mr. Hannam: In Norway the Government had to amend considerably their proposed terms in order to maintain the development of their resources. One company has been turned away. The proof of the pudding will be in the eating. I consider that the Treasury Ministers have seen the inherent dangers of placing a too heavy taxation burden on oil companies in relation to the sharp increase in costs of exploration and development which they have experienced in the last two years.
In Committee, we started half-way through the Bill and then went back to the beginning and worked through from there. It became obvious that the Bill was being redrafted during that procedure and that it would have to change its nature considerably. The number of amendments on the Notice Paper today demonstrate how misplanned the original legislation was. Now, on Report, we are putting the finishing touches to the taxation structure. I hope that the Government Ministers will not be too intransigent, and will not refuse to accept some of the eminently sensible amendments tabled by my right hon. and hon. Friends.
I believe that a great deal of uncertainty remains concerning the participation prospects, the anomalies concerning interest charges, and the field-by-field rigidities. However, assuming continuation of the present high price level of oil, which is about $10 a barrel, I believe that the medium and large oilfields have been given enough incentive to remain in the game. The worry is that the smaller, more marginal oilfields still face severe cash problems. It must be upon the wide range of such marginal oilfields that the surplus oil prosperity of the country will depend in the 1980s and 1990s.
The various concessions announced by the Government go about three-quarters of the way towards the measures which we should like to see, but they do not overcome the basic flaws in the prior charge system. The 75 per cent. uplift will certainly satisfy several of the major companies with prolific fields, but for the smaller and more numerous high-risk

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marginal fields uplift is not sufficient in itself.
If a field takes three years to bring into production, plus a further year to reach peak production, and it takes five or six years for the companies to repay the loans, at about 15 per cent. interest, 75 per cent. uplift will not be adequate. The smaller companies, often several of them operating in the same field, will have different borrowing costs, owing to their different creditworthiness. Non-recourse funding will often involve over-riding royalty costs on top of interest rates, totalling sometimes as much as 25 per cent. financing cost. In those examples, uplift must be inadequate.
Throughout the Committee stage we pressed for an option for bona fide borrowers to be allowed these real costs in lieu of the notional uplift. But for some reason the Government are still fighting shy of allowing the normal corporation tax system of allowable expenses, possibly because of their fear of tax avoidance through transfer pricing. I believe that it would be possible to tighten the criteria here to ensure that that does not happen.
It is also important to stress that the single rate of uplift will work against some British suppliers, in that foreign export credits giving low fixed-interest cost funds will push orders abroad, even though British suppliers could possibly provide the equipment to the same specification. That could affect our balance of payments and damage our long-term share of this expanding international market. The loans made between non-associated companies should be interest-allowable.
I turn finally to the PRT-free allowance of 10 million tons. The Paymaster-General now states that it is not an allowance but a limit to an available allowance. As I understand it, it can be used only at the rate of 1 million tons a year over the 10-year period. If the life of a small field is less than 10 years —say it reaches a peak after three years and runs out at six years—that small marginal field, at which the PRT is surely aimed, will probably receive only 6 million tons relief, while the large, prolific fields will get the full relief. That is contrary to the general objectives of the PRT relief of 10 million tons.
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It is important that a carry-forward of the total should be made possible, regardless of the life of the field, otherwise the short-lived fields will fall by the wayside. The hon. Member for Dudley, West (Dr. Phipps), with his great experience of the industry, suggested that one might take the other view and give the total allowance at the beginning, before other concessions were made.
Another important problem is that of inflation accounting. My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) has suggested that a Treasury index should be established upon which the oil industry could be based, and upon which the delayed tax allowances for capital expenditure could be brought up to date to take account of the inflation we are now experiencing. OPEC is trying to secure such an inflation-proofing system for its sales. It should not be beyond the Treasury's ability to draw up an index to cover what could be severe losses through inflation on the historic costs involved in the original expenditure.
The Bill has been through some traumatic experiences in Committee and in the House, but it has been improved considerably since it appeared in Committee on 14th December. We on the Opposition benches argued there that the simple PRT system would not be possible, taking into account the marginality of 60 per cent. to 75 per cent. of our North Sea oilfields. We tried to persuade the Government to change back to an extension of the corporation tax system. But we have been stuck with this PRT system, in an attempt, I believe, to achieve early revenue for the Government, rather than with any regard to the longer-term profit aspects of the development of the North Sea.
A headline in today's Daily Telegraph describes North Sea development as being in
" a state of suspended inanimation ".
That need not be the case. If the Government were to bend a little further towards some of our amendments, towards allowable interest costs, the carry-forward of the 10 million ton PRT allowance, the introduction of inflation indexing, and the relaxation of some of the field-by-field rigidities, I am sure that the momentum could be regained in North Sea development. Without that momentum towards

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future profits for the country, what hope have we, with the rest of our economy in such dire straits?
Mr. Alexander Wilson: The Conservative Party manifesto for the last election said:
"the Scottish people must enjoy more of the financial benefits from oil, and they must be given a far greater say over its operation in Scotland."
Will the hon. Gentleman comment on that? Does it relate to the revenues from oil or the technological and onshore developments that may result from the discovery of oil in the North Sea?
Mr. Deputy Speaker: I hope that the hon. Member for Exeter (Mr. Hannam) will be careful not to fall into that trap. We are considering not how the money is to be spent but how it is to be raised.
5.45 p.m.
Mr. Hannam: You stopped me in my tracks, Mr. Deputy Speaker. I was about to launch forth into a description of my visits to Scotland and to say how I hoped that the Bill would ensure that development continued to take place off Scotland and that its benefits were applied to the Scottish economy.
The country needs a sustained programme of exploration and development. This amended Bill can go a long way towards what we all want to see, but if it were amended still further on Report it would ensure that that development took place.
Mr. Dell: Hon. Members on both sides of the House have complained that this is a different Bill from that introduced on 19th November. It is, of course, a different Bill. It is different in one prime respect, in that it now includes specific provision for marginal fields.
On Second Reading, and, I believe, in the previous Budget debate, I said that the Bill lacked marginal field provision, but that we were determined to make such provision after discussions with the industry. We had discussions with the industry, and we then introduced the marginal field provision. That is the major change that we have made. We made it exactly according to the plan which I defined to the House at the outset. It did not appear to be right or possible for the Government, independent
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of such consultations, to introduce the best marginal field provision that we could find as a result of our discussions with the industry.
But it was a second objective, as I have emphasised repeatedly, to limit the period of uncertainty which would inevitably follow the introduction of a Bill increasing the taxation of the oil industry. For that reason also it was appropriate that we should have consultations with the industry, not before we introduced the Bill but concurrently with its passage through the House. That is why on 19th November, the day the Bill was introduced in the House, I called the industry into consultation so that we could get the Bill right.
My hon. Friend the Member for Northampton, North (Mrs. Colquhoun) is distressed. She wonders whether we have gone too far to meet the industry's needs, and she also wonders what the value of her role on the Committee was. I am sorry that she feels like that. I hope that she will distinguish between the two separate aspects of the problem that we have tried to keep separate—participation and the tax.
When my right hon. Friend the Chancellor of the Duchy of Lancaster went to New York, he went to speak to the oil companies about participation. It seemed appropriate that he, as the Government's chief negotiator on participation, should talk to the oil companies at their headquarters about the Government's proposals. My hon. Friend quoted the party's manifesto. The reason for our saying in the manifesto that we would negotiate majority participation in existing licences was that, given that licences had been issued, negotiation was the proper course. That is what is now happening under the leadership of my right hon. Friend the Chancellor of the Duchy of Lancaster.
That is a separate point from the question whether the rate of tax and the marginal field provisions here proposed are appropriate to secure our objectives both of ensuring that a fair share of the profit comes to the British people and of ensuring—which is certainly not less important—that development in the North Sea goes ahead.
I believe that we have achieved that. I was very pleased to hear from my hon. Friend the Member for Dudley, West

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(Dr. Phipps) that he believes that we have achieved that, though he had certain points on which he wished me to comment. The first was in relation to the appropriate relationship in the marginal field provisions in respect of gas and oil, which causes him concern. This is a problem that he has mentioned to me, which we have considered and discussed with, among others, obviously, the Department of Energy. We think that the provisions that we have made will be adequate to encourage the development of gas fields. But certainly, if my hon. Friend has information to suggest that that is wrong, I should be very glad to see it. We have no wish to prevent the development of future gas fields, because, as he says, we shall need the gas from them. Therefore, it is a matter of fact whether what we have provided is sufficient. If my hon. Friend thinks that it is not sufficient, I should certainly be prepared to look at any calculations he can present.
My hon. Friend also asked me to say something about the waiving of royalties. I believe that he was looking in the Bill to find the relevant clause. The relevant clause will appear in the Petroleum Bill. Under the Petroleum Bill it will be possible to waive or refund royalties without liability to petroleum revenue tax or corporation tax. As my hon. Friend says, that is a very powerful weapon for getting marginal fields developed — though I hope it will not have to be used frequently.
The right hon. Member for Wanstead and Woodford (Mr. Jenkin) criticised me for comparing the British proposals with the Norwegian and indicating that on our calculations the two sets of proposals were roughly comparable—although, as I say, I think it may be that we would get a slightly higher take. He warned me that this is not something to welcome because the Norwegian situation is very different from the British situation and that the Norwegians were not interested in the rapidity of development that we are interested in. The hon. Member for Dunbartonshire, East (Mrs. Bain) confirmed the point.
This is true, but the right hon. Gentleman, in his deep prejudice against the system of taxation which we are introducing, should not ignore some of its incidental benefits. I mentioned some
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of them when I was introducing the clause. To start with, we believe that our marginal field provision gives better help to marginal fields than does the equivalent Norwegian provision. This is an estimate. Obviously, remarks are made in comparing the two tax systems, which I accept is difficult to do and can lead to error. But, at any rate, that is our estimate.
However, the one essential difference between the two systems is this. We allow write-off earlier than the Norwegian system does. But we have a comparable, perhaps slightly higher, take. Because we allow write-off earlier, our system both encourages development and permits a take at any rate comparable with that which the Norwegians have gone for.
The trouble is that we have never really seen the alternative which the right hon. Gentleman prefers. We do not know even now whether it was what Lord Barber, his then right hon. Friend, would have introduced in that famous Budget that never happened, or what he would think of the appropriate levels of tax. So it is rather difficult to set an existing system against one which is so nebulous as that which the right hon. Gentleman recommends—which would not need to be nebulous if he would only confirm that this was what Lord Barber wanted to introduce and present a detailed explanation of it.
Mr. Patrick Jenkin: I do not know why the right hon. Gentleman feels that he does not have enough information about it. I sent it to him on 28th January. On 29th January I received a very polite letter from his private secretary which said:
" I am writing to acknowledge your letter of 28th January, which I shall lay before the Paymaster-General."
Since then I have heard not a squeak. If the right hon. Gentleman has many more questions about it and wants to know how it would work in greater detail, I should be delighted to answer those questions, but he has left the matter for nearly two months without asking a single question.
Mr. Dell: The trouble is that the right hon. Gentleman was unable to answer the decisive question. about any such system of taxation. That was what the appropriate rate of return was. So I merely assumed that this was the result of his

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discussions with the oil companies, and, therefore, I examined in considerable detail and with interest a comparable proposal which had been put to me by the oil companies. I assumed that the right hon. Gentleman had got his information from the usual source and that if I looked at the detailed specification indicated to me by the oil companies I would be able to undertake a comparison.
Mr. Gordon Wilson: I may be able to solve the conflict of opinion that is developing between the Government and the Conservative Opposition. A Financial Times report which has just been brought to my attention says:
"Assessing the United Kingdom as a host state, now, after these new proposals, it still remains among the most benevolent of host states. The Labour Government has introduced measures of which the Conservative Party in Britain might well have been proud."
Mr. Dell: I am grateful to the hon. Gentleman for that further contribution. I shall be coming to his remarks shortly.
The right hon. Member for Wanstead and Woodford says that we should allow the full amount of the oil allowance in any field, however small. In other words, he says that we should allow some sort of carry forward for the oil allowance so that a small field can use the full 10 million tons. I am afraid that I must repeat what I said earlier. I do not see justification for so doing. The oil allowance operates in exactly the way it was intended to operate. It operates to reduce very significantly the burden of taxation on small fields. On a 40-million ton field it really would make virtually no difference—some difference, but certainly not enough difference to mean the development or not the development of a particular field. Therefore, I do not see justification for this further concession. It has certainly not been pressed with any great vigour by the industry. [Interruption.] I repeat that it has not been pressed. I see no great justification for conceding this point. Certainly it would produce a further reduction in the tax payments, but marginal further reductions on what seem to me to be any likely assumptions about price and costs.
The right hon. Gentleman also asks that we should index the safeguard. He says that this is a wholly unique case which should lead to indexing the safe-
1700
guard. The safeguard is itself unique. It is introduced in order to give a certain degree of additional protection to companies in the early years so as to insure them against what they fear might happen, and that is a very considerable cut in the price of oil which might, if the tax system remained otherwise, heavily reduce their profits. It is for that purpose. That purpose is achieved by the safeguard in its existing character. To index it would have quite unnecessary deleterious effect on Government take.
Similarly, I have to reject the right hon. Gentleman's request, now made many times, that there should be an option in respect of interest against PRT. This would be impossible to control, for reasons which have been repeatedly explained.
6.0 p.m.
Amendment (c) deals with a detail as the right hon. Gentleman said. I do not think it is necessary in respect of such a matter to decide here and now that the Board of Inland Revenue is incapable of making such determinations in the appropriate fashion. I have no doubt that the Revenue, in considering any basis on which the participators share of the allowance should be distributed, will, in fixing the division of the total oil allowance within the 10 million tons limit, take account of the shares won by the participators. We do not need a special provision for that purpose.
We will watch the situation and will, perhaps, take action of that kind if it proves to be necessary, but I do not think that we need to tie the Board of Inland Revenue in such a way at present.
The hon. Member for Dundee, East (Mr. Wilson) was not able to establish the figures which I criticised. He adduced two arguments, one of which was not in his Press handout and one of which was. The argument which was in his Press handout was that development costs may not continue to escalate and may fall. The hon. Gentleman mentioned certain experiments currently being carried out by Exxon and the possibility that these will lead to cheaper ways of extracting oil from beneath the sea. I hope that this is so. It would be in accordance with the normal development of technology if costs fell after a time. The system which Exxon is developing could be a way, though I

1701
understand from such technical advice as I have on this point that at present all that is being said of it is that it cuts very high capital costs where platforms would be so costly as to be uneconomic anyhow. It is in that sort of situation only that hopes may be seen for the system. I do not think that it would help in the situation we face in the North Sea at rather lesser depths.
Nevertheless, the general principle might easily prove to be true that development costs will cease to escalate and might even fall. That would be a new situation. Even within the tax situation as it is, that would produce a very much higher rate of take than we estimate now. If development costs became anything like those the hon. Gentleman chooses as a comparison namely, those in the Middle East, or even half way towards them—the nation would obviously derive great benefit. However, the hon. Gentleman cannot sustain an argument for a rate of tax on the basis of technical developments which have not yet taken place. He cannot argue that there should be a different rate of tax because possibly sometime in the 1980s or 1990s there will be—I hope that there will be—much cheaper methods of extracting oil.
The OECD report to which the hon. Gentleman referred was written before the recent escalation in costs. The report gives a range of costs for the North Sea of $1·50 to $2·00 a barrel. If my memory is right, that is at 1972 prices. There has been considerable escalation since then and there is evidence of substantially higher costs at present in the North Sea.
The hon. Gentleman must deal with these problems more substantially before advancing estimates of possible take from the North Sea consistent with development in the North Sea in the way he did.
The hon. Gentleman has a different attitude. His attitude is that we should not go for the present speed of development. If he wishes to shut the whole operation down, let him be clear about it. Let him say that he wishes to shut the operation down, and then he should not talk of £6,700 million being available for distribution in the British economy or the Scottish economy.
Mr. Gordon Wilson: Does not the right hon. Gentleman recall that I was talking in relation to the figure of £6,700 million
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over the lifetime of the fields? That is the figure which emerges from our calculations. If the life of the fields were extended over a different period, the take would be the same. I cannot see the relevance of the right hon. Gentleman's point.
Mr. Dell: The point I am making is that if the hon. Gentleman and his hon. Friends want a slower rate of development of oil, the income to whatever economy benefits from it will be less. My substantial point in reply to the hon. Gentleman is that his figures are wrong. The figures on which he made his calculations are not appropriate to the present stage of development in the North Sea, except in the limited example which I conceded earlier.
As my hon. Friend the Member for Bolsover (Mr. Skinner) is here, I will briefly repeat the point I made to the hon. Member for Dundee, East, because my hon. Friend also made the point and then disappeared from the Chamber. He will no doubt be delighted to see that share prices of oil have risen less since my statement than the Financial Times index generally. I do not take any particular pleasure from it, but as my hon. Friend makes something of it perhaps he would like that additional information.
Mr. Skinner: It is true that on the day immediately following my right hon. Friend's statement there was a fairly dramatic increase in prices on the Stock Exchange. My right hon. Friend makes the point that the rise was not of the same momentum on succeeding days and in succeeding weeks. However, most of the rise had been discounted, because many of the pundits in the oil companies and outside had already made it fairly clear that the rate of tax would be about 45 per cent. Already there had been estimates of 175 per cent. on capital allowance. Already there had been talk in the Press of 1 million tons for each field. All these things had been discounted. Therefore, much of the rise had already been taken into account.
Mr. Dell: Then I do not know why my right hon. Friend made the point earlier.
The important point, as I have emphasised, is that we should continue development in the North Sea and that we should

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get a reasonable share of the return for the British people. This is what is achieved by the new clause and the Government amendments now before the House, and I hope that the House will accept them.
Mr. Patrick McNair-Wilson: We welcome the assurances and the concessions which the Government have made in this group of amendments. We welcome the other points which were made by the Paymaster-General to take account of some of the arguments which have been deployed.
However, it must be remembered that the whole concept of a petroleum revenue tax was based on the assumption that, if people would go to the North Sea when oil was $2 a barrel, when prices were quadrupled or quintupled the oil would necessarily be able to bear a substantial rate of taxation. We on this side believe that that assumption is entirely fallacious because it fails totally to take account of the enormous increase in the costs of exploration which have since taken place. Therefore, PRT will for us always represent a substantial burden on many of those who are exploring and developing their assets in the North Sea.
It was interesting to listen to some of the comments which were made by hon. Members opposite. The bon. Member for Northampton, North (Mrs. Colquhoun) courageously took part in our debates in Standing Committee. Her comments, robust though they were, emphasise for everyone here the division which exists between those who believe that by heavily taxing North Sea oil we shall benefit the people and those who realise that it high levels of tax are imposed nobody will go looking for North Sea oil, so there will be no oil and, therefore, no tax.
There can be, as she put it, no bigger bonanza for the British unless the oil flows ashore. We on the Opposition benches have been endeavouring to produce amendments and discussions to provide legislation which will give the British people the full reward in terms of oil and finance. At the same time, however, we recognise that this is the roughest water in the world and the most difficult operation that most of these companies have had to undertake.
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In an intervention the hon. Member for Bolsover (Mr. Skinner) talked about security of supply and the importance of the North Sea. I entirely agree with him. The security of supply which the North Sea provides for Britain is absolutely central to the argument on both sides of the House. The hon. Member, who has supported the coal mining industry on so many occasions in the past, and the hon. Member for Hamilton (Mr. Wilson), who spoke as a coal miner, have stressed the need for a secure supply of indigenous fuel. They must recognise that the North Sea provides precisely that.
Mr. Skinner: I find myself in strange company in this place. It appears that because the hon. Member for the New Forest (Mr. McNair-Wilson) is somewhat misguided he gets the impression that we are together on this matter. Of course, we are absolutely poles apart. However, when he talks about the need, as I did, for making completely sure that we control North Sea oil resources he must bear in mind that I am concerned not necessarily or only because of the taxation situation but because I also want to ensure that when the oil starts flowing it does not replace some of the 115 million tons of coal which are now mined each year. I want to ensure that it replaces costly imports of oil. We need to control it, and one of the ways of doing that more effectively and of taking it over completely is by taxing the oil companies to such a degree that they cannot exploit it for themselves.
Mr. McNair-Wilson: I have no doubt that the Paymaster-General and the Secretary of State for Energy will take careful note of what the hon. Member said. If he wants to drive this country back into the arms of the OPEC cartel, that is the sort of speech that he should make throughout the country.
At the time of the Middle East war in 1973 a shock ran through the whole of the industrialised world, of which we are a part, with the sudden realisation that we were to a great extent dependent on a supply of energy which could be cut off at a moment's notice. Today we are dependent for 70 per cent. of our oil upon the Arabian Gulf. One can see that if the Kissinger mission were to fail and if war were to break out again in

1705
that area we should be back where we were at the end of 1973. Therefore the Conservatives believe that it is essential that the North Sea is developed as steadily and effectively as possible. We must make certain that where resources are available they are exploited.
My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) made clear that the large reservoirs are the ones which tend to be found first. However, one must recognise that it is essential to go on looking for what are termed the marginal fields. This requires that companies are encouraged to do this and are not discouraged by over-taxation. When he was asked by one of his hon. Friends about the Government take from the North Sea the Paymaster-General said that this would depend to some extent upon cost and price. Price is a most uncertain factor at this time. I know of someone who was offered 150,000 barrels of Nigerian crude at only eight dollars a barrel. That shows a substantial reduction over the current world price. Abu Dhabi has been prepared to cut back on the margin and its price level.
One might find that members of OPEC —perhaps not the big producers, but those who have made heavy political commitments to their peoples about industrialisation and so on—will prefer to release their oil on to the market at whatever price it will fetch rather than see consumption and, therefore, production sink. If the OPEC cartel were to break and prices were to fall North Sea oil would be at a price which would make it uneconomical to exploit.
6.15 p.m.
Our amendments are designed to take account of two specific points which occur in new Clause 1. The first is that which revolves around the whole question of the marginal resource. My right hon. Friend made clear earlier that we believe there are deficiencies in the oil allowance concept.
I was interested to see that the Comment article in today's Daily Telegraph, written by Mr. Kenneth Fleet, said:
"Today Mr. Dell, Paymaster-General, will introduce some 30 amendments to the Oil Taxation Bill which enters its report stage before moving to the Lords and the Royal Assent, probably by the middle of next month. These amendments are intended to he the finishing touches to a notably cumber-
1706
some piece of legislation, well defined only in intent (to take the cream, and if possible the milk from North Sea oil, leaving the companies with the water).
It can be said, truthfully, that the Government has retreated a long way from the extreme Balogh position in the direction of common sense, though not far enough."
I accept that they have not gone far enough, and our amendment (a) seeks to correct that situation. That is why we regard the amendment on the oil allowance as so significant.
My hon. Friend the Member for Exeter (Mr. Hanam) and the hon. Member for Dudley, West (Dr. Phipps) referred to the option of interest rather than uplift for the smaller companies. We entirely support that, and we should like to feel that we have the support of the hon. Member for Dudley, West because this is a very critical issue for the smaller company. For the bigger company, the 175 per cent. uplift is a good and sensible way of taking advantage of the allowance.
Dr. Phipps: I hope that the hon. Member will recall that I observed that the provisions for the waiving of royalty will take full care of this difficulty about interest.
Mr. McNair-Wilson: I had intended to refer to that. The comment about relief and the clarification by the Paymaster-General a moment ago that this would be covered by new legislation is very helpful. I reiterate how much I agree with the hon. Member in his comments about the gas fields, with which we shall be dealing later.
Our amendment to give the option for interest rather than uplift is also of great significance. Our intention in these amendments is to make certain that wherever possible the marginal field is fully exploited, that as much encouragement as possible is given, and that the smaller company—not necessarily the same company, frequently a British company, as will be in the marginal field, —is given as much help as possible.
The Government have come a long way towards our position. I hope that the Paymaster-General will never be put off by the strictures of his hon. Friends who seem to feel that he has sold out to the oil companies. When the Government first introduced the Bill it was almost meaningless in the context of the real situation in the North Sea. As it is

1707
being amended, the Bill will be, if not perfect, a document with which the oil industry can live.
It is not enough for the hon. Member for Northampton, North to talk about excessive profits being made. Excessive profits are not being made in the North Sea. Because we believe that profits are hard to earn in the North Sea we have always objected to the concept of PRT as a prior charge before corporation tax. The day that we want to start getting worried is the day the companies start making losses, because that is the day that this great asset will dry up.
Our amendments are not frivolous. We regard them as essential. Therefore, in spite of the Paymaster-General's assurances, I must advise my right hon. and hon. Friends to go into the Division Lobby to ensure that they are made part of the Bill.
Question put and agreed to.
Clause read a Second time.
Amendment proposed to the proposed new clause: (a), in line 69, at end add—
'(9) Notwithstanding subsection (1) above a participator shall be entitled to the cash equivalent of his share of the oil allowance for a field for each chargeable period from and including the first chargeable period (as defined in section 1(3) of this Act) and if for any chargeable period a participator is not able to utilise or fully utilise under subsection (1) above his share of the cash equivalent of the oil allowance calculated under subsection (3) above, and for which an election has been made under subsection (4) above, he shall be entitled on so claiming to carry forward such unutilised cash equivalent to reduce the said amount of any succeeding chargeable period'. —[Mr. Patrick Jenkin.]
Question put, That the amendment be made to the proposed Clause:—
The House divided: Ayes 202, Noes 267.

Division No. 149.]

AYES

[6.22 p.m.

Adley, Robert

Fairgrieve, Russell

Kimball, Marcus

Aitken, Jonathan

Fell, Anthony

King, Evelyn (South Dorset)

Alison Michael

Fisher, Sir Nigel

King, Tom (Bridgwater)

Arnold. Tom

Fletcher-Cooke, Charles

Kirk, Peter

Atkins, Rt Hon H. (Spelthorne)

Fookes, Miss Janet

Knight, Mrs Jill

Awdry, Daniel

Fowler, Norman (Sutton C'f'd)

Knox, David

Baker, Kenneth

Fox, Marcus

Lamont, Norman

Banks Robert

Fry, Peter

Lawrence, Ivan

Bell, Ronald

Gardiner, George (Reigate)

Lawson, Nigel

Bennett, Sir Frederic (Torbay)

Gardner, Edward (S Fylde)

Le Marchant, Spencer

Benyon, W.

Gilmour, Rt Hon Ian (Chesham)

Lewis, Kenneth (Rutland)

Berry, Hon Anthony

Gilmour. Sir John (East Fife)

Lloyd, Ian

Biffen John

Goodhart, Philip

Luce, Richard

Biggs-Davison, John

Goodhew, Victor

McCrindle, Robert

Body, Richard

Goodlad, Alastair

Macfarlane. Neil

Bowden, A. (Brighton, Kemptown)

Gow, Ian (Eastbourne)

MacGregor, John

Boyson, Dr Rhodes (Brent)

Gower, Sir Raymond (Barry)

Macmillan, Rt Hon M. (Farnham)

Braine, Sir Bernard

Grant, Anthony (Harrow C)

McNair-Wilson, M. (Newbury)

Brittan, Leon

Gray, Hamish

McNair-Wilson, P. (New Forest)

Brotherton, Michael

Griffiths, Eldon

Madel, David

Brown, Sir Edward (Bath)

Grimond, Rt Hon J.

Marshall, Michael (Arundel)

Bryan, Sir Paul

Grist, Ian

Marten, Neil

Buck, Antony

Grylls, Michael

Mates, Michael

Budgen, Nick

Hall, Sir John

Mather, Carol

Bulmer, Esmond

Hamilton, Michael (Salisbury)

Maude, Angus

Burden, F. A.

Hampson, Dr. Keith

Maudling, Rt Hon Reginald

Chalker, Mrs Lynda

Hannam, John

Mawby, Ray

Churchill, W. S.

Harvie Anderson, Rt Hon Miss

Maxwell Hyslop, Robin

Clark, Alan (Plymouth, Sutton)

Havers, Sir Michael

Mayhew, Patrick

Clark, William (Croydon S)

Hawkins, Paul

Meyer, Sir Anthony

Clarke, Kenneth (Rushcliffe)

Hayhoe, Barney

Mills, Peter

Clegg, Walter

Heseltine, Michael

Miscampbell, Norman

Cockcroft, John

Hicks, Robert

Mitchell, David (Basingstoke)

Cooke, Robert (Bristol W)

Holland, Philip

Moate, Roger

Cope, John

Hordern, Peter

Monro, Hector

Costain A. P.

Howe, Rt Hon Sir Geoffrey

Montgomery, Fergus

Crouch,' David

Howell, David (Guildford)

More, Jasper (Ludlow)

Crowder, F. P.

Howell, Ralph (North Norfolk)

Morgan, Geraint

Dean, Paul (N Somerset)

Hunt, John

Morris, Michael (Northampton S)

Douglas-Hamilton, Lord James

Irvine, Charles (Cheltenham)

Morrison, Charles (Deviszes)

du Cann, Rt Hon Edward

James, David

Morrison, Hon Peter (Chester)

Durant, Tony

Jenkin, Rt Hon P. (Wanst'd & W'df'd)

Neave, Airey

Dykes, Hugh

Jessel, Toby

Nelson, Anthony

Eden Rt Hon Sir John

Johnson Smith, G. (E Grinstead)

Neubert, Michael

Elliott, Sir William

Joseph, Rt Hon Sir Keith

Newton, Tony

Emery, Peter

Kaberry, Sir Donald

Normanton, Tom

Eyre, Reginald

Kellett-Bowman, Mrs Elaine

Onslow, Cranley

Fairbairn, Nicholas

Kershaw, Anthony

Page, Rt Hon R. Graham (Crosby)

Parkinson, Cecil

Shaw, Michael (Scarborough)

Townsend, Cyril D.

Pattie, Geoffrey

Shelton, William (Streatham)

Trotter, Neville

Percival, Ian

Shepherd, Colin

Tugendhat, Christopher

Peyton, Rt Hon John

Shersby, Michael

van Straubenzee, W. R.

Prior, Rt Hon James

Sims, Roger

Vaughan, Dr Gerard

Pym, Rt Hon Francis

Skeet, T. H. H.

Wakeham, John

Rathbone, Tim

Speed, Keith

Walder, David (Clitheroe)

Rawlinson, Rt Hon Sir Peter

Spence, John

Walker, Rt Hon P. (Worcester)

Rees, Peter (Dover & Deal)

Spicer, Michael (S Worcester)

Walker-Smith, Rt Hon Sir Derek

Rees-Davies, W. R.

Sproat, Iain

Weatherill, Bernard

Renton, Tim (Mid-Sussex)

Stanbrook, Ivor

Wells, John

Rhys Williams, Sir Brandon

Stanley, John

Wiggin, Jerry

Ridsdale, Julian

Stewart, Ian (Hitchin)

Winterton, Nicholas

Rifkind, Malcolm

Stokes, John

Wood, Rt Hon Richard

Roberts, Michael (Cardiff NW)

Stradling Thomas, J.

Young, Sir G. (Ealing, Acton)

Rodgers, Sir John (Sevenoaks)

Tapsell, Peter

Younger, Hon. George

Rossi, Hugh (Hornsey)

Taylor, Teddy (Cathcart)

Rost, Peter (SE Derbyshire)

Tebbit, Norman

TELLERS FOR THE AYES:

Royle, Sir Anthony

Temple-Morris, Peter

Mr. Adam Butler and

Sainsbury, Tim

Thatcher, Rt Hon Margaret

Mr. Fred Silvester.

SI. John-Stevas, Norman

Thomas, Rt Hon P. (Hendon S)

NOES

Abse, Leo

Dunwoody, Mrs Gwyneth

Jones, Dan (Burnley)

Allaun, Frank

Eadie, Alex

Kaufman, Gerald

Anderson, Donald

Edge, Geoff

Kelley, Richard

Armstrong, Ernest

Ellis, John (Brigg & Scun)

Kerr, Russell

Ashley, Jack

Ellis, Tom (Wrexham)

Kinnock, Neil

Ashton, Joe

English, Michael

Lambie, David

Atkins, Ronald (Preston N)

Evans, Gwynfor (Carmarthen)

Lamborn, Harry

Bagier, Gordon. A. T.

Evans, loan (Aberdare)

Lamond, James

Bain, Mrs Margaret

Evans, John (Newton)

Lee, John

Barnett, Guy (Greenwich)

Ewing, Harry (Stirling)

Lestor, Miss Joan (Eton & Slough)

Barnett, Rt Hon Joel (Heywood)

Ewing, Mrs Winifred (Moray)

Lewis, Arthur (Newham N)

Bates, Alf

Fernyhough, Rt Hon E.

Lewis, Ron (Carlisle)

Bean, R. E.

Fitch, Alan (Wigan)

Litterick, Tom

Beith, A. J.

Fitt, Gerard (Belfast W)

Lomas, Kenneth

Bennett, Andrew (Stockport N)

Flannery, Martin

Loyden, Eddie

Bishop, E. S.

Fletcher, Ted (Darlington)

Lyon, Alexander (York)

Blenkinsop, Arthur

Foot, Rt Hon Michael

Lyons, Edward (Bradford W)

Boardman, H.

Ford, Ben

MacCormick, lain

Booth, Albert

Forrester, John

McElhone, Frank

Boothroyd, Miss Betty

Fraser, John (Lambeth, N'w'd)

MacFarquhar, Roderick

Bottomley, Rt Hon Arthur

Freeson, Reginald

McGuire, Michael (Ince)

Bradley, Tom

Freud, Clement

Mackenzie, Grego

Bray, Dr Jeremy

Garrett, John (Norwich S)

Mackintosh, John P.

Brown, Ronald (Hackney S)

Garrett, W. E. (Wallsend)

Maclennan, Robert

Buchan, Norman

George, Bruce

McMillan, Tom (Glasgow C.)

Buchanan, Richard

Gilbert, Dr John

McNamara, Kevin

Callaghan, Jim (Middleton & P)

Ginsburg, David

Madden, Max

Campbell, Ian

Golding, John

Magee, Bryan

Canavan, Dennis

Gould, Bryan

Mahon, Simon

Cant, R. B.

Gourlay, Harry

Marks, Kenneth

Carmichael Neil

Grant, George (Morpeth)

Marshall, Dr Edmund (Goole)

Carter-Jones, Lewis

Grocott, Bruce

Marshall, Jim (Leicester S)

Cartwright, John

Hamilton, James (Bothwell)

Meacher, Michael

Castle, Rt Hon Barbara

Hamilton, W. W. (Central Fife)

Mellish, Rt Hon Robert

Clemitson Ivor

Hardy, Peter

Mikardo, Ian

Cocks, Michael (Bristol S)

Harrison, Walter (Wakefield)

Millan, Bruce

Cohen, Stanley

Hart, Rt Hon Judith

Miller, Dr M. S. (E Kilbride)

Coleman, Donald

Hattersley, Rt Hon Roy

Miller, Mrs Millie (Ilford N)

Colquhoun, Mrs Maureen

Hatton, Frank

Mitchell, R. C. (Soton, Itchen)

Conlan, Bernard

Hayman, Mrs. Helene

Molloy, William

Cook, Robin F. (Edin C)

Healey, Rt Hon Denis

Morris, Alfred (Wythenshawe)

Cox, Thomas (Tooting)

Heffer, Eric S.

Morris, Charles R. (Openshaw)

Craigen, J. M. (Maryhill)

Henderson, Douglas

Mulley, Rt Hon Frederick

Crawford, Douglas

Hooley, Frank

Murray, Rt Hon Ronald King

Crawshaw, Richard

Horam, John

Newens, Stanley

Crosland, Rt Hon Anthony

Hoyle, Doug (Nelson)

Noble, Mike

Cryer, Bob

Huckfield, Les

Oakes, Gordon

Cunningham, G. (Islington S)

Hughes, Rt Hon C. (Anglesey)

Ogden, Eric

Cunningham, Dr J. (Whiteh)

Hughes, Mark (Durham)

O' Halloran, Michael

Dalyell Tam

Hughes, Robert (Aberdeen N)

O'Malley, Rt Hon Brian

Davidson, Arthur

Hughes, Roy (Newport)

Orbach, Maurice

Davies, Bryan (Enfield N)

Hunter, Adam

Ovenden, John

Davies, Denzil (Llanelli)

Jackson, Colin (Brighouse)

Owen, Dr David

Davies, Ifor (Gower)

Janner, Greville

Padley, Walter

de Freitas, Rt Hon Sir Geoffrey

Jay, Rt Hn Douglas

Palmer, Arthur

Dell, Rt Hon Edmund

Jeger, Mrs Lena

Pardoe, John

Dempsey, James

Jenkins, Hugh (Putney)

Park, George

Doig Peter

Jenkins, Rt Hon Roy (Stechford)

Parker, John

Dormand, J. D.

John, Brynmor

Parry, Robert

Douglas-Mann, Bruce

Jones, Alec (Rhondda)

Pavitt, Laurie

Dunnett, Jack

Jones, Barry (East Flint)

Peart, Rt Hon Fred

1710

1711

Penhaligon, David

Silkin, Rt Hon John (Deptford)

Wainwright, Richard (Colne V)

Perry, Ernest

Sillars, James

Walker, Harold (Doncaster)

Phipps, Dr Colin

Silverman, Julius

Walker, Terry (Kingswood)

Prentice, Rt Hon Reg

Skinner, Dennis

Ward, Michael

Price, C. (Lewisham W)

Small, William

Watkins, David

Price, William (Rugby)

Smith, Cyril (Rochdale)

Watkinson, John

Radice, Giles

Smith, John (N Lanarkshire)

Watt, Hamish

Rees, Rt Hon Merlyn (Leeds S)

Snape, Peter

Weetch, Ken

Reid, George

Spriggs, Leslie

Weitzman, David

Richardson, Miss Jo

Stallard, A. W.

Wellbeloved, James

Roberts, Albert (Normanton)

Stewart, Donald (Western Isles)

Welsh, Andrew

Roberts, Gwilym (Cannock)

Stewart, Rt Hon M. (Fulham)

White, Frank R. (Bury)

Robertson, John (Paisley)

Stoddart, David

White, James (Pollok)

Roderick, Caerwyn

Stott, Roger

Whitehead, Phillip

Rodgers, George (Chorley)

Strang, Gavin

Whitlock, William

Rodgers, William (Stockton)

Strauss, Rt Hon G. R.

Wigley, Dafydd

Rooker, J. W.

Summerskill, Hon Dr Shirley

Williams, Alan Lee (Hornch'ch)

Roper, John

Swain, Thomas

Williams, Rt Hon Shirley (Hertford)

Ross, Stephen (Isle of Wight)

Taylor, Mrs Ann (Bolton W)

Williams, W. T. (Warrington)

Ross, Rt Hon W. (Kilmarnock)

Thomas, Jeffrey (Abertillery)

Wilson, Alexander (Hamilton)

Rowlands, Ted

Thomas, Mike (Newcastle E)

Wilson, Gordon (Dundee E)

Ryman, John

Thomas, Ron (Bristol NW)

Wise, Mrs Audrey

Sandelson, Neville

Thompson, George

Woof, Robert

Sedgemore, Brian

Tierney, Sydney

Wrigglesworth, Ian

Selby, Harry

Tinn, James

Young, David (Bolton E)

Shaw, Arnold (Ilford South)

Tomlinson, John

Sheldon, Robert (Ashton-u-Lyne)

Urwin, T. W.

TELLERS FOR THE NOES:

Shore, Rt Hon Peter

Varley, Rt Hon Eric G.

Mr. James A. Dunn and

Short, Rt Hon E. (Newcastle C)

Wainwright, Edwin (Dearne V)

Mr. Joseph Harper.

Short, Mrs Renée (Wolv NE)

Question accordingly negatived.
Clause added to the Bill.

New Clause 2

  ANNUAL LIMIT ON AMOUNT OF TAX PAYABLE BY PARTICIPATOR
  `(1) The total tax payable by a participator in an oil field for the chargeable period or periods comprised in any calendar year shall not exceed 80 per cent. of the amount (if any) by which his adjusted profit for that year (as defined in this section) exceeds 30 per cent. of his accumulated capital expenditure at the end of that year (as so defined).
  (2) For a participator in an oil field, his adjusted profit (if any) for any calendar year shall be determined as follows—
  (a) for each chargeable period comprised in that year there shall be ascertained—

  (i) the assessable profit (without any reduction under section 7 or (Oil allowance) of this Act) or allowable loss accruing to him in that period ; and

  (ii) the total amount taken into account under section 2(9)(b), (c), (d) and (e) of this Act in computing that profit or loss, excluding expenditure so taken into account under section 2(9)(b)(i) or (c)(i) which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii);

  (b) in the case of each such chargeable period—

  (i) if there is a profit under paragraph (a)(i) above, the sum of that profit and the total ascertained under paragraph (a)(ii) above is his adjusted profit for the period;

  (ii) if there is a loss under paragraph (a)(i) above smaller than the total ascertained under paragraph (a)(ii) above, the
  1712
  difference is his adjusted profit for the period; and

  (iii) if there is a loss under paragraph (a)(i) above greater than the total so ascertained, the difference is his adjusted loss for the period;

  (c) if the year comprises only one chargeable period, his adjusted profit (if any) for that period is his adjusted profit for the year;
  (d) if the year comprises two chargeable periods then—

  (i) if for each of them he has an adjusted profit, the sum of those profits is his adjusted profit for the year;

  (ii) if for one of them he has an adjusted profit and for the other an adjusted loss smaller than that profit, the difference is his adjusted profit for the year;

  (iii) if for one of them he has an adjusted profit and for the other neither an adjusted profit nor an adjusted loss, that profit is his adjusted profit for the year;

  (iv) in any other case, he has no adjusted profit for the year.

  (3) For a participator in an oil field his accumulated capital expenditure at the end of any calendar year is the total amount of expenditure taken into account under section 2(9)(b)(i) and (c)(i) of this Act in computing the assessable profit or allowable loss accruing to him in each of the relevant chargeable periods, that is to say the chargeable period or periods comprised in that year and all earlier chargeable periods, excluding all expenditure so taken into account which was not allowed as qualifying for supplement under section 2(9)(b) (ii) or (c)(ii):
  Provided that in the case of a participator who has made an election under paragraph 9 of Schedule 3 to this Act, his accumulated capital expenditure at the end of any calendar

  1713
  year shall be taken to be what it would have been if he had made no such election.
  (4) Any reduction necessitated by this section in the total tax otherwise payable by a participator in an oil field in respect of a calendar year comprising two chargeable periods shall be made as far as possible by reducing or extinguishing the tax otherwise payable by him for the later of those periods.
  (5) In the case of any oil field the preceding provisions of this section shall have effect as if the calendar year which comprises the critical half year as defined in section 1(4) of this Act comprised the whole of the first chargeable period '.— [Mr. Dell.]

  New Clause 3
  Brought up, read the First and Second time, and added to the Bill.

  ALLOWANCE OF UNBELIEVABLE LOSS FROM ABANDONED HELD
  .—(1) Subject to Schedule 8 to this Act, the following is, in the case of a participator in an oil field, an allowable unrelievable field loss, that is to say so much of any allowable loss which, in the case of any other oil field being a field from which the winning of oil has permanently ceased, has in any chargeable period accrued therefrom to the participator or, if the participator is a company, to a company associated with it in respect of that loss as cannot under the provisions of section 7 of this Act be relieved against assessable profits accruing from that other field to the participator or the company so associated with the participator.
  (2) In determining for the purposes of this section whether an allowable loss has accured as mentioned in subsection (1) above from an oil field from which the winning of oil permanently ceased before the total amount of oil even won and saved from it reached the amount by reference to which the critical half year is defined in section 1(4) of this Act, the first chargeable period for that field shall be taken to have been the period ending at the end of the half year in which the winning of oil from the field so ceased (including an unlimited time prior to the beginning of that half year).
  In this subsection "half year" has the same meaning as in section 1 of this Act.
  (3) For the purposes of this section—

  (a) "company" means any body Corporate ; and

  (b) a company which is a participator in an oil field is associated with another company in respect of an allowable loss which accrued to that other company in a chargeable period from another oil field if—

  (i) throughout that part of the relevant period in which both were in existence one was a 51 per cent. subsidiary of the other and the other was not a 51 per cent. subsidiary of any company ; or

  (ii) each of them was, throughout that part of the relevant period in which it was in existence, a 51 per cent. subsidiary of a third company which was not itself
  1714
  a 51 per cent. subsidiary of any company ; and in this section and Schedule 8 to this Act any reference to the winning of oil from an oil field permanently ceasing includes a reference to the permanent cessation of operations for the winning of oil from the field.

  (4) For the purposes of subsection (3)(b) above—
  (a) the relevant period is the period beginning with the chargeable period in which the allowable loss accrued to the other company referred to in that paragraph and ending with the end of whichever of the following periods ends later, that is to say—

  (i) the earliest chargeable period in which the company which is a participator in the oil field in question was a participator in that field; and

  (ii) the chargeable period in which the allowable loss accrued;

  (or, if they are the same period, with the end of that period) ; and
  (b) section 532 of the Taxes Act (subsidiaries) shall apply '.—[Mr. Dell.]
  Brought up, and read the First time.
  6.30 p.m.
  Mr. Dell: I beg to move, That the clause be read a Second time.
  Mr. Deputy Speaker: With this it will be convenient to take Government Amendments Nos. 145, 172 to 174, 146, 147 to 152 and Amendment No. 68, in Clause 7, page 14, line 43, at end insert:
  '(4) Where—

  (a) the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in the chargeable period from an oil field; and

  (b) the winning of oil from that field has permanently ceased; and

  (c) that allowable loss cannot under the preceding provisions of this section be relieved against assessable profits accruing to the participator from the field then so much of the allowable loss as cannot be so relieved shall be relieved under this subsection by treating the assessable profits accruing to him from any field in any chargeable period as reduced by the amount of the loss '.

  Mr. Dell: The clause meets a commitment which I made in my decision announced in Committee on 16th January. It replaces the present Clause 6—which is repealed by Amendment No. 146—which would have allowed relief against any field for expenditure on a field in the same ownership which is abandoned before production reaches 1,000 long tons. The new provision allows the relief in respect of an overall loss on the abandoned field at whatever stage of production it is abandoned. It

  1715
  therefore meets most, though not all, of the points raised by Opposition Amendment No. 68 to Clause 7.
  The Opposition amendment would have much the same effect as the new clause, although it would not extend, as does the clause, to losses in associated companies. On the other hand, it would go wider by allowing a loss on an abandoned field to be allowed against profits from the other field in any period, in other words, past as well as future periods. I do not know whether, in the light of the new clause, the Opposition intend to press the amendment, but if they do I shall have to reject it. It appears to me wrong that the net loss of an abandoned field should be allowed against past profits on another field.
  Amendment No. 145 paves the way for the introduction of new Clause 3. Amendment No. 146 deletes Clause 6, which becomes unnecessary. Amendments Nos. 147 to 152 adapt existing procedure rules for claims in respect of abortive development expenditure to take account of the replacement of that relief by the new allowance for unrelievable field losses, as provided by new Clause 3.
  Amendments Nos. 172 and 173 modify the rules under which two companies are to be treated as associated, so as to enable abortive exploration expenditure incurred by one to be set off, for PRT, against the profits of the other. Amendment No. 174 alters the definition of "relevant period" for the purposes of the rule for determining whether two companies are associated so that abortive exploration expenditure incurred by one can be allowed against profits of the other for PRT.
  I have commented on all the Government amendments and also on Opposition Amendment No. 68. I hope in the light of my comments that the Opposition will not press their amendment.
  Mr. Hamish Gray: I do not know whether it is a compliment or a penalty to be asked to speak from the Front Bench on the Report stage of a Bill on which one has not served in Committee. I have read many of the Committee proceedings and I am glad that my right hon. and hon. Friends made such progress in the arguments that they presented to the
  1716
  Government. I welcome the clause, which allows for unrelievable loss for an abandoned field. It goes some distance towards meeting the arguments put by my hon. Friends, but it does not go quite far enough.
  As the Bill is drafted, it could result in North Sea expenditures never being relieved for PRT purposes, even though a participator has profits on which he has paid PRT. Our Amendment No. 68 seeks to correct that defect on the principle that losses should not go unrelieved to the extent that a participator has North Sea profits, whether in the past, the present or the future. Our Amendments Nos. 64 to 66 have now been substantially met by Government Amendments Nos. 161 to 163, and we are grateful for that.
  We want the Government to allow current losses from one field to be set against current profits from another. That would, in effect, introduce a measure of aggregation, but in doing so it would not upset the field-by-field structure of PRT. Our aim is to remedy the injustice of a system which, contrary to normal tax law, requires a taxpayer to pay tax on one area of his operations without regard to losses in another. Even if this measure of setting current losses against current profits is not as beneficial as full aggregation on a company basis, nevertheless it is a valuable incentive.
  As the Bill stands, no offset is allowed. Losses incurred in a field are allowable only against future income or past income from that field or ultimately, and only on abandonment of the field, against income from others. Normal corporation tax rules do not apply.
  Let us suppose that a company decides to expand in the normal course of business. Let us suppose that it is a public works company and it decides to extend into property, licensed premises and haulage. If one of those ventures is not successful, the company is allowed to offset losses in one area against profits in another. This would appear to be normal practice, and it seems wrong that it is not being extended to this area of activity.
  Let us take the case of small British companies—of which there are a great number—which would not wish to put all their eggs in one basket and to have all their investment in one exploration. The

  1717
  most likely result is that they will have a share in a number of different explorations. Let us assume that the area in which they have their biggest investment meets industrial trouble and that industrial difficulties cause a hold up in the delivery of an oil platform. The work might be held up for months, with the result that that investment could be seriously jeopardised. Is it not reasonable that such a loss should be offset against possibly more profitable ventures elsewhere?
  I shall not dwell on this matter at length, since the Minister was brief. I shall try to reciprocate. However, it would be a pity if the question of offsetting profits were to be completely ignored.
  Mr. Dell: I congratulate the hon. Member for Ross and Cromarty (Mr. Gray) on appearing for the first time at the Opposition Dispatch Box during the proceedings on this Bill.
  The point the hon. Gentleman mentioned was dealt with in Committee and the Government have now introduced this clause to meet a point which was made strongly to us by the industry. It is connected in thought with Amendment No. 163 and others to Clause 7, in that within a single field we are proposing to allow an indefinite carry-back on losses. That concession is almost unique. We have had many discussions with the industry and have accepted a considerable number of the points that were made to us.
  Having been persuaded to make this concession by the arguments in Committee, we have introduced the present provisions. But immediately we make a concession, we are told, "You must now go on to make a further concession on something else on which previously you have stood firm ". I do not regard it as appropriate within the field basis, which is part of the Bill, to make a further concession in response to the hon. Gentleman's request. There are a number of derogations from this field basis which I regard as right. But in this case we should limit ourselves to what the new clause sets out to do —namely, to allow offset against subsequent profits rather than past profits. I do not think that this is an occasion for reopening past accounts and for allowing indefinite carry-back of losses in other cases. I believe that we have dealt adequately
  1718
  with the point made by the industry, and I hope the House will accept what we have done.
  Question put and agreed to.
  Clause read a Second time, and added to the Bill.

New Clause 4

  INTEREST ON TAX OVERPAID TO BE DISREGARDED IN COMPUTING INCOME
  ' (1) Where any amount of petroleum revenue tax paid by a participator in an oil field is, under any provision of Part I of this Act, repaid to him with interest the amount of the interest paid to him shall be disregarded in computing the amount of his income for the purposes of corporation tax.
  (2) In this section "oil field" and "participator" have the same meaning as in Part of this Act'.—[Mr. Dell.]
  Brought up, and read the First time.
  6.45 p.m.
  The Minister of State, Treasury (Mr. Robert Sheldon): I beg to move, That the clause be read a Second time.
  Mr. Speaker: With this clause, it will be convenient to take Government Amendments Nos. 164 and 165 and Government Amendments Nos. 179 to 181.
  Mr. Sheldon: The new clause fulfils a commitment that interest paid to a participator on any overpayment of PRT is not liable to corporation tax. The new Clause puts that commitment into effect. Amendment No. 164 makes it clear that the 9 per cent. interest rate laid down in the Bill for arrears of PRT is a rate per annum.
  Amendment No. 165 deals with the overpayment of PRT and ensures that it will carry interest at 9 per cent. per annum.
  Amendments Nos. 179 and 180 delete the provisions under which interest is paid to a participator who is found to have overpaid tax as a result of a successful appeal on an allowable expenditure. The provisions as they originally existed are replaced by a more general rule for the payment of interest on overpaid tax.
  Finally Amendment No. 181 makes it clear that the 9 per cent. rate of interest payable by a participator when the courts reverse a decison by the Special Commissioners is a rate per annum.

  1719
  I hope that the House will accept these provisions.
  Mr. Michael Alison: I am sure that we all take great pleasure in the fact that the first speech made today by the Minister of State, Treasury, was one that acknowledged the merits of the arguments advanced in Committee. It marks a return to the norm of the hon. Gentleman's naturally sunny disposition and conciliatory manner—an attitude not always shared by his colleagues. Normally, the hon. Gentleman likes to meet us more than half way. He has done so in these provisions. I only wish that the Chief Secretary, who is now leaving the Chamber, was always as forthcoming. Their association does not seem to have resulted in a full sharing out of the conciliatory attitude displayed by the Minister of State.
  I say no more at this stage. We welcome these sensible amendments and also the new clause.
  Question nut and agreed to.
  Clause read a Second time, and added to the Bill.

Clause 1

  PETROLEUM REVENUE TAX
  Amendments made: No. 1, page 2, line 5, leave out
  ' such rates as Parliament may hereafter determine'
  and insert ' the rate of 45 per cent '.
  No. 2, in page 2, line 8, at end insert:
  ' and under section (Oil allowance) of this Act by reference to his share, if any, of the oil allowance for that period, subject however to the limit imposed in his case by section (Annual limit on amount of tax payable by participator) of this Act '—[Mr. Dell.]
  Mr. Dell: I beg to move Amendment No. 153, in page 2, line 28, at end insert:
  ' and, in connection with certain gas sold to the British Gas Corporation, to section 8 of this Act '.
  Mr. Speaker: With this amendment it will be convenient to take Amendment No. 69, in Clause 8, page 15, line 4, leave out from ' gas ' to ' shall ' in line 6.
  Government Amendments 154 to 158.
  Amendment No. 90, in Clause 16, page 22, leave out lines 41 and 42 and insert ' natural gas; '
  Government Amendment No. 159.
  Mr. Dell: Amendment No. 153 is a tidying up amendment which replaces the present subsection (6) of Clause 8, which is deleted by Amendment No. 154.
  Amendments Nos. 155 to 159 deal with the corporation tax ring fence and are consequential on the exemption of certain gas from PRT, under clause 8.
  Amendment No. 159 deletes the word "natural" from the expression "natural gas" in the provision for determining PRT payments on account. This brings the expression into line with other references to United Kingdom gas in the Bill.
  Mr. Patrick McNair-Wilson: I wish to address my remarks to Amendment No. 69, which seeks to remove gas from the scope of PRT.
  The natural gas produced in the United Kingdom sector of the North Sea must be offered to the Gas Council. Most of it is therefore sold to the British Gas Corporation on fixed contract. It is true that the Minister has exempted gas supplied on contracts which were signed before the end of June 1975. However, it is our belief that natural gas in total should be exempted. The reason for that is simple. The price of gas has not increased in line with the price of oil. The oil companies have seen the quintupling of oil prices during the past 12 or 14 months, but the gas price has not moved, for the simple reason that it is sold to a monopoly customer on a long-term contract. Natural gas is now beginning to take an even bigger share in the energy market of the United Kingdom. I should like to quote from the Statistical Bulletin of the Department of Energy. The headline reads:
  " Natural gas consumption 20 per cent. up in 1974 ".
  The article reads:
  " The provisional figures show that natural gas consumption increased in absolute terms by 8 million tons and nuclear electricity by 2 million tons of coal equivalent, each representing a 20 per cent. increase, which together offset a reduction in petroleum consumption.…as sent out in 1974 was about 16 per cent. higher than in 1973 and within the total, natural gas supplied direct to consumers accounted for more than 85 per cent. of the supply. Town gas, manufactured principally from coal, oil and reformed natural gas declined by 35 per cent. compared with the previous year and now amounts to only 12 per cent. compared with 90 per cent. five years ago."

  1721
  Natural gas is now a signfiicant element in our energy equation. The price of gas is to a greater or lesser extent dictated by the British Gas Corporation, which is a Government agency. It therefore cannot move its price in the same way that oil prices are moved.
  The petroleum revenue tax is designed to tax profits. Our contention is that there are no profits where natural gas is concerned, for the reasons I have given. The petroleum revenue tax is designed to attract a tax to windfall profits. Here we have a situation in which a product which is of significance to the energy needs of Britain is treated in the same way as a tax on oil—liquid hydrocarbon—which is subject to wide price fluctuations.
  The Government have gone a long way to meeting the problem of the Southern gas field. We recognise that. Indeed when the Bill was first introduced all contracts made before 1st July 1975 would have attracted PRT. I cannot see the objection to going the whole distance and taking natural gas out of the tax.
  The Paymaster-General indicated to us in Committee that he was considering the possibility of excluding gas from the scope of PRT. I should be grateful if he would let us know why he has not decided to do so, since the consequence of imposing PRT on gas is necessarily an increase in the price of gas.
  My quotation from the Statistical Bulletin explained that a large amount of natural gas was being used commercially and domestically. If petroleum revenue tax is now attached to contracts made after July 1975, gas prices will necessarily rise steeply. That is inevitable. Therefore the Minister, in taxing natural gas contracts made after 30th June, will directly contribute to an increase in the price of natural gas.
  The Government have made it clear that they want to see nationalised industries' prices coming into line with the commercial needs of industry. I do not quarrel with that. To do so in this totally artificial and unnecessary manner will give an additional twist to the inflationary screw. Many contracts will be signed before the end of June, while current contracts are operating in respect of fields having a considerable life. We are concerned that future contracts should take account of the commercial needs of the
  1722
  country. I do not believe that it is sensible to add unnecessarily to the price of a commodity by means of legislation when there is no way in which production of that commodity can become more profitable.
  I hope that Amendment No. 69, which seeks to exempt natural gas from PRT, will have the support of the Paymaster-General. At any rate, I trust he will repeat his assurance to consider the exclusion of natural gas from the legislation. We regard this matter as of great significance, since gas consumers will otherwise find that the price of gas will have been dramatically increased.
  Mr. Dell: I indicated that I would consider the possibility of exempting gas from the scope of PRT. In the end, I proposed to the Committee that contracts made up to 30th June 1975 should be exempted. In dealing with a difficult situation, I think that was the right compromise solution.
  The situation is different in respect of the future. I proposed the exemption because contracts would have been negotiated in ignorance of PRT. It is therefore wrong to subject such contracts to PRT, and therefore they will be exempted. Nevertheless, the situation has changed since the days when those contracts were made. It is a matter for discussion and thought—not on a partisan basis—whether, in a situation in which the United Kingdom has resources of oil and gas, the price of one should be fixed artificially low in relation to the other. That is a matter which warrants consideration, and to decide at this point to exempt gas would pre-empt such an examination.
  7.0 p.m.
  What we have done is to say that contracts made after 30th June 1975 should be liable to PRT. The prices negotiated with the British Gas Corporation for gas supplies after 30th June 1975 will be negotiated in the knowledge of PRT. Gas after 30th June 1975 will benefit from the marginal field provision. There are existing contracts which will help for a long time to limit and to delay any impact on the housewife from the decision to include such contracts within the scope of PRT.
  This is the best way of handling matters at the moment in the changed situation in which we have both oil and gas

  1723
  supplies, and we must see in due course that they are subject to a pricing mechanism which plays some part in the competition between them.
  There is the technical difficulty about the allocation of costs in fields in which there are both gas and oil supplies. This is a difficulty that the Government have accepted in relation to the decision to exempt contracts up to 30th June 1975. That is not a good reason for continuing with the difficulty thereafter. The provision that we make in the Bill will at any rate dispense with that technical problem thereafter.
  This is not really an occasion on which the relative pricing of oil and gas is appropriate for discussion. It is a matter which will have to be considered nationally and by Governments in the future. Therefore, I suggest that on this matter the Bill should be left as it stands.
  Amendment agreed to.

