Sitting of 18 January 1982

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Death of a Member
Mr. Speaker: I regret to have to inform the House of the death of Sir Thomas Galloway Dunlop Galbraith, KBE, Member for Glasgow, Hillhead, and I desire, on behalf of the House, to express our sense of the loss we have sustained and our sympathy with the relatives of the hon. Member.
Oral Answers to Questions

  WALES
  Mr. Ioan Evans: On a point of order, Mr. Speaker. The appearance on the Order Paper of a question about the recent weather in Wales might have had some influence on whether there was to be a statement on the matter. However, the hon. Member who tabled the question is not in the Chamber. In view of the serious situation in Wales, will the Secretary of State confirm that he intends to make a statement later?
  Mr. Speaker: There are two questions about the weather in Wales which could go rather wide. The hon. Member who tabled the question referred to may well arrive by the time that question is reached.
  Several Hon. Members rose—
  Mr. Abse: On a point of order, Mr. Speaker. Given the appalling conditions that have existed in Wales and the appalling industrial, social and personal consequences, we are all astonished that the Minister has not come forward with a statement. Since the Minister has been so sluggish, could not question No. 11 be taken at the end of Question Time—since the hon. Gentleman who tabled it is not yet in his place and this is an important matter—so that we can discuss the serious situation?
  Several Hon. Members rose—
  Mr. Speaker: Order. May I point out that such points of order are taking up the time allotted to other hon. Members, who are entitled to have answered the questions they have on the Order Paper?
  Mr. Ray Powell: Further to that point of order—
  Mr. Speaker: Order. I am not taking further points of order on that subject.

  WALES

    Pupil-Teacher Ratios
    Mr. Knoxasked the Secretary of State for Wales what was the pupil to teacher ratio in primary schools in Wales at the most recent count; and how this compares with the ratio in 1978.
    The Under-Secretary of State for Wales (Mr. Michael Roberts): The ratio was 21·7 to 1 in January 1981 compared with 22·6 to 1 in January 1978.
    Mr. Knox: Does my hon. Friend agree that there has been satisfactory improvement in the pupil-teacher ratio in recent years in Welsh primary schools? Is the present figure the best ever?
    Mr. Roberts: The figure is the best ever. Most hon. Members will agree that teachers constitute the most important resource in education and that the figure is altogether satisfactory.
    Mr. D. E. Thomas: Does the Minister concur with the view expressed by the Secretary of State for Education and Science? How many teachers in Wales does he intend to sack?
    Mr. Roberts: Every hon. Member should be concerned about effective teaching in our schools.

    House Building
    Mr. Andersonasked the Secretary of State for Wales what is the total of housing starts by Welsh local authorities, by housing associations in Wales and for each Welsh housing authority in the latest quarter.
    The Under-Secretary of State for Wales (Mr. Wyn Roberts): In the quarter ending 30 September 1981, 210 local authority dwellings and 260 housing association dwellings were started in Wales. The distribution by districts will be circulated in the Official Report.
    Mr. Anderson: Will the Minister confirm that those figures represent an all-time low, at least in post-war Britain? Does the Welsh Office make any serious attempt to ascertain housing needs in Wales? Is it aware of the misery caused to many families by mounting waiting lists and that, because of high unemployment, many of those who might have expected to buy in the private sector cannot, and have to fall back on the public sector? What will the Welsh Office do to solve the problem?
    Mr. Roberts: If I were the hon. Gentleman, I should be wary of putting too much blame on the Government. Housing starts have been falling for several years and were more than halved during the last Administration's period of office. The rate of reduction has been greater than that of housing allocations. This year there is likely to be an underspend by the housing authorities, and we have increased housing allocations for next year.
    Mr. Hooson: Will my hon. Friend remind the House about the increase that was announced by my right hon. Friend the Secretary of State towards the end of last year?
    Mr. Roberts: Next year, spending by local authorities will rise from £97·8 million to £115·6 million. The allocation to the Housing Corporation for next year will be increased from £30·4 million to £39 million.
    Mr. Alec Jones: Does the Minister appreciate that he has succeeded in wrapping up in parliamentary jargon the fact that local authority housing starts in Wales are now running at about 1,000 a year, which is the lowest figure since the war? Surely that cannot give satisfaction to anyone who claims or pretends to be concerned about the 25,000 people on council house waiting lists in Wales.
    Mr. Roberts: I accept that the level of starts is disappointing. However, that cannot be blamed entirely on the Government, because there is likely to be an underspend of about £20 million this year.
    Following is the information:

    Welsh Housing Starts—3rd Quarter 1981

    Local Authorities

    Housing Associations

    Aberconwy

    —

    —

    Afan

    —

    8

    Alyn and Deeside

    4

    —

    Arfon

    —

    —

    Blaeneau Gwent

    —

    —

    Brecknock

    —

    27

    Cardiff

    16

    46

    Carmarthen

    12

    —

    Ceredigion

    —

    3

    Colwyn

    —

    —

    Local Authorities

    Housing Associations

    Cynon Valley

    —

    37

    Delyn

    —

    —

    Dinefwr

    —

    —

    Dwyfor

    —

    —

    Glyndwr

    24

    —

    Islwyn

    —

    49

    Llanelli

    —

    —

    Lliw Valley

    —

    —

    Merionnydd

    —

    —

    Merthyr Tydfil

    —

    41

    Monmouth

    —

    —

    Montgomery

    —

    —

    Neath

    34

    —

    Newport

    —

    —

    Ogwr

    34

    49

    Preseli

    —

    —

    Radnor

    —

    —

    Rhondda

    —

    —

    Rhuddlan

    37

    —

    Rhymney Valley

    —

    —

    South Pembs

    —

    —

    Swansea

    27

    —

    Taff Ely

    —

    —

    Torfaen

    9

    —

    Vale of Glamorgan

    13

    —

    Wrexham Maelor

    —

    —

    Ynys Mon

    —

    —

    Wales Total

    210

    260

    Secondary Schools (Pupil Achievements)
    Mr. D. E. Thomasasked the Secretary of State for Wales what proportion of young persons left secondary schools in Wales in 1980 with no formal certification; and whether he is satisfied with the level of achievement.
    Mr. Michael Roberts: The proportion is 25·1 per cent., based on provisional analysis of the sample survey of 1980 leavers. We are concerned that schools should improve their performance, especially in the education of children of less than average academic ability.
    Mr. Thomas: Will the Minister confirm that the comparable figure for England is 12 per cent. and that that invidious comparison should cause the Welsh Office immediately to institute a full inquiry into the discrepancy, taking into account the views of the teaching profession and all those who are concerned about the education of their children in Wales?
    Mr. Roberts: I confirm that the comparable figure for England is about 12 per cent. However, the hon. Gentleman will know that CSE and O-level examinations were designed for the 60 per cent. of pupils considered to be of higher academic ability. He will also know that for a long time many hon. Members, including myself, have expressed grave concern about the matter. We have had many developments in the past few years, including the Mold conference. I am confident that local education authorities and schools are giving careful consideration to the advice, guidance and information offered by recent Government publications or by Her Majesty's inspector and in APU survey reports. I am sure that they will also do so in the forthcoming Cockcroft report.
    Mr. Coleman: Is the Minister aware that between September 1980 and September 1981 over 900 fewer lecturers and teachers were engaged in Wales? Would it not have been better to retain their services to improve educational standards?
    Mr. Roberts: The hon. Gentleman has completely ignored the significance and importance of falling rolls. He will know that, whatever Government were in power, the number of teachers employed would have decreased. If the hon. Gentleman had listened carefully to the answer to question No. 1, he would have known that the pupil-teacher ratio is at a record level.

    Unemployment Statistics
    Mr. Barry Jonesasked the Secretary of State for Wales by how many and by what percentage the total unemployed has risen in Wales since May 1979.
    The Secretary of State for Wales (Mr. Nicholas Edwards): At 10 December 1981 the seasonally adjusted level of unemployment was 158,700, an increase of 77,300, or 95 per cent., over the corresponding level at May 1979.
    Mr. Barry Jones: With the certainty that unemployment totals in the United Kingdom will go steeply beyond 3 million, which will have serious consequences for Wales this year, does the Secretary of State believe that the Nissan car plant will be located in Wales? Does the right hon. Gentleman know that, to those unemployed in Wales, his approach to unemployment appears to be laggardly and unconvincing?
    Mr. Edwards: I can give no information about the location of the Nissan car plant, because that is a decision for the company. The company has not told the Government whether it will go ahead with the project, nor has it stated a preference. As to the suggestion that we have a laggardly approach, we are in the middle of by far the greatest programme of site development and factory building ever undertaken in Wales. Factory allocations, the space occupied and the number of jobs provided all reached record levels during the past year.
    Mr. Wigley: Is the Secretary of State aware of the complete failure of the Welsh Office to supply jobs to replace the 2,000 being lost in the Dinorwic pump storage scheme in Gwynedd? Is he further aware of the concern expressed by Gwynedd county council last week about the danger to the North Wales railway line from the threatened rundown of Sealink at Holyhead? Will he consider those matters and meet the county council as a matter of urgency?
    Mr. Edwards: I cannot accept that the Government are in a position to supply jobs in the way suggested by the hon. Member, but I have agreed to meet Gwynedd county council and local authority representatives to discuss the problems faced in Gwynedd. Nor do I accept the hon. Gentleman's comment about the rundown of Holyhead. If the B and I Line is to operate out of that port that will bring many helpful opportunities in the future.
    Mr. Grist: How many of today's visibly unemployed were yesterday's hidden unemployed in the shape of appalling productivity figures in Britain?
    Mr. Edwards: Undoubtedly there have been striking improvements in productivity. One has only to consider the performance of the great steel plants at Llanwern and Port Talbot, with the manning levels there and in many other factories, to realise that a transformation has taken place. Those factories have become enormously more competitive, which gives a real opportunity for economic recovery.
    Mr. Rowlands: Is the Secretary of State aware that one response to unemployment in the Heads of the Valleys is to set up a pilot project to interrogate the unemployed about their availability for work, and that this is causing great resentment? Has the Secretary of State seen the questionaire put out under the pilot project, which asks for the personal and domestic circumstances of every unemployed individual, behind which is the threat that unemployment benefit will be withdrawn? Does the form have any statutory basis? If not, will the Secretary of State suggest that no individual should complete it?
    Mr. Edwards: The form is not issued by my Department and I am not responsible for it. However. the hon. Gentleman must know that it is helpful for us to have as much information as possible about the individuals concerned.
    Sir Anthony Meyer: Does my right hon. Friend agree that the reason for Nissan or any other major foreign investor coming to Wales is that it can sell its products from Wales throughout the EEC? Does he further agree that such vast inward investment is gravely endangered by Opposition threats, which fortunately everyone now realise will never be carried out?
    Mr. Edwards: I agree with my hon. Friend that it would be a disaster for Wales if it was believed that Britain was leaving the EEC. The massive inward investment that we have attracted, such as Mitel, which will provide about 2,000 jobs, would be lost to Wales.
    Mr. Alec Jones: The Secretary of State referred to the efforts being made by the workers at the Port Talbot and Llanwern steelworks. Can he assure the House that the deplorable unemployment figures, for which the Government are responsible and which were announced earlier this afternoon, will not be increased further by more closures in the steel industry in Wales? Will the Secretary of State tell Mr. MacGregor that we have had enough and that the Welsh steel industry has borne more than its fair share of steel closures? Does he agree that the efforts of the men at Port Talbot and Llanwern, especially during the past week, have earned them the right to exemption from further cuts?
    Mr. Edwards: The British Steel Corporation has paid tribute to the magnificent contribution of those who succeeded in reaching the steel plants during the bad weather or who were unable to get out of them. I join in those tributes. The improved competitiveness of those plants provides the best prospect for their future. During the past week the chairman of the British Steel Corporation has drawn attention to the consequences of events in America and to the financial position of the corporation. There is no doubt that some losses, although we do not know how much, will be suffered at Port Talbot as a result of the bad weather. However, I do not believe that that event of itself will affect the future prospects of the plants. In the long run it depends on their being competitive with other steel plants in Europe, and the plants have achieved that competitiveness in the past year.
    Mr. Roy Hughesasked the Secretary of State far Wales what is the increase in male unemployment in Gwent since May 1980 expressed in percentage and numerical terms.
    Mr. Nicholas Edwards: At 10 December 1981 male unemployment showed an increase of 9,437, or 87·2 per cent., over the corresponding level at May 1980.
    Mr. Hughes: Has the Secretary of State considered that further job losses could occur if the port of Bristol's application for Government financial assistance is granted, as it would enable it further to undercut the South Wales ports? Is he aware of the statement of the Conservative leader in Bristol calling for the closure of Newport and Barry docks? Will he speak up for Welsh interests?
    Mr. Edwards: People in all parties speak for their local interests. However, the decision will be taken not by the leader of the Conservative council in Bristol but by the Government, who will take full and proper account of the important role of the South Wales ports.
    Mr. Abse: As the Secretary of State for Employment emphasises that the appalling weather conditions will exacerbate unemployment, and as no other district in Wales, except perhaps the Secretary of State's county, has suffered more than Gwent, will the right hon. Gentleman say what money he intends to put at the disposal of local authorities to deal with the problems of unemployment resulting from the weather? Or does he still stubbornly say that many local authorities will not have a penny to deal with the ravages of the weather?
    Mr. Edwards: The Government have already announced that exceptional expenditure over and above the product of a penny rate will be met by the Government. Such financial provision is entirely in line with precedent and exactly in accordance with the practice followed by the previous Government in the 1978–79 crisis.

    Coalmine (Margam)
    Mr. Ray Powellasked the Secretary of State for Wales whether he has taken any further steps regarding the commencement of a new (deep) mine at Margam since his reference to this development in the debate on employment opportunities in Wales on Monday 14 December, Official Report, column 66.
    Mr. Nicholas Edwards: No, Sir. The next step is for the National Coal Board to complete its investment appraisal of the project.
    Mr. Powell: Why does the Minister not treat the matter with the urgency that it deserves? If he is genuinely concerned to create jobs in Wales and to reduce unemployment, why does he not persuade his Cabinet colleagues to invest in the development of the Margam mine to serve the long-term interests of the Welsh mining industry and protect the coal industry in general?
    Mr. Edwards: The decision whether to invest in the Margam mine is not for the Cabinet but for the NCB. I have discussed the project with the chairman of the NCB. As he has said on a number of occasions, because of the depth of the mine, it is a high cost development and it is important that there should be a market for its products. However, the NCB is continuing its assessment to see whether improvements could make the project competitive and viable.
    Mr. Grist: Will my right hon. Friend say whether the threat or reality of a strike in the coalfields will increase the likelihood of investment in this or any other new mine?
    Mr. Edwards: It was the chairman of the NCB who, on a recent visit to Wales, said that a strike would damage future investment prospects.

    Area Health Authorities
    Mr. Colemanasked the Secretary of State for Wales when he next expects to meet the chairmen of the area health authorities in Wales.
    Mr. Wyn Roberts: I hope to meet the chairmen on Friday next.
    Mr. Coleman: When the Minister meets the chairmen will he express the concern of health care professionals and health authorities in Wales that the differences in the structure of the health care service in Wales and in England are not properly appreciated by Ministers at the Welsh Office and by Whitley councils and that, as a result, the Whitley councils are taking decisions contrary to agreed staff and management side views? Will he increase the representation of Welsh interests on Whitley councils and provide more adequate briefing for the officials who advise management side representatives on the Whitley councils?
    Mr. Roberts: I am surprised to hear the hon. Gentleman say that the differences between the reorganisation in Wales and in England are not fully appreciated. They are appreciated by Ministers, because we have been responsible for the differences. I have heard no complaints about the Whitley council. Welsh representation is adequate, and special arrangements are being made for Wales.
    Mr. D. E. Thomas: In his meetings with AHAs will the Minister discuss the pay of Health Service employees, in view of the Government's refusal to implement adequate pay levels for nurses and other health care personnel?
    Mr. Roberts: It is unlikely that I shall discuss the matter with AHA chairmen, as it is strictly for the Whitley council.

    Rate Support Grant
    Sir Anthony Meyerasked the Secretary of State for Wales what has been the reduction in the rate support grant for local authorities in Wales for the coming financial year; and if, for comparison, he will give the reduction for local authorities in England.
    Mr. Nicholas Edwards: The aggregate Exchequer grant for Wales for 1982–83 will be 72·5 per cent., compared with the 1981–82 level of 73·4 per cent. In England aggregate Exchequer grant will be reduced from 59·1 per cent. to 56 per cent.
    Sir Anthony Meyer: Will my right hon. Friend accept that that is a considerable achievement within the Cabinet in his battling for the ratepayers of Wales? Is he aware, however, that many of us are receiving representations from our constituents against the Government's decision not to put a ceiling on the rates to be paid by industry? If we are serious in our desire to create jobs, even at the expense of the domestic ratepayer, must there not be an attempt to limit rate rises to industry?
    Mr. Edwards: I have removed the differential between domestic rate relief in England and in Wales and

    9
    transferred the sum to benefit industry and business in Wales. The £23 million involved will be in the block grant, so some local authority estimates of the consequences are misjudged. As a result, local authorities will be able to keep rate increases to industry very low, and in many cases there will be no grounds for any increase. That is the right priority at this time.
    Mr. Anderson: Is this not the third year in succession that the rate support grant has been reduced lay the Government, and that now, for the first time, the domestic rate relief is being halved? Will not the current rate increase for all domestic ratepayers in Wales be higher than the rate of inflation?
    Mr. Edwards: It is an extremely satisfactory settlement for Welsh local authorities, based on their good performance in the past year. It should enable them broadly to keep services at much the same level as before, if they can maintain pressure on costs. Rate increases for the domestic and industrial ratepayer in Wales should be significantly less than in England and a great deal less than in the past year or so. Furthermore, I have able been also to give substantial additional capital allocations to Welsh local authorities—about a 20 per cent. increase—because of their good performance in containing expenditure this year.
    Mr. Wigley: Does the Secretary of State recall that at one time the 36 per cent. domestic rate relief was justified by the impact of water rates in Wales and the need to keep them down? As the domestic ratepayer is now losing the benefit of that, and as the partial equalisation scheme is being abandoned, what will the right hon. Gentleman do to lower water rates in Wales?
    Mr. Edwards: Both the rate poundages and the actual rates paid by Welsh ratepayers have been significantly lower than in England, so it is hard to justify higher domestic rate relief in Wales. Furthermore, the Welsh water authority's charges are by no means the highest; they are somewhat in the middle of the table.
    Mr. Hooson: Will my right hon. Friend clarify his statement about the special emergency provisions over and above a penny rate? Will he confirm or deny the interpretation of the Welsh counties committee that the inclusive rate product relates not to a rate of 1p, but to one of 2½p?
    Mr. Edwards: The Government have announced that a 75 per cent. grant will be paid on net additional expenditure in excess of the product of a penny, grant-inclusive rate. Some local authorities have expressed surprise that the payment will be calculated on a penny rate including grant. However, that practice has been followed in the past. There can be no reason for surprise, as the position was made clear in a statement to local authorities issued in 1980—
    Mr. Rowlands: The current position is the worst since 1947.
    Mr. Edwards: As doubts have been expressed, I must make it clear that there is no question of the special grants to local authorities faced with weather emergencies counting against the rate support grant cash limit.
    Mr. Abse: On a point of order, Mr. Speaker. Because the Secretary of State wishes to repair his own glaring omission in not making a statement, the whole issue is being dragged in—
    Mr. Speaker: Order. If we reach question No. 14 before 3.10 pm, which I believe we shall, I shall allow supplementary questions to range widely.
    Mr. Abse rose—
    Mr. Speaker: Order. The hon. Gentleman did not raise a point of order. He passed an observation. It was in no way a point of order on which I could rule. He is now wasting the time of the House.
    Mr. Abse: On a point of order, Mr. Speaker.
    Mr. Speaker: Order. If we do not reach question No. 14, the hon. Gentleman can take the credit for that.
    Mr. Abse: On a point of order, Mr. Speaker. Question No. 14 deals solely with farmers. My people, who are not farmers, although sympathetic to them, also want—
    Mr. Speaker: Order. The hon. Gentleman did not listen. I said that, in the interests of the House, I would allow questions to range widely.
    I now call the hon. Member for Barry (Sir R. Gower) to ask question No. 11.
    Hon. Members: Where is he?

    Holiday Homes
    Mr. Wigleyasked the Secretary of State for Wales if he is now in a position to give a substantive reply to the memorandum sent to him in March 1981 by Gwynedd county council on the question of the effects of holiday homes on the county, and with proposals to help to alleviate associated problems; and if he will make a statement.
    Mr. Wyn Roberts: We hope to be able to reply to the Gwynedd county council memorandum very shortly.
    Mr. Wigley: With the problem of arson at second homes in Gwynedd, is it not a disgrace that 10 months have passed without a reply from the Welsh Office? What is the Minister's explanation for that waste of time and loss of opportunity?
    Mr. Roberts: The Government's consideration of the issues has taken longer than expected. However, the hon. Gentleman will know from his meeting with me and the hon. Member for Merioneth (Mr. Thomas) on 18 November that many of the issues are complex and difficult. The arsonists should know that the Government will not be pressurised into any ill-considered action by irresponsible and criminal acts.
    Mr. Garel-Jones: Will my hon. Friend confirm that second homes are not considered a serious problem by the people of Wales? Is it not a problem caused by arsonists, from which Plaid Cymru attempts to make squalid mileage for itself?
    Mr. Roberts: My hon. Friend is right to say that only a very small proportion of the housing stock consists of second homes. He is also right to point out that the representations on that issue have largely come from Plaid Cymru.

    Housing Associations (House Sales)
    Mr. Gristasked the Secretary of State for Wales how many schemes for the purchase by tenants of housing association properties have been completed by the Housing Corporation for Wales since the right to buy came into force.
    Mr. Wyn Roberts: Information about such sales is not available. The Housing Corporation does not make schemes for the sale of housing association properties to tenants.
    Mr. Grist: Is my hon. Friend aware that certain co-ownership societies in my constituency are finding considerable difficulty in effecting total ownership of their properties? Will he investigate that matter?
    Mr. Roberts: Of the 31 schemes of co-ownership, 25 have been approved in principle for full development into ownership. I recollect that an association in my hon. Friend's constituency had certain problems, but I thought that we had managed to solve them. I shall be happy to investigate the matter.
    Mr. Speaker: Order. I remind the House that I said that I would allow supplementary questions on question No. 14 to range wider than the terms on the Order Paper.

    Weather Damage
    Mr. Delwyn Williamsasked the Secretary of State for Wales what steps he is considering to alleviate the problems of Welsh farmers following the recent severe weather conditions.
    Mr. Nicholas Edwards: Recent heavy snow and exceptional weather conditions have caused disruption to normal life in many parts of Wales. Although the position is gradually returning to normal, conditions are still extremely difficult in many places. My agriculture department and its divisional offices have co-operated with the farming unions to do all they can to deal with calls for assistance.
    I wish to pay tribute to the local authorities—which have the primary responsibility for dealing with such emergencies—the Armed Forces, the police, the health and social services agencies and many others, including the farmers, who responded so well, and a large number of ordinary people who have kept industry, agriculture and commercial life going.
    Mr. Williams: That reply is very nice, and I join my right hon. Friend in everything that he says, but it does not answer the question. What help does he intend to give in this dire emergency? Does he agree that, although farmers must take the rough with the smooth, the present bad weather constitutes an emergency? Is it not the worst weather in living memory, with temperatures 20 deg. Centigrade lower than in 1947? Surely that merits special treatment and compensation.
    Mr. Edwards: I do not in any way underestimate the scale of the problems faced by farmers in many parts of Wales. I have seen them for myself. I have discussed the matter in great detail with Sir Richard Butler and representatives of the farmers unions. They agree that the first priority to deal with the emergency is to gain access to the farms and assist in every practical way. Sir Richard shares my belief that we are not yet in a position to assess
    12
    accurately the consequences to the farmers and reach correct decisions about the way to deal with the emergency.
    Farmers are well used to the principle that they must accept the possibility of extremely bad weather. When we have more details of the losses—milk has been thrown away and there have been stock losses—we can examine the position on the basis of information, not speculation.
    Mr. Ioan Evans: Is the Secretary of State aware that he is treating both the House and the people shabbily by not making a full statement on the most severe winter weather conditions that the people of south and mid-Wales have ever known? Government policies, with their implications for cash limits for the public industries producing electricity, gas and coal, have led to difficulties. Is the right hon. Gentleman aware that the financial constraints imposed on local authorities have resulted in severe problems for the elderly, who are living in intolerable conditions without water or electricity? Will he take emergency action as soon as possible to alleviate those problems?
    Mr. Edwards: I note that neither the hon. Gentleman nor his colleagues took the trouble to come to the House to table a question—
    Mr. Ioan Evans: In the recess?
    Mr. Edwards: The hon. Gentleman did not table a question. My hon. Friend—
    Mr. Ray Powell: On a point of order, Mr. Speaker.
    Mr. Speaker: Order, If the hon. Gentleman raises a point of order, it will prevent me from calling another hon. Member.
    Mr. Powell: I wish to correct something that the Secretary of State said.
    Mr. Speaker: Order. That cannot be a point of order.
    Mr. Edwards: My hon. Friend the Member for Barry (Sir R. Gower) took the trouble to come to the House and table a question. I am sorry that he cannot be here today to ask his question as he is ill in bed.
    The monstrous suggestion that local authorities or others involved in the emergency held off because they had doubts about the financial arrangements should be repudiated in the strongest possible terms. There is no evidence for that allegation. The local authorities have denied it. The Government were extremely prompt, as soon as they had an assessment, in confirming that the precedent for financial assistance in times of emergency would be followed and that financial support would be given to local authorities. No responsible local authority representative or official in Wales held back because of any fears about financial allocation.
    Mr. Geraint Howells: We are all aware that last week's snow storm was the worst since 1947. When the Secretary of State has made a full assessment, will he make a statement on whether he is willing to give financial aid to those in business in Wales, especially to those engaged in agriculture?
    Mr. Edwards: It would not be sensible to make a statement about financial assistance when we are not yet able to assess the financial consequences. That is a view that the president of the National Farmers Union shares with me. He telephoned me from West Wales to express

    13
    gratitude to the Welsh Office and others for the assistance that has been given and confirmed that it was too early to make an assessment. As the situation unfolds I shall consider whether a statement will be appropriate at some stage. I shall consult my colleagues.
    Several Hon. Members rose—
    Mr. Speaker: Order. I propose to allow another minute on this question despite the timings on the Order Paper.
    Mr. Alec Jones: Does the Secretary of State appreciate that we join him in thanking all the official and unofficial bodies that helped during the exceptional weather? In view of what the right hon. Gentleman has heard this afternoon, may I urge him to make a full statement later this week so that hon. Members and the people of Wales may be satisfied about what has been done? There is no point in confirming what the Government said in 1980 or what the previous Government did in 1978. Very few people in Wales have witnessed before the kind of weather that has been seen in the past fortnight. We deserve and need a far better response than we have had from the right hon. Gentleman.
    Mr. Edwards: The right hon. Gentleman says that he deserves a far better response. Responsibility for dealing with the emergency in the first instance fell primarily on the local authorities. Broadly, I think that they did a good job, although each one tackled the problem in different ways. I have seen the work that has been done. I think that in general the response was good. It is too early to make a detailed assessment of the exact decisions that were taken.
    The right hon. Gentleman misunderstands the problem when it comes to financial assistance and the scale of the problem generally. As for the penny rate barrier and the assistance that is available once that limit is passed, it is assumed—the assumption was made by the Labour Government—that every local authority will make some reserve provision for emergencies and, if the scale of an emergency exceeds that normal provision, the Government will come in to provide financial assistance above that level. That is precisely what the Government have said. The Government will come in, but the volume of the financial assistance will depend upon the cost of the operation. I have already confirmed that it will not be cash limited.