Clause 2

  ASSESSABLE PROFITS AND ALLOWABLE LOSSES
  Mr. Gray: I beg to move Amendment No. 3, in page 3, line 10, leave out ' one-half of' and insert:
  ' the cost or if lower'.
  Mr. Speaker: With this amendment, we may discuss the following amendments:
  No. 4, in line 17, leave out ' one-half of the said ' and insert' the said cost or'.
  No. 5, in line 37, leave out ' one-half of' and insert:
  ' the cost or if lower'.
  No. 94, in page 29, line 17, Schedule 2, after first' the ' insert' lower of cost and'.
  Mr. Gray: The amendment deals with valuation of stocks. In our view, the normal economic basis for valuing stocks is convenient for PRT. It also operates in the case of corporation tax, and the Opposition see no reason why there should be a change for PRT.
  We take that view because we believe, in the first instance, that a departure from this system will involve a tax liability on unrealised stock profits whenever the cost is less than 50 per cent, of market value
  1724
  and, secondly, because any approximation to costs will be purely coincidental.
  We also believe that there is no possibility of any saving in time or effort, because the market value of all stocks will require to be established for the purpose of the formula laid down in the Bill and, in addition, the cost of all stocks will need to be determined for economic and corporation tax purposes, anyway.
  I read the Committee proceedings on this part of the Bill, and I was extremely impressed with the contribution made by my hon. Friend the Member for Barkston Ash (Mr. Alison). He went into the matter very thoroughly, and, despite the fact that the Minister of State tried on several occasions to convince the Committee otherwise, a great many of my right hon. and hon. Friends felt that the case made by my hon. Friend was not answered satisfactorily by the Minister. The argument put forward by my hon. Friend in Committee illustrated the weakness of the Minister's case.
  We believe that it would be a positive incentive to companies to hold their stocks at a higher level if the Bill remained as it is drafted at present. Any company would be attracted, purely for tax purposes, by a system which, to use my hon. Friend's words, provided a built-in, substantial and measurable incentive to maximise stocks. We were happy about the Government amendment in Committee reducing the proportion to one-half from the original two-thirds, but we still believe that the existing system would be of benefit. Surely the lower cost or market value is so much simpler. It has been tried and tested. It is accepted by the profession, and it is generally acknowledged in tax law.
  Even at this stage, I hope that the Government will be prepared to reconsider the position.
  Mr. Robert Sheldon: Like my right hon. Friend the Paymaster-General, I am very happy to welcome the hon. Member for Ross and Cromarty (Mr. Gray) to his new position, speaking on these matters, and I assure him that the manner in which he made his case was the way in which the Government's proposals were investigated in Committee.
  The hon. Gentleman wants to see stocks valued as they are valued for corporation tax purposes. He gives as

  1725
  one of his main reasons his wish to see oil companies maintain a high level of stocks. However, the Government do not see why there should be this distortion, by means of taxation, of what might be a natural commercial judgment. In devising the tax and in our subsequent amendment, that was not our intention. It was not to take into account the value to the country, according to the hon. Gentleman, of companies keeping high oil stocks.
  Mr. Gray: That was not what I meant to imply. I was saying that the system which the Government were imposing would be an incentive to companies to keep high stocks of oil instead of distributing them.
  Mr. Sheldon: A number of factors are involved. The present Government obviously are concerned about the levels of stocks. Then there is the likely position at some future date.
  In devising the PRT it was our expectation that we would produce a tax tailored to the needs of one industry. In doing that we felt that it would be possible to take into account the details of the industry which corporation tax, covering all industries, could not take into account in quite the same detailed way.
  There is no question of any deterioration of stocks. There is no question of the doubtful nature of the market. Oil has a certain market. Because of that, the valuation of it can be determined more precisely than any valuation of the wide range of different commodities produced in the country. We can say that there is a value at any time, that it is not dependent on fluctuations in demand of the kind seen elsewhere. If we take cost, we have to consider the difficulties of the allocation of overheads, which is a part of the cost, and the frequency of the valuations, to which I shall refer later.
  At least one of the complications arising from a consideration of the frequency

  5

  ' "initial storage ", in relation to oil won from an oil field, means the storage in the United Kingdom, the territorial sea thereof or a designated area of a quantity of oil won from the field not exceeding ten times the maximum daily production rate of oil for the field as planned or achieved (whichever is the greater), but does not include—

  (a) the storing of oil as part of or in conjunction with the operation of an oil refinery; or

  (b) deballasting; or

  (c) conveying oil in a pipe-line;

  of valuations and the frequency of attributing overheads leads the hon. Member for Ross and Cromarty and several other hon. Members to doubt whether this needs to be given the high level of priority which has been attributed to it in the amendments. We started with the idea that there was no reason why the valuation should not be the same for stocks as for ordinary production, but the oil industry objected. It made representations, and as a result the Government understood that the industry would be content with a market value substantially less than the flat rate written into the Bill originally. Therefore, we reduced it by one-third and subsequently to a half. This is a reasonable compromise and shows great willingness by the Government to meet objections made by the oil industry and by the Committee.
  At the end of the day we are concerned with timing. The amount of tax will be the same, but the timing will vary slightly. We have made valuable concessions, and I hope the House will accept that we have dealt with it in the best possible manner.
  Amendment negatived.
  Mr. Robert Sheldon: I beg to move Amendment No. 182, in page 3, line 13, leave out appropriated to refining or other processing ' and insert relevantly appropriated'.
  Mr. Speaker: With this we can discuss the following amendments:
  Government Amendments Nos. 183 to 189.
  Amendment No. 70, in Clause 8, page 15, line 9, after above ', insert:
  'and oil used for the purposes of carrying on drilling and production operations and pumping to storage'.
  Government Amendment No. 204.
  Government Amendment No. 190.
  Government Amendment No. 191, in Clause 10, page 16, line 33 [Clause 10], at end insert:

  10

  " initial treatment ", in relation to oil won from an oil field, means the doing, at any place in the United Kingdom, the territorial sea thereof or a designated area, of any of the following things, that is to say—

  15

  (a) subjecting oil won from the field to any process of which the sole purpose is to enable the oil to be safely stored, safely loaded into a tanker or safely accepted by an oil refinery; or

  (b) separating oil so won and consisting of methane gas from oil so won and consisting of gas other than methane, but does not include—

  20

  (i)the storing of oil even where this involves the doing to the oil of things within paragraph (a) or (b) of this definition; or

  (ii)any activity carried on as part of. or in association with, the refining of oil; or

  (iii)deballasting'.

  Amendment (a) to Government Amendment No. 191, exceeding ', insert:
  in the case of storage in a quantity equal to '.
  Amendment (b) Amendment No. 191, in line 19, leave out ' even where this involves the doing to the oil of things within paragraph (a) or (b) of this definition '.
  Government Amendment No. 233.
  Government Amendments Nos. 192 to 196 ; and further Government amendments.
  Mr. Sheldon: Amendment No. 182 is not as important as amendments with which I shall later deal. This amendment provides a clearer definition of what is meant by oil being appropriated. We wish to insert the words "relevantly appropriated" as clarification.
  Amendments Nos. 183 to 185 deal with the cost of initial treatment and storage as well as other related matters.
  Amendment No. 185 is a drafting amendment. I shall be happy to answer any questions that hon. Members may wish to ask.
  Amendment No. 186 covers the cost of the initial treatment and storage that will be allowable for the petroleum revenue tax. Amendment No. 187 is consequential. We are concerned with the costing of selling the oil which is now to be allowable for PRT. This was represented to us as being inherently an allowable charge. Although the expenses involved in the selling of the oil are not large, we accepted the point made.
  7.15 p.m.
  Amendment No. 188 is consequential. Amendment No. 189 deals with a point raised by the hon. Member for New Forest (Mr. McNair-Wilson). It deals with fuel gas—the gas which is used as
  1728
  power for actual production, possibly on a platform, perhaps for driving compressors. Gas that is sold to the British Gas Corporation has a de minimus quantity not greater than 5 per cent. If it is not greater than 5 per cent. that amount is still exempt from PRT. The difficulty arises because part of that 5 per cent. could be used for its own production purposes in producing the gas originally.
  As a result of representations made by hon. Gentlemen, we have produced an amendment which will go a long way towards satisfying that point.
  Amendment No. 204 is a technical amendment dealing with a weakness in the rule that expenditure related to exempt gas is not allowable for PRT.
  Amendments Nos. 190, 191, 192 and 193 are the most substantial of the amendments before us in this group. They cover the initial treatment and storage allowable. We have accepted from the start a need to distinguish between all the expenses that would be allowable for producing the oil and the expenses that would not be allowable for the downstream activities such as refining. We were concerned with the valuation of the oil at the most reasonable point of landing. It was held that storage facilities are bound to be required, which we accept. It was a question of how much these could be allowed and what the size of such facilities might be.
  We tried to meet the representations of the oil industry by settling for a five days' capacity, which is frequently employed. We have gone further into this and, bearing in mind the expensive installations which are being built at Sullom Voe in the Shetlands and at Flotta in the Orkneys, we are prepared to allow initial storage as an expense for PRT up to a capacity of 10 days' supply. This is a valuable concession and we hope the House will approve it.

  1729
  We have made concessions on initial treatment. We have introduced a new definition of "initial treatment" which is the appropriation to refining or any use except production purposes. Production purposes "is defined in Amendment No. 192, to cover any use of (a) production, (b) transportation to the United Kingdom, or (c) initial treatment.
  The exemption from PRT will apply to initial storage either in the United Kingdom or in the offshore sector of the United Kingdom. I should warn hon. Members that at present there are no optional alternatives available for storage. There is the possibility that technical changes might be introduced in the future. We shall have to look at the requirements of the situation in the future if alternatives are available to the industry for storing the oil. For example, if some process otherwise qualifying as initial treatment is carried out on the oil while it is in store, the cost of this, so far as it is distinct from the cost of storage, will not be disqualified by the words the amendment would delete.
  If there were to be technical changes which radically altered the way in which storage was carried out we could not bind successor Governments to retain the present arrangements. That covers most of these amendments. If there are any points which hon. Members wish to raise I should be happy to take part in further discussion.
  Mr. Patrick McNair-Wilson: I am happy to welcome the amendments tabled by the Government, particularly those dealing with initial treatment and storage. The liquid hydrocarbon that comes out of the ground is not in a usable form. It requires stripping immediately to get it into a form in which it would normally be sold. It is this initial treatment which we have always believed should be an allowable cost against PRT. I am glad that the Government have agreed with our suggestions.
  I do not know whether the Minister of State is aware of this, but I was given a figure the other day suggesting that the annual cost of storing a barrel of crude oil is $3. This is an expensive capital overhead. The Minister quoted a 10-day supply, which is a substantial quantity. I very much agree that this may be a matter which needs re-examination when
  1730
  we have a clearer idea of the quantities which will be coming ashore and of the demand.
  The Minister's right hon. Friend was good enough to write to me on 10th March about fuel gas. This is something about which we felt strongly, because compressors have to be used for a number of purposes, not the least being to keep up the pressure within the gas reservoir so that the gas can be delivered to the British Gas Corporation at the pressure contracted for. That is a sensible and welcome concession. We welcome these concessions and feel certain that they will make this part of the Bill better.
  Amendment agreed to.
  Amendments made: No. 183, in page 3, line 33, leave out from ' was ' to ' without ' in line 34 and insert:
  relevantly appropriated by him in the period '.
  No. 184, in page 3, line 40, leave out appropriated to refining or other processing '
  and insert
  `relevantly appropriated '.—[Mr. Sheldon.]
  Mr. Hannam: I beg to move Amendment No. 6, in page 4, line 22, leave out from ' is ' to end of line 34 and insert
  the sum of the amounts mentioned in subsection (9) below '.
  Mr. Speaker: With this we can also discuss the following amendments:
  No. 7, in page 4, line 35, leave out '(a)'.
  No. 8, in page 4, line 36, leave out paragraph (a).
  No. 11, in page 5, line 9, after 'allowable', 'insert for the period '.
  No. 12, in page 5, line 10, leave out from field ' to ; and ' in line 14.
  No. 15, in page 5, line 15, leave out from ' as ' to ' for ' in line 16 and insert ' qualifies '.
  No. 16, in page 5, line 22, after ' allowable ', insert ' for the period '.
  No. 17, in page 5, line 23, leave out from ' Act ' to end of line 27 and insert for which allowance may be claimed under Schedule 6 to this Act ;
  No. 20, in page 5, line 39, leave out from beginning to ; and ' in line 45 and insert
  ' for which allowance is claimed on a claim made by him in the period under Schedule 7 to this Act, so far as that expenditure has

  1731
  not been taken into account in any previous assessment to tax '.
  No. 21, in page 6, line 3, leave out from beginning to end of line 9 and insert
  'for which allowance is claimed on a claim made by him in the period under Schedule 8 to this Act, so far as that expenditure has not been taken into account in any previous assessment to tax '.
  No. 27, in Clause 4, in page 8, line 45, leave out 'claim' and insert 'chargeable'.
  No. 28, in page 9, line 12, leave out 'claim' and insert 'chargeable'.
  No. 30, in page 9, line 23, leave out 'claim' and insert 'chargeable'.
  No. 31, in page 9, line 24. leave out 'claim' and insert 'chargeable'.
  No. 32, in page 9, line 27, leave out second 'claim' and insert 'chargeable'.
  No. 33, in page 9, line 44, leave out 'claim' and insert 'chargeable'.
  No. 34, in page 9, line 46, at end insert:
  'Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '.
  No. 36, in page 10, line 3, leave out 'claim' and insert 'chargeable'.
  No. 37, in page 10, line 7, leave out 'claim' and insert 'chargeable'.
  No. 38, in page 10, line 7, at end insert:
  ' Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '.
  No. 39, in page 10, line 10, leave out first 'claim' and insert 'chargeable'.
  No. 40, in page 10, line 10, leave out second 'claim' and insert 'chargeable'.
  No. 42, in page 10, line 17, leave out 'claim' and insert 'chargeable'.
  No. 43, in page 10, line 20, leave out 'claim' and insert 'chargeable'.
  No. 44, in page 10, line 21, leave out first 'claim' and insert 'chargeable'.
  No. 45, in page 10, line 21, leave out second 'claim' and insert 'chargeable'.
  No. 46, in page 10, line 23, leave out 'claim' and insert 'chargeable'.
  No. 47, in page 10, line 27, leave out 'claim' and insert 'chargeable'.
  No. 48, in page 10, line 27, leave out second 'claim' and insert 'chargeable'
  No. 49, in page 10, line 31, leave out 'claim' and insert 'chargeable'.
  No. 50, in page 10, line 35, leave out 'claim' and insert 'chargeable'.
  No. 51, in page 10, line 37, leave out second 'claim' and insert 'chargeable'.
  No. 52, in page 10, line 43, leave out second 'claim' and insert 'chargeable'.
  No. 53, in page 11, line 14, leave out 'claim' and insert 'chargeable'.
  No. 54, in page 11, line 17, leave out 'claim' and insert 'chargeable'.
  No. 55, in page 11, line 20, leave out 'claim' and insert 'chargeable'.
  No. 77, in Clause 10, page 16, leave out lines 26 and 27.
  No. 116, in Schedule 4, page 43, line 39, leave out second 'claim' and insert 'chargeable'.
  No. 117, in page 43, line 44, leave out 'claim' and insert 'chargeable'.
  No. 120, in page 44, line 33, leave out 'claim' and insert 'chargeable'.
  No. 121, in page 44, line 41, leave out 'claim' and insert 'chargeable'.
  No. 122, in page 45, line 7, leave out 'claim' and insert 'chargeable'.
  No. 123, in page 45, line 13, leave out 'claim' and insert 'chargeable'.
  No. 124, in page 45, line 21, leave out 'claim' and insert 'chargeable'.
  No. 125, in page 45, line 24, leave out from 'in' to second 'period' in line 25 and insert 'that chargeable'.
  No. 127, in Schedule 5, page 46, line 9, leave out paragraph 1.
  No. 128, in page 46, line 30, leave out second 'claim' and insert 'chargeable'.
  No. 129, in page 46, line 32, leave out 'claim' and insert 'chargeable'.
  No. 130, in page 46, line 37, leave out second 'claim' and insert 'chargeable'.
  No. 131, in page 47, line 10, leave out 'claim' and insert 'chargeable'.
  No. 132, in page 47, line 11, leave out 'claim' and insert 'chargeable'.
  No. 133, in page 47, line 13, leave out 'claim' and insert 'chargeable'.
  No. 134, in page 47, line 41, leave out second 'claim' and insert 'chargeable'.
  No. 135, in page 47, line 46, leave out 'claim' and insert 'chargeable
  No. 136, in page 48, line 42, leave out from ' allowed ' to end of line 43 and insert
  'for the chargeable period in which the expenditure was incurred '.
  No. 137, in page 49, line 29, leave out ' on the date on which the notice of appeal was given '
  and insert
  ' for the chargeable period in which the expenditure was incurred'.
  No. 138, in page 50, line 9, leave out from ' allowed ' to end of line 10 and insert
  ' for the chargeable period in which the expenditure was incurred '.
  No. 139, in Schedule 6, page 50, line 44, leave out 'claim' and insert 'chargeable'.
  No. 140, in page 50, line 46, leave out 'claim' and insert 'chargeable'.
  No. 141, in page 51, line 3, leave out second ' claim' and insert 'chargeable'.
  Mr. Hannam: This amendment, together with the others grouped with it, seeks to alter the confusing method of timing allowable expenses. The amendments range over several clauses and schedules and result from the refusal of the Government in Committee to concede the point made by my hon. Friend the Member for Barkston Ash (Mr. Alison) that the formula adopted in the Bill, although calculated to produce early revenue, was so unfair and complex that the result could only be confusion and the undermining of the cash flow situation of oil companies during the crucial early years of a marginal field.
  During the debates in Committee on 23rd and 28th January it will be remembered that the Minister of State was unable satisfactorily to explain the ramifications of his proposals for deferring allowable expenditure until that expenditure has been allowed by the Board of Inland Revenue. Further to that, the expenditure does not then become deductible from the income of that period
  1734
  for which it was incurred, but instead is deducted from the income of the period in which it is allowed "finally and in writing" by the Board.
  Here we have a novel United Kingdom tax concept of "allowable expenditure" as defined under the provisions of this complicated piece of tax legislation, being allowed only following the making of a formal claim to the Board of Inland Revenue. The company then has to wait until it receives through its defined "responsible person" the board's decision in writing stating the amount allowed by it in the claim and the amount qualifying for supplement.
  Instead of the usual system of taking what is laid down in our tax system as allowable and making the usual computations on that basis, with an adjudication in the case of a dispute being made by the Special Commissioners, we have this other system. In Committee we asked the Minister of State why this time-consuming additional procedure was necessary. We asked what was the purpose behind such a bureaucratic and unnecessary system. We received a pretty confused answer from the Minister, who battled manfully with complexities that were totally unexplainable by normal human beings.
  He tried to provide for our use a hypothetical example. Instead, he got himself into a deal of a mess. I shall not read out any part of the summary he gave. He admitted that it was complicated and that perhaps we ought to come back to it after further consultations. In view of what appeared to be some degree of "give" on the Minister's part my hon. Friend withdrew his amendment, to allow the Government to come back on Report with a simplified and we hoped, a redrafted arrangement. It does not seem to have materialised.
  My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) during our Committee deliberations presented some calculations on the effect of the Government's proposal upon three successive half-year periods of these representative allowances. The figures showed that under the system in the Bill there would be a loss of £26 million in period A, a profit of £8 million in period B followed by a profit of £27 million in period C. After the delaying and time apportionment inherent in this system

  1735
  these figures turned instead into a PRT charge showing for period A a profit of £28 million, for period B a profit of £45 million, and for period C a profit of £14 million. Instead of having as under normal taxation laws, £36 million taxable PRT profit, there will be a massive tax bill on 87 million in the first 18 months.
  The effect of that massive taxation increase on the cash flow situation of a marginal field would be highly significant. We are not arguing against the principle of a tax on windfall profits. We are arguing against an unnecessary and complex system of delayed allowances and against all the paperwork and bureaucracy involved. The amendments seek to eliminate the requirements for these formal claims in respect of allowable expenditure. We do not believe that there will be any substantial delay in payment of taxation.
  The Bill could certainly cause problems to companies which could result in delays in development. In Committee the Minister showed a willingness to examine this question and to have the fullest consultations before Report. I hope that he can accept these amendments which simplify and tidy the Bill without depriving the Revenue of income. In the light of what are now known to be the immense difficulties facing the oil companies operating in the North Sea the amendments will assist in the normal taxation way with allowances at the proper time for the proper period.
  Amendment No. 34 was not raised in Committee, and refers to a defect in Clause 4 dealing with the allowance expenditure on long-term assets. Where there is a delay between the first incurring of expenditure on an asset and its first use in connection with a particular field, for example, during construction or modification—which takes some considerable time before the equipment is put into use—the effect of Clause 4 seems to be to deny relief for the full cost in such cases where the full cost is not allowable in the period of first use but is to be spread. The amount for which there will be no relief will he a proportion of the cost equal to the proportion which the period between the first expenditure and first use bears to the period between the first expenditure and the end of the asset's useful life.
  1736
  The Amendment seeks to correct this defect by adding a provision that expenditure incurred some time previous on an asset which has not been used should be taken as having been incurred on the date of the first use on the field.
  7.30 p.m.
  Mr. Robert Sheldon: The hon. Member for Exeter (Mr. Hannam) moved the amendment in terms not dissimilar from those used in moving similar amendments in Committee. He explained the procedure for obtaining agreement on corporation tax. I find it difficult to know why the Opposition are getting so worked up about this matter. On my reckoning, they have put down 58 amendments. Admittedly, there are slight variations. However, I find the number surprising.
  We are dealing with the basic procedure for the prompt flow of the tax. The Government believe that the British people have a right to consideration here. They have the right to a proper share of the income that will flow from the North Sea. The two considerations which arise —one to the oil companies and the other to the country—need to be compared one with the other. I believe that this kind of balanced view has not been put forward sufficiently, if at all, as it ought to have been put forward by the Opposition.
  I am glad that the right hon. Member for Wanstead and Woodford (Mr. Jenkin) is now present, because he put forward certain figures which have been referred to by his hon. Friend the Member for Exeter. Those figures have been the subject of correspondence between the right hon. Gentleman and myself. I am not sure whether he wishes to press the original figures quoted by his hon. Friend, because substantial changes were made as a result of our subsequent correspondence. I am not sure that those changes were known by the hon. Member for Exeter.
  Mr. Hannam indicated dissent.
  Mr. Sheldon: I see that the hon. Gentleman did not realise that. These figures have been overtaken by events, so perhaps they may form little part of our discussion.
  One matter should be made clear. There is no need for the oil companies to suffer as a result of this legislation in its present form. Most of the capital

  1737
  expenditure incurred long before any oil is produced will qualify for the uplift of 75 per cent. As a result of that and, therefore, the long period between the capital expenditure and the payment of the PRT, there will be plenty of time to settle the assessment of the value of that expenditure long before PRT is payable.
  There is no problem about large amounts of expenditure. We are really talking about the much smaller incremental amounts of expenditure which may be made at any time after operations have begun and the 5 per cent. provisional allowance which is more closely related to the smaller increases in expenditure at this time. The 5 per cent. provisional allowance for expenditure is not unreasonable. We have a procedure which will permit the oil companies to satisfy the Inland Revenue.
  Again, we are concerned with the question of timing. When we look at the matter later and can take a more balanced, distant view, I think that we shall all come to the same conclusions as the Government—that this matter has been adequately dealt with previously.
  Mr. Hannam: Before the hon. Gentleman sits down, may I ask him to deal with Amendment No. 34, which seeks to deal with a defect in the Bill?
  Mr. Sheldon: What was the purpose of that amendment?
  Mr. Hannam: Amendment No. 34 relates to a defect dealing with the allowance of expenditure on long-term assets where there is a delay between the first incurring of expenditure and the use of the assets in connection with the field. For example, some time may elapse between construction or modification of equipment and its use. Clause 4, as drafted, seems to deny relief for the full cost in cases where the full cost is not allowable in the period of first use but is to be spread. The amendment seeks to correct that defect by adding the provision that expenditure incurred previously on an asset which has not been used should be taken as having been incurred on the date of first use on the particular field.
  Mr. Sheldon: I understand that the amendment seeks to remove an unintended restriction on the expenditure allowable on long-term assets where there is a gap between the incurring of the expenditure and the using of the asset for the field.
  I can best illustrate this by an example. Let us assume that an asset which has an estimated total life of 10 years, six years of which it will be for use in the field, is bought in year one but is unused for the field until year three. Without amendment, the proportion of allowable expenditure would be restricted to six-tenths. I see that I carry the hon. Gentleman with me. The amendment, in calling for the expenditure to have been incurred on the date when the asset is first used in connection with the field, would have the effect of increasing the proportion of allowable expenditure to six-eighths. The same principle would apply, first, to those long-term assets, which come under subsection (5)(b), where no reasonable estimate could be made of their future use, and, secondly, to mobile assets which come within the scope of subsection (6). This could arise in the unpredictable conditions of the North Sea. A company may buy a piece of equipment outright but, because of some setback—perhaps the weather—be unable to bring it into use immediately. In such a situation there would be a limit on the proportion of expenditure allowable by bringing into account the time when the asset could not be brought into use.
  More seriously, if we left subsections (5) and (6) unamended, it would mean that, even where an asset is to be used solely for the field, the expenditure allowable could be inappropriately restricted. This would happen where an asset—for example, a platform—has a long construction period and there is, therefore, a gap between incurring the expenditure and actually using the asset for the field.
  Mr. Patrick Jenkin: I apologise to my hon. Friend the Member for Exeter (Mr. Hannam) for not being here when he moved the amendment. I apologise, too, to the Minister of State for not hearing the whole of his reply.
  The Minister quite rightly said that we have been in correspondence on this

  1739
  matter. However, the letter of 13th March does not resolve the difficulties which, as no doubt my hon. Friend the Member for Exeter said with considerable force, stem from the fact that the Government have chosen a bizarre way of dealing with expenditure claims which may be set against revenue to arrive at the amount to be charged for tax.
  With every form of tax we have always been able to set expenditure over a given period against revenue for that period. However, with PRT we have an astonishing and convoluted procedure of setting the expenditure against the revenue of an entirely different period quantified and fixed by the date at which the expenditure is finally allowed.
  The Government's defence of this astonishing way of proceeding is that the Inland Revenue will be prepared to allow expenditure in advance and that if claims are put in ahead of time or in time it will be possible for them to be scrutinised and the necessary notices served on the responsible person in time for the expenditure to be allowed in the first period or, if not, very soon thereafter.
  That may be all right for the bulk of the initial development expenditure of a field, but it certainly will not be all right for all of it, because expenditure will go on being incurred after the field is in production, and it certainly will not be all right for the case that I put to the Minister in my letter of 17th February, with figures attached—the case of substantial additional expenditure which is added to the field after it goes into production.
  The obvious case is not a little item, as the Minister of State seemed to think. Suppose that, after a period, it was necessary to establish a new platform in a field. Platforms cost tens of millions of pounds and one cannot know what the expenditure is until it is in place, the necessary bills have come in and the claim can be submitted to the Inland Revenue. In that case it will be very difficult for the company to submit its claim for expenditure so that it can be allowed in the period in which there will be substantial revenue accruing to the company from its existing production on the field.
  There is bound to be a delay because of the way in which this has been done
  1740
  before it can be fixed. No doubt it will be allowed eventually, but in the meantime the company will be paying PRT on revenue with no allowance for the expenditure. This kind of additional expenditure was not provided for originally in the Bill—neither to be allowed nor for any uplift. Amendments made in Committee allowed for additional expenditure which enhanced value and so on. Now, we have accepted in the amendments to new Clause 1 amendments to allow uplift for that additional expenditure, but we still have the problem that it will not qualify as an allowance until a claim has been made.
  In that part of his speech that I heard, the Minister of State did not begin to answer this case. He seems to be labouring under the delusion that we are talking only about small additional items. We may be talking about very large chunks of expenditure, at a time when tax is being paid. The argument in Committee was that tax will not be paid for the first two or three periods, that one will be spending money for some years in advance and that the claims can be submitted and allowed before any tax is allowed. With this kind of supplemental capital expenditure at a time when perhaps the original allowances and the oil allowance have all been exhausted—when, therefore, substantial sums of tax are being paid—it seems impossible for the companies to do this.
  That is why we say that the idea of spreading the timing of returns of revenue and of claims of expenditure is bizarre and is bound to make the financing of North Sea oil more difficult. It is financing, after all, which will determine whether these fields are developed.
  Mr. Robert Sheldon: I am sorry that the right hon. Gentleman thinks that I was talking about the small expenditures. I was also concerned with the larger ones. What I was most interested in was the use to which the new unit would be put in processing these claims rapidly. It is this element, rather than the size of the claims, which could give rise to much speedier resolution of these problems than I think the right hon. Gentleman has realised.
  Mr. Jenkin: The right hon. Gentleman has a touching faith in the capacity of the Inland Revenue to move quickly. I

  1741
  was interested in what the Paymaster-General said about this new unit. No doubt those who set it up will be doing their best, but just as the Government clearly failed to appreciate what they were taking on in this Bill—namely, the number of amendments that they have had to make—so one seriously wonders whether the Inland Revenue realises what it will be dealing with in the claims for expenditure under this clause and the related schedule.
  7.45 p.m.
  This matter must, clearly, be looked at again. With all these amendments, the tax will not become operative for several years yet and there will be time to look at the operation before any serious harm has been done. I am sure that that would be right.
  Amendment No. 34 and Amendment No. 38, which is taken with it, raise the same point. I should like the Minister to look at his brief fairly carefully because, through the channels of which one knows, I received some indication that the Government would consider those two amendments sympathetically. Since that rumour started winging on its way from the Treasury to the House, perhaps intentions have been changed but now that the wording in the amendment has been put right—" printing error "is the term usually used—so that it is in a form acceptable to parliamentary draftsmen, it could be accepted.
  My hon. Friend the Member for Exeter made the point absolutely clear, but it was not answered by the Minister of State. In the situation in which the two provisos represented by these amendments would apply, it would be right to treat the expenditure as having been incurred on the date when the asset was first used in connection with the field and not on the other, more artificial, date which applies for purposes that we can understand in the rest of the Bill.
  Perhaps the Minister could look at this again and give a more encouraging reply.
  Even if he does accept those amendments, however, the main point dealt with in Amendment No. 6 is such a serious flaw that I hope that my hon. Friend will be reluctant to withdraw the amendment.
  Mr. Robert Sheldon: If I may speak again by leave of the House, I gave the Government's considered view on these amendments and pointed out their advantages. The right hon. Gentleman is correct about the need to remove the unintended restriction on the expenditure allowable on the long-term assets where there is a gap between incurring the expenditure and using the asset in the field. I said that I accepted the point, and I am happy to accept Amendments Nos. 34 and 38.
  Mr. Jenkin: That is indeed valuable. We shall come to those amendments in due course. However, as I said, what the Minister has just said does not deal with the problem to which I referred earlier of the main defect in the machinery of the Bill. It is a strange proceeding that companies are bound to pay tax on revenue flowing into them and only subsequently can set off the expenditure against that revenue and then not have it set off against the revenue of the same period in which it is incurred but only against that in a period 6, 12 or even 18 months later. If there is an appeal, it is set off against the period in which they actually appeal. At one time there was an enforced delay of six months after notice of appeal had been given, but, happily, that has been removed. We are still left with a serious flaw. If my hon. Friend catches your eye again, Mr. Deputy Speaker, perhaps I could say that I think he would be well advised to press the amendment to a Division.
  Question put, That the amendment be made:—
  The House divided: Ayes 189, Noes 247.

  Division No. 150.]

  AYES

  [7.50 p.m.

  Aitken, Jonathan

  Beith, A. J

  Boyson, Dr Rhodes (Brent)

  Alison Michael

  Bell, Ronald

  Brittan, Leon

  Amery, Rt Hon Julian

  Benyon, W.

  Brotherton, Michael

  Arnold, Tom

  Berry, Hon Anthony

  Brown, Sir Edward (Bath)

  Atkins, Rt Hon H. (Spelthorne)

  Biffen, John

  Bryan, Sir Paul

  Awdry, Daniel

  Biggs-Davison, John

  Budgen, Nick

  Baker, Kenneth

  Body, Richard

  Bulmer, Esmond

  Banks, Robert

  Bowden, A. (Brighton, Kemptown)

  Burden, F. A.

  Butler, Adam (Bosworth)

  Howell, Ralph (North Norfolk)

  Percival, Ian

  Chalker, Mrs Lynda

  Howells, Geraint (Cardigan)

  Peyton, Rt Hon John

  Churchill, W. S.

  Hunt, John

  Prior, Rt Hon James

  Clark, Alan (Plymouth, Sutton)

  Irvine, Charles (Cheltenham)

  Pym, Rt Hon Francis

  Clark, William (Croydon S)

  James, David

  Rathbone, Tim

  Clegg, Walter

  Jenkin, Rt Hon P. (Wanst'd & W'df'd)

  Rawlinson, Rt Hon Sir Peter

  Cockcroft, John

  Jessel, Toby

  Rees, Peter (Dover & Deal)

  Cooke, Robert (Bristol W)

  Johnson Smith, G. (E Grinstead)

  Renton, Tim (Mid-Sussex)

  Cope, John

  Kaberry, Sir Donald

  Rhys Williams, Sir Brandon

  Cordle, John H.

  Kellett-Bowman, Mrs Elaine

  Rifkind, Malcolm

  Cormack, Patrick

  Kershaw, Anthony

  Roberts, Michael (Cardiff NW)

  Costain A. P.

  Kimball, Marcus

  Rodgers, Sir John (Sevenoaks)

  Crouch,'David

  King, Evelyn (South Dorset)

  Ross, Stephen (Isle of Wight)

  Crowder, F. P.

  King, Tom (Bridgwater)

  Rossi, Hugh (Hornsey)

  Dean, Paul (N Somerset)

  Kirk, Peter

  Rost, Peter (SE Derbyshire)

  Douglas-Hamilton, Lord James

  Knight, Mrs Jill

  St. John-Stevas, Norman

  du Cann, Rt Hon Edward

  Knox, David

  Shaw, Michael (Scarborough)

  Durant, Tony

  Lamont, Norman

  Shelton, William (Streatham)

  Dykes, Hugh

  Lawrence, Ivan

  Shepherd, Colin

  Eden Rt Hon Sir John

  Lawson, Nigel

  Silvester, Fred

  Edwards, Nicholas (Pembroke)

  Le Merchant, Spencer

  Sims, Roger

  Eyre, Reginald

  Lloyd, Ian

  Skeet, T. H. H.

  Fairbairn, Nicholas

  McCrindle, Robert

  Smith, Cyril (Rochdale)

  Fell, Anthony

  Macfarlane, Neil

  Speed, Keith

  Fisher, Sir Nigel

  MacGregor, Jonn

  Spence, John

  Fletcher-Cooke, Charles

  Macmillan, Rt Hon M. (Farnham)

  Spicer, Jim (W Dorset)

  Fookes, Miss Janet

  McNair-Wilson, M. (Newbury)

  Spicer, Michael (S Worcester)

  Fowler, Norman (Sutton C'f'd)

  McNair-Wilson, P. (New Forest)

  Sproat, lain

  Fox, Marcus

  Madel, David

  Stanbrook, Ivor

  Freud, Clement

  Marshall, Michael (Arundel)

  Stanley, John

  Fry, Peter

  Mates, Michael

  Stokes, John

  Gardiner, George (Reigate)

  Mather, Carol

  Stradling Thomas, J.

  Gardner, Edward (S Fylde)

  Maude, Angus

  Tapsell, Peter

  Gilmour, Rt Hon Ian (Chesham)

  Maudling, Rt Hon Reginald

  Taylor, Teddy (Cathcart)

  Gilmour, Sir John (East Fife)

  Mawby, Ray

  Tebblt, Norman

  Goodlad, Alastair

  Maxwell Hyslop, Robin

  Temple-Morris, Peter

  Gow, Ian (Eastbourne)

  Meyer, Sir Anthony

  Thatcher, Rt Hon Margaret

  Gower, Sir Raymond (Barry)

  Moate, Roger

  Thomas, Rt Hon P. (Hendon S)

  Grant, Anthony (Harrow C)

  Monro, Hector

  Townsend, Cyril D.

  Gray, Hamish

  Montgomery, Fergus

  Trotter, Neville

  Griffiths, Eldon

  More, Jasper (Ludlow)

  Tugendhat, Christopher

  Grimond, Rt Hon J.

  Morgan, Geraint

  van Straubenzee, W. R.

  Grist, Ian

  Morris, Michael (Northampton S)

  Vaughan, Dr Gerard

  Grylls, Michael

  Morrison, Charles (Devizes)

  Wainwright, Richard (Colne V)

  Hall, Sir John

  Morrison, Hon Peter (Chester)

  Wakeham, John

  Hamilton, Michael (Salisbury)

  Neave, Airey

  Walder, David (Clitheroe)

  Hampson, Dr. Keith

  Nelson, Anthony

  Walker-Smith, Rt Hon Sir Derek

  Hannam, John

  Neubert, Michael

  Weatherill, Bernard

  Harvie Anderson, Rt Hon Miss

  Newton, Tony

  Wells, John

  Hastings, Stephen

  Normanton, Tom

  Wiggin, Jerry

  Havers, Sir Michael

  Onslow, Cranley

  Winterton, Nicholas

  Hawkins, Paul

  Page, Rt Hon R. Graham (Crosby)

  Wood, Rt Hon Richard

  Heseltine, Michael

  Pardoe, John

  Hicks, Robert

  Parkinson, Cecil

  TELLERS FOR THE AYES:

  Holland, Philip

  Pattie, Geoffrey

  Mr. Russell Fairgrieve and

  Hooson, Emlyn

  Penhaligon, David

  Mr. Richard Luce.

  Howell, David (Guildford)

  NOES

  Abse, Leo

  Canavan, Dennis

  Dell, Rt Hon Edmund

  Allaun, Frank

  Cant, R. B.

  Dempsey, James

  Armstrong, Ernest

  Carmichael Neil

  Doig Peter

  Ashley, Jack

  Cartwright, John

  Dormand, J. D.

  Ashton, Joe

  Castle, Rt Hon Barbara

  Douglas-Mann, Bruce

  Atkins, Ronald (Preston N)

  Clemitson Ivor

  Dunn, James A.

  Bagier, Gordon A. T.

  Cocks, Michael (Bristol S)

  Dunnett, Jack

  Bain, Mrs Margaret

  Cohen, Stanley

  Dunwoody, Mrs Gwyneth

  Barnett, Guy (Greenwich)

  Coleman, Donald

  Edge, Geoff

  Barnett, Rt Hon Joel (Heywood)

  Colquhoun, Mrs Maureen

  Ellis, Tom (Wrexham)

  Bates, Alf

  Conlan, Bernard

  English, Michael

  Bean, R. E.

  Cook, Robin F. (Edin C)

  Ennals, David

  Bennett, Andrew (Stockport N)

  Cox, Thomas (Tooting)

  Evans, Gwynfor (Carmarthen)

  Bishop, E. S.

  Craigen, J. M. (Maryhill)

  Evans, loan (Aberdare)

  Blenkinsop, Arthur

  Crawford, Douglas

  Evans, John (Newton)

  Boardman. H.

  Crawshaw, Richard

  Ewing, Harry (Stirling)

  Booth, Albert

  Crosland, Rt Hon Anthony

  Ewing, Mrs Winifred (Moray)

  Bottomley, Rt Hon Arthur

  Cryer, Bob

  Fernyhough, Rt Hon E.

  Bradley, Tom

  Cunningham, G. (Islington S)

  Fitch, Alan (Wigan)

  Bray, Dr Jeremy

  Cunningham, Dr J. (Whiteh)

  Fitt, Gerard (Belfast W)

  Brown, Ronald (Hackney S)

  Davidson, Arthur

  Flannery, Martin

  Buchan, Norman

  Davies, Bryan (Enfield N)

  Fletcher, Ted (Darlington)

  Buchanan, Richard

  Davies, Denzil (Llanelli)

  Foot, Rt Michael

  Callaghan, Jim (Middleton & P)

  Davies, Ifor (Gower)

  Ford, Ben

  Campbell, Ian

  de Freitas, Rt Hon Sir Geoffrey

  Forrester, John

  1744

  1745

  Fraser, John (Lambeth, N'w'd)

  Mackenzie, Gregor

  Shore, Rt Hon Peter

  Freeson, Reginald

  Mackintosh, John P.

  Short, Mrs Renee (Wolv NE)

  Garrett, John (Norwich S)

  Maclennan, Robert

  Silkin, Rt Hon John (Deptford)

  George, Bruce

  McMillan, Tom (Glasgow C.)

  Sillars, James

  Gilbert, Dr John

  McNamara, Kevin

  Silverman, Julius

  Ginsburg, David

  Madden, Max

  Skinner, Dennis

  Golding, John

  Magee, Bryan

  Small, William

  Gould, Bryan

  Mahon, Simon

  Smith, John (N Lanarkshire)

  Gourlay, Harry

  Marks, Kenneth

  Snape, Peter

  Graham, Ted

  Marshall, Dr Edmund (Goole)

  Spearing, Nigel

  Grant, George (Morpeth)

  Marshall, Jim (Leicester S)

  Spriggs, Leslie

  Grocott, Bruce

  Meacher, Michael

  Stallard, A. W.

  Hamilton, James (Bothwell)

  Mellish, Rt Hon Robert

  Stewart, Donald (Western Isles)

  Hamilton, W. W. (Central Fife)

  Mlkardo, Ian

  Stewart, Rt Hon M. (Fulham)

  Hardy, Peter

  Millan, Bruce

  Stoddart, David

  Harper, Joseph

  Miller, Dr M. S. (E Kilbride)

  Stott, Roger

  Harrison, Waller (Wakefield)

  Mitchell, R. C. (Soton, Itchen)

  Strang, Gavin

  Hart, Rt Hon Judith

  Morris, Alfred (Wythenshawe)

  Strauss, Rt Hon G. R.

  Hattersley, Rt Hon Roy

  Morris, Charles R (Openshaw)

  Summerskill, Hon Dr Shirley

  Hatton, Frank

  Mulley, Rt Hon Frederick

  Swain, Thomas

  Hayman, Mrs. Helene

  Murray, Rt Hon Ronald King

  Taylor, Mrs Ann (Bolton W)

  Healey, Rt Hon Denis

  Newens, Stanley

  Thomas, Jeffrey (Abertillery)

  Henderson, Douglas

  Noble, Mike

  Thomas, Mike (Newcastle E)

  Hooley, Frank

  Oakes, Gordon

  Thomas, Ron (Bristol NW)

  Horam, John

  Ogden, Eric

  Thompson, George

  Hoyle, Doug (Nelson)

  O'Halloran, Michael

  Tierney, Sydney

  Huckfield, Les

  O'Malley, Rt Hon Brian

  Tinn, James

  Hughes, Rt Hon C. (Anglesey)

  Orbach, Maurice

  Tomlinson, John

  Hughes, Mark (Durham)

  Ovenden, John

  Urwin, T. W.

  Hughes, Robert (Aberdeen N)

  Owen, Dr David

  Varley, Rt Hon Eric G.

  Hughes, Roy (Newport)

  Padley, Walter

  Walnwright, Edwin (Dearne V)

  Hunter, Adam

  Palmer, Arthur

  Walker, Terry (Kingswood)

  Jackson, Colin (Brighouse)

  Park, George

  Ward, Michael

  Jackson, Miss Margaret (Lincoln)

  Parker, John

  Watkins, David

  Janner, Greville

  Parry, Robert

  Watkinson, John

  Jay, Rt Hn Douglas

  Peart, Rt Hon Fred

  Watt, Hamish

  Jeger, Mrs Lena

  Perry, Ernest

  Weetch, Ken

  John, Brynmor

  Phipps, Dr Colin

  Weitzman, David

  Jones, Alec (Rhondda)

  Price, C. (Lewisham W)

  Wellbeloved, James

  Jones, Barry (East Flint)

  Price, William (Rugby)

  Welsh, Andrew

  Jones, Dan (Burnley)

  Radice, Giles

  White, Frank R. (Bury)

  Kaufman, Gerald

  Rees, Rt Hon Merlyn (Leeds S)

  While, James (Pollok)

  Kelley, Richard

  Reid, George

  Whitehead, Phillip

  Kerr, Russell

  Richardson, Miss Jo

  Whitlock, William

  Kinnock, Neil

  Roberts, Albert (Normanton)

  Wigley, Dafydd

  Lambie, David

  Roberts, Gwilym (Cannock)

  Williams, Alan (Swansea W)

  Lamborn, Harry

  Robertson, John (Paisley)

  Williams, Alan Lee (Hornch'ch)

  Lamond, James

  Roderick, Caerwyn

  Williams, W. T. (Warrington)

  Lee, John

  Rodgers, George (Chorley)

  Wilson, Alexander (Hamilton)

  Lestor, Miss Joan (Eton & Slough)

  Rooker, J. W.

  Wilson, Gordon (Dundee E)

  Lewis, Arthur (Newham N)

  Roper, John

  Wise, Mrs Audrey

  Lewis, Ron (Carlisle)

  Ross, Rt Hon W. (Kilmarnock)

  Woof, Robert

  Lomas, Kenneth

  Rowlands, Ted

  Wrigglesworth, Ian

  Loyden, Eddie

  Ryman, John

  Young, David (Bolton E)

  Luard, Evan

  Sandelson, Neville

  Lyons, Edward (Bradford W)

  Sedgemore, Brian

  TELLERS FOR THE NOES:

  McElhone, Frank

  Selby, Harry

  Mr. John Ellis and

  MacFarquhar, Roderick

  Shaw, Arnold (Ilford South)

  Mr. Laurie Pavitt.

  McGuire, Michael (Ince)

  Sheldon, Robert (Ashton-u-Lyne)

  Question accordingly negatived.
  8.0 p.m.
  Mr. Alison: I beg to move Amendment No. 9, in page 4, line 44, leave out from ' time ' to ' and ' in line 45.
  Mr. Deputy Speaker (Sir Myer Galpern): With this we may discuss the following amendments:
  No. 10, in page 5, line 4, leave out from ' time ' to end of line 6.
  No. 75, in Clause 10, page 16, line 20, leave out from beginning to ' the ' in line 21.
  No. 76, in page 16, line 22, leave out have ' and insert ' has '.
  No. 78, in Clause 12, page 19, line 22, leave out from ' to ' to end of line 23 and insert:
  'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length!
  No. 79, in page 19, line 38, leave out from ' it' to end of line 40 and insert:
  'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length
  No. 80, in page 20, line 5, leave out from ' to ' to end of line 6 and insert:
  'the price the oil might have been expected to fetch had the parties to the transaction been independent persons dealing at arm's length'.
  Government Amendment No. 214.
  No. 81, in page 20, line 7, leave out subsection (5).
  Government Amendment No. 215.
  No. 82, in page 20, line 22, leave out ' not '.
  No. 92, in Schedule 2, page 28, line 44, leave out from time ' to and ' in line 45.
  No. 93, in page 29, line 9, leave out from time ' to and ' in line 10.
  No. 95, in Schedule 3, page 37, line 7, at end insert and '.
  No. 97, in page 37, leave out lines 12 to 15.
  No. 98, in page 37, line 26, leave out from ' time ' to requires ' in line 28 and insert which '.
  No. 99, in page 37, line 37, leave out sub-paragraph (b).
  No. 100, in page 38, line 5, leave out (with sub-paragraph (2)(b) above applying accordingly) '.
  No. 101, in page 38, line 14, leave out calendar month' and insert
  ' delivery or appropriation of oil '.
  No. 102, in page 38, line 17, leave out in that month '.
  No. 103, in page 38, line 19, leave out in that month '.
  No. 104, in page 38, leave out lines 22 to 28 and insert
  ' "the material time" means the time in the chargeable period at which each delivery or appropriation takes place '.
  No. 105, in page 38, line 28, at end insert—
  ' Provided that when on any day in a calendar month there is a material change in the market value of oil as ascertained in accordance with the provisions of this Schedule, the period up to the day preceding each such day of change and the period commencing on each such day of change shall be treated as separate calendar months '.
  Mr. Alison: The object of the Opposition's amendments is to secure that in the computation of petroleum revenue tax liability all deliveries, not just arm's-length sales, are valued at market value on the specific date of delivery. Thus, there would be two virtually identical regimes of valuation—first, the stated price in an arm's-length sale, and, secondly, market value on the date of sale or disposal in other cases. As both would usually be fairly close, if not identical, there would be a single method
  1748
  of valuation for disposal both at arm's-length and at non-arm's-length.
  The best argument for the Government's accepting the amendments is that the Government have already substantially moved in the direction which we indicated by the amendments. They took note of what we said in the debate in Committee on Clause 10 about the unsatisfactory character of the original six-monthly valuation basis. They moved over—and we give them full credit for this—from a six-monthly to a monthly basis of valuation, using the mid-point in a calendar month rather than in a chargeable period.
  Logic dictates that the Government should move further and adopt the formula which we propose. "1 he first element in this logic is that the original change was made, I believe, because the Government recognised that the risk of a disparity between the notional date of valuation, the mid-point date in the six-monthly period, and the actual value was too great if there was a wide spread of time on either side of the fixed point.
  They recognised the risk that companies would have to pay tax on an artificially inflated oil price, possibly substantially inflated, which bore no relation to what the oil would sell for when the disposal occurred.
  If the Government were prepared to shorten the period to one month, it is illogical and ineffective not to go the whole hog. After all, if the Government hold that the risk of a disparity between an artificial or notional price and the real price is a hazard which should be avoided if possible, there is no point in trying to cut down the risk from a chance of one in 180 to a risk of one in 30. The risk is still very much alive and kicking, although substantially reduced.
  I believe that there is a far more substantial and potent reason, following the Paymaster-General's statement— [Interruption.]
  Mr. Rost: On a point of order, Mr. Deputy Speaker. Would you consider asking the Tribune Group to hold its protest meeting elsewhere, perhaps in a Committee room? It is difficult for hon. Members to follow the important argument in the debate.
  Mr. Skinner Mr. Skinner rose—
  Mr. Deputy Speaker: Let us not have a "Further to that point of order ". I do not know what the hon. Members concerned are discussing, and I do not want to know. They may be discussing the next amendment. As long as we are able to conduct our proceedings and each hon. Member can hear what the hon. Member for Barkston Ash (Mr. Alison) is saying, they are quite in order in staying in the Chamber.
  Mr. Alison: As long as I have the Minister of State's ear and the Tribune Group does not, and as long as that situation continues, I shall be content.
  I now emphasise the second ground of the logic of accepting the argument, which emerges clearly from the Paymaster-General's statement on 25th February. The Government have shown their sensitivity to the possibility that oil exploration and development may be discouraged, and that oil may not flow as freely as they hope and expect. So sensitive are they that they introduced the special safeguard known as the overriding limit on PRT chargeable.
  I digress briefly to show the relevance of the new overriding limit proposal which was announced earlier this year and which is now introduced in the Bill. The nuts and bolts of the proposal are set out in an extremely interesting example given in paragraph 10 of the Paymaster-General's Press statement. If, in the example given, the PRT burden for a 12-month period rose to £9 million on a profit of £41 million, the overriding limit would operate to reduce the PRT payable to £6·4 million.
  We see that it is worth while in the Government's view that a reduction of £2·6 million a year should be made in a particular tax burden. They are dealing with such sensitive margins that that figure is held to be an important and measurable concession to the oil companies —and that in a 12-month period.
  This means that for every chargeable period, a six-month period, the Government are prepared to effect a reduction of £1·3 million. If they are prepared to make concessions as small as that in a chargeable period, how ludicrous it is that they should continue to insist on a monthly valuation basis, the effect of which may
  1750
  be to produce a disparity between an actual sale and a notional sale far in excess of figures such as I have suggested.
  For example, if the price of oil dropped from £40 a ton to £35 in a chargeable period, on a turnover of 10 million tons in that period the difference in tax liability will be about £25 million. There would be a differential of that amount in the valuation of the taxable yield of the field in question.
  The sum of £25 million is almost 25 times the size of the concessions that the Government are prepared to make for one chargeable period in the overriding limit charge. Why are they prepared to expose companies to the possibility of tax variations of as much as £25 million, as a result of choosing an artificial basis for valuing the stock, when they are prepared to make concessions of £1·3 million in the overriding limit factor?
  The Government have shown themselves so sensitive to the effect of PRT that they are prepared, on the overriding limit formula, to make a concession worth just a couple of million pounds in each chargeable period. That concession could be swept away by the haphazard and chance feature of a difference in price between the artificial mid-month valuation date and the date on which disposal occurs.
  It no longer makes sense to pretend that the Government are trying to help the industry by measures such as the overriding limit formula, while they persist with all the hazards that might arise in the monthly valuation formula.
  I ask the Government to accept the logic of what we propose and to carry their reform further, to use the formula which will apply to arm's-length sales. spare the oil companies this additional hazard, and allow valuation of non-arm's-length sales on the basis of market value on the date when they occur, instead of having the artificial and haphazard formula which is now proposed.
  8.15 p.m.
  Mr. Robert Sheldon: The hon. Member for Barkston Ash (Mr. Alison) made his point very well in Committee, and has repeated it with some embellishment. The hon. Gentleman spoke about the necessity to get the right market value at the date of delivery, and referred to a number of

  1751
  concessions made by the Government in Committee on this point. I accept that there has been some movement, in a way that I think is of general benefit to the oil companies and the Government. Having made the concessions, so that the valuation is now to be at the mid-point of each month, we have reached the best available solution.
  The hon. Gentleman and others have pressed for more frequent valuations. At one time it was even suggested that there should be daily valuations. I am not sure whether that is suggested now, but it would be impossible to work. Continuous valuation produces the most exact result, but it throws an intolerable burden on not only the Inland Revenue but the oil companies. It is therefore essential to find a compromise between the frequent fluctuations in oil prices and the need to have a practical tax system.
  I suppose that this is the ideal area in which men of good will and common sense need to meet to work out a solution. I believe that the compromise proposed in Committee, of as frequent a valuation as could practicably be entertained by both parties, and frequent enough to meet the legitimate point put by the hon. Gentleman, represented a sensible solution.
  Mr. Alison: The Minister is not speaking on behalf of the oil companies when he suggests that they would prefer a monthly valuation for reasons of convenience. They would tolerate the inconvenience caused by moving over to a valuation at date of disposal.
  Mr. Sheldon: But I doubt whether the oil companies have changed their mind sufficiently to start talking about a daily valuation of a kind that is not possible.
  Concessions have been made on the petroleum revenue tax. The hon. Gentleman pointed out one, the safeguard concession, whereby the overriding limit was established. He talked about £2·6 million, which is an important and measurable difference. I have a great respect for such figures. The sum of £2·6 million is large, even in comparison with the sums with which the Government frequently deal.
  We have made concessions which we believe clearly give a positive benefit, in
  1752
  that they will help to produce oil quickly, with the maximum advantage to the companies and the people as a whole. I am afraid that I do not see a sensible alternative here. I think that the concessions that we made were valuable and that if they had been agreed more wholeheartedly by the Opposition we would have heard rather less about this matter than perhaps we have heard subsequently. This is something on which we shall need to insist. I hope that the House will take that point.
  Perhaps I may deal with Government Amendments Nos. 214 and 215. These apply the PRT valuation rules to oil which, because it has been disposed of other than at arm's length, has to be valued for corporation tax in the particular circumstances in which the PRT charge on the oil falls on the licensee but the corporation tax falls on someone else. I hope that the House will accept those amendments.
  Mr. Patrick McNair-Wilson: The Minister of State has not met our points entirely. Certainly we are a great deal more satisfied with the monthly concept than with the twice-yearly concept. But, of course, it is this degree of artificiality which exists in this part of the Bill to which we have always objected so strongly. We simply cannot see why it is necessary. My hon. Friend the Member for Barkston Ash (Mr. Alison), in his usual persuasive manner, has asked the Government to recognise that in a world in which oil prices can change, and have been shown to change, dramatically and quickly such a situation could have the most deleterious effects.
  I wonder whether the Minister of State would like to address his mind to this possibility. If he is not prepared to budge away from the monthly concept now before us, would he be prepared to look at the possibility of suspending this system in the period during which substantial changes in the price of oil were taking place? To some extent this would get over the artificiality of the problem. My hon. Friend gave us some idea of the sort of sums which could be involved.
  Rather than have what still remains a totally artificial concept for valuation and appropriation, if the Minister would care once again, Mr. Deputy Speaker, to try to

  1753
  catch your eye and let us know that he would suspend this system for the period in which a substantial oil price change was taking place, that might have a very real effect on the Opposition's views.
  However, in the absence of that assurance, I must ask my right hon. and hon.
  Friends to press the amendment to a Division.
  Question put, That the amendment be made.
  The House divided: Ayes 189, Noes 250.

  Division No. 151.]

  AYES

  [8.23 p.m.

  Adley, Robert

  Gray, Hamish

  Normanton, Tom

  Aitken, Jonathan

  Griffiths, Eldon

  Onslow, Cranley

  Alison Michael

  Grimond, Rt Hon J.

  Page, Rt Hon R. Graham (Crosby)

  Amery Rt Hon Julian

  Grist, Ian

  Pardoe, John

  Arnold, Tom

  Hall, Sir John

  Parkinson, Cecil

  Atkins, Rt Hon H. (Spelthorne)

  Hamilton, Michael (Salisbury)

  Pattie, Geoffrey

  Baker, Kenneth

  Hampson, Dr. Keith

  Penhaligon, David

  Banks Robert

  Hannam, John

  Percival, Ian

  Bell, Ronald

  Harvie Anderson, Rt Hon Miss

  Peyton, Rt Hon John

  Berry, Hon Anthony

  Hastings, Stephen

  Prior, Rt Hon James

  Biffen John

  Havers, Sir Michael

  Pym, Rt Hon Francis

  Biggs-Davison, John

  Hawkins, Paul

  Rathbone, Tim

  Body, Richard

  Heseltine, Michael

  Rawlinson, Rt Hon Sir Peter

  Boscawen, Hon. Robert

  Hicks, Robert

  Rees, Peter (Dover&Deal)

  Bowden, A. (Brighton, Kemptown)

  Holland, Philip

  Renton, Tim (Mid-Sussex)

  Boyson, Dr Rhodes (Brent)

  Howell, David (Guildford)

  Rhys Williams, Sir Brandon

  Brittan, Leon

  Howell, Ralph (North Norfolk)

  Rifkind, Malcolm

  Brotherton, Michael

  Hunt, John

  Roberts, Michael (Cardiff NW)

  Brown, Sir Edward (Bath)

  Irving, Charles (Cheltenham)

  Ross, Stephen (Isle of Wight)

  Bryan, Sir Paul

  James, David

  Rossi, Hugh (Hornsey)

  Buck, Antony

  Jenkin, Rt Hon P. (Wanst'd & W'df'd)

  Rost, Peter (SE Derbyshire)

  Budgen, Nick

  Jessel, Toby

  St. John-Stevas, Norman

  Bulmer, Esmond

  Johnson Smith, G. (E Grinstead)

  Shaw, Michael (Scarborough)

  Burden, F. A.

  Kaberry, Sir Donald

  Shelton, William (Streatham)

  Butler, Adam (Bosworth)

  Kellett-Bowman, Mrs Elaine

  Shepherd, Colin

  Chalker, Mrs Lynda

  King, Evelyn (South Dorset)

  Silvester, Fred

  Churchill, W. S.

  King, Tom (Bridgwater)

  Sims, Roger

  Clark, Alan (Plymouth, Sutton)

  Kirk, Peter

  Skeet, T. H. H.

  Clark, William (Croydon S)

  Knight, Mrs Jill

  Smith, Cyril (Rochdale)

  Clegg, Walter

  Knox, David

  Speed, Keith

  Cockcroft, John

  Lamont, Norman

  Spence, John

  Cooke, Robert (Bristol W)

  Lawrence, Ivan

  Spicer, Jim (W Dorset)

  Cope, John

  Lawson, Nigel

  Spicer, Michael (S Worcester)

  Cordle, John H.

  Le Marchant, Spencer

  Sproat, lain

  Costain A. P.

  Lewis, Kenneth (Rutland)

  Stanbrook, Ivor

  Crouch,'David

  Lloyd, Ian

  Stanley, John

  Crowder, F. P.

  Luce, Richard

  Stokes, John

  Dean, Paul (N Somerset)

  McCrindle, Robert

  Stradling Thomas, J.

  Douglas-Hamilton, Lord James

  Macfarlane, Neil

  Tapsell, Peter

  du Cann, Rt Hon Edward

  MacGregor, John

  Taylor, R. (Croydon NW)

  Durant, Tony

  Macmillan, Rt Hon M. (Farnham)

  Taylor, Teddy (Cathcart)

  Dykes, Hugh

  McNair-Wilson, M. (Newbury)

  Tebbit, Norman

  Eden, Rt Hon Sir John

  McNair-Wilson, P. (New Forest)

  Temple-Morris, Peter

  Edwards, Nicholas (Pembroke)

  Madel, David

  Thatcher, Rt Hon Margaret

  Elliott, Sir William

  Marshall, Michael (Arundel)

  Thomas, Rt Hon P. (Hendon S)

  Emery, Peter

  Mates, Michael

  Townsend, Cyril D.

  Eyre, Reginald

  Mather, Carol

  Trotter, Neville

  Fairbairn, Nicholas

  Maude, Angus

  Tugendhat, Christopher

  Fell, Anthony

  Maudling, Rt Hon Reginald

  van Straubenzee, W. R.

  Finsberg, Geoffrey

  Mawby, Ray

  Vaughan, Dr Gerard

  Fisher, Sir Nigel

  Maxwell Hyslop, Robin

  Wainwright, Richard (Coine V)

  Fletcher-Cooke, Charles

  Meyer, Sir Anthony

  Wakeham, John

  Fookes, Miss Janet

  Miscampbell, Norman

  Walder, David (Clitheroe)

  Fowler, Norman (Sutton C'f'd)

  Moate, Roger

  Walker-Smith, Rt Hon Sir Derek

  Fox, Marcus

  Monro, Hector

  Weatherill, Bernard

  Freud, Clement

  Montgomery, Fergus

  Wells, John

  Fry, Peter

  Morgan, Geraint

  Wiggin, Jerry

  Gardiner, George (Reigate)

  Morris, Michael (Northampton S)

  Winterton, Nicholas

  Gardner, Edward (S Fylde)

  Morrison, Charles (Devizes)

  Wood, Rt Hon Richard

  Gilmour, Rt Hon Ian (Chesham)

  Morrison, Hon Peter (Chester)

  Younger, Hon. George

  Gilmour, Sir John (East Fife)

  Neave, Airey

  Goodlad, Alastair

  Nelson, Anthony

  TELLERS FOR THE AYES:

  Gow, Ian (Eastbourne)

  Neubert, Michael

  Mr. Russell Fairgrieve and

  Gower, sir Raymond (Barry)

  Newton, Tony

  Mr. W. Benyon.

  Grant, Anthony (Harrow C)

  NOES

  Abse, Leo

  Atkins, Ronald (Preston N)

  Bates, Alf

  Allaun, Frank

  Bagier, Gordon A. T.

  Bean, R. E.

  Armstrong, Ernest

  Bain, Mrs Margaret

  Beith, A. J.

  Ashley, Jack

  Barnett, Guy (Greenwich)

  Bennett, Andrew (Stockport N)

  Ashton, Joe

  Barnett, Rt Hon Joel (Heywood)

  Bishop, E. S.

  Blenkinsop, Arthur

  Hatton, Frank

  Price, C. (Lewisham W)

  Boardman, H.

  Hayman, Mrs. Helene

  Price, William (Rugby)

  Booth, Albert

  Henderson, Douglas

  Radice, Giles

  Bottomley, Rt Hon Arthur

  Hooley, Frank

  Rees, Rt Hon Merlyn (Leeds S)

  Boyden, James (Bish Auck)

  Horam, John

  Reid, George

  Bradley, Tom

  Hoyle, Doug (Nelson)

  Richardson, Miss Jo

  Bray, Dr Jeremy

  Huckfield, Les

  Roberts, Albert (Normanton)

  Brown, Ronald (Hackney S)

  Hughes, Rt Hon C. (Anglesey)

  Roberts, Gwilym (Cannock)

  Buchan, Norman

  Hughes, Mark (Durham)

  Robertson, John (Paisley)

  Buchanan, Richard

  Hughes, Robert (Aberdeen N)

  Roderick, Caerwyn

  Callaghan, Jim (Middleton & P)

  Hughes, Roy (Newport)

  Rodgers, George (Chorley)

  Campbell, Ian

  Hunter, Adam

  Rooker, J. W.

  Canavan, Dennis

  Jackson, Colin (Brighouse)

  Roper, John

  Cant, R. B.

  Jackson, Miss Margaret (Lincoln)

  Ross, Rt Hon W. (Kilmarnock)

  Carmichael Neil

  Janner, Greville

  Rowlands, Ted

  Cartwright.'John

  Jay, Rt Hn Douglas

  Ryman, John

  Clemitson Ivor

  Jeger, Mrs Lena

  Sandelson, Neville

  Cocks, Michael (Bristol S)

  John, Brynmor

  Sedgemore, Brian

  Cohen, Stanley

  Johnson, James (Hull West)

  Selby, Harry

  Coleman, Donald

  Jones, Alec (Rhondda)

  Shaw, Arnold (Ilford South)

  Colquhoun, Mrs Maureen

  Jones, Barry (East Flint)

  Sheldon, Robert (Ashton-u-Lyne)

  Conlan, Bernard

  Jones, Dan (Burnley)

  Shore, Rt Hon Peter

  Cook, Robin F. (Edin C)

  Judd, Frank

  Short, Mrs Renée (Wolv NE)

  Cox, Thomas (Tooting)

  Kaufman, Gerald

  Silkin, Rt Hon John (Deptford)

  Craigen, J. M. (Maryhill)

  Kelley, Richard

  Sillars, James

  Crawford, Douglas

  Kerr, Russell

  Silverman, Julius

  Crawshaw. Richard

  Kinnock, Neil

  Skinner, Dennis

  Crosland, Rt Hon Anthony

  Lambie, David

  Small, William

  Cryer, Bob

  Lamborn, Harry

  Smith, John (N Lanarkshire)

  Cunningham, G. (Islington S)

  Lamond, James

  Snape, Peter

  Dalyell Tam

  Lee, John

  Spearing, Nigel

  Davidson, Arthur

  Lestor, Miss Joan (Eton & Slough)

  Spriggs, Leslie

  Davies, Bryan (Enfield N)

  Lewis, Arthur (Newham N

  Stewart, Donald (Western Isles)

  Davies, Denzil (Llanelli)

  Lewis, Ron (Carlisle)

  Stewart, Rt Hon M. (Fulham)

  Davies, Ifor (Gower)

  Lomas, Kenneth

  Stoddart, David

  Davis, Clinton (Hackney C)

  Loyden, Eddie

  Stott, Roger

  de Freitas, Rt Hon Sir Geoffrey

  Luard, Evan

  Strang, Gavin

  Dell, Rt Hon Edmund

  Lyons, Edward (Bradford W)

  Strauss, Rt Hon G. R.

  Dempsey, James

  MacCormick, tain

  Summerskill, Hon Dr Shirley

  Dolg Peter

  McElhone, Frank

  Swain, Thomas

  Dormand, J. D.

  MacFarquhar, Roderick

  Taylor, Mrs Ann (Bolton W)

  Douglas-Mann, Bruce

  McGuire, Michael (Ince)

  Thomas, Jeffrey (Abertillery)

  Duffy, A. E. P.

  Mackenzie, Gregor

  Thomas, Mike (Newcastle E)

  Dunn, James A.

  Mackintosh, John P.

  Thomas, Ron (Bristol NW)

  Dunnett, Jack

  Maciennan, Robert

  Thompson, George

  Edge, Geoff

  McMillan, Tom (Glasgow C.)

  Tierney, Sydney

  Edwards, Robert (Wolv SE)

  McNamara, Kevin

  Tinn, James

  Ellis, John (Brigg & Scun)

  Madden, Max

  Tomlinson, John

  Ellis, Tom (Wrexham)

  Magee, Bryan

  Urwin, T. W.

  English, Michael

  Mahon, Simon

  Varley, Rt Hon Eric G.

  Ennals, David

  Marks, Kenneth

  Wainwright, Edwin (Dearne V)

  Evans, Gwynfor (Carmarthen)

  Marshall, Dr Edmund (Goole)

  Walker, Terry (Kingswood)

  Evans, loan (Aberdare)

  Marshall, Jim (Leicester S)

  Ward, Michael

  Evans, John (Newton)

  Meacher, Michael

  Watkins, David

  Ewing, Harry (Stirling)

  Mellish, Rt Hon Robert

  Watkinson, John

  Ewing, Mrs Winifred (Moray)

  Mikardo, Ian

  Watt, Hamish

  Fernyhough, Rt Hon E.

  Millan, Bruce

  Weetch, Ken

  Fitch. Alan (Wigan)

  Miller, Dr M. S. (E Kilbride)

  Weitzman, David

  Fitt, Gerard (Belfast W)

  Mitchell, R. C. (Soton, Itchen)

  Wellbeloved, James

  Flannery, Martin

  Morris, Alfred (Wythenshawe)

  Welsh, Andrew

  Fletcher, Ted (Darlington)

  Morris, Charlas R. (Openshaw)

  White. Frank R. (Bury)

  Ford, Ben

  Mulley, Rt Hon Frederick

  White, James (Pollok)

  Forrester, John

  Murray, Rt Hon Ronald King

  Whitehead, Phillip

  Fraser, John (Lambeth, N'w'd)

  Newens, Stanley

  Whitlock, William

  Freeson, Reginald

  Noble, Mike

  Wigley, Dafydd

  Garrett, John (Norwich S)

  Oakes, Gordon

  Williams, Alan (Swansea W)

  George, Bruce

  Ogden, Eric

  Williams, Alan Lee (Hornch'ch)

  Gilbert, Dr John

  O'Halloran, Michael

  Williams, W. T. (Warrington)

  Ginsburg, David

  O'Malley, Rt Hon Brian

  Wilson, Alexander (Hamilton)

  Golding, John

  Ovenden, John

  Wilson, Gordon (Dundee E)

  Gould, Bryan

  Owen, Dr David

  Wilson, Rt Hon H. (Huyton)

  Gourlay, Harry

  Padley, Walter

  Wise, Mrs Audrey

  Graham, Ted

  Palmer, Arthur

  Woof, Robert

  Grant, George (Morpeth)

  Park, George

  Wrigglesworth, Ian

  Grocott, Bruce

  Parker, John

  Young, David (Bolton E)

  Hamilton, W. W. (Central Fife)

  Parry, Robert

  Hardy, Peter

  Pavitt, Laurie

  TELLERS FOR THE NOES:

  Harrison, Walter (Wakefield)

  Peart, Rt Hon Fred

  Mr. James Hamilton and

  Hart, Rt Hon Judith

  Perry, Ernest

  Mr. Joseph Harper.

  Hattersley, Rt Hon Roy

  Phipps, Dr Colin

  Question accordingly negatived.
  Amendments made:
  No. 14, in page 5, line 14, leave out ' 50 ' and insert 75 '.
  No. 19, in page 5, line 29, leave out 50 ' and insert ` 75 '.
  No. 145, in page 6, leave out lines and 2 and insert:
  (e) any unrelievable field losses allowable in the case of the participator under section (Allowance of unrelievable loss from abandoned field) of this Act'.[Mr. Dell.]

Clause 3

  ALLOWANCE OF EXPENDITURE (OTHER THAN EXPENDITURE ON LONG-TERM ASSETS AND ABORTIVE EXPLORATION OR DEVELOPMENT EXPENDITURE)
  Amendments made: No. 185, in page 7. line 9, after oil ', insert won from the field that was so '.
  And No. 186, in page 7, line 12, at end insert:
  ' (ff) the initial treatment or initial storage of oil won from the field ;
  (fff) disposing of any oil won from the field which is disposed of crude in sales at arm's length ; '.—[Mr. Dell.]
  Mr. Robert Sheldon: I beg to move Amendment No. 160, in page 7, line 36, at end insert:
  ' or has been allowed under Schedule 7 to this Act in connection with any oil field'.
  The amendment deals with the problem of companies going back into fields they have abandoned. It removes the risk that the same expenditure might be claimed both as abortive exploration expenditure and for a field. As the Bill stood before the Committee stage this would have been virtually impossible. Since abortive exploration expenditure was defined as expenditure which cannot become allowable for any field, and following representations that on this definition it could have been argued that no expenditure was indisputably abortive the amendment was put down.
  The possibility was put to us that a company might go into a field, might abandon it and might subsequently reenter. It is to deal with examples of this kind that the amendment has been introduced.
  Mr. Patrick Jenkin: The amendment appears to us both sensible and necessary for the protection of the revenue.
  1758
  We have no objections to it, and I am grateful to the Minister for his explanation.
  Amendment agreed to.
  Amendment made: No. 187, in page 8, line 9, at end insert:
  (iii) a building or structure used or to be used for initial treatment or initial storage of oil ; or '.—[Robert Sheldon.]
  Mr. Robert Sheldon: I beg to move Amendment No. 167, in page 8, line 17, at end insert:
  ' but nothing in paragraph (e) above shall be taken to apply to a payment made by a participator in pursuance of a contract whereby expenditure incurred for any of the purposes mentioned in subsection (1) above is to be shared between that participator and any of the other participators in the field'.
  This amendment meets the point that was made by the hon. Member for the New Forest (Mr. McNair-Wilson) in Committee. It has the peculiarity that it has the same number as the amendment which corresponded to it in Committee. It would allow expenditure incurred for developing a new field where under the terms of agreement the participator would be entitled to a share in the field. The amendment would allow him to go ahead and develop it. As worded, the paragraph disallows expenditure incurred by a new participator in developing the field. The amendment ensures that the clause will not have this effect.
  Mr. Hannam: We welcome this Government concession on the "farming-in" point. It is, as the Minister said, a coincidence that it has exactly the same number as the amendment we moved in Committee, and perhaps there is some significance in that. The amendment broadly meets the point we raised and should help those participators who jointly share in the benefits of another company's work in a field.
  Amendment agreed to.
  Mr. Patrick Jenkin: I beg to move Amendment No. 23, in page 8, line 17, at end insert:
  Provided that nothing in paragraphs (d) and (e) above shall prevent the allowance of any amount payable under an agreement made before 19th November 1974 and paid not later than six years after the date on which tax is first due on the profits from the field'.
  The amendment is designed to meet a point which I hope we can prevail upon

  1759
  the Government to accept. We discussed it at length in Committee and referred to it again this evening, and it concerns the provision in Clause 3 for the disallowance of interest. We have also discussed with that point the related provision for the disallowance of payments which are output-related. The amendment is directed to the latter point.
  In Committee we argued that it was necessary, in the financing of fields, that companies which could not raise money on their balance sheets but had to go for project financing—for off-balance-sheet financing—should have the maximum flexibility to finance their loans in ways which might be unconventional, certainly unconventional outside the oil industry. One way in which this has been done, both overseas and certainly in one case in this country of which I know, is that the payments made to the companies which put up the finance partly in the form of fixed interest and partly in the form of payments are related to output. The amendment is directed to the latter category.
  The Government have said, and we regret—we voted on the matter in Committee but we have not sought to raise it on Report—that such payments should not be allowed. We proposed in the amendment that disallowance should not operate retrospectively so as to disallow payments made under agreements arrived at before the Bill was published. Agreements have been entered into—for example, agreements for the Piper Field, some details of which no doubt have been published, although I have not seen the agreements—providing for off-balance-sheet financing, for project financing, with part of the payments related to the output from the field. Such an agreement was made during the election. The Minister of State and I had an exchange on this matter during the Second Reading debate.
  The effect of the provision in the clause which we seek to amend is to ensure that those payments are not allowed for PRT but that the company must pay PRT before deduction of the royalty payments. That seems to us to be monstrously unfair. This is the only complete off-balance-sheet financing package which the oil industry has been able to nego-
  1760
  tiate. If. as I understand is the case, a substantial part is in the form of payments which are not allowed and presumably, therefore, are intended to be covered by the uplift, it is very unfair because a company which did not have to make any payments would be equally entitled to the uplift so that a company which found it necessary, as happened. I understand, with Thomson Scottish, to raise but was unable to raise the necessary finance to develop the field on its balance sheet had to make an agreement of this sort.
  The House has always resolutely set its face against retrospective fiscal legislation save only if there has been something in the nature of a blatant anti-avoidance device. There people may reasonably take the view that the taxpayer risks legislation to close the loophole in a way which may defeat his expectations. Here the taxpayer had no reason to believe that this form of payment would be hit at in the way proposed in the Bill. It is an important matter on which I hope the Minister of State will give us some comfort.
  8.45 p.m.
  Mr. Robert Sheldon: The amendment covers a point which was partly dealt with in Amendment No. 167. The concession made in Amendment No. 167 relates to a harder aspect of this general case, the position where the terms of entry into the field are allowed for the reasons we gave and are exceptional when the agreement is dependent on developing the field. We are concerned here with the more general case where oil-related payments are to be made, and these are equivalent in effect to profit-sharing arrangements. We have to devise means of ensuring that there is no loss of PRT, as clearly there would be with an arrangement of that kind.
  It may be said that that could be overcome by allowing the payer to deduct the PRT from his oil-related payments. If I recall correctly, this matter was discussed in several exchanges in Committee. There are some agreements of that kind which contain a provision enabling the licensee to recoup PRT on the oil-related payments. This may be a matter which the right hon. Gentleman has not considered before, but there is a probability that the claim for repayment of PRT might come under the double

  1761
  taxation agreements and as a result there would be a loss of revenue to this country. For that and other reasons which I have given, we are unable to accept the amendment.
  Mr. Patrick Jenkin: I realise that the Minister of State is bound to follow the arguments he addressed to the Committee on the same point. His reference to double taxation agreements does not take us far. The company to which I referred is a United Kingdom resident company—as are all licensees. The company operates in this country and does not remit dividends abroad.
  The Minister in Committee said that it might be possible to find a way whereby the payer could deduct PRT even if that were confined only to cases in which agreements had been made before the Bill came into operation. We accept that for the present the Government have set their face against any allowance of interest or similar kinds of payment, but that should not operate to defeat existing rights under agreements which pre-date the publication of the Bill. The Minister said:
  "I would ask the right hon. Gentleman, in his present spirit of active co-operation "—
  I always show a spirit of active co-operation.
  "at least, he has gone as far as to identify the problem that we both faceif he has any appropriate means to suggest whereby we may collect the tax, we shall listen with interest In the absence of such effective means, however, I am unable to accept the amendment." — [Official Report, Standing Committee D, 30th January 1975 ; c. 523-24.]
  That is a matter to which we should address our minds in the next few weeks or months. No doubt we shall have an opportunity in Finance Bills this year, next spring or next summer—we seem to have three or four such Bills a year—to amend the tax. There is a genuine hardship.
  However, in view of what the Minister said it would not be right to press this matter, though I stress that there is a problem on the retrospective element.
  I beg to ask leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Amendments made: No. 168, in page 8, line 28, after for ', insert:
  , or acquiring an asset or an interest in an asset to be used for the purpose of,'.
  No. 169, in page 8, line 30, leave out for '.
  No. 232, in page 8, line 31, at end insert ' or
  (d) providing any installation for the initial treatment or initial storage of oil won from the field: '.
  No. 239, in page 8, leave out lines 32 and 33 and insert:
  ' but expenditure incurred in hiring an asset shall not so qualify unless the asset is used in carrying out works for a purpose mentioned in paragraph (a), (b) or (c) above or works for the provision of any such installation as is mentioned in paragraph (d) above '.
  Mr. Jenkin: I beg to move Amendment No. 240, in page 8, line 37, at end add:
  ' (7) The Treasury may from time to time by order with respect to expenditure allowable under this section add expenditure on any purpose other than those specified in subsection (1) above as allowable expenditure; and any such order may contain provision for consequential relief from tax and may from time to time be varied or revoked by a new order under this subsection '.
  We have already dealt with the pattern of expenditure allowance and have touched on the fact that, unlike any other tax which we have considered, the Bill decides the items of expenditure which are allowable and disallows everything else. I shall not repeat the arguments made in Committee, but despite all the careful thought which has been given to the Bill by Ministers and by the Treasury, we cannot be absolutely confident that we shall succeed in sweeping into the provisions of Clause 3 all the items of expenditure which should be allowed.
  I am grateful to the Minister of State for letting me see a copy of the letting written by Mr. Dalton of the Inland Revenue to the Oil Industry Tax Committee setting out the kind of expenditure which the Inland Revenue thinks would be allowed. But I am sure he will recognise that it is one thing for an official in the Inland Revenue to give an indication of the kind of expenditure he would expect to be allowed and another thing to consider what happens when a particular case arises and is challenged and tested in the courts and if

  1763
  the courts then have to look at the wording of the legislation. We need a safeguard or long-stop, to give the Government power to take action if they find that, inadvertently, they have left out of the Bill something which should have been included. We should not have to wait for the next Finance Bill to put that right but should be entitled to make an order to add an additional item to Clause 3—in the same way as, in Committee. we added the provision for redundancy payments. Such an order would give the Government power to take action. After the Bill has left the House tonight, it will be too late to do anything about the matter in this legislation. We feel that it is a reasonable caution to have an order-making power.
  Mr. Robert Sheldon: I am grateful for the kind words uttered by the right hon. Member for Wanstead and Woodford (Mr. Jenkin), who talked of the careful consideration which the Government had given to the Bill. I certainly endorse those remarks.
  This is an attempt by the Opposition to say that something may have been omitted, although they are unable to pinpoint it. We have asked them repeatedly to tell us where the Bill falls short of any provision which might be required. We have received no reply, except that we should permit ourselves to take action if we find that we need extra measures. Words to that effect are always listened to sympathetically by any Government. If we had devised a list of articles or pieces of equipment for which an allowance should be given, the right hon. Gentleman would be right in thinking that everything had been covered and that nothing had been overlooked.
  We are not concerned with a list of items. We are concerned with purposes. In discussing the intent we can more readily achieve comprehensiveness than with a list of items. When we haw, asked those in the oil industry or the Opposition what purposes have been omitted there was no answer, for the good reason that it would be difficult to give such an answer without fundamentally changing what we wished to allow. From time to time Finance Bills change the intent. Since we have that longstop, I think it best to leave the matter there.
  Mr. Patrick Jenkin: I recognise the familiar arguments on this point which were addressed to us in Committee. This is not a point of any significance. However, it would seem to me to be a minor improvement and a useful safeguard to add to the Bill. The problem is not that the Government have not included a list of items. The problem arises because the Government have adopted an inclusive instead of an exclusive test such as that for income tax, profits tax and corporation tax. Allowance should be made according to ordinary accounting principles, unless specifically prohibited by the Bill. Under the Bill allowance is given only if the items come within Clause 3(1). Nevertheless the hon. Gentleman is right. There is a Finance Bill every year, if not two or even three. If we find that we have not thought of everything a change can be made in a later Finance Bill.
  Amendment, by leave, withdrawn.

Clause 4

  ALLOWANCE OF EXPENDITURE ON LONG-TERM ASSETS
  Mr. Patrick Jenkin: I beg to move Amendment No. 29, in page 9, line 19, leave out
  and (c) the asset is not a mobile asset '.
  Mr. Deputy Speaker: With this we are to take Amendment No. 35, in page 10, line 1, leave out subsection (6).
  Mr. Jenkin: I believe that the Government are confused on the subject of mobile assets. The normal test for the reliability of a long-term asset is that an estimate has to be made of the length of time it will be used in the field, which is represented as a proportion of the life of the asset. The appropriate proportion of the cost is given as a capital allowance. If an estimate of the length of time it will be used for the field cannot be made, we must look at the past use of the asset. That applies to all assets except mobile assets. There is no possibility of applying to mobile assets such as semi-submersible drilling rigs and surface vessels the first leg of the test, which is to estimate what proportion of their life is likely to be spent in the field. We are driven back to the other test where only the capital allowance is given, and with it the uplift, by reference to the past use of the asset.

  1765
  9.0 p.m.
  I say that the Government have got themselves into a great deal of confusion because they seem to equate mobile assets with those which are intrinsically of a category where it is impossible to state with any degree of certainty whether they will be used for the field.
  That does not follow. There is no overriding reason why an asset which happens to be mobile is any more likely to be an asset the future use of which can be guessed than an asset which might be for the time being fixed. Modules may be fixed on to a platform, it may be that both gas and oil are being dealt with, the gas runs out and merely oil is being extracted. The gas equipment is not a mobile asset, however. The module is fixed with a crane and has to be removed with a crane, yet it is permissible to make an estimate or guess. Even if it is a semi-submersible rig intended eventually to occupy a permanent position as a production platform, simply because it starts by being mobile it is precluded from the test.
  That is what the Bill says. However, in a letter which I received from the Minister of State he hedged. In the last paragraph of his letter of 26th February he said:
  " Where the mobile asset has been used solely for the field from the time of acquisition, the rules do not of course make any difference whatsoever ; they only affect the timing where an asset has been brought in from elsewhere. Thus if the Condrill is purchased specifically for a field in the North Sea there will be no restriction on the allowance."
  In other words, if it is possible to say in relation to a single field that the asset is used for that field, the allowance is given for the lot, whether it is mobile or not. This represents a very substantial change in what I understood the hon. Gentleman to say in Committee about the treatment of mobile assets.
  As I read the paragraph of the hon. Gentleman's letter which I quoted, there is no question of limiting the capital allowance by reference to past use of the asset. Clearly in the case of a mobile asset the hon. Gentleman intimates in his Letter that the Inland Revenue will be prepared to say that the whole use of that asset will be with that field and, therefore, that it can all be allowed straight away. It all comes back to the
  1766
  fact that some mobile assets will be treated as if they were not mobile assets.
  The Bill is in error in ever drawing a distinction for mobile assets and making a separate category of them. The true categories are those for which it is possible to make an estimate and those for which it is not. We accept that, and we accept that it is necessary for the protection of the Inland Revenue that where an estimate cannot be made of how far the assets are to be used in the field, the second test should be applied by reference to past use. But there is no need to take a separate category of mobile assets and preclude them from the operation of the first test because, as the Minister said, in those circumstances he would treat them as though they were not mobile assets and use the normal test.
  The Government have got themselves into total confusion. They could get out of it by accepting these two amendments and taking out of the Bill any separate reference to mobile assets. Their position is not weakened if they are dealing with a mobile asset. Where an accurate guess cannot be made, the case falls into the second category. If it is a mobile asset but a guess can be made, it comes under the paragraph of the hon. Gentleman's letter which I have read and it will come under the first test. However, the Bill does not allow that. Apparently the Government's view is—once a mobile asset, always a mobile asset, unless an extra-statutory concession is made. This is a nonsensical way to legislate, and I hope that the Minister will accept the amendments.
  Mr. Sheldon: The right hon. Gentleman was correct in one point—there is some confusion. He has failed to understand the implications of this part of the legislation. The test is the actual past use and the estimated future use of the field. That is a reasonable test for the fixed assets. I am sure the right hon. Gentleman will agree with me.
  We know what the past use of a fixed asset was and it is easy to estimate its future use. The future use of a mobile asset is more speculative. We can say what operation a mobile asset will perform but we cannot say in which field it will be used. This is the test that we do not have for mobile assets and which we do have for fixed assets.

  1767
  In the case of a fixed asset, if a piece of equipment is anchored to the seabed, we know what its future use will be. In the case of a mobile asset we know what its past use was—this is always known—but we do not know where the mobile asset will be used. It is location as well as its function that is in some doubt. This is why we have rules for accepting the speculative nature of future use. Although the rules need to be different, in the end allowances ate payable. It is a question of timing. In the absence of the certainty to which I have referred, the Bill, as drafted, should proceed.
  Mr. Patrick Jenkin: I do not accept the Minister of State's argument. He has not addressed his mind to the point, so perhaps we had better leave the amendment to be negatived.
  Amendment negatived.
  Amendments made: No. 34, in page 9, line 46, at end insert—
  ' Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '.
  No. 38, in page 10, line 7, at end insert—
  . Provided that, where the asset was not used for any purpose in the period between the incurring of the expenditure and the asset's first use in connection with the field, the expenditure shall for the purposes of this subsection be treated as having been incurred on the date when the asset was first used in connection with the field '. — [Mr. Patrick Jenkin.]
  Mr. Gray: I beg to move Amendment No. 41, in page 10, line 11, leave out from including ' to end of line 12 and insert—
  ' the earlier of the following periods, that is to say—

  (a)the claim period immediately preceding the claim period in which the asset is disposed of ; and

  (b)the claim period in which use of the asset in connection with the field permanently ceases, the proportion of '.

  Mr. Deputy Speaker: With this amendment, it will be convenient to discuss Government Amendment No. 207, and the following amendments:
  No. 56, in Clause 5, page 12, line 19, after with ', insert the earlier of (a)'.
  Government Amendment No. 208. No. 57, in page 12, line 20, at end insert:
  and
  (b) the day on which any sum is received as mentioned in subsection (5) below '.
  No. 58, in page 12, line 32, leave out Paragraph 2 ' and insert ' Paragraphs 2 and 3 '.
  No. 109, in Schedule 4, page 42, line 19, leave out paragraph 1.
  No. 110, in page 42, line 39, after ' exceeds ', insert the greater of (a)'.
  No. 111, in page 42, leave out lines 45 to 10 on page 43 and insert—
  ' ; and
  (b) the smaller of the following amounts that is to say—

  (i) the expenditure which would have been incurred in the acquisition of the asset if the transaction first-mentioned in this sub-paragraph had been a transaction between independent persons dealing at arm's length ; and

  (ii) if, in a previous transaction to which this paragraph applies, expenditure allowable under section 3 or 4 of this Act has been incurred by a person connected with the person first-mentioned in this subparagraph in the acquisition of the asset, the expenditure which would have been incurred in that previous transaction (or, if there has been more than one such transaction, the earlier or earliest of them) if it had been a transaction between independent persons dealing at arm's length, increased by an amount equal to any expenditure incurred by any person since that acquisition in enhancing the value of the asset.

  (2) Where an asset is disposed of in a transaction to which this paragraph applies, the amount or value of the consideration received or receivable for the disposition shall be treated for the purposes of paragraph 4 below as being an amount equal to the expenditure which under sub-paragraph (1) above the person first-mentioned in that sub-paragraph is treated as having incurred.
  (3) Section 4(13) of this Act applies to the preceding provisions of this paragraph ; and those provisions shall, with any necessary modifications, apply in relation to a disposal of an interest in an asset as they apply in relation to a disposal of an asset.
  (4) This paragraph applies to any transaction between connected persons (within the meaning of section 533 of the Taxes Act).'
  No. 112, in page 43, line 6, leave out from 'Act ' to the end of line 10.
  No. 113, in page 43, line 11, leave out sub-paragraph (3) and insert—
  ' (3) Sub-paragraph (2) above shall, with any necessary modifications, have effect in relation to expenditure incurred by a person—

  1769

  (a) in renting or hiring an asset or any interest in an asset ; or

  (b) for the provision of services or other business facilities of whatever kind ; or

  (c) for the grant or transfer to him of any right, licence or interest (other than an interest in an asset),

  as it has effect in relation to expenditure incurred in the acquisition of, or of an interest in an asset '.

  Clause 114, in page 43, line 13, at end insert:
  '3. — (l) Where a person has incurred expenditure in the acquisition of an asset in a transaction to which this paragraph applies, he shall be treated for the purposes of sections 3 and 4 of this Act and paragraph 5 below as having incurred that expenditure only to the extent that it does not exceed the expenditure which would have been incurred in the acquisition of the asset if the transaction had been a transaction between independent persons (not being associated persons) dealing at arm's length.
  (2) Where an asset is disposed of in a transaction to which this paragraph applies, the amount or value of the consideration received or receivable for the disposition shall be treated for the purposes of paragraph 4 below as being an amount equal to the expenditure which under sub-paragraph (1) above the person mentioned in that sub-paragraph is treated as having incurred, or would be treated as having incurred if section 4 of this Act applied to the expenditure incurred by him in that transaction.
  (3) Section 4(13) of this Act applies to the preceding provisions of this paragraph ; and those provisions shall, with any necessary modifications, apply in relation to a disposal of an interest in an asset as they apply in relation to a disposal of an asset.
  (4) This paragraph applies to any transaction between associated persons ; and for the purposes of this paragraph a person is associated with another person if—

  (a) they are both participators in the same field ; or

  (b) one of them is a participator in that field and the other is connected (within the meaning of section 533 of the Taxes Act) with another participator in that field.

  (5) Sub-paragraph (1) above shall, with any necessary modifications, have effect in relation to expenditure incurred by a person—

  (a) in renting or hiring an asset or any interest in an asset ; or

  (b) for the provision of services or other business facilities of whatever kind ; or

  (c) for the grant or transfer to him of any right, licence or interest (other than an interest in an asset), as it has effect in relation to expenditure incurred in the acquisition of, or of an interest in, an asset '.

  Government Amendments Nos. 209 and 210.
  No. 115, in page 43, leave out lines 38 to line 25 on page 44 and insert:
  ' amount of the expenditure allowable under sections 3 and 4 of this Act shall be increased or reduced in accordance with the following provisions of this paragraph.
  (2) If the appropriate amount exceeds that proportion of the expenditure incurred as mentioned in sub-paragraph (1) above which (taking into account any adjustments made under section 4(9) of this Act) has been allowed on claims made for earlier claim periods falling within the relevant period, the excess shall be allowable under section 4 of this Act on a claim for the claim period in which the disposal is made.
  (3) If the appropriate amount is exceeded by that proportion of the expenditure incurred as mentioned in sub-paragraph (1) above which (taking into account any adjustments made under section 4(9) of this Act) has been allowed on claims made for earlier claim periods falling within the relevant period, the total amount of the expenditure allowable under sections 3 and 4 of this Act on a claim for the claim period in which the consideration is received or receivable shall be reduced by an amount equal to the excess '.
  Government Amendments Nos. 211 and 212.
  No. 118, in page 44, line 30, leave out sub-paragraph (6) and insert—
  ' (6) For the purposes of this paragraph

  (a) "the appropriate amount" is an amount equal to the excess of the expenditure incurred in acquiring, bringing into existence, or enhancing the value of the asset over the amount or value of the consideration received or receivable for the disposition where the amount of that expenditure exceeds the amount or value of that consideration, and is otherwise nil ;

  (b) where—

  (i) the disposal is made in a transaction between connected persons ;

  (ii) the expenditure incurred in the acquisition of the asset in that transaction is not expenditure to which section 4 of this Act applies (or would apply apart from the proviso to subsection (1) of that section) ; and

  (iii) the consideration received or receivable for the disposition is less than the market value of the asset at the time of the transaction,
  the consideration shall be treated for the purposes of this paragraph as being an amount equal to that market value ;

  (c) "the relevant period" means the period consisting of the claim period for which the excess mentioned in sub-paragraph (2) above is allowable or the claim period for which the expenditure allowable falls to be reduced under sub-paragraph (3) above (as the case may be) and each earlier claim period back to and including that in which the expenditure incurred as mentioned in sub-paragraph (1) above was incurred ; and

  1771

  (d) section 533 of the Taxes Act (connected persons) shall apply.'

  No. 119, in page 44, line 32, at end add—
  ' 5. — (1) Where the total amount of any expenditure allowable under section 3 or 4 of this Act is reduced under section 4(9) of this Act or paragraph 4 above upon either—
  (a) the disposal of any assets (otherwise than in a transaction between connected persons) ; or
  (b) the permanent cessation of use of any asset in connection with an oil field.
  the amount falling to be taken into account under section 2(9)(b)(ii) or (c)(ii) of this Act by reference to that expenditure shall not be reduced where the disposal or the cessation of use occurs ten years or more after the end of the half year in which the expenditure incurred in acquiring, bringing into existence or enhancing the value of that asset was so incurred ; and, where the disposal or cessation of use occurs less than ten years after the end of that half year, shall be reduced to the amount mentioned in sub-paragraph (2) below and shall not be otherwise reduced.
  (2) The amount mentioned in sub-paragraph (1) above is an amount equal to the relevant fraction of the amount which under subparagraph (1) above would have fallen to be taken into account under section 2(9)(b)(ii) or (c)(ii) of this Act if the disposal or cessation of use of the asset had occurred ten years or more after the end of the half year mentioned in that sub-paragraph.
  (3) For the purposes of sub-paragraph (2) above "the relevant fraction is that fraction of which the numerator is the number of complete half years in the period beginning with the day on which the expenditure mentioned in sub-paragraph (1) above was incurred and ending with the day on which the asset was disposed of or ceased permanently to be used in connection with the field and the denominator is 20.
  (4) For the purposes of this paragraph—
  (a) "half year" means a period of six months ending at the end of June or December ; and
  (b) section 533 of the Taxes Act (connected persons) shall apply '.
  Government Amendment No. 213.
  No. 126, in page 45, line 29, leave out (1) ' and insert (3) '.
  Mr. Gray: This is a long list of amendments. I do not propose to speak to each one.
  Amendment No. 41 has, to some extent, already been met by Government Amendments Nos. 209–212. Schedule 4(4) was under severe criticism in Committee. These amendments are the Government's reaction to that criticism. Their effect could be rather confusing. If a participator sells an asset, his allowable
  1772
  expenditure will suffer a double restriction. The original paragraph 4 imposed a balancing charge on the participator, in addition to a restriction imposed already by Clause 4.
  The Government amendments remove this overlap, but in an unexpected way. The intention seems to be that the balancing charge mechanism will not apply at all. For example, it should not apply where the purchaser is a participator in the field or a person connected with the participator. If this is the intention, there is a technical defect in line 1 of Amendment No. 210. The words a participator in the field or "seemed to have been inadvertently omitted.
  In many cases, allowable expenditure will be recaptured on disposal of assets not by reference to the selling price but instead, under Clause 4, by reference to the period that the seller has used the assets in the North Sea as compared with the asset's total useful life. This makes for consistency with the treatment under Schedule 4 of transfers of assets between associated companies or companies which are participators in the same field and underlines the Government's apparent determination not to make the improvements in those areas which are sought in Amendments Nos. 110–114. The effect as a whole does not make for equity for buyer and seller.
  Amendments Nos. 56 and 657 are now substantially met by Government Amendments Nos. 207 and 208. Amendments Nos. 115, 118 and 126 sought to amend Schedule 4 and Clause 4. I should like to go into complicated detail on Amendments Nos. 209 and 210. I have already outlined the difficulties which they could create. I suggested that some words could have been omitted in line 38, on page 43. If they have been omitted intentionally, the effect—
  Mr. Sheldon: Will the hon. Gentleman repeat the words?
  Mr. Gray: If, in Amendment No. 210, before sub-paragraph (c) the words "a participator in the field or" have been omitted intentionally, Schedule 4(4), which is the only provision applying to a balancing charge mechanism on sale of assets will apply only where a purchaser is not connected with a participator—that is, presumably, any participator in any field.

  1773
  In our words, and subject to what comes below, it will hardly ever apply, since it is highly probable that a likely purchaser will have an associated company which is a participator in one of the North Sea oil fields. Paragraph 4 will apply to a seller—that is, it will effectively impose a balancing charge on him if the purchaser, for example company A, is itself a participator in the North Sea oil field but is not connected with any other person who is a participator and will not apply if company A is associated with a further company which is also a participator and will not apply if, instead, the seller disposes of the asset to a company associated with company A.
  I apologise for that rather complicated harangue, but this is what will happen if those words have been purposely omitted from the Minister's amendment. This could have far-reaching complications. If the Minister cannot grasp all the implications of this, perhaps he will agree to take the amendment away and arrange elsewhere to have it put right.
  9.15 p.m.
  Mr. Robert Sheldon: The hon. Member for Ross and Cromarty (Mr. Gray) was right when he pointed out the way in which Amendments Nos. 56 and 57 have been met by Amendments Nos. 207 and 208. The point he makes is a complex one. 1 would like to take advantage of his kind invitation to study this rather carefully. I age that it is a problem. I understand that there is a serious difficulty in taking the kind of action that would meet with his approval.
  Dealing with Amendments Nos. 109 and 114, if a participator incurs expenditure and it is allowed for PRT, and that participator sells the asset at a higher cost, the intention of the hon. Gentleman is that the allowance received by the person who has spent money on the asset will be refunded. When he sells the asset, when the allowance is repaid, the higher allowance—assuming that the asset has increased in price—is substituted. The argument is that there is no equity disadvantage to the Revenue. The disadvantage is that the original allowance was payable for the expenditure and there are a number of problems which follow.
  Mr. Patrick Jenkin: The purchaser would be perfectly entitled to buy a different asset at the higher price and if
  1774
  he did so he would get the full allowance. What possible difference can it make if it happened to be an asset for which someone else has had an allowance which is fully repaid? I do not understand the difficulty. If the purchaser could buy an entirely different asset of the same sort, having to pay a higher price, why cannot he get an allowance for it?
  Mr. Sheldon: The right hon. Gentleman is seeing only one possible consequence. I am sure that he will be the first to admit that there is more than one possible consequence to the selling of a piece of equipment. The seller may not wish to replace it or to purchase any other piece of equipment. There are a number of other possibilities that might occur to a seller.
  I had better say something about Schedule 4. What is provided for is that where a participator has incurred allowable expenditure on an asset, subsequent expenditure by another participator on acquiring the same asset will not be allowed. If a new participator comes into a field and acquires a share of the assets, the original cost of those assets stands as an allowable deduction and anything the new participator pays to acquire his share is left out of account.
  The proposal in these amendments is contrary to this policy. It would enable the allowable costs for PRT to be much increased whenever a new licensee bought his way into a field while apparently limiting his charge on the seller to the original cost. This is one of the consequences the right hon. Member for Wan-stead and Woodford (Mr. Jenkin) did not deal with. This would open up the whole question of the purchase of interest in fields. It would be wholly against what we had in mind when framing the legislation.
  If we were to permit each participator to make available assets, not at cost but at current market value it would merely encourage concerted arrangements under which each participator would write up the cost of his assets which he brought into the deal whether by way of sale or by hire. There are these other consequences. I am sure we can all think of more.
  Part of the Opposition's responsibility is to make sure that the revenue is not eroded. I know of their interest in the

  1775
  general point. They are happy to see the revenue eroded for certain individuals and interest groups in this country. If these groups were to obtain a larger proportion of the revenue, there would be a net loss to the British people. I hope that, looking at the matter in this way, the Opposition will take a more balanced view than they have shown on a number of occasions.
  Mr. Gray: I am grateful to the Minister for dealing with the problem in some depth. The hon. Gentleman accepts that there is a problem. We shall want to study carefully what he said in reply to this matter. However, I hope that, after having had time to deliberate, he will still consider doing something in another place. In the meantime, we accept and will carefully study what the hon. Gentleman said. I hope that this will not necessarily be the end of the matter. I do not wish to withdraw the amendment.
  Amendment negatived.
  Amendments made: No. 207, in page 12, line 9, after "then ", insert:
  ' (a) subject to paragraph (b) below,'.
  No. 208, in page 12, line 20, at end insert:
  (b) if a subsequent disposal of the asset by that person otherwise than to a person connected with him gives rise to the receipt of a sum that falls to be taken into account under subsection (5) below, being a sum not less than the price which the asset might reasonably have been expected to fetch if sold in the open market at the time of the disposal, paragraph (a) above shall apply with the substitution, for the reference to the day on which the asset's useful life is reasonably likely to end, of a reference to the day on which the disposal was made '. — [Mr. Dell.]
  Mr. Sheldon: I beg to move Amendment No. 171, in page 12, line 22, at end insert:
  (2A) Expenditure is not allowable under this section in connection with an oil field if, or to the extent that, it has been allowed under Schedule 7 to this Act in connection with any oil field '.
  The amendment ensures that the same expenditure shall not be allowed twice as abortive exploration expenditure. I am sure that the amendment will commend itself to the House.
  Amendment agreed to.
  Amendments made: No. 188, in page 12, line 26, leave out such strata "' and insert:
  the end of sub-paragraph (iii)'.
  No. 172, in page 13, line 5, leave out ' 75 ' and insert 51 '.
  No. 173, in page 13, line 9, leave out 75 ' and insert 51 '.
  No. 174, in page 13, line 15, leave out from of ' to end of line 16 and insert:
  ' whichever of the following periods ends later that is to say—
  (i) the earliest chargeable period in which the company which is a participator in the old field in question was a participator in that field ; and
  (ii) the chargeable period (for that field) in which the expenditure was incurred,
  (or, if they are the same period, with the end of that period); and '.
  No. 146, in page 13, line 18, leave out Clause 6. — [Mr. Dell.]

Clause 7

  RELIEF FOR ALLOWABLE LOSSES
  Mr. Robert Sheldon: I beg to move Amendment No. 161, in page 14, line 24, leave out
  'the two preceding chargeable periods'
  and insert any preceding chargeable period '.
  Mr. Deputy Speaker: With this amendment it will be convenient to discuss the
  following amendments:
  No. 64, in page 14, line 24, leave out the two '.
  Government Amendment No. 162.
  No. 65, in page 14, line 25, leave out either of '.
  Government Amendment No, 163.
  No. 66, in page 14, line 28, leave out 'the later of those periods'
  and insert a later period '.
  No. 67, in page 14, line 30, leave out subsection (3) and insert:
  ' (3) Where the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in a chargeable period from an oil field then if the participator so elects within six years of the end of such period the said loss shall be relieved by set-off against the assessable profit accruing to him in the same period from any other field or fields '.
  Mr. Sheldon: These amendments provide for the indefinite carry-back of allowable losses within a field. As such, I am sure that they will commend themselves to the House.
  These amendments follow an undertaking which I gave in Committee to reexamine particular matters so that the participator would be able to set off losses against any previous profits on a field. Under the clause as drafted, a participator may elect to carry a loss back only against his profit from the field in the two preceding chargeable periods.
  The point has been made that the restriction to the carry-back of losses could be difficult and unfair where losses were incurred well into the life of the field. An example was cited of the problem that could arise where there might be an interruption of production and subsequent continuation. The point was made that those losses which were made during the cessation of production would be unrelieved. We have met that point.
  There are other amendments which no doubt the right hon. Member for Wan-stead and Woodford (Mr. Jenkin) will wish to move. I do not know whether the right hon. Gentleman would like me to refer now to Amendment No. 67. If the House feels that that is not the most convenient arrangement, I will leave the matter there and seek to catch your eye at a later stage, Mr. Deputy Speaker.
  Mr. Patrick Jenkin: The Opposition warmly welcome Government Amendments Nos. 161, 162 and 163 as they entirely meet the points in Opposition Amendments Nos. 64, 65 and 66. Indeed, they meet the points which we made very forcibly in Committee. In the course of our debate in Committee on the Question "That the clause stand part of the Bill" the Minister of State recognised that there was something to be said for an indefinite allowance of losses backwards, and we are grateful for what he has done.
  The hon. Gentleman was quite right when he said just now that I should like to say a few words on Amendment No. 67. I am sorry that the hon. Member for Hamilton (Mr. Wilson) is not now with us. He was here a few minutes ago. It is my recollection that he was an extremely reluctant supporter of the Government in the matter of setting off losses
  1778
  in one field against the profits in another. The Government Whip was a regular visitor to our Committee. He has a very important oil company in his constituency, and we are delighted to see him here. I do not know what those hon. Members would think if they were told that these oil companies were making profits in some fields and losses in others and that the losses could not be set off against the profits.
  As I said to the hon. Member for Hamilton, what about the National Coal Board? If it had been making profits in its central coalfields in the East and West Midlands and had had to pay tax on those profits without any allowance for the losses which it was making in the coalfields in the North-East, or in Scotland, or South Wales, or Kent, the hon. Member for Hamilton would not have been the only mining Member in the House who would have created a bit of a fuss. Yet that is exactly what is proposed to be done by this Bill in relation to the oil companies. There is an iron curtain round each field for this purpose. Consider how far the Government have gone to perforate that iron curtain in the new clause which we considered earlier in connection with the abortive exploration and development expenditure and the closing down expenses of a field which has been operating for however long, and in spite of how much it has produced, when it finally closes down and makes losses.
  Apart from the capital—and I understand the argument about the capital—this is the only case in which one makes losses on one field and profits on another and yet one cannot set off the losses against the profits. One has to pay tax on the profits without receiving an allowance on the losses. The only relief is that if subsequently a profit is made in the field, the losses can be carried forward and set off against those profits, or one has the option to close down the field, in which case the ring fence comes off and the losses are set off against the profits in the neighbouring profitable field.
  Apart from the cash flow and the resultant disincentive, the only effect on the operations is that the balance could be tilted to securing the premature closing down of a field which might otherwise be carried on in an attempt to see whether

  1779
  it might become profitable. I cannot believe that this is the Government's intention and that they would want to restrict the loss relief in such a way as might force a company to close down a field when otherwise it might carry it on and win a good deal more oil for the country.
  I beg the Ministers to think again. They have moved so far in allowing losses to be set off in dealing with abortive exploration and abortive development expenditure. Having swallowed those horses, they are straining at a gnat. They ought to allow this final relief, off-setting losses against profits made in the same period in two different fields. I hope that the Minister will treat the matter sympathetically.
  9.30 p.m.
  Mr. Robert Sheldon: The right hon. Gentleman seeks to allow the losses of one field to be set off against the profits of another. No one will know better than he that the consequences are not necessarily those that he envisages. The effect would be virtually to abolish the field basis in terms of the tax flow. As a result, the amendment is unacceptable to the Government.
  Mr. Patrick Jenkin: With respect, that is not the effect. We have not sought to reopen the lengthy debate on the field-by-field basis in any of our amendments on Report, because that matter was decided in Committee. The amendment does not interfere with the Government's field-by-field basis in the sense that capital allowances are freely transferable between fields. We are talking only about revenue losses, the setting off of an operating loss in one field against the profits of another.
  Mr. Sheldon: I understand the point put by the right hon. Gentleman. What I am concerned with is the consequences of his amendment, which are to abolish the field-by-field basis in terms of the tax flow. As a result, it is obviously contrary to Government policy and contrary to the provisions that we have sought to maintain in the Bill throughout our lengthy discussions.
  The right hon. Gentleman is right to draw the attention of the House to the concessions that have been made. We have provided these concessions—the
  1780
  indefinite carry-back at the participators' option for the losses in a field ; insuring any losses unrelieved when a field is finally abandoned, whatever the level of production ; making sure that they can be set off against subsequent profits arising to the licensee or to another company in its group from another field. We have made a large number of concessions, making sure in each that we have retained this core of the field basis in terms of the tax flow.
  We are unable to accept the Opposition's amendment, and I urge hon. Members to accept the Government's amendment.
  Amendment agreed to.
  Amendments made: No. 162, in page 14,line 25, leave out ' either of those periods ' and insert ' any such period '.
  No. 163, in line 28, leave out ' the later of those periods ' and insert
  ' a later chargeable period '— [Mr. Dell.]

Clause 8

  MODIFICATION OF PART I IN CONNECTION WITH CERTAIN GAS SOLD TO BRITISH GAS CORPORATION
  Amendments made: No. 189. in page 15,line 9, after ' above ', insert
  ' or used for production purposes '.
  No. 204, in line 21, after ' 4 ', insert
  ' (including, in the case of any expression used in any of those provisions which is defined elsewhere, its definition so far as it has effect for the purpose of that provision) '. — [Mr. Dell.]
  Mr. Patrick McNair-Wilson: I beg to move Amendment No. 72, in page 16, line 1, leave out ' and approved '.
  Mr. Speaker: With this amendment we are to take the following amendments: No. 73, in page 16, line 4. at end insert:
  Provided that, where estimates have been submitted, the expenditure allowable for the field under section 3 of this Act by virtue of the said paragraph (a), (b) or (c) shall be determined in accordance with those estimates until such time as notice of approval is given by the Secretary of State '.
  No. 74, in page 16, line 4, at end insert:
  (4) Where estimates have been submitted under subsection (3) above or this section—

  (a) further estimates may be submitted to the Secretary of State and approved by him and paragraph (a) of section 3 above shall,

  1781
  with any necessary modifications, apply to such estimates as it applies to estimates submitted under that paragraph ;

  (b) the Secretary of State may determine the proportion mentioned in paragraph (a) of subsection (3) above otherwise than in accordance with the estimates and shall give notice of his determination or of his approval of the estimates (as the case may be) in writing within sixty days after receipt by him of the estimates to each person by whom they were submitted ; and

  (c) any person to whom notice of a determination has been given under paragraph (b) above may within sixty days of such notice being given appeal against the determination giving the reason for his dissatisfaction, and an appeal thus made shall be referred to and determined by a Tribunal consisting of three persons appointed by the President of the Institute of Petroleum '.

  Mr. McNair-Wilson: The clause excludes from PRT the gas sold on the contracts before the end of June 1975, but it also excludes the expenditure related to the exempted sales. This is done on the basis of apportionment, based on estimates which are to be submitted by the companies. They have to be approved by the Secretary of State for Energy, and our amendment is designed to have a provisional deduction made before the Secretary of State's approvals are given. This will be of considerable help to the companies involved. It does not appear to us in any way to try to get through loopholes in the tax base. It seems to us to be perfectly reasonable.
  Amendment No. 74 deals with an appeal related to that approval on the basis that the clause imposes no time limit within which the Secretary of State is required to give a decision and gives the taxpayer no right of appeal. It makes no provision for the updating of estimates as more reliable information about the field becomes available, and it contains no procedural machinery for application in situations in which the estimates are not acceptable to the Secretary of State. The amendment would remedy those omissions by providing a tribunal of not less than three persons to be appointed by the President of the Institute of Petroleum.
  I hope that the Government will not resist this group of amendments. They do nothing other than to tidy up an aspect of the clause which appears to be hang-
  1782
  ing in the air. There is to be an apportionment at some stage, and this will be a deduction. All that we are seeking to do is to have a provisional situation to enable the companies' cash flow not to be affected by having to wait for approval from the Secretary of State.
  Mr. Dell: The amendments, although I am sure that they are well intentioned, make difficulties where there are none.
  I deal first with Amendments No. 72 and 73. The Bill provides a simple and workable procedure. It is not unreasonable to ask participators to draw up estimates of the make-up of the reserves in the lifetime of a field, and there is ample time for them to be settled before PRT liability comes in. The Secretary of State will not delay in approving the estimates. As the range of expenditure is fairly limited, I do not think that the industry has much justification for concern on this point of detail.
  Amendment No. 74 would introduce a great deal of bureaucracy and delay into what should prove to be a simple procedure. I do not think that the Secretary of State for Energy will be looking for arguments on the estimates submitted by the companies. We should be satisfied with the procedure here.
  If experience showed a need for an appeal procedure, or if it showed that companies found that they were being unjustly dealt with, the matter could be reconsidered. But on present evidence the sensible thing is to leave the Bill as it is, in the hope and expectation that it will work fairly to everyone concerned. That is simply the intention.
  Amendment negatived.
  Amendment made: No. 154, in page 16, line 13, leave out subsection (6). — [Mr. Dell.]

Clause 10

  INTERPRETATION OF PART I
  Amendment made: No. 190, in page 16, line 27, at end insert:
  " crude ", where the reference is to oil being disposed of or appropriated crude, refers to its being so dealt with without having been refined (whether or not it has previously undergone initial treatment) ;'— [Mr. Dell.]
  Amendment proposed: No. 191, in page 16, line 33, at end insert:

  " initial storage ", in relation to oil won

  from an oil field, means the storage in the United Kingdom, the territorial sea thereof or a designated area of a quantity of oil won from the field not exceeding ten times the maximum daily production rate of oil for the field as planned or achieved (whichever is

  5 the greater), but does not include—

  (a) the storing of oil as part of or in conjunction with the operation of an oil refinery; or

  (b) deballasting; or

  (c) conveying oil in a pipe-line;

  10

  " initial treatment ", in relation to oil won from an oil field, means the doing, at any place in the United Kingdom, the territorial sea thereof or a designated area, of any of the following things, that is to say—

  15

  (a)subjecting oil won from the field to any process of which the sole purpose is to enable the oil to be safely stored, safely loaded into a tanker or safely accepted by an oil refinery; or

  (b)separating oil so won and consisting of methane gas from oil so won and consisting of gas other than methane, but does not include—

  20

  (i) the storing of oil even where this involves the doing to the oil of things within paragraph (a) or (b) of this definition; or

  (ii) any activity carried on as part of, or in association with the refining of oil; or

  (iii) deballasting '— [Mr. Dell.]