  CHURCH COMMISSIONERS

    Redundant Churches
    Mr. Murphyasked the hon. Member for Wokingham, as representing the Church Commissioners, if he will make a statement on the policy of the Commissioners towards the disposal of redundant churches.
    Sir William van Straubenzee (The Second Church Estates Commissioner, Representing Church Commissioners): The commissioners' general policy towards the disposal of redundant churches is governed by the Pastoral Measure 1968, which provides for the future of a redundant church to be settled by a suitable alternative use, preservation by the redundant churches fund or demolition. I am, however, writing to my hon. Friend to give him more details of the commissioners' policy in this matter.
    Mr. Murphy: I thank my hon. Friend for that full and helpful answer. Is he satisfied with the publicity that is afforded to the availability of redundant churches?
    Sir William van Straubenzee: Publicity is an issue for individual dioceses. Properties vary enormously, but they are normally advertised. A list of such available properties is kept by the commissioners and it can be obtained by members of the public on request. Since 1969 over 50 per cent. of churches that have been declared redundant have been put to suitable alternative use.
    Mr. Greenway: My hon. Friend will be aware that there are occasions when there are clashes of interest between the spiritual and the material when considering the future use of redundant churches. Will he assure the House that where there is such a clash, spiritual considerations will always be in the ascendent?
    Sir William van Straubenzee: It can normally be assumed that the Church Commissioners will give due weight to spiritual considerations. The most favoured alternative use would be that of another Christian denomination.
    Mr. Robert Atkins: When a church is taken over—it happened in my constituency recently—what happens to the gravestones and the fabric of the church if it has any architectural merit?
    Sir William van Straubenzee: Those, too, are matters for each diocese. However, a memorandum of guidance has been issued by the Church Commissioners on such matters. I am answering, by written answer, a number of questions tabled by the hon. Member for Birkenhead (Mr. Field) on precisely these matters. My answer goes into some considerable detail. I invite my hon. Friend to read Hansard tomorrow.

  HOUSE OF COMMONS

    Industrial Relations
    Mr. Canavanasked the right hon. Member for Middlesbrough, as representing the House of Commons Commission, whether the House of Commons Commission is satisfied with the state of industrial relations in the House of Commons.
    Mr. Arthur Bottomley: The Commission and the trade unions are not always in total agreement, but there are no current difficulties which cannot ultimately be resolved.
    Mr. Canavan: Why was a retired civil servant appointed as House of Commons staff inspector even before the terms of reference of the appointment were announced to the trade unions representing the staff of the House? Has there not been a deplorable lack of industrial democracy in the place, which is supposed to be the mother of democracy?
    Mr. Bottomley: The Commission must be left to appoint its own staff. It has taken the step of ensuring that the management will consult the trade unions on the way in which the inspector will carry out his duties and the scope of them.
    Mr. Alan Williams: Does my right hon. Friend accept that none of us wants to see avoidable tensions develop in industrial relations in the House? However, does he

    15
    recognise that there seem to be excessive delays in negotiations with the trade unions that represent the servants of the House? There has been less than adequate consultation on the changes that have taken place in the administration of industrial relations within Parliament. Surely this should concern all hon. Members as we have not extended to the servants of the House the same range of rights as exist for workers generally.
    Mr. Bottomley: The Commission has done its best to meet the trade unions' requirements. The Commission alone is not responsible for the delay. There was a meeting between the Commission and representatives of the trade unions, and it took some time before replies were received. Those matters are now being considered. One of the reasons for the delay in considering the fundamental part of the trade unions' difference is a grading scheme. The company that made the report tended to give more benefits to the higher grades of the staff in the Commons service than to the lower grades. We wanted to examine that more carefully.

    Select Committees (Specialist Advisers)
    Mr. Murphyasked the right hon. Member for Middlesbrough, as representing the House of Commons Commission, what fees are payable to specialist advisers appointed by Select Committees.
    Mr. Arthur Bottomley: Specialist advisers are paid on a per diem fee basis—I am in difficulty as I do not have my glasses.
    Mr. James Callaghan: Would my right hon. Friend like to borrow mine?
    Mr. Bottomley: Thank you. They are paid on a per diem fee basis for work done. Three rates are in use, based on the scales for university posts. They are in line with payments made for similar work done for Government Departments. The current daily rates are £50 to £70 a day for professors, £40 to £50 a day for senior lecturers and readers, and £22 to £42 for lecturers.
    Mr. Murphy: I thank the right hon. Gentleman for his efforts to answer my question. Would he consider applying an overall strict cash limit to avoid a proliferation of specialist advisers?
    Mr. Bottomley: There is a limit to the amount of money that can be spent on specialist services.
    Mr. Christopher Price: In its next deliberations, will the Commission consider getting away from the assumption that all specialist advisers are academics, such as professors? Is he aware that some of the best specialists and advisers serving on committees have nothing to do with universities, and are the better for that?
    Mr. Bottomley: That appeals to me very much. When I was Minister for Overseas Development I saw craftsmen playing a part in rendering specialist services. Therefore, I am sympathetic towards that question.

  EDUCATION AND SCIENCE

    Opera and Ballet
    Mr. Jesselasked the Secretary of State for Education and Science what representations he has received within the last year on the funding of opera and ballet.
    The Minister for the Arts (Mr. Paul Channon): I have had discussions about funding with the chairmen and officers of the Royal Opera House and the English National Opera. I have also had many informal talks with people in the opera and ballet world.
    Mr. Jessel: May I say that it is not only the distinguished intake of 1945 that has had to take to wearing spectacles? As London is one of the musical centres of the world, and as opera and ballet are a major draw to tourists, following the substantial increase in real terms of the grant to the Arts Council—on which many of us signed a motion congratulating my right hon. Friend—will my right hon. Friend encourage the Arts Council to see that opera and ballet in London receive at least a proportionate share of that increase?
    Mr. Channon: I am grateful to my hon. Friend for his support. I assure him that the Arts Council proposes to devote a substantial portion of its resources to that area. It will be at least as good as the overall increase in the grant that it has received.
    Mr. Faulds: Does the right hon. Gentleman not agree that national excellence and international reputation in those areas of the arts must depend on Government willingness to sustain them financially with whatever resources are necessary to do the job properly? May I temper the right hon. Gentleman's happiness about the Arts Council grant by reminding him that, while inflation is running at 11·7 per cent. or 11·9 per cent., the Arts Council's grant increase was only 7·5 per cent.?
    Mr. Jessel: In real terms.
    Mr. Channon: The cash grant revenue increase for next year for the Arts Council is about 9 per cent.—from £77½ million to £84½ million. Everyone in the arts world to whom I have spoken thinks that it has done well. I have had innumerable expressions of appreciation.
    Sir Derek Walker-Smith: Will my right hon. Friend bear in mind that there is considerable concern about the allocation of Arts Council funds both in regard to the d'Oyly Carte Opera Company and generally, as evidenced by the representations by my constituent, Mr. Gower of Sawbridgeworth, in regard to which my right hon. Friend and I are in correspondence? Will my right hon. Friend respond to my request to him to deal with the constitutional position of the accountability and responsibility of the Arts Council in this context, bearing in mind the classic definition of power without responsibility being the prerogative of the harlot through the ages?
    Mr. Channon: I well recall Mr. Gower's letter and my right hon. and learned Friend's letter to me. I am studying the matter with considerable care. However, in general terms I must say that that position has been accepted since the foundation of the Arts Council. In general, it works according to the arm's length principle that the Minister of the day does not interfere with the detailed allocation of the grant.

    The Arts (Northern Region)
    Mr. Dormandasked the Secretary of State for Education and Science if he will take steps to provide additional funding to arts in the Northern region.
    Mr. Channon: Central Government support for the arts is provided mainly through the Arts Council. Council

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    grants to the regional arts associations, including Northern Arts, have been increased for the forthcoming year in recognition of their special needs.
    Mr. Dormand: Is the Minister aware that, because of inflation, the increase that the Northern region has received from the Arts Council means that the North is running to stand still? I do not wish to reduce its share, but why will Scotland receive £10,200,000 while the Northern region, with three-fifths of Scotland's population, will receive only £1,500,000? Does the right hon. Gentleman accept that there is great enthusiasm for the arts in the Northern region? Will he appoint someone from the North to serve on the Arts Council—a national body—to demonstrate that he has a desire to help, particularly as no one from the Northern region has ever served on the Arts Council?
    Mr. Channon: The hon. Gentleman makes a persuasive case on the latter point. With regard to his first point, the Scottish Arts Council grant is based on a formula basis that was laid down a long time ago. Regional arts and all the associations are receiving a grant that is well above the rate of inflation and is higher than that received by most other clients of the Arts Council. I am surprised by what the hon. Gentleman says. I have checked the facts carefully. Northern Arts received an increase of over 10 per cent. to 12 percent.
    Mr. Freud: When the Minister is looking at disparities in regional grants, will he look at the Eastern region, which, by common consent, has done worse than anywhere else? Does he accept that seniority of establishment is a worse criterion than needs?
    Mr. Channon: I accept that point. I am especially concerned about the Eastern Arts Association. I wrote to the hon. Gentleman yesterday assuring him that the concern that he felt over travel subsidies in the area was ill founded.
    Mr. Murphy: Does my right hon. Friend agree that, despite the criticisms from the Opposition Benches, the overall level of Government funding for the arts and heritage is a matter for congratulation?
    Mr. Channon: I am grateful to my hon. Friend. That generally seems to be the view outside the House.
    Mr. Foster: Does the Minister agree that trying to attract industry and commerce to a region of flourishing artistic and cultural life is important? Will he congratulate Northern Arts on its efforts in that direction, but take note of the fact that, irrespective of the moneys granted by the Government, the squeeze that the Government are placing on local authorities is making it difficult for the money to be maintained, let alone increased?
    Mr. Channon: I visited Northern Arts some months ago. I congratulate it on what it does in the Northern region. I recognise that there is considerable enthusiasm for the arts in that region and elsewhere. As I said earlier, Northern Arts is receiving a grant that is well above the rate of inflation. That is not true of many bodies in the country at present.

    British Railways (National Heritage Memorial Fund)
    Mr. Adleyasked the Secretary of State for Education and Science if the national heritage memorial
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    fund is available for use by British Railways for structures in its ownership and in current use; and if he will make a statement.
    Mr. Channon: I doubt whether this would be an appropriate use of the national heritage fund's money, but, as my hon. Friend knows, a railway preservation society could be eligible for such assistance.
    Mr. Adley: Is my right hon. Friend aware of the alleged plight of the architecturally outstanding Ribblehead viaduct on the Settle to Carlisle line, which was the subject of an Adjournment debate initiated by my hon. Friend the Member for Skipton (Mr. Watson) and which prompted even the Chief Whip to take part? Will my right hon. Friend look at that debate and the comments of the Under-Secretary of State for Transport? Having done so, will he reconsider his answer and, if he thinks it appropriate, contact his ministerial colleague and let me or him know whether money from the fund will be available for that architecturally important structure?
    Mr. Channon: In view of what my hon. Friend says, I shall study what must have been an interesting and unusual debate. I shall write to him as soon as I have had the opportunity to study it.
    Mr. Faulds: With trepidation, may I correct the Minister? In Committee on the National Heritage Bill we purposely threw the net wide. May I suggest that the Minister is a little peremptory in saying that railway mementos, such as the one mentioned by the hon. Member for Christchurch and Lymington (Mr. Adley), do not come within the purview of the Act?
    Mr. Channon: When the hon. Gentleman studies what I have said, he will find that I did not say that. I said that I doubted whether it would be an appropriate use of the fund to make it available for use by British Rail. However, I shall read the debate.
    Mr. Cormack: Is my right hon. Friend aware that the historic buildings councils give money for the preservation of such structures from time to time? Therefore, will he try to ensure that the memorial fund operates similarly?
    Mr. Channon: I take note of the views expressed on both sides of the House. I shall look into the matter.

    National Theatre
    Mr. Hannamasked the Secretary of State for Education and Science if he will safeguard the future of the National Theatre in the event of a withdrawal of financial support by the Greater London Council.
    Mr. Channon: I very much hope that this situation will not arise. Clearly the National Theatre must be put in a position to continue its work.
    Mr. Hannam: Does my right hon. Friend agree that the Greater London Council's proposals for the withdrawal of financial support from all centres of excellence represents the silly, daft Socialist dogma that rules in County Hall? Is he aware that nearly 5 million visitors have attended the National Theatre since it opened? Is that not evidence of the widespread support that the theatre receives from all walks of life?
    Mr. Channon: Yes, I think that there is clear evidence in the figures that my hon. Friend gives of the widespread

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    support for and interest in the National Theatre by people from all parts of England, and in particular, of course, from London. The Arts Council and the GLC are continuing discussions. I very much hope that the GLC will maintain its present funding arrangements in the coming financial year.
    Mr. Christopher Price: Will the Minister repudiate words such as "silly, daft Socialist dogma" from his side of the House so that he may not be accused of silly, daft Conservative dogma in sacking the deputy chairman of the Arts Council, Mr. Richard Hoggart?
    Mr. Channon: I assure the hon. Gentleman that I was guilty of neither silliness nor dogma on that occasion. All that happened was that a person who would otherwise have served for 10 years on the Arts Council—an almost unprecedented stint—will not do so. I believe that it is a privilege to serve on the Arts Council and that occasionally it is right to make some changes.
    Mr. Cormack: In view of the new interest in the performing arts shown by the Leader of the Opposition,
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    will my right hon. Friend ask him to have a word with Mr. Tony Banks to ensure that he does not do irreparable damage to this great national institution?
    Mr. Channon: I am sure that the Leader of the Opposition can look after himself.
    Mr. Faulds: My right hon. Friend may be able to look after himself, but I intend to help him. Anyone who has the privilege of knowing the Leader of the Opposition knows that that kind of silly, snide comment is nonsensical rubbish. However, I rose to make a quieter, more temperate comment.
    Does the Minister not agree that if the GLC abdicates its responsibility for the National Theatre, the Government will have to step in and fund the National Theatre's operations to keep the great enterprise working properly and healthily?
    Mr. Channon: I very much hope that both the hon. Gentleman and the Leader of the Opposition will use their influence with the Socialist majority on the GLC to ensure that such a state of affairs does not arise.

Invergordon Smelter
3.31 pm
The Secretary of State for Scotland (Mr. George Younger): Mr. Speaker, with permission, I wish to make a statement about the closure of the British Aluminium Company's smelter at Invergordon.
Towards the end of last year, the company told the Government that the very large losses that it was incurring at Invergordon had reached the point at which the survival of the whole group was seriously and immediately threatened; it was therefore proposing to close the smelter by the end of 1981. The Government nevertheless decided that our first priority should be to try to keep the smelter in operation, and urgent discussions took place with the company in search of a basis on which the smelter could continue.
To enable the smelter to continue in operation, the company would have required the disputed charges of £47 million due to the North of Scotland Hydro-Electric Board to be written off and electricity charges to be reduced to a level which would have caused the board to make annual losses on the power contract of about £16 million per year, continuing at that level and possibly increasing until the year 2000. The Government therefore concluded with great reluctance that such commitments in respect of one company would be an unacceptable burden to the taxpayer and that the closure would have to proceed. The company then entered into discussions with the board about the termination of its power contract. Because these discussions were still in progress, the Government were not in a position to make any annoucement to the House before the beginning of the recess.
Under the terms of the settlement reached between the company and the board, the company's rights under the contract to electricity supplies from Hunterston B to the year 2000 were valued at £79·328 million. From this sum, the board deducted £47·049 million in settlement of disputed power charges. At the date of termination of the contract, the outstanding balance of the Government loans to the company, including interest due, totalled £33·527 million. Because it was the Government's intention that there should be an eqitable settlement which would reduce the threat to the company's other activities caused by the continuing losses at the smelter, my right hon. Friend the Secretary of State for Industry did not insist, as he was entitled to do, that the whole of the remainder should go towards repayment of the outstanding balances of the company's loans. Of the remaining £32·279 million, the company paid £4·488 million to the board in respect of current debts for electricity supplied and £12·279 million to my right hon. Friend in part repayment of the loan, and received £15·512 million.
The payment of £12·279 million was sufficient to repay the principal and interest of the 1975 loan in full, which was £6·547 million, and the interest due and part of the principal of the 1968 loan, which was £5·732 million. With the approval of the Treasury, the remainder of the principal of the 1968 loan, amounting to £21·248 million, was waived. The European Commission is being notified.
As I said on the day that the closure was announced, the Government regard it as a profound disaster for the area. We fully understand the serious consequences that
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it will have for Invergordon and the wider Moray Firth area, both in terms of jobs lost and in its effect on the local economy.
The company has undertaken to maintain the smelter in a usable condition for a period of six months and to co-operate with the Highlands and Islands Development Board in its efforts to find a new operator for the plant. We are already working with the Highlands and Islands Development Board and Locate in Scotland to ensure that every effort is being made to find a new operator. We are ready to assist the North of Scotland Hydro-Electric Board and any potential new operator in their negotiations.
In the event that no new operator comes forward, every effort will be made to try to attract new jobs to the area. The Government have agreed to provide a special extra allocation of funds, amounting up to £10 million over the next three years, to enable the Highlands and Islands Development Board to undertake special measures to provide new employment opportunities. My Department, the Highlands and Islands Development Board and the Scottish Development Agency will give the highest priority to finding new projects which may be established in the area.
Mr. Bruce Millan: I am glad that the Secretary of State has made the statement, but we shall of course require a full debate on the matter urgently. I shall return to that later.
Is the Secretary of State aware that, although we in Scotland are inured to redundancy announcements, I do not recollect anything so insensitive and indeed brutal as the announcement on 29 December that at 48 hours' notice the whole smelting operation would be closed down. As the Secretary of State acknowledged, the effect upon the area will be devasting and will go far beyond the 890 jobs directly involved. At least 1,500 jobs will be involved, and there are implications for the rest of Scotland as well.
We require to know far more about the negotiations which took place. In view of the major consequences of the closure, was the Secretary of State personally involved? What exactly was offered to the company? Even today, in its latest statement, the company contradicts certain statements already made by the Secretary of State. What did the Government get out of the negotiations? So far as I can see, the company obtained everything that it wanted and the Government got absolutely nothing. Why was the £21 million given to the company as a kind of sweetener to allow it to close the smelter? That was not legally necessary. Why was it given, and what did the Government get in return? The smelter was not kept open. The Government received no assurances on the other Scottish operations, as within a few days the company was talking about a threat to Falkirk. Nor have they achieved any kind of understanding about the sale value of the plant should a new operator be found.
Is the Secretary of State aware that giving £10 million to the Highlands and Islands Development Board over three years has already struck an extremely sour note in the area when one considers the jobs that have also been lost there as a result of the abandonment of the gas gathering pipeline? If we are to do anything for the area, we need a new contract and a new operator, a break-up value of the plant offered to the new operator and a new power contract which inevitably must be more favourable than that offered to British Aluminium, so it will ultimately cost the Government subsidies in any event. Indeed, is the

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Secretary of State aware that some of the statements about subsidies are highly misleading, given that the other two aluminium smelters in the United Kingdom—at Anglesey and in the North of England—are also heavily, but not openly, subsidised? If the fine words of the Secretary of State are to mean anything, the Government will have to come up with something far better in the way of a new power contract than they have so far been willing to offer.
The workers at Invergordon have not accepted this closure and nor have the Labour Opposition. We shall make every effort to get the smelter reopened.
Mr. Younger: I entirely agree with the right hon. Gentleman about the effect of the announcement being made so near to the new year. However, the right hon. Gentleman must realise that the survival of the rest of British Aluminium, with no fewer than 2,700 jobs throughout Scotland, was at stake.
The closure could have been announced earlier had the Government not made such vast efforts to find a way to keep the smelter going. The right hon. Gentleman has to live with that fact.
The right hon. Gentleman asked whether I was involved with the negotiations. I certainly was. I begin to wonder whether I was involved in anything else in December, so thoroughly was I involved in the whole thing.
As to how much was offered, we can look again at the joint statement made by Mr. Utiger of British Aluminium and my hon. Friend the Minister responsible for industry and education at the Scottish Office in early January when it was made clear that what was discussed was a break clause after three years, but the company felt that that was not a sufficiently long period for it to carry on operations of the smelter.
The right hon. Gentleman asked what the Government got. We got a chance of saving the rest of British Aluminium's operations. That is important not only to the Government but to many others in Scotland. The same answer can be given to the right hon. Gentleman's question about why the £21 million was left with the company. As I said in my statement, it was open to my right hon. Friend the Secretary of State for Industry to demand full repayment of the loan outstanding from the Government to the company. However, my right hon. Friend decided that to do so would be to put at risk all the other jobs in British Aluminium throughout Scotland. My right hon. Friend was right to take mat step and, if the right hon. Gentleman thinks otherwise, I hope that he will say that he thinks that the money should have been demanded and that the risk to other jobs was acceptable.
The £10 million to the Highlands and Islands Development Board is a considerable sum when compared with its annual budget—the right hon. Gentleman will know that. Our top priority is the same as that of the right hon. Gentleman. We wish, if at all possible, to find a new operator who wishes to carry on running the smelter. As I have made clear, we shall be willing to help in any way we can to negotiate a new power contract with such an operator.
Although the other smelters in the United Kingdom have all been started off on the same basis as the Invergordon smelter, they are at different stages of their contracts and they have different contracts.
Mr. Robert Maclennan: Have the Government a company, or companies, in mind with which they are prepared to enter into genuine negotiations—
Mr. Dennis Skinner: Genuine? What, with Bill Rogers?
Mr. Maclennan: —to resecure the 15,000 jobs in the smelter and associated industries and—[Interruption.]
Mr. Speaker: Order. It is most unfair for an hon. Member trying to address the House to be interrupted by hon. Members sitting next to him. It is not only unfair. The hon. Member who is interrupting now would not like to be interrupted himself.
Mr. Michael English: My hon. Friend accused someone of not being genuine.
Mr. Younger: Yes, I can assure the hon. Gentleman that, if any other operator can be found to operate the smelter, we shall enter into any negotiations that we can and will be genuine about the whole thing. The hon. Gentleman must be aware that we are searching all over the world for someone willing to operate the smelter. It is too early yet to say what success we have had.
Sir Hector Monro: Does the Secretary of State agree that my hon. Friend the Member for Ross and Cromarty (Mr. Gray) has had great success in attracting industry to Invergordon and has done everything possible to help his constituents in the plight in which they have been placed by British Aluminium? Will the Secretary of State confirm that all Government Departments and the Highland and Islands Development Boards will make every effort to process applications for small businesses in the area as quickly as possible, because time is all important?
Mr. Younger: My Department will do everything it can to help all businesses in the area, particularly small ones, and will process any applications as quickly as possible.
I entirely agree with my hon. Friend's comments about the Minister of State, Department of Energy. Not only has he done a great deal in the past for his constituency, but he was closely involved in doing everything possible to find a way of keeping the Invergorden smelter open during negotiations in December, and I am very grateful to him.
Mr. J. Grimond: Has the Secretary of State read the letter in The Times of 13 January from the chairman of the Highlands and Islands Development Board in which he blames this closure upon the Hydro-Electric Board and alleges that, were the Hydro-Electric Board responsible for supplying electricity to Kinlochleven and Fort William, they too would be closed? He further says that had more hydro-generated electricity been made available, this smelter would still be open. Will the right hon. Gentleman comment on that? Under what arrangements is fuel supplied to other smelters outside Scotland? Will the right hon. Gentleman persuade the Government now to abandon their policy of deliberately dear energy, to the handicap of British industry, when we are one of the two countries in Europe which are self-sufficient in energy?
Mr. Younger: I noticed that letter about the hydro board and its role in this matter. The hydro board has been doing its best to operate the contract that, with its