  Amendment to the proposed Amendment made: (a), in line 3, after ' exceeding ', insert—
  ' in the case of storage in the United Kingdom a quantity equal to '— [Mr. Patrick Jenkin.]
  Proposed amendment, as amended, agreed to.
  Mr. Robert Sheldon: I beg to move Amendment No. 221, in page 16, line 39, leave out "licensee" and '.
  As the House will see, we are being very reasonable here and trying our best. Wherever we can find our way to accommodate an amendment, we shall seek to do it. But here we have a Government amendment that seeks to extend the definition of a "participator" in order to include sub-licensees as well as licensees and make it clear that each licensee under a joint licence is a separate participator. This is an extension that I am sure will be welcome to the House. I shall be happy to go into the matter in any kind of detail that is required of me, but perhaps this might be acceptable to the House as it is.
  Mr. Patrick Jenkin: Although this is indeed an amendment of some substance which considerably widens the effect of the clause, it is one to which we should not wish to take objection. We see it is an improvement and we are, therefore, happy about it.
  Amendment agreed to
  Amendments made:
  No. 222, in page 16, line 40, at end insert—
  licensee "means—

  (a) the person entitled to the benefit of a licence or, where two or more persons are entitled to the benefit of a licence, each of those persons ; and

  (b) a person who has rights under an agreement which is approved by the Board and is certified by the Secretary of State to confer on that person rights which are the same as, or similar to, those conferred by a licence ;

  No. 233, in page 17, line 24, leave out
  ' appropriated it to refining or other processing ' and insert relevantly appropriated it '.
  No. 192, in page 17, line 27, at end insert—
  ' "pipe-line" means a pipe-line as defined in section 65 of the Pipe-lines Act 1962 ;
  " production purposes ", in relation to an oil field, means any of the following purposes, that is to say—

  (a) carrying on drilling or production operations within the field ; or

  (b) in the case of oil won from the field that was so won from strata in the sea bed and subsoil of either the territorial sea of the United Kingdom or a designated area, pumping it to the place where it is first landed in the United Kingdom ; or

  (c) the initial treatment of oil won from the field ;

  No. 193, in page 17, line 31, at end insert—
  . "relevantly appropriated ", in relation to oil won from an oil field, means appropriated to

  1785
  refining or to any use except use for production purposes, and "relevant appropriation" shall be construed accordingly ;'— [Mr. Dell.]
  Mr. Robert Sheldon: I beg to move Amendment No. 234, in page 17, line 36, after ' payable ', insert`—
  (but not, it is hereby declared, oil delivered) '
  Mr. Speaker: With this we are to take Government Amendments Nos. 237 and 238.
  Mr. Sheldon: Amendment No. 234 is really a consequential amendment, as is Amendment No. 237. Amendment No. 238 is the main amendment, and these amendments are necessary because of the Government's decision to take powers in the Petroleum Bill to require licensees to deliver oil in place of the cash payments of royalties, which is known as royalty oil.
  The amendment seeks to exclude the value of such royalty oil from the amounts included in the gross profits. This is a necessary consequence of such royalty oil and as such will, I am sure, be acceptable to the House.
  Regarding the substance of the royalty oil, the House will know that Parliament will obviously have the opportunity to examine in great detail the Secretary of State's proposal for this during the passage of the Petroleum Bill. This amendment is merely a clarification dealing with the measure in anticipation of the proposals which will be coming before the House.
  Mr. Patrick Jenkin: It would be wrong at this stage to seek to open up the whole question dof royalty oil. We shall obviously want to hear what is said on the Petroleum Bill, if and when that comes forward. However, if it is the Government's present intention for that Bill to make provision for royalty oil, it seems that it would be sensible, equally, to make provision here for the necessary consequential fiscal results of having that provision.
  We do not at this stage say Yea "or Nay" to the question of royalty oil. That depends entirely on the circumstances and on what the Government are able to tell us about what they would propose to do with it, and on that will depend our reactions as to whether or not we regard this provision as sensible.
  Amendment agreed to.
  Mr. Robert Sheldon: I beg to move Amendment No. 235, in page 18, line 8, leave out ' or paragraph 4 of Schedule 3 '.
  Mr. Speaker: With this we are to take the following amendments:
  No. 91, in Schedule 1, page 25, line 48. at end insert—
  ' 6. Any person to whom notice of a determination or new determination has been given under paragraph 4 or paragraph 5 above may within sixty days of such notice being given appeal against the determination contained therein giving the reason for his dissatisfaction and any appeal thus made shall be referred to and determined by a Tribunal consisting of three persons appointed by the President of the Institute of Petroleum '.
  Government Amendment No. 223.
  No. 106, in Schedule 3, page 38, line 32, leave out from ' authority ' to end of line 34.
  No. 107, in page 38, line 34, at end insert—
  ' (2) The appropriate authority shall, by notice in writing given to the responsible persons for the fields in question, inform them of the determination.
  (3) The responsible persons, or any one or more of them, may appeal to a Tribunal consisting of three persons appointed by the President of the Institute of Petroleum against the determination by notice in writing given to the appropriate authority within 60 days of the date of the notice of the determination.
  (4) An appeal under sub-paragraph (3) above may at any time be abandoned by notice in writing given to the appropriate authority by the responsible persons making the appeal
  9.45 p.m.
  Mr. Sheldon: This amendment is consequential on the deletion of the special provision in Schedule 3 for determining disputes. The main amendment is Amendment No. 223, dealing with the problem which arose in Committee, where strong objection was made to the absence of a right of appeal on the matter of the determining of the field from which the oil is to be won. A number of bodies were suggested as a means of achieving some form of arbitration into the extent of the field and its delineation.
  I said in Committee, and I remain convinced that this is so, that disputes of this kind are likely to be very rare, simply because it is in nobody's interests to delay these matters and also because at the end of it all it is in the interests of both parties to accept the objective reality of the geophysical descriptions that are produced. I

  1787
  therefore do not think that there will be any disputes of the kind which were so vividly suggested by hon. Members.
  However, we have made an attempt to meet the arguments which were advanced and to show that we are not doctrinaire. This is a matter on which there is no need for any stance to be taken. We have seen that some form of estimated assessment could be made in respect of the field from which it was considered that the oil had been understated. If the Inland Revenue disagreed with any licensees about the field, the estimated assessment could be made in respect of the field. As a result, the participators would be able to appeal against the assessment and the issue would fall to be determined, as a matter of fact, by the Special Commissioners in the same way as they go about determining any other appeal.
  The provision would at least channel such a dispute into fairly well recognised procedures. Any dispute about a point of law in the Special Commissioners' decision could then be taken to court under the normal tax machinery. This would meet the main purpose of the Opposition of providing a long-stop, without having all the problems of setting up a new body, to meet the rare case of a dispute. I repeat that I believe that disputes will be rare. I do not believe that the procedure is likely to be used, and, if it were to be used, I doubt whether it would be to the advantage of either the Government or the companies concerned. However, this meets the point made in Committee by the Opposition.
  Mr. Alison: The Minister of State has gone some way towards helping us. He said in Committee that he did not consider that the schedule which we are attempting to amend was as it stood
  " oppressive when both sides have a common interest, but if the hon. Gentleman "—
  that is myself—
  " really feels that this needs further examination I shall be happy to look at it again. I do not think it is a matter of great moment. but I will consider it without any kind of commitment." — [Official Report, Standing Committee D, 23rd January 1975 ; c. 375.]
  Helpful though the Government amendments are, and helpful though it is to have an indication that an appeal in a certain context will lie to the Special
  1788
  Commissioners where there is a dispute, the schedule, without the addition that Amendment No. 91 would secure, is unsatisfactory. I believe that the oil industry finds the schedule unsatisfactory. There is still the uncertainty arising from the character of the procedures laid down in Schedule 1 that a situation might arise in which the determination of a field can occur which does not coincide with the views of the interested companies.
  This is a very serious matter, particularly so in the light of the new provisions introduced by the Government in connection with the oil allowance. One of the important features of the allowance is that each participator's share will be attributed in proportion to his share of the oil won and saved in the chargeable period. If there is the possibility of a discrepancy between determination of the shares by the authority and the proper designation of the share which the company feels is appropriate but which is not accepted by the authority, this disparity will become even more painful, complicated and disturbing when questions of appointment of the 10 million-ton allowance are dealt with.
  This is an added illustration of the difficulties which might arise when, as the companies believe, a situation emerged in which PRT became payable by each licensee on a different share of the income accruing to them. This remains a serious concern of the industry. That concern has in no sense been completely assuaged by the Government amendments. There is a very bald and cold-blooded specification laid down in paragraphs 2, 3 and 4 of the Schedule, with the authority taking written evidence from participators in a particular field, considering the evidence and any representations made on behalf of the different participators, but finally, and in isolation, making a determination against which there is no court of appeal and no sort of reference to an external arbitrator or adjudicator.
  If the members participating in a particular area cannot reach agreement about the evidence they should submit to the authority under paragraph 2(b) of the schedule about what is an appropriate apportionment, it is unsatisfactory that the authority should have the final word without recourse to some external adjudicating body.

  1789
  What we propose would not lead to an extra loss of time—indeed, the reverse might be the case. Because of the certainty that there will be an ultimate court of appeal and arbitrator the companies may be able to expedite their submissions under paragraph 2(b) much more than if they have to get every jot and tittle cleared up finally and completely, because submission to the authority is their last chance. Therefore there may be a loss of time under the existing provisions, since no final arbitrator is proposed in the amendment.
  The companies want to get started as quickly as possible. Like the Government, they have no interest in holding things back. However, they feel that the final arbitrator, as proposed in the Opposition amendment, is necessary, and the oil allowance apportionment makes the proposal all the more relevant. If the amendment is not accepted the companies may spend extra time engaged in the most detailed, pernickety and finicky disputes and discussions among themselves before they submit written evidence.
  Nothing would be gained by not accepting the amendment. It would encourage the oil industry psychologically and practically. It would cost the Government nothing, except the necessary flexibility, to accept this reasonable proposed change in the Bill.
  Mr. Speaker: The Question is—
  Mr. Patrick Jenkin: Are we not to have a reply?
  Mr. Robert Sheldon: If I can help the House, I am happy to do so, but I thought that I had used all the arguments which I intended to use and I did not think that on Report it would be welcomed if I were to make the same points using, perhaps, only slightly different words.
  We felt that we had gone a long way in trying to find means of meeting the point repeatedly made by the Opposition in Committee. We tried to devise a method, and we thought that we had devised a useful one. We felt that the body which had been suggested was not suitable. I thought that our attempt to do our utmost to make a concession on the main point of principle without accepting the detail consequent on that principle would be readily accepted by the House.
  1790
  I accept a further point which the Opposition have rightly made, which is that the oil allowance makes the matter a little more important than it was previously. That was an element in our thinking when being persuaded by the Opposition of the need for means of further appeal. We have given effect to the substance of the criticism without implementing exactly what right had and hon. Members opposite had in mind
  Amendment agreed to.

Clause 11

  TREATMENT OF OIL EXTRACTION ACTIVITIES ETC. FOR PURPOSES OF INCOME TAX AND CORPORATION TAX
  Mr. Robert Sheldon: I beg to move Amendment No. 224, in page 19, line 8, leave out ' ending ' and insert ' beginning '.
  Mr. Speaker: With this we can also discuss Government Amendments Nos. 225 and 226.
  Mr. Sheldon: These amendments deal with the problems of apportionment which arise when accounting periods straddle the date 11th July 1974 and as a result the income for the whole accounting period falls within the ring fence. The criticism was made that this was unjustifiable, and it was suggested that the ring fence provisions should apply only to that portion of the accounting period which began on 12th July. We have sought to implement that suggestion in these amendments.
  Mr. Patrick Jenkin: It would be churlish if we were to allow the amendment to pass without saying that it is very welcome. It deals with a point which we pressed quite hard in Committee. It ensures that the ring fence system will have no retrospective effect. and we warmly welcome it.
  Amendment agreed to.
  Amendments made: No. 225, in page 19, line 10, leave out ' ending ' and insert ' beginning '.
  No. 226, in page 19, line 12, leave out ' ending' and insert:
  ' beginning ; and in the case of a chargeable period beginning on or before and ending after 11th July 1974—

  (a) subsection (1) above shall have effect as regards the part of the period falling after that date;

  1791

  (b)subsections (2) and (5) above shall have effect as regards the giving of relief against income attributable to that part of the period ; and

  (c)subsection (3) above, with subsection (4), shall have effect as regards deduction from or set off against income so attributable;

  and there shall be made all such apportionments as are necessary to give effect to paragraphs (a) to (c) above '—[Mr. Robert Sheldon.]

Clause 12

  VALUATION OF OIL DISPOSED OF OR APPROPRIATED TO REFINING OR OTHER PROCESSING IN CERTAIN CIRCUMSTANCES
  10.0 p.m.
  Mr. Robert Sheldon: I beg to move Amendment No. 178, in page 19, line 15, after Act ', insert:
  (otherwise than by virtue of paragraph 6 of Schedule 3 thereto)'.
  The amendment removes an unintended effect of Clause 12, under which a licensee who has granted an interest
  1792
  in his production to a non-licensee might have been chargeable to corporation tax on that other person's share of the oil. In such cases it is obviously intended that the PRT on the other person's share of the oil should be assessed on the participator, along with the share which he has retained. Paragraph 6 of Schedule 3 so provides. It was, however, intended that the other person should pay his own corporation tax on his share of the oil.
  Clause 12 provides that where a person disposes of oil which falls to be included in his PRT computation, the disposal shall be valued for corporation tax on the same basis as for PRT. There is a strong argument that the effect of this is not merely to ensure that the participator's retained share of the oil is valued for corporation tax on the same basis as for PRT, but also to charge him to corporation tax on the other person's share of the oil. The amendment, in effect, prevents that.
  Amendment agreed to.
  Amendments made: No. 155, in page 19, line 18, after 'field', insert:
  '(or would so fall but for section 8 of this Act)'.
  No. 156, in page 19, line 23, at end insert:
  '(or as would have been so taken into account under that section but for section 8 of this Act'.
  No. 194, in page 19, line 24, leave out:
  'appropriates any oil to refining or other processing' and insert 'makes a relevant appropriation of any oil'.
  No. 157, in page 19, line 30, after 'field', insert:
  '(or would so fall but for section 8 of this Act)'.
  No. 158, in page 19, line 40, at end insert:
  '(or as would have been so taken into account under that section but for section 8 of this Act)'.
  No. 195, in page 19, line 40, at end insert:
  'In this subsection "relevant appropriation" has the meaning given in section 10(1) of this Act'.
  No. 214, in page 20, line 5, leave out from:
  'at' to 'in' in line 6 and insert the material time in the calendar month'.
  No. 215, in page 20, line 7, leave out from 'subsection' to 'and' in line 10 and insert:
  '"material time" and "calendar month" have the meaning given by paragraph 3(2) of Schedule 3 to this Act '.—[Mr. Robert Sheldon.]

Clause 13

  OIL EXTRACTION ACTIVITIES ETC.: CHARGES ON INCOME
  Mr. Robert Sheldon: I beg to move Amendment No. 227, in page 20, line 25, leave out from 'shall' to 'have' in line 26.
  Mr. Speaker: With this it will be convenient to take Government Amendments Nos. 229 and 228 and the following amendments:
  No. 83, in page 20, line 33, leave out:
  'otherwise than from a company associated with it'.
  No. 84, in page 20, line 35, leave out 'borrowed for the specific' and insert 'used for the'.
  No. 85, in page 20, line 38, leave out from 'rights' to end of line 40.
  No. 86, in page 20, line 40, after 'company' insert:
  Provided that where interest is paid by a company to a company associated with it at a rate in excess of a reasonable commercial rate no deduction shall be allowed in respect of so much of the interest as represents the excess'.
  No. 87, in page 20, line 41, leave out subsection (3).
  No. 88, in page 21, line 7, leave out subsection (4) and insert:
  '(3) Subsection (2) above shall, with any necessary modifications, have effect in relation to charges on income within the said section 248 other than interest as it has effect in relation to interest'.
  Mr. Sheldon: The amendments are concerned with the allowance of interest, and they effect a major change. They introduce an important relaxation in the ring fence rules concerning the allowance of interest for corporation tax.
  I said in Committee that there were two aspects with which I was concerned. One is the rule that interest paid shall not be allowable against North Sea income unless it is secured on North Sea assets. That rule is dropped. Secondly, the requirement that the borrowed money shall have been borrowed for the specific purpose of North Sea expenditure becomes a requirement that the borrowed money shall have been used, or appropriated to use, for North Sea purposes.
  Then there is the interest paid to an associate, which will be allowable, whether or not matched by an external borrowing by the group, provided that it meets the test in the second requirement, and so far as it is not in excess of a reasonable commercial rate. Those are the important elements. I shall not go into detail, although I shall be happy to do so if required.
  I shall comment on the final position as it will be if the amendment is accepted. The situation on payments of interest to associates is as follows. Without the Clause 13 rule for such payments, or some effective alternative, groups could, in effect, obtain relief for extraneous losses against an interest slice of their North Sea profits.

  1795
  Those who are interested in these matters will know that this has been one of the main points that concern us. We have not accepted the argument that this is right in principle. Without the Clause 13 rule, interest paid to overseas associates would normally escape the United Kingdom tax net under double taxation agreements. Although those amounts are large, it is a matter for argument whether this should be treated as a breach of the ring fence. This matter was not referred to by the Public Accounts Committee.
  The existing rule in the clause for associates does not fit in with the changes which the Government are committed to make in the basic rule. An alternative to the present rule would cover group relief, though on somewhat broad-brush lines, but would let out the payments to overseas associates and therefore could be attacked as discriminatory.
  In all the circumstances, we have decided that the only practicable course is to accept that interest paid by a North Sea company to an associate should be treated under the ring fence, as regards both payer and recipient, in the same way as interest paid to a non-associate, so far as it is paid at a reasonably commercial rate. I am sure the Opposition will welcome this move because it ties in with a number of points strongly made by the oil companies.
  There are one or two other matters about which there is some concern and which I should seek to make clear. First, there is nothing to prevent a parent company—this is particularly important for overseas parents—putting minimum share capital and maximum loan capital into a subsidiary, so that virtually all its income from the subsidiary is taken in the form of interest payments. In view of the large amounts of money involved, we are reviewing the question to see whether it is appropriate to give companies the unfettered right to continue in this way. Although the basic rate income tax, deducted at source, will normally be charged on such interest, this does not fully compensate the Exchequer, with income tax at 33 per cent., for the corporation tax relief to the paying company at 52 per cent.
  1796
  Again, I wish to reserve the Government's right to review this matter.
  The third point concerns arm's length lenders. This would normally require a North Sea company to repay the loans over a short period, often by reference to the rate of production of oil. An associated company, however, could leave the money on loan indefinitely to enable the group to keep a large slice of North Sea income outside the ring fence over an indefinite period. I should like to consider a rule which would deem such loans to be repaid over a normal commercial period. There is the risk that certain devices would be used to write up the loans from an associate to amounts far in excess of the actual North Sea expenditure, so that even with a "commercial" test for the rate of interest, the actual interest withdrawn from the ring fence could be inflated. Again. I wish to consider whether special measures are needed to prevent this happening.
  Finally, I wish to deal with the detailed effect of this operation. Amendments No. 227 and 228 provide for the clause, as modified, to have effect only as regards such part of an accounting period as falls after 11 th July 1974, or a period falling wholly after that date. As the clause stands, it applies to the whole of any period straddling 11th July. We believe this to be appropriate as regards the starting date of the clause. We reject the view that it is retrospective to apply the clause, from the date of the White Paper, to payments made under existing agreements. We have made substantial relaxations in the clause and hope that the Opposition will not press their proposals.
  I think I have given a fair indication of the way in which the clause operates as reconstructed, and I shall be happy to deal with any further points.
  Mr. Patrick McNair-Wilson: This is a tremendous improvement in the situation. We made clear in Committee that Clause 13 should never have been included in the Bill as drafted. Therefore, it was refreshing to hear the Minister justifying the changes which we suggested should be made. He has met the points which we pressed in Committee. My only concern is that he has not been able to go the whole way.

  1797
  Subsection (4) sticks out like a sore thumb. If a company pays to an associated company a charge on income which does not consist of payment of interest, the charge will not be allowable. The Minister has tried to explain to us why that will be the case. If he is prepared to take the risk of changing the purpose for which the money is borrowed, why cannot he go the whole distance and tidy up subsection (4) as well?
  Amendment No. 88 is substantial and important. The Minister should search his heart and decide whether he is not being over-suspicious. I recognise the difficulties which the Government have experienced throughout the debates on the Bill, and their terror of creating loopholes through which oil companies can climb. Since the Minister is prepared to go this far with Clause 13, I do not think he should worry about subsection (4). I think that Amendment No. 88 tidies up this clause finally and completely. Since the Minister has introduced an amendment to allow the deduction of interest paid to an associated company, why cannot he extend it to other charges?
  Mr. Robert Sheldon: From time to time Finance Bills are brought before the House. If it were possible to extend the concession in the way proposed by the hon. Gentleman, we should be in a position to do so, but without any commitment.
  Mr. McNair-Wilson: That is a step forward. I take it in the spirit in which it is meant. In view of the fact that all legislation has to be reviewed from time to time, we leave on record our determination that our amendment is the right one but do not press it to a Division.
  Amendment agreed to.
  Amendments made: No. 229, in page 20, line 31, leave out from ' except ' to end of line 6 on page 21 and insert—

  '(a) to the extent that it was payable in respect of money borrowed by the company which is shown to have been used to meet expenditure incurred by the company in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person or to have been appropriated to meeting expenditure to be so incurred by the company; and

  (b) in the case of interest paid by the company to a company associated with it, to the extent that (subject always to the preceding paragraph) the rate at which it was
  1798
  payable did not exceed what, having regard to all the terms on which the money was borrowed and the standing of the borrower, was a reasonable commercial rate.

  Section 533 of the Taxes Act (connected persons), shall apply for the purposes of this subsection.'.
  No. 228, in page 21, line 12 at end insert—
  '(5) The preceding provisions of this section—
  (a)shall have effect as regards accounting periods beginning after 11th July 1974;
  and
  (b)in the case of an accounting period beginning on or before and ending after that date, shall have effect as regards the allowance of interest paid and other charges on income against income attributable to the part of the period falling after that date;
  and there shall be made all such apportionments as arc necessary to give effect to paragraph (b) above'.—[Mr. Dell.]
  Mr. Patrick Jenkin: I beg to move Amendment No. 89, in page 21, line 12, at end insert:
  ' (4) Nothing in this section shall have the effect of disallowing any charge on income under the said section 248 paid under an arrangement made before 19th November 1974.
  (5) Where any charge on income has been disallowed by virtue of the provisions of this section and the payment concerned would, but for this subsection, be treated as income subject to corporation tax in the hands of the recipient, then the payment shall not be treated as so subject'.
  This is a point similar to that contained in an earlier amendment, to the effect that the Bill should not upset established arrangements and disallow corporation tax. Charges which would normally have been allowed for PRT are to be disallowed with retrospective effect. The Bill makes sweeping changes. Although the ring fence was foreshadowed in the White Paper, the precise details were not apparent until the Bill was published. In those circumstances it is right that the arrangements made before the date of publication of the Bill should be exempted from the disallowance which the Bill provides.
  10.15 p.m.
  Mr. Robert Sheldon: I do not think that I have anything more to say about this matter, which I dealt with under the previous amendment, when I pointed out the nature of the concessions which had been made regarding the interest charge and the problem of accounting periods straddling that date.

  1799
  I pointed out that these were very valuable concessions, and I had hoped that the right hon. Gentleman would accept that they went a long way to meeting his points.
  Amendment negatived.

Clause 16

  INTERPRETATION OF PART II
  Amendments made: No. 196, in page 22, line 43, at end insert—
  '(a) in searching for oil in the United Kingdom or a designated area or causing such searching to be carried out from him ; or '.
  No. 205, in page 23, line 1, leave out
  'held by him authorising the extraction '
  and insert
  authorising the extraction and held by him or, if the person in question is a company, by the company or a company associated with it '.
  No. 206, in page 23, line 6, leave out
  ' rights held by him authorising the extraction '
  and insert
  authorising the extraction and held as aforesaid '

  '61

  …

  …

  …

  In subsection (1) omit the words from "distrain upon "to "is charged or ".

  62(1)

  …

  …

  …

  Omit "or which are payable for the year in which the seizure is made ", and for "one year" and "one whole year" substitute "two chargeable periods"

  (2)

  …

  …

  …

  For "one whole year" substitute "two chargeable periods ".

  63

  …

  …

  …

  —

  64(1)

  …

  …

  …

  For "one year" and "one whole year" substitute…"two chargeable periods".

  (2)

  …

  …

  …

  For "one whole year" substitute "two chargeable periods ".

  66

  …

  …

  …

  —

  67

  …

  …

  …

  —

  This is an amendment which extends the Revenue's powers of collection of PRT so as to enable distraints to be levied for any outstanding tax or interest on that tax, or for arrears to be pursued in the county court or, in Scotland, the sheriff court and the sheriff's small debt court, bringing the powers into line with those for the collection of other taxes. This concerns moneys of a smaller value than those which we have been considering, and the amendment is required as a result.
  Mr. Alison: Presumably it is for that reason that the Minister is substituting two chargeable periods throughout for one year. Is it purely because it will be related to the collection of PRT and the exercise of distraints in that narrow
  No. 197, in page 23, line 6, at end insert or
  (c)in effecting or causing to be effected for him the initial treatment or initial storage of oil won from any oil field under rights authorising its extraction and held as aforesaid;
  No. 198, in page 23, line 9, at end insert—
  '(2) For the purposes of subsection (1) (c) above—

  (a)the expression "oil field" and" inital treatment" have the same meaning as in Part of this Act ; and

  (b)the definition of "initial storage" in section 10(1) above shall apply but, in its application for those purposes in relation to the person mentioned in subsection (1)(c) above and to oil won from any one oil field, shall have effect as if the reference to the maximum daily production rate of oil for the field as there mentioned were a reference to that person's share of that maximum daily production rate, that is to say a share thereof proportionate to his share of the oil won from that field '—.[Mr. Dell.]

Schedule 2

  MANAGEMENT AND COLLECTION OF PETROLEUM REVENUE TAX
  Mr. Robert Sheldon: I beg to move Amendment No. 175, in page 27, line 12, at end insert—
  context? If that is the case, it makes sense to substitute two chargeable periods for one whole year, but it will be very complicated if every time a year is mentioned in a tax Act two chargeable periods have to be substituted. I hope that the amendment is limited strictly to the collection of PRT.
  Amendment agreed to.
  Further amendments made: No. 236, in page 28, line 36, leave out
  ' crude oil disposed of by him '
  and insert:
  oil disposed of by him crude (other than oil delivered as mentioned in (bb) of this subparagraph) '.
  No. 200, in page 29, line 3, after each ', insert relevant '.
  No. 201, in line 4, leave out ' to refining or other processing '.
  No. 237, in line 12, at end insert—
  '(bb) in the case of crude oil delivered to the Secretary of State in the period under the terms of a licence granted under the Petroleum (Production) Act 1934, the return shall state the total quantity of the oil; '.
  No. 202, in line 14, leave out ' so ' and insert ' relevantly '.—[Mr. Dell.]
  Mr. Robert Sheldon: I beg to move Amendment No. 176, in page 34, line 50, leave out ' by reason of ' and insert:
  ' and that the deficiency resulted from'.
  This is a drafting amendment. It applies to part of the provisions which enable the board to make an additional assessment.
  Amendment agreed to.
  Further Amendments made: No. 159, in page 35, line 49, leave out ' natural'.
  No. 164, in page 36, line 42, after ' per cent.' insert ' per annum'.
  No. 165, in line 49, at end add:
  ' 16. Where any amount of tax charged by an assessment to tax becomes repayable under any provision of this Part of this Act that amount shall carry interest at the rate of 9 per cent. per annum from four months after the end of the chargeable period for which the assessment was made until repayment'.—[Mr. Dell.]

Schedule 3

  PETROLEUM REVENUE TAX: MISCELLANEOUS PROVISIONS
  Amendments made: No. 203, in page 37, line 27, at end insert:
  ' (a) the contract requires the oil to have been subjected to appropriate initial treatment before delivery ;
  No. 238, in page 38, line 28, at end insert:
  'Oil delivered in place of royalties to be disregarded for certain purposes
  4. Oil delivered to the Secretary of State under the terms of a licence granted under the Petroleum (Production) Act 1934 shall be disregarded for the purposes of section 2(5) of this Act and for the purposes of the references in section (Oil allowance) (3) and (4) of this Act to a participator's share of the oil won and saved from an oil field in a chargeable period'.
  No. 223, in line 30, leave out paragraph 4.
  No. 108, in page 42, line 15, at end insert:
  10.—(1) Where a participator has made an election under paragraph 9(1) above, section (Oil allowance) of this Act shall have effect in his case subject to the following provisions of this paragraph.
  (2) The reduction made under subsection (1) of that section for any chargeable period shall not exceed the reduction which would have fallen to be so made if the participator had not made any such election.
  (3) If for any chargeable period the reduction which would, apart from this subparagraph, fall to be made under the said subsection (1) is less than it would have been if the participator had not made any such election, an amount equal to the difference shall be available for use under the following sub-paragraph as regards subsequent chargeable periods.
  (4) For any chargeable period for which a reduction falls to be made under paragraph (a) of the said subsection (1), so much, if any, as the participator may specify of, or of the unused balance of, any amount available for use under this sub-paragraph by virtue of subparagraph (3) above shall be used by treating for all purposes of the said section (Oil allowance) the cash equivalent of his share of the oil allowance for the field for that period as increased thereby.
  Restriction of amount of reduction under section 8(1)
  11. Where—

  (a) a claim under Schedule 5 or 6 to this Act is made after the relevant time ; and

  (b) the reduction which would, apart from this paragraph, fall to be made under subsection (1) of this section (Oil allowance) of this Act for any chargeable period is greater than it would have been if the expenditure and other amounts allowed on the claim had been claimed before and allowed at the relevant time,

  then, if the Board so direct, the reduction made under that subsection for that chargeable period shall be only what it would have been if the expenditure and other amounts allowed on the claim had been claimed before and allowed at the relevant time.
  In this paragraph "the relevant time" means the end of twelve months from the end of the claim period to which the claim mentioned in sub-paragraph (a) above relates '.—[Mr. Dell.]

Schedule 4

  ROVISIONS SUPPLEMENTARY TO SECTIONS 3 AND 4
  Amendments made: No. 209, in page 43, line 33, leave out from ' consideration ' to end of line 35 and insert:
  'while in use in that connection or not more than two years after its use in that connection permanent ceases'.
  No. 210, in line 38, leave out from beginning to end of line 16 on page 44 and insert—
  '(c) the person to whom the disposal is made is not a person connected with a participator ; and
  (d) the amount or value of the consideration received or receivable for the disposal is not less than the price which the asset might reasonably have been expected to fetch if sold in the open market at the time of the disposal,
  sub-paragraphs (2) to (4) below shall have effect.
  (2) If the disposal occurs without the asset permanently ceasing to be used in connection with the field, its use in that connection shall for the purposes of section 4 of this Act and the following provisions of this paragraph be deemed to have permanently ceased at the time of the disposal.
  (3) If the disposal takes place not later than the end of the claim period in which the use of the asset in connection with the field permanently ceases, the proportion of the expenditure allowable under section 4 of this Act for the relevant period (that is to say the period which, in relation to that claim period, is the relevant period for the purposes of subsection (7) of that section) or, if the claim period in question is the first relevant claim period (as defined in that section), the proportion of the expenditure so allowable for that claim period shall be computed under that section subject to the provisions of subparagraph (3B) below.
  (3A) If the disposal takes place after the end of the claim period in which the use of the asset in connection with the field permanently ceases, then, as regards the claim period in which the disposal takes place—

  (a) subsection (7) of section 4 of this Act shall have effect in relation to the asset as if its use in that connection had permanently ceased in that claim period (but so that for the purposes of subsections (5) and (6) of that section as applied by the said subsection (7) the asset shall not be treated as having been used in that connection at any time when it was not so used); and

  (b) the proportion of the expenditure allowable under that section for the relevant period (that is to say the period which, in relation to that claim period is the relevant period for the purposes of the said subsection (7) shall be computed under that section subject to the purposes of sub-paragraph (3B) below.

  (3B) For the purposes of the computation mentioned in sub-paragraph (3) or (3A) above, as the case may be—

  (a) the amount of the expenditure incurred in acquiring, bringing into existence, or enhancing the value of the asset which would otherwise fall to be taken into account shall be treated as reduced by the amount or value of the consideration received or receivable for the disposal (or, if equal to or smaller than the amount or value of that consideration, as reduced to nil); and

  1804

  (b) the asset's useful life shall be treated as having ended at the time of the disposal or, if the asset permanently ceased to be used in connection with the field before that time and was neither used not available for use by anyone in the interval between its permanently ceasing to be so used and the time of the disposal, at the time when it permanently ceased to be so used'.

  No. 211, in page 44, line 19, leave out from ' thereof ' to above ' in line 20 and insert
  'would be allowable under section 4 of this Act apart from sub-paragraph (3B)(a)'.
  No. 212, in line 22, leave out is' and insert would be '.
  No. 213, in page 45, line 29, leave out ' paragraphs 4(1) and' and insert paragraph '.— [Mr. Dell.]

Schedule 5

  ALLOWANCE OF EXPENDITURE (OTHER THAN ABORTIVE EXPLORATION OR DE VELOPMENT EXPENDITURE)
  Mr. Robert Sheldon: I beg to move Amendment No. 166, in page 48, line 14. leave out less than six months or'.
  The purpose of this amendment is to remove the initial time of six months before the responsible person or, where appropriate, the participator, can appeal to the Special Commissioners against the board's decisions on expenditure claimed. The amendment arises as a consequence of discussions in Committee, when we pointed out that the original period of six months was set to provide that automatic appeals, which would bring into play the whole of the operation of the appeals machinery, should not be lodged.
  In discussions with the oil companies we became convinced that unacceptable administrative burdens resulting from the lodging of an appeal would not be produced purely as a formality to keep the matter open. We are pleased to accept the suggestion put forward from so many quarters to remove the initial six-months' limit. The responsible person, or the participator, will then be able to appeal to the Special Commissioners immediately he receives the board's decision on expenditure claims.
  Mr. Gray: This is an amendment which my right hon. and hon. Friends pressed for in Committee. We are delighted to welcome it now and are glad

  1805
  that the Government agreed with the representations made to them.
  Question put and agreed to.
  Amendments made:
  No. 179, in page 49, line 34, leave out sub-paragraph (4).
  No. 180, in page 50, line 15, leave out sub-paragraph (4).
  No. 181, in page 50, line 22, at end insert ' per annum '.—[Mr. Robert Sheldon.]

Schedule 8

  ALLOWANCE OF ABORTIVE DEVELOPMENT EXPENDITURE
  No. 147, in page 52, line 40, leave out from ' ceased ' to ' he ' in line 43.
  No. 148, in page 52, line 45, leave out ' ceased permanently and in those circumstances ' and insert ' permanently ceased'.
  No. 149, in page 53, line 3, leave out sub-paragraph (2).
  No. 150, in page 53, line 9, leave out ' abandoned oil field ' and insert ' field in question '.
  No. 151, in page 53, leave out lines 17 to 27 and insert—
  'Claims by participators for allowance of unrelievable field losses
  4.—(1) A claim for the allowance, in connection with an oil field, of any unrelievable field less allowable under section (Allowance of unrelievable loss from abandoned field) of this Act in the case of a participator in that field must be made by the participator to the Board and must be made within six years of the later of the following dates, that is to say the date of the decision (whether of the Board or on appeal from the Board) that the winning of oil from the oil field in the case of which the loss accrued has permanently ceased, and the date of the determination under Schedule 1 to this Act of the last-mentioned field'.
  No. 152, in page 53, line 40, leave out from ' made ' to end of line 41 and insert
  ',for references to the claiming or allowance of expenditure, of references to the claiming or allowance of an unrelievable field loss and, for references to section 3 or 4 of this Act, of references to section (Allowance of unrelievable loss from abandoned field) of this Act '.—[Mr. Robert Sheldon.M]

Schedule 9

  EXTENSION OF SECTION 485 OF TAXES ACT IN RELATION TO PETROLEUM COMPANIES.
  Mr. Robert Sheldon: I beg to move Amendment No. 216, in page 55, line 20,
  1806
  leave out consisting of petroleum or petroleum products '.
  This amendment is designed to ensure that an important part of the strengthened transfer pricing rules applied to oil companies by Schedule 9 is not confined to their transactions in oil and oil products but extends to other transactions, such as tanker freights. The purpose of the schedule is to strengthen the existing transfer pricing rules, in Section 485 of the Taxes Act, primarily in respect of transactions in oil produced outside this country. It is also intended to extend to other transactions between oil companies and their associates, mainly because such transactions could be used, by means of artificial transfer prices, to diminish oil profits. Among other things it extends to charges for transport and other services in respect of United Kingdom oil production, although not to the transfer price of the oil itself, which is governed by Clause 12 as regards corporation tax. We feel this to be an essential part of the Bill.
  Mr. Patrick Jenkin: The Government seem to be pulling a fast one here by slipping in this amendment. It substantially widens the effect of Clause 17 and Schedule 9. It is almost taking advantage of an industry which is being dealt with here in a special fiscal way. When the Bill was originally produced there was, with the full support of the Opposition, a recognition of the need to close the loopholes which had allowed big artificial losses to build up by reason of the posted price system. This system, as it operates in the OPEC countries and other oil-producing countries, gave rise to losses which were allowed to build up because the rules about artificial transfer prices did not apply to transfers which took place between two resident companies.
  As we know and as has been spelled out in the Select Committee's Report, for a number of years under both Labour and Conservative Governments, that gave rise to the substantial losses which resulted in oil profits in this country not being properly taxed. Indeed, my right hon. Friend the former Member for Altrincham and Sale, now Lord Barber, as Chancellor of the Exchequer accepted in full the recommendation of the Select Committee. The effect of the amendment is to extend this matter far beyond the

  1807
  Select Committee's proposal and anything which was accepted by my right hon. Friend. This cannot arise from the posted price system.
  The hon. Gentleman said that this proposal referred to tanker charters and other transactions of that nature. I suggest that he is now applying to oil companies tax rules which could equally apply to many other companies. If it is right to extend Section 485 to charter parties and things of that kind for oil companies, why is it not equally right to extend those rules to other shipping companies? If it is right to extend it to agreements for the sale or hire of other goods and the provision of services for oil companies, why it is not equally right to extend it to, let us say, mining, plantation, or other companies which might be expected to operate substantially overseas?
  This seems to be a dangerouse thin end of a wedge. We have all along accepted that because of the nature of the oil business it was right to deal with the oil trade in a particular way. This proposal goes far wider than that. By removing the impact of the paragraph, as originally drafted, from the sale of petroleum or petroleum products, the Government have extended to the rest of the activities of oil companies, in a dangerouse way, the special rules relating to the oil trade. This does not seem to be right.
  To slip this in—an amendment that looks like a minor one, but which has a major effect—in the last few days before the Bill leaves this House and goes to another place where it cannot be amended, is sharp practice. Were the hour not so late, we would want to express profound displeasure in the Lobbies, not so much on the substance of the amendment, though we do not like it, as on the manner in which it has been introduced. The Government should not treat legislation of this kind in this manner. This is not a mere reinforcing provision to make sure that the original proposal has the effect that was intended. This is extending the operation of Clause 17 and Schedule 8 far wider than anybody anticipated.
  Was this extension discussed with the industry? Was any proposal made to the industry? Were its views sought?
  1808
  If not, why not? While the hon. Gentleman gathers his thoughts for a reply, may I remind him of the question: was there any consultation with the oil industry, or with any of the firms engaged in it—I realise that they do not have any form of trade association in this country—whether the amendment should be made?
  We serve notice that if the Government attempt to repeat this kind of thing we shall treat the mater with great seriousness. This is a nasty, slippery piece of fiscal legislation, which smacks of sharp practice by Treasury Ministers and the Inland Revenue. I hope that they will not do it again.
  10.30 p.m.
  Mr. Robert Sheldon: The right hon. Gentleman talks about the thin end of the wedge. I know that he is very much alive to anything which seeks to tax the oil companies more heavily than he would wish them taxed. The whole House has come to recognise that he is a constant advocate on their behalf. There are times, however, when the interests of the community as a whole need to be taken into account, and when the problems of an important industry which we are anxious to encourage have to be weighed with the problems of the country. This is a valuable and useful provision.
  As for sharp practice, that is not decided by the Government. We did not decide when we produced the Bill that the clauses would so fit that this would be one of the last amendments to be dealt with. It just happens that transfer pricing comes at this stage.
  Mr. Patrick Jenkin: The Minister misunderstands me. Of course I do not complain about the place in which this provision comes in the Bill, but this amendment, totally unrelated to the rest of the amendments, was put down only last Thursday. I ask again whether any consultation was had with the industry on this matter.
  Mr. Sheldon: The complaint that the right hon. Gentleman was making—
  Mr. Gray: Answer the question.
  Mr. Sheldon: I shall answer the question, if the hon. Gentleman will contain himself. The right hon. Gentleman's complaint was that this had come late in

  1809
  the Bill and that there would be no possibility of a Division. We know why there is no such possibility—because his troops have gone home. But he should not feel aggrieved with the Government because he has sent his troops home before we had reached an amendment on which he now wishes that he could force a Division. That is not our fault; perhaps the matter should be discussed with the Opposition Chief Whip.
  This provision fits closely into the Bill, because the oil industry uniquely among such industries, provides its own transport as part of its methods of operation. It deals in transport to an extent unusual in other industries, so it is natural to make this kind of change. I believe that the tests are eminently fair for determining the transfer price for tax. If multinational groups are already using transfer prices which are fair to the Revenue, they have nothing to fear from the schedule; it will fit in with their existing practice.
  Although the amendment will provide that paragraph 6 will apply to all goods and services, it will do so only in relation to oil companies—that is, the companies carrying on their activities under paragraph 2 and then only if the transactions are such that their pricing affects the United Kingdom revenue. This is right. The right hon. Gentleman's criticism was rather extreme, and I hope that the amendment will be accepted.
  Amendment agreed to.
  Mr. Patrick Jenkin: I beg to move Amendment No. 142, in page 55, line 42, after sale ', insert ' first delivery '.
  Mr. Deputy Speaker (Mr. Oscar Murton): I understand that it will be convenient to discuss at the same time the following amendments:
  Government Amendments Nos. 217 and 218.
  No. 143, in page 55, line 42, after ' delivered ', insert
  'more than twelve months after the said date and '.
  No. 144, in page 55, line 46, leave out from ' made ' to end of line 47 and insert
  'on the date of each such delivery '.
  Government Amendments Nos. 219 and 220.
  Mr. Jenkin: We tabled this amendment because we felt it necessary to take account of the print of the single contract where decries are spread over 12 months or more. Since our amendment was tabled a number of other amendments have been tabled by the Government.
  So far as I can see perhaps the Minister of State will confirm this—the Government amendments entirely take our point and meet our objection, for which we are extremely grateful. However, it would be helpful if the hon. Gentleman would briefly explain exactly how the Government amendments will operate.
  Mr. Robert Sheldon: The question of the period of valuation of oil was discussed at considerable length on previous amendments and we dealt with the way in which we provide for the monthly valuation of oil at the mid-point period. This was a reasonable balance between the theoretical correctness of valuing each transfer of oil at the date of transfer and the problems which we had before the changes were introduced. It provides a fair, reasonable and balanced compromise, and as it was accepted on the previous amendments I hope that it will be accepted on this amendment.
  Amendment negatived.
  Amendments made. 217, in page 55, line 42, after sale ', insert (i)
  No. 218, in page 55, line 42, leave out from ' delivered ' to ' would ' in line 43 and insert ' within that time '.
  No. 219, in page 55, leave out line 47 and insert:
  'date of the sale ; and
  (ii) that such part of the property not so delivered as is delivered in any calendar month would have fetched a price equal to that which it might have been expected to fetch if sold under a contract for the sale of that part and of no other property, being a contract made at the material time in that month '.
  No. 220, in page 56, line 1, leave out sub-paragraph (2) and insert—
  '(2) In this paragraph "material time" and" calendar month "have the meaning given by paragraph 3(2) of Schedule 3 to this Act '. —[ Dell
  Motion made, and Question proposed. That the Bill be now read the Third time.
  10.38 p.m.
  Mr. Robert Sheldon:It is not often that one is present at the introduction of taxation legislation which levies taxes likely to bring in thousands of millions of pounds. The taxation legislation for which normally I have had responsibility or with which I was concerned in opposition related to taxes whose amounts were relatively small and which at best were likely to produce hundreds of millions of pounds.
  The way in which this Bill was prepared was wholly right. My right hon. Friend, in devising it, proceeded on the basis that it was important to achieve early legislation and to have the widest possible consultation. Anybody with experience of the way in which the Treasury operates will know that it was a unique innovation, whereby we had business men wending their way through the corridors of the Treasury in numbers never before seen in order to make representations eagerly awaited by the Government who wanted to learn about the oil industry in a way of which, I am afraid, the Opposition never quite got the measure.
  I know that the right hon. Member for Wanstead and Woodford (Mr. Jenkin) entertained the oil industry at great length. He was too readily persuaded by the arguments of people in that industry. Certainly never a breath of criticism of the oil companies ever crossed his lips in Committee or in this Chamber. When one considers that it is from their work that the revenue will flow, one would have expected at least a certain balance, at least so far, and that on occasion he might have conceded that they had gone further than the facts warranted. One would have expected that the people of this country and their Revenue ought to have had at least an equal time in his consideration occasionally. I felt, as did the bulk of the Committee, that the right hon. Gentleman had not had that degree of balance which I should have thought was an essential prerequisite of any Opposition spokesman speaking on a matter as important as this.
  We have seen the fundamentals of the Bill retained unimpaired—the questions of the ring fence, the prior charge and the field-by-field provisions. We have
  1812
  had the announcement of the rate and the take of the Government at a level of 70 per cent. We have a very workable scheme, which is understood by the oil industry and which gives the industry a fair share of the proceeds to make sure not only that it receives the fruits of equity but that it continues and increases its investment in the North Sea.
  When we come to survey this legislation at some stage hence we shall see that we have devised a scheme which is of benefit to all the participants in this most important industry.
  10.42 p.m.
  Mr. Patrick Jenkin: At this hour I do not intend to speak at length, although I must say that the Minister of State has risked provoking myself and my hon. Friends to reply at length to what was a monstrously unfair and inaccurate attack.
  The Minister should bear in mind that the Opposition, even when we were in Government, accepted without question one of the principle features of the Bill—namely, the ring fence, the removal of the artificial losses. On Second Reading I accepted without question the ring fence. We have accepted without question the need for additional taxation on the oil industry. To say that the Opposition did not give sufficient regard to the interests of the British taxpayer is sheer moonshine.
  What we have said all along is that the Government have chosen the wrong vehicle. In choosing a flat rate, prior charge, field-by-field tax, they chose an instrument peculiarly unsuited to the object they were setting out to achieve. The measure of that lack of suitability is the massive tally of amendments which we have accepted in Committee and on Report. Although those amendments have not changed the structure of the Bill they have changed its substance beyond all recognition.
  The Minister of State said that the scheme of the Bill remains unimpaired. His use of the word "unimpaired" was one of the most remarkable and inaccurate statements which the House has heard—at any rate since the Prime Minister's statement yesterday.
  The amendment of this legislation has been achieved partly—I concede this at once—by the extent to which the Ministers and their advisers have listened to

  1813
  the words of warning and the advice from the industry. I found it slightly surprising that if we moved an amendment which reflected a representation that the Government had had from the industry, we were accused of being merely the industry's mouthpiece. On the other hand, if we moved an amendment which had not been suggested to the Government by the industry, the immediate reaction of Ministers was that it was an amendment to which they needed to pay no attention at all because it had not been requested by the industry. The Government have tried to have it both ways in this respect, as we have seen several times this evening. The Bill has also been amended by the enduring devotions of my hon. Friends who, in Committee and today, on Report, have laboured long and with great expertise, and I thank them very much for their support.
  Ministers may not realise it, but the Opposition team on the Bill has had a remarkable record, perhaps stimulated by our success in this Bill. My hon. Friend the Member for New Forest (Mr. McNair-Wilson) and myself, who, perhaps, at one stage risked having our heads rolling, found ourselves confirmed in our posts. My hon. Friend the Member for Ross and Cromarty (Mr. Gray) has been elevated to the Front Bench, as has my hon. Friend the Member for Barkston Ash (Mr. Alison), and we are grateful to him that he has been with us to finish the Bill. My hon. Friend the Member for Croydon, Central (Mr. Moore) who, alas, has been unable to be with us on Report, has been made a vice-chairman of the Conservative Party. For a small, hardworking and devoted team that is a pretty remarkable record.
  We are not happy with the Bill, but we do not intend to vote against Third Reading because, broadly, it enshrines purposes with which the Opposition have a good deal of sympathy. But we believe the Government still to be taking grave risks with Britain's most vital natural asset, namely, our discoveries of offshore oil. I hope that my fears are ill-founded. I hope that the Government are right when they claim that the Bill provides a fiscal framework within which the oil industry can continue to do its work in exploration and development and in bringing these valuable discoveries of oil and gas ashore. I say that I hope that the Government are
  1814
  right, but I fear that they may not be. The Opposition will be watching with critical care and. considerable anxiety the developments in thiss industry over the months and years to come.
  If the Government have got it wrong, and if they have overloaded the industry with taxation so that it is persuaded, over the years, to move off to more favourable climes, the Government will bear a very heavy responsibility, which the electorate will visit upon them, I hope, with condign effect. We do not oppose the Third Reading. We have vastly improved the Bill. It leaves us to go to the other place in an enormously improved form, and I think that we on the Opposition side are entitled to some credit for that.
  Ministers have listened carefully and conscientiously to what we have said. There were times in Committee when we felt that to go on pressing the amendments amounted to a hardship on. Ministers.
  I end on this note: there is now among some extremely able and skilled advisers from the industry and elsewhere a well-established and flourishing society for the prevention of cruelty to Sheldons. We hope that the Minister of State will not feel that he has to make use of its services in the future. We leave the Bill with some regret. I have become rather fond of it. However, we hope it will achieve its purpose.
  10.48 p.m.
  Mr. Dell: I fear that I have to delay the House a little longer. I thank my hon. Friend the Minister of State for bearing the burden that was placed upon him and which he carried in taking this Bill so substantially through both Committee and Report stages. I am glad that at the end of the day the right hon. Member for Wanstead and Woodford (Mr. Jenkin) does not intend to recommend his hon. Friends to vote against the Bill, but his attitude to it seems a little odd. Apparently, it is a Bill which might still ruin our offshore industry, which might bring this country to disaster, and yet—
  Mr. Patrick Jenkin: On a point of order, Mr. Deputy Speaker. I thought that we were about to hear a debate on the social services. We are most intrigued to hear the Paymaster-General weighing in, because there are most important

  1815
  points about the social services to be dealt with. I hope that the message which has just arrived mea- that these proceedings can be brous to an end fairly soon.
  Mr. Deputy Speaker: That is not a point of order.
  Mr. Dell: I am grateful to the right hon. Gentleman for that intervention, and for the circumstances that make it possible for me to bring my remarks to a close.
  I hope that the Opposition do not seriously consider that the Bill will do such damage, or even that it has the potential to do it. If they do, I cannot imagine why they should have decided not to vote against it, even at this late hour on Third Reading.
  The Bill is an important addition to our taxation statutes. It will bring considerable revenue to the Exchequer.
  Mr. Peter Walker: If the right hon. Gentleman would like to listen to my Adjournment debate, as he is a Treasury Minister and I shall be asking for money to be spent, I shall be happy to listen to him.
  Mr. Dell: I should be delighted to listen to the right hon. Gentleman's Adjournment debate on another occasion. I welcome the right hon. Gentleman to the back benches and the opportunity to have Adjournment debates, which I am sure are very important.
  I see that my hon. Friend the Minister of State, Department of Health and Social Security, has arrived. He will listen to the Adjournment debate even more eagerly than I would have.
  I ask the House to give the Bill its Third Reading.
  Question put and agreed to.
  Bill accordingly read the Third time and passed.

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

  HUNTINGTON'S CHOREA
  10.52 p.m.
  Mr. Peter Walker: I am grateful to the Minister of State for coming to reply to the debate, which is on a topic of immense importance to a small minority of people.
  The subject that I wish to raise is the problem of those suffering from Hunting-ton's disease and those who may suffer from that ghastly disease in the future. It is a disease that is inherited. It attacks the nervous system and results in all adverse effect upon bodily movement. It sometimes eventually affects the mental faculties. Frequently the disease does not develop until the person affected is in his forties, or even later.
  The first problem is to identify the disease. I hope that the Minister will have considered the problem of notification. I think that the Department does not have accurate information about the numbers affected. In 1972 we learnt from a reply to a Question that the Department estimated that the number of people suffering from the disease was 2,000. Less than two years later the estimate from the Department was that it was probably 3,000. I do not think that it would have calculated that there had been a 50 per cent. increase in that time.
  I have spoken to a number of those actively interested in the topic from a medical point of view. They tend to think that probably the figure is nearer 6,000, with many people not having been identified as suffering from the disease. Therefore, probably one in every 10,000 people in this country suffers from the disease. In a typical constituency, if we have the average incidence of the illness, we probably have 10 of our constituents suffering from it, and perhaps 40 of their children and grandchildren who live in dread that they have inherited the disease and will suffer from it. Half of them will almost certainly develop the disease before they die, and will perhaps die of it.
  It is usually a fairly slow-developing disease, although sometimes the development can be quite rapid. It usually results in the sufferer having to spend the last years of his life in hospital. Many sufferers have to spend those years in either psychiatric or geriatric hospitals, and the medical profession holds the

  1817
  strong opinion that many sufferers in psychiatric hospitals should not be there. The main reason for their being in that type of hospital accommodation is that a long period of hospital attention is required because of the nature of the disease. I ask the Minister of State to consider the possibility of providing for sufferers of the disease hospital accommodation which is not necessarily psychiatric or geriatric.
  There is need for a positive approach by the Department. This is a serious disease, ghastly for those who suffer from it and terrifying for those who know that they may have inherited it and that it will develop later in life. I wish to put forward eight constructive suggestions. I recognise that in replying to an Adjournment debate the Minister may be unable to commit himself, or to give a direct answer tonight, but I ask him to give careful consideration to my suggestions and to get his Department to come to conclusions on them. When he has done so I ask him to tell the medical profession and the sufferers from the disease what constructive approach the Department will develop.
  I ask the Minister to consider making the disease notifiable. If any disease should be officially notifiable it is surely this one. It is one which children and grandchildren are likely to inherit, and there is an even chance that they will inherit it.
  Notification of the disease could be linked with my second suggestion, which is that there should be an automatic routine of contacting the children and grandchildren of the person concerned, so that advice may be given to them by a genetic counsellor. It is vital that people should know immediately that they are likely to be carriers of the disease. Children often lose contact with their parents, and grandchildren often lose contact with their grandparents. It is therefore important for all who could have inherited the disease to be told and to be counselled on the pontential danger of their children inheriting it.
  Next, I ask the Minister to review the research programme. Some important work is being done. Those who are interested in this disease recognise the diligent work of Dr. Caro in East Anglia, which is producing interesting facts which
  1818
  would otherwise never have been discovered. The incidence of the disease in certain localities of East Anglia, for example, in Lowestoft, is far greater than might be thought. I hope that the Department will review its research programme and give help to the official organisation "Combat ", formed of interested people and sufferers from the disease.
  Dr. M. S. Miller: I am glad that the right hon. Gentleman has brought up this subject. Is he aware of the research institution in Glasgow in which is being carried out genetic engineering, not for the purpose of curing the disease—because it cannot be cured—but of eradicating it by determining before a child is born or at a very early age whether it carries this gene? I hope that the right hon. Gentleman will push the Minister of State to institute further research of that kind.
  Mr. Walker: I am grateful to the hon. Member for East Kilbride (Dr. Miller). I knew of that work. It is a valuable piece of research, which, over a period could assist in eradicating the disease. Unless it is done and done well, and conclusions are drawn from it and action is taken on it, this disease is bound to increase in the years ahead.
  The next suggestion I should like to make to the Minister is that more should be done to brief the medical profession and social workers about this disease. Because of its comparative rarity, those who have some knowledge of the disease feel that many doctors in general practice do not correctly diagnose it, and that many social workers who are brought into contact with families who have a member suffering from the disease do not recognise the considerable emotional tensions and anxiety that arise in the family. I hope that the medical profession and social workers who are likely to come into contact with the disease will be able to obtain a more positive and complete briefing, and that there will be more of a rethink than has happened in the past.
  The next suggestion I wish to make is that there should be a study of the feasibility of providing suitable hospital accommodation. Cases have been brought to my attention of people placed in psychiatric and geriatric hospitals

  1819
  having been made doubly unhappy by the surroundings in which they find themselves. Their medical advisers consider that they would be far better off if they were put in general hospitals rather than psychiatric or geriatric hospitals. In the localities where the known density of sufferers is higher than normal—and there are some where it is—it would be in the interests of sufferers to see that appropriate long-term hospital accommodation is made available to them.
  The next of my eight points concerns the question of attendance allowance. This varies in different parts of the country. Certainly all those in the medical profession whom I have contacted who are aware of the effects of this disease are unanimous in the belief that anybody suffering from it needs proper attendance. I hope that it is the objective of the Department to see that those making judgments on attendance allowances make them in favour of providing such an allowance in a family where there is a sufferer.
  Likewise, the Department should give careful consideration to the overall social welfare and community care programme for those with this disease.
  Occupational therapy and treatment of that type can be very important to the patients, particularly in the early stages of the disease.
  It is interesting that in the United States, as in this country, this topic was largely neglected until a famous folk singer, Woody Guthrie, died of the disease. His widow devoted her time to trying to organise public opinion to urge the United States Government and the governments of the states to recognise the suffering and dangers resulting from the disease. That has had an important impact in the United States, where a committee has been formed to combat the disease.
  It is also interesting that before the American Senate there are proposals for legislation to provide, in each of the next three years, $500,000 in grants for screening, treatment and counsel ; $½ million in grants for research and $150,000 for education and information.
  I believe that anybody who has ever come across a family suffering from this disease will recognise the real nature of
  1820
  the suffering. Not only do patients suffer from this creeping disease which gradually destroys the movement of limbs, retards speech and has an effect on mental processes; they also know that their children and grandchildren may have inherited the disease from them. The tensions are immense, and the anxieties on the part of those who may have inherited the disease are also very great. This is a small minority but a minority that suffers badly. I hope that the Minister will give careful consideration to what I have said and that his Department will take all possible action to alleviate the situation.
  11.7 p.m.
  The Minister of State, Department of Health and Social Security (Dr. David Owen): The right hon. Member for Worcester (Mr. Walker) is to be congratulated on raising this small—" small "in the sense that it affects a limited number of people—but major issue. It also raises a number of interesting concepts of how we deal with these problems.
  The right hon. Gentleman raised eight specific points, and I shall do my best to answer each and every one. Perhaps it will help the House if I begin by saying a few words about the nature of Hunting-ton's chorea. It is, as the right hon. Gentleman said, an inherited degenerative disease of the central nervous system. The problem is that the first symptoms of the disease generally manifest themselves at about 35 or 40 years of age, although on occasion they can appear either in childhood or in elderly people. The disease is a dominantly inherited genetic disorder, which means that each child of an affected parent will have a fifty-fifty chance of inheriting the disease. Early signs of the disease, such as unsteadiness when walking, or forgetfulness, are difficult to detect, and a firm diagnosis cannot always be made until the disease has progressed for a considerable time. This is more likely to occur if the sufferer is not known to come from a family affected by the disease. The symptoms become progressively worse until patients invariably have to enter either a hospital or residential unit, because nursing them in their own homes poses too many problems.
  Let me deal with the first of the right hon. Gentleman's points—namely, the incidence of the disease. He was right to

  1821
  say that estimates of its incidence have varied. The current estimate is about 3,000 sufferers, but I should be the first to admit that the estimate may not be correct. The right hon. Gentleman mentioned that it was possible the figure might be nearer 6,000. I hesitate to endorse such a figure, but I would not like to stand pat on the figure of 3,000.
  What can we do about the situation? The first thing I was asked was whether the disease could be made notifiable. That would involve problems. It is a difficult matter to trace and to cope with the problems and complexities of seeking to establish a register of known sufferers and members of families at risk. A systematic approach has much to recommend it, and I shall look carefully at the question of whether we could make the disease notifiable. Registers have been tried experimentally in some ranges of genetic disease. The Department is considering whether it would offer worthwhile opportunity to reduce the occurrence of the disease. A further difficulty in making the disease notifiable is that it is difficult to diagnose and, as the right hon. Gentleman said, it would involve briefing members of the medical profession and social workers on early diagnostic signs. I shall look into that matter.
  Secondly, the right hon. Gentleman raised the question of follow-up and counselling. These are vital matters. The child of an affected parent will have a fifty-fifty chance and many parents will conceive before diagnosis. If we are to stop the prevalance of the disease, it is important to trace sufferers at an early stage. Genetic counselling for prospectice parents is important. It has already been provided under the National Health Service through general practitioners, and special genetic advisory centres have been set up in each region. Late onset of the disease is one of the biggest problems in achieving effective counselling.
  That leads me to the right hon. Gentleman's point about briefing the medical profession and social workers. I admit that more needs to be done about this. One way of doing that is to make it a notifiable disease, which tends to concentrate more attention on it. It is a formidable task to guarantee that all professional staff are in possession of all the relevant information to pick up the early
  1822
  signs. However, I shall look at any way in which we can improve information about the disease. When considering notification we are bound to take into account the need to ensure that the early symptoms are known.
  The third point raised by the hon. Gentleman concerned the research programme. I shall be interested to hear whether the United States Senate approves this ambitious research project. Research is international. Research that is being done in many countries will help the United Kingdom.
  The hon. Gentleman mentioned East Anglia. The Department has recently approved expenditure of more than £16,000 over a period of three years from its central research funds to extend a project which has been financed to date by the East Anglian Regional Health Authority under its locally organised research scheme. The project aims at identifying sufferers and potential sufferers from the disease in East Anglia with the intention of assessing social and welfare needs, enabling improved planning of required facilities for care, and determining the advantages of tracing family groups to aid the provision of genetic counselling.
  The Medical Research Council is supporting a wide range of basic neurological work which could advance the knowledge of Huntington's chorea. The major part of the research programme at the MRC neurochemical pharmacology unit is concerned with studies of the biochemical changes underlying the disease. Other biochemical investigations are in progress at the MRC brain metabolism unit and in the Division of Molecular Pharmacology at the National Institute for Medical Research. The Department of Social Medicine at Edinburgh University is engaged on a project on the incidence and family distribution of the disease, and the Department of Psychiatry at Sheffield University has recently finished a project on cerebrospinal fluid amines in Huntington's chorea and other neurological conditions. The Department of Neurological Surgery at Addenbrooke's Hospital, Cambridge has also recently completed a research project on rigidity in Huntington's chorea from funds provided by the Mental Health Trust, which was concerned with biochemical aspects of the disease. The trust is now considering a proposal from the Department of Clinical Genetics at

  1823
  the Welsh National School of Medicine dealing with some of the genetic aspects of the disease. A great deal is being done, but difficult problems are posed.
  The fourth point raised by the hon. Gentleman concerned the Association to Combat Huntington's chorea. He is right; the association has played a very important part since its foundation in 1971. It exists mainly to foster research into the disease but also makes a significant contribution to the welfare of sufferers and their families. My hon. Friend the Under-Secretary of State ressponsible for the disabled, and officials in the Department, met representatives of the association. At both of these meetings there were very full and useful discussions of the many problems involved. Following these discussions I am pleased to say that the Department has been able to increase its funding of research into this disease.
  I am considering other ways in which sufferers might be helped. I want to keep in close contact with the association. It is performing a valuable task in making more people aware of the problems involved in this disease.
  I have dealt with the briefing of the medical profession and social workers.
  The sixth point raised by the hon. Gentleman concerned available and suitable hospital accommodation. I have great sympathy with this. However, there are problems. When these patients become severe sufferers they are difficult to treat. They require heavy nursing facilities. It would be nice to promise that they would be treated close to their homes. I think that is an important factor. Many are admitted to psychiatric hospitals because of the mental aspect of the illness. However, I should not want to think that those were the only places to which they could go. We need additional smaller units for the chronic sick and the severely disabled. Much has already been done about that problem.
  I do not think we can look on this as a special disease category in terms of its treatment, because many of its manifestations are common to some other ailments. However, the fact that the disease is progressive and is genetic causes real concern. I will consider that, but I
  1824
  do not think that I can offer any more than the overall provision, which I know is inadequate, for chronic disability.
  The right hon. Gentleman's seventh point related to the attendance allowance. Again, I do not think that we can say that all those who suffer from Huntington's chorea must have an attendance allowance. In the easly stages of the disease, they would not necessarily require it. But, as with other progressive conditions, when they become severely disabled there is no doubt that these patients should be eligible for the attendance allowance. I know that the Attendance Allowance Board shares the view that it is best and fairest for all concerned that entitlement to the allowance should be decided on an individual basis, depending on he facts in each case. It is important that the relatives of sufferers should know that they can claim the attendance allowance.
  I cannot comment on individual cases on decisions given by the board as the board is an independent authority set up under the Act of Parliament which introduced the allowance. If, however, a claimant is dissatisfied with a decision by or on behalf of the board, he or she has only to write to the attendance allowance unit, Norcross, Blackpool and ask for the decision to be reviewed. What is more, it may need reviewing fairly frequently, because the deterioration can go on. A person may be rejected on one occasion for attendance allowance and year later be a candidate for it.
  The right hon. Gentleman's final point dealt with the need for more national concern. How do we generate a feeling of concern about this and many other genetic diseases, and how do we arrange screening programmes? This relates also to community support and how much we are giving overall. It is not easy. It is a question of competing limited resources. But some of these degenerative diseases, where we know there is this dominant inheritance, pose very real problems. The early identification of families at risk is crucial. Genetic counselling prior to the decision to have children is of vital importance. There is no doubt that money spent sensibly and wisely there will not only prevent a great deal of hardship and misery to those families but will save a

  1825
  considerable amount of money. Much has been done in research.
  The right hon. Gentleman's point that the incidence of the disease may be far greater than we currently think needs looking at seriously. I shall put this to my professional advisers. I shall look again at the question of notification. It has considerable attractions, on the face of it, but the problems of making it a notifiable disease are formidable. Experience seems to indicate that when a disease it made notifiable without being certain that cases can be picked up, an illusion of notification is given, almost generating the very atmosphere hoped to be avoided. But I am prepared to look at this. I am sure, from the right hon. Gentleman's knowledge and the research that he has done on the subject, that a number of professional people have put it to him that this is what they would like to see done. In the light of that, I shall take that suggestion away and perhaps look at the
  1826
  experience of other countries who have notification to see whether this would help us.
  I cannot offer to those who suffer from Huntington's chorea any immediate prospect that a magic cure will be found for the disease, but I think that the research going on into the biochemical nature offers some prospect at some time. We are trying to discover more about its basic aetiology.
  As I said just now, the right hon. Gentleman spoke about public concern. He has raised the matter in this debate. He had brought it to my attention. It is an illness which, unfortunately, I had to deal with in a number of cases when I was involved in neurology myself. I will take up his points and see whether anything further can be done.
  Question put and agreed to.
  Adjourned accordingly at nineteen minutes past Eleven o'clock.

  CONTEMPT OF COURT
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Preamble
The House met at half past two of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop at Sheffield):
The Lord Chancellor on the Wool-sack.
The Lord Forteviot— Took the Oath.

BRITISH RAIL: HIGHLAND LINES
Lord BALERNO: My Lords, I beg leave to ask the Question standing in the name of my noble friend Lord Ferrier on the Order Paper. My noble friend is indisposed, and apologises for not being present.
The Question was as follows:
To ask Her Majesty's Government what steps are being taken by British Rail to replace the out-of-date rolling stock on all Scottish Highland lines, and re-introduce observation cars during the now extending tourist season.
The PARLIAMENTARY UNDER-SECRETARY of STATE, DEPART-MENT of the ENVIRONMENT (Baroness Birk): My Lords, I am sorry that the noble Lord, Lord Ferrier, is in-disposed I hope that the noble Lord, Lord Balerno, will pass my wishes for a speedy recovery to the noble Lord, Lord Ferrier.
My Lords, I understand from the Rail-ways Board that the quality of the stock on Highland lines will progressively improve as older coaches are withdrawn from service, and newer ones are allocated. The Board consider that the provision of special observation cars is not a commercially justifiable proposition.
Lord BALERNO: My Lords, I thank the noble Baroness, Lady Birk, for that Answer. I regret very much the inability of British Rail to provide observation cars. Do the Government realise the great tourist attraction of the trains on the Highland lines, more particularly on the line to the Kyle of Lochalsh?
Baroness BIRK: My Lords, while agreeing with the sentiments of the noble Lord, Lord Balerno, it might be of benefit to the House if I point out that I understand from the Railways Board that special observation cars would cost at least £ 50,000 each ; and to convert an existing coach to give it an observation end and refreshment facilities would cost £25,000. Even to convert an existing coach to give it bigger side windows would cost up to £ 15,000. The commercial judgment of the Railways Board is that even with the five-month tourist season, they could not recover their costs through increased traffic at fares that people would be pre-pared to pay.
On the last point of the noble Lord's supplementary, it is open to the High-lands and Islands Development Board, which has responsibility for tourism in the Highlands, to contract with British Rail for the special services they want for local reasons, in order to promote tourism.
The Earl of CROMARTIE: My Lords, are the Government aware that the proper place for the diesel engines running on the Inverness line is the scrap heap? That is not my own opinion, but that of a very experienced engine driver who drives these trains. I travel a lot on this line. Are the Government aware that one practically never travels on that line without a breakdown occurring some-where? A short time ago there was a breakdown, and before one working diesel engine could be found from Carlisle, four other engines had to be examined.
Baroness BIRK: My Lords, the noble Earl, Lord Cromartie, has my sympathy, but, as I am sure he is aware, so far as British Rail are concerned I act as a form of pigeon post. I will fly off and make sure they get the message, but I cannot give the noble Earl an answer now.
Lord BROCKWAY: My Lords, if it is not possible to do this immediately, can the Minister say whether, in view of the wonderful scenery in the Highlands—the mountains and the lakes—the Government could keep this in mind as a long-term desirability?
Baroness BIRK: My Lords, I think 1 can safely say it is a long-term desirability. However, I felt it only fair to

739
answer the Question in terms of what is viable at the present time.
Lord CAMPBELL of CROY: My Lords, would the noble Baroness add another message to her pigeon? Is she aware that any breakdown on the main line North to Inverness usually has the effect of delaying several trains, because singling of the line— carried out in the late 1960s— has left few passing places? Is she further aware that the Beeching Report had nothing to do with this? On the contrary, that Report recommended improving the services and the speeding up of traffic on such main lines.
Baroness BIRK: My Lords, I am quite aware of this. We are aware of the need for improvements to assist development in North-East Scotland, which is increasing tremendously due to oil. The Rail-ways Board are actively considering the case for investment. The Government will give sympathetic consideration to any proposals that the Board may make.
Lord POPPLEWELL: My Lords, referring to the previous answer of the noble Baroness with reference to the viability of the railways, may I ask whether the Government will have another look at the situation with a view to encouraging the Railways Board to become more viable? Reference has been made to the breakdown of diesels. We know that the life of the diesel engine is comparatively short compared with that of an electric locomotive. We know that the cost of a diesel locomotive is infinitely greater than that of an electric locomotive. In view of the statement of the Government that they will not encourage the development of the Channel Tunnel on account of railway costs, is it not time the Government had another look at the whole transport situation with a view to ensuring that the railways become more viable? There are many beauty spots in our country, such as the Highlands, North Yorkshire and elsewhere. People should be able to go to these wonderful places and enjoy them, as they used to do before the Beeching/ Marples era.
Baroness BIRK: My Lords, my right honourable friend the Minister for Transport is looking at transport as a whole, including the railways. I would point
740
out to my noble friend Lord Popplewell that, when we are talking about provid-ing facilities at beauty spots and at the same time making the railways com-mercially viable, one of the troubles is that the two things are often contra-dictory. This is really the big problem. But I will make sure that what my noble friend has said is passed on to the right quarters.
Lord DRUMALBYN: My Lords, does the noble Baroness recognise that the Inverness/Kyle of Lochalsh line is not simply a beauty spot, but is often the sole means of communication across that part of Scotland? Bearing in mind that there are no refreshment facilities there at the present time, there has been a Report by the Ross County Council— which I am sure the noble Baroness has seen, and which British Rail must have seen—urging the replacement of the present rolling stock, which will take itself out of circulation if British Rail do not do so soon. Also, there is the question of the improvement of the amenities in the service.
Baroness BIRK: My Lords, I think I have already answered the first point. I appreciate that the Kyle of Lochalsh is not only a beauty spot. I have already pointed out that the Government recognise the need for investment here. How-ever, I must come back to my point that I cannot reply on behalf of British Rail so far as day-to-day matters are concerned. But I am quite certain that, in the right quarters, note will have been taken of what has been said by various noble Lords here today. So far as the specific question of refreshment cars is concerned, as the noble Lord, Lord Drumalbyn, spoke up loud and clear I am certain, too, that what he said will have been noted, and I hope something will result from it.
Viscount MASSEREENE and FERRARD: My Lords, can the noble Baroness tell us—I quite understand if she cannot—what has happened to the obervation cars we used to have in the Highlands not so very long ago? I can remember going from Oban to Glasgow in a train that had an observation car; speaking from memory, I do not think it could have been longer than two or three years ago.
Baroness BIRK: My Lords, there were four observation cars, which were withdrawn in 1967. They have now been bought up privately and are used for private enterprise. There are higher charges for them; they are run on partly voluntary labour, and one really cannot make a comparison between that and what could be undertaken by the Railways Board.
Viscount ST. DAVIDS: My Lords, if private enterprise can make money on them, why cannot the Railways Board?
Baroness BIRK: My Lords, private enterprise is charging very much higher fares than the Railways Board would or could charge. If the Railways Board did that, we should immediately have a series of Questions asking about fares.

EUROPEAN COAL AND STEEL COMMUNITY TREATY
2.42 p.m.
Lord CAMPBELL of CROY: My Lords. I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what change, if any, they seek in the European Coal and Steel Community Treaty.
The PARLIAMENTARY UNDER-SECRETARY of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord Goronwy-Roberts): My Lords, my right honourable friend the Foreign and Commonwealth Secretary informed the Council of Ministers on 3rd March that, if permanent British membership of the Community was confirmed in the Referendum, we intended to seek a solution to various problems relating to the steel industry. The major difficulty is the absence of control over private sector steel investment. The Prime Minister also referred to this question in Dublin on l0th-llth March. We do not know whether the changes which we require will mean amendment of the Treaty of Paris. It may be that a solution can be found within the scope of the Treaty.
Lord CAMPBELL of CROY: My Lords, now that the Prime Minister has,
742
in his own words, found the European Community more flexible than he apparently thought it was a year ago, cannot this matter be dealt with by one of the administrative methods mentioned in his Statement yesterday? And will the noble Lord confirm that this is the only point of Treaty revision arising after the whole renegotiation exercise, and that its consideration has been postponed until after the Referendum?
Lord GORONWY-ROBERTS: My Lords, there may be ways of dealing with this matter other than changing the Treaty ; we shall see. It is not quite correct to say that this is the only outstanding issue. Within the steel sector, also, there are questions relating to prices and mergers, as the noble Lord knows. These are probably less difficult than the question of private sector investment. I think we have all noted what the Prime Minister said about the resiliency of the EEC, and no doubt he will note what the noble Lord has said today.
Lord LEE of NEWTON: My Lords, would my noble friend agree that in the 1967 Act we gave ourselves power to intervene if the private sector was going to duplicate development in the public sector, and that we gave ourselves power to anticipate that happening rather than simply to complain after it had been done? Is it the case that if we now have to wait for negotiations to take place on the question of the Treaty of Paris, the damage will have been done, perhaps by the creation of electric arcs in places where steel has never been produced before, and that we would be quite unable to stop duplicate development in the steel industry which would not do any good to either the public or private sector?
Lord GORONWY-ROBERTS: My Lords, I note what my noble friend has said. I do not think that any irreparable damage will have been done before we have negotiated the position as we want to see it, as I am confident we shall succeed in doing. It is perfectly true that with the repeal of Section 15 of the 1967 Act this country was left with no powers to control private sector investment, and we shall seek to rectify that situation in one way or another.
Lord WYNNE-JONES: My Lords, does my noble friend's last statement

743
mean that similar private investment might be undertaken within the coal industry?
Lord GORONWY-ROBERTS: My Lords, that is another question.
Lord CAMPBELL of CROY: My Lords, is the noble Lord aware that I was asking whether this is the only case of Treaty revision? I realise there are other matters still left over. Does the noble Lord recognise the value of the help of the Coal and Steel Community in relation to some of the painful effects in this country of necessary modernisation, which usually means less men employed; for example, in the last two years about £ 33 million in grants and about £100 million in loans to help with retraining and housing in these industries?
Lord GORONWY-ROBERTS: My Lords, there are, of course, pros and cons in all these matters. I do not dissent from what the noble Lord has said. What I am saying is that there will be discussions with our partners in the EEC on ways of putting right the situation created by the abrogation of Section 15 of the 1967 Act, and I have said that I am confident that these discussions will succeed.

HARRIER: MARITIME VERSION
Earl FERRERS: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they intend to place an order for the maritime version of the Harrier for use by the Royal Navy.
Lord WINTERBOTTOM: My Lords, the Government will take a decision on this project as soon as possible now that the main work of the Defence Review has been completed.
Earl FERRERS: My Lords, I am grateful to the noble Lord for that reply. Will he confirm that the Navy are anxious to have this aircraft; and does he realise that valuable export orders, which include one amounting to £ 150 million from one country alone, are entirely dependent on the Government showing sufficient confidence in this air-craft to purchase it ourselves?
Lord WINTERBOTTOM: My Lords, I am aware that there is very widespread interest in this particular version of the Harrier. The noble Earl may have information which is not available to me. I know of interest in the aircraft, but so far no firm negotiations have started ; and in any case it is not policy, as the noble Earl will know, to give details of purchases of British defence equipment at this sort of stage.
Lord SHINWELL: My Lords, when my noble friend says that some of the information is not available to him about the Harrier, is it not true that negotiations have reached such a stage that some foreign countries, nameless this afternoon in these circumstances, have already negotiated a supply of Harriers and arrangements will be made shortly to export them? Are we to be in the position that foreign countries are going to obtain some of the most modern aircraft for military purposes, and we, because of a decision by the Government to reduce Defence expenditure, are to be left with-out them? Is that the situation in which we shall now find ourselves?
Lord WINTERBOTTOM: My Lords, I did not say that we would be left without the naval Harrier. What I said was that now that the main work on the Defence Review has been completed, and it has been a very heavy burden of work, my right honourable friend the Secretary of State for Defence will turn his attention to this situation.
Lord LLOYD of KILGERRAN: My Lords, may I ask the noble Lord whether he can be more specific as to when his right honourable friend will turn his attention to this matter?
Lord WINTERBOTTOM: My Lords, it will be soon.
Earl FERRERS: My Lords, while I appreciate that the Government have received no firm orders from abroad, will the noble Lord realise that no firm orders will result unless the British Government themselves show confidence in this aircraft?
Lord WINTERBOTTOM: My Lords, I agree completely with the noble Earl. It is a "chicken and egg" situation, but my right honourable friend is fully aware of that.
Lord THOMAS: My Lords, may I ask whether the noble Lord is aware that the Harrier is a uniquely British concept, invention and productionised aeroplane? Unless we have enough courage to back up that concept and invention with orders, it is not likely to attract many export orders.
Lord WINTERBOTTOM: Yes, my Lords, I am aware of the position.
Lord BALNIEL: My Lords, is it not correct that the order from the Government of Iran for a through-deck cruiser is to some extent dependent upon the Royal Navy itself ordering the maritime version of the Harrier?
Lord WINTERBOTTOM: My Lords, as I said, the noble Earl, Lord Ferrers, seems to be better informed than I am. In fact, the through-deck cruiser— as the noble Lord knows even better than I do, because he was more recently at the Ministry of Defence than I— is basically an anti-submarine vessel carrying Sea Kings for which it is designed. The maritime Harrier would be a most welcome addition to its capabilities, but its absence would not invalidate the work of the through-deck cruiser.
Lord SHINWELL: My Lords, may I ask whether my noble friend can explain how, within the context of declarations made by his right honourable friend the Secretary of Defence about reduced expenditure on defence, it will be possible to provide the expenditure for the Harriers, which are very expensive indeed, and which, in my opinion, are very desirable, particularly if foreign countries are likely to get them in future? How will this be arranged? How do we inject expenditure into the Harriers when reduced expenditure on defence has already been decided by the Government?
Lord TREFGARNE: My Lords, is the noble Lord aware that overseas orders for the maritime Harrier have already been jeopardised— indeed, some say lost — because of the Government's procrastination in this matter? Will he use his influence to ensure that his right honourable friend now proceeds with this consideration as a matter of great urgency?
Lord WINTERBOTTOM: My Lords, I do not accept that accusation. I am as aware of the situation as other noble
746
Lords who are interested in the subject, but no decision has yet been reached. The matter will now receive urgent consideration by my right honourable friend.
Lord SHINWELL: My Lords, does my noble friend consider that my question is of such a character that it does not deserve an answer? May I repeat the question?
Lord WINTERBOTTOM: My Lords, my noble friend asked me how we were to inject the Harrier into an area of reduced expenditure. The situation is that funds are already earmarked for this purpose in the forward plan, but since the problem that faces us is one of inflation— and there are various other factors which may influence defence expenditure in the future—my right honourable friend is not immediately committing himself on the subject.
Lord BALFOUR of INCHRYE: My Lords, in view of the tremendous interest in this most remarkable aircraft, may I ask the Minister whether he could give us a time for when it is likely that a decision will be reached? Will it be in one, two or three months? Does the noble Lord realise the urgency of this matter? May I ask him to amend his statement that there is interest in this aircraft, to saying that there is intense interest in a most admirable aircraft which is a credit to the aircraft industry of this country?
Lord WINTERBOTTOM: My Lords, I cannot give a time scale, but since the White Paper on Defence—which I am certain will be debated soon—has appeared today, I am sure I will be able to give the noble Lord a more concrete date at the time of such a debate.
Lord BROWN: My Lords, will my noble friend agree that this attempt to debate important priorities in this matter of defence expenditure can go much too far?
Lord WINTERBOTTOM: My Lords, I prefer a more extended debate than is permitted at Question Time.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, the noble Lord has said that the Defence White Paper is available. Has it been printed yet and, if so, is it available to Members of this House?
Lord WINTERBOTTOM: My Lords, this is a somewhat complex point. I have obtained a Xerox copy, but I understand there will be copies available in the House for noble Lords who have a specialised interest in the matter. Every step is being taken to meet the requirements of noble Lords.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, may I say that copies of the White Paper will be avail-able later today. At the same time, may I suggest that we have been a long time on what is an extremely important and, indeed, fascinating Question. I think we should now move on to the next business.
Earl FERRERS: My Lords, may I ask a further question?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I have requested that the House should go on to the next business, and I believe the House agrees.
Earl FERRERS: My Lords, I was about to ask the question when the noble Baroness stood up. I should like to put one serious question. Will the noble Lord be kind enough to convey to his right honourable friend the urgent point that without this naval order the whole future of the Harrier programme will go to America?

LIMITATION BILL [H.L.]
The LORD CHANCELLOR (Lord Elwyn-Jones): My Lords, I beg leave to introduce a Bill to amend the law about the limitation of actions and other proceedings. I beg to move that this Bill be read a first time.
Moved, That the Bill be now read la, —(The Lord Chancellor.)
On Question, Bill read la, and to be printed.

INDIAN OCEAN: NEUTRALITY
2.58 p.m.
Baroness LEE of ASHERIDGE Baroness LEE of ASHERIDGE rose to draw attention to the need to preserve the neutrality of the Indian Ocean ; and to move for Papers. The noble Baroness said: My Lords, discovering that there were only six copies of the White Paper on Defence at this end of the Palace of Westminster, I used my privilege as a former Member of the other House to collect a copy in order to have a hasty glance at it before speaking today. My hope was that in the White Paper I might find the answer to some of the questions which concern me. I am sorry to say I did not get much enlightenment from it, so I shall be obliged to depend on my noble friend who will reply to the debate to lessen the anxiety that some of us feel about current developments in the Indian Ocean. I ought to know what is happening there, but I am completely bewildered by conflicting statements from the highest sources.
I was in Mauritius two years ago and I have been in India recently. I have consulted the distinguished High Commissioners in this country and other experts. Nevertheless, developments in the Indian Ocean are still of the murkiest nature, and I believe this to be of concern not only to the littoral countries but to the entire world. I accept that we are no longer a great Power there. Nevertheless, I am doubtful about the statement in the White Paper that we have completely with-drawn. I will return to that later. I believe we could perform a service by stating the facts clearly and fully. No harm would come from that. It is non-sense to think that the Russians do not know what is happening on Diego Garcia or that the West does not know what is happening on Socotra. The only people who seem to be ill-informed about what is happening in this immensely important and now dangerous part of the world are the British public.
I should like also to declare why I am particularly worried about developments there at the present time. Time and again we have made the mistake of currying friendship with our American allies to the point of sycophancy. In doing so, we have damaged both American and our own interests. It is not irrelevant that

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I should recall how in 1951 the present Prime Minister, Mr. John Freeman, and Mr. Aneurin Bevan felt so strongly about American pressures in relation to the war in Korea that they resigned. They were Ministers concerned with trade and labour, and they knew the position about manpower and material supplies. They advised Mr. Attlee's Government, as it then was, of the absolute maximum that we could contribute, but our American allies were not satisfied. They forced a figure which bore no relationship to reality. It was a false figure. Indeed, later on the next Prime Minister, Mr. Winston Churchill, as he then was, said it was a false figure, because it could not be achieved. So we did no service to our American allies but we did a great deal of disservice to the Labour Party, the Government of the time, and I believe kept us in Opposition for 10 years. I do not expect noble Lords opposite to weep tears over that, but it was a disaster not only for the then Labour Government and the Labour movement but for the country as a whole. I need not recall the more recent heartbreaking events in Vietnam and Cambodia. I might add that America does not consider that friendship for our country should go to the extent of taking up a position, "Britain, right or wrong ". Indeed, Suez was a dramatic illustration to the contrary.
What is happening in the Indian Ocean? When the Prime Minister of Mauritius makes a serious official statement, and makes it in the presence of the Prime Minister of India, as he did about a year ago, one cannot dismiss it simply as gossip or as somebody talking about issues on which he is ill-informed. And on a visit to New Delhi last April the High Commissioner of Mauritius said:
"Britain will violate a 1967 undertaking to Mauritius if it allows the United States to develop a naval or military base on the British-controlled island of Diego Garcia."
I should like to know the truth of the situation. Have we said to our American friends, in effect: "We cannot afford to have nuclear warheads in the middle of the Indian Ocean but we are perfectly willing to allow you to go ahead and develop nuclear weapons in this part of the world "? If that really is the situation, let us say it openly; but if it is
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not, let us know precisely what is happening. It is no good simply making the riposte: "If the Americans are developing nuclear weapons in the Indian Ocean, so also are the Russians." I have no doubt that that is true, and as I have been talking about Diego Garcia, I have no doubt that I shall be asked what the Russians are doing in Socotra.
If one visualises the Indian Ocean with the Indian sub-Continent above and the whole of the African Continent—and Australia is also concerned—one finds there is a common passionate interest that the Indian Ocean should be kept free of nuclear weapons. A distinguished American statesman said not long ago that they could have a striking power from Diego Garcia which could cover the whole areas surrounding, including the oilfields, of the Middle East. This is alarming, for us as well as for the littoral countries. I should therefore like a clear answer, one way or the other, about the precise position in this critical island.
I would also be grateful to my noble friend if he would give me a clear answer to another question. The Mauritians insist—I checked this with their distinguished High Commissioner before coming to this debate—that when they received £4 million from Britain in order that we should lease this island, we did not lease the seabed. We have the island and it was understood that it would be used for fuelling and other normal sea-going purposes, but they insist that they retained the right of the seabed, and now, like the rest of the world, they are concerned to prospect for oil and other minerals.
An American company was engaged to examine the possibilities of oil and other mineral developments in the seabed surrounding the island, but they have been forbidden to go ahead. May I be told why they were forbidden? It may not have been by treaty or contract and it may have been something as simple as somebody saying, " You do that, and you will not get this." Whatever was said, it would be interesting to know the facts, because so far as I understand the position, there is an open door to the ships of Russia, France, Britain— indeed, the world, including Japan, because all are now interested in the Indian Ocean— and there is also an open door to the ports

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in this and all the other islands if the purpose of such visits is peaceful, such as for the refuelling of ships, the resting of crews and so on. What is particularly alarming is the way in which more and more nuclear weapons are apparently going to that part of the world.
It would be wonderful if I could be told today that this is all nonsense and that no such thing is happening, but whatever the position is I should like a completely reliable and official statement on the subject. I appreciate that whatever is done by the West, the attitude of Russia will most certainly be, "Anything you can do, we can do better ". One appreciates the Great Power rivalry, but surely we have learned from Vietnam and from so many other examples, that all the weapons in the world are useless if one is seeking to operate with an unfriendly population. Incidentally, this is one reason why the Russians and Americans prefer a small island to a mainland.
In all of this, who is going to win? Surely this battle will be fought not with aeroplanes, warships and nuclear weapons, but in the hearts and minds of the men and women who live in those countries, and they will not forgive the super-Power which they believe is responsible for aggravating the situation. We want genuinely to feel that the West— and I am talking specifically about America and ourselves and those associated with America—are doing everything in our power to fulfil the great dream of Nehru and Indira Gandhi and so many more in India that this should be an ocean of peace. But that does not mean playing the fool by leaving our shores defenceless.
That need for security applies also to India. So if anyone should ask why India does not join the non-nuclear club, the answer is that India is perfectly prepared to join provided the five nuclear Powers are also prepared to do so. But, determined not to be the catspaw of Russia, America or any other country, it has to have its own defences. I do not base my case on the fact that Indians insist that their developments are for peaceful purposes. As your Lordships know, there is a great deal of experiment taking place both in Russia and America. If we insist on guarding our shores, so must the Indians. Surely, we ought to take
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account of the point of view of the millions of people who are living in that part of the world. I should feel very much easier in my mind if I could be told today what we are doing directly and what influence we are exerting upon our American friends and allies to lessen the tensions and dangers in this part of the world where Americans, Russians and all others are welcome if they come as traders, if they come for peaceful purposes. Unless we can do something to reverse the terrifying process which is now going on in the Indian Ocean, there will be another avalanche of hatred and destruction and even we may not be as safe as we may think ourselves. My Lords, I beg to move for Papers.
3.12 p.m.
Earl COWLEY: My Lords, I have listened with very great interest and care to the speech that the noble Baroness has just made, but it has only confirmed my belief that, however laudable the aims and the spirit of the Motion— and the sentiments which the noble Baroness has expressed are very worth while—its terms are totally impracticable. The present international climate, especially as it affects the area of the Indian Ocean, makes the idea of preserving its neutrality in the way the noble Baroness seeks to achieve—or appears to want—impos-sible to implement.
During the last three years, the United Nations General Assembly has passed at least two Resolutions declaring the Indian Ocean a zone of peace, and each time Britain, France, the United States and the Soviet Union have abstained. The last Resolution passed by the General Assembly— No. 3259A— called on the great Powers to refrain from increasing their military presence in the area, but that Resolution can never be implemented so long as the great Powers refuse to support it. Ever since the Six Day War, the Soviet Union has been steadily building up its naval fleet in the Indian Ocean and increasing its military and diplomatic presence throughout the whole area. I think that this has been done for several reasons. It puts more and more pressure on the weakened southern flank of NATO's defences, at a time when there is stalemate in the various talks to reduce the size of NATO and the Warsaw Pact forces in Europe.

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It provides protection for Russia's growing interests in the area and it helps to establish and enhance its political influence.
My Lords, it is estimated that the Russians now have some 35 naval ships in the Indian Ocean and in the surrounding area, compared to about 23 belonging to the Western Powers. However, because of the kind of ships involved, the imbalance is not so great as the figures at first suggest. On the other hand, it should be remembered that the facilities which the Russians have in the Indian Ocean can enable their ships to stay there much longer than the ships of the Western Powers. The Soviet Union is continuing to increase the facilities avail-able to it in the Northern part of the Indian Ocean. The Russian Navy has established mooring buoys North and South of Socotra Islands, in the Seychelles and in the Chagos Archipelago, not to mention its facilities in Somalia, Iraq and Southern Yemen. It is also carrying out a proxy war in Oman by giving assistance to the Popular Front for the Liberation of Oman. I am glad that the White Paper published today continues our help to the Sultan of Oman.
My Lords, the potential threat to Western interests is clear. The escalation of oil prices and the willingness of the OPEC member States, especially those in the Middle East, to use oil as a political weapon have brought home to us how vital Middle East oil is to the industrialised countries of the West. The comments made by President Ford and Dr. Kissinger on what might happen if the tap was turned off demonstrates the potential seriousness of the situation. While I do not believe that the Soviet Union would attack or impede one of our tankers, I do believe that it would be the height of folly to leave such vital interests unprotected and to leave the way clear for the Russians to do as they please. Indeed, the Russians have assisted their allies outside the Eastern bloc on occasion: one has only to look at the help that has been given to Egypt. Admiral Sir Terence Lewin is reported as having said that the West has a very real need to maintain a naval presence in the Indian Ocean, for the Russian Navy has no need to be in the area except as a threat to seaborne trade.
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The problem will of course be further aggravated with the opening of the Suez Canal this summer. This will be of tremendous benefit to the Russian Navy which will no longer have to make the long journey around the Cape or from Vladivostok. Instead, it can do the short journey from the Black Sea through the Canal to the Indian Ocean. On the other hand, the reopening will not be of much assistance to the Americans and the other Western Powers, which will be unable to use the Canal because of the size of their supertankers and large naval vessels. Thus, the Cape route will still be of major importance to this country for a number of years to come.
My Lords, it has generally been accepted as inevitable by both sides of the House that Britain's world role should contract in those areas where we have no great interest, and that our defence of those areas where we have interests is partly dependent on the participation of our allies. The savage defence cuts announced last year by the Government and confirmed in the White Paper today make this all the more true, although the Government themselves have recognised in the White Paper that,
"we cannot exclude the possibility that the members of the Warsaw Pact might try to use their massive military power, especially in conventional weapons, to bring political pressure to bear, perhaps selectively, on Western countries in the hope of influencing their external and even their domestic policies."
Yet, the Government have still decided to withdraw from Gan by April 1976, and to give up the naval communications station in Mauritius. They have decided to weaken, if not destroy, the Five Power defence arrangements, yet the White Paper says:
"… those interests absorb only a comparatively small proportion of the Defence Budget. Withdrawal from all these areas including the garrisons in the Mediterranean would save £150 million a year at the most"
My Lords, if we have to be faced with this decision, I think that it is even more necessary to offer our remaining facilities for the use and support of our Western allies. I think it is only right that the Sultan of Oman has agreed to allow the Americans to use Masirah on an irregular basis, and it is certainly in our own interests to permit the Americans to extend the facilities on Diego Garcia. However, the

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noble Lord's right honourable friend the Secretary of State for Defence said in another place on 11th March that:
"… there are no plans to base ships or air-craft on Diego Garcia, and there will be no facilities of any kind for nuclear weaponry ". — [Official Report, Commons, 11/3/75; col. 258.]
When the noble Lord, Lord Goronwy-Roberts, comes to answer this debate, could he expand on that remark? What exactly do the Government mean by " no facilities of any kind for nuclear weaponry"? The idea of excluding nuclear weapons from the area of the Indian Ocean is, I should have thought, a little out of date, since the Indian Government have in fact carried out a successful nuclear test.
Since the Government have decided on withdrawing still further from East of Suez, it is all the more imperative that we obtain the most up-to-date intelligence on events in that area of the Indian Ocean. While I fully realise and appreciate that NATO is not allowed to operate South of the Tropic of Cancer—and I am not suggesting that it should—I do think that NATO should extend its area of interest and should study very closely developments in that area of the world. It would be wrong for NATO to ignore the potential threat posed by the Russian presence in the Indian Ocean. On 14th January last the noble Lord's right honourable friend said in another place—
"…I believe that the NATO defence planning Council is worried about the growth of Soviet naval activity around the Cape and the Indian Ocean and that it will probably be embarking upon the study …".—[Official Report, Commons, 14/1/75; col. 176.]
Can the noble Lord give the House any more up-to-date information on this point, which I think is of vital importance?
My Lords, one of the great advantages of the Simonstown Agreement, outside the fact that Simonstown has the only deep water harbour between the Cape and Singapore, is the provision of intelligence information in respect of shipping movements on the Cape route. If this facility is removed because of the Government's surrender in the face of pressure from the Left over the special provisions offered this country at the Simonstown base and over the joint
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exercises with the South African Navy, it will be a damaging blow to this country. I recognise that the facilities available at Simonstown would probably be still offered to us on a cash basis, but this depends on the result of the talks with the South African Government, and I notice that the Government White Paper on Defence conveniently skates over this very important point. It is regrettable that it does not go into greater detail on what the Government hope to achieve. I doubt whether it is in this country's long-term interest to antagonise the South Africans—whatever we may think of their internal politics—when such major changes are taking place in South Africa as a whole, and at the moment when the South African Government, anyway in their foreign policy, are trying to reach some understanding with the Governments of black Africa.
The withdrawal of Portugal from Africa has changed considerably the political situation in that Continent. Although the Frelimo Government of Mozambique is probably more sympathetic to Marxism than to capitalism it is likely that it will follow a rather pragmatic course after independence in June because of the disastrous state of the country's economy. This, I would presume, means that the Government will maintain the Beira patrol. It also, of course, poses an interesting moral dilemma. If the Indian Ocean were made a neutral area, as the noble Baroness wants, and foreign naval vessels were excluded, Rhodesia would of course find it much easier to evade sanctions.
We on this side of the House certainly want the Indian Ocean to be an area of peace, but we believe that this can only be achieved through mutual security. The Russians are not going to pull out and consequently give up the political influence which they have in the area. Thus they pose a potential threat to our vital interests in that part of the world and to the Southern flank of NATO. The answer surely lies in offsetting the Russian military presence by that of the Western allies. While I would readily agree with the noble Baroness that many of the littoral States would like to see the foreign forces totally removed from the area, I also believe that in general they would not want to have the Russians alone.
3.26 p.m.
Lord GLADWYN: My Lords, as I understand it, the noble Baroness, Lady Lee of Asheridge, is chiefly reflecting the fears of Mrs. Gandhi that the Indian Ocean might eventually become the scene of some contest between the two super-Powers, especially some nuclear contest. But her main fear, if not her only concern in this respect, lies in the alleged development of the small and almost uninhabited British possession, the Island of Diego Garcia in the South of the area where we are said to have given or offered—and I hope that the noble Lord who is to reply will confirm or deny this —the Americans certain communications facilities. It can hardly be suggested that we ourselves, despite what the noble Baroness suggested, could make any prejudicial use of this island. In any case, though I am not sure whether I am here in agreement with what the noble Earl, Lord Cowley, said, the Royal Navy has, I believe, no intention of developing Diego Garcia as a base. Anyhow it is obvious that it could be no real substitute for Simonstown.
So it comes to this. There is no intention of any kind of making Diego Garcia into a nuclear base. The landing strip, I understand, is quite unsuitable for any large bombers. And, if you were thinking of nuclear bases, why should that be necessary on an island thousands of miles away from the scene of any action, when presumably, if there was a catastrophe and a nuclear war, it would be conducted by nuclear submarines which both sides might send to the area so as to bombard any State in the area affected? That might, of course, be a danger, but I suggest it has nothing what-ever to do with Diego Garcia. What does seem to be clear is that, if the Americans are not given such communications facilities in Diego Garcia as they are asking for, they will have no facilities of any kind in the Indian Ocean, except as I understand from what the noble Earl, Lord Cowley, said, conceivably in Oman; otherwise nothing.
This obviously is not the case so far as the other super-Power is concerned. The Soviet Union has now very nearly taken over Aden and is also, I understand, constructing a base in Somalia at Mogadiscio, to say nothing of facilities in Socotra and, I believe, also in the island

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of Kamaran. We hear, too—as no doubt the noble Baroness, Lady Lee, has heard —of requests for facilities for so-called fishing boats and trawlers in Mauritius. And I have no doubt that before long we shall also be hearing of similar requests from the newly instituted independent Government of the Seychelles. And as for us, we have, of course, withdrawn from the Persian Gulf and now that we have given up Gan in the Maldives, and indeed Singapore, there is nowhere, except presumably Diego Garcia, where our war-ships or submarines, if there should be any in the area, could have any facilities at all.
Why, then, I ask myself, is it that Mrs. Gandhi is so occupied with what she apparently regards as an exclusively American menace? Suppose the Soviet Navy extends its system of bases even further, as I have suggested and as I think is probable, what would Mrs. Gandhi's attitude be to that? Is she perhaps pre-pared to give Soviet fishing vessels facilities in Bombay or Madras, and what would be the attitude of the Government of Colombo? We have not heard much about that so far. I believe that they are also backing up the Indian request that the whole of the area should, in some way, be a nuclear-free area.
But, my Lords, irrespective of all that, if the idea is that the Indian Ocean should somehow be transformed into a nuclear-free zone, how could such an arrangement be enforced? Would there have to be neutral inspectors in Mogadiscio, or Aden, or Socotra, or wherever it may be, to confirm that no Soviet warships entering or leaving their bases could be carrying any form of nuclear weapons? Is that the idea? Would India herself be prepared to submit to such disciplines if, by any chance, they were accepted by the Governments of South Yemen, or any other States in the area that might be concerned? We ought to have further information on that point.
The recent explosion of a nuclear device on Indian soil must, in any case— and despite assertions that the explosion has no military significance whatever— cast at least a certain doubt on India's intention to keep out of the nuclear arms race altogether. And, of course, if India should ever possess a single nuclear weapon, however small, the entire idea

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of a nuclear-free zone in the Indian Ocean would collapse. But irrespective of nuclear considerations, the object of any neutralisation or "peace zone" proposal would, I suppose, be to exclude any war-ships from the ocean, other than those belonging to the riparian States. If this could be arranged it would be an excel-lent thing. Here I do not altogether go along with the noble Earl, Lord Cowley. If that, I repeat, could be arranged it would, in principle, be excellent despite certain disadvantages; for instance, in regard to the blockade of the Portuguese coast for controlling Rhodesian imports, and so on. But after all, it would chiefly be a matter for consideration by the two super-Powers, and if Mrs. Gandhi could persuade them both to enter into a kind of self-denying ordinance we should, I suggest, all rejoice. At the moment, and as things are, it would seem best for Mrs. Gandhi to approach the Soviet Government who are actively engaged in asserting their presence in the area, and not the Americans who, except for some possible communications facilities in Diego Garcia, are totally absent from the whole area in a military sense.
But, my Lords, surely the whole question is whether or not the two super-Powers really are lining up for some global confrontation in the area; in so far as we can prevent this, let us by all means try. However, if by any chance the Soviet Union's objectives should be to threaten—or to put themselves in a position to threaten—our oil supplies from the Gulf, we should presumably, in those circumstances, have to give the Americans all the support we could in order to counter it. That stands to reason.
Apart from the possible approach to the Soviet Government, is there any other constructive step that might be taken? I think there is one. The Suez Canal is not, I believe, as yet completely open. When it is, why should not the Egyptian Government declare that they are to close it to all warships irrespective of nationality? That would make it much easier for Mrs. Gandhi to seal off the Indian Ocean from the activities of either of the super-Powers. I suggest that the noble Baroness, Lady Lee of Asheridge, might put this proposal to her friend and ask her to take it up with Mr. Sadat, who is in a very good position to talk to both

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Dr. Kissinger and Mr. Gromyko on this subject. I would ask the noble Baroness to consider this practical suggestion when she sums up.
3.35 p.m.
Lord BROCKWAY: My Lords, we all wish to thank the noble Baroness, Lady Lee of Asheridge, for initiating this debate which is of very great importance to the world. The noble Earl, Lord Cowley, delivered the speech which I expected and stated the Conservative view with clarity and conviction. I was a little disappointed by the speech of the noble Lord, Lord Gladwyn, for the Liberal Party, except for his conclusions. The opening part of his speech seemed to me very different from the Liberal views which his Party used to express in the days when I belonged to it.
We are discussing an area of the world which is very extensive and is of enormous importance for world communications. The Indian Ocean stretches for 75 million kilometres and borders three con-tinents—Africa, Asia and Australia. It is the link between the Atlantic and the Mediterranean in the West, and the Pacific in the East, and—here I endorse what the noble Earl, Lord Cowley, said in this respect—it is of supreme importance for trade; not merely the oil resources of the Gulf, which we have now learned are so important, but 90 per cent. of world production of rubber, jute, tea and other materials, as well as a large proportion of minerals, must cross the Indian Ocean.
My Lords, it is to protect production and trade to the West, that the West has insisted that a naval and military presence is necessary in the Indian Ocean —the United Kingdom, when Britannia ruled the waves before the World War, and the United States of America pre-dominantly since, with French presence decreasing with the loss of Indo-China. I have in my hand a map of the Indian Ocean which shows that both the Ocean itself and the surrounding lands and scattered islands are dotted with outposts of Britain and the United States of America. Some of these outposts are of little naval or military value; they are not much more than harbour facilities for refuelling, repairs and so on. But others are highly equipped naval and military force bases.

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There is in the middle of the Indian Ocean the Diego Garcia post, to which the noble Baroness and others have referred. It was a fuelling base for Britain during World War II. In 1966, the United Kingdom agreed to a long-term lease to the United States of America. There was a question in the United Nations and, as a result, the Secretary-General sent technical observers to examine the situation. In April 1974, they reported that the base could be used by almost any aircraft in the world including the US Air Force B-52 strategic bomber and the KC 125, the refuelling aircraft for the B-52. It is perfectly clear, therefore, that this American base is much more than the communicating contact to which the noble Lord, Lord Gladwyn, referred. In this situation there was great concern among the nations which bordered the Indian Ocean.
Last month there were discussions between representatives of Her Majesty's Government and of India; and Mr. Michael Welford, Deputy Under-Secretary in our Foreign and Commonwealth Office, reported to us and Mr. V. C. Trivedi, Secretary in the Indian Ministry of External Affairs, reported to India. Mr. Trivedi, for India, said that the US base would stimulate Soviet-American naval rivalry in a region which had so far been comparatively free of it. He did not only criticise the American presence in the Indian Ocean; he criticised the presence of the Soviet Union as well. It has been recently alleged that a threatening Soviet naval force has entered the Indian Ocean and the noble Earl, Lord Cowley, has given figures of, I think, 35 Soviet vessels against the 23 of the West.
I want to admit immediately, as I shall indicate later, that I do not have know-ledge of these facts. The presence of an American fleet was given as one of the reasons for maintaining the Simonstown base in South Africa. I say that I do not know the facts. I doubt whether there is anyone who knows the facts. It seems to me that one of the most urgent needs today is that the facts should be investigated. It is acknowledged that the Soviet Union has no naval or military base in the Indian Ocean. The countries most likely to pro-vide such bases, Iran, Somalia, India, Yemen and Bangladesh have all denied that they have given those facilities. It is possible that the Soviet Union may enjoy

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port facilities in Somalia, in South Yemen, in India and Bangladesh; but no equipped bases with runways for bombers or deep-water protection for its fleet is provided in any of those territories.
My Lords, I am bewildered in approaching this subject because of the different statements made on both sides. In June of last year the Representative of the Soviet Union in the United Nations wrote these words to the Secretary General:
"The Soviet Union has never had, has not established and is not now establishing any military or naval bases in the Indian Ocean region. Soviet ships and vessels have never posed a threat to anyone in that region. In accordance with the existing rules of inter-national law and with universally recognised international practice they are engaged in training cruises and in the search for and recovery of Soviet space craft that splash down in the Indian Ocean. It must also be borne in mind that transit routes from the European part of the USSR to the Soviet Far East pass through the Indian Ocean and that, accordingly, in order to ensure the safe passage of ships and vessels the Soviet Union is conducting scientific investigations in the region."
I do not necessarily accept all those things; but what I am suggesting is that the time has come, when we are considering this important problem, for an impartial investigation to be made as to the facts in the Indian Ocean. Can the facts about the Soviet Government's presence be investigated through the United Nations, as the United Nations authorised in connection with Diego Garcia in 1974 when two visits were made on its behalf? I want to emphasise what the noble Baroness, Lady Lee, said, that the littoral States on the coasts of Africa —Somalia to Yemen to India and to Malaysia in the North, the States which are bordering the Indian Ocean—are now asking for its neutralisation.
The noble Earl, Lord Cowley, drew attention to the fact that when this subject was debated at the United Nations the Soviet Union Representative abstained as well as the Representatives of the West. But he will be aware that, since then, Mr. Brezhnev and the Soviet Union have unreservedly declared their support of the demand of the nations bordering the Indian Ocean that the Indian Ocean should be neutralised. They have used the phrase and they support the idea of a "Zone of Peace".
I do not accept everything the Soviet Union says; but I suggest that we ought

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to challenge them when they have made that statement. Let us ask for a United Nations investigation of the facts. There does not seem to me to be any doubt that the majority in the United Nations would support the neutralisation of the Indian Ocean. I have no doubt at all that the vast majority of world opinion which desires peace would also support this proposal. It would be a precedent for other areas; it would be a precedent for the Mediterranean where Mediterranean nations are demanding neutralisation in the presence of great American and Russian fleets.
The Party to which I belong is not only pledged to reduce expenditure upon arms but also pledged to support the cause of peace. One would hope that our Party, in world affairs, will support this idea, which is endorsed by every nation which borders the Indian Ocean, that the area should be neutralised as a great encouragement to the neutralisation of the seas of the world and towards peace.
4.1 p.m.
Lord MERRIVALE: My Lords, I would certainly follow the noble Lord, Lord Brockway, in agreeing that we are much indebted to the noble Baroness, Lady Lee of Asheridge, for introducing this highly important Motion this after-noon. The great American naval strategist, Admiral Mahan, wrote during the last century that:
"Whoever controls the Indian Ocean dominates Asia and in the twenty-first century the destiny of the world will be decided in its waters."
Whether American or British strategists today would express their concern over Soviet penetration of the Indian Ocean in quite those terms is doubtful; but I feel we should certainly consider the implications of the words of Admiral Gorshkov in July 1967, when he said:
"The Soviet Navy has been converted, in the full sense of the word, into an offensive type of long-range armed force … which could exert a decisive influence on the course of an armed struggle in theatres of military operations of vast extent … and which is also able to support State interests at sea in peace-time."
Then there is Russia's long-term aim of filling the vacuum created by Britain's withdrawal East of Suez, the first incursion of Soviet naval vessels into the

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Indian Ocean being in 1968. Finally, there is the Russian desire to increase their influence and presence in that area. I think that the following statement which appeared in Pravda in August 1973 is as relevant today as it was then:
"Peaceful co-existence does not spell an end to the struggle between the two world social systems. The struggle will continue between the proletariat and the bourgeoisie, between world socialism and imperialism, up to the complete and final victory of Communism on a world scale."
Therefore let us not forget the situation in Cambodia and, nearer home, in Portugal, while remembering the Russian build-up in the area we are considering today. I would add en passant that while Russia may be competing with the Chinese in a struggle for influence— in the Indian Ocean area China does not look on it as a strategic or political entity but more as an area in which exists "targets of opportunity"—on the other hand, the Soviet are intent on increasing the facilities they require and the influence they can exercise there.
Excluding for the moment reference to Russia military advisers and instructors in the area, one cannot ignore the fact that Russia is increasing her port facilities. For instance, the Soviet have a naval and submarine base at Hodeida in the Yemen Arab Republic, while in Iraq Soviet aid has helped to develop the naval bass at Umm Qasr at the head of the Persian Gulf. The island of Perim has also very useful naval facilities. Then there is Aden, which has already been referred to, with its excellent natural harbour, constituting as a base a definite potential threat, as it is readily available to Marxist-orientated naval units. At present the island of Socotra has no harbour— reference has also been made to this island—but I understand that about three years ago Soviet engineers made a survey of it. An unstable situation exists in Ethiopia which has a main naval base at Massawa; and last year the Soviet. Somali Friendship Treaty was signed, so that the Russians now have at Berbera important port facilities and the communications centre there is under sole Soviet control.
At Port Louis in Mauritius, the Soviet "fishing fleet"—and we all know what that means—has been granted facilities. At this point I should like to ask the Minister: what is the present situation

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regarding the important naval communications centre based on Mauritius for which we were responsible until last year? May I ask whether the arrangement has been extended and whether we are still responsible? As I do not wish to go beyond the Indian Ocean into Portuguese Atlantic areas, I feel that some concern should be expressed over some-thing that has already been mentioned; namely, the unstable situation in Mozambique. After the Russian demands for facilities at Madeira, one can imagine that they will seek increased co-operation with the Frelimo Government in Mozambique.
I should now like to turn to the very reasonable proposals to increase the use-fulness of the Diego Garcia Atoll to the United States naval forces in the area. In a Written Answer last year, my noble friend Lord Ferrers said on 5th February, on behalf of Her Majesty's Government, at column 770 of the Official Report that the Government:
"… have long felt that it is desirable in the general Western interest to balance increased Soviet activities in the Indian Ocean area Accordingly they welcome the expansion of the U.S. facilities … "
Can the Minister say what the present situation is and what is the Government's attitude now regarding these increased facilities, which are fairly marginal at Diego Garcia?—bearing in mind a 3 to 1 Soviet naval presence as compared with the United States naval presence, and also an even greater ratio regarding "port time" in the area.
Finally, I am conscious of the fact— and I can understand the feeling of the noble Lord, Lord Brockway, on this— that many African Governments would welcome the idea of a neutralised Indian Ocean, but as things are at the moment I feel that the idea of an Indian Ocean denuded of big-Power naval presence is anachronistic. The Russians, it seems, are there to stay and with the reopening of the Suez Canal (this summer, I believe) access to the Indian Ocean will certainly be much facilitated, particularly to the Russians and not so much to the Americans because of the size of naval vessels. At the same time, the major oil-producing countries once the Canal is open will be "ringed" by the Soviet Navy.
Having made these points, I feel that we should listen to the points which

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African Governments have to make and endeavour to see their point of view and see whether we cannot convince them or at least reach some form of modus vivendi and understanding on this very important matter. It is a subject they feel strongly about, I know. I am thinking particularly, of course, about the views (as was mentioned by the noble Lord, Lord Brockway) of the littoral States. I have in mind Madagascar, because I have been chairman of the Anglo-Malagasy Society since October 1961, and also Madagascar's importance in terms of its geographical location and size and heads of population—it has a population of over 7½ million people. Regarding that country, I think it relevant to point out that since 1972 their foreign policy has been what they term, "A politique d'ouverture tous azimuts" as practised by the then Foreign Minister, Commandant Didie Ratsiraka, which I certainly believe will be followed by the present foreign Minister, Pasteur Albert Zakariasy. In other words, co-operation with all countries, East and West, provided their national sovereignty is not impaired or impinged upon, on a basis of mutual understanding and friendship.
In conclusion, I feel though, as mentioned in a recent report produced by the Institute for the Study of Conflict, that in the Indian Ocean, as elsewhere, a strong Soviet Fleet is an instrument of moral and material support for groups in power or seeking power and willing to work with the Russians. Therefore, my Lords, this country and the United States should recognise this fact and act accordingly.
4.3 p.m.
Lord LEE of NEWTON: My Lords, each of the contributors to this debate has stressed the enormous strategic importance of the Indian Ocean, and none has suggested that any accomplished fact so far as a disturbance of the peace in the Indian Ocean is concerned, has as yet taken place. It is indeed a most remark-able fact that such a huge expanse as the Indian Ocean, with such enormous importance to so many people, has not revealed any of the disturbances which we have seen in most other parts of the world. I think we all agree that if it is in any way disturbed then vital differences could arise as between the great Powers.