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agreement, was laid down as long ago as 1968. I do not think that the hydro board could have done more than it did to try to help the company to keep going and, indeed, to operate the old contract in the way that it was designed to operate.
The old contract was based upon the ownership by British Aluminium of approximately 20 per cent. of the value of the Hunterston B nuclear power station. I understand that at the time when the contract was negotiated it was thought that in due course nuclear power would become cheaper than hydro-electric power. As the right hon. Gentleman will know, that has not happened, and we must go into that when looking at the lessons to be learnt from this contract.
The right hon. Gentleman also asked about fuel supplies to other smelters. At present, the Anglesey smelter is on an interim arrangement awaiting the completion of Dungeness B, but the negotiation of its power supplies was not on quite the same basis as the Invergordon smelter, and it is at an earlier stage in the arrangements. The other smelter at Lynemouth has a coal source and that is subject to individual negotiation with the Coal Board.
We must get the question of more expensive power into perspective. We should bear in mind that the old contract price of the power to the Invergordon smelter was just a little more than half the price that other industries throughout Scotland were paying for power. The negotiations we had with the company envisaged a price considerably less than that. Therefore, no one can say that this is exceptionally expensive power in relation to other industries.
Several hon. Members rose—
Mr. Speaker: Order. I propose to allow another 20 minutes on this statement. I hope that both questions and answers will be as brief as possible, because another important statement is to follow.
Mr. Albert McQuarrie: Like the right hon. Member for Glasgow, Craigton (Mr. Millan), all Scottish Members wish to see this smelter restarted and will give every support to any action that is taken to achieve that. Does my right hon. Friend agree that the £20 million retained by, British Aluminium was designed to ensure that at this stage at least the jobs at the other plants, particularly in Falkirk, would be retained, and that the £16 million—
Hon. Members: Too long.
Mr. Speaker: Order.
Mr. McQuarrie: —and that the £16 million that my right hon. Friend agreed would be permitted for three years would have been equal to £17,000 per man per job for that period?
Mr. Speaker: Order. I appealed for brevity. I realise that the hon. Gentleman's supplementary might constitute brevity in his part of the world, but he ought to try to do better.
Mr. Younger: I am grateful to my hon. Friend for his support also for the primary aim, which must be to try to find a way of restarting the smelting operations. I can confirm that, without the deal that was made with the company on the smelter, there is no doubt that all the other jobs in British Aluminium throughout Scotland would have been in the gravest danger long before now.
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I confirm that the £16 million that was discussed with regard to future contracts would have amounted to approximately £16,000 to £17,000 per job created, which is an astronomical sum by any calculation.
Mr. Neil Carmichael: The Secretary of State said that he had been doing little else during December but dealing with the smelter. Does he not agree that there is something very wrong with our industrial relations when he, the company, the electricity board and the Government were all involved in these discussions and the last people to know about them were those who were working for the company? Does not that teach us some lessons for the future? Surely there could have been nothing so secret about the discussions that those whose livelihoods depended upon their outcome should not have been consulted.
Mr. Younger: I appreciate what the hon. Gentleman says, but the timing of the announcement was entirely a matter for the company. It was its decision when and how to make the announcement, with a view to all the considerations that had to be taken into account. The hon. Gentleman may agree, on reflection, that there is a difficult balance as to when it is best to make an announcement that is bound to create uncertainty. If one has to make such a difficult announcement, it is better to give it such clarity that those who hear it can understand clearly what is to happen. A half-baked announcement is worse than no announcement.
Mr. John Corrie: If the unit closes, what will be the effect on consumer prices in Scotland? I understand that it took about 7 per cent. of the electricity in Scotland, so will prices rise?
Mr. Younger: Not necessarily, because, when the overall load of electricity is reduced, the most expensive plant producing electricity will go out of operation. One could take the view that the remaining electricity would be produced marginally more cheaply. Nevertheless, it is a great disaster to lose about 7 per cent. of the total output of the joint electricity boards in Scotland. That cannot be good, for either the electricity boards or anyone else.
Mr. Dennis Canavan: Will the Secretary of State admit that either he was conned by British Aluminium or, even worse, he collaborated with it to ensure that the company, financed with public money, walked away with over £20 million profit while the work force, without any consultation, was thrown on the dole queue and cheated out of earnings-related supplement? Will the Secretary of State give us a categorical assurance that he will not allow British Aluminium to indulge in any further asset stripping at Invergordon? Will he take immediate steps to reopen the smelter, even if it means taking it into public ownership and running it as a public enterprise, with a new power contract from the electricity board?
Mr. Younger: The company has assured me that it will be entirely helpful over the future of the buildings, plant and machinery. As I said in my statement, it has already undertaken to keep the plant in a usable condition for at least six months in the hope that another operator will come forward.
I was amazed to hear the hon. Gentleman of all people say what he did. I am sure that he must have many constituents whose jobs directly depend on the British

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Aluminium plant in Falkirk, which was at least taken into account and has some chance of carrying on, whereas previously it would have been closed before now. I should have thought that the hon. Gentleman would at least have said "Thank you" for that.
Mr. Alex Pollock: Is my right hon. Friend aware that the ramifications of this smelter closure are already being felt elsewhere in the Highlands including in my constituency where a leading engineering company has had to lay off its specialist work force? Will he therefore confirm that the Government fully appreciate the need to find an urgent solution to help this beleaguered Scottish work force? Will he maintain all possible pressure on British Aluminium to co-operate as fully as possible in attempts to find a prospective purchaser?
Mr. Younger: I share my hon. Friend's concern. One of the worst features of the closure is the effect on other businesses in the area. I am sorry to know that at least one company in my hon. Friend's constituency is affected. I assure him that the Government will do everything possible to encourage the main objective, which must be to find a way of getting the smelter into operation again.
Mr. William Hamilton: Does the Secretary of State appreciate that the Scottish people will not understand how a big company such as this can sack thousands of people and get away with £15½ million worth of loot? Does he understand the difficulties of local authorities in the area, which provided the infrastructure, such as housing and education? How does he propose to compensate them for that loss? Is this not an outstanding example of the crass stupidity of the Government?
Mr. Younger: The hon. Gentleman is less than realistic in his remarks. He knows from what I have said already, and I should have thought that he would know from the press if not from that, that, if the Government had refused to make any arrangements with British Aluminium, in all probability it would have collapsed and all the jobs in it throughout Scotland would have been lost. I very much doubt whether he would have supported me if I had taken that attitude. My hon. Friend the Minister responsible for industry and education at the Scottish Office has already had talks with some local authorities and we shall keep in contact with them on their problems as a result of the closure.
Mr. David Myles: Does my right hon. Friend agree that, with the benefit of hindsight, which is always useful, the forecasts that were made about the viability of the smelter project in Invergordon in 1968 were hopelessly optimistic? Will he ensure that this tragic mistake is not repeated?
Mr Younger: I agree with my hon. Friend that, with hindsight, it appears that many optimistic assumptions were made in 1968. At the end of the day, they have not done anyone any good. I hope that that is one of the lessons that we can learn from this tragic affair.
Mr. Alex Eadie: Will the Secretary of State confirm that British Aluminium went to Invergordon of its own volition? If it had not gone to Invergordon, two other companies would have gone in any case.
Mr. Younger: I gather that that is so. British Aluminium decided to go there of its own volition. I
28
understand—it is not for me to confirm—that it was informed at that time that the Government's advice was that nuclear power would become progressively cheaper and would become cheaper than hydro-electric power at a break-even point during the contract.
Mr. Barry Henderson: I welcome the Government's efforts to find another operator for this smelter, but will my right hon. Friend ensure that any arrangements that are made are better thought out and better controlled afterwards than the original deal that was made in 1968 which has come to this sad end and which has cost the taxpayer—perhaps my right hon. Friend can tell the House how many hundreds of millions of pounds?
Mr. Younger: I appreciate my hon. Friend's comments and when we discuss a new contract, as I hope we shall, I hope that we shall do better about staying power than we did with the old contract. It has cost well over £100 million already in the form of public subsidy and would have cost much more if it had gone on.
Mr. Dick Douglas: Is the Secretary of State aware that the House considers it completely inadequate that the Government were given six weeks' notice by the company of its intention? Will the Secretary of State give the House an indication of the knock-on effect on other parts of Scottish industry? He is already on record as saying that there is a probablility that it will involve two to four pit closures and the possibility of power station closures. What are the job effects of that in view of the fact that the Secretary of State has no guarantee from British Aluminium on the complete security of other jobs in Scotland?
Mr. Younger: I have no guarantee for the complete security of other jobs, but I have a guarantee that, if the Government had not been prepared to enter into negotiations in December, they would all have gone by now. I hope that at least that can be regarded as something worth having. I agree with the hon. Gentleman that to give six weeks' notice of such a traumatic event was highly undesirable. I should have liked more notice, but I had to deal with what was presented. There are indeed effects on other industries, and there will be some effects on the coal industry. The Government are considering how best they can mitigate those effects.
Mr. Keith Best: While I appreciate that my right hon. Friend said that the circumstances confronting the Invergordon smelter were different from those at Anglesey Aluminium in my constituency, will he acknowledge that recent reports have established beyond peradventure that our larger energy consumers are paying more for their electricity than are their European counterparts? Will he have discussions with his Cabinet colleagues—I am gland to see that my right hon. Friends the Secretaries of State for Wales and Energy are on the Front Bench with him—to see what can be done to try to succour similar industries? My right hon. Friend mentioned earlier that it had been discovered that nuclear power was not as cheap as was once predicted. Does he agree that the last people who should suffer as a result of that are those such as Anglesey Aluminium which have set up in areas of high unemployment to provide bright prospects? Does my right hon. Friend also agree—?
Mr. Speaker: Order. The Welsh take longer than the Scots.
Mr. Younger: I appreciate my hon. Friend's anxiety about the smelter in Anglesey. That is not directly affected by my statement, but I note what he says. Power prices are a matter for my right hon. Friend the Secretary of State for Energy and no doubt my hon. Friend will pursue him on that. It is worth pointing out that the Invergordon smelter—and I think that the Anglesey smelter is in a similar position—was already getting power at about half the cost charged to other industries. It is a different situation from power prices generally.
Several Hon. Members rose—
Mr. Speaker: Order. I intend to use the remaining time for those who have been seeking to catch my eye.
Dr. Jeremy Bray: What will be the impact of the settlement that the Secretary of State has reached on other electricity consumers in Scotland? Is it fair for Scottish consumers to pay such a large proportion of the cost of carrying spare electricity capacity in the United Kingdom as a whole?
Mr. Younger: It does not quite look like that from the electricity boards' point of view, because it is to Scotland's advantage to be able to sell electricity to other parts of the United Kingdom. That helps the finances of the Scottish boards.
Scotland benefits from the fact that a considerable proportion of our electricity is produced by hydro-electric power, which is very much cheaper than other forms of power. Despite all that I have said about nuclear power, it is considerably cheaper than coal, oil or gas.
Mr. George Foulkes: Will the Secretary of State stop talking about the closure as though it were caused by someone from Mars and accept that it is a direct result of Government economic policy? Is he aware that in the three months to the end of November we imported £61 million of worked aluminium and aluminium alloy, £11½million of which was from East Germany? Is it right that we should import so much subsidised aluminium while Invergordon starves? What action will he take about that aspect?
Mr. Younger: The hon. Gentleman is absolutely right in saying that the situation is due to Government economic policy. That policy was carried out in 1968 and it led to the contract which has resulted in the present sad and disastrous position. On power prices, which lie behind the hon. Gentleman's remarks, the power contract that the company was operating, and on which it made a loss in every year except one, was already very much cheaper than those for other users. Imports are a matter for the aluminium industry to decide when considering how best to operate its affairs to keep all plants in operation. It should be borne in mind that the company still has 2,700 other jobs in Scotland, let alone those in England. Those people are still working and if the company had collapsed, they would all be out of work.
Mr. Gavin Strang: Does the Secretary of State understand that this is the most disgusting and disastrous decision ever taken by the Government? It is socially and economically indefensible. Will he and the Secretary of State for Energy stop their pretence of scouring the world and face up to the fact that, if the Government decided to bring forward a revised power contract, the smelter could start up again next
30
month? That decision is not only crucial to the Highlands, but vital to the future of the Scottish electricity and coal industries.
Mr. Younger: I am not certain what decision the hon. Gentleman is talking about. The company made the decision, on the basis of its own operations, that it could not continue to operate the smelter and that if it did so there was a danger of bringing down the entire company. The Government decided to do everything in their power to keep the smelter in operation and only when the cost reached an astronomic level—I think that everyone would agree that the cost was astronomic—did the Government decide reluctantly that the smelter had to be allowed to close. If that is the decision to which the hon. Gentleman refers, I stand by it and I have no doubt that any other responsible Government would have taken much the same decision.
Mr. John Home Robertson: Will the right hon. Gentleman tell the House a little more about the likely impact of the closure on the electricity supply industry in the south of Scotland? As he appears to have allowed the Hunterston B reactor to become semi-redundant, what future is there for the Torness power station, which is under construction in my constituency? Is there any threat to efficient coal-burning stations in Scotland?
Mr. Younger: The Torness power station is required in any case because, when it is completed, it will produce some of the cheapest electricity available in Scotland to help Scottish consumers have cheap prices. I am sure that the hon. Gentleman agrees that those who advocate a halt to the Torness power station are proposing a disastrous course which would result in the immediate loss of 1,800 jobs.
Mr. Ron Brown: Is it not clear that the Government are presiding over the de-industrialisation of Scotland and are encouraging a new Highland clearance? Clearly, the answer to class parliamentary democracy is that a sit-in must take place and, indeed, it is taking place. Does not the Secretary of State accept that workers in Scotland and England will increasingly be forced to take such neasures to defend their living standards and their jobs? If the right hon. Gentleman does not understand that, he should not be in office.
Mr. Younger: I congratulate the hon. Gentleman on asking a question containing more slogans than I have heard for a long time.
Mr. Ron Brown: Not slogans, reality.
Mr. Younger: I thought that the hon. Gentleman might have appreciated by now that, if a company is trying to make aluminium and is losing so much money that there is a threat of the whole company being brought down, no amount of sit-ins or slogans will alter that fact. The Government tried to make possible a way of keeping the smelter open and only when the cost reached an astronomic level were the Government forced to conclude that it had to close.
Mr. Harry Ewing: The Secretary of State said that he had been involved in the discussions. How often did he meet the chairman and senior management of British Aluminium during the negotiations? We are anxious to know whom he met and when.

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The right hon. Gentleman made great play of the fact that he received assurances about Falkirk. Did it surprise him that no sooner had he made his announcement on 29 December than Mr. Dick Charles of the company went on record as saying that there was no security at Falkirk and that, unless that plant was in the black by June this year, he would close that as well? Is there not a serious risk that the Secretary of State will finish up with the closure of Invergordon and fairly substantial job losses at Falkirk, in my constituency?
Is it not the case that the timing of the announcement had nothing to do with the Government's intention to try to keep the smelter open and everything to do with depriving the workers at Invergordon of their earnings-related supplement? Will the right hon. Gentleman confirm that, because of the timing of the announcement, not one redundant worker from Invergordon will qualify for earnings-related supplement?
Mr. Younger: Not only did I meet Mr. Utiger two or three times, but I spoke to him on the telephone and I met some of the directors of Tube Investments, including Lord Plowden, which has a shareholding in British Aluminium. My officials consulted the company's representatives over many days and weeks and for much of the time early December. The hon. Gentleman can be satisfied on that aspect.
I hear that there have been some negotiations at Falkirk about viability. Obviously, that is important, but I hope that the hon. Gentleman understands that, if the Government had not managed to make a settlement with the company before 31 December, all his constituents would almost certainly have lost their jobs then. I very much hope that the new arrangements that the company is negotiating with the workers at Falkirk will lead to work and jobs continuing there. That was one of our main objectives in trying to meet the company's requirement of getting a settlement before the end of its financial year.
Of course, it would have been far better for the announcement to have been made at almost any other time of the year, but, as I have explained, as the company's financial year ended on 31 December and its viability and survival depended on a deal being agreed by then, it was essential to do it quickly and at that time. The hon. Gentleman represents the people of Falkirk and he should at least be grateful that his constituents' jobs have been saved.

London Transport
4.10 pm
The Secretary of State for Transport (Mr. David Howell): Before Christmas I told the House that I was not prepared to legislate to let the Greater London Council go back to its unbalanced transport policies which placed such huge burdens on ratepayers. I said, however, that I was willing to see the GLC leader at any time if he or his supporters had problems. Since then Mr. Livingstone and other GLC leaders have come to see me and explain their problems.
In immediate response to those problems the Government are prepared to act in two respects. First, although the GLC has powers under the Local Government Act 1972 to spend up to the product of a 2p rate, which could be used to finance concessionary fares for the elderly, it is clear that it is not in a position to continue relying on those powers alone for this purpose; nor are the London boroughs able to get a concessionary fares scheme worked up in time. I have therefore stated the Government's willingness to legislate to give to the GLC the same powers as other local authorities have to operate a concessionary fares scheme.
Secondly, the high cost and low fares policies of recent months have led to a large accumulated deficit. I have said that we would be prepared to legislate to let London Transport pay this off over a reasonable period. Regrettably, the GLC has had to raise fares 100 per cent., not just to get back to 1980 levels, but to pay for the heavy costs of ineffeciencies imposed on London Transport in recent months. In the Government's view there is no need for further large increases in 1982. Talk of this, or of large-scale redundancies, is raising thoroughly unnecessary alarm. The GLC leaders have indicated their wish to come for further talks on the future of London's transport system in the longer term. I welcome these as providing an opportunity for constructive discussions on the needs of the public in London and how these can be best met and financed.
Mr. Albert Booth: I welcome the Secretary of State's acknowledgement that it is necessary to legislate to deal with the massive problem created by a combination of the Lords' decision, the decision of his predecessor about fares policy, and the decision of the Secretary of State for the Environment to cut London's rate support grant. However, does he realise that most of the people who are concerned with this issue will regard his statement as inadequate to meet the problem? Does he accept that legislation is required to enable not only the Greater London Council but metropolitan authorities throughout the country, to continue sensible transport policies as a result of the Lords' decision? Does he further accept that legislation is required to prevent a 100 per cent. increase in fares and a 5 per cent. cut in services in London?
Will the right hon. Gentleman give the House a clear assurance that, as the Secretary of State for the Environment cut £110 million off London's rate support grant on the ground that its fares policy involved overspending, when the Greater London Council brings in the new fares policy involving a 100 per cent. increase in fares the Secretary of State for the Environment will restore that £110 million to the GLC? Will he also give us

33
a clear assurance that if the GLC—as I understand is its intention—operates the legal powers which he intends to confer upon it to provide from rates a fares concession for elderly people, that will not be held to be an increase in rates expenditure and thereby attract a further penalty from his right hon. Friend the Secretary of State for the Environment?
Can the Secretary of State for Transport give an estimate of how much extra it will cost London ratepayers to provide this concessionary travel arrangement for the elderly as a result of the increase in fares that has been forced upon them? Can he say how the fares requirement will be calculated for the repayment of the loan, in view of the fact that no one has any experience of the effect of a 100 per cent. fares increase and the drop in ridership that might result from that?
Finally, can he say how quickly this legislation will be introduced, bearing in mind that councils will have to take decisions within the next few weeks about their transport budgets for the coming year?
Mr. Howell: The right hon. Member for Barrow-in-Furness (Mr. Booth) has asked me a number of Questions. I begin by reiterating that, as I said before Christmas, it remains the intention of the Government not to propose legislation that would allow the GLC to go on crushing the ratepayers. If I may say so, it was surprising that the right hon. Gentleman omitted to express any sympathy for the plight of the ratepayers, or the fact that many of them were elderly people who were frightened by some of the enormous rate increases that were proposed.
I shall try to answer as many of the right hon. Gentleman's questions as I can. The 100 per cent. fares increase which the GLC approved is regrettable. It appears to be necessary in order to finance nor merely getting back to the policy on fares that prevailed before May 1981 and getting some sability and balance between the ratepayers and the fare payers, but the substantial increases in costs that have resulted from the GLC's extremely cavalier attitude to the operations of London Transport in recent months. That is why this regrettable and deployable 100 per cent. increase appears to be necessary.
The right hon. Gentleman asked about the GLC's expenditure budget generally, the penalties that might be incurred and whether money would come back to the London boroughs. These are matters for my right hon. Friend, but the answer is that some money will come back.
The right hon. Gentleman asked whether the rates penalty will be incurred if the GLC proceeds, for instance, with its concessionary fares policy. This relates to the GLC's expenditure priorities. The GLC has to decide its priorities and expenditure in a way that maximises efficiency and is consistent with the overall public expenditure constraints. That is a matter for the GLC, as is the question that the right hon. Gentleman asked about the extra cost to ratepayers. In prompt response to the GLC's request, as I said I would do, I have offered two ways in which the GLC can proceed and make a budget for 1982 with London Transport which is legal and which enables it to proceed in 1982 in a legitimate manner.
The right hon. Gentleman asked about the repayment of the loan that I am offering the GLC. London Transport is to be given powers to borrow over five years. It is for the GLC to decide whether to take up that offer and to what extent to rely on that source of funds. The council may have other sources of funds, in which case the burden will
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not fall exclusively on the fare payer. It is for the council to decide how much of that offer it wishes to take up. I am giving the GLC more room for manoeuvre, so that it may proceed in this way, and accept London Transport's suggestion to raise fares to pay off this large and regrettable accumulated deficit over five years.
The speed of legislation will depend upon my right hon. Friend the Leader of the House. The Government wanted to move as soon as possible, particularly on concessionary fares, because I was worried about some of the unnecessary scaremongering talk about the threat to old age pensioners' concessions. There was no need for that scaremongering talk. The Government have acted promptly in making their position clear on the matter.
Several Hon. Members rose—
Mr. Speaker: Order. I propose to allow 20 minutes for questions on this statement. If hon. Gentlemen are brief, everyone should be called.
Mr. Terence Higgins: I support my right hon. Friend's opposition to a general subsidy on fares arid I agree with him on the need to protect ratepayers. However, is he aware that the present situation is very unfair in the way that it affects concessionary fares for pensioners? Pensioners in London travel free but in many other parts of the country that have elderly populations it is impossible for local authorities to subsidise pensioners' fares because those who are paying the rates are the people who are getting the concessionary fares. Will my right hon. Friend see whether this can be done on a broader, national basis rather than on the present unfair basis, which discriminates in favour of London?
Mr. Howell: I am grateful to my right hon. Friend for his general support. I am aware of the points on concessionary fares that he has made in earlier debates. I should perhaps make it clear that what the Government are proposing is legislation to put the GLC in the same position as practically every other local and metropolitan authority. It would then be for the GLC, like every other local authority, to decide what proportion of its resources it wished to use and the type of policy that it wished to operate on concessionary fares for the old or support for other groups of people. The Government are proposing that the GLC should be put in exactly the same position as almost every other local authority.
Mr. William Pitt: Is the Secretary of State aware that his statement, which moves us no further forward from the House of Lords decision, has thrown the future of London Transport into chaos? Is he further aware that he has put London Transport out on a limb in relation to other capital cities of the West? Will he assure the House that the Government will seek to introduce legislation to promote a properly subsidised transport system in our capital city?
Mr. Howell: The hon. Gentleman is unjustified and unwise to speak about chaos. There is no reason why there should be chaos. There is every reason to suppose that the present situation can be used by the GLC to put London Transport on a fair and balanced footing. There is every reason for future talks involving the GLC and other local authorities to include the more fundamental issues that arise. That is a much better approach than campaigning on the streets. The hon. Gentleman has his own recipe. I can only assume from what he says that he, like everyone else,