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My noble friend Lady Lee of Asheridge who opened the debate mentioned the position in Mauritius. I was there about a year ago when she was, and there can be no question that Prime Minister Ramgoolam and others are extremely worried about what could hap-pen in Diego Garcia. I rather resented the imputation made, I think, by the noble Lord, Lord Merrivale, that, because the Russians have certain fishing rights at St. Louis this seemed to him to indicate there was a bias in favour of Russian power being encouraged in the Indian Ocean. I could find nothing of that kind in the discussions I had in Mauritius. In-deed, I would repudiate the thought that people with whom I negotiated in my days as Colonial Secretary, and who have always honoured their side of the arrangements we then made, would be capable of that kind of duplicity. It is somewhat ironic that at the moment when we are debating this issue the Constitutional Conference for the Independence of the Seychelles is now taking place in London. We, as a result of such Constitutional Conferences—whether they be for independence, as in the case of the Seychelles, or for associated status, as in the case of large areas of the Caribbean where I negotiated—do not cut ourselves off from friendship and assistance to those areas. They remain within the Commonwealth, and to me it would be unthinkable that we could rather hypocritically talk about granting Independence to the Seychelles if at the same time we were to lend our aid to build up warlike fleets within the Indian Ocean itself.
I should therefore be grateful to my noble friend Lord Goronwy-Roberts if, when he replies, he will say who is right. Are my noble friends Lady Lee and Lord Brockway right in saying that in Diego Garcia there is to be a very considerable build-up of American military and naval strength, or is the noble Lord, Lord Gladwyn, right when he says it is merely a question of communications? There is, I suggest, a slight difference. One's attitude would be very largely determined by which way that question is to be answered. May I also ask this? Especially when one looks down the African coastline one sees that here again are members of the British Commonwealth of nations. Has there been close consultation between Julius

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Nyerere and people of this kind and the Americans before any arrangements were made—or will there be if arrangements are to be made—on the question of what is to happen on Diego Garcia?
I like the suggestion of the noble Lord, Lord Gladwyn, that with the reopening of Suez, which will bring the Gulf of Aden very much into this particular picture, it would be a good thing if the Egyptian Government made some statement about warships going through Suez. One looks at the Mediterranean and the access via Suez to the Indian Ocean of both the Americans and the Russians. It is now a feature which could change the disposition of power within the Indian Ocean very considerably indeed. For my part, I hope that Mauritious's Government would not only suggest to the Egyptian Government that they might consider doing this; I would go further and agree with my noble friend Lord Brockway that it would be first class if we got an inquiry into the whole basis of this situation; if we suggested at the United Nations that it would be an excellent feature of their work in this part of the world if they could initiate such discussions, with a view to ensuring— I will not say the neutrality of the Indian Ocean, but certainly that the new possibilities which the reopening of Suez will bring are vetoed so far as both the great Powers are concerned. These, to me, are vital issues indeed.
I congratulate my noble friend Lady Lee on raising this issue. As I said, she, like myself, had practical experience of the feelings of the people in Mauritius If there is nothing in this suggestion about the build-up in Diego Garcia, how is it that it comes about at this particular moment? We have all known a very old friend of ours, the Prime Minister of Mauritius, for many years. I never heard any suggestion from him that there was danger of animosity between the Soviets and the Americans until the question of Diego Garcia came into the headlines. Therefore, I do not accept either that they are behaving hysterically or that they are merely surmising about what could happen. I think that today's opportunity is an excellent one. When he replies. I hope that my noble friend will be able to enlighten what I confess is my complete ignorance about the answer to these matters, and that he will do so in a way

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which will enable the Conference on the Seychelles which is taking place now in Lancaster House to feel that they know that the answer is not only Independence, but Independence from what.
4.11 p.m.
Lord GORONWY-ROBERTS: My Lords, the House will be very grateful to my noble friend Lady Lee of Asheridge for introducing this important subject for debate, and for the balanced and cogent way in which she spoke. Britain has had a long history of involvement in the Indian Ocean and of relations with the littoral countries in that area. We were there first as traders, then as a colonial and naval Power; and I think it is reasonable to state that we exercised this power responsibly in fulfilment of our commitments to territories which we administered by the best lights available to us in that period of Imperial power, and in fulfilment of Treaty obligations in the area. I think it is true that we can look back with some pride on the rapid and harmonious transition which has been made to a new pattern of relationships with countries in the area, and there are noble Lords who are present in this House who have made distinguished contributions in that direction.
Of course, we continue to have an interest in the Indian Ocean, as have other countries, including European countries; but somehow it always falls to us to solve all the problems which occur in such areas, even though there are other countries which are directly interested. Like other countries, we have a legitimate interest in ensuring the security of these trade routes, and it is against this background that we have agreed to a limited expansion by the United States of the facilities at Diego Garcia. This offers no threat to the security of States bordering the Indian Ocean; nor, indeed, has it attracted any-thing like universal hostility from those States.
In recent years our military presence has been progressively reduced as we have reassessed our role in the world. Indeed, in this area of South-Western Asia and the Far East our presence has very greatly diminished in accordance with that reassessment. We are now almost confined to considering the future of Diego Garcia. I hope that what I have to say

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will, in some respects, reassure my noble friends and others who are concerned about the natural anxieties which have been expressed by the people of Mauritius and others about what is pro-posed to happen there.
May I therefore take the outstanding questions which my noble friend Lady Lee of Asheridge has put to me. She said that the Mauritian High Commissioner in Delhi had publicly stated that there was an undertaking not to use Diego Garcia for military purposes. My understanding is that when the Chagos Archipelago was detached from Mauritius to form part of the British and Indian Ocean Territory, it was made clear to the Mauritian Government that it was needed for "defence purposes". The Mauritians sought to place no restrictions upon this use. I believe that this is also the official understanding of the Mauritius Government.
My noble friend asked about nuclear weapons, and in this question she was joined by a number of noble Lords who took part in this debate. The Americans do not plan to base ships or aircraft at Diego Garcia and, as my right honourable friend the Secretary of State for Defence has said, there will be no facilities of any kind for nuclear weapons. My noble friend Lord Lee of Newton and my noble friend Lord Brockway, as well as the initiator of this debate, sought reassurance on this point. I give that assurance and add that if there were such a proposal they would have to come to us.
Lord BROCKWAY: My Lords, the Minister says that there will be no American aircraft stationed at Diego Garcia. However, according to the report presented to the United Nations by representatives of the Secretary General, is it not the case that the run-way has been extended so as to allow aircraft of any size to arrive at and depart from that base?
Lord GORONWY-ROBERTS: My Lords, I was coming to that point and to one or two related points. However, I thought that it was right and courteous to deal first with the extremely important questions that my noble friend Lady Lee of Asheridge has raised. My noble friend also asked a question about oil or other minerals discovered in or near

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the Archipelago. We have told the Mauritius Government that they would have the benefit of any minerals or oil discovered in this area. But the Islands are British sovereign territory and, in our view, this includes the territorial waters. However, we have said to them that they would have the benefit of these discoveries, if any; and, of course, as in the past, I think we shall do a great deal to assist them at the right time to make use of these benefits, if and when they are found to exist. My noble friend and, I think, my noble friend, Lord Lee of Newton, quite rightly asked whether there had been proper consultation.
Baroness LEE of ASHERIDGE: My Lords, on the question of the surrounding seabed, I have been officially in-formed that the Mauritians had engaged an American company to explore for oil and other minerals in the surrounding seabed, and that they had been told that they could not go on with those explorations. It would be very useful if that point could be cleared up.
Lord GORONWY-ROBERTS: My Lords, I am not immediately in a position to clear up that point. I think it is related to the immediate defence question in that area. I recognise my noble friend's interest in the matter and I share it. I do not wish to give a complete answer, because I am not in a position to do so. What I will do is look into it; but I repeat that we have told the Mauritius Government that they would have the benefit of any minerals or oil discovered in this area, and I have no doubt that we shall assist them, if and when this becomes practicable. How far this is related to the needs of defence is a matter for definition, and I wish to be more precise about this before I answer.
I come now to one or two detailed questions which have been put to me, including one put in supplementation by my noble friend Lord Brockway. The improvements at Diego Garcia, which are relatively modest, will provide facilities for refuelling, resupplying and minor maintenance of ships and aircraft. They include lengthening the runway, enlarging the parking area, improving ship sup-port facilities and storage and accommodation facilities. This does not in any way

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minimise the force of what I said previously, that it is not the intention to base ships or aircraft at Diego Garcia. There will be no specialised support facilities for submarines. The improvements to the runway will not strengthen or widen it sufficiently to permit B52 bomber operations, which I think the noble Lord mentioned. At present there are some 300 US personnel stationed there and the number will increase gradually to some 500. That is about the size of it, and noble Lords and others who have some experience of these stations—I avoid the word "base" because it is not a base; it is a station—will realise that it is not proposed to increase it markedly. I repeat that it does not constitute a threat to any State in the area, and I want to add that it certainly does not conduce to an imbalance of presence in the area.
I do not propose to engage in an evaluation of the Russian presence as compared with that of the Western countries in this area. Rather I should like to take up one or two points made by my noble friend about the prospects of moving towards—if not an absolutely nuclear-free zone—a peace zone in the general area. Here, if I may say so, I thought the speech made by the noble Lord, Lord Gladwyn, was most thoughtful and constructive. There are real practical difficulties about organising such an area over a wide ocean. The same difficulties do not obtain over a territorial expanse such as Latin America; may not obtain in what is mainly a territorial part of the world like the Middle East, but certainly do obtain over an oceanic part of the world.
We have, of course, a record of strong support for meaningful and constructive advances in regional neutralisation. We found it impossible to support—we did not vote against, but found it impossible to support—proposals put forward at the United Nations in regard to the Indian Ocean, for quite substantial reasons. We believe that these changes should be pre-ceded by proper studies and preparation. The suggestion that the Indian Ocean should be neutralised certainly reflects a genuine concern among the countries of the area. Nevertheless, it seems to us that the best approach to neutralisation in the Indian Ocean is offered by the suggestion of the Australian Prime Minister, Mr. Gough Whitlam, who we feel has

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gone to the heart of the matter. He has suggested—and we completely agree with him—that it is necessary to secure substantial agreement by the two super Powers before we move on, hopefully, to a conference designed to draw up a blue-print, however idealistic, but which, unless there is substantial prior agreement by the super Powers, may not result in any advantages to that area or to the world.
The countries bordering on the Indian Ocean do not form a distinctive group in a political or a cultural sense. It is natural that many of them should express concern about what is happening there— not just now in Diego Garcia, but what has happened over the past 10 or 15 years all over the Ocean—and should feel anxious about these developments. They are developments deriving from the lack of effective detente in the area between the two super Powers, and our role must be—as I think the noble Lord, Lord Gladwyn, pointed out very cogently —to support every practical way of get-ting the two super Powers together to agree to effective action.
A very interesting suggestion was made about the control of the Suez Canal. That would apply to one of the super Powers but, clearly, it would be a contribution in the sense that one super Power in particular would be subject to a possible sanction.
Lord BALNIEL: My Lords, will the noble Lord allow me to interrupt him, before he leaves the subject of arms limitation in the Indian Ocean? The proposal for arms limitation is a very reasonable and desirable one, provided it is balanced and controlled and properly surveyed, and I am sure that if such a proposal were to be implemented it would certainly be welcome to China, to India and to the oil producing countries of the Middle East. But can the noble Lord say whether there has been any indication at all, apart from words, that the Soviet Government is in any way pre-pared to reverse the existing build-up of the forces in that area?
Lord GORONWY-ROBERTS: My Lords, it would be rather difficult for me to explain or project Soviet policy or intentions. We have heard words spoken by Mr. Brezhnev quoted in this debate.

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We have had recent experience of helpful and hopeful contacts with the Soviet Government. There may be others. Shall I say that we hope very much that the progress of detente will include a readiness by both the Soviet Union and the United States of America to look at the question of build-up in this area, in particular. I think that should be part of it, but I accept the noble Lord's point —in fact, I was dealing with it—that first the Russians and the Americans should indicate and seek to prove by deeds, possibly by a policy of small steps, that they are in earnest about achieving, first, a balance and, later, de-escalation in this area.
There are, of course, other considerations that we must bear in mind before we support positively well-meaning but, perhaps, not sufficiently thought out proposals in New York for conferences and arrangements designed to achieve what my noble friend and I—and I think all of us—so passionately want to see. First, the decision to form a nuclear-free zone should be taken voluntarily and freely by the States concerned in the area; secondly, the creation of such a zone should not diminish security or have a destabilising effect. This is particularly important in regions of nuclear confrontation between the great Powers.
Thirdly, all militarily significant States, and preferably all States in the zone, should be included. Fourthly—and here I join with the noble Lord—there should be arrangements for impartial, inter-national verification adequate for the particular circumstances of the region. It is no good having a blueprint unless it is first of all effectively implemented, and, secondly, effectively supervised in practice. Any progress towards creating any such nuclear-free zone or, indeed, zone of peace, would certainly contribute to-wards the reduction of tension in the area. We have shown willing by action as well as suggestion at the United Nations, and in other discussions, when we have supported effectively other proposals—at least five which I can call to mind— relating to Latin America, to the Middle East and to Africa.
My Lords, we have had natural doubts about certain proposals made about the India Ocean. This is not quite the same as Latin America, or even the Middle East. I can completely assure my noble

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friend that it is the aim of Her Majesty's Government to support the objectives she has so eloquently described. I hope that in these few remarks I have gone some way to reassuring her and my other noble friends about the position in Diego Garcia.
Earl COWLEY: My Lords, before the noble Lord sits down, could he at least try to answer the points I raised in relation to the study being carried out by the NATO Defence Planning Council in relation to developments in the Indian Ocean?
Lord GORONWY-ROBERTS: My Lords, not clearly at this point. If the noble Earl, Lord Cowley, will help me by possibly putting down a Question, I should like to look at that separately from the general points raised this afternoon about the Indian Ocean.
Baroness LEE of ASHERIDGE: My Lords, I should just like to thank the noble Lord, Lord Goronwy-Roberts, for his courtesy in answering in detail the questions raised. As the noble Lord knows, every word he has said will be carefully scrutinised by the Governments to which we have referred. I look for-ward with interest, as I am sure he does, to the replies we shall receive from our many Commonwealth friends and others. We hope that what has been said by the noble Lord today will not only be re-assuring, but will be something to build on towards more secure times. I beg leave to withdraw the Motion.
Motion for Papers, by leave, with-drawn.

ALCOHOLISM
4.34 p.m.
The Earl of KIMBERLEY The Earl of KIMBERLEY rose to draw attention to the growing problem of alcoholism in this country, the increasing number of man-hours lost to industry thereby, and the shortage of health and social service facilities to deal with the problem; and to move for Papers. The noble Earl said: My Lords, the subject of the debate this afternoon has been shrouded in mystery for many years, largely through the ignorance and misunderstanding of the general public. I feel that it should be a non-Party debate.

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I hope that by the end of it we shall have cleared the air considerably, and recognised many of the problems that exist. I feel sure your Lordships will bear with me while I briefly describe what an alcoholic is not. However, I must add here that whenever the term "alcoholic" is referred to this afternoon, it refers to either sex.
My Lords, for many years, the alcoholic has been drawn as a character on a bomb site with a bottle of "meths" stuck in his pocket. He has been ridiculed on the stage as the proverbial drunk with a red "hooter" propping up a lamp post, as someone everyone laughs at. He has been described as a person lacking in moral fibre, who has no will-power. For many years, metaphorically he has been swept under the carpet and not admitted to by any of his family, because of the stigma attached to Ms so-called weakness. How wrong this conception is!
My Lords, the alcoholic suffers from a very severe illness, both mental and physical. It is a progressive illness, often taking from eight to 15 years fully to manifest itself. Due to the inadequate knowledge of the family and of the general public with regard to this illness, the alcoholic gets progressively more ill, fighting with his family, thereby putting an excruciating strain on his nearest and dearest who, for the sake of peace and quiet, by all the wrong methods try to stop him from drinking, usually with disastrous results. In the end, either he dies, or ends up in an insane asylum as a vegetable.
He will go out with the best intention of having only one or two drinks. When he sets out on a social occasion, it is his avowed intention that that is all he will have, but as soon as he has had them, he cannot help himself and usually ends up by getting hopelessly drunk. If the family have no drink in the house, he will wait in agony for the pub to open. He will wake up in strange rooms, in strange towns, wondering how he got there. He will steal money from his wife's purse. The wives of alcoholics are forced to go out to work to pay the rent and keep the family. After a period of time, the alcoholic completely disrupts his family life, his social relations, and invariably loses his job. His mental and physical condition is so affected and weakened by

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the continuous use of alcohol that every-thing is neglected except the procuring of more alcohol.
My Lords, the problem of the alcoholic is not only in his physical being, but also in his mind. If asked why he went out on a "bender", he will give you any of 100 excuses. Women alcoholics have exactly the same problem. Why they drink is rather irrelevant, although it has been ascertained that many women start drinking through loneliness and boredom. Their husbands do not understand why they do not join a bridge club or do charity work. The husband is often envious that the wife has no work to do, and, in the end, all this leads to is that they grow more and more incompatible, and the woman alcoholic continues down the same slippery path of despair and self-destruction. Alcoholism is the fourth biggest killer in this country, coming closely after heart disease, cancer and tuberculosis. The alcoholic does not necessarily die directly through cirrhosis of the liver, but, perhaps, in a motor accident, or he can set his house on fire, commit suicide, get run over, and so on.
Should any of your Lordships think that alcoholism is not an illness, in 1952 the World Health Organisation stated that it was. The stigma that is quite unjustifiably attached to alcoholism often pre-vents him from admitting that he is one, let alone allowing himself to consider treatment. I must point out here that a drinking alcoholic is partially insane, and cannot fight this terrifying addiction and craving without help. He is one of the most unfortunate and lonely characters in the world today. Practically everyone is against him, and few understand him. He has got himself into a condition and situation from which he can find no escape, except to continue drinking in order to anaesthetise himself from all the problems both large and small, from which he thinks he cannot escape.
If anyone in this Chamber thinks I have exaggerated, I would assure them that, if anything, I have done the opposite. I speak from experience, as I am myself a recovered alcoholic. I would add here that I do not preach teetotalism. I have no desire to stop anyone drinking socially. For the alcoholic to recover, he must not drink at all. The percentage of

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recovered alcoholics who have managed to drink socially again is absolutely infinitesimal. That is why it is no good sending an alcoholic to a treatment centre for a week or so, after which time he has dried out and feels physically well again— so well that on his release he goes straight out and drinks again. To enable recovery to be successful there is a vast amount of after treatment and care necessary.
My Lords, what is the size and extent of this problem in our country? The official estimate is around 400,000, but this figure is of only the known alcoholics. It is probably only the tip of the iceberg, as today the figure of hidden alcoholics is certainly very much larger. I could go into many more details, numbers and statistics at great length, but should any of your Lordships like any further information on those figures I will be only too happy to try to supply them after this debate.
We must remember that the alcoholic affects not only his whole family but other people, such as his general practitioner, the police, magistrates, publicans and so on. Therefore, conservatively, over 2 million people have direct con-tact. The problem is increasing rapidly. Between 1958 and 1973, the number of convictions per year for drunkenness rose from 75,000 to 99,275. This represents an increase of about 25 per cent. per 10,000 people in the population aged fifteen years and over. The biggest percentage increase occurs in the under-eighteen year old convictions—1,880 in 1966; 4,725 in 1973—which is very alarming. I realise that many of those convicted are not alcoholics, but a large percentage are, or are potential, alcoholics. Dr. Glatt, one of the great medical experts in the world on alcoholism, published a survey in 1967 of two London courts and, if this survey was projected nationwide, out of 70,000 males convicted for drunkenness 17,500 were convicted once, 7,000 were convicted two or three times and 10,500 were convicted four or more times. From this it can be seen that the drunkenness pattern of today will reflect the trend of tomorrow's alcoholism.
My Lords, I think it would help if I gave a few figures on the increased alcohol consumption in this country, and I will break it down into three sections. Beer consumption in 1951–52 was

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25½ million barrels; in 1974 it was 39 million barrels. Wine consumption in 1951–52 was 17 million gallons; in 1974 it was 87 million gallons. Spirits consumption in 1951–52 was 9½ million gallons; in 1974 it was 33 million gallons. The dramatic rise in wines and spirits is even more disturbing when one realises that the greatest increase has occurred in the last three years; namely, 80 per cent. for wine and 66 per cent. for spirits. In fact, wine consumption has increased in the last year by 5 per cent., and although the more expensive wines have decreased, possibly due to the extra taxes imposed by the Chancellor, cheaper wines have taken their place. These figures speak for themselves.
Today in England and Wales 91 people per 1,000 exceed 15 centilitres of pure alcohol per day, and can therefore be classified as problem drinkers. Deaths from cirrhosis of the liver increased by 33 per cent. between 1962 and 1972. The admission rate in hospitals has increased in the last few years, but this is not a good guideline because it does not reflect the increase in beds which have been made available, coupled with the decrease which has occurred in the stigma attached to alcoholism whereby more alcoholics have come forward. Nevertheless, admission rates have increased from 2,400 in 1960 to 10,000 in 1972. I hope now, my Lords, that you will all agree that the growing rate of alcoholism in our community cannot be disputed.
I will now come to the cost to industry through loss of man-hours. It is very difficult to produce exact figures for the number of man-hours lost, since so little research has been done. But I am certain that it would pay a handsome dividend to the Department of Health and Social Security, as well as to the Department of Employment, if an inquiry into this problem were set up. It was found in 1968 in one Scottish company that the overall incidence was 14 per cent. According to Dr. Glatt, those in industry particularly prone to alcoholism are top executives, publicans—who, incidentally, have the highest rate of cirrhosis of the liver and mortality from it—journalists, the shipping industries, coalmining, steel-workers and show business. Taking into account the number of people with drinking problems in our community, the con-

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servative estimate that industry loses only £105 million a year is obviously very much an underestimate. Dr. Glatt estimates that with the sickness benefits, social security, loss of efficiency in a work force of 250,000 problem drinkers, the loss is at least £250 million annually.
My Lords, we must rid ourselves of the completely false picture that the aver-age alcoholic is unemployed and unemployable. In fact, during the last six months the information centre of the National Council on Alcoholism helped 435 people, of whom 70 per cent. had full-time jobs. Quite soon after the onset of the illness the alcoholic becomes less efficient, less productive, less co-operative. His ability to establish relationships, both at home and at work, deteriorate. For years he works below his potential, and therefore the economic cost of absenteeism, accidents, loss of years of training for a responsible post, should be costed.
In 1967, some very revealing figures on alcoholism in British industry were published. Out of 300 alcoholics inter-viewed, it was found that 66 per cent. were frequently late for work, 40 per cent. were absent on Monday mornings once or twice a month, 21 per cent. were absent on Monday mornings more than once or twice a month, and the time lost by an alcoholic per year was 86 days. The alcoholic also sometimes works under the influence of drink, and it was found out that 88 per cent. usually drank before coming to work, 62 per cent. sometimes took a bottle to work with them, 12 per cent. did this every working day, and 90 per cent. sometimes drank throughout the day. It was found that 11 per cent. of accidents occurred through drinking at work, and 33 per cent. of those interviewed considered that drinking might have been responsible for some such accidents.
My Lords, what has been done in the United States? Over 300 major companies have alcoholic programmes, and these include Dupont, Eastman Kodak, Allis-Chalmers, the Bell Telephone Company and many others. Ford and Heinz prohibit the use of alcohol in their canteens and dining rooms. Dupont apply shock treatment. Employees are aware that their jobs are in jeopardy unless they take the treatment, and the Dupont

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figures of recovery are 65 per cent. successful. Most of the major firms in the United States use constructive coercion. The principles of constructive coercion are very simple. The motive for the employee to keep his job provides the coercion needed. The company has a desire to rehabilitate rather than sack the employee, which is constructive. Inefficient and unproductive work occurs early in alcoholism, thus providing early diagnosis. Most United States companies have recovery rates between 70 and 90 per cent. Even if rehabilitation fails, many companies give a disability pension to the alcoholic, if he has been with them a long time. Experience in the United States has shown that treatment is not the problem, but identification is.
It is interesting to note that in 1968 constructive coercion was tried by the Glasgow Council on Alcoholism, but it failed because top executives denied that there was a problem. In seven years we have come a long way. Just because if failed the first time, that is surely not sufficient reason for not trying again. I have said that we think alcoholism costs industry at least £250 million a year. Unfortunately, most companies—and the Institute of Directors and the trade unions —are still not keen to discuss the alcoholic problem. Why not? I would suggest that it is probably through ignorance and also through insurance difficulties.
If a company retains an alcoholic after treatment, and an error is made, usually the insurance company is most unsympathetic. This discourages firms from re-employing alcoholics. It is high time that British industry and the trade unions examined this long neglected area. Alcoholism is a modern major health hazard to industrial life and it would be of great benefit to industrial and commercial firms if they would encourage early detection of problem drinking. As we all know, prevention is much better than cure; but prevention must commence when the problem is a social one. It must not be left until it has become a medical disease.
We must educate our doctors to a much greater awareness of the problems, particularly with teenagers. We must educate our managers and directors to diagnose and begin to use constructive

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coercion. All these endeavours are much easier in large firms where separate medical care is available. In small firms it is more difficult. So it is important that the general practitioners should establish two-way communication with managers of small firms. Let us remember that as well as the economic cost there is also the humanitarian cost to our society.
During the last 13 years, the Department of Health and Social Security has made a great contribution towards the treatment of alcoholism. But, nevertheless, there is still an acute shortage of such facilities. In its Memoranda of 1962, 1968 and 1973, the Department has shown great awareness of the need to provide medical and social services to deal with the problem. It has recognised the need for more hospital units, counselling and information centres, hostel accommodation and for more staff and training facilities.
But the services are still inadequate, probably for the following reasons. The provision of facilities leads to a greater demand. Educational programmes have begun to diminish the stigma of alcoholism and, therefore, more sufferers are coming forward. There are more alcoholics today and, lastly, there is the difficulty of persuading local authorities, the social services, and Area Health Authorities to support financially community-based services for the alcoholic.
The DHSS, realising the difficulty of persuading public opinion to recognise the problem, in 1973 sent out a circular. It read:
"The reluctance of public opinion to recognise the scale and nature of the problem in their midst is well known, and it would be unrealistic to expect rapid unaided development of community provision by statutory or voluntary bodies on the scale which is needed to meet the needs of the alcoholic community at large."
People working with alcoholics are hampered and frustrated by the lack of agencies to refer to. I am convinced that the benefit that could be gained by putting some of our resources into the primary and secondary prevention of alcoholism would soon outweigh the capital spent on these services. Statutory bodies working in close co-operation with voluntary bodies could provide a powerful breakwater in preventing and cushioning the worst manifestation of alcoholism.

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We must find an earlier method of diagnosis.
Industrial personnel and medical officers have a tremendous role to play here, as well as the health visitor and the GP. It has often been said that the ordinary GP ignores the problem of alcoholism. In some instances, unfortunately, this is correct, but in the last two or three years I have noticed a much greater awareness of the problem by the GP. There is also this point: May not the general practitioner be much more willing in his practice to identify alcoholics if he knew that he had the facilities for treatment and after-care available in his area? A campaign run by the North Eastern Council on Alcoholism for the last three months of 1974 produced 924 inquiries, and the majority of these were at a relatively early stage in their drinking. The campaign would have been much more successful, however, had there again been more facilities available to cope with the number of cases that presented themselves.
My Lords, I should like to suggest a few ideas for your Lordships' consideration. There should be many small centres run by local authorities. At present, only the GP is available; and as I have said, he is sometimes ill-informed, has no time and is too busy to concern himself with such a complex and time-consuming problem. Local authorities should teach social workers about alcoholic problems and have at least one who specialises in this illness. These services should be well-publicised by advertisements in the local Press and in telephone directories under "Alcoholics' Information Centre" and not left to a sub-heading under "Local Government". Where regional councils already exist this is done.
There is the problem of after-treatment follow-up. Alcoholics often have no one to turn to, and consequently often re-lapse. This follow-up treatment is vital if the initial treatment is not to be wasted. Virtually the only after-treatment ser-vice currently available is Alcoholics Anonymous. This society does a tremendous amount of good but it is not suit-able in every case. Last, but not least, is the importance of help to the alcoholic's family. Some treatment centres try to help, but often do not for lack or short-age of staff. As I have said, in the last

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few years the number of hospital beds has grown, but the waiting list has grown too. There is the greatest difficulty in getting an alcoholic into a detoxification centre as many hospitals cannot be bothered with it. Unfortunately, the more alcoholics we find, the more hospitalisation will be needed. However, improved community services would allow many people to be treated at home, so leaving hospital beds available for the worst cases.
To sum up, we must inaugurate a primary prevention programme by educating the public on the dangers of excessive drinking and to where it may lead. I am happy to learn that the National Council on Alcoholism, the Medical Council on Alcoholism and the National Association of Youth Clubs are attempting to institute an educational programme on this subject. Also, the Medical Council on Alcoholism is about to research the attitude of English schoolchildren to alcohol and their different drinking pat-terns. An educational programme of this magnitude would, however, require considerable expenditure.
I should like to end with a suggestion as to how some of this money might be raised. In 1973 the British public spent just over £4,000 million on alcohol, and in that same year the drink industry spent £38 million on advertising. The Customs and Excise duty collected by the Government was £954 million and the VAT received was about £350 mil-lion, making a total that the Government received of just over £1,300 million. There should be added the tax on company profits, which in 1970 was assessed at £76 million, and no doubt it is higher today. Surely a society which has a tax revenue of nearly £1,400 million a year could contribute a greater sum than it does to all those services which seek to reduce the ever-growing disaster of the alcoholic problem in our country. My Lords, I beg to move for Papers.
5.1 p.m.
Lord HUNT of FAWLEY: My Lords, I thank my noble friend Lord Kimberley for initiating this debate. I should like to ask your Lordships to consider, first, how old is this problem of alcoholism and how can we learn from the past. Fermentation processes leading to the formation of alcohol must have been

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taking place long before man appeared on this planet. When he did arrive, it could not have been very long before he discovered its remarkable qualities, and it is likely that for ten of thousands of years he enjoyed its good effects and suffered from its hangovers. It has been one of the best tranquillisers we have ever had, and it is still. Not long ago we heard of a doctor who put a little port wine into almost every bottle of medicine he dispensed; but that was before the National Health Service.
We were fermenting grapes thousands of years ago. Genesis Chapter IX, verses 20 and 21 tell us:
"And Noah began to be an husbandman, and he planted a vineyard:
And he drank of the wine, and was drunken; and he was uncovered within his tent".
The Old Testament contains more than 200 references to alcohol, of which some 40 describe its ill-effects. In Britain, mead made from honey, ale and cider were drunk in our earliest pubs before the Roman Conquest, and the Romans brought us wine. In 1700 the population of Britain was about 5 million and we are told that 12 million barrels of beer were brewed each year. Whiskey was soon afterwards introduced from Ireland, we are told, and not many years later gin was so cheap and plentiful that it caused a great deal of trouble for a long time, until reviews of the licensing laws, punishment for drunkenness and disorderly conduct, taxation and an increase in the price of liquor all helped towards an improvement. So we know that the problem of alcoholism is by no means a new one.
In ancient times alcohol was comparatively difficult to make and keep. Now it is easy to obtain and store; it is widely advertised; some of it is made to taste delicious and it is considered to be almost essential for most kinds of entertaining. In this country now the per capita consumption of alcohol is rising. Most people up and down our occupational and social scales take an innocent drink from time to time and the old sayings, "As sober as a judge", and, "As drunk as a lord", are no longer always applicable.
Our problem now is that apart from an increase in harmless, well-controlled

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social drinking, there are many indications that excessive drinking is on the increase, too. In many countries—and we are by no means the worst of them— it is a growing problem and a most serious matter, because it will almost surely get worse unless it is treated energetically. We are told by the Department of Health and Social Security that we have now probably about 400,000 people in Britain who have a serious drinking problem.
A rising consumption of alcohol may, by itself, mean only that more people can afford to have a glass of wine, beer or spirits with their dinner in the evening, but we know that magistrates are punishing more people for drunken-ness and for being drunk and disorderly. For the Metropolitan Police District, the figures for 1972 and 1973 were 44,203 and 45,107, respectively. The figures for 1974 are not yet avail-able. There are many driving offences, more than before, involving alcohol. Alcoholics Anonymous is having to in-crease its number of meetings; more alcoholics are being admitted to psychiatric hospitals; more deaths are attributed to alcoholism, and we are told that more women and teenage children are taking to the bottle in a big way, with their drunkenness offences increasing more quickly than those of the general population, a matter about which the Clayson Committee expressed the gravest concern two years ago.
In British industry it has been estimated that 5 per cent. of the work-force have drinking problems, with an annual financial loss from absenteeism, lowered quality of work, cost of medical treatment and so on of perhaps £300 million. In the alcohol industry itself, £1,700 million is invested and 90,000 people are employed. There are more than 130,000 places in England and Wales for the retail sale of intoxicating liquor, which produces more than £1,000 million in taxation annually, which is about 6·5 per cent. of the total revenue from all sources. The latest information I have been given is that about £50 million is spent on advertising liquor each year.
All this is a measure of the immensity of the problem we have to face. Between 1960 and 1970 alcohol consumption in Britain is said to have increased by 43 per cent., which the author of an article

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in a trade magazine described as "eminently satisfactory". From a business point of view this remark was correct. In the context of what we are discussing tonight, it could be considered almost irresponsible. An alcoholic is difficult to define and more than 100 definitions have been put forward, from the light-hearted quip that an alcoholic is anyone who drinks more than his doctor does, to the rather long definition of the World Health Organisation, which is:
"Alcoholics are those excessive drinkers whose dependence on alcohol has attained such a degree that they show a noticeable mental disturbance or an interference with bodily and mental health, their interpersonal relations and their smooth economic and social functioning; or who show the prodromal signs of such development. They therefore need treatment."
Even with that detailed definition, some people disagree. It is a matter of opinion, too, sometimes as to when a person may be said to be drunk, from the wedding guest who, after a few glasses of champagne, laughs too loudly or slurs his speech a little when toasting the bride, to the cabbie who was picked up from a gutter outside a pub in Smithfield and brought unconscious on a stretcher to hospital when my father was a house surgeon and whose friend, a brewer's drayman who accompanied him, was heard to mutter, "'e's not prop'ly drunk: I saw 'is ears twitch."
I have been asked this evening to discuss the problem of alcohol in Britain at the present time from the point of view of a practising family doctor. It has been estimated that each general practitioner in this country has between 10 and 40 alcoholics in his practice, depending on where he works. Some of them are hidden alcoholics of whose intake of intoxicating drink he is ignorant and of whom Dr. Rodney Wilkins made such a careful study. Every alcoholic has an individual problem, everything to do with alcoholics is equivocal and it is dangerous to generalise.
There are four phases in the development of a chronic alcoholic addict, phases which shade imperceptibly into one another. First, there is the stage of the moderate, controlled social drinker like most of us in the greater part of our country's population. We do not want to

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give it up, but nor do we want to increase our consumption. Secondly, there is the stage of the heavy social drinker who, for a long time, notices no ill effects from his excessive intake of alcohol. He may be a great leader or senior executive who is under tremendous pressure and stress connected with his work. The tranquillising effect of alcohol may keep him going, and he may feel that he would be worse without it.
Then, thirdly, there is the stage of the heavy problem drinker who may imbibe up to 15 or 20 drinks a day, starting with a double vodka at breakfast, but who can still control to some extent the amount that he takes, though he begins to notice some ill effects—physical, mental or moral problems for which he, his family, a friend, his employer or one of his workmates may seek help from his doctor. These ill-effects include sleepless-ness, irritability, aggressiveness, impairment of memory, blackouts, personality changes, plausibility, unreliability and refusal to take responsibility leading to a breakdown in family relationships. They may also include neglect of children, loss of job, dishonesty, perhaps leading to criminal acts, severe depression even leading to suicide and increased liability to ordinary injuries. Road accidents are common, too, and there is a bewildering diversity of other problems including digestive upsets, heart disease, strokes, cirrhosis of the liver with accompanying portal hypertension and internal haemorrhages, pancreatitis, lowered resistance to infections such as pneumonia or tuberculosis, obesity, lack of vitamins, peripheral neuritis, morning tremors helped only by an early drink or delirium tremens.
My Lords, no one has improved on Shakespeare's description of the effect of alcohol on sexual performance, Macbeth says,
"It provokes the desire but unprovokes the performance."
A patient may go to his doctor complaining of any of these symptoms and, unless the doctor is of a suspicious nature, he may not appreciate that the underlying cause is alcohol. It has been described as the "great deceiver". The doctor finds it easier, more tactful and kinder to say to such a patient, "You have a drinking problem" rather than, "You are an alcoholic".

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My Lords, the fourth stage is that of the chronic alcoholic addict which may take 10 to 20 years to develop and in which the patient has lost all control of his alcoholic intake—a "man or woman broken by alcohol"—and this condition may lead to a very severe mental illness. Of the estimated 400,000 people in Britain who may have a drinking problem, possibly about one-fifth are in this most serious stage of chronic addiction. As a family doctor, one sees some patients who really want to be cured because they know that alcoholism is ruining their lives or those of their families, or is spoiling their careers. A strong motivation for cure is an enormous help towards successful treatment. As a family doctor, one would like to help all alcoholics, but some are hopeless and do not want to be cured. With these, one may have to admit defeat and cut one's losses.
Some patients are even proud of the amount that they drink. Not long ago, I took one to a specialist to whom I said, "This man claims to have drunk half to three-quarters of a bottle of whisky every day since 1920." The patient sprang to his feet and said, "That is absolute nonsense: it was 1919! " When trying to help a difficult patient like this, I have often been told, "You're wasting your time with that fellow"; but even with the worst of them one may be able to help a little, even if it is only by persuading the patient to reduce his intake, or by supporting his family in some way. It is always worth while trying and an occasional success is an encouragement to do one's best for someone else.
My Lords, we must remember that nearly all doctors now consider alcohol-ism to be a progressive illness, not a sin or something which is due to lack of moral fibre. We must also remember that it does respond to treatment. But the saying "Once an alcoholic, always an alcoholic "is true. The majority of doctors think that a cured alcoholic addict should , never drink again. Such a patient may relapse after quite a small amount of alcohol, even after a long time, and the only drink that matters is the first. General practitioners with proper training are in a unique position. They can do an enormous amount in their surgeries and in their patient's homes towards prevention, diagnosis, drying-out or detoxifica-

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tion, which can sometimes be done at home in about two weeks. They can also help with the rehabilitation and after-care of alcoholics.
From the patient's point of view, the three main stages are acceptance of the diagnosis, withdrawal from alcohol and, probably, permanent abstinence. Family doctors have a great many people to help them in this. Their "back-up team", as it has been so well called, consists of members of the patient's family who themselves often need treatment for anxiety, his friends, nurses, counsellors, health visitors, social workers and others, people from the local health authority, psychiatrists—particularly those who specialise in the psychiatric treatment of alcoholism—probation officers, industrial medical officers, the police, magistrates and the clergy.
There are also a great number of organisations, both statutory and voluntary, which are ready to help the alcoholic. First, there is the Department of Health and Social Security, which has shown a great interest in this subject during the past 13 years, since Sir Keith Joseph and, indeed, his predecessor Kenneth Robinson took the initiative, and, also the very great deal that Dr. Alan Sippert has done recently. The Department has given generous support, advice and financial assistance to very many organisations which are helping alcoholics. They include the Royal College of General Practitioners, the BMA, the Medical Council on Alco-holism (with its educational activities including films, its research, its library, its valuable information centre and its Journal of Alcoholism). There is also the National Council on Alcoholism—a lay body with wide influence throughout the country and many branches with counselling services—several local councils on alcoholism, and the Alcohol Education Centre at the Maudsley Hospital which is helping to train those who are professionally associated with alcoholics. Then there is Alcoholics Anonymous, with more than half a million members throughout the world, which for 40 years has been doing an enormous and splendid job in the after-care and rehabilitation of alcoholics, the Church's Council of Healing, the British Council of Churches the Salvation Army and the Church Army and many other organisations, including Al-Anon, Al-Teen (which helps young

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people), the Helping Hand Organisation, the employment medical advisory ser-vices and the National Association of Youth Clubs.
In the hospital treatment of alcoholics, all general hospitals play a part, especially in the treatment of accidents and of all the physical complications of alcoholism that I have mentioned. The 152 mental hospitals in England and Wales admit about 8,000 alcoholics a year. We have 20 special alcoholic treatment units with more than 400 beds. There is at least one such unit for each Regional Hospital Board and others are being planned. In this work, which Dr. Max Glatt has done so much to develop in the last 23 years, full withdrawal and aversion treatment are practised. Group therapy sessions are held and, after six to eight weeks, it is claimed that 40 per cent. of the patients are off alcohol and another 25 per cent. have improved.
There are considerable advantages in treating alcoholics in groups, living in communities, rather than scattered throughout several hospitals, though some people feel that the cost-effectiveness of special alcoholic units is doubtful and that alcoholics are better treated at home or in a general ward. Much depends on the ability of the doctor in charge. There are also very many hostels of different types—some day centres, a new alcoholics recovery project and detoxification centres, many of them partly financed by the Department of Health and Social Security. A walk-in advisory service is sometimes preferred by the drunken down-and-out vagrants who are but a small proportion of the total of our alcoholics. The police and other people are beginning to appreciate that these people, who have been aptly called "revolving door alcoholics"—like the man who has been charged 174 times for being drunk and disorderly; "It was my birthday, your Honour", he often used to say—are more often medical problems than criminal ones. When they collapse in the street they should perhaps be treated as would epileptics or diabetics who fall about, rather than putting them repeatedly into prison or fining them. To take them to court frequently seems to many to be a waste of time for the police and the magistrates, and hope-less for the patient.

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In conclusion, my Lords, may I say that I am sure you will realise that much is already being achieved in Britain to help these unfortunate people suffering from alcoholism. But there is a very great deal still to be done to solve this very serious social problem. While more and more alcoholic drinks are being made, advertised and sold every year, it is hard to expect our already strained medical and social services to catch up with the prevention and treatment of the harm that they do. Education is the key —to persuade people, especially the young ones, through their parents, school-masters and others, to be moderate in what they drink, and to teach all those who are in contact with alcoholics how best to make the right early diagnosis and to care well for these patients in a closely integrated comprehensive service.
The Medical Council on Alcoholism is organising a whole-day symposium at the Royal College of Physicians in May for medical students from all medical schools in England, Wales and Scotland, which has the warm approval of the deans despite their already overfull curricula, It is hoped to make this an annual event. We cannot forbid the manufacture, advertisement and sale of alcoholic drinks, although it would be a great help if these could be reduced in some way. We remember the horrors of the prohibition experiment in the USA. We should be a dull lot if we never took any risks, and never ate or drank anything that might harm us.
For someone over 70 it does not matter all that much if he chooses to shorten his life a little by overeating, oversmoking, taking no exercise, or by overdrinking. Treatment of his illness may cost the country something, but so will his old age pension and benefits if he lives longer, and also his terminal illness. But for teenagers and young adults it is vital that they do not ruin their lives with drink, and everything possible must be done to help them. The great need is not only for more alcohol treatment units, more hospital beds and shorter waiting lists but, even more important, for more doctors, social workers, health visitors, counsellors, rehabilitation and follow-up experts and other personnel properly trained to deal with this difficult and enormous problem. Good follow-up and

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rehabilitation are vital. Much more money is needed, too, and also more research into many aspects of this subject, especially into the relative values of treatment at home, in-patient, out-patient and day-patient treatments. Future research may reveal some way of reducing the toxic effects of alcohol, so that it does less harm than at present to our bodies and minds.
Finally, my Lords, may I quote one sentence from what was said nearly two years ago by Admiral Sir Dick Caldwell, Executive Director of the Medical Council on Alcoholism:
"Alcoholism is a subject as fascinating as it is sombre … there is an immense scope for work, for education, for research and, indeed, for deep thought for all of us who have any interest in this challenging and yet desperately serious affliction ".
5.25 p.m.
Lord SOPER: My Lords, I am sure the whole House will be grateful to the noble Earl, Lord Kimberley, for once again practically ventilating this important subject. May I specially thank him for the informed sympathy with which he described the condition of the alcoholic. A matter which has probably been some-what neglected in previous debates in your Lordships' House—and it is worth putting on Record—is that those who have had some contact with alcoholics will recognise what an amiable, decent and kindly folk they are compared with others who suffer from social diseases or, in fact, from personal imperfections. It did me good to hear the noble Earl, Lord Kimberley, describing so sympathetically a nice group of people, which makes it all the more tragic that they are so often ruined through alcoholism. I am also deeply grateful to the noble Lord who has just spoken, alike for his temperate and for his very well-informed contribution to a debate on a subject which requires the expertise to which he particularly was able to address his remarks.
I agree with him in his morphological digression as to the emergence of alcohol and also to his very brief reference to the danger of quoting scripture in order to defend any position in this field. I remember on one occasion, when I was preaching in favour of temperance, being contradicted by a man in a crowd. He said that Paul said:
" Take a little wine for thy stomach's sake."

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That is in the Bible and of course he did, but Paul meant rub it in—but this man was not prepared to accept that interpretation. I was able to quote another passage from the Old Testament, from Proverbs, to the effect that:
"Wine is a mocker. Strong drink is raging for at the last it biteth like a serpent and stingeth like an adder ".
He said he had been looking for that kind of stuff for the last ten years.
I think it is not improper to introduce into a sombre discussion the warning that we must not be too solemn about it. May I derive two comments from an experience which was mine on 21st January 1971 in your Lordships' House when it was my opportunity to introduce an Unstarred Question on the topic of alcoholism? I remember two reactions to it, one on the part of certain Members of your Lordships' House—and I do not unduly blame them—who thought that this was a spin-off from fanatical teetotalism for the purpose of the total elimination of alcohol as the Devil in solution.
There is a perceptible difference, as I have learned between the teetotal proposition, to which I am personally committed, and this problem of alcoholism which is separate and distinguishable from the problem of total abstinence in itself. The other reminiscence which I cull from that occasion is, I think, more serious and is more than a justification for the raising again of this problem today. I asked in the Unstarred Question, "What is the number of alcoholics in this country at the moment?" The Government did not know, and although the noble Lord said he might make a guess, he was prudent not to engage in that exercise. But a number of other contributors to the debate professed their own knowledge of these matters. In their judgment the number of alcoholics ranged from some-thing like 35,000 to, perhaps, 120,000. As a matter of fact, partly by the stimulus of that debate and partly for other reasons, it was then known to those who had taken the trouble to find out that the number was much more likely to be 300,000 discovered alcoholics—and that was almost a male calculation.
Something that has happened, and was referred to specifically by the opener of this debate, is that the problem has

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increased and the number has grown, and whether it is 400,000 or 500,000 it is an intolerable figure. I would draw some inferences from what has happened since 1971, in an experience which is person-ally mine, in endeavouring to provide some help for alcoholics in various institutions for which I am responsible. The first is that a great many more people are today aware that this problem exists. I would here draw a very gentle lance with my noble friend who introduced the debate, that there are fewer people today who have the same allergy against any confession of alcoholism. There are more who are likely, in a more enlightened atmosphere, to recognise that they are alcoholics, and not to be ashamed of something which, though it is not entirely a matter of the mind or the body, is an illness, as has been correctly stated this afternoon.
My Lords, I beg to offer one comment here. I cannot accept the proposition that it is purely and simply a disease. I think it would be totally wrong to exclude the moral element. Emphasising, as we must, the physical and mental condition, recognising that it is an illness, it would be quite wrong to exclude from the general diagnosis, and indeed, much more, the prognosis, the moral element. I may come back to that a little later. Secondly, a very large scale change has taken place in the attempted treatment of alcoholics, so far as I am aware. Whereas antabuse and various other medicaments, nauseating in their immediate impact and calculated to facilitate the drying out process, are much more current and much more clearly advocated, there is increasing evidence that the psychological approach —the approach of companionship—and the recovery of a sense of significance, and the breakdown of the sense of alienation, are far more potent medicaments and far more potent methods of therapy.
Since 1971 there has been a vast in-crease in the type of advertisment directed specifically to young people. Those of your Lordships who watch television will be left in no doubt that the main point of attack is made to those who are young. Your Lordships may have seen pictures of a father leading his son along a road to the local pub and warning him that it is time he grew up and become a social drinker. Your Lordships will probably recognise the advertisement which asks,

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"What's your right arm for?", as if the obvious answer is continuously to raise it in the intake of alcohol. I abominate this kind of advertisement, and I entirely agree with the last speaker that whatever may be the frailties which are permissible in relative old age, it is a matter of total and absolute wickedness to encourage susceptible youth to believe that their maturity and virility must be accompanied by regular drinking in public houses. If there were, in addition to this, an anathema for which I would be pre-pared to accept full responsibility— though I am more concerned with bene-dictions—I should say: To hell with the beer can! I am sure that the capacity to go on your way carrying your beer can with you, and to become more or less bottled in the process is not only restricted to those people who do it in single bad companies, but has a very great deal to do with the rowdiness, evil behaviour and danger on the football terraces.
There is, at the same time, a recognition that whereas alcoholism is a social disease and has to be treated not as some mere delinquency for which a process of moral assertion is required, there are many kinds of alcoholics for whom a process that will be effective must be carried out in a number of stages. There is obviously the first stage of drying out the alcoholic at the point of his alcoholic dereliction. There is the second stage in which the alcoholic can be, either at home or in some kind of hostel or house, induced to recover something of the sense of belonging which he has lost, something of the sense of moral opportunity for which he finds it impossible at that stage to mobilise. This must in itself be part of a process which goes further.
I quite agree with the noble Earl, Lord Kimberley, that in many cases the alcoholic has broken up a home to which he can return; and domestic therapy is preferable. In the hostels for which I am responsible, the average age of the alcoholic has come down in four years from 45 to 35. I want to speak on behalf of those who have nowhere to go and who cannot be permanently hospitalised in a hostel, but who, sooner or later, will require protective and supported living, if they are to become the permanent convalescents, which is probably the best one can hope for many of them. There is no such thing for many of them—as I think

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the noble Lord who preceded me would probably agree—as a total cure, but a permanent and uninterrupted convalscence depends on a quality of supported living in which they will have the opportunity, when they are in danger or where they are sorely tempted, of recourse to someone who will help them and tide them over their periods of acute temptation.
This raises all kinds of practical problems and I will concentrate on some of the opportunities which I believe ought to be seized. I readily agree that Governments of the day have made considerable progress in this field, but that progress is insufficient. Speaking as I do for a penurious and yet, at the same time, I think, worthwhile attempt to help alcoholics back to a reasonable state of social fitness, I believe we need much more money. In particular, we need a third-stage opportunity of occupying and of using premises where reference can be made by those who are seeking information, or who, at a time of stress, would want to find a friend; and, at the same time, an opportunity of housing single alcoholics—many of them youngsters— who otherwise would drift upon the tide and quickly become delinquent, or end up on the rubbish heaps, as many of them do.
There are in this country something like 800,000 unoccupied houses. There are at least 100,000 unoccupied premises and dwellings in the county of London, and every night there are 2,000 homeless youngsters who sleep rough, if they sleep at all. Of this figure, it has been calculated that perhaps 800 or 900 of them are to some extent alcoholics, who have drinking problems, who are drunkards— and I am not specifying the various areas in which one can differentiate in this complicated field. I wish to put a point to the Minister who is to reply, and I know that I can count on his consideration and sympathy in this matter. I believe that there is currently in another place a Bill which would provide for the requisitioning of property in the private sector which has been vacant for six months. Further, in the Housing Act 1974 there is a provision where local authorities can, through housing associations, provide money for the rehabilitation and the resettlement in houses, which
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could be so repaired and improved, of considerable numbers of those who today go through the first stage—which we provide for them—of the drying out process, and who are then for some time encouraged into a better state of social awareness and social belongingness in the second stage hostels, such as St. Luke's Hostel, for which I am particularly responsible.
But after that, what do you do? They cannot be expected to face up to the rigours of a society in which they start with the understandable and terrible handicap of having nowhere to go, and probably having so alienated their loved ones or their friends and relations as to be more or less on their own. Not only do we want more money—I put in a plea for that—but I am quite sure that it is the voluntary organisation committed to this three-stage kind of rehabilitation programme which can offer the liveliest hope for certain groups among the alcoholics. I earnestly ask the Minister what more can be done, recognising as I do, that it is a state of financial extremity in which I make this appeal. Nevertheless, I believe that what we try to do now will be immensely strengthened if we ran go on to provide some kind of supported housing for recovered alcoholics.
May I now return to one of the matters the noble Earl, Lord Kimberley, referred to in his speech and to which I believe great attention should be paid. It is true that the loss to the community of man hours of productive capacity is very large and deplorable. The father of the noble Lord, Lord Stamp, between the wars gave evidence to a Royal Com-mission on Alcoholism that, economically speaking, the total loss to any community from alcohol in general and alcoholism in particular was 13 per cent. I do not know the accuracy of that statement. It would not surprise me if it were an understatement today. There is another aspect of this loss which I think is even more deplorable. I believe it to be true that many of these alcoholics are fine people who have lost the sense to be line; who are intelligent people who have lost the ability to be intelligent; who are companiable people and good parents who have lost their capacities in these fields. That, in my judgment, is a much greater loss to the community— particularly at a time when family ties

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are being stretched and are ever more needed.
Therefore, my Lords, I want to finish by once again making an observation that I am sure your Lordships will take in the spirit in which I offer it. It strikes me as extraordinary that, wearing the collar that I do and representing the faith of the Christian religion, I find practically no reference to the therapeutic value of religion. I hear a great deal about the psychological values which can be attached to this problem; and I must say that I think that psychologists are much better at diagnosis than at treatment. I hear a great deal of the necessity for educational facilities and for teaching the young to recognise the truth when they see it; but would it not be at least arguable that the greatest social voluntary organisation in the community is still the Church, if only it would do its business, and that, in fact, although it may be arguable that reformation is the good advice which no alcoholic can accept, it is probably the right time of the year as well as an eternal truth to say that resurrection is the good news which the Christian Church ought to be proclaiming and which indeed the fellowship of the Christian Church and the offering of companionship and help, intelligent, informed and vigorous help, to the alcoholic is probably the finest answer that can be made to a problem? It is a problem about which I know a considerable amount, which I feel deeply about and on which I am more than grateful if, out of another discussion this afternoon in your Lordships' House, something will be done to bring these alcoholics back to the life to which they can contribute and in which their happiness can be shared by those who love them; so that their future may be a contribution to the community in which they live.
5.45 p.m.
Lord LEIGH: My Lords, when the noble Earl, Lord Kimberley, asked me if I would speak in this debate I agreed rather hesitantly, particularly as I knew he would say first everything that I wished to say. That he has done except, I think, for one point. I am told that there is a coloured administrator in one of the new African countries who has three files on his desk: "In", "Out", and "Too difficult". I believe that this question of alcoholism has been in the "Too difficult"
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file for far too long. It is nice that at least it is on the top of the "In" file this afternoon. We have heard from the noble Lord, Lord Hunt of Fawley, a doctor; and we have heard from the noble Lord, Lord Soper, a minister of religion, but I should like to speak as one closely connected with one of the regional information centres and, therefore, more or less in the front line.
The centre caters for a manufacturing city with a population of 300,000 and a county with a population of 470,000. The county comprises three boroughs, two district councils and two health areas. Except for a 14-bed treatment centre— not a detoxication centre—the regional centre is the only place to deal with that population of 470,000. The work is done by a dedicated voluntary treasurer, who is not a reformed alcoholic, and an executive director, equally dedicated, who is a reformed alcoholic. He works night and day; he is called out to the local hospital; he is never off the job; and I think he is grossly underpaid.
This centre has been operating for five and a half years during which the expenditure has been a mere £33,122. That has been paid as to 61 per cent. by voluntary effort on the part of the council who runs it, 16½ per cent. from the Department of Health and Social Security and—and here is the interesting part—12 per cent. from local authorities and 10½ per cent. from industry. The town is a big manufacturing town.
The Department of Health and Social Security in a Circular of May 1973 to local authorities says:
"Information centres lie within the sphere of responsibility of both Area Health Authorities and social service authorities who should not hesitate to use their grant-giving powers to help them."
I believe that in this county with two exceptions, that message has been to a large extent ignored. In the case in point, two of the three borough councils have produced nothing; the county has produced £250; of the Area Health Authorities, one has produced £100 and the other £50.
One feels that the local authorities must be encouraged to give more help; one feels that industry—after all, it is in their interest—must be encouraged to help us more. But I think that our big lack— the money may come in; one hopes so

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—is in men. I was delighted to hear the noble Lord, Lord Hunt of Fawley, say that the General Medical Council are to run a one-day course on alcoholism; because I am informed that in the teaching hospitals in general very little attention is paid to this all-important subject; yet it is said to be the third highest cause of premature death. I do not believe the ordinary general practitioner has the time (or, if he has the time) the inclination to deal with the alcoholic. Any form of treatment must take a considerable time and I do not think one can blame the general practitioner because often he has more important things to do. But from the medical profession we do need leaders in this field because, after all, the problem is not entirely in the psychological field and there is a lot of ordinary medicine connected with it. But whoever deals with alcoholics must be a specialist, and until there is some urge among medical students to take up this subject I am afraid we are not going to get any great lead from that profession. Whether such an urge might be helped by a financial incentive, I do not know: I take it that the pay structure of the medical profession is rather a difficult subject.
Another point is that in the information centres and other places in which alcoholism is dealt with, there are very few men; there is no training and no financial incentive. They have to be dedicated men, and the ex-alcoholic is far and away the most likely person to be dedicated to the cause. He knows the full horror of the situation because he has suffered it himself. If there could be some kind of training school for people, particularly ex-alcoholics, who wish to take up this work, and if there could be some decent remuneration available when they have finished their course, this would be a great step forward.
5.53 p.m.
Lord AMULREE: My Lords, my noble friend Lord Kimberley and other noble Lords who have spoken tonight have made most of the points I had intended to make, so I shall be able to make my speech a little shorter than it would otherwise have been. There are just a few points which I should like to make, partly on the medical side and partly on the general educational side.
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The first thing we really need to know is: what is the cause of alcoholism and where do alcoholics come from?— because the popular feeling is often that they are the tipsy kind of person from the Registrar-General's fifth social class; they are the people we see lying in the street, and so on. Certainly that type of person forms a proportion of the people we see—and the noble Lord, Lord Soper, will know a great deal more about this than I do—but most of these people do not come from that walk of life and, therefore, a great deal of research needs to be done. We also need to know whether the disease is primarily psycho-logical or physiological. It is probably a mixture of the two as many things are, but that is something which, again, we need to know a great deal more about
I am certain that the general practitioner should be the main instrument in the care of these people. It is important that he should be encouraged to think about alcoholism more than he does now. There are a number of com-plaints about which people see their doc-tor—simple things like gastritis, for instance—but if the doctor is aware of the fact that alcoholism may be at the back of such complaints or symptoms, it might be possible to detect far more alcoholics at an earlier stage than at present. It must never be forgotten that, fundamentally, the alcoholic is a sick person, and quite a number of general practitioners—as I am sure the noble Lord, Lord Hunt of Fawley, will agree —do not know how many alcoholics they have in their practice. When they do know I think the bulk of them become extremely sympathetic and co-operative in their care of the alcoholic. Of course, one comes across one or two doctors like the one I saw quoted in a book the other day, who thought that alcoholics were " a confounded nuisance" and would therefore have nothing to do with them ; but this is a relatively uncommon attitude.
One of the troubles about my profession is that we do not get taught about alcoholism as students; we do not come across it at all. Therefore, I am very interested to see that the hospital where I was for a long time on the staff is now running a course under Doctor Glatt, who is one of the great experts on