35
would like to see low fares, low rates and, no doubt, low taxes. There happens, however, to be the question of deciding who pays and, in particular, who pays when a major bungle has been made by the GLC, for which someone has to pick up the tab.
Mr. George Cunningham: Will the Secretary of State accept that in every other major capital city in Europe subsidies are required to save city transport, but that such subsidies are now—at least possibly—illegal in this country? In addition to the temporary legislation that the right hon. Gentleman now offers in respect of the GLC, have the Government any intention of bringing forward legislation later to clarify the situation in regard to such subsidies?
Mr. Howell: The clear legal advice, and the Government's view based on that advice, is that the position for 1982 is within the law if the GLC proceeds with the 100 per cent. fares increase. No more is required by the law. If the GLC wished to put up fares further, that would be a policy matter. As to the longer term, I have recognised that more fundamental problems are raised by what is recognised to be a complex judgment. The GLC has said that it wishes to come to see me again. I shall also be talking to the metropolitan authorities. We shall need to look at some of the difficult issues raised in the longer term. I believe, however, that it would be wrong to be rushed, as some hon. Members were suggesting before Christmas, into early legislation of a kind that would put the clock back and allow the GLC to carry on punishing the ratepayers, as it was doing.
Sir John Biggs-Davison: What increase in paying passengers resulted from cheaper fares?
Mr. Howell: I should need notice in order to give the precise number. I can, however, inform my hon. Friend that some of the claims made for the dramatic reduction in fares, first in South Yorkshire and then in Greater London, have been wholly unjustified. In particular, it was claimed that there would be a dramatic cut in traffic. That has not emerged at all. The GLC's own estimate is that general traffic mileages will be cut only by 1 per cent.
Mr. Douglas Jay: Why did the Secretary of State tell the House before Christmas that old people's concessionary fares were not threatened, when it now turns out that they were and that legislation is needed?
Mr. Howell: In fact, the legisaltion was on the statute book for concessionary fares to continue to be paid out of the 2p rate. When I discussed this problem with the GLC, it was clear that the council was not in a position to rely on the 2p rate to meet the larger sums needed for concessionary fares and that the London boroughs could not go back to the scheme that operated previously. The right hon. Gentleman is therefore right. It was necessary to take the steps that I have taken over concessionary fares.
Mr. Michael Shersby: Is my right hon. Friend satisfied that the legislation that the he intends to introduce will meet the important point raised by our right hon. Friend the Member for Worthing (Mr. Higgins)? What is the Government's policy towards the introduction of concessionary fares for elderly people on a wider basis than that already enjoyed? Can my right hon. Friend give an assurance that any future subsidy for London fares will
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not be met by Greater London ratepayers alone, but that those in the Home Counties, who have benefited substantially from the scheme introduced by the GLC, will have to pay their fair share of any future subsidy, whatever form it may take?
Mr. Howell: I listened closely to my right hon. Friend the Member for Worthing (Mr. Higgins) and also to my hon. Friend the Member for Uxbridge (Mr. Shersby) on the matter of concessionary fares, Wider issues arise than the one with which I have been concerned, which is to put the GLC in precisely the same position as all other local authorities and settle concessionary fares on the basis of local requirements and local variations.
On the question of general support for London Transport, it is worth bearing in mind that in the past year national taxpayers gave about £100 million of support to the London Transport system. Overall, the system last year received about £¼ billion in public support before the introduction of the super low fares policy. Considerable sums are therefore available. Against that background it is nonsense to talk of a system starved of resources. A substantial degree of support exists and this has been recognised in Government policies over many years. It continues to be so recognised.
Mr. Christopher Price: Will the Secretary of State accept that the responsibility for the chaos and the scaremongering lies with him, with his right hon. Friend the Secretary of State for the Environment, with the London borough of Bromley and with the five Law Lords who produced such a confused judgment that different Queen's Counsel have produced different interpretations of what that judgment means? Will the right hon. Gentleman confirm what he has said—that even though he is asking the House to legislate to make it lawful for the GLC to give pensioners free fares, he is giving no guarantee that the moment this is done his right hon. Friend will not come forward and penalise the council and say that it is acting unlawfully?
Mr. Howell: On the issue of blame and responsibility, I do not think that the hon. Gentleman has got the matter in perspective. A number of people have said that they intend to campaign for a clearly defined political objective in order to get back to a situation in which they can continue to impose an extremely heavy burden on ratepayers, including many elederly people and many small businesses, which is generally agreed to be extremely damaging. A political campaign is being mounted in a way that seems, in some cases, to be designed to create confusion of a greater kind than I believe is anything like the case. That is a poor way to go about dealing with an undoubteldy complex problem. It would be much better to follow the line suggested by the Government from the start—to sit down, discuss the problems and work them out in a sensible manner.
On the issue of money paid out for old people's concessionary fares, it is for the GLC to decide its expenditure priorities and how it wishes to spend its money. I am proposing that legislation should be sought from the House to enable the GLC to carry on unambiguously with a policy of concessionary fares for the elderly. How the GLC finds the money is a matter for it to work out within its own budget.
Mr. Tim Eggar: Is my right hon. Friend aware that his announcement will be welcomed by

37
old-age pensioners throughout London? Does he know that many old-age pensioners were extremely upset by the supplementary rate imposed by Mr. Ken Livingstone, which they saw as a nasty and underhand way of forcing them to pay for their free bus passes?
Mr. Howell: I am very much aware of the matters to which my hon. Friend referred. As he said, there have been a number of statements in recent weeks allegedly intended to help the elderly, but which on examination seemed to do nothing but create unnecessary anxieties, which is to be deplored deeply.
Mr. Nigel Spearing: The Secretary of State mentioned the need for a balanced transport policy in London. Does he not agree that the real balance is between the costs of private and public transport, and that it is essential to get it right? If New York has a 55 per cent. fare box ratio, why cannot London? If the right hon. Gentleman wants a balanced policy for the ratepayer, why does he not get his right hon. Friend the Secreatary of State for the Environment to remove his penalties? I remind the right hon. Gentleman that half the supplementary rate did not go to fares at all. It went to pay the penalties imposed by the Secretary of State for the Environment.
Mr. Howell: I am not sure that New York is the happiest example of a transport system. I know that the hon. Gentleman looks at these matters very fairly, but he should not underestimate the considerable amount of support and subsidy going into the London Transport system. In the budget for last year, before the introduction of the low fares system, for every £1 raised in fares, there was a further 55·1p added from public support. That is a considerable degree of subsidy.
Of course there are variations in European capitals. The example of Paris is quoted frequently. However, what is often forgotten is that the Paris system runs a similar passenger mileage with about 60 per cent. of the staff. If we want gains, it is to efficiency of operating and manning that we have to look.
Mr. John Cartwright: Will the right hon. Gentleman accept that the legal advice, like the legal judgment, is anything but clear? Why, therefore, will he not legislate to clarify what is a reasonable balance between the fares income and the essential public subsidy in terms of national public transport, especially in London? Bearing in mind the confused state of London's transport, will the right hon. Gentleman now call together representatives from the GLC, London Transport, British Rail and the transport unions and try to get them working together to provide the efficient and effective public transport system that Londoners need and deserve?
Mr. Howell: The legal advice to the Government, which is the basis of the view being put forward by the Government—a view which I have put forward to the GLC—is very clear. In 1982 the GLC will be within the law and acting legitimately if it approves this regrettably large increase of 100 per cent. in fares, and no further increase is needed.
As for the longer term and the matters to which the hon. Gentleman referred, I agree that some fundamental questions about transport planning are raised by this affair. There is a confederation of interests between the different operators about how best to serve the public need. These are matters that need to be discussed and looked at. But
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they are not a basis for rushing into early legislation to put us back into the mess that we were in a couple of months ago.
Mr. Alan Haselhurst: Is my right hon. Friend aware that, as a result of the unsatisfactory position into which the GLC has led us, commuters from outside London are able no longer to purchase combined British Rail and London Transport season tickets on the most advantageous terms and thereby are losing money? Can something be done to compensate them?
Mr. Howell: I note what my hon. Friend says. Obviously this is a matter for the transport authorities concerned. I shall call it to their attention.
Mr. Guy Barnett: The Minister consistently expresses sympathy for London ratepayers. If he has any respect for the responsibility and accountability of local authorities to their electorates, bearing in mine that London ratepayers voted for this policy at the last election, what has this matter to do with him?
Mr. Howell: There is also the question of who pays for it. It was the Government's clear view long before the Lords judgment—and, I suspect, the view of a growing number of people trying to operate the policy—that the dramatic reduction in fares and the general operation imposed on London Transport by the GLC were leading to a chaotic and impossible position for both ratepayers and fare payers. It would be utterly irresponsible of the Government merely to turn back the clock and restore legislation to allow that to continue.
Mr. Teddy Taylor: Is it true, as reported in most newspapers, that the result of my right hon. Friend's discussions with Mr. Livingstone is that the GLC will be given another £65 million to help finance the concessionary fares policy? Is my right hon. Friend aware that if a generous package were given it would cause enormous resentment in places such as Southend where very limited concessions are offered to pensioners because last year we adhered to the Government's guidelines, curtailed our spending and reduced our rates? Would it not be a scandalous policy if there were a cash prize for breaking the rules and a penalty for keeping them?
Mr. Howell: I assure my hon. Friend that the story on which he has commented is untrue. No such proposal has been made. It is proposed that the GLC shall be in a position, by a change in the law to be passed in the House, to continue with concessionary fares. I understand that that would involve a pay out of about £65 million. The story that my hon. Friend has heard is not true, and he can contain his resentment.
Mr. Clinton Davis: Quite deliberately, the Minister has sidestepped two essential issues put to him today by a number of my hon. Friends. The first is that if the GLC operates a concessionary policy it can expect a reduction in the support that it receives from the Government. Secondly, the Minister is misleading the House when he suggests that there is no need for increases in fares in 1982. Is it not clear that the GLC will have to repay the loan, plus interest and that the only way in which it can realistically do that and operate its transport policy is by reducing services, increasing fares and making London's roads more and more open to the use of private motorcars?
Mr. Howell: The repayment of the loan was taken into account by London Transport in the formulation of its budget and in putting forward its 100 per cent. fares increase. There has been no misleading of the House or anyone else about that. It is the Government's firm view, based on clear legal advice, that the 100 per cent. increase, although regrettably large, for the reasons that I gave earlier, is necessary and all that is required for the GLC to stay within the law.
The hon. Gentleman accused me of sidestepping the fact that the GLC would have its grant support reduced if it operated the concessionary policy. The matter with which the leaders of the GLC asked me to concern myself was the powers of the council to operate a concessionary fares policy. They did not ask me to concern myself with the details of the council's budget or with its expenditure priorities. The Government have moved promptly in response to the difficulties into which the GLC has got itself, and I should expect the hon. Gentleman to give a more sympathetic welcome to that move.
Mr. Hal Miller: Can my right hon. Friend confirm what some of us understood him to say just now, that in the matter of concessionary fares for the elderly in London he has agreed only to legislate to put the GLC in the same position as that of other local authorities, and has not given any Government subvention to the GLC for that purpose? It was reported widely in the press that he had given such a subvention. If he has, it will be resented bitterly by people in other parts of the country.
Mr. Howell: I can confirm that the position is exactly that explained by my hon. Friend in his opening sentence.
Mr. Les Huckfield: The right hon. Gentleman said that the intention of his proposed legislation was to bring the Greater London Council into line with local authorities in the provinces. However, will he bear in mind that the legal position relating to the powers of such authorities is equally uncertain? Will the right hon. Gentleman acknowledge that Conservative-controlled local authorities such as Solihull are considering legal action against such authorities as the West Midlands metropolitan county council? Does the right hon. Gentleman not realise that if he really wants to clarify the position he will have to introduce legislation for local authorities outside London as well?
Mr. Howell: The hon. Gentleman is not entirely correct to say that the legal position on concessionary fares is the same for other local authorities. All other local authorities have such a power, and the GLC is unique in not having it at the moment. That is where the Government propose to legislate.
On the broader question of support for public transport systems, I have said that I shall be seeing the Association of Metropolitan Authorities. If metropolitan authorities, or others, have problems that they want to discuss with me, I shall be happy to meet them. The proposals discussed with me so far have been raised by the GLC. The GLC said that it wanted to see me to discuss some problems and the Government responded promptly.
Mr. Speaker: There are two hon. Members on each side of the House still seeking to catch my eye. I shall call them if they will be brief.
Mr. Andrew Faulds: Does the right hon. Gentleman not appreciate, and is he not worried by
40
the fact, that the Government's position will force the GLC to make cuts in other parts of its budget? One of those cuts may well be the withdrawal of funding of the national arts institutions in London, with all the problems that that will pose for the Government.
Mr. Howell: The hon. Gentleman is tempting me into commenting on the GLC's priorities and its overall budget. I must avoid that, although it strikes me, as an outsider, that there is room for economy and efficiency in a number of the programmes on which it has embarked in the past few months.
Mr. Matthew Parris: Did I correctly understand my right hon. Friend to say that he does not believe that general subsidy of public transport is wrong, but simply that it is possible to go too far? Does he agree that "how much is too much" is a pressing question for many transport undertakings and that we need to give early guidance?
Mr. Howell: My hon. Friend is correct. That position has been reflected over the years in the whole system of transport supplementary grants. The legal position of the GLC in 1982 has now been made clear. If other local authorities and metropolitan authorities have problems that they wish to discuss, I have said that I am ready to see them, although no specific approach has yet been made to me. As I have told the House, I shall shortly be meeting the Association of Metropolitan Authorities, at its request.
Mr. Dennis Skinner: As the Minister seems likely to meet several different authorities, including the various associations, and now that he is presenting legislation with specific reference to free fares for pensioners, will he bear in mind that in large tracts of the country, including most of Derbyshire, no bus undertakings belong to the local authority, or to any part of it?
Will the right hon. Gentleman accept that he may need to meet Derbyshire county council, and many other authorities which do not have their own bus undertakings, so that they can introduce concessionary fares for their old-age pensioners and, if necessary, obtain the treatment—through loans or other means—that he describes for Greater London?
Mr. Howell: I accept that I may need to meet all sorts of people, but I am not sure that the hon. Gentleman's points relate to the GLC and its unique position on concessionary fares.
Mr. Douglas Hogg: Will my right hon. Friend accept that, despite the GLC's antics there is a perfectly respectable case for subsidising local transport, but that there is not a respectable case for requiring local ratepayers to do that, if only because they are relatively few in number? It is a narrow tax base. If we are to have a policy of financing or subsidising local transport undertakings—for which, as I say, there is a good case—does my right hon. Friend agree that we must find a more broadly based local system of taxation and link it to that?
Mr. Howell: My hon. Friend has raised a much wider issue, but he is correct. The Government accept, and have long accepted, the case for a sensible degree of revenue and capital support for local transport undertakings. The problem with the GLC in recent months is that it did not know where to stop.
Mr. Speaker: I have received notice of three applications under Standing Order No. 9. I shall call them in the order in which I received them.

Invergordon Smelter
4.44 pm
Mr. Bruce Millan: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"the threatened permanent closure of the British Aluminium smelter at Invergordon and the disasterous employment and other consequences that that would involve in the Highlands and elsewhere."
I need not argue about the specific nature of the subject, Mr. Speaker, because you will have heard this afternoon's statement. It is certainly a very specific matter for the 1,500 or so people who will lose their jobs as a result of the closure of the smelter. However, the matter obviously cannot be allowed to rest on that statement.
I need not emphasise how important the issue is to the area that is directly involved. From my visit to the area last week, I know that there is considerable anger and bitterness about the announcement. The implications go beyond the area concerned and affect the other British Aluminium plants in Scotland and elsewhere.
The matter is important and we need to know exactly what happened during the negotiations between the Government and the company. What happened at Invergordon has important implications for the other two smelters operating in the United Kingdom. As the hon. Member for Anglesey (Mr. Best) pointed out earlier, in Anglesey the charges for power will have to be renegotiated following the commencement of Dungeness nuclear power station. There is another smelter in the North and I understand that the coal price will soon have to be re-negotiated with the National Coal Board. The issue is important because of the general implications for energy policies. It is particularly important because of the effect on the electricity industry and on consumers in Scotland. The loss of no less than 7 per cent. of the total electricity demand is bound to have a considerable effect which will in turn have implications for the coal industry in Scotland. That industry is almost exclusively dependent on the supply of coal for the generation of electricity in Scotland. The matter will also affect the rail industry and the other industries in Scotland.
As regards the urgency of the matter, the closure was announced during the recess and we have already lost three weeks. We might have debated this matter long before now. However, the matter is particularly urgent because the redundancy notices, which were first to be issued a fortnight ago, have been deferred in successive weeks. On the present understanding between the company and the trade unions concerned, those notices will be issued later this week. Therefore, it is extremely important to debate this issue before those notices are issued.
There are important points to be debated and it is essential that those in Scotland, particularly those in the area directly involved, should know exactly what the Government intend to do to reverse the potentially disastrous situation. It is for those reasons that I have sought to raise this Adjournment debate.
Mr. Speaker: The right hon. Member for Glasgow, Craigton (Mr. Millan) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,

43
"the threatened permanent closure of the British Aluminium smelter at Invergordon and the disastrous employment and other consequences that that would involve in the Highlands and elsewhere."
No hon. Member who has been in the Chamber this afternoon will have failed to take note of the serious issues raised in the Minister's statement and in the right hon. Gentleman's application. The House is aware that I do not decide whether this matter—which is of undoubted importance in Scotland—should be debated. My powers are limited to deciding whether there should be a three-hour debate on this important question tonight or tomorrow night. The House has instructed me to give no reason for my decision.
I listened with anxious care to the right hon. Gentleman's representations, but I have to rule that his submission does not fall within the provisions of the Standing Order and, therefore, I cannot submit his application to the House.

Railways (Industrial Action)
4.50 pm
Mr. Les Huckfield: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"the failure of the British Railways Board to increase wages for railwaymen, especially footplate staffs, as agreed by the railway staff national tribunal and the Arbitration and Conciliation Service in August 1981 and its industrial consequences and results for the travelling public".
I submit that the issue is specific because it arises from the failure of the British Railways Board to honour an undertaking that it gave to the Arbitration and Conciliation Service last August. There is a large amount of documentary evidence relating thereto. I submit that the issue is important not only because of its consequences on specific days to the travelling public but also to the increasing consequences for industrial customers, especially in the steel industry and others that are now being reported.
Also, the matter should have urgent consideration because, from the statements that are now emanating from the British Railways Board, we can see that it is daily hardening its attitude. If the attitude of the British Railways Board and British Rail management will harden, I forecast that the action and the industrial consequences will also increase.
I submit also that action and intervention by the Secretary of State is warranted. By his inaction and standing on the sidelines thus far, he has not helped. By what he has said while standing on the sidelines, he has helped even less. I hope that we can have a debate under Standing Order No. 9 so that we can have a helpful intervention by the Secretary of State, not least because the position that has been taken by the British Railways Board is basically attributable to the Government's policy. The matter requires intervention and Government action.
Above all—I recognise that I am not entitled to go into the merits of the debate—the House should be given an opportunity to debate and decide such an important issue this week. It is especially important that all hon. Members and the people that they represent should have an opportunity to see the precise facts and figures of the position as soon as possible.
Mr. Speaker: The hon. Member for Nuneaton (Mr. Huckfield) gave me notice before 12 noon today that he would seek leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,
"the failure of the British Railways Board to increase wages for railwaymen, especially footplate staffs, as agreed by the railway staff national tribunal and the Arbitration and Conciliation Service in August 1981 and its industrial consequences and results for the travelling public".
As the House heard me say in response to the previous application, my powers are very limited. The House knows that an emergency debate is not the only way in which the matter can be debated.
I listened with great care to what the hon. Gentleman said, but I must rule that his submission does not fall within the provisions of the Standing Order and therefore I cannot submit his application to the House.
Mr. Geoffrey Dickens: On a point of order, Mr. Speaker. On an application under Standing Order No. 9, is it not an hon. Member's duty to declare an interest? If that is so, an interest should have been declared by the hon. Member for Nuneaton (Mr. Huckfield).
Mr. Speaker: The House understands that when an application is made under Standing Order No. 9 we listen with care to the arguments advanced. If there is any special interest to be declared, hon. Members usually do so.
Mr. Les Huckfield: Further to that point of order, Mr. Speaker. I am sponsored by the Transport and General Workers Union, but by an arrangement with that union I also speak in the House on behalf of ASLEF. The precise nature of my commitment to ASLEF, which is not a sponsorship, is of course recorded in the Register of Members' Interests.

Heating Costs (Assistance)
4.55 pm
Mr. David Winnick: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"the need for the Government to provide adequate assistance for those on limited incomes, especially the elderly, to help to pay fuel bills for heating purposes during the course of this winter."
The matter is specific in that my application deals with the immense difficulties faced by so many people on limited incomes in keeping their accommodation adequately heated and being able at the same time to meet the cost of doing so.
The importance of the matter is self-explanatory, bearing in mind the winter that we are experiencing. The urgency of the matter arises from the danger to so many people, especially the elderly, who, fearing the cost of forthcoming fuel bills, do not have proper heating in their homes. Doctors have warned of the danger to health in such circumstances. We know of hypothermia, which is a condition that kills. It applies especially to the very old and the very young.
The Government have issued guidelines to DHSS offices about some assistance that might be given, but it is not clear how many of those on supplementary benefit can claim. For example, can claimants receive assistance if they have any savings, or must they show that they have no money at all before they can receive assistance towards the cost of their fuel bills?
We should debate the matter because it is of extreme importance. It should also be borne in mind that no help will be given to the many people on limited incomes who are not in receipt of supplementary benefit. For example, there are three-quarters of a million pensioners in Britain who receive rent or rate rebates but do not receive supplementary benefit for various reasons. They will not receive a penny in aid, either this winter or at any other time, in order to pay their fuel bills. The Government must take much of the responsibility for the cost of fuel. The price of gas is rising by 30 per cent.—
Mr. Speaker: Order. The hon. Gentleman is now beginning to debate the issue that he would debate if his application were granted.
Mr. Winnick: The price of gas is rising by 30 per cent. in real terms over three years. I believe that the matter is specific and important to many people that we represent, so it is necessary to have an urgent debate. It is a sick scandal that so many people in the community, especially the elderly, should be depriving themselves of heat and trying to keep warm by wrapping blankets around themselves because they cannot afford fuel. I believe that the matter is important and I hope that my application will be granted.
Mr. Speaker: The hon. Member for Walsall, North (Mr. Winnick) gave me notice before 12 o'clock today that he would seek leave to move the Adjournment of the House under Standing Order No. 9 for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,
"the need for the Government to provide adequate assistance for those on limited incomes, especially the elderly, to help to pay fuel bills for heating purposes during the course of this winter."

47
The House will have no doubt about the importance of the issue. I repeat that my powers are limited. I have been instructed by the House to give no reasons for my decision. After listening with considerable concern to the representations of the hon. Gentleman, I must rule that his submission does not fall within the provisions of the Standing Order and therefore I cannot submit his application to the House.

Heating Costs (Assistance)

  STATUTORY INSTRUMENTS, &c.
  Mr. Speaker: By leave of the House, I will put together the two Questions on the motions relating to statutory instruments.
  Ordered,
  That the Value Added Tax (Insurance) Order 1981 (S.I., 1981, No. 1740) be referred to a Standing Committee on Statutory Instruments, &c.
  That the Value Added Tax (Special Provisions) Order 1981 (S.I., 1981, No. 1741) be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Pym.]