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alcoholism in this country. I am sure it will be very successful and very popular. Furthermore, there is a body which may be known to some of your Lordships, of which I have spoken on previous occasions. It is called the London Medical Group and gives lectures on a large number of subjects to medical, nursing and other students. The lectures are purely voluntary and the students go in their spare time. The lectures drawing the biggest crowds tend to be those on alcoholism, given by people who know what they are talking about. So it shows that the ordinary medical student is keen to learn more about this problem, and I think we may find in time to come that the practitioners will take more interest in it and know more about it than they do at present.
The dreadful fact about alcoholism is that it is now spreading to the young, so that it involves a large number of people in their 'teens or twenties. I saw that in a big centre at Nottingham 30 per cent. of the patients were under 30. That is an extremely frightening state of affairs, because alcoholism is, broadly speaking, a treatable disease; but the objective of the treatment has to be complete and total abstinence. Some National Health Service hospitals give group therapy courses, which are very successful and do a great deal of good. Of course, it is probably better if the patient can obtain individual psychotherapy, but that is extremely expensive and rather difficult to come by, because the number who give this treatment successfully is not large. When we are referring to treatment we must not speak about the " cure " of alcoholism ; we should speak about "recovery" from alcoholism, because it is a disease which cannot be cured. One may think one can turn to social drinking after treatment, but I am certain this is not so. It is said that for the alcoholic one drink is too many, and I am sure that that is true. There may be the occasional case where alcoholism can be cured, but it is extremely uncommon.
Quite a number of units are now working under the Health Service for the treatment of these cases. I have worked out the number as about 20 or 21, and the total number of beds is about 450. One of the biggest units is that run by
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Dr. Glatt in Middlesex, where I think he has about 70 beds. I am told there is quite a long waiting-list, because people telephone or get in touch with him from places a long way from Middlesex because of the general shortage of places. I think one can say that the first six months after treatment are the really difficult and critical months. That is when relapses occur. Some of those who relapse have a curious conviction deep in their minds that they could cope with drinking after all if they tried once again. But of course they find they cannot, and so they relapse and the whole of the treatment has to be restarted.
However, no matter who these people are, they need a great amount of support and co-operation from their general practitioner, from the various social workers, health visitors and such people who can encourage and assist. One must refer also to the enormously important work done by the voluntary bodies. I was pleased that the noble Lord, Lord Soper, referred to them. I know of one place which is run by the Church of England in Central London where a great deal of good rehabilitation work is done. Here I am sure the Churches and voluntary organisations can contribute a great deal. Whether they can cope with treatment for people who are far gone and need to be in hospital, I do not know, but they can certainly carry out a great amount of supportive treatment, and a great deal of preventive work, too.
Finally, one comes to the question of the people who work in industry. I was very interested indeed to hear about the work in the United States of constructive coercion. That seemed to me to be most important. At the present time, one trouble is that if a person tries to obtain a job when he has been an alcoholic and has recovered, he finds it very difficult unless his medical history is kept carefully concealed. One would like to see this situation changed and improved and a more enlightened point of view taken. Furthermore, if an alcoholic is in a job why should he be dismissed? He is probably someone of relative seniority; he has probably had a good deal of experience and training Would it be not only far cheaper for the business but more humane to rehabilitate him and let him continue

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doing his work, rather than give him the sack and his cards and tell him to go away and find another job, which would probably be enormously difficult to do?
My Lords, these are just a few of the points I wanted to bring out. I am extremely sorry that the noble Lord, Lord Porritt, President of the Medical Council on Alcoholism, could not be with us tonight. He wanted to be here to speak, but told me he had another engagement. My observations tonight come partly from what he has told me and partly from what I have been told by the Medical Council on Alcoholism, so I feel that they have had something to do with what has been put to your Lordships.
6.6 p.m.
Lord ST. JUST: My Lords, we have had a very clear picture given from various sides of your Lordships' House concerning the whole problem of alcoholism, especially from the medical profession, as well as from that great expert on this subject, the noble Lord, Lord Soper. Might I say that I agree especially with one thing he said. I remember that some years ago in your Lordships' House we had a debate on drug addiction. We got on to talking about the question of heroin addiction, and, quite rightly, the most sombre and terrifying results were spoken about from every side of the House, especially from the medical profession, and the possibilities of any cure. At the conclusion of the debate, I was taken to the Guest Room and introduced to two nuns who had for many years been running a drug addiction centre near Reading. They assured me—and I am quite certain they were telling the truth—that they had had total cure of heroin addiction, mainly in the period of follow-up after the medical cure itself had ended. There-fore we know how essential is the spiritual side of these matters.
May I congratulate the noble Earl, Lord Kimberley, on giving a very graphic description of the alcoholic and of the total despair he experiences. This is no doubt one of the greatest problems to be overcome. I have spoken to many experts about this condition, and basically the alcoholic must be removed from society for a period of time and put into a unit or a mental health hospital where experts
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can treat him. As has already been said today, probably the treatment will consist of very little physical treatment. I believe the medical profession are getting away from this now. Perhaps after the drying out period the alcoholic will be given a considerable number of vitamin injections. But the most important factor is likely to be endless group therapy—prob-ably four days a week—under a psychiatrist who will help him to readjust to normal life again in the future.
Quite rightly, much has been said this afternoon—and it has been referred to in so many debates in your Lordships' House—about the problem when a person leaves hospital; about his need to readjust to life, and how local authorities can help. There is little need for me to add anything at all about this. The problem is recognised on every side of the House and a solution must slowly be worked out. I should finally like to say that I entirely agreed with what the noble Lord, Lord Amulree, said concerning the medical profession and training in teaching hospitals. I know that it sounds rather a cheek for me as a lay person to say this, but I have seen a lot of mental illness in my life. I am quite convinced that a great deal must be taught in the teaching hospitals, so that the general practitioner, who is the person who has to look at this problem, will channel off patients at the right time.
If I may, I will end with a small point which I do not expect the noble Lord to answer now, because I gave him no previous warning. Some time ago we read in an American report the horrifying fact that it had been found that the babies of mothers who were drug addicts suffered from withdrawal symptoms, especially at birth. Is the noble Lord able to tell us whether he has any indication that in children born to alcoholic mothers there are any symptoms, whether metabolic or other symptoms, which appear during the first few weeks after birth?
6.11 p.m.
Lord SANDYS: My Lords, as another layman in this very complicated and difficult field, I am very glad to have been here to have had the pleasure of listening to the speech of the noble Lord, Lord Soper, especially when he referred to the Book of Proverbs which says that drink

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"biteth like an adder and stingeth like a serpent",
because it was my first experience in this field that exactly this happened. Also, I was very glad when the noble Lord, Lord Soper, in closing, offered help to the alcoholic, because that was impossible in this particular instance.
May I be allowed to refer to an occurrence which took place a long time ago when I was serving in Germany in the winter of 1950. It was a very cold winter and our tanks had to be replenished and protected against frost with ethylene glycol. Most unfortunately, a quantity of this fluid fell into the hands of a per-son who was subsequently discovered to be an addict. He mixed a little of the ethylene glycol with German gin called Steinhager. It had the most devastating results. Unfortunately, the medical officer was not available sufficiently early with a stomach pump, and I regret to inform your Lordships that it was a fatality. Here is an instance where the lay person, who ought to be sufficiently well-informed on alcoholic substances and their power to destroy the human body, should have known some first aid in order to be able to deal with the situation. I was not involved personally in this occurrence. However, it took place in a unit with which I served and the powerlessness of the individual concerned to do anything about it struck me very forcefully.
I believe that the conference which was referred to earlier in the debate by the noble Lord, Lord Hunt of Fawley, is a lesson in public education which every-body should welcome. As a layman, I feel that I am not well equipped to speak about clinical matters, but I should like to refer to some research which I have carried out.
May I draw the attention of the noble Lord, Lord Wells-Pestell, to the role of the Government in combating alcoholism, especially in regard to the laws of past Governments and the errors made by past Governments, because there is a long and chequered history of Government action. May I begin with one of the greatest errors made by any British Government in this field—though perhaps that point is disputable—in an Act, passed in 1690, which prohibited the importation of wines and brandy from France. It had the al-most immediate effect of stimulating illegal and illicit stills and the production
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of gin which used a method which had then recently been discovered by a Dutch-man in Leiden.
I think that the noble Earl, Lord Kimberley, referred to a population here of 5 million in 1700. In the first decade of that century, the production of gin rose to 20 million gallons. The noble Earl and your Lordships will probably agree that this is a staggering figure, if we assume that at that time the Board of Trade was remarkably ill-placed to cater for either the legal or the illegal production of spirits. Throughout the eighteenth and nineteenth centuries, successive Governments passed legislation; but undoubtedly the real difficulty occurred much earlier when prohibition caused the situation to get completely out of hand.
One can learn from the past; certainly one can learn from the recent past. With that in mind, my noble friend Lord Erroll of Hale took up a Report of a Depart-mental Committee on Liquor Licensing in 1972. The noble Lord, Lord Shepherd, served as one of the most prominent members on that Committee. At that time, there was definite recognition of the rising overall consumption to which the noble Earl, Lord Kimberley, referred. The graph shows pictorially what is happening, and paragraph 3(17) says:
"The picture we get, particularly over the last 20 years, is of rising overall consumption, accompanied by increases in alcoholism death rates and in offences of drunkenness all of which are, however, still below the peak levels reached towards the end of the last and the beginning of this century."
Paragraph 3(18) says:
"This pattern, however, is very far from establishing that licensing law has exercised or is likely to exercise a decisive influence on these trends ".
I think that that is an important statement by a well-informed Committee.
One can say that licensing laws as such are unlikely to have a very marked effect, but what is most definitely likely to have a very marked effect are the suggestions set out in Circular 21/73, to which the noble Earl also referred. If I may quote from that Circular of 18th May 1973, I think it is most encouraging to see in paragraph 6 that:
" Given treatment two alcoholics out of three can be expected to respond, provided there are adequate community facilities to give support".

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Surely this was at the heart of the argument of the noble Earl.
If I may be permitted to say so, I liked particularly the very practical suggestion which he made in his summing up, that local centres should be encouraged. It follows the Report on liquor licensing regarding staffing, the after-treatment follow-up by Alcoholics Anonymous and other bodies, and the need to give help to alcoholics and their families in the early stages of alcoholism. I feel unable to offer technical advice, but may I say that it seems that the recommendations of the Departmental Committee on Liquor Licensing offer certain valuable suggestions. I therefore ask the Government to examine those recommendations in great detail.
6.20 p.m.
Lord DOUGLAS of BARLOCH: My Lords, it is true, as the noble Lord, Lord Hunt of Fawley, has said, that men learned to use fermented liquors many thousands of years ago. But a very great change took place three or four hundred years ago when the art of distilling was invented and very much more concentrated alcoholic drinks were produced. The human body has a very limited capacity to deal with alcohol. It is provided with certain substances which can metabolise it, but the supply of those things is limited and, if the consumption of alcohol exceeds the limits so imposed, it is transformed in the body into various complex substances some of which are alkaloids, which resemble somewhat the constitution of the active principle of heroin. This may explain why alcohol-ism is an addiction.
A point which I want to stress is the importance of educating the young, because if they do not understand what is involved in this they will easily get into trouble. I first came into contact with a case of alcoholism when I was quite a boy; the man in question was a student at Edinburgh University. He had an illness. When he was convalescent he was recommended to drink port wine; he did so and when his convalescence was ended he became an addict of alcohol. His career was ruined and he was shipped out to a farm in the wilds of Canada, where he was all right because he was 15 miles away from the
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nearest source of alcohol, but if he ever went into a town he immediately relapsed.
This points to an important factor and one which I have certainly observed ever since I discovered this case; that is, that people ought to be taught that alcohol should never be used in a way which is calculated to make one dependent upon it. It should not be used for the purpose of stimulating people when they are tired or for other reasons because then the dependence becomes immediate and, once there is a dependence on alcohol the problem becomes more and more acute.
I hope that recognising, as I believe everybody does now, what a serious problem this is in our society, the most active steps will be taken to educate the young in the schools to understand the dangers of this. It is not practicable in our society to prevent people from taking alcohol, but it is at any rate practicable to try to educate them about it and to make them understand that if they do take it they must take it in small amounts which are not likely to cause addiction, and to take it under circumstances which are not calculated to make them dependent upon it.
6.25 p.m.
Lord WELLS-PESTELL: My Lords, your Lordships never listen with greater care and attention than to noble Lords who take part in a debate and have some personal knowledge and experience to bring to our discussion. If the noble Earl, Lord Kimberley, does not think it is a piece of impertinence on my part, I should like to congratulate him on his courage and for introducing this matter which is recognised by everybody who has experience in the field of social service to be a very grave problem.
We have been fortunate in having the contribution of the noble Lord, Lord Hunt of Fawley, who brings a medical expertise to this problem, and my noble friend Lord Soper, who has spent more years working among alcoholics than I think he would care to admit. This goes for many of your Lordships, if not all of them, who have taken part in this debate. This is a subject which is of considerable interest to me, because I worked for some years in the field and I have been to America to look at what they are doing —or were doing at the time I was there —in this field.

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I do not want to cover the ground that has been covered so well by the noble Earl who stated the problem, by the noble Lord, Lord Hunt of Fawley, who indicated what is being done and by my noble friend Lord Soper who gave us some indication of where the gaps are and what we ought to do to plug those gaps. But I want to say a few words about the situation as the Government see it. They recognise that there are substantial indications showing that there are a growing number of persons being admitted today to mental illness hospitals with alcoholism as the primary diagnosis, and we recognise that there is a considerable increase among young people who are already experiencing drink problems. The noble Lord, Lord Hunt of Fawley, drew attention to the definition of alcoholism given by the World Health Organisation and I do not want to go over that ground again, but one point I want to emphasise, and which he himself made, is that the World Health Organisation said, "There must be treatment". In the last analysis we cannot escape from that.
I am not in a position to estimate the number of man-hours lost in industry, commerce and business as a result of alcoholism and I shall not attempt to do so. But the noble Earl undoubtedly has information and we have no reason at all to feel that it is in any way exaggerated. Probably, as he says, it is only the tip of the iceberg. The Department has taken an interest in alcoholism since the early 1960s and has encouraged the development of specialised treatment facilities. I refer to specialist alcoholic units which are part of our psychiatric hospitals. I want to be perfectly frank and to recognise that progress has not been as rapid as we should like. There have been many difficulties, which I want to come to before I sit down, but, having said that, I want to emphasise that the Department is not unmindful of the nature of the problem and the serious social effects that it has.
However, I think everyone who has listened to the debate today will recognise that some considerable progress has been made. Four years ago when my noble friend introduced a debate on this subject there were 14 specialised alcoholic units in England. There are now
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twenty-two. Your Lordships may well say that that is not much of an improve-ment—eight in four years, but one has to see these units against a background of support. As has been said today, we can talk about community care, we can talk about having specialised units, but it is not just a question of having a competent member of the medical profession available to deal with all the physical symptoms. If that person is to return to the community and to take his place in the community, there has to be an enormous back-up service; there must be prolonged counselling by someone who is in a position to counsel.
There must be a good deal of supportive help within the home. There must be the right kind of work available, and a fair amount of continuous supervision. It is not just a question of drying out a person, and then feeling that the whole situation has been resolved. For that reason, it is not easy to establish a specialised alcoholic unit. However, in four years we have increased the number of these units from 14 to 22. There are three more special units in the pipeline. This means that with one exception, all regional health authorities have now at least one of these units which, as I mentioned earlier, are complemented by mental illness hospitals, which also pro-vide treatment facilities for the alcoholics.
My Lords, because I speak with some personal knowledge, having worked in this field for some years in the past, I should like to take this opportunity of paying a debt of gratitude to general practitioners at large, who have made a far greater contribution than perhaps many of us realise in the medical care and treatment of alcoholics who are not admitted to our hospitals. This work should not go unnoticed. I should like also to take this opportunity of paying a tribute to the Medical Council on Alcoholism, whose work I know only too well. I cannot begin to tell your Lord-ships of the value of their contribution to the community. We have heard about a one-day conference which will be held in the immediate future, but their work goes on 365 days a year. They are training doctors in this particular sphere; they are training nurses and health visitors. They are also training medical students. To my personal knowledge they have

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published quite a number of very read-able books on the problem of alcoholism and the alcoholic. I think I am right in saying that their activities have recently widened to include research.
In the last analysis, there is no point in doing something today unless you know what you must do tomorrow, and this is precisely what they are doing. I am sure they will not mind my saying, as I think I ought, that they are substantially grant-aided by the Department of Health and Social Security, and it is right that they should be. We must recognise that in a problem of this kind, the State is unable to help 100 per cent.
If we are to come to grips with this particular problem, and if we are to make any real impression, then we must harness plenty of good will. We must bring together those in the community, who are committed and concerned, people who can work along the lines that my noble friend and his friends have been working along for a good many years, and who have the right, if I may say so, to look to the State for financial support. Unless we harness the right sort of people in the community who can do this under voluntary aeges, we are not really going to make a great deal of progress.
My Lords, I should now like to say a word or two about detoxification centres. However, if I am going to do so, I ought to say that I stand before your Lordships in sackcloth and ashes, because I have to admit that very little progress has been made in this sphere. Such little progress has been made simply because it is a comparatively easy thing to establish a detoxification centre, but it is a very difficult thing to provide all the supportive help needed. Those of your Lordships who have been interested in problem families and in discharged offenders will know that everybody says, "Oh yes, there must be homes and there must be hostels for these people, but we do not want them in our street". Every-body says that there must be detoxification centres, but how many local authorities really want them? I do not think one can organise a detoxification centre without local planning approval. There are many other problems apart from the back-up problems. There are consider-able difficulties.
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I must admit that after a considerable length of time and many difficulties, we have succeeded in planning only two centres, one in Manchester and one in Birmingham. In London, the Department of Health and Social Security is seeking the help of voluntary organisations to establish a community-based centre run in co-operation with hospitals, the police and local authorities. But having said that, I can assure your Lordships that we shall not be afraid to experiment— and "experiment" is the right word— with other types of centres. I want frankly to admit that we are far from happy at the slow progress. As I said a moment ago, it is not just a matter of providing facilities for drying out the alcoholic.
I spent some time in New York, and while there went to a detoxification centre, a drying-out centre, where the police and the social workers would go out in the early hours of the morning and collect alcoholics from under the arches and off the streets. Drying out would take five days, and these people were then returned to the community. Three nights later, they were in much the same condition as they were when brought into the centre. The idea of a detoxification centre sounds good, but it makes very little contribution to the problem unless one can provide what is a fairly extensive supportive system. One must look for medical and social work teams who can not only assist with the needs of the person, but who have the ability, the competence, the skills and the facilities for his further treatment, as well as continuous care and support in the community.
We should like to move much faster in the provision of treatment and other facilities for alcoholics, particularly in the provision of the special facilities needed by those homeless alcoholics to which the noble Lord, Lord Soper, referred—those who have become habitual drunken offenders. But again, there are many difficulties in developing this service. If I may say so, the difficulty is really not one of money. There are physical difficulties. Alcoholics are a diverse and difficult group in the community, individually or collectively not easy to identify, and not always willing to be helped or treated, as the noble Lord, Lord Leigh, knows only too well.

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In the last four years, special financial provision of over £2 million has been made available to develop health services for alcoholics. This is reflected in the increased number of special units, to which I referred a moment or two ago. I do not want to say—and it would be wrong to mislead your Lordships—that this has nothing to do with financial stringency, but we would find the money; we would provide the money, if it were physically possible to have the co-operation of local authorities. But we would need to provide this support and back-up.
From the legislation that has been through your Lordships' House in the last year, your Lordships will know how much extra burden we have put on the local authority social services. We keep piling on them responsibility after responsibility. When the Children Bill, on which we have spent so many days, comes on the Statute Book, it will put far greater responsibility on the local authority. One of the problems with which we are faced is that they may well have reached saturation point in dealing with the social needs of the community. That is why I come back to the fact that we have to harness the good will in the community, the committed and the concerned, as I like to call them; not the great and the good, because I do not believe they really do very much good. It is the committed and the concerned we want, and they are available. If we can harness that good will, I think we can do far more than we are able to do at the present moment.
At this stage, while I am speaking about voluntary organisations and community services, I should like to pay tribute to what is being done at the moment. One is always on dangerous ground when one starts selecting organisa-tions—Alcoholics Anonymous, the National Council on Alcoholism, the Medical Council on Alcoholism. These are not the only people who are functioning. There are many voluntary organisations to which my noble friend Lord Soper referred, with which he him-self has been associated for a good many years, who are doing this work in a very quiet unassuming way. We have been able to provide a substantial sum of money in the last two years. In fact, we have provided something like £315,000 in less than two years—and I do not think that is a bad sum—to 10 voluntary
816
organisations in order to provide hostel places for alcoholics.
Many of your Lordships will know that when a voluntary body is prepared to provide hostel accommodation, we are prepared to provide a capital grant up to £2,500 per place, and then to back that with another grant, which we call a deficit revenue grant, of up to £300 per annum per place. So if a voluntary organisation can itself raise only £100 per place, then we will provide the other £200. I was informed this afternoon that from 1st April next the deficit revenue grant will be raised to £350 per annum. At this stage, this is perhaps the only thing the Department can do to encourage the organisations which are working in this field to do more, to help them financially, and to encourage any other groups which may be able to do something in this field.
Something was said about the need for education. This might well be the key to a good many of the problems. We have, as we have heard today, a vast army of alcoholics dependent upon the community, but there is not much point in taking people off the front of the queue unless we are simultaneously doing some-thing to stop another vast army from joining the queue at the other end. We can do this only by a very skilful process of education. Here, again, far more is being done in this field than many people realise. The National Council on Alco-holism has something like 16 regional councils where they are providing counselling services to help people who have become the victims of alcoholism, and to refer them for treatment. But—and this is perhaps much more important—they have been able to take on and develop a rather extensive educational programme, not only among adults and young people, but among local firms and schools. This, one must hope, will pay off in the long run.
The other problem with which we are faced—and I think we ought to face this quite squarely—is that we cannot really let people loose on the community to do this kind of work unless they are equipped to do it. One can do a tremendous amount of harm if one tries to deal with a situation with which one is not competent to deal. One sees this in all forms of social work. The Department recognises that those involved with alcoholism require special training; this

817
is a prerequisite for a satisfactory expansion of any of the services for alcoholics. The staffs of the specialised treatment units have a very important role in pro-viding the in-service training for people who are going to do this kind of work.
I know that Members of your Lord-ships' House who are doctors will not mind my saying that it must include members of the medical profession. If we are to make a sincere and sustained effort to do something to come to grips with this problem, the people whom we encourage to do it must be able to recognise and deal with certain situations in order to get the help that is needed. We were interested at the Department to learn that the Joint Board of Clinical Nursing Studies recently introduced a 36 to 39-week course for trained nurses on drug and alcoholic dependency. This again, is a move in the right direction.
Perhaps I may conclude by saying this. I think that a debate of this kind, in which so many people who have brought so much experience have taken part, can-not do anything but good. The noble Lord, Lord St. Just, asked me whether we had any information about the effect on babies born to mothers who are not necessarily alcoholics, but who perhaps take too much too regularly. The answer is, no, we have no information. I caused a message to be sent to the noble Lord, Lord Hunt, to see whether he knew of any, and he did not. I would not want to make a promise, but if anything comes our way or can put our fingers on any information, I will certainly let the noble Lord know. The noble Lord, Lord Sandys, raised the question of education. I think this is the key to the whole problem. We have to recognise that we are faced with two alternatives; education versus compulsion by legislation. We all know that compulsion by legislation will not deal with this problem. It has to be education, and we have to find the ways and the means.
The noble Lord, Lord Amulree, raised the question of research. This is some-thing which is being done. I think I am right in saying that the Medical Council on Alcoholism is doing some research in this field. One of the encouraging things —and perhaps I ought to conclude on this note because it is a very positive note, and I do not seem to have said very much
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that is positive—is that the Department, or I should say my right honourable friend the Secretary of State for Social Services, has established an Advisory Committee on Alcoholism. The Chair-man of that Advisory Committee is Professor Kessel who is Professor of Psychiatry and Dean of the Faculty of Medicine in the University of Manchester. I am informed that he is an authority on alcoholism and that, with his Advisory Committee on Alcoholism, which has an influential membership from the point of expertise and skill, rather than from names, he will in the near future be able to look at this whole problem and advise my right honourable friend the Secretary of State on the steps that need to be taken. With real sincerity I should like to thank everyone who has participated because I think that when we come to read Hansard the Department will find the report of the debate of considerable value.
Lord DOUGLAS of BARLOCH: My Lords, before my noble friend concludes may I ask him to clear up one point? He made two references to education, but he left me with the impression that so far as children of school age are concerned it depends entirely upon some voluntary association providing it. Is that right?
Lord WELLS-PESTELL: My Lords, I think that the noble Lord is perfectly right.
6.51 p.m.
The Earl of KIMBERLEY: My Lords, I am most grateful to all the noble Lords who have spoken in the debate this after-noon and also to those who have listened. I wish to wind up the discussion quickly because I think we have almost overrun our allotted two and a half hours. I am grateful to the noble Lord, Lord Hunt of Fawley, for exhibiting his great know-ledge of the family doctor. I can only say that if all the rest of the family doctors had his knowledge, probably this problem would be half solved. I fully appreciate the remarks on the spiritual side from the noble Lord, Lord Soper, but I thought he was in a much better position than I to speak about it! I agree with the noble Lord also that many of these advertisements on drink leave much to be desired. My noble friend Lord Leigh said some of the regional councils are short of

819
money. I believe that that is sometimes the case. In view of the remarks of the noble Lord, Lord Wells-Pestell, it may be that these problems will begin to sort themselves out in the near future.
My noble friend Lord Amulree said that general practitioners should try to detect alcoholism earlier, and I agree. I also agreed when he said that they seem nervous about telling a patient that he might be an alcoholic. "Alcoholism" seems to be a dirty word. I think we must try to get rid of that idea. It is not a dirty word; it is no worse than TB, cancer or anything else. I am happy to know from the noble Lord, Lord St. Just, that pregnant women who are alcoholics do not pass the habit on to their children. The noble Lord, Lord Sandys, said that the public needs educating, particularly in first-aid. I agree. While the public may not necessarily be able to cure or help an alcoholic to recover, they may be able to prevent one from dying.
Lastly, I should like to thank the noble Lord, Lord Wells-Pestell, for everything he said. He was most constructive. It would take me too long to go through each point that he made. There is no doubt that the Department of Health and Social Security realises the vastness of this problem, and, as the noble Lord, Lord Wells-Pestell, said, a reading of Hansard tomorrow will probably assist everybody. My Lords, I beg leave to withdraw my Motion.
Motion for Papers, by leave, with-drawn.

POSTAL CHARGES:BOOKS AND PERIODICALS
6.54 p.m.
Lord BEAUMONT of WHITLEY Lord BEAUMONT of WHITLEY rose to ask Her Majesty's Government what steps they propose to take to ensure that the rising cost of postal charges for the transmission of books and periodicals does not adversely affect the contribution that the printed word has to offer in a humane society. The noble Lord said: My Lords, in view of the length of the list of speakers tonight, I think that the House is entitled to one or two remarks from me ; not, I hasten to add, that I am responsible in any way for its length. But I took the view that this Question was
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a genuine one for information as to what the Government intended to do, that it was too narrow for a Wednesday debate and too urgent to await the outcome of the ballot. I think that the length of the list of speakers somewhat bears out the point about its being too urgent for the ballot. As to whether it is or was too narrow for a Wednesday debate, probably the debate itself will illustrate that fact. If I am right, then perhaps we shall not sit as late as it looked, because a number of noble Lords who intended to make points which will have already been covered by other speakers, will, therefore, be able to shorten their speeches. I say that in the smug knowledge that I am the first speaker and therefore have no obligation of this kind, although I assure noble Lords that I shall keep my speech as short as possible. That is not to say that I do not welcome the large number of noble Lords who have put down their names to speak in this debate and who between them add almost a terrifying amount of expertise and knowledge.
We are particularly pleased that we shall hear the maiden speech of the noble Lord, Lord Allan of Kilmahew, who has such especially great knowledge in this field. I must make a small declaration of interest. It is merely that my main profession is that of a free-lance journalist. I have no publishing interests — thank goodness!—at the moment, but owing to my past publishing interests I can claim to be something of an expert on the unviability of magazines, which is one subject to be discussed this evening. In what I have to say I shall concentrate mainly on the internal situation. I know that a number of noble Lords, including the noble Lord, Lord Ballantrae— under whom I have the honour to sit on the executive of the British Council—will deal more fully with the overseas export situation of the underdeveloped countries. It is because I know that this will happen — not because I am indifferent—that I shall concentrate on the internal or home situation.
We are told constantly that we have one of the cheapest postal services. This is wholly untrue if it merely applies to the tariffs applicable to books and periodicals. Postage is now the largest single expense for many periodicals. It now costs more to post a 7 oz. magazine from Mayfair to Westminster than it does to write, edit,

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illustrate, print, bind and wrap it. Virtually alone in the developed world, the policy of self-sufficiency in all branches of the postal service is subjecting periodicals to what would elsewhere be regarded as penal tariffs. Even allowing for substantial discount of the public tariff, the price of posting a 7 oz. magazine in Britain is twice what it is in Sweden, 15 times what it is in France, 17 times what it is in Italy and 100 times what it is in Spain. Looking at books, the comparison is almost as bleak. An ordinary publisher posting a 2 lb. book here would have to pay almost twice what he would in Ger-many, Belgium and Denmark; almost four times what he would in Sweden; more than 10 times what he would in Spain and more than 25 times what he would in Italy.
It is a small wonder that publishers, authors, booksellers, learned societies, printers and journalists view the new tariffs as a most serious threat. Not only do the new rates represent a second in-crease in nine months, but the Post Office has already served notice that it will be asking for more. Only last night I heard on good authority that, when metrication of weights is introduced in the Post Office in July or August of this year, its intention is to round down rather than round up the weights. This will immediately put a 4 oz. magazine up into a higher category and will with such a magazine have the effect of doubling the postage in six months from the beginning of March. I need hardly say that these frequent rises in postage are particularly hard on those magazines which sell subscriptions in advance and thereby have to fulfil contracts which they entered into at considerably lower rates of expense.
It is never difficult to obtain agreement to the proposition that the unhindered dissemination of information is an essential bulwark of the kind of freedom we prize above all our other blessings, precisely because it underpins and supports the other freedoms which wither away if information is not there. As de Tocqueville said
"The free flow of information is a constitutive element of liberty."
That liberty is now being eroded by what I believe to be the mistaken philosophy of a commercial self-sufficiency being pre-scribed for something which is both a
822
public service and a monopoly, which has caused postal costs to rise to unprecedented levels, by 270 per cent, since 1970 and an average of 83 per cent, since just before then. This poses a grave threat, not only to those who earn their living by selling and distributing the printed word through the mails, but even more seriously to the spread of know-ledge itself.
Do not let us underestimate the seriousness of the situation. The last few years have seen a 12 per cent, decline in the number of British periodicals published. Last year some 4,500 remained and of those, only 650 titles were handled by the country's largest distributor. Roughly speaking, therefore, the difference between the 650 and the 4,500 must overwhelmingly rely on postal distribution, and often on postal advertising, to reach its audience. It is the cost of this postal distribution which has been so grossly and arbitrarily inflated as to put at risk the very existence of serious weeklies and monthlies, learned journals, trade and technical Press. The more specialised the audience, the more minority the interest, the greater the dependence on postal distribution.
My Lords, I do not pretend that every magazine and every book that is produced in this country is of this great seriousness. Obviously there is much which your Lordships would consider trash, but it is not in fact for us to decide what is or what is not trash. We are not censors, and indeed a certain amount of what might be regarded as lower grade reading has its strong uses. I imagine that there are very few of your Lordships who did not have part of their interest in reading stimulated by Dandy, Beano and Film Fun. A cousin of mine who is a Member of your Lordships' House taught himself Spanish by reading thrillers in Spanish. I have heard of people who have taught themselves foreign languages by what they regarded as the interest of reading pornography, though the result of that is often to give them a very peculiar vocabulary at the end of the day. It is, perhaps, to a certain extent, the trash which may well survive because it is the minority interest papers and magazines, the more serious ones, which the problem is really about.
In an interesting article in the New Stateman recently, Mr. Anthony Howard drew attention to the danger

823
faced by the magazine which he edits, and by others, a large number of whose copies go out by mail. He rightly asked how the certainty that some of these journals of opinion would go to the wall could be squared with the Labour Party's professed desire for a free and varied Press as called for in The People and the Media. I mention that point because the present Government are a Labour Government, though all Parties have an equal dedication to freedom of expression, and we would put this challenge to any Government.
Publishers who rely on the Post Office for selling as well as for distribution are even harder hit. Typically, I am informed by the Association of Mail Order Publishers, postage costs account for approximately 22 per cent, of their total revenue. As the new postal charges represent an increase of about 50 per cent, on these costs, it will be seen that any company making less than an 11 per cent, net profit on its revenue will find itself immediately in the red. The typical net profit percentage in the publishing industry was well below 10 before 17th March. Is it really intended that this form of industrial genocide should take place?
I come briefly to the question of books. Fewer and fewer bookshops now grace and enlighten our cities. Many of those which survive do so only by stocking copper-bottomed best sellers and by taking as few risks as possible with the 30,000-odd titles published in this country every year. They will order a book if the customer knows that it exists, knows the title of the publisher, is prepared to wait while the order goes to the publisher and the book comes back through the post and is willing to pay another visit to the shop to collect it. This has a very great effect on the whole economics of book selling. In fact, the more it happens the more it is a vicious circle whereby one gets fewer and fewer book-shops selling fewer and fewer books, or rather more and more copies of fewer and fewer books, again raising the unit cost to the publisher who can produce only smaller numbers of the valuable books he wants to provide for minority and professional interests, and this then
824
becomes a vicious circle because again there is less and less demand.
The main point of the question which I am asking is not about the workings of the Post Office itself. I am not pre-pared to argue the toss as to whether the Post Office is or is not as efficient as it should be; the Government would merely say in those circumstances that, even should my strictures be justified, it is a matter for the day-to-day business and administration of the Post Office. It may be that other noble Lords more knowledgeable than myself will have points to make in this connection, to which it is hoped the Post Office will pay due attention. My case is that postage for the printed word should be subsidised by the Government, just as the Arts are subsidised by the Government— and for precisely the same reason: that such subsidy is necessary for the cultural and social health of this country. That is what needs to be done.
There is a real danger today that part of our publishing industry, already beset by many difficulties, will finally succumb because of the increased costs of distribution which can no longer be passed on to the reader. What we shall be left with —and this is a most important point— is, on the one hand, the mass media which enjoy newsagent distribution and, on the other, a few very elitist magazines where the price does not matter. In the middle will be left a black hole into which the bulk of the minority and smaller magazines and books will vanish, and with them our hopes to retain the cultural lead that we are able to give in this world and which is very important to it. The consequences, both inside and outside the country, will be immeasurable and, although slow, will, unless something is done by the Government, be quite inevitable. It may well be that in ten years from now we shall have to fund a cultural revival from the public purse at a cost far greater than any subsidy would cost if it were applied at this time. I hope that I have made a case. I know that other noble Lords have additional points to make, most of them in support of this case. I hope that in replying tonight the Minister will at the very least give us his assurance that the Government will give this problem their most serious consideration as a matter of extreme urgency.
7.11 p.m.
Viscount ECCLES: My Lords, your Lordships will be grateful to the noble Lord for raising a Question that is causing a great deal of anxiety in a very large number of firms and among private individuals. I, too, have an interest to declare. I am Chairman of the British Library and what these new postal charges mean to us will, I believe, illustrate—and illustrate shortly—what they will mean to a great many other people. In the financial year 1975-76, we had estimated our expenditure on postal charges at £430,000. We shall now have to revise that estimate to £590,000. That is an increase of £160,000, and we shall be paying the Post Office £3,000 a week more.
Your Lordships will wish to know how this large increase will affect our own operations, how it will reduce the demands of our customers—or may do so—and how it may damage the publishers and book-sellers with whom the British Library has very special relations. The lending of books, journals and extracts is done from Boston Spa and, by its nature, it is done by post. Boston Spa is receiving requests for loans at the rate of 2,300,000 a year and this rate is advancing rapidly. The increase in the charges will put up the cost of a loan by about 5p, or 22½ per cent.
My Lords, we are an institution which is supported by public funds. We should be criticised if we did not recoup the costs of operating these lending services. There-fore, we shall have to pass on this 5p to our customers. That is what all the nationalised industries—coal, gas, electricity, the railways and the Post Office— are told to do. The public must pay when the costs go up and usually they do so, because the services in question are largely monopolies. In the case of the British Library, our customers are other libraries —public libraries, university libraries, technical college libraries and so on—and all are now squeezed for money. Their funds are not being increased to meet the rise in their costs due to inflation. Your Lordships will observe that if our funds were increased they would have had to come from the taxpayer and the ratepayer. There is therefore no saving to the Government in what they are doing now, if we consider the Post Office to be one of the taxing authorities.
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My Lords, the libraries to which I have referred have been finding in their present straitened circumstances that it is cheaper, faster and more convenient to borrow books and journals that are not in common use rather than to buy them. They will now have to pay 22½ per cent. more. The result must be either an increase in their budget, which I think very unlikely, or they will buy or borrow fewer books. It is most certain that they will buy less and, if they can afford it, borrow more. It might be thought that this process would be agreeable to the British Library, but in fact there is a definite limit to which borrowing instead of buying should be carried in the interests of the regular users of public and educational libraries. As the volume of library purchases declines— and I hear that many libraries consider that these postal charges will be the proverbial last straw—it will cause big changes in their acquisition policies. As their purchasing declines, either fewer books will be published or the price of books will go on rising to compensate for smaller sales. In whatever proportion these results follow, the intellectual life of the country will suffer.
I now turn to the overseas business of the British Library. Boston Spa provides the world's most efficient and heavily used loan service to libraries outside the country in which the service is provided. In many parts of the Commonwealth, libraries prefer to borrow from us rather than try to find a book in their own country. It is cheaper and much quicker. A library in British Columbia will certainly borrow from Boston Spa rather than try to get a book in Ottawa, for instance. The same is true for many of the Australian libraries. We have to charge for the operational cost of this service— that is, the handling and the postage—but we do not charge for the acquisition of the book or journal concerned. To that extent, our service is subsidised. The new overseas postal rates will mean an increase of 48 per cent, in our charges to overseas borrowers We have been very proud of the acknowledged supremacy of our overseas lending service. It is an operation which is a great ambassador for the English language and for British books and journals. The rises in postal charges must diminish the attraction of what we have to offer, and they raise the question of whether

827
we shall be able to maintain our lead in this field.
As the noble Lord, Lord Beaumont of Whitley, has already told your Lordships, postal charges overseas are very much less than ours. We maintain our lead because our handling is more efficient and because we have a better supply, not because our postal charges are less than theirs. The competitor on whom we must keep an eye is the United States. American postal charges were well below ours before this increase came into force, and now in many cases they will be about half for large packages of books. We share the English language with the United States and, clearly, they compete with us in the publication of books for export abroad. Provided this competition is fair, I am all for it. I think it is very good for the general distribution of our intellectual talent. But we do not expect our Government to load the dice against our publishers and our lending services in a market where quite small differences in price can often be decisive. If we go on inflating as we are now, severe unemployment in the British publishing business is inevitable as the costs of production and of mailing books increase. The demand for British publications will decline. Publishing is part of the private sector of the economy where the increase in costs cannot be passed on as an increase in price to the customer. Of course in the public sector it is different. Unemployment can and will be avoided, and the burden of their rising costs will be loaded on to the private side of industry and personal consumption.
The firms concerned in the publishing trade cannot, like the Post Office, insist on higher prices to meet the rising costs of inflation and therefore both home and overseas sales will drop. Unemployment is therefore inevitable. I must ask the Government whether the Post Office took the slightest trouble to inquire from the Department of Education and Science what would be the consequence of these swingeing increases in postal charges. Did they ever ask the British Council? We are going to have the benefit of hearing the noble Lord, Lord Ballantrae, and no doubt he will tell us. Did they consult the University Grants Committee? Did they have a single word with Sir Fred Dainton? I believe not one. We are
828
governed by Ministers who are continually asserting their belief in economic planning. What sort of planning is this when charges are increased which must reduce the access to knowledge in all its printed forms, and which is bound to deal a blow to a most valuable export? The export of books has a double advantage. It not only earns us foreign exchange; it also makes it possible for us to spread to the rest of the world our ideas, our scholarship and our way of life.
I would not expect these cultural considerations to weigh with the "Little Englanders" who want to keep us out of Europe, but I would expect Ministers such as Mr. Roy Jenkins, Mr. Anthony Crosland and the noble Lord, Lord Strabolgi, who care about books to have seen to it that these postal charges were not so savagely increased where books were concerned. Books are zero-rated for VAT. There was great discussion about this at the time. Why were they zero-rated for VAT? It was because I believe all Parties in the House of Commons, and no doubt in your Lordships' House as well, agreed that knowledge was something which should not be subjected to this tax. Therefore there was a discrimination in favour of books. What is the Post Office now being allowed to do?—to reverse that discrimination and to hit books extremely hard. My Lords, there is only one result. It is that fewer books and journals are going to be published, bought, borrowed, consulted and read. I only hope that your Lordships' protest tonight will have some effect upon Her Majesty's Ministers.
7.23 p.m.
Baroness WHITE: My Lords, we are all much indebted to the noble Lord, Lord Beaumont of Whitley, for putting this Question to Her Majesty's Government, and the list of speakers for a debate which it was known would be a little late in your Lordships' House indicates the very widespread interest which Members of this House take in this matter. We are particularly fortunate that the noble Lord, Lord Allan of Kilmahew, is going to make his maiden speech on this subject, because he holds a distinguished position in the world of publishing, being chair-man of both Longman's and Penguin, and I am sure he will be able to speak from a very wide experience.

829
As the noble Lord, Lord Beaumont of Whitley, indicated, this debate clearly falls into two parts, although the noble Viscount, Lord Eccles, has covered both the internal and the overseas aspects. I would wish to confine my own observations to the really drastic increases in postal charges as they affect the overseas postage rates. These rates, if fully carried into effect, will bring about an increase of no less than 167 per cent, in a period of 18 months. The first increase was on 24th June last year; the second was two days ago, on 17th March and—I was going to say, hopefully, " the final increase ", but I fear it may not be the case—the next proposed increase will take place on 5th January of next year. Had the Post Office had its way the increase this month and the proposed increase next January would have been one increase only, taking place his very week.
The main blow so far as the overseas transactions are concerned is the abolition of the former special rates for surface mail on printed papers—a term which covers newspapers, periodicals and books. Under the new arrangements there will no longer be these reduced rates or the special rates for direct agents' bags which, of course, save a great deal of postal expense because they are packed in bulk and collected by the agent to whom they are consigned. The publishing world have been trying since last July to gain attention from the Government for the likely consequences of these overwhelmingly increased charges. They first went to the Department of Trade, but were promptly referred to the Department of Industry, the reason being that the latter Department is concerned with the Post Office, although the Post Office, as we know, has now become an independent corporation. The Department of Industry pointed out this fact and told the publishers that they should have recourse to my noble friend Lord Peddie, who is chairman of the Post Office Users' National Council. My noble friend Lord Peddie and his colleagues went to work very quickly when they were sent the proposed new rates by the Post Office, and they did at least secure a partial stay of execution in that, as I have explained, the total increase has now been spread, instead of being concentrated in
830
a period of only nine months. But neither the Post Office nor their Users' Council, nor the Department of Industry have any particular concern with what is the truly significant substance of this situation. Even the Department of Trade may view books and newspapers as only one export among many, although certainly an export which has consequential effects of which they must surely be aware.
The noble Viscount, Lord Eccles, has said that to the best of his knowledge— and I can confirm this—the Department of Education and Science was not brought into the picture. The Departments which in my opinion should have been on the alert were the Foreign and Common-wealth Office on the one hand, and the Ministry of Overseas Development on the other. It is these Departments which are responsible for sustaining Britain's standing in the world, for upholding British influence abroad and for maintaining lines of communication with our partners, friends and allies. What is the use of having commercial attaches or cultural attaches in all our posts abroad and in the Commonwealth if no representations are made at home on changes which may drastically affect British interests in these spheres? I can find no evidence that any active interest has been taken by the Foreign and Commonwealth Office—a Department which I once had the honour to serve. I am extremely glad that the noble Lord, Lord Ballantrae, as chairman of the British Council, is here to reinforce this case. I have myself been in communication with my right honourable friend Mrs. Judith Hart, Minister of Overseas Development, who tells me that her Department is putting in for a consider-able increase in the financial provision for 1975-76 for the English language low price books scheme. This is certainly helpful so far as it goes, but it is only a small part of the story.
Surely the nub of the matter is that books, newspapers and periodicals are different, as we have always recognised — as the noble Viscount, Lord Eccles, emphasised— in our domestic taxation policy. Their importance to our trade is far greater than their own intrinsic value. Through the information conveyed directly in the text— or as far as

831
periodicals and newspapers are concerned, in the advertisements as well— persons overseas are influenced in the way they buy or do not buy, as the case may be, from Britain. We all know that professional men trained in the United Kingdom, or in firms or institutions with British traditions, are disposed in later life to order British equipment; engineers are possibly the most important in this respect, but other professions are significant too.
I have here a letter from the noble Lord, Lord Porritt, who greatly wished to be here tonight, but was unable to join us. He has written to me, with permission to refer to his letter. He says, with emphasis:
"The devastating effect such charges can have on the distribution of British medical journals and books, through which despite pre-sent difficulties this country still maintains its acknowledged world leadership in medical knowledge and education, is infinitely distressing."
This opinion would apply to a whole range of other activities.
I am happy that my noble friend Lord Ardwick is present to deal with news-papers, which have not hitherto been mentioned in the debate. There is no satisfactory way to send newspapers to most parts of the world, except on a regular subscription basis. With national newspapers, I am informed that under the new arrangements postal charges for foreign subscriptions will be increased from just over £1 million per annum to nearly £2 million per annum; the actual estimate is £1,950,000. If there proves to be serious subscriber resistance some very well-known newspapers will have to consider whether or not to maintain a subscription department at all. I am told that these increases come at a time when British Airways has indicated that it intends drastic reductions in its freighter services, and therefore possible arrangements for joint freight or the like may be no way out, even in areas where this would be practicable.
All this means that advertising, news and views may be denied to our friends overseas, obviously to our national detriment. On the periodical side, trade and professional journals, as well as journals of opinion, are extremely important and will be similarly affected, as will be such printed items as prospectuses and regular
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lists for academic and other libraries, which are now sent by publishers. I am told that many publishers will have to cut down on these quite drastically. Again, British outlets abroad will be diminished.
I return to books and wish briefly to make three main points. Books are the only major export which normally are sent by post; most others are sent by freight. Books therefore are far more significantly affected by these extra postal charges than any of our other major trade exports. The Universal Postal Union Regulations allow what they are pleased to term "serious printed matter" to be sent at 50 per cent, of the full rate. But as I have explained, our Post Office, by abolishing the distinction between printed matter and other items, is saddling British publishers with uncompetitive rates by comparison with other countries, it is admitted quite freely by the Post Office that the United States, West Germany, Sweden and Holland— among those countries which print books and periodicals in English—have lower rates. But the official answer by the Post Office to the Publishers' Association was: "They can afford it; they are richer countries ". On this basis, my Lords, they are likely to become richer still!
It now costs a British publisher 15p to send a book weighing 11b overseas. Until last Monday the cost was l0p. When the full rates—if they are permitted to do so— become effective next January, it will cost the British publisher 20p to send a book weighing 1 lb, while his competitor in the United States pays 8½p. For a larger parcel of books—a 7 lb. parcel—the rate was 52p. From this week it is now 80p., and next January it will be 105p. The American rate in this case is 49p. For the largest parcel, 11 lb., the rate was 80p until this week, and today it is 120p. Next January it will be 165p. The American rate is 74p.
My Lords, how can we face competition from other world publishers of English language books if our publishers have to meet rates as high as this? There is a very special condition so far as American competition is concerned. Since 1943 there has been an informal arrangement of spheres of influence in book exports between the American publishers and our own. But a recent anti-trust case in the United States has now, I think,

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destroyed that arrangement, and we shall have to face far fiercer competition in the next few years than we have in the past, weighed down with these completely uncompetitive postal rates. That is the comparison with the other countries in the postal rates and it shows that we have a very severe handicap.
We are also handicapped under a complex agreement reached in Paris in 1971—ratified by the United Kingdom— to the effect that if books which are imported into a country become too expensive, the importing country (and this applies particularly to Third World countries) becomes entitled to abrogate the copyright conventions and can license the free copying of the relevant books in its own territory; again to the extreme detriment of British publishers. Under the proposal postal charges up to 30 per cent, of the retail cost of a book is likely to be postage—at any rate in the lower price ranges—and this will bring a whole new range of books into the scope of the Paris Convention on copyright.
Finally, my Lords, books, papers and periodicals are the only major exports which suffer from another recent inter-national agreement whereby Britain has to pay very heavy imbalance charges, amounting to between £4 million and £5 million per annum, to countries to which we post more items than we receive from them. This is something about which I knew nothing until I became interested in this crisis which is facing our publishing industry. The very success of British publishers has put this millstone round their necks. The fact that they export so successfully means that our imbalance payments are all the heavier. This is not a minor matter. British books earn directly around £1 million per annum. The British Council's latest report puts the figure higher still, but I would assume that that includes other publications besides books—
Lord BALLANTRAE: My Lords, the figure is £ 100 million.
Baroness WHITE: I am sorry. I made a slip of the tongue. The figure is £ 100 million. The British Council, as I under-stand it, makes a total computation for British publications of between £175 mil-lion and £200 million per annum. In any case, it is a very substantial amount in direct earnings of foreign exchange.
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But indirectly, as the noble Viscount, Lord Eccles, said— and I most strongly support him on this— British publications can earn very much more. As the late Sir Stanley Unwin said: "Trade follows the book". I am deeply concerned that so far the Government seem to have been entirely blind to the wider considerations. I am very sorry for my noble friend, Lord Strabolgi, because he has to take on his shoulders the responsibility of answering for at least five Government Departments who are involved in these matters. These are five Government Departments between whom consultation seems to have been minimal, if not non-existent. I hope very much that he wil indicate that there will be much closer consultation, and really constructive consultation, between now and January of next year. We have a little time. I am not blaming the Post Office. It is not the business of the Post Office to take these wider considerations into account; it is the business of other Departments of Her Majesty's Government to take on board these wider matters. It is they who should consult and see how one can meet a position in which, unless something really significant is done, British influence undoubtedly is to be diminished.
7.41 p.m.
Lord ALLAN of KILMAHEW: My Lords, despite the kind and warm words of welcome spoken by the noble Lord, Lord Beaumont of Whitley, and the noble Baroness, Lady White, I wish in many ways that the subject on which I have the honour of first addressing your Lordships was one in which I am not quite so deeply involved as I am in this. However, since it is the tradition in your Lordships' House to speak from experience, I hope that you will accept that I approach this subject not with any idea of self-interest, but from the broad view expressed in the Question put before the House by the noble Lord who, if I may say so, was far too modest about his own contribution to the publishing industry.
The noble Baroness has stressed the importance of the export of British books and also the severe threat to that trade from these new postal charges. This is a line which I had intended to develop; but I shall resist this, particularly because the noble Lord, Lord Ballantrae, will undoubtedly be speaking and enlarging on the contribution made by British books

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to the growing understanding of Britain, its culture, its scientific and technological expertise and know-how. I would say only that, the export trade, which accounts for over 40 per cent, of the out-put of British publishers, gives an essential strength to the domestic publishers. If they did not have this, they would suffer severely and so, too, would the British reading public. There is one other point raised by the noble Baroness which I think worth emphasising. It is that English is coming to be the most important of world languages. Much flows from this. Education and entertainment— through British books and journals— brings with them an interest in. and the use of, other British exports which are not in any way directly connected.
My Lords, it is this vital sector of the British publishing industry which is already threatened from two external sources, both briefly touched upon by the noble Baroness. The first is the anti-trust suit filed by the United States Department of Justice seeking to make illegal the arrangements whereby the English-speaking market was divided between British and American publishers. If this action were successful— and it looks as though it is likely to be so— British publishers will face the severest competition in their traditional markets, competition from a country which is already the greatest publishing rival to British publishers and whose exports can be spring-boarded from a home market which is eight or nine times the size of ours. It is also a country in which today the manufacturing cost of books is certainly no higher than in the United Kingdom. This being so, the price of British books now becomes every bit as import-ant as their quality.
The second external threat comes from the erosion of copyright mentioned briefly by the noble Baroness. The latest moves, as the noble Baroness said, give developing countries the right in certain circumstances to license the publishing of books originating in other countries. This is particularly relevant to the Indian market.
I am a director of one of the Indian publishing houses; and I should, perhaps, also have declared a wider interest at the beginning and said that I had spent most of my working life in the publishing
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business and am now either chairman or director of a number of book and newspaper publishing concerns. I know that, if the price of United Kingdom books gets too high, these Indian publishing houses will force the Indian Government to invoke the 1971 Paris agreements. This will have a devastating effect on the sale of British books and periodicals in the whole of the sub-Continent and beyond it. These are two situations which demand the lowest possible price of British books— and this is at a time when British publishers are having to contend with enormous increases in material and production costs. Forgetting the external threat, from within we are adding substantially to these spiralling costs by the new postal charges. These postal charges are bound to be passed on to the customers. Because of the inflated costs of replacing stocks today —as anybody in the publishing business knows—all publishing houses are faced with acute cash-flow problems.
Postal charges can be absorbed only by very few, and those are the largest; others will have to pass them on to the customers. This is because the cost of the distribution of a book is a basic cost; it must be reflected in the price. It is not like the administrative costs of additional postage on letters which, in all conscience, will increase our overheads; this is a basic cost which must be reflected in the price. My Lords, you have heard a number of figures from all speakers indicating the various ways in which these charges are to affect British publications of one kind or another. In general terms, may I say simply that what it amounts to is that our overseas competitors will have a minimum advantage of 15 per cent, over us in relation to postal charges, and, as the noble Baroness said, in America the advantage will be 50 per cent.
I should like, if I may, to give your Lordships a few examples from my own experience. By 1976, the two main book publishing companies with which I am associated, which sell huge numbers of books abroad, will be faced with additional postal charges of something over £500,000 a year. This puts at risk mil-lions of pounds worth of exports. It will force us, incidentally, to examine whether still more of our books can be printed overseas, with obvious repercussions on

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ones, so the figures involved are also large. But smaller publishing houses are even more severely affected, because the smaller houses cannot take advantage of the cheaper rates for bulk postage. So although in their case the figures may appear smaller, in practice they are even more crippling than they are to the larger houses. As the noble Lord said, it is in these circumstances that the small man is under pressure and it is the minority that is most likely to suffer and go to the wall. That is something which I am sure we would all view with the utmost distaste.
The noble Lord also mentioned learned journals. We have a journals division publishing learned journals which help to enhance British prestige all over the world. From next year this division will be forced to pay an additional sum of £120,000 simply on overseas postage, and it is inevitable that overseas subscribers will be lost. The Economist, perhaps one of the most influential of all British journals, had hoped to export by post next year about £1¾ million-worth of journal and other subscriptions. With postal charges now due to rise, in its case by something like £230,000 in a year, this invaluable export is also in jeopardy. I shall not continue with this list, but will end by saying that there will be an additional cost of £200,000 next year on the overseas sales of the Financial Times and its subsidiary publications. There is one additional point which the noble Lord, Lord Ardwick, will probably take up, which is that if, as a result of these increases, the overseas sales of a news-paper fall off, then a very considerable amount of overseas advertising will be lost.
What I have said is in no sense special pleading. It is rather an attempt to show the practical effect of these increased charges, and to emphasise to your Lord-ships what is at risk. So much is at risk that I very much hope the Government will follow the advice given by the noble Baroness and seek to bring together in consultation all the interested parties, to find means of alleviating this quite unnecessary burden which is being placed on British publishers. Such ways do exist, and they exist within international regu-

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lations and, in my view, will not destroy the Chancellor's new policy for the public sector. What is needed in the first instance is very little: simply a readiness on the part of the Government to take part in talks with interested parties, and work out the solutions which are there. I suggest that if this discussion this evening achieves that end, we shall all be immensely grateful to the noble Lord, Lord Beaumont of Whitley, for having initiated it.
7.55 p.m.
Lord ARDWICK: My Lords, I am delighted to follow the noble Lord and to be the first to congratulate him on a most notable maiden speech. It was not-able not only because of its content, arising out of his rich experience, but because of the ease and fluency of the speaker. As one of those who are still scriptbound, even after some years in this Chamber, I regard him not only with admiration but also with a certain amount of envy.
I shall not speak out of experience tonight. I am sorry to disappoint the noble Lord and also my noble friend Lady White, but I shall not speak about news-papers, simply because it is 20 years since I was associated with the Guardian —a newspaper which then had a consider-able postal circulation. In more recent years I have been associated with the Daily Mirror, and I cannot pretend that the sales of the Daily Mirror will plum-met because it will cost more to post it to India or Ceylon. But I must plead an interest in this debate, since in working, as I do, for the Mirror Group of papers, I work for one of the biggest publishing houses in the world.
The case one has to make tonight is not only in defence of the threatened interests of publishing companies or of the printing and journalistic staffs who work for them: it is also in defence of public and national interests. When I say "public" I mean the vested interest that we all have in the exchange of thoughts and information through the printed word. That is why in this country we have always avoided—at least since the early days of the last century—taxes on knowledge. Indeed, there was a tremendous fight put up, in one of the darkest moments of war, against special taxation being put on books. We are not concerned tonight with a tax or anything like it, but with

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something that yet amounts almost to the same thing—a change in postal arrangements which, taken with the natural inflationary increase, could make the price of certain publications prohibitively dear.
Postage, in fact, is one of the most important cost elements of those periodicals which depend heavily on the post as a means of distribution—industrial journals, trade and technical journals and journals of opinion. Indeed, it may amount to between 10 per cent. and 25 per cent.—perhaps even 50 per cent. in the case of minority journals with a con-trolled circulation—of their total costs. There is great difficulty for the layman in debating postal increases seriously: it is not a simple matter like the price of sugar. But I take it the mail order publishers, who were quoted by the noble Lord, Lord Beaumont of Whitley, and who are equally affected by these changes, are right when they calculate that the cost of second-class mail has risen nearly 3½ times in the past seven years, whereas retail prices are less than double what they were, and wage rates are up only by one and a third. Of course, the Periodical Publishers' Association admit that, though publishers will have to pay more than in the past under their contracts for inland post, they are, to some extent, being cushioned. Even so, the initial increase of about 20 per cent. will be dangerous to those journals who are only just breaking even, many of which are serving a specialist interest.
It is all very well for the Chancellor to lay down general rules about nationalised industries paying their way, and imposing increased charges in order to do this, but who is the member of the Government able to take into account the social consequences of such policies and to find a way of mitigating them if they are adverse? My noble friend went round four or five Ministries which might be concerned, exploring the situation, but none bears responsibility. Who, in effect, is the "Chancellor of Social Values"? If we had a Minister of Culture, in this case, he or she would be the Minister to whom we might appeal; but we do not have one. So where do we go? We have a Minister for the Arts, but we do not have a Minister for more generalised culture.