Orders of the Day

  Local Government Finance (No. 2) Bill
  Order for Second Reading read.
  Mr. Gerald Kaufman: On a point of order, Mr. Speaker. I should be grateful if you would give the House your guidance on a matter relevant to the manner in which we proceed to debate the Second Reading of the Bill.
  On the Order Paper is motion No. 132, which by 22 December had been signed by 297 right hon. and hon. Members, calling for the House's approval of the Public Accounts Committee's report on the role of the Comptroller and Auditor General. On 17 December the Prime Minister and the Leader of the House gave a commitment that, in the light of the views expressed in the House in the debate on 13 November, the Chancellor of the Exchequer would make a statement.
  One issue raised in the report in chapter 5 is the auditing of local government accounts. The Public Accounts Committee opposes the setting up of an Audit Commission, as proposed in the Bill. Therefore, may we have your guidance on the propriety of the House proceeding to debate the matter in the absence of the promised statement?
  Mr. Speaker: The matter can be raised on Second Reading. Orders of the Day have been called. I can make no further comment.
  The Lord President of the Council and Leader of the House of Commons (Mr. Francis Pym): My right hon. Friend will refer to the matter during his speech moving the Second Reading of the Bill, and I assure the right hon. Gentleman that my right hon. and learned Friend the Chancellor of the Exchequer will make an announcement about his reaction to the debate on the PAC report in due course. The commitment will be fulfilled. Although that aspect is only a small part of the report, it was touched on by both sides of the House in the debate on the PAC report.
  5.2 pm
  The Secretary of State for the Environment (Mr. Michael Heseltine): I beg to move, That the Bill be now read a Second time.
  The Bill does three things. It abolishes supplementary rates and precepts, so that local authorites will have to rate or precept for complete financial years; it enables me to protect from any general loss of grant local authorities which meet their individual spending targets; and it establishes an Audit Commission to supervise the audit of local authorities in England and Wales.
  Let me start with the decision to abolish supplementary rates. The House will know that there has recently been a growing tendency for local authorities to levy supplementary rates. In 1981–82 we saw more than 30 local authorities issue either supplementary rates or precepts on their own account. This is far more than ever before.
  It has particularly unfortunate consequences, but perhaps the most unfortunate is the effect on those people who try to budget their family income and make allowances within it for their rates payment to local government, only to find that their calculations are thrown

  49
  aside by the arrival of an unbudgeted and unwelcome increase in their already increased rate demand. The effect on those with low and fixed incomes is particuarly harsh. Harsh, too, are the effects on industry and commerce in many of our larger cities, where the people who have to pay the supplementary rates simply do not understand when local councillors complain about harsh economic conditions, yet at the same time increase the cost of the public sector and push out supplementary rates to aggravate the problems, particularly of the private sector.
  What the House clearly has to face, and what is at the centre of the controversy about so much of local government today, is that parts of local government are determined to scrap the traditional relationship between central Government and local government whereby local government recognised and accepted the right of central Government to set the level of local government expenditure. The situation is at its most severe when local authorities ignore the Government's request for economy, actually increase their expenditure, and then finance it by supplementary rate. A Labour Government would not tolerate such a position. Indeed, in 1976 they did not hesitate to demand economies and to penalise local government to secure the cuts forced on them by the IMF. In Opposition, Labour Members are at their most irresponsible.
  The overwhelming majority of authorities which levied supplementary rates to increase their spending were Labour-controlled—Labour authorities determined to increase public expenditure and, increasingly, Labour authorities using their position in local government to challenge the electoral mandate of the national Government.
  Mr. Guy Barnett: What about the local mandate?
  Mr. Heseltine: The hon. Gentleman is right to ask about the local mandate. The Shadow spokesman on the environment has made his position as clear as I make mine. Where there is a clash between the local and national mandate, the national mandate must prevail.
  Mr. David Ennals: Will the right hon. Gentleman give way?
  Mr. Heseltine: No.
  In this context, the Government welcome the GLC's decision to reduce the level of its subsidy to London Transport to its former level in the current year. This reduction of its expenditure means that the amount of block grant payable in 1981–82 will be increased by £60 million over what it would have been under the GLC's previous budget. This grant is payable to the London boroughs, and I shall be taking steps to ensure that the necessary adjustment is made immediately in the supplementary RSG report to be published later this month. This will mean that the boroughs recover the grant in February and March of this year.
  I understand that the London Boroughs Association is advising the individual boroughs to credit ratepayers who have paid the supplementary rates levied to meet the unlawful GLC precept, including the anticipated loss of grant, or to make repayments to them if a refund is requested. Of course, the precept in respect of ILEA stands. I welcome the advice to make credits or repayments. If, having considered its position, any
  50
  borough decides that it requires a sanction under section 161 of the Local Government Act 1972, I am prepared to give sympathetic consideration to granting such a sanction.
  Part I of the Bill will ensure that there can be no repetition of the rash of supplementary rates witnessed in a minority of authorities in 1981–82. As from 1982–83 there will be a ban on all supplementary rates and precepts. Authorities will be required to make a single rate or precept for the whole financial year. Once they have set their rates for the year, councils will have to live within their means without further recourse to the ratepayer. Ill-judged increases in spending part way through the financial year of the sort seen this year will no longer be possible. The benefit for ratepayers, whether private individuals or businesses, is that they will know where they stand. They can plan their budgets without fear of disruption by further unexpected supplementary rate demands.
  These provisions should cause few problems for the vast majority of responsible local authorities which manage their finances prudently. After all, until the recent experience under largely Labour-controlled authorities, the supplementary rate was a rare phenomenon. However, it is conceivable that an authority, through no fault of its own, may find that it faces an urgent need for extra revenue which could not have been anticipated at the time that it made its rate or precept for the year, perhaps to meet the costs of dealing with some natural disaster. In such circumstances, I would expect the authority to seek my approval for special temporary borrowing under the terns of schedule 13 to the Local Government Act 1972. The GLC will be covered by clause 3 of the Bill. I should, however, make it clear to the House that I would give my consent to applications for temporary borrowing only where it was absolutely essential for the expenditure to be incurred in the year to enable unavoidable commitments to be met.
  The House will note that to underline the continued credit-worthiness of local authorities in the new situation, clause 3 also provides that interest on money borrowed by local authorities shall be a first charge on their revenues. That brings the position in England into line with that in Scotland, where authorities also have no power to levy supplementary rates. In addition, it is my intention that a condition of any borrowing I might approve should be repaid out of revenue income within the first quarter of the following year.
  Part II of the Bill is necessary for much the same reason as part I—namely, the failure of some authorities to work within the Government's public expenditure guidelines. I have always been determined to recognise that the majority of local authorities co-operate with central Government in their expenditure plans. Indeed, nothing proves more clearly the reasonableness of the expenditure targets that we, as a Government, have sought than the number of authorities that have achieved, or come close to achieving, those targets. I am grateful to those local authorities that have tried so hard to meet my objectives. I am determined to protect those authorities that achieved their targets from the effects of a general reduction in grant. Section 59 of the Local Government, Planning and Land Act 1980 provides such a means—the multipliers that can be used to adjust block grant. I accordingly

  51
  propose to use that power to protect authorities achieving their individual targets or spending below their grant-related expenditure assessment figures.
  The 1980 Act refers specifically to the main purposes for which the power to determine multipliers will be used. We therefore consider it right to take this opportunity to include in legislation a specific reference to that use of the power. Part II strictly circumscribes the ways in which the power to set protective multipliers can be used. It cannot be used to restrict the reasonable exercise of local government discretion. Local authorities will still be free to determine their own mix of services.
  The specific provision that we propose to include in the Act can be used with one, and only one, object in view—setting a reasonable limit on the overall level of public expenditure. That has always been accepted as the proper concern of central Government. That part of the Bill ensures that we do not have to penalise authorities indiscriminately, as we had to do in 1980–81. As such, it will be welcomed by everyone who has the real interests of local government at heart.
  Mr. John Page: I am grateful to my right hon. Friend for giving way. I was nervous that my silence might be construed as total acquiescence. I find the business of multipliers extremely complicated. Is my right hon. Friend absolutely sure that the base year that he has chosen is not too rough an instrument for certain local authorities which thought that they had tried to be good boys?
  Mr. Heseltine: I take my hon. Friend's silence not as acquiescence but simply as politeness and an interest in what I have to say. I can help my hon. Friend on the matter of base years. He is referring to the initial standard on which I had to base the level of expenditure in 1978ndash;79, which was the year immediately preceding the general election. We have now moved away from strict reliance on that base line because there are anomalies associated with choosing any one year. The various targets that we have now set for local authorities place much greater reliance on their grant-related expenditure assessment position than could be done when we had only the base year on which to concentrate.
  Part III of the Bill proposes the establishment of an Audit Commission to assume responsibility for the audit of local government in England and Wales. The House will know that when I became Secretary of State I inherited from the Labour Government the Advisory Committee on Local Government Audit. That body consisted of a wide representation from local government and the financial world, including the leader of the London borough of Camden. I am especially grateful to Mr. Brian Maynard, formerly a partner of Coopers and Lybrand, for chairing that committee and for the advice that it gave me.
  That body considered the future of local authority audit and unanimously recommended the establishment of a Commission for England and Wales on a similar basis to that existing in Scotland since 1975. The Scottish Commission has, as far as I am aware, operated very successfully. Indeed, the Labour Party actually carried out the implementation of the 1973 legislation, which it did not oppose, and therefore set up the Scottish system.
  Of course, local government will argue that we should leave the system alone to remain broadly unchanged. That
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  is not a wholly unfamiliar stance for local government to adopt. But in May I received a letter from the Association of Metropolitan Authorities from which I shall quote a small part. Referring to my proposals for an Audit Commission, it said:
  "Your own proposals do, to a large extent, meet the need for an independent and controlled approach to the development of the Audit Service, subject only to getting the composition of the Commission right and other matters such as whether or not LAMSAC should be embraced in the proposals."
  There are three main points to be made about the proposed commission. The first is the general point about the need to secure the maximum value for money and the most effective pursuit of best practice that should unite all opinions in local government.
  The other two issues are those of principle: first, who should appoint the auditors of local government and, secondly, the position of Parliament and the Comptroller and Auditor General in the context of the audit of local authorities. Of course, the right hon. Member for Manchester, Ardwick (Mr. Kaufman) drew some of the issues to the attention of the House in his point of order a few minutes ago.
  Part III of the Bill sets up the commission and new responsibilities and strengthens the duties of auditors, especially in the crucial area of value for money. Audit involvement in value-for-money work is not new, but the Bill gives much greater emphasis to it. The commission will have a duty to undertake comparative studies on economy, efficiency and effectiveness, and the auditor will have a duty to satisfy himself that the authority has made proper arrangements for securing value for money. These separate duties are closely linked.
  The central part of a value-for-money audit is comparing a local authority's practice and performance with best practice in other similar authorities. The commission's comparative studies, and studies undertaken by, for example, the Local Authorities' Management Services and Computer Committee and the Chartered Institute of Public Finance and Accountancy will provide the auditor with the basic tools he needs to do a value-for-money audit.
  In the final analysis it is a local authority's responsibility to give its ratepayers value for money. Neither the auditor nor the commission can take over that responsibility. The auditor can draw an authority's attention to any shortcomings, but the policy decision rests with the local authority.
  Mr. David Atkinson: In the studies by the commission on economy and efficiency, will my right hon. Friend encourage the commission to investigate the local government functions that are suitable for privatisation to provide even greater economy and efficiency, and to make recommendations?
  Mr. Heseltine: The commission will want to consider those matters. However, it must consider the relative costs incurred in both the public and private sectors where those services are being carried out as alternatives within those sectors. Doubtless, it would wish to report on that matter. It is clear that the commission would not have the power to compel an authority to make a policy decision to move from public to private or private to public. That decision would be within the policy responsibility of the individual authority.
  One of our objectives in drawing up the proposals has been to facilitate the greater use of private sector firms in

  53
  local authority audit work. The private sector has a wealth of experience to offer, especially on value for money. I believe that if the commission uses that expertise in harness with the particular skills of the district audit service, audit will have a much greater impact on local authority efficiency than it has at present.
  We have also been concerned to strengthen the accountability of local authorities to their electorate. Part III does that in three ways. The increased audit effort means that local electors and ratepayers will be informed about their local authority. Auditors will have a new duty to report immediately on matters of public concern before the money is actually spent, giving the pubic an opportunity to influence events before it is too late. The Bill also widens the circumstances in which electors may object at audit. Electors will in future be able to draw the auditor's attention to matters which, though not illegal, appear to require his formal comment.
  I mentioned the issue of principle on who should appoint the auditor to an organisation. It is the essence of the audit function that the auditor should be, and be seen to be, independent. The present system does not make a clear enough separation between the auditor, central Government and the authorities under audit. One of my key objectives has therefore been to "distance" local government audit from both central Government and local authorities.
  District auditors are of course entirely independent in discharging their statutory duties, for which they answer to the courts and not to me, but they are civil servants carried on my Department's Vote; and their organisational link with central Government does not permit local government as a whole a role in its policy direction. Similarly, because local authorities appoint their own auditors, audit is not seen to be obviously independent of local government.
  Part III therefore provides for the establishment of an Audit Commission for local authorities in England and Wales whose prime function will be to secure the audit of local authorities. The chairman and members of the commission will be appointed by my right hon. Friend the Secretary of State for Wales and myself. They will include a number of representatives of local government interests, and local government will be consulted about the membership. The commission—quite independently of central Government—will appoint the auditors after consultation with the local authorities concerned.
  This proposal to take away from local authorities the right to choose their own auditors has understandably generated much opposition from local government, which claims that we are singling it out for especially hostile treatment. The facts do not support this allegation. Very few public sector bodies appoint their own auditors. The nationalised industries, the National Health Service and many other public bodies have their auditors appointed by the sponsoring Minister. Government Departments do not choose their auditors—they are audited by the Comptroller and Auditor General, who reports, of course, to Parliament.
  In the private sector, company auditors are appointed by the shareholders, not by the directors. I know that for much of the time this is a distinction without a difference, but at critical times of difficulty shareholders do exercise their powers. The local government equivalent of shareholders would, I suppose, be the electors or ratepayers, but clearly it is impractical for them to appoint
  54
  auditors. That is why I propose to set up the commission—as an essentially independent body—to fulfil that function.
  In short, I do not accept that local government is being singled out. On the contrary, I believe that our proposals will bring local government more closely into line with practice elsewhere in the economy.
  The second issue of principle arises within the answer to questions about the role of Parliament and of the Comptroller and Auditor General and along the line of the point of order raised by the right hon. Member for Ardwick. The Government did not feel able to adopt the Public Accounts Committee's proposals for local government audit. We accept wholeheartedly the PAC's basic objectives: to improve the present audit arrangements, especially in the field of value for money, and to reduce the amount of central Government control over local authority audit. Both are central to the present proposals, but we could not accept the PAC's conclusion that the best way of achieving those objectives would be for the Comptroller and Auditor General to assume responsibility for the district audit service.
  Local authorities are responsible to their own ratepayers and electors, whereas the Comptroller and Auditor General is responsible to Parliament. The rate support grant is paid to local authorities in such a way that they are free to make their own expenditure decisions. Parliament has a legitimate role to play in the determination of the size of the grant and in its broad distribution, but not in how the local authority spends its money. Once the grant is paid, how it is spent is the local authority's business. Ministers are already fully accountable to Parliament for their own responsibilities for local authority activities.
  Mr. Michael Morris: My right hon. Friend is aware that members of the Public Accounts Committee could not possibly share his view that, as gross expenditure is 60 per cent. of local authority spending, it should be accountable to Parliament in the round. To that end, even within his own proposals, will he write into the Bill the requirement that the Audit Commission shall produce an annual report that will be laid before the House?
  Mr. Heseltine: That would be a proper interpretation of the constitutional position that I have advanced. The House will insist on that, and it will be part of the Government's intention. I am grateful to my hon. Friend the Member for Northampton, South (Mr. Morris) for raising that aspect.
  Mr. John McWilliam: On the basis of the logic of the argument expressed so far in favour of the Audit Commission, will the Secretary of State explain why the immediate reference from the auditor relating to any problems which might arise from the audit is to the courts rather than to the Audit Commission?
  Mr. Heseltine: I do not follow the concern expressed by the hon. Member for Blaydon (Mr. McWilliam).
  Mr. McWilliam: It is a surcharge.
  Mr. Heseltine: The hon. Gentleman raises the question of surcharge. If the district or private sector auditor advises the local authority that it is acting ultra vires, the risk of surcharging exists. If I misunderstand the Gentleman, I will again give way.
  Mr. McWilliam: The Secretary of State gives way again because, within the Bill as drafted, there is an opportunity for the auditor to refer to the courts items which are not ultra vires but are not within his view of what is efficient or practicable. It therefore seems that the Secretary of State is asking the courts to determine on subjective rather than objective terms what is ultra vires.
  Mr. Heseltine: The hon. Member for Blaydon is not interpreting the legislation as it is drawn. As I understand it—although this point can be explored in Committee, if the Bill receives a Second Reading—the commission's powers are very much the powers of the district auditor and are merely being transferred under this legislation.
  The district auditor refers to the courts when there is a matter of law at stake, and not the policy matters of individual authorities. As I understand it, there is no change in the legislation that we are proposing from the existing position. If the hon. Member for Blaydon is so selective, I am sure that he will want to pursue these matters in Committee.
  Mr. George Cunningham: Who has the power to surcharge?
  Mr. Heseltine: In the end it is the courts. The district auditor plays a role in the surcharging procedures, but the precise position about surcharges, which arises when a local authority acts outside the law, will not be significantly changed under the new as opposed to the existing proposals. There is a surcharge risk if local authorities act ultra vires today and there will be the same risk if they act ultra vires under the new proposals. It is not intended to change the local authorities' position in a significant measure or in principle under this legislation.
  Mr. Cunningham: At the moment, if the district auditor thinks that the local authority has acted ultra vires, he can surcharge the council. Is it proposed that a private auditor would have that power in the future?
  Mr. Heseltine: This is obviously an important legal matter. I do not want to give a final legal view about precisely where the responsibilities would lie without exploring the matter very carefully. I shall ask my right hon. Friend the Minister for Local Government and Environmental Services to return to that point in the reply. However, it is not intended that there should be a significant change in the surcharge position under the new arrangements and those under the existing arrangement, but the Government will explore the matter raised by the hon. Member for Islington, South and Finsbury (Mr. Cunningham) because it is an important point. I have dealt with that point as effectively as I can and the matter can be further explored in Committee.
  I have sought to stress the extent of the commission's independence. A statutory body of this nature cannot, however, be completely independent. Parliament has an interest in seeing that it discharges its statutory functions satisfactorily. It is largely for this reason that the Secretary of State is given powers, in particular, to appoint the members of the commission, and to give the commission directions on the discharge of its functions. The Secretary of State will not—I emphasise the point—be able to give such directions in respect of individual local authorities.
  The Bill also empowers the Secretary of State to fix audit fees and to require an extraordinary audit. These two are minimal reserve powers. The first of these would be
  56
  used only where the commission had, in the view of the Secretary of State, failed, for example, to reach agreement on a fee scale. The second preserves an existing power of the Secretary of State to direct an extraordinary audit when it appeared to him to be in the public interest that there should be one. However, it will generally be for the commission to decide whether to direct an extraordinary audit.
  The commission will take over responsibility for the district audit service. Naturally the staff have questions about the nature of the change and its effect on careers and the loss of their Civil Service status. I believe that their worries are misplaced.
  The audit function will be strengthened and the audit effort increased. Although I expect to see more widespread use of the private sector, the district audit service staff with their unique expertise will have a key role in the new arrangements and will, I believe, benefit from the enhanced importance of audit. The Bill contains safeguards to protect the interests of staff.
  Part III of the Bill specifies the audits for which the commission is to be responsible. It includes all the local authorities in England and Wales, the passenger transport executives and the London Transport Executive. As large trading bodies, water authorities are more akin to nationalised industries than to local authorities.

  We propose that they should switch to nationalised industry style audit arrangements with auditors appointed by the appropriate Secretary of State.
  Audit reports on water authorities will be laid before Parliament and published, and we shall continue with our policy of using the Monopolies and Mergers Commission to examine their cost effectiveness and efficiency. Inevitably, the changes set out in part III will increase local government audit costs.
  The commission will be required to be self-financing, apart from grants for working capital in the first two years. The audit fees paid by local authorities will be its main source of income, and an increase in fees seems inescapable, but I am convinced that any increase will be repaid many times over from the resulting improvements in local authority efficiency.
  Mr. George Cunningham: The right hon. Gentleman has referred to the proposed changes in the auditing of water authorities. Did he notice in one of the newspapers over the weekend a reference to a fear that the public are losing a right of access to documentation from the water authorities? Will he say whether that fear is well grounded? My impression from the Bill is that it is not and that the public's right of access to documentation in the schedule to the Water Act 1973 is not affected. Is the change that is referred to in The Sunday Times story taking place?
  Mr. Heseltine: I am grateful to the hon. Gentleman for raising that issue. The story is grounded in fact. There is a diminution in that right but there are alternatives which I believe are more important in the auditing of the water authorities. There will be a report and the authorities will be subject to the nationalised industries' disciplines with which we are familiar in another context. As I read the debate that took place on the Public Accounts Committee's report—I am sure that right hon. and hon. Members have read it—there was much more concern about the auditing of nationalised industries than about arrangements for auditing local government.

  57
  Any changes that might flow should stem from the Government's response to the PAC report. We see the water industry having a grouping with the nationalised industries as opposed to the local authorities.
  The audit reports of water authorities will be laid before Parliament and published and we shall continue with our policy of using the Monopolies and Mergers Commission to examine their cost effectiveness and efficiency. In those two ways our material changes consist of new disciplines to replace one of those lost, which is the public's right of access to which the hon. Member for Islington, South and Finsbury has referred.
  Our intention is that the commission should be established soon after Royal Assent. It will be given a skeleton staff and will begin detailed preparations with a view to acquiring its full responsibilities on 1 April 1983.
  On that basis, I commend the Bill to the House. It is an important step in the Government's determination—
  Mr. Tony Marlow: I am grateful to my right hon. Friend. Going back quite some distance in his speech, he said that there will now be only one rate increase each year, which might in some cases be a very big increase. Can he say what special protective measures he has for commerce and industry, who not only pay more than the domestic ratepayer but are completely disfranchised?
  Mr. Heseltine: My hon. Friend will be as aware as I am—perhaps not quite as aware as I am, but none the less well aware—of the controversy that surrounded my earlier proposals, which would have given a degree of protection to the commercial and industrial ratepayer. In the absence of those proposals, it was not possible to give the degree of protection for the commercial and industrial ratepayer that would have been provided. That was one of the powerful arguments for my first proposals.
  Mr. Harry Cowans: The right hon. Gentleman is taking away the right of local authorities to levy a supplementary rate and he is conferring upon himself, or any other Secretary of State, the right to alter local authorities' grants at any time during the financial year. In other words, he is conferring upon himself the right to make a decision on a supplementary rate while removing that right from local authorities.
  Mr. Heseltine: The hon. Gentleman raises an important issue that has been raised by the Association of County Councils during its representations on the Bill. It is an issue that we shall want to consider as we examine the detailed workings of the proposed legislation. We come back in the end to the Government's determination to secure lower levels of public expenditure. We believe that the traditional relationship between local government and central Government entitles us to expect local government to keep within the levels of expenditure that are set by central Government. The failure of some local authorities to do that has led to the pressures that were enshrined in the 1980 legislation and which to some extent are extended by the Bill.
  Mr. W. Benyon: Having jumped over part II of the Bill quickly, will my right hon. Friend say whether he agrees with a situation in which the rules could be altered after the beginning of the financial year? That is tantamount to fixing the rate.
  Mr. Heseltine: I do not think that it is tantamount to fixing the rate. However, it would have an effect on expenditure levels in the absence of supplementary rates. The rates would have been fixed at the beginning of the year and would then not be capable of adjustment. I am sure that my hon. Friend understands as clearly as I do that that is the position. I realise that the issue has been the subject of representations that we are considering as a Government. I am sure that the House will want to consider it when it scrutinises part II.
  The Bill is an important step in the Government's determination to get better value for money in the public sector and it includes important safeguards designed to protect those authorities that are co-operating with the Government's strategy. It will by the abolition of supplementary rates bring to an end the rapidly growing practice of sharp changes in the budgets of local government with all the hardship and uncertainty that this causes. And the Bill will bring a new impetus to the audit practices of local government while giving to local government for the first time a significant role in the policy direction of audit.
  In all it is an important measure to carry us forward to the next stage which will follow the consultation we have now begun on the reform of local government finance itself.
  5.39 pm
  Mr. Gerald Kaufman: The Secretary of State for the Environment has just spent 37 minutes seeking to persuade the House that there are merits in the legislation that he is asking us to approve tonight. Until the intervention of the hon. Member for Northampton, North (Mr. Marlow) in the final minutes of the Secretary of State's speech, anyone listening to him could have been forgiven for being completely unaware that part I of the Bill represents the Government's second thoughts, or, according to some reports, their seventh thoughts, on the subject. However, the fact is that we are debating the Bill in late January rather than November because the Secretary of State has been compelled to abandon his original intentions. Therefore, let the Government not seek to railroad the Bill through Parliament. If there has been any delay, it is entirely their responsibility.
  It would be churlish to proceed without paying our last respects to the Local Government Finance Bill, which has been consigned to the oblivion that seems to await so many of the Secretary of State's projects. Last month, when he announced his change of course, the Secretary of State made it all seem so simple. He told the House on 16 December:
  "Instead of the proposals to permit supplementary rates only after a poll of local communities, the Government propose to ban supplementary rates altogether."—[Official Report, 16 December 1981; Vol. 15, c. 309.]
  With a bound the Secretary of State was free. One would never have thought that the referendum was the linchpin of part I of his first Bill. When he made the original announcement in Torquay last September he laid stress on the role of what he called the mandatory referendum, by which the approval of the local electorate for a supplementary rate would have to be obtained.
  In the following month, at the Conservative Party conference, the Minister for Local Government and

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  Environmental Services went to some trouble to proclaim the merits of the referendum as preventing what he called a
  "concentration of power in the hands of the State. That is precisely why we have proposed the referendum approach, so that the final decisions will not be for central Government but for the local people themselves."
  Now, apparently, the local people are to be deprived of the right to make those final decisions that the Minister believed to be so essential four months ago. When the trouble over the referendum proposal blew up, the Minister for Local Government and Environmental Services was heard to mutter that all the bother could have been avoided if only, in place of "referendum", the Department of the Environment had used the phrase "town poll".
  Therefore, the Government's climb down is much greater than the Secretary of State tried to make out, because it was not just the referendum that was the obnoxious feature of part I of the first Bill. In the original Bill the Secretary of State planned to interfere in the rate-making process of every local authority in the country by placing a limit on the level of each council's initial rate. That intention has now been abandoned, together with the referendum which would have been imposed on any authority seeking to go above the Secretary of State's limit for that council.
  The ditching of part I of the original Bill is a great victory for local government and for the House of Commons, which forced the Secretary of State to change his mind. Why is local government so vehemently opposed to the Bill in its present revised form? Make no mistake about it: all three local authority associations still bitterly oppose what the Government are seeking to do.
  The Association of Metropolitan Authorities, which is Labour controlled, has declared that the Bill represents a marked shift in power towards the Executive and away from elected local government. The Association of County Councils, which is Conservative controlled, denounces the Bill as
  "a further encroachment on local government autonomy… It will diminish the freedom of local authorities."
  Even more vehement is the Association of District Councils, which is also Conservative controlled. That organisation warns that the Bill
  "seriously threatens the autonomy and financial independence of local government"
  and that its proposals
  "are a further move towards the centralisation of the spending decisions of each individual local authority and are inherently constitutional in nature."
  It is for that reason that tonight we shall ask the House to agree that the Committee stage of this constitutional measure should be taken on the Floor of the House.
  Dr. Oonagh McDonald: To illustrate the points that my right hon. Friend was making, may I make him aware of the position of my local authority of Thurrock? It is one of two local authorities outside the Greater London area that is having its total block grant removed. In spite of having cut spending to the bone, it will now be forced to lose 5p in the pound, thus forcing up rates and rents in the coming year. There will be elections in May. The power of the local authority will pass from the motley collection of Tories and Independents who now run it to Labour representatives.
  60
  That Labour authority will be forced to conform to the decisions of the Tories and Independents who are running the authority. It will have no power to change those decisions in the course of the coming financial year.
  Mr. Kaufman: It is for the reason given by my hon. Friend in relation to her local authority and because of the appalling penalties being imposed on such authorities that the Association of District Councils is so strongly opposed to the legislation. It has summed up its opposition to the Bill in these stark words:
  "The whole institution of local government is under severe attack."
  How is the Bill mounting that attack? It is a menacing fact that even clauses that seem purely technical in nature have the most worrying implications. For example, at first glance clause 3 looks innocent. The Secretary of State tried to gloss over it when he gave a misleading explanation of its purpose. Subsection (1) asks that the following should be inserted in the 1972 Act:
  "Subject to sub-paragraph 3 below, the interest for the time being payable in respect of money borrowed by a local authority, whether before or after the coming into force of this Schedule, shall be a first charge on the revenues of the authority."
  That clause means that in the event of a local authority becoming insolvent, the money brokers must be paid before anyone else, even including the authority's employees. Therefore, that apparently innocuous clause at a stroke places local authority employees in a worse position than private sector employees whose firm goes bust. That is not a phantasmagorical mirage. It is significant that that clause did not appear in the Bill when it was originally introduced in November. It has been belatedly inserted at the insistence of the money lenders of the City of London. They discovered to their alarm that clause 12 of the old Bill—clause 4 of the new Bill—could force local authorities into insolvency. They were understandably worried at the implications for them. The dangers inherent in new clause 4 are at the heart of our opposition to the Bill. My hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cowans) and the hon. Member for Buckingham (Mr. Benyon) were right to draw attention to the grave implications of that clause, for reasons that I shall give later.
  There are the proposals that make up the bulk of the Bill—the decision to set up the Audit Commission for Local Authorities. The House will relish the irony of the Secretary of State as self-appointed quango hunter-in-chief setting up one of the most powerful quangos that the country has ever seen. The Secretary of State has been busy recently in the world of quangos. Earlier this month he heartlessly killed off the National Voluntary Panel on Captive Hawks, but unfortunately he immediately cancelled out that decisive move by setting up in its place the Hawk Board: The new body used these words to explain the Secretary of State's equivocal policy on hawks:
  "The Department of the Environment has expressed a desire to continue a full discourse with the hawk keeping public on an ongoing basis."
  We lose one body on hawks and gain another. We also gain a new and mighty quango which will oversee the spending of about £20 billion of public money.
  Up to now, auditing of local authority expenditure has been independent of the Government, but if this proposal becomes law, in charge of local authority auditing will be a huge commission, up to 17 members strong, all no doubt adequately remunerated. There will be a deputy chairman,

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  who will be still more adequately remunerated, and a chairman, who will be yet more adequately remunerated. All of them will be placemen of the Secretary of State for the Environment. Most unfortunately, Sir John Grugeon, Conservative leader of Kent county council, will not be available, because he has just been put in charge of the Secretary of State's new fancy—a garden festival in Liverpool—at a salary of £21,000 a year. No doubt other public-spirited folk will be ready, in the national interest, to shoulder the necessary burdens.
  The establishment of this new quango goes directly against the recommendation of the Layfield committee, which stated:
  "What is the most efficient and economical way of doing something is very often a question of judgment. Councillors are elected to local authorities to exercise such judgment and any procedures that are instituted to allow the government or any other body to investigate their decisions represent an intrusion into the responsibilities of the council."
  The new commission is opposed by the Society of Local Authority Chief Executives and by the Society of Metropolitan Treasurers. The Association of District Councils declares itself "strongly opposed" to the proposed Audit Commission. The Association of Metropolitan Authorities warns that the new commission will bring about
  "interference by, and inevitably accountability to, the Executive".
  The Association of County Councils rejects it as
  "yet another attempt to erode the autonomy of local authorities".
  Moreover, this proposal is contrary to the expressed wishes of the majority of Back Bench Members. No fewer than 279 right hon. and hon. Members from all parts of the House have signed a motion approving the report of the Public Accounts Committee on the role of the Comptroller and Auditor General, and the report is opposed to an audit commission as proposed in the Bill.
  The Secretary of State's remarks today were not an adequate response to that report. If he is saying that it is inappropriate for the Comptroller and Auditor General to be responsible for local government audit, because local authorities are elected bodies, he is demolishing his own comparison of those elected authorities with nationalised industries and thus demolishing the attempt to have their accounts audited in ways comparable with those of nationalised industries.
  Mr. Heseltine: If the right hon. Gentleman is so much in favour of the PAC report on how local government audits should be carried out, why did the hon. Member for Edinburgh, Central (Mr. Cook), speaking from the Dispatch Box on behalf of the Opposition, say:
  "Nothing is more likely to cause resentment within local authorities than the suggestion that Parliament should ultimately be in charge of an efficiency and effectiveness audit of local authorities."—[Official Report, 30 November 1981; Vol. 14, c. 106.]
  Does the right hon. Gentleman agree with that?
  Mr. Kaufman: Yes. My hon. Friend was referring to the views of the local authority associations, which I have mentioned. They are certainly opposed to the PAC proposals on how local authority audits should be carried out. I was pointing out to the Secretary of State that 279 right hon. and hon. Members are in favour of that course of action. That being so, I further pointed out that the right hon. Gentleman's response to that report and his attempt to gloss over it by saying that local authority accounts ought not to be audited by a servant of Parliament because
  62
  they are elected bodies does riot chime in with the wish of local authorities not to be supervised by a quango appointed by him. That is my point.
  I make that point particularly because one aspect of the proposals for an Audit Commission has aroused the most serious misgivings, even among those who support the plan for a commission. I refer to the powers of direction given to the Secretary of State in, for example, clauses 15 and 16 and schedule 1. Schedule 1 is particularly sweeping. It provides:
  "The Secretary of State may, after consultation with the Commission, give it directions as to the discharge of its functions and the Commission shall give effect to any such directions.''
  It is no wonder that the provisions are opposed by the Institute of Chartered Accountants in England and Wales, by the Advisory Committee on Local Government Audit, which the Secretary of State quoted in his support, which says that such powers
  "would seriously diminish the independence and therefore the standing and authority of the commission",
  and by the Association of County Councils, which warns that such powers
  "must reflect on the integrity of the commission and call into question its true independence from central Government".
  All of those bodies are aware of the danger of putting such a weapon into the hands of any Secretary of State, but above all they are rightly fearful of giving such powers to the present Secretary of State with his unprecendented and discreditable record of interference in the freedom of local government.
  Nowhere is the Secretary of State's baneful and distinctive touch more obvious than in clause 9, which is clearly based on section 99 of the Local Government (Scotland) Act 1973, which set up the Audit Commission for Scotland. Paragraphs (a) and (b) reproduce that section almost word for word, but a third paragraph has been added which does not appear in the Scottish Act. Clause 9 therefore further provides that
  "an auditor shall by examination of the accounts and otherwise satisfy himself…
  (c) that the body whose accounts are being audited has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources and in the carrying out of its policies."
  In recent years there have been serious misgivings about the increasing incidence of district auditors intervening in the policy making role of local authorities, setting themselves up as local Lord Dennings, but this is the first time that an Act of Parliament will actually instruct auditors to involve themselves in the political role of local authorities. This is an exceptionally dangerous clause, particularly when set in the context of the financial controls and penalties contained in parts I and II.
  The provision in clauses 1 and 2 to remove the power of English and Welsh local authorities to levy supplementary rates and precepts has been accepted by some Conservative Members as preferable to the original proposal to impose a referendum on a local authority wishing to rate above the limit set by the Secretary of State, but it comes very strangely from a party which claims to represent tradition and continuity in British political and social life. Rating authorities have certainly had the power to levy a supplementary rate since the year 1601. The term "supplementary rate" itself dates from the Poor Rate Assessment and Collection Act 1869. This long-entrenched power is now to be swept away for short-term, adventitious reasons in what Aneurin Bevan would have described as "an emotional spasm".

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  At the time when the Secretary of State assumed his present office, very few local authorities levied a supplementary rate or precept. This year, as he has pointed out, about 30 have done so. That is still a small proportion of the total of 457 local authorities, and in all but two cases it was at least partly to compensate for removal of rate support grant by the Secretary of State.
  What will be the result of this ban on supplementary rates? The local authority associations are in no doubt. The considered opinion of the Association of County Councils is as follows:
  "A prohibition on supplementary rates and precepts could result in local authorities seeking a high rate or precept initially to cover all contingencies."
  However, there are some contingencies which even the most foresighted local authorities are unable to anticipate, such as the current spell of exceptionally severe weather. The financial problems for local authorities of the snow and its aftermath were referred to in both the evening news bulletins of ITN on Saturday 9 January. All worries on that score were swept away. On the authority of what I am assured was a senior source, this is what the newsreader on ITN told the nation:
  "The Department of the Environment, said the Government, were very concerned about the situation. Local authorities had the power to raise a supplementary rate to meet emergencies and other help might be available."
  That power will be denied to local authorities as and when clauses 1 and 2 of the Bill become law. Those two clauses, combined with clause 4, place local authorities in the tightest squeeze that they will ever have had to cope with. Already local authorities have been mutilated on a financial bed of Procrustes devised by the Secretary of State and his colleagues. This has been accomplished by the imposition of arbitrary spending targets accompanied by damaging penalties achieved through the removal of grant from local authorities singled out as scapegoats.
  All this goes against explicit assurances given by the Minister for Local Government and Environmental Services during the passage of the Local Government, Planning and Land (No. 2) Bill 1980. This is what he said on Report:
  "Some people have suggested imposing individual cash limits on every authority. That would be a very serious step indeed … When the public funds have been distributed, it is then a matter for individual local authorities and their councillors as to what their expenditure decisions are. It is their choice between services, their choice as to the volume of expenditure on those services, and their choice as to the rate levels that they decide to impose."—[Official Report, 8 July 1980; Vol. 988, c. 313.]
  Every word of that solemn commitment has been violated by both the Secretary of State and the Minister. What is more, the targets have changed with such bewildering speed that local authorities simply do not know what to do to safeguard themselves. For example, 47 local authorities were, in relation to targets set by the Secretary of State for the current financial year, either underspenders or nil overspenders. On the basis of the same budgets which made them underspenders for this year, those authorities are transformed for the forthcoming year by the newly formulated targets, announced by the Secretary of State last month, from prudent and frugal budgeters into profligate wastrels, liable to the maximum penalties that the Secretary of State plans to impose.
  Although the Secretary of State always accuses Labour councils of being profligate, more than half of these
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  councils are Conservative controlled. The problem is that if the Secretary of State does not catch a local authority with one of his targets he is sure to trap it with another. He is like the lady who bought her son-in-law two ties for Christmas. When he went for lunch with her on Boxing Day, he naturally wore one of the ties. But the moment he walked through her door his mother-in-law called out to him "What's wrong with the other tie?"
  As far as I know, the Secretary of State does not yet have a son-in-law, but he does have the next best thing—the Minister for Housing and Construction. His local authority, Tonbridge and Malling, has been caught wearing the wrong tie. On this year's budget and target Tonbridge and Mailing is an obedient underspender. On that same budget, but on this year's new form of target, that same council becomes a maximum 7 per cent. overspender subject to condign penalties unless it makes lacerating cuts in its already not very satisfactory service.
  As the Secretary of State produces each new spending target, accompanied by the inevitable new penalty, his imagination grows more and more bizarre and his use of language more and more eccentric. The House has the right to be informed how this year's targets are to be compiled and I shall therefore quote from annexe B of appendix C of what, for want of a better word, I will call the relevant document. It says:
  "The scaled minimum volume budget is reduced (or increased) by 0·2 percentage points for each 1 per cent. that the scale minimum budget is above (or below) 1982–83 GRE and a further 0·2 percentage points for each 1 per cent. that the minimum current expenditure at November 1980 prices has been termed skewing and it produces an unconstrained target for each authority."
  This is only the beginning.
  "Because there is an imbalance between authorities spending above or below both volume targets or GREs, the total of unconstrained targets will not be equal to the aggregate controlled total. Consequently, the unconstrained targets are adjusted so that the sum of expenditure targets is equal to the cash control total (which is equal to the GRE control total). The 'skewed' targets thus derived are then compared to 1981–82 minimum volume budgets revalued by inflation factors which are based upon the Government's assumptions for inflation by economic category. The implied real reductions from these budgets are calculated as percentage differences. On the basis of these comparisons the targets for individual authorities are then adjusted on the following constraints:

  (i) that no authority should be asked to make real reductions from revalued 1981–82 minimum volume budgets of more than 7 per cent.;

  (ii) that no authority should have a target which implied a real increase in expenditure from its revalued 1981–82 budget; and

  (iii) that authorities with planned spending at or below GRE and at or below volume target should not be asked to make real reductions of more than 1 per cent.

  As a result of imposing these constraints the sum of individual targets is no longer equal to the cash control total."
  The House would never have thought that they would be.
  "The final stage in the construction of the targets then involves the iterative process of scaling all the targets, and then checking the individual targets against the constraints outlined above until the targets sum to the control total without violating the constraints."
  That sounds like rubbish, for the very good reason that it is rubbish, with its unconstrained targets, its iterative processes and its skewing. Some local authorities fear that they are being skewed for all they are worth. However, that rubbish will affect the daily lives and welfare of millions of people.
  There are other oddities about the compilation of these targets. For example, local authorities are instructed for target purposes to assume an inflation rate of 9 per cent. Yet we all know that inflation is running at 12 per cent.

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  and that the most optimistic of the Government advisers would be surprised and delighted if the rate were to drop into single figures this year.
  There are other inflation rates which the Government are operating. We can take the Bill as an example. When the first version was published on 6 November the cost of the Bill per page was 8·9p. The No. 2 Bill, published on 16 December, was much more expensive at 10·5p per page. The inflation rate for local government finance Bills has risen by 17·5 per cent. in six weeks—an annual rate of 160 per cent. Let us sincerely hope that there is no No. 3 Bill.
  What is more, the Government's targets are highly unlikely to produce the expenditure cuts that are the object of the whole exercise, because this year local authorities have a choice of expenditure ceilings—a choice between their expenditure targets compiled in the manner that I have just attempted to describe and their grant-related expenditure assessments. If each local authority chooses to spend up to its GREA or spending target, whichever is the higher, local authorities will in the coming year spend £790 million—4·3 per cent.—more than the Secretary of State wants them to and they will be subject to no penalties whatever.
  That is where clause 4 comes in. Its first objective is retrospectively to legalise unlawful acts that have been committed by the Secretary of State. The House will recall that last October the High Court found in favour of six local authorities in London which took legal action against the Secretary of State for unlawfully withholding grant from them. It is an offensive fact that four months later the Secretary of State has still not stated how he intends to comply with that court decision.
  So now the Secretary of State's legal advisers—a pathetically hard-pressed and over-worked group of public servants—are scared that the grant penalties in last summer's grant hold-back exercise may be even more unlawful. Under the Local Government, Planning and Land Act 1980 the Secretary of State is barred from manipulating multipliers to reduce rate support grant, yet that is precisely the method that he has chosen to punish those councils that have over-budgeted on hold-back. Therefore, clause 4 aims to legalise retrospectively that whole disreputable episode.
  Last month the Secretary of State and his acolytes rebuked the Labour Party for announcing how it intends to repeal the compulsory sale of council houses when it returns to office. They accused us of retrospective action—a curious description of advance notice of what a Government plan to do in two years' time—but clause 4 is retrospective in the shoddiest sense of the term. Last summer the Secretary of State ordered every local authority in the land to obey his instructions, and he told them the penalties if they disobeyed, yet he had no legal power whatever to impose those penalties. He still does not have that power, and he will not have it until the Bill becomes law. Only then will he be able to present the necessary rate support grant supplementary report to Parliament. That is why subsections (5) and (6) backdate to 1 April 1981.
  Subsection (6) treads new ground, even by the Secretary of State's standards, and the House should pay careful attention to what it says. It states:
  "In relation to the year beginning on the said 1st April references in this section to guidance issued by the Secretary of State include references to guidance issued by him before the
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  passing of this Act and, as respects any determination under the said section 59 or paragraph 8, the requirements of subsection (5) of section 60 of the said Act of 1980 and of that subsection as applied by section 61(2) of that Act may be satisfied by consultation before the passing of this Act."
  Not only will the Secretary of State be able to impose penalties that were not legal when he threatened them, but the Bill will even make the necessary consultation retrospective. Stalin himself could not have done better than that. This comes from a Secretary of State who has the nerve to lecture local authorities on the need to obey the law, when he flouts it and then asks Parliament retrospectively to legalise his unlawful actions.
  The dangers of clause 4 go much further than that. At any time he likes the Secretary of State can single out a local authority for penal action. He can swoop on that authority and remove grants from it—the super hold-back that local authorities now fear.
  As a result of the Bill the local council will not he able to levy a supplementary rate to make good that grant nor will it be able to borrow to make up the difference. Exactly like the danger that threatened Lothian last year, it could run out of money and be unable to pay its bills and wages. Under clause 3, those who have lent it money will have first call on whatever it is able to pay. As both the Association of District Councils and Association of County Councils solemnly warn, any council in the country is liable to be picked on by the Secretary of State for this cat-and-mouse game.
  All that is bad enough, but there is now another factor that local councils must take into account—what NA we may call the Diplock factor. Last month, the House of Lords found against the GLC in the action on subsidisation of fares brought against it by Bromley borough council. Naturally, attention has mainly been focused on the impact of that decision on London Transport fares, and the Labour Opposition regard today's response to this problem by the Secretary of State for Transport as shortsighted and irresponsible. But the problems created by that judgment go far wider than London Transport. They affect every local authority in the country precisely because of the methods for controlling local authority spending adopted in the 1980 Act and in the Bill.
  The dilemma that now presents itself to local government is contained in words spoken by Lord Wilberforce and echoed by two of the other Law Lords. Lord Wilberforce charged the GLC with what he called
  "a deliberate failure to deploy to the best advantage the full financial resources available to it by avoiding any action that would involve forfeiting grants from central funds. It was thus a breach of the fiduciary duty owed by the GLC to the ratepayers."
  In his customary thoughtless way the Secretary of State greeted those words with a whoop of triumph and said that they placed increased pressure on local authorities, as he put it, to behave responsibly. It is true that every local authority is now wondering how best to fulfil its fiduciary duty. Should the council budget not to spend above its GREA threshold, as above that it forfeits grant? Will the council be fulfilling its fudiciary duty only if it budgets not to lose any grant through any Government penalty?
  Councils spending above their GREA or target for 1982–83 could be taken to court by a ratepayer for being liable to grant penalties and so failing in their fiduciary duty. Incidentally, such councils could include Bromley borough council, which is an overspender on the new targets for the coming financial year. Have the councils

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  already under threat of hold-back of grant for having failed to adhere to this year's targets failed in their fiduciary duty as well—presumably, each one could be tested in court the moment the Secretary of State's penalties are retrospectively validated by the enactment of this Bill—or do the implications of the Lords decision go much farther than that?
  As it is open to them to do by making massive cuts, ought councils to budget to ensure that their entire expenditure is covered by Government grant? Will they be failing in their fiduciary duty—
  Mr. Cowans: I draw my right hon. Friend's attention to his opening remarks, when he proffered the advice given by the Department of the Environment to raise supplementary rates to deal with the effects of the bad weather. What would be the position if that were done by retrospective legislation? Would such a local authority find itself in court, or would the Secretary of State meet the bill?
  Mr. Kaufman: Literally no one can answer that question because of the confusion into which local government finance has been thrown by the legislation and the decision of the courts.
  Mr. Christopher Price: Will my right hon. Friend give way?
  Mr. Kaufman: I have been speaking for some time, and if my hon. Friend will forgive me I will not give way at this point.
  If local authorities do not have their entire expenditure covered by grant, will they be failing in their fiduciary duty? No one knows, and the uncertainty of the law could create a field day for litigants even more irresponsible and mischievous than Bromley borough council.
  There could also be litigants the other way because local authorities have certain statutory duties which they are required to fulfil—highway maintenance, maintenance of a police force and fire service, refuse collection and disposal and provision of an adequate education service. The dilemma created by the Lords judgment for one authority, the Inner London Education Authority, is summed up in the following words:
  "It will be noted that a reduction of £115 million is still £15 million short of the point at which Government grant would be attracted. To put the matter in perspective, in order to obtain grants of £11 million, or relief to the ratepayers amounting to a product of a 1p rate, the authority would have to reduce its expenditure in 1982–83 by £145 million. Neither the target set by Government nor the facts set out in Annex B, which relate to that target, support the view that it would in practice be possible to achieve this, other than at the expense of the wholesale destruction of the service which it is the statutory responsibility of the authority to maintain."
  That quotation is from a report just submitted to the ILEA by its chief education officer, Mr. Peter Newsam, a man in whose judgment the Government have just shown confidence by appointing him as chairman of the Commission for Racial Equality. If the ILEA fails in its statutory duty, as described by Mr. Newsam, it is open to any parent in its area to take it to court. If it spends the money necessary to fulfil its statutory duty, it may be failing in its fiduciary duty and be liable to legal action for that.
  Those are the agonies of local government that previous legislation introduced by this Secretary of State has
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  created. The Government should be legislating now to remove those dilemmas and allow local government to conduct its activities free of such incalculable difficulties. But instead, the Bill, if it is enacted, will make those difficulties even worse.
  The next Labour Government will repeal the Bill if it becomes law. In the interests of all local authorities and of the people whom they are elected to serve, it is undesirable for the Bill to become law. We shall vote against it in the Division Lobby tonight. If it obtains a Second Reading, we shall oppose its further stages with all our strength.
  6.23 pm
  Mr. Tony Durant: The right hon. Member for Manchester, Ardwick (Mr. Kaufman) gave us an amusing dissertation about the form of the rate support grant. I wonder whether he has spoken to his right hon. Friend the Member for Stepney and Poplar (Mr. Shore) about the formula that his right hon. Friend used when he was the Secretary of State for the Environment. I have no doubt that it read as amusingly, but we do not see it because it is hidden in the archives of the Department of the Environment. However, above all, the right hon. Member for Ardwick has proved that there is a need to reform local government finance. It needs to be examined because it is becoming more and more complex.
  In general terms, I welcome the Bill. I was opposed to the referendum formula in the previous Bill, but this Bill is a step in the right direction. We must look at local government budgets, particularly as they affect ratepayers, many of whom are widows, single-parent families, and so on, who are rightly concerned about the high level of rates. The local shopkeepers and small business men are also concerned.
  The right hon. Member for Ardwick quoted many people and organisations in defence of his argument. I quote from the Association of British Chambers of Commerce, which sent us a paper today. The second paragraph of the paper is headed
  "Why Supplementary Rates must be banned"
  and states:
  "A supplementary rate demand is much more damaging than an equal addition to the main rate demand. It comes well into the financial year and cannot satisfactorily be taken into account in company budget and cash flow forecasts. A firm which allows for a supplementary in its costings will tender at higher prices than a rival which does not allow for a supplementary. If a firm does not allow for a supplementary rate, it will be faced with a choice between making a loss or emergency cuts in its costs."
  Commerce certainly believes that a supplementary rate is damaging to its business, damaging to its budget and should not be allowed. I agree.
  When there is a change in control in a local council the Bill will prevent sudden changes in policy and sudden implementation of a supplementary rate that is unexpected by the electorate. That will also help small business men.
  Expenditure on local government is still too great a part of the gross national product—still well over 25 per cent. Ten per cent. of the working population is employed in local government, and £25·7 billion is spent on it. The Government should examine that in detail. We cannot sit idly by and accept those astronomical figures. We must take action, and with this Bill we are doing so.
  We must encourage a move away from local government always providing the services that it currently provides. We should encourage privatisation. Where a

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  service can be provided more efficiently and at a lower cost by private industry, it should be given out to private firms. Why do we always look to local government to provide the solutions to our problems? The job of local government should be to provide services that no one else will provide. Refuse collection is an outstanding example of where private industry can operate. Southend has carried out the experiment with great success, and an efficient, well-run refuse service is provided.
  Do we really need direct works departments when so many small builders need work? Direct works departments have a damaging effect on local industry and local builders. Should local government be concerned with the leisure industry? After all, Lew Grade made a mistake, so local government can also make mistakes. Surely we can leave it to the private sector to risk its money.
  In the long term, rate reform is the main aim and we must move quickly towards it. The Green Paper outlines the options. I accept that none is perfect. I do not believe that there is a perfect answer to local government finance. If there were a perfect answer, we would have found it years ago. No one likes taxes and we must therefore find the best option.
  I welcome the audit option. I do not understand the fears about it. Audit is a perfectly normal process, so why should it not be encouraged and put out to the private sector? There should be better reporting from auditors. One of the weaknesses in audit in commercial concerns is that the auditors have limited powers. Their powers should be extended there and in local government.
  I am worried about the water authorities and about the removal of citizens' rights to scrutinise the accounts. I have been approached by my Reading ratepayers regarding the Thames water authority. I accept that they did not find anything particularly wrong, hut their examination of its accounts had a salutary effect on the water authority. It made it look more carefully at what it was doing. We should not dismiss lightly the right of local residents to examine accounts. I should like that right to be reintroduced into the Bill.
  I agree with the right hon. Member for Ardwick about part II of the Bill, and we must examine it carefully in Committee. It has been included as a safeguard against local authorities that impose too high a rate demand. However, we must be careful that in including this safeguard we are not setting the rate levels for everyone in the country.
  I regard the Bill as an interim measure and I hope that the Government classify it as such. We need rating reform as quickly as possible. I spent the weekend looking up old speeches and I came across my maiden speech. It is always revealing to an hon. Member to read his maiden speech, because it makes him realise that perhaps he was not as good as he thought he was. However, I stressed in my maiden speech the need for urgent rate reform. Things were bad enough at that time and they have got worse.
  We also need to consider the position of commercial ratepayers. They have been left out of the general permutation and that will have to be considered in Committee. The Bill is worthwhile. We shall have to work on it in Committee, but I support its general tenor.
  6.31 pm
  Mr. David Ennals: The hon. Member for Reading, North (Mr. Durant) will not expect
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  me to agree with most of his comments, but I share his hope that the Bill is an interim measure, and I hope that we shall be told later how long it is to be with us.
  I congratulate my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) on a speech that made mincemeat of the Bill. Of all the members of the Cabinet the Secretary of State for the Environment is the most difficult to understand. He shows extraordinary arrogance in his relationship not only with individual local authorities, but with the organisations that represent those authorities, whether Conservative or Labour controlled. The right hon. Gentleman was influenced by the threats of his Back Benchers that they would not vote for the original Bill, which contained the referendum provisions, but he is not influenced by local authority associations.
  The Secretary of State refused, in his usual polite way, to give way to me after referring to the consultative council. I served on that council for longer than the right hon. Gentleman and I know that the previous Labour Government wanted from time to time to see reductions in public expenditure. We discussed that with the local authority associations, but at no time did we have disagreements and, whatever party controlled the associations, we never brought forward the sort of throat that is contained in the Bill.
  The Secretary of State constantly says one thing and does another. It is fascinating to read in the Green Paper on alternatives to domestic rates:
  "successive Governments have wanted local authorities to have a wide measure of independence and local autonomy over their budgets and priorities and to be accountable to their own electorate for their decisions on these matters rather than to central government."
  Making such a statement and introducing the Bill before us is blatantly two-faced.
  The Secretary of State's current proposals are almost as dangerous as were the referendum proposals. Local authorities may be put in a desperate situation if the Government estimate of the inflation rate goes wrong—and it has gone wrong each year so far and is seriously wrong at present. Local authorities will be required to cut essential expenditure, to go bankrupt or to act contrary to the law.
  Local authorities may decide that in order to face up to such eventualities, which may include another winter like the present one, which involved considerable unexpected expenditure, they should set a rate level higher than they may need—to the disadvantage of their ratepayers and contrary to the Government's policies.
  The Secretary of State acts in an extraordinary double manner. He commands local authorities to slash their expenditure, but, even if the Norwich council merely stood still on public expenditure in 1982–83, the cuts in the level of the rate support grant would mean approximately a 15 per cent. increase in the rates—not on the decision of the authority, but on the decision of the Secretary of State.
  Norfolk county council faces problems as a "wicked overspender" and is discussing the scrapping of all nursery places. Forcing local authorities, whether Conservative or Labour, to act against the interests of their citizens is contrary to the principle of local democracy as we have known it over the years.
  My right hon. Friend the Member for Ardwick quoted the views of the ADC, which is not Labour controlled. The Labour council at Norwich supports those views. The association