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Of course, it is not only journals but books, too, which are affected, as a number of other speakers have said tonight. It is not only the bookseller and his private customer who will experience difficulty but also the public libraries, the universities and the schools. Of course, for overseas publications the problem is even clearer. Their charges are up by over 50 per cent. and books and periodicals, as others have said, are an important export in themselves—over 1 per cent. of our total exports ; some people put it at 1½ per cent. But their effect upon the rest of the export trade must also be profound. Very often they are a catalogue not only for British ideas and British values but also for British goods—a kind of permanent peripatetic trade exhibition. I do not know how the Government should or could find an answer to the problem. Of course, postal costs must rise as every-thing else rises. The problem is the suddenness and the steepness of the increases. As a rule subscriptions to journals are paid annually in advance, and even when they can be raised to cope with vast increases in postal charges it is a very dangerous moment in the life of a marginal periodical. As many of us know as sub-scribers to journals we get from abroad, when there is a substantial increase it is often very easy to say, "I am going to cut that out."
What I am pleading for is that some-where in the Government there should be a kind of Ombudsman or Department which can swiftly examine and report on the social consequences of severe increases in administered prices, and propose appropriate remedies. Efficiency in the public sector is vital. Producers and consumers cannot be protected for ever, or even for very long, from increases in costs and prices. But they and their suppliers could sometimes be given more time to adjust to price increases. The one great advantage that Governments have over the smaller companies and over individuals is that they can play it long; and so they are always in a position, if they wish, to temper the wind to the shorn lamb until it has had time to grow some new fleece.
8.3 p.m.
Lord BALLANTRAE: My Lords, it is a delight to be in a position to congratulate the noble Lord, Lord Allan of Kilmahew, on that notable maiden

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speech. We all admired it. Most of us remember that castanetting knocking of our knees when we made our maiden speeches. We all admired the courage with which he delivered his speech, and its fluency, and we are grateful to him for the sample of what we hope to hear in this House many times hereafter. It is a real pleasure to congratulate him. He spoke with authority too—something I do not feel I always do.
One particular facet in the debate in your Lordships' House tonight I feel I can speak on with authority, although I ought perhaps to declare my interest as Chairman of the British Council. But it is not my interest; it is the interest of us all. I shall be brief anyway, but I should like to begin by saying that the British Council maintains overseas 117 libraries all over the world. In them we have an enormous number of books, millions of books. Last year alone, one of our biggest libraries, that in Bombay, lent out half a million books. This is quite apart from the people who come to the library to look at books and reference books, to consult books or just to browse.
The noble Baroness, Lady White, the noble Viscount, Lord Eccles, and I believe another noble Lord, mentioned the professional people who come to depend so much on what we send over-seas. I have now been chairman of the British Council for 2 years and 4 months. I have visited 27 countries, and wherever I go, I see doctors, medical students, engineering students and others using our libraries, without which, especially in developing countries, they would be lost for the technical education they so badly need. The British Council on its own behalf and on behalf of the Ministry of Overseas Development spends £2¾ million a year on books and periodicals. We have our troubles. It costs us too much to send periodicals by air. We have difficulties in stacking up back numbers. But we do our best to slake the thirst overseas for knowledge, and for English books and periodicals and technical books.
Apart from the fact which another noble Lord has mentioned, that British publishing earns over £100 million a year; apart from the fact that to overseas go many illustrated books for children to look at—there is nothing like "catching

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them young" and inculcating a taste; the technical books for students of all ages and all disciplines, learned journals for specialists: it is not just a matter of foreign currency, although we earn a lot and stimulate a lot of taste for buying books. We are exporting ideas and good-will, and the phrase "trade follows the books," which Sir Stanley Unwin devised and the noble Baroness, Lady White, quoted, is a very true phrase, still pun-gent and correct this day.
As the noble Baroness mentioned, we are facing competition from the Americans and other people. If we lose out in this market we are very stupid. We have established the market; it is a good one; we are in it. Our stuff is in great demand and we are foolish if we go out of it. Higher postal charges make it more difficult, particularly for developing countries with balance of payments problems, to go on importing our books. In another place on 10th February this year the Under-Secretary of State for Trade said this:
"We face a daunting balance of payments challenge, a key feature of which is the need substantially to increase our exports.
These are the stark facts of the present situation, and they mean that the support and assistance which we give to our exporters must be broadly comparable With that available to exporters in other countries. To do less than this would mean placing British exporters at a significant competitive disadvantage."— [Official Report, Commons; 10/2/75 ; col. 106.]
If the right side of the mouth says that, why is the left side of the mouth saying to us something totally different? I repeat, in export it is not just the pounds, shillings and pence, or whatever currency we are using nowadays, that matters. It is the export of ideas.
My Lords, I am 100 per cent. Scotch. I have no Highland blood in me at all but I think I have some element of second sight. I suspect we are to be told this evening that postal charges, in whatever sector of the Post Office they may occur, must pay for the service. I have been told this in another context about STD, but never mind that. I suspect we are to be told that this is an economic rate to charge for sending things overseas by post. I think it is a specious argument. As a former Speaker has said, under the UPU rules we do not have to charge more than 50 per cent. As the noble

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Baroness and another noble Lord said, the United States are already giving favourable terms to their exporters of books and printed matter. I was told this afternoon—on what authority I am not certain—that the postal rates in the United States for overseas are going up in July—but not for the printed word. It is no good trying to tell us that we are unable to produce favourable rates for the printed word going overseas.
There is an old song in Scotland which has the couplet:
" There's cauld kail in Aberdeen
And castocks in Strabolgi."
I hope the noble Lord, Lord Strabolgi, will be able tonight to give us something more heartwarming than "cauld kail". When I was in the Army and was fighting against authority, as I often was, there were two replies that used to irritate me. One was, "That would constitute a precedent." The other was, "That is against the policy." If it is a good precedent, let us set it. If it is a bad policy, let us change it. But for goodness sake!, my Lords, do not let us cut off our nose to spite our face.
8.10 p.m.
Lord TREFGARNE: My Lords, I regard it as a special honour to rise to my feet so soon after the most distinguished and interesting maiden speech of the noble Lord, Lord Allan of Kilmahew. It is not for me to be so pre-sumptuous as to commend him, because others who are more capable than I will do so. However, it was certainly an honour and a privilege to hear his maiden speech.
The noble Lord, Lord Beaumont of Whitley, is right to raise this most important matter this evening, and the House will be grateful to him for doing so. The noble Lord is asking this Unstarred Question in the shadow of the terrifying increases which came into force this week. In the light of these increases, we are entitled to ask—indeed, I believe that we have a duty to ask—some fundamental questions about the postal service. I doubt whether an Unstarred Question affords the right opportunity to make a long and detailed speech and I shall not do so; but I hope that I may be allowed to draw in some broad outlines of disquiet.

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The Post Office seeks to justify the latest swingeing rises with two arguments; namely, inflation generally and the price restraint policies of various Governments in previous years. I submit that neither of these two reasons, nor even both together, justify the size of the latest increases. First, with regard to inflation, we ought to ask why, taken over, say, the last four years, the rises in Post Office charges exceed 200 per cent., while inflation during the same period accounts for only about 50 per cent. Other figures which I could take to illustrate the same theme show that since 1968, which is a little longer, Post Office charges have risen on average by no less than 340 per cent. while the retail price index has risen by only 88 per cent. during the same period and the wages index, if that is relevant, by 133 per cent.
While it is accepted that in the past the Post Office has been restrained from raising its charges by as much as it would have wished, the facts seem to indicate that such restraint was not the villain it has been made out to be. The large deficits which occurred during periods of restraint were largely caused by big, once-and-for-all payments to the pension fund, which should probably not have been charged to revenue account, anyway. This is an area in which one is somewhat handicapped, because the Post Office does not publish detailed figures and it is difficult to ascertain the precise facts.
If we regard the Post Office's explanations of its disappointing performance with some scepticism, what, then, are the real difficulties and what steps can we suggest to improve the position? First, while accepting that the postal service is labour-intensive, should we not ask whether the total labour costs are not excessive? I refer not to the rates of pay but to the numbers of persons employed and to the nature of their employment. We gather that the introduction of automated sorting equipment has been consistently obstructed by the unions, and I suggest that that alone has in no small measure contributed to the present problems.
Secondly, it is common knowledge that the work in sorting offices "peaks" twice during the day—once in the morning and once in the evening. Is it not possible to meet these "peaks" with some part-time labour rather than employ

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a large body of full-time labour which is fully utilised for only two short periods each day? I do not suppose that the concept of part-time labour will com-mend itself to the Post Office union, but surely they are as anxious as anyone to secure a viable future for the postal service, which must surely now be threatened, and they themselves could greatly help in the solution of these problems.
Thirdly, it has been suggested that payments made to the Post Office by other Government Departments—for example, in respect of the distribution of pensions —do not now accurately reflect the costs involved. An underpayment figure of £14 million per annum has been mentioned. If that be so, the 1971–72 and 1973–74 deficits would largely disappear. Fourthly, and finally, there are two purely financial matters which I believe bear examination. I refer to the interest charges on Post Office debts incurred prior to the establishment of the Post Office Corporation and also the top-up payments made to the pension fund to which I have already referred. I wonder whether either of these two items can legitimately be charged to revenue account, particularly in these specially difficult times. I think there is a strong case for these items to be the subject of special treatment by the Government. Perhaps the noble Lord who is to reply can say something about that tonight.
On this side of the House, and, indeed, in other quarters of the House, we have taken the view that, save in certain exceptional circumstances, the nationalised industries should stand on their own feet and not be subsidised by the tax-payer; and the Post Office is certainly no exception in that respect. Speaking for myself, I believe that the postal ser-vice can be viable at rates which users will find acceptable. The latest increases may well prove to be counter-productive by pushing customers away to other means of communication. In particular, publishers of books and magazines about whom we have heard a great deal this evening and who rely on the post for their distribution arrangements, will either have to find other means of delivery or curtail their activities. If that happens, our cultural, scientific and educational pre-eminence, which has been so apparent

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from tonight's debate, will surely suffer. The Post Office must be very careful to ensure that these important users of postal services, both at home and overseas, are properly provided for in the contractual arrangements which are available to them. I believe that the Post Office management is not now immune from some justified criticism. I think we shall need rather more convincing explanations when, and if, the Post Office asks for more increases later this year or early next. May I end by repeating my thanks to the noble Lord, Lord Beaumont of Whitley, and my congratulations to the noble Lord, Lord Allan of Kilmahew, and by saying that I look forward to the reply of the noble Lord, Lord Strabolgi.
8.18 p.m.
Lord GORDON-WALKER: My Lords, may I congratulate the noble Lord, Lord Trefgarne, on the way in which he has made both valuable and new points at this stage of the debate when a great many things have already been said. Also may I congratulate the noble Lord, Lord Allan of Kilmahew, who in his maiden speech made such a notable contribution to the very formidable case which has been made tonight by noble Lords who know much more about these matters than I do.
Some years ago I was chairman of the Book Development Council and at that time I was largely concerned with the book export side of the publishing industry. Tonight I should like to speak on the effect of the new overseas postal rates on book exports. Book exports are vitally important; they make a major contribution to our balance of payments. As many noble Lords have said, we earn £100 million a year in foreign exchange from the sale of books. But it goes much further than that. Why trade follows the book is to a large extent because text-books form a very considerable proportion of our book exports. They help to maintain British standards in engineering and all kinds of things, which then bring in many more secondary exports.
Exports are also essential for the very survival of our book publishing trade. Relatively the United Kingdom has a very small market. The book market in the United States of America is eight times as large as ours, and it is only through book exports that we can obtain

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a large enough market to enable us to produce books competitively. The present and proposed new postal charges will undoubtedly hit exports. In the cost of books postage is a bigger element than probably in the case of any other export, and as the noble Viscount, Lord Eccles, and my noble friend Lady White said, relatively it will give a very great advantage to the United States, which is our chief rival in book exports and which now, in all probability, is about to invade our traditional markets from which they have previously kept out. Our revised postal charges will make our overseas postal rate 72 per cent. higher than the rates paid by United States' publishers. This is an appalling handicap when one thinks of them as our main rivals in this field.
It may be argued by my noble friend speaking for the Government that if con-cessions—subsidies, in effect—are made to books both at home and for export, it will be hard to resist similar demands for preferential postal rates for many other interests; and also, as many noble Lords have said, the Post Office must make its various services pay. But this and previous Governments have recognised the very special status of books. They do not regard books simply as a commodity; books are, of course, a commodity, but Governments have realised that they arc also something very precious and valuable, and they have made a number of important and special con-cessions to books, which have not, in fact, spread back to other interests which could make similar demands. Books are free from VAT, and they have the unique right that the publishers can preserve the resale price maintenance arrangement. This is a unique concession to books and it shows how Governments have regarded books as a special kind of commodity.
There are, in fact, direct subsidies to books. As I understand it, the British Council gets something like £4,300,000 to help Her Majesty's Government's book aid programme, which is funded by the Minister of Overseas Development and is very valuable. Therefore, I submit that it would be in accord with past and present Government policy to discriminate in favour of book exports, and other aspects of books at home, and so on, and

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to give them relief from the full effect of the new overseas postal rates.
In the last resort the Government are responsible for these things, and it seems to me that their policy is contradictory and inconsistent: while they give books these special concessions, while they give books aid through the British Council, at the same time they damage book exports and sales by exposing them to the full force of the new overseas postal rate. It seems to me to be very hard to defend both sides of that argument.
I hope the Government will be influenced by, and will pay attention to, the very powerful case that has been made by noble Lords tonight, and will think again and try to find some special way of helping book publishing in general, and exports in particular, with which I am concerned. I hope they will consider taking advantage of the rights they have under the Universal Postal Union which allows serious printed matter to be sent at 50 per cent. below the full postal rate. If the Government do this, they will be acting in accordance with an international agreement to which they are a party. In my view, only action of this kind will avoid the very great danger that now threatens British books.
8.25 p.m.
Lord AUCKLAND: My Lords, I should first like to join in the tribute paid to my noble friend Lord Allan of Kilmahew on his excellent maiden speech. In another place the noble Lord was for some time closely allied to my noble friend and cousin Lord Avon, and his contribution to your Lordships' House today has been both knowledge-able and extremely valuable.
My Lords, I do not have any financial interest to declare in any aspect of the Question which the noble Lord, Lord Beaumont of Whitley, has so valuably tabled and prefaced with a notable speech, but anybody in the field of commerce or industry today who travels abroad will have noted with dismay the end product of these increased and in-creasing charges.
I should like particularly to pay tribute to my noble friend—if I may so call him—Lord Ballantrae, for the excel-lent work that he is doing as Chairman of the British Council. When I was in Finland, about seven years ago, I met our

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representative of the British Council. I think I am right in saying that in Helsinki there is one of the largest libraries in Europe, and it has in it a very large number of British books. It is in countries such as Finland, which is such a close and valuable ally of this country, that these charges will send a nasty draught through those who are interested in reading and studying our books and periodicals.
Reference has been made to the medical profession. As some of your Lordships know, I have served on a number of hospital committees. We all know the value of the exchange of doctors and nurses, particularly between countries such as this country and New Zealand. When I was in New Zealand, just three years ago, I visited Auckland General Hospital and most of the top administrators were British, while over here we have a number of prominent New Zealand doctors. A number of medical periodicals go to New Zealand and Australia and countries far away from this country. What will be the situation with these heavy postal charges? It may well be that some of those periodicals are air freighted. I do not know—perhaps this is something which the noble Lord, Lord Strabolgi, will be able to inform us about. How many are, in fact, air freighted and what are the rules about air freighting magazines and books, which presumably may save postal charges? Doubtless these savings are counter-balanced by freight charges, so that one does not really know whether money is saved by this method.
Also, of course, books and periodicals go to other countries, particularly the developing countries which have been mentioned by a number of speakers, and for which we have a responsibility. There is a shortage of airports and landing strips in those countries, so that for obvious reasons there are not very regular air services and, therefore, books and periodicals have to be sent to these places by post at some of the charges which have already been mentioned. At a time when the English language is the second language in so many countries, and when it is held in such high respect, this seems to be a most inopportune moment to put these swingeing increases on reading material.

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My Lords, the written word is a vital comunication with those whom we seek to interest in the ways of our democratic life, and in the ways in which this country works. I was in the Caribbean, in Santa Lucia and Barbados, at the end of last year on business. I noted the number of British newspapers and periodicals there, and how avidly they are read. If we are to have such an increase in charges, it will be very difficult indeed for reading material to be sent to places like the Caribbean. I join with the noble Baroness, Lady White, in her hope that our Embassies in these countries are in communication with the Foreign and Commonwealth Office. The noble Lord, Lord Strabolgi, is undoubtedly in a difficult situation here, as any Minister would be. Presumably, there are several Minis-tries involved in this problem, and communication between them and other Government bodies and representatives of the countries concerned is absolutely essential.
I have concentrated primarily on the overseas market because, working as I do primarily in the sphere of insurance, I recognise this as one of our major invisible exports. Clients overseas want to know what is going on through such magazines as Lloyds Log, the Insurance Gazette, and others. There are many other professions which publish magazines. If we are to be faced with these very high charges, what will be the chances of such magazines reaching with the required frequency some of the countries which they need to reach? Of course there are problems. We are living at a time of raging inflation, and the Treasury has only a certain amount of money to dole out. There must be priorities. As I said earlier, and as other noble Lords have said, the value of the written word overseas today has never been so vital as it is in these crucial times.
8.35 p.m.
Baroness BURTON of COVENTRY: My Lords, first of all, I should like to thank the noble Lord, Lord Beaumont of Whitley, for putting this Unstarred Question on the Order Paper today. I think appreciation has been felt by every speaker. I should like to thank him also for what he said, particularly when he stressed the urgency of this matter. It seems that it is much better to put down an Unstarred Question and to have an informed debate, than to wait for another

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opportunity. We ate most grateful, and we hope that the noble Lord will be rewarded by the noble Lord, Lord Strabolgi, when he comes to reply. I should also like to congratulate the noble Lord, Lord Allan of Kilmahew. We all feel very pleased that his knowledge made it inevitable that he should make his maiden speech today. We are grateful for what he said, and look forward to hearing him again in the future.
I am particularly glad, because I want to talk about the new inland rates. It has not been possible for Parliament as a whole to pay a great deal of attention to them, and it seems to be the case tonight, as is so often the way in this House, that your Lordships will show the way on these matters. I should say that I have an interest to declare. As the House knows, I am President of the Association of Mail Order Publishers and Chairman of its Authority. I share the deep concern for the future of minority interest books and magazines. Also, I believe that the levels of postal increases are now so swingeing each time that they can only motivate larger users to use alternative methods of delivery. I was very interested this evening—and I wrote down the names—to hear the noble Viscount, Lord Eccles, and the noble Lords, Lord Trefgarne and Lord Auckland, all use the term "swinge-ing". I think it is not a word that we use a great deal, but as we have all separately made use of it tonight it must convey to the noble Lord, Lord Strabolgi, what we feel on this matter.
My Lords, I think it would be appropriate for me tonight, in what I want to say, to kill the myth that large users receive their small discounts from the Post Office at the expense of individual users. The large users save the Post Office a good deal of money, and they save it for various reasons. First, they do not use stamps. By printing at their own expense "Postage Paid Impression" envelopes and cards they save the Post Office the cost of printing and retailing postage stamps. They also bypass the stamp-cancelling process by which the Post Office prevents the reuse of postage stamps. Secondly, they post from one point. Unlike general mail, which has to be collected at considerable expense from about 150,000 different post boxes, bulk

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posters take all their mail direct to one, or at most two or three, sorting offices.
Thirdly, they post uniform, clearly addressed items. In fact, bulk letter mail, and most parcel mail, is despatched in quantities of a standard "Post Office Preferred" size and shape. Addresses are typewritten or printed, clearly legible, in the precise Post Office format, and, increasingly, with the correct post code added. Fourthly, they pre-sort the mail. According to the quantity posted, the items are sorted into countries and large towns, or into the full range of some 1,500 "post towns". Some posters, using the post code, pre-sort their mail right down to the individual postman's "walk". Pre-sorted mail is bundled, bagged and labelled by the poster. "Direct bags" do not require any examination by the Post Office from the moment they leave the poster until they reach the delivery office. Lastly, the Post Office know exactly when it is coming.
I was very pleased to see this recognised in paragraph 32 of last month's POUNC Report, and I quote:
"Without larger user business the finances of the postal service would be even less healthy, and the burden falling upon the small business user and the private user proportionately greater."
I have stressed this aspect because it can-not be healthy for the Post Office that so many large users—publishers and others —are now costing other means of distribution. One very large member of the Association of Mail Order Publishers tells me that it will now pay them to deliver their magazine by hand in towns where they have a circulation of over 1,000— and that is some 60 per cent. of their total. This would leave the Post Office with the expensive deliveries to distant Scottish farms and other remote areas. And, of course, if this starts, other magazines could well make use of the same service. Or as the Daily Telegraph pointed out on 22nd February these other magazines could all use the distribution network set up by Great Universal Stores during the last postal strike, and still retained. Another very much smaller member of the Association of Mail Order Publishers, who publishes educational books, has now calculated that it can save 10 to 15 per cent. by signing a con-tract with British Rail. Yet a third example is the Bristol Law Society, which

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is now going to deliver legal documents among its own members in the near future.
I am sure the Minister will agree that this potential loss of business is of much concern when we recall that the Post Office, even before the last round of increases, lost the Barclaycard magazine, with some 6 million copies a year, which is now distributed over the counter, and the American Express magazine. Even the Government themselves have suffered problems with the old postal charges, and give the postal rates as the main reason for the HMSO loss last year, a loss of £348,971. Lord Beaumont's mention of the decrease in the number of periodicals, which are so very dependent on the post, was vividly illustrated in an article I read the other day. And now that W. H. Smith & Son has wound up its subscripiton service, it is only too easy to understand why the magazine publishers are alarmed.
My Lords, we are all keeping our speeches short tonight, and time precludes me from commenting further on Lord Peddie's most thorough report, but I should like to add my voice to those organisations who have called for a full inquiry into the costing of the postal services. Of course, the user wants to know what he is paying for every time he is told that the price of his stamp is going up again.
In common with every speaker tonight, I would whole-heartedly support Lord Beaumont's call to the Government to investigate very carefully what they can do to preserve the dissemination of the printed word. From what has been said tonight, we all feel that the noble Lord, Lord Strabolgi, in his personal capacity anyway, will understand the problems we are talking about. He has a very difficult job in replying for five Ministries. I hope that he will give us comfort, and that behind the scenes he will convey to the Government the very real anxiety felt by every speaker tonight. All of them have spoken with knowledge and raised problems which I think should be attended to.
8.45 p.m.
Lord HALE: My Lords, the special problems of a village solicitor, if he is in a litigious practice, arise from about five o'clock at night to about 7.30. Counsel

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has notified us at the last minute that he cannot be there for the case due tomorrow. The Clerk of Assize has brought forward a case on an application for adjournment. There is a case in Birmingham that was expected to be reached on Thursday and is now about to be reached tomorrow. The necessity of urgent and frequent communications is absolute, while one must keep one's lines open for notice of further disasters. If the clients knew what was happening they would go "scatty" and sometimes the solicitor very nearly did.
We used to rely on the Post Office, and it was then, I believe, a nationalised industry. It paid very low wages. In order to get these messages through, there were three or four methods open to us. One could pay sixpence a mile to a Post Office messenger to take it all the way. Normally that was practicable only for short-distance communication. One could use the ordinary post, which was then three-halfpence, and when I talk about a penny, I mean the old penny. One could pay a small extra fee—I think it was 1d or 2d—for an express delivery, which, unfortunately, in London had the disadvantage of being so prompt that the letter arrived before my London agent's office was open: they had to stick a paper in the letter box asking them to call for it. Or there was the night telegraph letter, which we usually relied upon. The cost of that was 9d for 36 words, a halfpenny extra for every additional three words, so that for less than two "bob" you could write 100 words and have it delivered, I guarantee, next morning. For an extra penny or two, I think you could get an acknowledgment if you wanted it, and have a record. Having records of documents is rather important in a solicitor's office, where disputes are liable to arise in the course of negotiation about debts.
Of course, you could also use a rail service, in which you went to the local railway station and handed in a stamped envelope for an extra fee of 2d., which covered the transfer of the latter at the various junctions on its way until it arrived at its destination where it would be called for. The modern Post Office has slightly improved this service; you can now get your letter collected and delivered to the station and then have it delivered from the station at the other

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end. The price of that has now gone up from 2d to £2 exactly. I regard that as a fairly substantial increase. I said, and I admit, that the wages were low and conditions were low.
I married, fortunately for me, the daughter of a village post-mistress, and I recall something of the conditions. I learned how to work a village postal telephone exchange during the night, when one padded down in bare feet on a cold floor, and had to listen, perforce, to the conversation, in order to switch the ex-change off. The conversation nearly always started with the question "Did you get home all right?" and the second was "Was she up?" and after that a contained dialogue.
Conditions had to improve, and they have improved. But I am not quite sure whether the service has. I have today an excellent postal service at Dulwich, and I make no complaint about it. Many of these privileges have gone. The 4 oz. were reduced to 2 oz. and the 2 oz. were reduced to 1 oz., with a dreadful increase of weighing and putting letters on balances and so on. It was a busy office and everything took a considerable amount of time. I do not know anything about economics, and I have never had the good fortune to meet anybody who does. I find it difficult to understand why, running over those 50 years—which have included periods of deflation, inflation, deflation, distress, unemployment, overemployment, peace and war—there is never an occasion when postal charges go down. So far as I know, they have never gone down since Rowland Hill. The present increases are absolutely prohibitive.
I have had some experience of technology. In Oldham we never mentioned politics at Election time, because we regarded it as controversial and distasteful and liable to arouse discussion. I certainly never read out the briefs submitted to me from Transport House. I remember when on one occasion I got up at a meeting of 2,000 or 3,000 workers at the Avro Works and I produced that classic phrase of the Election:
" We are going to harness together all the resources of modern technology and lay it at the service "—

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and at that moment the loudspeaker broke down and I was unable to continue that thoughtful and profound theme.
I did indeed have to use the service to transmit to Mr. Tom Harrison in Borneo some urgent documents for signature, and I had a message back to say that he was 14 days away by runner in the jungle, and asking whether we wanted them to run out, and we decided that we did not. Still more recently, as your Lordships know, the glad tidings that Mohammed Ali had retained his world heavyweight championship in Central Africa, which were transmitted by all the resources of modern technology to the civilised world, were sent almost as speedily, and much more appropriately, by drum throughout the forests of Africa.
But I rise today to make a case on behalf of one institution—the London Library. This is not at their request; it is my own desire. The London Library is a unique institution. I would have spoken at length on this matter if the noble Viscount, Lord Eccles, had not made the point quite clearly on behalf of the National Library. The London Library, which has been buffeted from Westminster once every three or four years, is a library so great that I often leave the British Museum Reading Room to go there and find the book which I could not find at the British Museum. You cannot give it much more distinction than that. It is a voluntary organisation in service of learning. How it will go on under these conditions, I do not know.
They had a withdrawal of their rate rebates some months ago, and a gentle-man whom I have never met, and who was full of zeal, raised the question of the benefits and referred to almost every learned institution in London—the Royal Colege of Music, the London Library and so on. I introduced a Bill to remedy that situation and was duly rebuked by the Speaker at a private interview for a wilful and calculated breach of the Rules of the House, after being warned of the consequences in words which to me are still memorable. He said:
"I never spotted what you were up to, until you said you were on the horns of a dilemma ".
The noble Lord, Lord Beaumont of Whitley, who opened the debate, dealt

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with the problems of magazine proprietors and so on in a very able memorandum which I received only today from the Publishers' Association. That case is overwhelming. Much of it was set out with the greatest possible ability by the noble Lord, Lord Allan of Kilmahew, in what it was surprising to learn was a maiden speech. It would be almost impertinent of me to congratulate him, because its quality was so obvious to everyone, but it was singularly accomplished. I will add a single sentence in corroboration of what the noble Lord, Lord Beaumont of Whitley, said. Only a few weeks ago, I paid a five years' subscription to the magazine Newsweek which, of course, has its headquarters in America, at a price which was not very much more than it would cost me to pay a year's subscription to a magazine of equal price in this country. These are serious and grave matters which will have reprecussions all over Britain in industry after industry. But the great burden is on books, publishers, readers and libraries. How will they survive? I do not know. It may well be true that many useful scientific magazines will perish under this unmerited and, so far as I can see, wholly unjustifiable burden.
8.56 p.m.
Lord CULLEN of ASHBOURNE: My Lords, I am grateful to the noble Lord, Lord Beaumont of Whitley, for having initiated this very well-timed debate. I shall not attempt to reinforce the powerful arguments that have been made from all quarters of the House, but I sincerely hope that the Government will take heed of them. I intend to speak for a few moments about "talking books". Here I must declare a personal interest in that I recently became chairman of the National Listening Library which is a charitable organisation providing literature in the form of recorded material on "talking books" for the physically handicapped. The National Listening Library, though still in its infancy, provides a "talking book" service similar to that of the Royal National Institute for the Blind. By the terms of its charter the RNIB is unable to make its services available to people suffering from other forms of handicap, many of which either make the reading of books impossible or so diffi-

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cult, or even painful, that no benefit or enjoyment can be obtained. That is why the National Listening Library was born.
Owing to the generosity of many individuals and many institutions, so far it has been made possible to limit the annual subscription to members to £12. Before this week's increase in postal charges the charges amounted on average to 50 per cent. of that sum. It would be most unfortunate if the subscription has to be raised, but without help that seems to be inevitable. Fortunately, there is a tailor-made precedent for help being given in almost exactly similar circumstances. Noble Lords will be aware that some 40 years ago Parliament approved the pro-vision of free postal delivery to the blind of braille material and "talking books". By international agreement this facility is now universally available.
I suggest that this enlightened precedent should be followed by a similar con-cession to those who are prevented from being able to read by physical handicap other than blindness. Surely that is only fair. It is something which I think the Government could and should do, either by conceding free postal delivery or by a grant to cover postal charges. After all, a book remains a closed book just as much if you cannot open it as if you cannot read it. It is estimated that at least 100,000 disabled people are eligible for this ser-vice, including children and those who are temporarily disabled. As yet, in these early days, there are only about 1,200 members growing at the rate of about 50 per month.
We want to make the service available as quickly as possible to all those who are eligible and we want all the help we can get. The cost of providing free postal delivery to the disabled would be at present the trifling sum of between £25,000 and £30,000. I do not know the cost of the concession to the blind, but it must be very much higher. To put the whole thing in perspective, it is interesting to look at the present cost of the library services, which are available absolutely free to the able-bodied. The annual cost in England and Wales of the public library service is about £90 million and that of the university libraries about £17 million.
It needs no words of mine to describe the mental stimulation and happiness that the library is already providing to

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the few, nor the scope for giving confidence and education to disabled children, nor perhaps in years to come preliminary reading; for those who will require retraining owing to the need to change their jobs. At present we lag behind the United States and Canada, which have recognised the need to enable the disabled to continue to enjoy the written word as of right. In those countries a "talking book" service is pro-vided free to the disabled, so I am not asking for much for the disabled—just a concession of free postal delivery already granted internationally years ago to the blind. This is a special case and I trust that the noble Lord, Lord Strabolgi, will agree with me.
9.2 p.m.
The Earl of LONGFORD: My Lords, the whole House was moved by what the noble Lord, Lord Cullen of Ashbourne, rightly called a special case. This House has shown itself repeatedly full of concern for the disabled, and of course some of our most respected and distinguished Members are themselves disabled. I agree entirely with what the noble Lord said—that whatever may be the outcome of the general discussion, the House will treat this particular case as indeed special. The noble Lord had every justification for speaking, even towards the end of this quite prolonged debate, though my justification is slightly less convincing. If I am asked whether my speech is really necessary, I think the answer can only be "No", but if I am asked whether it would not seem a little cowardly, possibly even sinister, if I simply scratched my name off the list of speakers, then I think the answer to that must be, "Yes".
I rise in the spirit of a notable character well known to your Lordships who, after Edmund Burke had spoken, rose and simply said, "I say ditto to Mr. Burke". All noble Lords will clearly remember his name, and if they do per-haps they will tell me later who it was because it has temporarily escaped my memory! However, I rise to say "ditto" to all the previous speakers, beginning, of course, with the noble Lord, Lord Beaumont of Whitley, who I was afraid I was going to have to congratulate in his absence but who has made one of his fleeting returns to the House.

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I wish also, of course, to congratulate the maiden speaker, the noble Lord, Lord Allan of Kilmahew, who is a very much larger publishers than I am, though whether the rate of progress of my family is quicker than that of the vast organisation over which he presides I would not know. However, as one medium-sized publisher to a very large one, I salute him on his contribution. I think it would be a good idea to congratulate those sitting closest to me, which is always a prudent thing to do before one sits down, not-ably the noble Baroness, Lady White, and the noble Lord, Lord Gordon-Walker.
I hope the Minister will find it possible tonight to give us some encouragement. I realise the enormous difficulty of his position. Before he reached the scene, he clearly had been given some guidance by his colleagues and I do not want to embarrass him unduly. When I first came to this House, 30, or it may have been 100, years ago—whenever it was, it was in the Dark Ages—his father gave me tea on the first day I arrived and it would be poor recompense if I were to add to the noble Lord's afflictions tonight. But he must realise that I should doubt whether, in my over-long experience here, there has been such a unanimous volume of criticism of any step as we have listened to tonight. I hope the noble Lord will not say to himself, and possibly to us, that those who are speaking are speaking on behalf of some business interests of their own. Some are and some are not, but the truth is that in this debate we have speakers—in some cases they might be said to have a personal interest and in some cases they are detached—who are all thoroughly expert and truly concerned about the public good, and I am sure that that is the spirit in which the noble Lord approaches these problems.
I will not delay your Lordships for long. The noble Lord may tell us, or his colleagues may think, that this is now a matter that has to be left to the Post Office, that in their wisdom they must decide. Obviously the noble Lord and any Minister, however unenlightened or obdurate, must agree that some damage, and I should think a lot of damage, will occur if these extra charges go through. But the noble Lord may say or think— or his colleagues may say or think, "This industry is now outside our control." I

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hope that that will not be said. I have been a Minister of a nationalised industry and, when I was Minister of Civil Aviation for three years, one part of our concern was with the aerodromes, which were nationalised in the sense of the Post Office, and another part comprised the corporations, which were nationalised on the present lines.
So whether the Post Office is nationalised in the old or the new sense, the truth is that the State, the Government, cannot divest themselves of all responsibility for what takes place. They would be completely betraying their trust if they said to themselves, "This is regrettably damaging to the national interest, but what can we do with these people? We have told them that they must make it pay and if this is the best way they can think of making it pay, so be it, we must leave it to them." I hope that we will not be told that tonight and, above all, that the Government will not think that, for the truth is that no Government responsible for a nationalised industry can ignore social considerations, can avoid the question which they must put to themselves: "When all is said and done, will this help or damage the country?" Obviously, so far as possible the Government wish to avoid interfering, but when they get this volume of criticism, the noble Lord and his colleagues must think again. I hope that tonight he will at least leave the door open and tell his colleagues that, so far as he can judge, there has never been an occasion when the House of Lords has been so unanimously against what is now being proposed.
9.8 p.m.
Lord STRABOLGI: My Lords, the noble Lord, Lord Beaumont of Whitley, has been responsible for giving the House this opportunity for a most interesting debate. I agree fully with the noble Lord, Lord Trefgarne, that the subject is too important for an Unstarred Question, but I appreciate that the noble Lord, Lord Beaumont, had difficulty in getting time and so we had to have the debate rather late in the day. However, it has been none the worse for that, and certainly the subject has attracted a scintillating list of speakers, including a former Minister for the Arts. I do not know whether my

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noble friend Lord Ardwick would call the noble Viscount, Lord Eccles, the Minister of Culture, but I certainly considered him to be so, just as I now regard my honourable friend Mr. Hugh Jenkins to be the Minister of Culture.
My Lords, I am, of course, the spokes-man for the Arts Department in your Lordships' House, and because the Question of the noble Lord, Lord Beaumont, ended with the words "a humane society" and referred to the place of the book in such a humane society—a matter which I shall deal with later—the task of replying has devolved on me instead of upon the spokesman for the Department of Industry, which is the Department responsible in a general way for the Post Office. However, as several noble Lords have surmised, I have had the task of co-ordinating what I hope to say with a great many Departments. I shall do my best to answer all the various points which have been made.
First of all, I must congratulate the noble Lord, Lord Allan of Kilmahew, on his maiden speech, to which we all listened with the greatest interest. I want to say more about paperbacks later, but here I must say how much I have always admired Penguins and how much pleasure I have derived from them. They compare very favourably with many of the paperbacks produced in other countries, particularly on the Continent, and —dare I say it?—with the Livres de Poche.
Despite what my noble friends Lord Gordon-Walker and Lord Longford have said, I must be plain at the outset on the subject of the higher charges. Although the Government are naturally consulted by the Post Office about its general pricing policy, postage rates for particular services are primarily a matter for the Post Office. These responsibilities are conferred by the Post Office Act 1969, which was passed by Parliament and which gave the Post Office, first, the power to provide, inter alia, postal ser-vices and, secondly, the general duty to exercise that power in certain ways having regard to efficiency and economy. The 1969 Act also gave the Post Office power to make schemes which prescribed the charges and conditions applicable to its services. I may say in this connection

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that the second sight of the noble Lord, Lord Ballantrae, has been as accurate as I am sure it usually is.
However, having said that, I must say that the Post Office's freedom to set rates for its services has been somewhat curtailed by the counter-inflationary policies pursued both by this Government and by the previous Administration. As a result, compliance by the Post Office with the terms of successive Price Codes has meant that this year the Post Office—taking both postal and telecommunicttions businesses together— faces losses of some £300 million, which would have risen to an estimated £700 million in 1975–76. Continuing losses on this scale were clearly unacceptable and I must remind noble Lords of statements made at the end of last year by my right honourable friend the Chancellor of the Exchequer. He made it clear that it was the policy of this Government to phase out price restraint subsidies to the nationalised industries as soon as possible.
Of course, everyone recognises that implementing that policy is bound to be both painful and unpleasant, even if its impact were to be reduced by stages. Nevertheless, it remains the Government's view that economic pricing is as essential to the economic wellbeing of the public sector as to the private sector and is necessary if public expenditure is to be effectively controlled. Confronted with the massive deficits which had been fore-cast and mindful of the Government's policy in regard to nationalised industries, the Post Office had no choice but to propose massive increases in the prices of its services. Even so, I should point out to noble Lords that, at the request of my right honourable friend the Secretary of State for Industry, the Post Office sought increases of a lower order than the maxima permitted by the provisions of the current Price Code. As a result, it will still be left with an estimated loss of some £50 million in the coming financial year.
The proposals made by the Post Office were referred, as the 1969 Act requires, to the Post Office Users' National Council which has been referred to by several noble Lords. My noble friend Lord Peddie, who I know wanted to be here tonight but was unavoidably prevented, was kind enough so to inform me and to send his apologies. I think the Council

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under the chairmanship of my noble friend Lord Peddie, to whom I should like to take this opportunity of paying a tribute, enjoys an enviable reputation for the vigilance with which it has discharged its functions in the interests of all classes of users of the post. After full consideration of representations made to it, the Council has of course made public its reluctant acceptance of the proposals of the Post Office, and increased postal rates were accordingly introduced on the 17th of this month. Before that date, there was also a statutory referral—except for the overseas rates—to the Price Com-mission, which accepted the proposed increases.
The overseas postal rates are very much factors in considering the Question which the noble Lord, Lord Beaumont of Whitley, has asked. Assuming no price changes, the Post Office forecast a deficit in the current financial year of £4½ million on those services, but this would be expected to increase to £24½ million in 1975–76. Although sea conveyance costs, reflecting the increased price of oil, have risen enormously, the largest single item in this increased forecast deficit, comparing 1974–75 with 1975–76, is caused by the decision last year of the Universal Postal Union Congress to increase and extend the compensation arrangements in respect of traffic imbalances referred to by my noble friend Lady White. This may not have been appreciated, but the Post Office is bound by that decision which was strongly resisted by the British delegation, but, my Lords, the views of the majority unfortunately prevailed. There are very few countries like the United Kingdom which send more letter post traffic than they receive. Accordingly, the Post Office has had to increase its rates for printed papers—these of course are principally books and periodicals.
After considering the representations of the Post Office Users' National Council and the industry, the Post Office agreed to introduce these particular increases in two stages. It was not really, as my noble friend Lady White said, that there were more increases on the way. They were increases which should have been made now, but which have been deferred in order to make the position rather easier, although I appreciate the difficulties which the book industry is facing, as

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indeed are all industries and all of us in many fields. The first stage which increased the full rate printed paper tariff by 24 per cent., the reduced rate by 54 per cent., and the direct agents' bag rate by 50 per cent., came into effect on 17th March. The second stage, which advances the full rate to 66 per cent. of the tariff prevailing before 17th March, and the reduced rate and direct agents' bags to 100 per cent. of the pre-17th March tariffs, will, as I said, be introduced next January.
It is these services which very largely create the imbalance of traffic with other countries. They were operated at a very heavy loss before 17th March, and they will continue to be operated at a loss after next January, despite the large increases in tariffs which I have mentioned. In spite of the continuing losses on those services, I am able to reiterate an assurance given on the occasion of a similar debate in another place at the end of January, and I am sure that noble Lords will be gratified to learn that the Government know of no plans on the part of the Post Office to abolish the special rates, for all that they are not as low as certain noble Lords would wish and as I myself would wish for books and periodicals sent abroad by post. These are the facts of life that we have to live with.
So far as the inland service is concerned, there are no comparable services, and books and periodicals must go at either first- or second-class letter post rates or at parcel rates if they are sent by post. At this point, I would remind noble Lords that the Post Office has no mono-poly over the carriage of items other than letters, so that books and periodicals may be sent to a destination in the United Kingdom, or abroad, either by post or by other means. The choice as far as possible, though I realise this may sometimes be difficult for smaller publishers, is the senders. The serious financial position of the inland postal service clearly called for some action: without a tariff increase a deficit of £126 million was forecast for 1974–75 and £277 million in 1975–76. Following acceptance by the Users' Council and the Price Commission of the Post Office's proposals for increased rates at 49 per cent. overall for letters and 51 per

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cent. for parcels, these revised rates were also introduced on 17th March. Their effect will be to reduce the forecast inland postal deficit for 1974–75 to £118 million and for the period ahead to £65 million. My Lords, I must stress that these figures for the forecast deficits are still very substantial ones.
In the light of the economic situation of the Post Office and the Government's expressed policy in relation to subsidies to the nationalised industries, it would be unrealistic to expect any form of subsidy to be made to offset the effect of increased postal rates, either inland or overseas, on a particular industry. I must therefore tell noble Lords that the Government can see no ultimate justification for such a subsidy, which would have to be paid for by other users of the post, or by the tax payer. Nevertheless, I will undertake to bring what has been said today to the attention of my right honourable friend and to the other Departments concerned. I include here the suggestion made by the noble Lord, Lord Beaumont of Whitley, that books and periodicals should be subsidised, although I do not know how one decides which are to be subsidised; but this is something of which we shall take account. When one is a spokesman for the Arts, one is always approached by many people to subsidise various things. Some people come to me wanting the Government to put aside a reserve fund to buy every masterpiece in the country. They say, "It will cost only £30 million." Other noble Lords want to subsidise the postage of books and periodicals. These are matters which have to be taken into account and which are considered very carefully, but one cannot do everything while at the same time keeping taxes at a certain level, when already they are rather too high.
My Lords, I am well aware—and can fully understand—the book trade's view that the large increases in postal charges are viewed with alarm, and I have seen the figures which the Book Development Council has produced showing the usage of overseas postal services in 1973. These figures were made available to the Post Office Users' National Council. But it is a fact, though a sad one, that we all have to live in inflationary times and acknowledge that the higher postal charges are but one element in the rising costs of

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producing the printed word, alongside the higher costs of materials and labour, and, indeed, the higher costs of producing and distributing all manner of things.
Except of course for the paperbacks, the cost of books has gone up enormously. A novel now costs £3; it used to cost 15 shillings. Art books, as the noble Viscount, Lord Eccles, and others will know, used to cost a couple of pounds. I can remember Phaedons were 10 shillings before the war ; they are now £10, £15 or £20—anything almost; the sky is the limit! Postal charges really are one element in the whole question of book production and everything else. I will only repeat that in the matter of distribution the Post Office does not have a monopoly. Users can, and do, use alternative means. Given the increases in postal charges, users will be considering further use of alternatives and central distribution points. This is quite understandable. I am sure that, either way, publishers will be determined to maintain their trade and the best possible service to their customers at home and abroad.
Baroness WHITE: My Lords, would my noble friend explain how he proposes to send newspapers other than by post to arrive within a reasonable period?
Lord STRABOLGI: My Lords, I will come to that a little later, but having worked in the magazine industry, I know that a great many magazines, particularly the mass circulation magazines, with which I used to have a lot to do, go by road.
Baroness WHITE: My Lords, I am speaking of the overseas trade.
Lord STRABOLGI: I will deal with the overseas trade in a moment. With regard to periodicals, it seems probable that in many ways these will be harder hit by the loss of advertising revenue in the present economic situation than by the higher postal rates; because we know to what an extent practically all periodicals depend on advertising to subsidise their costs.
I should like to say a word on the effect of the international copyright mentioned by my noble friend Lady White. Mention has been made of the possible consequences of an increase in postal charges under "international copyright agreements" to the detriment of British

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publishers. My understanding is that the point relates to the situation that this country's publishers may face in the developing countries where at the present time they have a market in, for example, India because they can sell there more cheaply than an indigenous publisher could sell a re-print.
The argument runs that if publishers have to increase their prices to cover higher postal charges, local publishers might be able to under-cut them legitimately by using the facilities offered by the 1971 Paris Revisions of the Copyright Conventions. These Revisions constitute an exception in favour of the developing countries to the general copyright principle that the author or his successor in title, who could be the publisher, shall have the exclusive right to authorise reproduction of his work. They allow a local publisher in a developing country to get a compulsory licence to reproduce a book if that book has not been offered in his country by the original publisher at a "reasonable" price and within a certain time.
My Lords, I feel sure that no attack on the Copyright Conventions is intended and I take the point as merely an example of how the publishers might become less competitive in certain over-seas markets. But the United Kingdom has ratified these Revisions, and it is most important to be clear that a royalty is of course payable to the original publisher in return for compulsory licence. There is also the question of the Low-Priced Book Scheme in the emerging countries which I think the noble Lord, Lord Ballantrae, in his capacity of chair-man of the British Council is concerned with, and who mentioned it in his speech.
My Lords, my right honourable friend the Minister of Overseas Development has naturally considered the probable effects of the increases in overseas postal rates upon the selling prices of books produced under the British Low-Priced Books Scheme for developing countries. She believes that the effects will be relatively small compared with the increases resulting from inflation in book production costs over the past three or four years and to which I have already drawn your Lordships' attention. These have been absorbed apparently without undue difficulty, except in certain sectors, and far from there being a reduction in sales of

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these books they are still increasing. The financial provisions being sought by way of subsidy for this scheme in 1975/76 is substantially higher than for the current year. That I can certainly say, but without going into details, because the estimates have not yet been published.
Similarly, in relation to the Books Presentation Programme and Library Development Scheme, although the increases in postal charges will mean that fewer books can be purchased and dispatched overseas for the same outlay, the annual financial provisions planned for these schemes in future allow for rising costs and should be sufficient in my right honourable friend's view, to cover increases both in production costs and postal charges as well as for some degree of expansion. If, in the event, there are indications to the contrary, my right honourable friend, who is watching the situation, will consider carefully adjustments to the provisions to prevent a quantitative reduction in this form of aid to developing countries.
That is the general situation. Perhaps I may now try to answer a few specific points which have been raised. First of all, may I say that of course we shall pay great attention to what was said by the noble Lord, Lord Cullen of Ashbourne, about postal concessions for the blind and for other disabled people. I regret that at this stage I can give no further assurances, but I will certainly undertake to see that this particular point goes to the Post Office and is considered by them. I am sure we all have the greatest sympathy with what the noble Lord said.
The noble Viscount, Lord Eccles, asked whether the Post Office consulted the British Council. The answer is that it would be invidious to consult any particular user and of course it would be impossible to consult them all; but they do consult the Post Office Users' National Council, who represent all classes of users. In addition, any particular group may of course make representations to that Council. In respect of the latest increases, the Book Development Council, for example, spoke for a large section of the publishing industry.
The noble Lord, Lord Auckland, asked about air freight. Here there is no monopoly and I am sure British Airways

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would welcome approaches from publishers about air-freighting their publications. Air freight, I believe, offers an excellent service and in many ways it is quicker and more reliable than surface services.
The noble Lord, Lord Ballantrae, asked about the increased rates for over-seas printed paper services—a point which was also referred to by my noble friend Lady White. Even after next January, the Post Office do not expect to run these services other than at a loss. They attempt to recover only directly attributable costs such as sea freight, land transit costs in other countries and imbalance payments, to which I have referred, and so on. But it is certainly their intention to carry on these services.
The noble Lord, Lord Trefgarne, raised a great number of points. He spoke about the impact of inflation on postal charges in recent years. Of course, as noble Lords will appreciate, it is possible to draw different conclusions from the statistics available. Postal charges, of course, have risen more rapidly than, perhaps, the general rate of inflation might have led one to expect. From 1968 those charges were insufficient to cover costs and, despite subsequent increases, the fact of the matter is that the discrepancy between costs and revenue has widened. The economic indicators which have been mentioned all have their limitations. While it is true that in an industry where 75 per cent. of costs are paid in wages, and basic wages have been increased by substantial percentages—in passing, I might point out that postmen's pay alone rose by over 40 per cent. in the current financial year—that factor must be considered in conjunction with others. There have been a reduced working week, improved holidays and unforeseen over-time brought about by staff shortages and similar factors, and they mean that the total wages bill is increased by a proportionate amount when compared with increases affecting the basic wages structure.
I think the noble Lord also asked about the Post Office Pension Fund. This is not a once-and-for-all payment; it is a continuing commitment, and the independent auditors to the Post Office took the view that it is properly chargeable to the

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revenue account. The noble Lord asked about staffing. Noble Lords will know that for some time the Post Office has had a recruitment problem, and for some considerable time the number of postmen fell substantially below the number that was required. But following the special pay review authorised by the Government last year, the recruitment position has eased. I understand that, broadly speaking, half the vacancies have been filled. But I must admit that some quite important offices are still substantially below strength. The Post Office, I understand, is actively considering, in conjunction with the union concerned, the various questions relating to staffing, including of course the employment of women.
With regard to mechanisation, the Post Office expects mechanisation to show worthwhile financial savings in the longer term, although full advantages can be obtained only when automatic sorting machines are operating in a completely integrated network. Thus, there will be an adverse cash-flow in the earlier years.
Lord TREFGARNE: My Lords, I am sorry to interrupt the noble Lord. I am fully appreciative of all the answers he is giving to my points. But is it not the case that the introduction of automatic sorting equipment in the Post Office has been a very long-winded process? They have been talking about it for years. They have had some equipment on trial for at least five or six years, and we are still talking about the long-term benefits.
Lord STRABOLGI: My Lords, that may well be so, but of course these things take time. I also know of no evidence that there has been resistance from the union in the kind of Luddite way which the noble Lord referred to. The noble Lord also spoke about agency services, I think, and suggested by implication that part of the cost of the services carried out at Post Office counters on behalf of various Government Departments falls on other users of the postal services. This is not so. The agency services as they are known are carried out by the Post Office under the terms of an agreement which provides for the Post Office to be paid the costs it incurs in providing those ser-vices and, in addition, a service fee of 4 per cent. This agreement has operated since 1st April last year. Previously, a service fee of 2 per cent. was charged. I

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am unaware of any loss attributable to such agency services in the years mentioned by the noble Lord.
Also, the sum of £14 million which has been bandied about. I do not know where he got that. For example, in 1971–72 the Post Office made a profit of £1 million for agency services; in 1972–73, the com-parable profit was £1·3 million; in 1973– 74 the profit was £1·6 million. So it is a rising profit rather than an astronomical loss as the noble Lord surmised. The noble Lord, Lord Trefgarne, also suggested that past losses incurred by the postal business are adding to the burden which today's customers are being asked to shoulder. That is not so. The net accumulated deficits in the years up to and including 1972 and 1973, which in total amounted to £177 million, were written off, as your Lordships will remember, under the provisions of the Post Office Borrowing Act 1972.
One or two noble Lords asked me about the recent anti-trust case which is taking place at present and which involves the British Publishers' Association and other publishers. The Department of Trade is well aware of the valuable contribution which the book trade makes to our export efforts, and is following very closely the developments in this anti-trust case in the United States. Also, the Department is keeping in close touch with the British Publishers' Association. The fact that any problems arise as a result of litigation in the United States imposes constraint on the action which we can take. Nevertheless, our Embassy in Washington has made the American Administration firmly aware of our concern at the potential international implications of the case. We shall continue to watch these developments and will not hesitate to take appropriate action in future. Beyond that I cannot say, because the precise nature of the injunction which the United States Justice Department is seeking in this case is not yet known. It is hoped that any decree would not prevent individual negotiated licensing agreements.
With regard to the other question which was raised about comparable rates in the United Kingdom and the USA, it may well be that the United States charge less for postal services than we do. Every country has its own rates for all kinds of things. Some are higher, some are

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lower. I think that most things in the United States cost much more, but their postal charges are less than ours. On the other hand, the United States will have imbalance problems similar to those which have affected the British Post Office following the Lausanne Congress decision. I expect them to adopt measures similar to those taken by the British Post Office; so any existing disparity in rates must tend to contract significantly. Indeed, it may largely disappear within a comparatively short time.
My noble friend Lady Burton of Coventry asked about bulk postings of periodicals. Bulk postings of periodicals were referred to also by my noble friend Lord Ardwick and others. Bulk postings of periodicals in the inland post will be affected by the increased rates which, as I have said, have been accepted by the Post Office Users' National Council and by the Price Commission as being justified. However, may I point out that special arrangements exist whereby periodicals registered as newspapers at the Post Office travel in the inland first-class letter stream at rates equivalent to second class postage. So far as inland bulk rebate postings of items other than newspapers are concerned, I understand that existing arrangements will not be affected in terms of service. Nor will the amount of the rebate vary in percentage terms, although clearly both the amount of the postage and the amount of the rebate will be more in absolute terms as a result of the increased rates introduced on the 17th March.
Baroness BURTON of COVENTRY: My Lords, although I know it is getting late, will my noble friend allow me to intervene? The point that I had hoped to convey was that the Post Office was in danger of losing finance because the largest users would seek alternative measures on account of the high postal rates, and I wondered whether with some urgency he could bring this home to the Post Office?
Lord STRABOLGI: Yes, my Lords, I will certainly undertake to do that. Of course, pre-sorting and postage from one point is the kind of thing which the Post Office takes into account in allowing the rebate to which my noble friend has referred. The Post Office has certainly

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no intention of penalising this class of user by reducing the percentage rebate as such. On the other hand, I must point out that the Post Office has no monopoly in this field and does not wish to have a monopoly, and there are other ways open to users of delivering in bulk—I have dealt with them myself and I know. Those are open to users if they wish to make use of them. I am afraid that may be cold comfort to my noble friend, but that is as far as I can go.
Viscount ECCLES: My Lords, if the noble Lord will allow me, surely he is undermining the Post Office. If he keeps on telling us that if we have a large volume of business we had better try an alternative way of handling it, what will happen? The more expensive business will be left with the Post Office. The Post Office is clearly not well managed now, and the problem of managing it better will get more and more difficult. Will the noble Lord convey to his right honourable friend the fact that this debate shows either that the British Post Office is not as well managed as Post Offices overseas, or that they subsidise their rates? We should like to know which it is.
Lord STRABOLGI: My Lords, I shall certainly bring that to the attention of the Post Office, but of course they do make a rebate on these bulk mailings. To what extent they depend on these bulk mailings for their profitability, I do not know. But I will certainly go into the matter and will get in touch with the noble Viscount. The overseas rates are of course controlled by international agreements, which include the question of the imbalance, and so on.
The last part of the Question deals with the contribution that the printed word has to offer in a humane society. The invention of printing and the spread of the printed word in all its forms has made—and will, I am sure, continue to make—an incalculably great contribution to civilisation and to society. The world output of books has long been growing fast and shows no sign of diminishing, to the extent that a new major library in a civilised country has yet to be built whose librarians feel that there will still be room and to spare in it to keep pace with this output before many years have passed.

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The number of books lent out by public libraries has increased, I believe, from 400 million to 600 million over the last 20 years, and the number of books in stock has doubled. Also, during the last few years we have seen the phenomenal growth of the paperback, and I believe that 31 per cent. of all book sales and 29 per cent. of book exports are now in paper backs. Will more books be bought now than would have been bought had broadcasting not been in-vented? We cannot know. I believe it right to look upon the printed word and other modern means of communication as complementing each other in the spread of education and enlightenment in our society, and not as rivals. A striking example of this lies in the wide series of written publications and linked paperbacks to complement the educational broadcasts, and your Lordships will be familiar with the effect on book production and sales of such broadcasts. I think therefore we should pause before expressing serious views in regard to the future contribution of the printed word to a humane society, either on account of higher postal rates or for any other reason that can be reasonably predicted.

INDUSTRIAL INJURIES AND DISEASES (OLD CASES) BILL [H.L.]
  INDUSTRIAL INJURIES AND DISEASES (NORTHERN IRELAND OLD CASES) BILL [H.L.]
  Returned from the Commons agreed to.

SOCIAL SECURITY BILL [H.L.]
SOCIAL SECURITY (CONSEQUEN-TIAL PROVISIONS) BILL [H.L.]
SOCIAL SECURITY (NORTHERN IRELAND) BILL [H.L.]
Returned from the Commons agreed to with Amendments; the said Amendments to be printed.

HOUSE OF LORDS OFFICES
Second Report from the Select Committee made, and to be printed.
  PRESS AND BROADCASTING: INDIVIDUALS' RIGHTS
  PRESS AND BROADCASTING: INDIVIDUALS' RIGHTS