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  "believes strongly that a vigorous democratic and independent local government is an indispensable part of our national system of government."
  Does any hon. Member not believe that local government is a vital part of democracy in Britain? Local authorities say that the Bill will cripple them. The ADC recalls the reorganisation of local government 10 years ago when the then Conservative Government declared
  "that local government was an essential part of the whole democratic framework of government and that, above all else, a genuine local democracy implies that decisions should be taken—and should be seen to be taken—as locally as possible … Ten years on the whole institution of local government is under severe attack. The Local Government, Planning and Land Act 1980 brought in a package of financial and other measures which Secretary of State… claimed 'offers a new deal for local government. It is a major advance in local freedom and local responsibility'. Yet the block grant and capital expenditure controls decisively shifted responsibility and accountability from local government to central government in key areas of finance."
  The Government knew exactly what they were doing, and they are taking the process a stage further in the Bill. That is wrong in principle and it must be opposed.
  One matter on which I disagree with my right hon. Friend the Member for Ardwick is the possibility of a No. 3 Bill. I hope that the Government will bring in a Bill to remove the most objectionable parts of this Bill. The Secretary of State uses Bills as White Papers and the cost of paper reminds us that local government's record in controlling its expenditure is far better than the Government's record in controlling theirs.
  The Secretary of State chides local government as though his hands were clean and local authorities were naughty boys. By what right does he do that? Councillors have been elected to do their jobs. The Secretary of State was not elected by the public to be Secretary of State, but councillors were elected by local citizens, on the basis of manifestos and commitments. Did the Secretary of State write into the Conservative manifesto in 1979 that it was the policy of the Conservative Government, step by step, Bill by Bill, to reduce the powers of local government and undermine local democracy? Of course not. In fact, most of the steps that the Government are taking would have been denied and were denied by them at the time of the election.
  I shall leave the matter there, because I know that many of my right hon. and hon. Friends wish to speak. People throughout the country, across party lines, not just in this House but in local councils, both Conservative controlled and Labour controlled, whether before May or after May, will say "This is not a Bill that the House of Commons should pass". Very few local authorities have found it necessary to have a supplementary rate, and no good reason has been given for introducing the Bill. I and my right hon. and hon. Friends will vote with deep conviction against what I consider to be a deplorable Bill. It is a blatant attack on local government powers. It is a display of no confidence in the principles of democracy at a local level. For those reasons I believe that we should reject the Bill.
  6.41 pm
  Mr. Charles Morrison: Once again, I am almost speechless at the display of righteous indignation from the Labour Benches about alleged intervention and increased control by this Government in the affairs of local
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  government. I am speechless when I recall the record of the last Government, who consistently and—unfortunately—effectively, reduced the autonomy and power of local government during their period of office. I can at least claim that I am guilty of the dangerous charge of consistency about the need to uphold local government autonomy, whether I was speaking on the Opposition or the Government Back Benches.
  I welcome the decision to drop the proposal for local government referendums. The right hon. Member for Manchester, Ardwick (Mr. Kaufman) said that it was a victory for the House of Commons. It is none the worse for that. The referendums would have undermined the concept of representative local government. In my view, they would have been a constitutional monstrosity. Moreover, they would not necessarily have had the merit of achieving their stated objective of controlling local authority expenditure.
  I agree with my hon. Friend the Member for Reading, North (Mr. Durant) that we have a duty to consider the future of local government finance, and to consider rating reform. The Green Paper is a step in that direction. He was right, too, when he said that there is no perfect answer. However, there must be a better answer than the present system of local government finance.
  For the time being I am not unhappy about the proposal to abolish the supplementary rate. Of course, the proposal is open to the criticism that, in consequence of it, some local authorities may increase their main rating demand. However, on the whole, I think that that is unlikely, because supplementary rate demands, in spite of what my right hon. Friend the Secretary of State said, are relatively rare. I can recall no occasion in my part of the country—I was in local government in 1957, but also before and after that time—when a supplementary rate was demanded.
  On the other hand, the abolition of the supplementary rate has two specific advantages. First, it prevents a newly elected controlling party from lashing out a supplementary rate demand immediately on election, as happened in the case of the Greater London Council. Secondly, it removes uncertainty from domestic, commercial and industrial ratepayers alike. My hon. Friend the Member for Reading, North rightly mentioned the views of the Association of British Chambers of Commerce. What is true of commerce is true of the budgeting of the domestic ratepayer. I therefore welcome part I of the Bill, and I am happy to support it.
  I must admit, however, that there my happiness ends. I do not believe that benefits will be achieved from parts II and III. The Bill would be better without them, because they attack the autonomy and constitutional position of local government. Yet again, I remind my right hon. Friend that until now a major facet of Conservative philosophy has been the decentralisation of power. However, the Department of the Environment seems more concerned with centralising it. In doing so, as my right hon. Friends take on more power, leaving local government with less, they produce more rods for their own backs and more and more reasons why they will be blamed for all the alleged misdemeanours of local government.
  Yet again, I must remind my right hon. Friends that it is a bad principle to legislate year after year on the same subject. It says little for the depth of the initial thinking and—at least as bad—it is a recipe for chaos and uncertainty. Only last year we had the Local Government,

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  Planning and Land (No. 2) Act. Some of us did not like it, and we said so. However, once passed, it should have been given time to settle down and be tested over several years. That did not happen. Here we go again, and I fear that it will be for the worse.
  It is significant that both the Conservative-controlled Association of County Councils and the Association of District Councils are deeply concerned about the provisions of parts II and III. Surely the Government should have more regard for the opinions of its more responsible friends. I regard clause 4, in particular, as thoroughly obnoxious. To paraphrase the views of the Chartered Institute of Public Finance and Accountancy, the clause allows the Secretary of State freedom to decrease a particular authority's grant at any time during or after the end of the financial year in accordance with any guidance on local authority expenditure levels that he may choose to issue, and by any amount that he chooses to specify in a supplementary report. It is too far-reaching. As it stands, the clause is unacceptable to me. I do not know how any local authority can budget with confidence against the background of clause 4. When clause 4 is coupled with the provision to abolish the supplementary rate, it means, as my hon. Friend the Member for Buckingham (Mr. Benyon) said, that any Secretary of State, not necessarily my right hon. Friend, at any time in the future can have total control over the spending of every local authority. In those circumstances, why bother to have local government? Clause 4 is simply not good enough, and should be removed or vastly amended.
  I cannot see how part III and the establishment of an Audit Commission will achieve much. I cannot see that it will do much more than is done at present by the district auditor. On the other hand it could become an expensive quango. I note with interest that my hon. Friend the Member for Carlton (Mr. Holland), the best known quango hunter, is present to hear the debate. I hope that my hon. Friend, if he catches your eye, Mr. Deputy Speaker, will intervene to give his own comments on this proposal.
  The present auditing arrangements by the district auditor have worked pretty well. I fear that the new proposals will prove bureaucratic, expensive and prove to no advantage. My right hon. Friend said—I think I am quoting him correctly—that the district audit system does not allow central Government a role. That is a very good thing.
  Mr. Heseltine: No. A role in the policy formation of local government audit.
  Mr. Morrison: I am sorry. I misheard my right hon. Friend. I withdraw my criticism.
  My right hon. Friend also drew the analogy between the appointment by shareholders of auditors, implying that shareholders are outsiders, and the provision in the Bill for the appointment by him of the Audit Commission. I suggest that his analogy is false. It seems to me that shareholders are much more analogous to electors who have elected councillors as their representatives.
  The appointment of auditors for nationalised industries may be made, rightly, by a Secretary of State. In that instance, however, the Secretary of State is acting, in effect, as the shareholder's representative. I do not therefore believe that my right hon. Friend's analogy is correct. He is not, in this instance, the representative of
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  the shareholders in local government. The representatives of the shareholders or electors are the elected councillors. I need to be a great deal more convinced about the proposed Audit Commission.
  I shall support the Government tonight on Second Reading. There must, however, be some major amendments to the Bill, particularly in regard to clause 4, when the Bill goes into Committee.
  6.52 pm
  Mr. Guy Barnett: I agree with a great deal of what the hon. Member for Devizes (Mr. Morrison) said, although I was surprised to hear his suggestion that the previous Government, of which I was a junior member, did more damage to the independence of local government than the present Government. As someone who was an Under-Secretary responsible for local government, I find that remark surprising. I do not recognise it in my behaviour. I was interested that the hon. Gentleman did not elaborate on the charge.
  Since the Secretary of State for the Environment moved to Marsham Street, there has been growing alarm about the damage that he would cause to local government. During its passage the Local Government, Planning and Land (No. 2) Bill found hardly any friends in the House or outside. At that time, the local authority associations, all of them dominated by the Government's political friends, were also against it. They were strong in their opposition to it.
  The spectacle has had to be endured of a Government who blandly say one thing and do precisely the opposite. Every step along the road that the Government have taken has been in flat contradiction to what the country had been led to believe was the philosophy of the Conservative Party—that local matters, so far as possible, should be under local control, that civil servants are not and cannot be competent to judge how resources should be allocated because they lack the tools to enable them to make such decisions and, even if they did possess them, that local decisions are better and more properly the responsibility of local democracy.
  The Prime Minister, as Secretary of State for Education and Science, when introducing the White Paper on nursery education, said:
  "We do not want to attempt central detailed control over the way resources are used because the statistical methods at our disposal for measuring social deprivation are crude".—[Official Report, 19 February 1973; Vol. 851, c. 44.]
  You can say that again. Not merely did the Prime Minister then recognise that local councils are competent to make local decisions. It is also apparently even recognised by the Government in the statements that they make. That is the stated purpose of the Bill hon. Members are not considering. The Queen's Speech, foreshadowing this legislation, described the purpose of the Bill as to
  "improve the accountability of local authorities for the level of their rates".
  It could have fooled me. I assume that the word "accountability" implies accountability to a local authority's electorate. If so, this Bill is in flat contradiction to the stated intentions of the Gracious Speech. Perhaps the speech did not mean that. Perhaps it meant accountability to the Secretary of State and his civil servants. That is, in effect, what the Bill does. There can be no equivocation.
  The Bill places councils firmly under the control of the Secretary of State and makes them accountable to him for what they do. I wonder sometimes whether the Secretary

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  of State understands the meaning of the words he utters, or whether the only interpretation to be put on his behaviour is to assume that he will always do the exact opposite of what he says he will do. I refer to the statement that he made to the annual conference of SOLACE in July 1979. His words were:
  "I believe that an effectively functioning local democracy can monitor the activities of local councils far better than civil servants in Marsham Street".
  That is an interesting reflection on the Bill that hon. Members are now considering. Whatever the right hon. Gentleman's denials and protestations of innocence, whatever sophistries, including some very brilliant ones, from his Minister for Local Government and Environmental Services, this Bill will enable him to monitor and control the activities of local authorities and will finally destroy local government accountability. I can illustrate this no better than by referring to the horrific consequences of the powers that I believe the Secretary of State is taking and asking the House to approve than by quoting the effects that will be felt in my borough of Greenwich.
  I take, first, the grant-related assessment per head of the population for the current year. It amounts to £158. For the London borough of Camden, it is £311. So, from their intimate knowledge of local affairs, Department of the Environment civil servants have worked out that it is almost twice as expensive to provide a comparable level of service in Camden than in Greenwich. They are convinced clearly that this is a reliable estimate since for 1982–83, I am informed, the grant-related assessment for Greenwich is £175 per head while the Camden figure has risen to £352, again twice as much.
  The grant-related assessment for Greenwich is £36 million. There might be some demonstrable scientific basis for this assessment, although no one to whom I have spoken can understand what it is. What has been clearly and brilliantly illustrated by my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) as much more spurious is the so-called target figure. I understand that next year, in Greenwich, this will be just over £48 million. How is that worked out? I do not know. I am even more confused having listened to the account given by my right hon. Friend than I was before. I understand that it is based on what the Government thought Greenwich ought to be spending in 1979–80 plus what the Government think is a reasonable inflation figure, but minus such cuts as the Government reckon should be made. It could not be a more arbitrary figure.
  The Government label Greenwich as an overspender because in 1981–82 the council is spending just over £50 million. Inevitably, to achieve the same level of service, this implies an inflation figure of about £5 million. Because the council is an overspender, the Government are asking for cuts of £7 million which, without the safety net, would work out at 13 per cent. in one year. The fact that a safety net is needed seems to indicate the failure of the formula that the Government are attempting to use.
  Now the Secretary of State comes forward with this Bill which gives him a new power making it impossible for the council to make any sensible estimates for next year. At least under the 1980 Act, it knew where it was when it was making decisions and which decisions were likely to bring
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  it into the penalty area. But the Bill gives the Secretary of State power to penalise an authority in June, July or at any other time he pleases, by almost any amount he pleases.
  No longer will it be possible for an authority to make its budget and fix its rate with any reasonable measure of certainty about the likely consequences. No longer will the supplementary rate be available to it to meet these new uncertainties. It can give no guarantee to its electorate when fixing its rate that it has any reliable idea of the outcome—whether the outcome is a drastic cut in expenditure during the year, whether it will have to draw on balances, or whether, with the permission of the Secretary of State, it will have to borrow.
  Therefore, I am left with a question. In the circumstances, how can my local authority act responsibly? It is accused of being an overspender, but figures available to the Government, which observe one code of practice of local authority annual reports, belie this claim. On the cost of providing services per thousand of the population, Greenwich is below the inner London average. For personal social services, it is well below average. The joint manpower watch survey of September 1979 shows that, although Greenwich is above average in the size of its population, its staff numbers are generally below average. If staff is related to population, Greenwich is virtually the lowest for all or most of its services of the inner London boroughs.
  By these indications, required to be published by law in order for such comparisons to be made, Greenwich comes out as a highly efficient authority and also a very prudent authority. Yet the Government label it a high spender. To me, that makes no sense.
  The Bill will enable the Secretary of State who, in my opinion, is working on false assumptions and misleading figures, to impose unknown penalties on local authorities. The situation will be similar for all local authorities. According to an article in the Financial Times today, it will result in the Government
  "controlling rather than influencing council spending."
  It will make local councils into the poodles of the Secretary of State and place them on a level similar to health authorities in their relationship to the Secretary of State for Social Services.
  I have never felt more inclined or more certain about a decision to vote against a piece of legislation, and I take that view because the Bill will gravely damage my local authority and local government.
  7.5 pm
  Mr. Philip Holland: I congratulate my right hon. Friend the Secretary of State on the measures that he proposes in part I and, unlike my hon. Friend the Member for Devizes (Mr. Morrison), in part II of the Bill to discourage the worst excesses of profligate local authorities. I commend particularly the flexibility of his approach in producing a solution to the difficult problem that is acceptable to those of us who did not like his first proposal.
  I support the main objective of the Bill and the method of achieving it which is set out in parts I and II. I have no doubt that the measure will be adequately supported on Second Reading and that its passage in this, or an amended form, will be assured through its remaining stages.
  I am reminded of an anecdote told by one of the characters in a classic Western film called "The Magnificent Seven" about a man falling from the top of

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  a skyscraper. He was heard, as he passed windows on the way down, saying to himself "So far, so good." I, too say "So far, so good." But I come specifically to the proposal in part III and schedule 1 to establish an Audit Commission and the framework within which it will operate.
  It may not be within the knowledge of the House, though it is within the understanding of the Government, that I have a strong objection to any unnecessary expansion of ministerial patronage arising from the creation of non-departmental public bodies. In this context, I am delighted to welcome the conversion of the right hon. Member for Manchester, Ardwick (Mr. Kaufman) which has taken place since he moved from Government to Opposition, but, far more than that, I welcome steps already taken since 1979 by Ministers in this Government to reduce the number of such bodies.
  In general terms, I dislike quangos because in their present numbers they constitute an unnecessarily large expansion of bureaucracy under the patronage of Ministers while, to a great extent, lacking accountability to Parliament for their activities and their finances. In other words, they are creatures of the executive enjoying quite extraordinary facilities for empire building. In this context, I refer particularly, though not exclusively, to the executive agency-type quasi-autonomous national governmental organisations.
  My objection to the Audit Commission proposed in part III is that it includes almost all the worst features of a traditional agency-type quango. I remind the House that clause 5 provides that, after consulting whoever it pleases him to consult, the Secretary of State shall appoint the chairman, deputy chairman and the members of the commission at his discretion.
  Schedule 1(3) gives the Secretary of State power to direct the commission on how its functions shall be discharged. Schedule 1(4) gives the Secretary of State power to remove from office any member not discharging his function in a manner satisfactory to the Secretary of State. Schedule 1(5) empowers the Secretary of State to determine the pay, allowances and pension provisions for each member. Therefore, with the power to hire, fire, pay and give directions to "quangurus", the Minister clearly retains to himself absolute power over the policy decisions of the commission. He can appoint those who will do his bidding and get rid of those who will not.
  Mr. McWilliam: Is not the hon. Gentleman criticising the powers of the Secretary of State rather than those of the proposed body?
  Mr. Holland: I shall come to the powers of the proposed body, if the hon. Gentleman will allow me to continue.
  The commission comes into its own when it deals with day-to-day administrative tasks, such as engaging staff and fixing its revenue. Apart from the chief officer, whose appointment requires the approval of the Secretary of State, the commission is empowered to engage as many employees as it wishes, to offer them whatever it chooses in terms of pay, allowances, expenses and compensation for loss of office, and to exercise its monopoly power by charging its customers whatever fees it deems necessary to meet its own expenditure. Clearly this represents an open invitation to empire building. The only hazard for this highly qualified accounting body to overcome is the need to produce an annual report that will allay any possible anxieties of the Comptroller and Auditor General.
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  We shall have the kind of quango that I find almost wholly objectionable, not least because it is unnecessary in this form. Whether it is necessary to have the independent appointment of auditors for local authorities is a matter about which the Secretary of State is in a better position than I to judge. Indeed, I accepted his arguments on this point, but, even accepting them, alternative methods of achieving his objective come immediately to mind.
  First, if it is desirable for auditors to be appointed under the direction of the Secretary of State—which is virtually how this could work out—why does he not directly do the job himself? In that way there would be more direct public control over the size of staff and the charges levied, the Secretary of State would be directly answerable to the House for every detail of his activities, and the threatened creation of yet more "quanguru" jobs for the boys would be eliminated.
  If, on the other hand, it is felt desirable to take the appointment of auditors out of the hands of both local authorities and the Minister—the Secretary of State implied this, anyway—perhaps we should move from the commoner British type of quasi-autonomous national governmental organisation towards the American-style quasi-autonomous non-governmental organisation. This is the type of quango established privately to take advantage of a Government contract or to perform functions that would otherwise need to be performed by the Government. This type is rare, but not unknown, in Britain. Examples are the Press Council, set up by newspaper proprietors, the Jockey Club, set up by the principal racehorse owners, and—for a totally different purpose—Trinity House, which was established and paid for by the ship owners.
  By the same token an audit board—or whatever it is to be called—could be established by the professional accountancy and audit institutions. For example, appointments to the board could be divided equally between the three professional bodies listed in clause 7 (6), which cover practitioners in England and Wales, since the measure will apply only to England and Wales. The board could still be required to submit an annual report to the House, to the Comptroller and Auditor General, or to both. That could be required by statute. If it was felt desirable, there might be representation of local authority interests either on the organisations appointing the board or on the board itself. On balance, it would probably be preferable to confine membership of both bodies to professionals sharing the common interest of maintaining the highest professional standards in the auditing of public accounts.
  During the past two and a half years the Secretary of State has announced the abolition of 64 non-departmental public bodies associated with his Department. I take a kinder view than the right hon. Member for Ardwick of his activities in that respect. He has announced the creation of only five new bodies in that period. Therefore, he has cause to feel aggrieved with me, because, having offered only general protests at the creation of 67 new quangos by his right hon. Friends in other Departments, I now make a more specific protest at his fifth proposal for a new public body. I can only say to him and to my right hon. Friend the Minister, who is holding a watching brief, that it becomes necessary, at some stage, to make a start and to shout "Enough is enough".
  It is not merely the number of the Secretary of State's new creations to which I object, but the nature of the fifth creation that I do not like, because it has weaknesses that

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  are avoidable. Because I approve of the rest of the Bill, I shall not vote against Second Reading. However, I find myself unable to support a measure containing the proposal set out in part III and schedule 1, unless the Minister can give a firm commitment to amend the Bill in Committee to meet my anxieties about the present proposal. In default of a clear and specific undertaking tonight, I propose to abstain on the Question, That the Bill be now read a Second Time.
  7.12 pm
  Mr. John Cartwright: The hon. Member for Carlton (Mr. Holland) will, I hope, forgive me if I do not take up all his quango-hunting, which he expounded in detail and with such ominous—for the Government Front Bench—determination.
  The Secretary of State is an unlikely adherent to the policies of the late and unrevered Leon Trotsky, but, in local government, the Secretary of State has embraced the Trotskyite theory of continuous revolution. No one could accuse the right hon. Gentleman of being idle during his time at Marsham Street. During the three years in which he has held office, he will have changed the grant system on four occasions, brought in major legislation that has lasted only one year, twice introduced Bills that had to be withdrawn and produced a grant system that is so tortuous and mind-boggling in its complexity that it is incomprehensible to councillors, local government officers and, by the looks on their faces, to Ministers as well.
  It is a measure of the Secretary of State's achievement that local government is nostalgic about the old rate support grant system. That system was complicated, but by comparison with what we now have it was the very model of stability, simplicity and comprehensibility. The Bill is the most recent of a series of assaults that the Secretary of State has unleashed on local government and left it reeling and punch-drunk.
  Part I is breathtaking in its simplicity. The Secretary of State has clearly given up the struggle to control supplementary rate demands and has come up with the simple solution of outlawing them altogether. In the minds of most of those who understand local government there is no doubt that that will tempt local authorities to levy a higher rate than necessary in order to safeguard themselves against the unexpected happening during the year.
  Local authorities that are unwise enough to believe in Government forecasts about pay and price rises will find that they need more in the kitty than they began the year with. If they find themselves in difficulty they will, under the Bill, have to go cap in hand to the Secretary of State for borrowing approval. The Secretary of State has given fair warning that slight misjudgments on the part of the Government about inflation forecasting and so on will not be allowed as an excuse when it comes to borrowing permission. I know municipal treasurers, and they are prudent individuals. I am sure that they will recommend their councils to budget for substantial reserves when they levy their rates at the start of the next financial year. Some of them will certainly need substantial reserves to deal with the problems stored up for them in part II.
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  As has been pointed out, clause 4 gives the Secretary of State power to cut Government grant paid to individual local councils which, in his view, fail to comply with his guidance on what the Bill calls
  "any reduction in the level of local authority expenditure … which he thinks necessary having regard to general economic conditions".
  That is a sweeping power to penalise councils that do not comply with the Secretary of State's judgment. As has been said, the power can be exercised at any time during the financial year.
  The Secretary of State seems to be employing a double-barrelled shotgun against what he regards as recalcitrant councils. The first barrel cuts the grant and the second denies supplementary rates to get local authorities out of the difficulty of a reduced grant. It also makes local authority borrowing illegal unless it has the Secretary of State's agreement. This double-barrelled attack gives the Secretary of State a powerful weapon with which to bludgeon local authorities into making expenditure cuts.
  The Chartered Institute of Public Finance and Accountancy has made some interesting comments on the impact of enforced cuts part way through the year. CIPFA reckons that it would be at least June before the grant cut was announced. There would then have to be time for the local authority to react. To achieve a full-year effect in a half year would need much more severe expenditure cuts. To achieve the required saving, for example, would mean double the number of full-year staff cuts. If staff cuts were chosen, it would mean heavy redundancy payments and would produce the silly situation of staff being sacked one year and being re-engaged at the beginning of the ensuing financial year. If institutions such as old people's homes, children's homes and libraries had to be closed, they would have to be reopened after a period. That is a wildly inefficient, extravagant and wasteful way of enforcing local authority expenditure reductions. It also leaves local authorities in a situation of complete uncertainty.
  Local authorities can fix the rates legally and properly at the start of the financial year, but they cannot be sure that they will not fall foul, later, of the Secretary of State's double-barrelled attack and lose their grant income. That runs counter to what the Government said in their Green Paper, "Alternatives to Domestic Rates":
  "To budget sensibly and tightly, local authorities need to be able to predict their income and their cash flow with reasonable precision."
  The Bill clearly takes that reasonable precision from local authorities.
  I am sorry that the Secretary of State should try to conceal his nutcracker approach to local authorities. When the Secretary of State announced the Bill on 16 December 1981 I suggested that he was taking unprecedented powers to control the spending of individual local authorities. He then said in reply:
  "The hon. Gentleman has not understood the announcement that I made earlier today if he believes that I am trying to control individual local authority expenditure."—[Official Report, 16 December 1981; Vol. 15, c. 313.]
  I am not alone in believing that. I have with me the Association of Metropolitan Authorities, the Association of District Councils, the Association of County Councils and the Chartered Institute of Public Finance and Accountancy, all of which take the view that the Bill constitutes a powerful weapon to control spending by

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  individual councils through the deliberate use of the grant penalty. That is in sharp contrast to assurances given by Ministers.
  On the Second Reading of the Local Government, Planning and Land Bill 1980 the Secretary of State said:
  "The new system in no way sets limits to what an authority spends, nor does it fix the level of an authority's rates. Those decisions remain with the authority."—[Official Report, 5 February 1980; Vol. 978, c. 251.]
  The Minister for Local Government and Environmental Services went further on Report. He said even more clearly that it is
  "a matter for individual local authorities and their councillors as to what their expenditure decisions are. It is their choice between services, their choice as to the volume of expenditure on those services, and their choice as to the rate levels that they decide to impose."—[Official Report, 8 July 1980; Vol. 987, c. 313–14.]
  It may be argued that the Bill in no way interferes with that freedom and that ostensibly, I accept it does not. However, those choices are exercisable only if a local authority exercises them in such a way as to meet the approval of the Secretary of State. If it exercises a spending choice that is not approved, down will come the penalty of the Secretary of State's removal of grant. For Ministers to say that there is still freedom under the Bill is to imply that the freedom exists provided only that it meets with approval by Ministers. It is rather like the freedom that the Polish Government are offering to the Polish trade unions. It is utterly inappropriate for relations between central and local government in Britain. Such an approach will force local councils to become the creatures of Whitehall, and I and my colleagues in the Social Democratic Party reject it.
  It is also worth reminding ourselves that the idea of grant-related expenditure assessments is a poor way in which to fix targets for local authority spending. It is also worth remembering that Ministers gave repeated assurances that it would not be used for such a purpose but would be used only for grant allocation. Those assurances seem to have been abandoned. However, the grant-related expenditure system is bad enough for grant allocation purposes. It is arbitrary, suspect and unreliable. It produces extraordinary variations between one authority and another, variations that are quite inexplicable and quite unrelated to spending needs.
  The hon. Member for Greenwich (Mr. Barnett) referred to some of the difficulties in the borough that he and I have the honour to represent. We should remind ourselves of those figures. The grant-related expenditure assessment for Greenwich per head of the population for the current financial year is £158. That is by far the lowest in inner London. It is less than half the figure in Camden, and it is considerably lower than in boroughs such as Westminster and Kensington and Chelsea, which are not noted for their areas of deprivation. If we compare the grant-related expenditure assessment for Greenwich at £32·2 million for the current year with the council's estimate of over £51 million, we find that the spending is 60 per cent. higher than the assessment. That shows how unreal the figures are.
  If one considers one service—social services—the grant-related expenditure assessment is £9·8 million and the council's current spending is £18 million. That again shows the unreality of the approach. The figures show that the GREA approach is unsuitable as a basis for targets for local authority spending. The idea that a group of
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  mandarins in Marsham Street can know what it is right for individual local authorities to spend from Land's End to John o' Groats is dangerous nonsense.
  I am not persuaded by the Secretary of State that the Audit Commission is somehow a tremendous extra safeguard for local democracy. I always understood that the statutory independence of district auditors from central and local government was a reasonable safeguard for ratepayers. I am not persuaded by the Secretary of State's assurances to the contrary that the proposed commission will not be in a very different position.
  The Secretary of State will appoint the chairman, deputy chairman and all the members. He will have the power to fix fees, to require an extraordinary audit and to direct the commission as to the discharge of its functions. All those factors make the commission resemble not an independent watchdog on behalf of local electors but a creature of the Secretary of State. I am not opposed to the idea of a commission, but it would be a much more effective operation if it did not have the overtones of central control.
  The Social Democratic Party certainly does not suggest that everything in local government is perfect. We accept that some local councillors are much more interested in sparking off knock-down, "drag-'em-out" fights with the Government than in running humdrum, vital services for local people. However, those problems will not be solved by making local government the whipping boy for mistakes by the Government in economic management. The Social Democratic Party does not defend overspending by local authorities. We do not defend unreasonably high rate burdens, but we believe that those problems are best dealt with by local electors and not by the Secretary of State. We wish to see local government made much more accountable downwards to the people that it represents. The Bill does exactly the opposite. It makes local government more accountable upward to Whitehall.
  My right hon. and hon. Friends and I reject that approach totally and we shall vote against the Bill tonight with enthusiasm.
  7.25 pm.
  Dr. Brian Mawhinney: The House will have listened with interest to the position of the Social Democratic Party. It is against virtually everything. It says "We do not like this, we do not like that, we do not like the other." However, it has spared us from information about what it likes, with one exception. The hon. Member for Woolwich, East (Mr. Cartwright) spoke kindly about the old rate support grant. I suppose that the message that goes out from the House tonight about the SDP is that it favours a system whereby the more one spends, the more one gets, and the less one spends, the less one gets. No doubt British people will take due note of that implication.
  Mr. Cartwright: I am sure that the hon. Gentleman does not wish to misrepresent me. In comparison with the current complex system that has been wished on local government, the rate support grant system, difficult though it was, was much better in retrospect than that which we now have.
  Dr. Mawhinney: The House will have noted that I took great care not to misrepresent what the hon. Gentleman did not say.
  We listened to an interesting and typical speech from the right hon. Member for Manchester, Ardwick (Mr.

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  Kaufman). It was long on rhetoric and indignation and short on support on the sparsely populated Opposition Benches behind him. It was not clear to those of us who heard his speech exactly why, near the beginning, he tried to link in his mind the Secretary of State with that worthy bird, the hawk. However, by the end of his speech, the matter was quite clear. He did so because he knew that the impact and logic of his speech had the dimensions of a sparrow.
  The right hon. Member for Ardwick quoted objections from local authority associations and other professional bodies—those who have a political or vested interest in the Bill. Their views are important and must be considered. However, the right hon. Gentleman did not mention the views of the ratepayers. I suggest that ratepayers will welcome the Bill.
  I found it hard to take the right hon. Gentleman seriously when he talked about the constitutional crisis that was being precipitated by the Bill. The Bill is being forced on the House and on Britain not because the Government are trying to reverse the long-standing constitutional relationship between central and local government, but because they wish to reintroduce the status quo. It has long been a convention in Britain that if there is a difference of opinion between local and central Government, it is central Government that has the overriding responsibility for the control of public spending. In local government finance, that understanding was monitored by a combination of guidance through the rate support grant and a reliance on responsible behaviour by local authorities. That principle was endorsed by the right hon. Member for Ardwick as short a time ago as September 1981. Central Government have the ultimate responsibility.
  That relationship was enjoyed by the Labour Government, who had co-operation from local authorities—including many Conservative-controlled authorities—in holding local government expenditure within reasonable limits, but the situation changed in 1979. A minority of Labour-controlled councils have deliberately decided to challenge the primacy of central Government in determining levels of public expenditure. No Government, if they seek objectively and honestly to govern, can view the challenge with equanimity. The extra spending involved means that extra rates have to be levied and jobs are put at risk. Hon. Members have mentioned constitutional implications and professional bodies, but the debate has not been long on discussing what happens to our constituents.
  Industrialists in Peterborough together wrote a letter, which is without precedent, to my local council. They said that more unjustified rate increases would cost jobs. Because of its spending policies, Peterborough city council has lost over £½ million in Government grants. Until recently it maintained a non-redundancy policy, which has a long-term catastrophic effect on rates for ordinary people. That is what is behind the Bill.
  A survey published by the London Chamber of Commerce and Industry on 2 December 1981 revealed that 38 per cent. of the companies responding had already reduced staff because of high rates, 17 per cent. had moved elsewhere to avoid high rates, and 16 per cent. had decided to close their businesses in London. About 37 per cent. stated that they would reduce staff if rates rose by
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  more than 25 per cent. in the next two years, and nearly 30 per cent. claimed that they would be forced by such increases to close.
  Mr. Allen McKay: Is not the hon. Gentleman's broad-brush approach wrong? In my constituency, even if we had no rates at all, few jobs would be saved. For industries such as steel it is not rates but high energy costs and interest and exchange rates that are the problem.
  Dr. Mawhinney: A variety of economic pressures on businesses and industry combine in different forms in different areas to put pressure on profitability, investment and jobs, including high, indefensible rates. I have given examples of where people in the forefront of business and industry have made that clear.
  I welcome the proposed Audit Commission in the interests of ordinary people. My right hon. Friend the Secretary of State made clear that the commission would not dictate policies. It would not have the opportunity to force policy on local authorities; it would simply raise questions about effectiveness, efficiency and economy. My constituents are more worried about not getting value for money than about local government policies. The Audit Commission would address itself to that issue. I fail to see why an independent and professional assessment of the job that officers and members of a local authority do should cause concern to anyone, although I take the point raised by my hon. Friend the Member for Carlton (Mr. Holland).
  My local authority understands the concern about value for money. With the co-operation of the leader of the council, last June I set up a committee of business men and industrialists to examine the working and efficiency of the Peterborough city council. Its report is to be made public on Wednesday. The House will forgive me if I do not let it into the secrets of the report before they are made available to my constituents, but I will say that it justified setting up the committee. My right hon. Friend will take heart from its findings. It is fallacious to believe that people do not want value for money. They will welcome the move, even if those with a vested interest express reservations.
  I, too, hope that the Bill will be an interim measure, at least in part. I should like to see a thorough review of the rating system. It needs to be replaced. It is fundamentally unfair, if for no other reason than that it takes no account of a person's ability to pay. The base needs to be broadened. I support the measure with, I believe, more enthusiasm than many of my colleagues. I believe that it is what the people want, even if it is not what the pressure groups want. I hope that it will not be a substitute for a more thorough-going review.
  7.37 pm.
  Dr. Edmund Marshall: The crux of the issue before the House is whether we want local accountability and democracy to remain in the working of local government.
  For many years local accountability has been eroded for the simple reason that by successive Acts of Parliament local authorities have been given more and more responsibilities, duties and services to perform, but have not been given a modern system of local government finance. The system of financing local government is

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  anachronous and, without great Government subventions, will not support the services that have to be provided by local authorities. When we have a system of local government finance that does not enable local authorities financially to stand on their own feet, we run into the danger of
  "He who pays the piper may call the tune"
  and central Government become more and more influential in determining everything that happens in local government.
  The trend has continued for decades, but it has been accelerated and given new twists under this Government. For political reasons, they wish to force local authorities to follow their national policies. That is partly because of the Government's obsession with monetarist economic theory and its impact on the spending policies of local authorities. During the past year, that additional twist of the screw by central Government has increasingly taken place because more local authorities have been controlled by the Labour Party rather than the Conservative Party. That is an added political dimension to the erosion of local authority autonomy.
  The Bill will abolish supplementary rates and precepts, but it includes a provision in part II to extend the power of the Secretary of State to make supplementary cuts in grants to local authorities. As a result, local authorities will be caught between the opposite workings of the two provisions. Either they will become puppets of central Government—agencies carrying out Government policies—or, under the working of part II of the Bill, they will be in danger of becoming insolvent.
  My right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) referred to the historic origins of supplementary rating. My researches do not go back as far as his, but I find that the power of rating authorities throughout England and Wales to levy supplementary rates was made general by the Rating and Valuation Act 1925. That was extended to precepting authorities, the county councils, by the Local Government Act 1972. It is of interest that both those Acts were introduced by Conservative Governments. I do not know why they introduced them, but the present Conservative Government are trying to undermine the handiwork of their own predecessors.
  As has been mentioned a number of times in the debate, until this year supplementary rates and precepts were comparatively rare. My right hon. Friend said that one reason why supplementary rates had become more numerous was the impact of the cuts in Government grants. Another simple factor has led to more supplementary rates this year. In local elections last May the control of many county councils in England and Wales changed, and the new councils and their leaders found themselves saddled with budgets drawn up by their predecessors who had been defeated at the polls. It is strange that local elections are held in May, while the budget and rates for the succeeding year are fixed by the outgoing council before the beginning of April. It is an anomalous position that a political party gaining control of a county council is bound by the financial strategy and decisions of its predecessor that was rejected at the polls. However, until now it has had some flexibility in the levying of supplementary rates.
  As politicians, we know the strange way in which the fixing of rates immediately before an election affects the rate level. The party controlling a local authority is
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  tempted to set an artificially low rate to court popularity at the polls. If it is defeated, the incoming party is saddled not only with its opponent's budget but with an artificially low rate. Political parties which know that they will lose office at a forthcoming election have a great temptation to levy an artificially low rate to cause embarrassment to another political party taking control. The abolition of the supplementary rate and precept will undermine the scope of new, democratically elected councils in carrying out their policies during the first year of office.
  One way that that anomaly can be corrected is by reconsidering the timing of local authority elections. Why should they be held each May? Would it not be more sensible for them to be held before the budget-making process begins?
  Mr. Albert Roberts: My hon. Friend is trying to outline a case. It would be far better if he named the authority. The point that he is making is quite correct, and it applies to West Yorkshire.
  Dr. Marshall: My point applies to many authorities which have had to levy a supplementary rate during recent months. My researches show that local elections have not always been held in the spring. That has been the regular pattern only during the last 33 or 34 years. Under the Local Government Act 1933, borough council elections in both county and municipal boroughs were held in the autumn in October and November, whereas county councils were elected in March and urban and rural district councils in April. We must examine the possibility of returning to a system of local government elections in either September or October each year. That would have repercussions on the annual calendar of local government and also for electoral registration. If we are to maintain any semblance of local democracy in local government while abolishing supplementary rates and precepts, we must determine the best time of year to hold local elections.
  I wish to refer briefly to the Bill's definition of local authority expenditure for the purposes of part II, which extends the penalising powers of the Secretary of State when he is not satisfied that local authorities are sufficiently reducing their expenditure. Currently, the expenditure of rating authorities includes money paid to parish councils within their areas through parish precepts. It also includes payments made to internal drainage boards under section 81 of the Land Drainage Act 1976. The key point is that in both those cases the amounts spent are wholly beyond the control of the rating authority, which is the district council.
  In some areas, where there are many internal drainage districts, the amounts of money involved can be considerable. Drainage rating is complex, and I shall not deal with it in detail, but the vital point is that under section 81 of the Land Drainage Act 1976, it is possible for internal drainage boards, when sending out their own drainage rate demands, to reach agreement with the district councils in their areas so that payments en bloc can be made direct by the district councils to the drainage boards, equivalent in total to the amount that would be collected from individual ratepayers.
  The amounts paid in drainage precepts have been included by the Government in the sum total of district councils' expenditure. The Boothferry borough, which covers a large part of my constituency, is in a position

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  where, although the local authority, which is Conservative-controlled, has tried to dance to the tune of the Secretary of State and to cut its expenditure substantially, it has been unable to meet the required levels of cutting because the expenditure in precepts to drainage boards has increased and brought the total of district council expenditure well above the prescribed limits. Of course, we all know that drainage in some parts of Britain is vital. Unless we increase expenditure on drainage, an increasingly large part of Britain will be in danger of inundation.
  Recent events have shown that it is wrong to include within the definition of local authority expenditure payments made to internal drainage authorities. If the Government persist in maintaining that those payments should be included in that expenditure, then increasingly councils will be forced to cancel their section 81 agreements and drainage boards will be issuing the same drainage rate demands as they used to issue before reaching agreements with the local authorities.
  Both the examples that I have given serve to show how the flexibility and local accountability of district councils and county councils are being undermined yet further as a result of the Government's policies. There is no doubt that in the provisions of the Bill, particularly in part II, we are being asked, as a House, further to cut the sense of local responsibility of English and Welsh local government. If we value that local accountability, we have no choice but to throw this Bill out.
  7.53 pm
  Mr. W. Benyon: Looking at the empty Benches on both sides of the House, who would imagine that we are discussing a matter of major constitutional importance? Many hon. Members have already fallen into the tempting trap of dealing with the matter entirely on a local basis. The spokesman for the Social Democratic Party, the hon. Member for Woolwich, East (Mr. Cartwright), did that, as did the right hon. Member for Norwich, North (Mr. Ennals) and my hon. Friend the Member for Peterborough (Dr. Mawhinney). It is even more tempting for me to do that because my local authority has been heavily penalised by these arrangements. However, I shall resist that temptation and deal with the Bill in its general form.
  The real background to the Bill was hinted at by the hon. Member for Goole (Dr. Marshall), and it is very simple. The tasks imposed on local government by successive Governments over the past 100 years have created a level of expenditure which far outstrips the capacity of the rating system to finance. As a result, the burden has had to be shouldered more and more by central Government acting on behalf of the taxpayer.
  It has always seemed to me that the only correct division of responsibility under the present system gives Parliament the guardianship of the taxpayers' money and a similar responsibility to the local council about the ratepayers' money. I thought that Her Majesty's Government took that view. My hon. Friend the Minister for Local Government and Environmental Services, who will reply to the debate, made a statement on 8 July 1980, which has already been quoted in the debate. He said that it was their choice between the services, their choice as to the volume of expenditure on those services and their
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  choice as to the rate levels they decide to impose. When the Minister replies he must reconcile that statement to the reply given to my interjection earlier in the debate. As I then said, it seems to me that under these arrangements a future Secretary of State will be able to decide the rate if he wants to. That goes to the root of the matter, and it would destroy the partnership and relationship that has existed for many years.
  The Guardian stated this morning that the principle of the supplementary rate goes back to 1601. Although I have not had time to check that date, it certainly goes back a long way, and it is incumbent on a Conservative Government, in particular, to explain why that privilage and right should be abolished.
  Parliament must obviously lay down the rules under which local finance can be raised, but once that has happened and once it goes further than that and either explicitly or implicitly controls the level at which local taxes are raised, the independence of local government ceases. It would be much more honest to accept that and to revert to some form of direct rule from Whitehall. The precedents of the medieval barons and Cromwellian major-generals are not exactly encouraging in that respect but perhaps we could sugar the pill by giving the local regional controller a sort of local advisory body which he would receive from time to time in a lofty and arrogant state.
  It is because I believe so passionately in the importance of local government as an integral part of our constitution that I oppose this measure. There is a degree of inevitability in what we are considering. The rot started with the Labour Government's policy towards education a long time ago, and when I listened to the right hon. Members for Manchester, Ardwick (Mr. Kaufman) and Norwich, North, it was as if Satan was rebuking sin, because it was they who started all this—they sowed the wind, and today we are reaping the whirlwind. However, of course, the situation was compounded by the Government's Housing (Amendment) Act 1980 and the Local Government, Planning and Land Act 1980 was only just all right. A reason why I was prepared to support the Government on that occasion was the remark made by my hon. Friend the Minister for Local Government and Environmental Services, which I have just quoted. Now the Bill knocks just one more prop out of what is a tottering edifice.
  The real danger is that whenever a pressure group dislikes something that local government does it now goes over the head of local government to central Government. That is the real weakness of the present situation; it destroys the status and responsibility of local government. That is being done by a Conservative Government at a time when the official Opposition seek one-chamber Government in Britain; when all talk of constitutional reform comes to nothing—the Cabinet is not interested, the Prime Minister is not interested and the Lord Chancellor says that he is interested but nothing happens.
  On top of all that, the courts are relatively powerless to safeguard the rights of citizens. At this moment a Conservative Government hand to future extremists the weapon that we are discussing, and it is a very powerful weapon. We shall be told, as we always are, that this is simply to deal with a temporary situation, until action can be taken on the Green Paper, and that we shall have a new form of local government finance. However, we know, do we not, that tyranny always come in under the guise of

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  temporary provisions and that is why we dislike them so much. Therefore, the Bill is constitutionally wrong and it is also wrong financially, because it will encourage, as many hon. Members have already said, higher levels in the main rate precept.
  Councils that are faced with penalties will safeguard their positions with a higher rate initially. If the provisions were restricted to the initial grant, which could be followed by a given penalty if the target were exceeded, the Bill might just be acceptable, but the part I procedure allied with the part II formula is uncertain and gives too much power to the Secretary of State.
  The Bill is unnecessary. It is designed to catch a few over-spending authorities because, so the argument goes, they are pre-empting too much of the nation's resources. However, rate-borne inflation cannot be inflationary, because the budget is balanced. There need be no element of borrowing if the Government do not wish it to take place. That was cogently argued in a letter to The Times shortly before the House went into recess by Mr. Hepworth, the director of the Chartered Institute of Public Finance and Accountancy. He wrote:
  "Local government needs consistency. There is also evidence that reducing the amount of grant does cause local authorities to reduce expenditure. To use the existing levers of control and reduce grant aid is likely to produce the best overall result from the Government's point of view. It won't stop all the high spenders; but then no system will unless politcal power is removed from local government."
  It is that last sentence that is the key to the issue that we are discussing. The Bill will not solve the problem of the high spenders unless power is removed totally from local government.
  Thus we are faced with an unnecessary Bill. It is a Bill of dubious financial merit and a Bill which sets a dangerous constitutional precedent. It gives me no pleasure to say that it is not a Conservative measure. As my hon. Friend the Member for Devizes (Mr. Morrison) said, it is a further advance on the road to centralism and it should be resisted. I shall resist it when the Division is called.
  8.3 pm
  Mr. Stan Thorne: It is not often that I have the opportunity of agreeing with a Conservative Member, but I very much agree with the comments of the hon. Member for Buckingham (Mr. Benyon). However, I take him up on his reference to the Labour Government's education policy having some influence in a political sense on local government. No doubt the hon. Gentleman will remember the Conservative Government's Housing Finance Act 1972, which sought to interfere with local government practices. Further back than that we had the Education Act 1944.
  The purpose of a national Government is to try to ensure that there is no lower standard of provision in certain areas in consequence of a dilatory attitude on the part of local government to that political service. Attempts have been made by Governments in the past to overcome that problem. The hon. Member for Buckingham referred to the absence of interested Members in the Chamber during this debate. I am surprised that not one Conservative Member who represents a Lancashire constituency is in the Chamber now. Indeed, there has not been one present throughout the greater part of the debate.
  The Lancashire county council, the South Ribble borough council and the Preston borough council have all
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  made it abundantly clear that they are opposed to the Bill. Possibly the absence of Conservative Members representing Lancashire constituencies indicates that they will join the hon. Member for Buckingham and Opposition Members in voting against the Bill, in which circumstance their absence now and their attendance later will be worthwhile.
  On 5 February 1980 the Secretary of State said:
  "The new system in no way sets limits to what an authority spends, nor does it fix the level of an authority's rates. Those decisions remain with the authority."—[Official Report, 5 February 1980; Vol. 978, c. 251.]
  On 8 July his sidekick, or rather the Minister for Local Government and Environmental Services, said that
  "it is then a matter for individual local authorities and their councillors as to what their expenditure decisions are." —[Official Report, 8 July 1980; Vol. 988, c. 313.]
  The Bill seriously threatens the autonomy and financial independence of local government, as was ably demonstrated by my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman), the Opposition's Front Bench spokesman, in opposing the Bill.
  A shift has taken place since we last heard from the Secretary of State. It seems that we shall now have no supplementary rates, whereas we were to have referendums for supplementary rates. To withhold grant after a local authority has fixed its rates for the current financial year is possibly the most serious aspect of the Bill. I agree with the hon. Member for Buckingham that the basis of the centralisation of spending decisions is completely contrary to the historical growth of local government and the notion which some of us have, which is still important, that small is beautiful. It is contrary to ensuring that local government is able to do the job that it was established to do and which it should be permitted to do as far as possible in the absence of Government interference.
  There is no doubt that the Bill raises a constitutional issue. Local government is virtually at the crossroads. That will be the position that will arise if the Bill is enacted. I wonder whether, unbeknown to my right hon. and hon. Friends, the Government consider that it might be best to administer health, housing, education, social services, transport and highways through an extension of Civil Service departments into towns and cities throughout Britain. That is the logic of this type of legislation, from which only a short step is required to abolish local government.
  It is not to exaggerate to suggest that the Bill is a further move towards the corporate State. The justification for the Bill that is presented by the Government, and which I believe is unproven, is that local government has failed over the years to act responsibly in trying to meet Governments' financial targets. Those on the Government Front Bench have not spelt out detailed evidence to establish that justification for the Bill. Capital spending has been controlled by this and past Governments, and the rate support grant is determined by the Government.
  If Governments place on local authorities the responsibility for cutting back to such an extent that local services are imperilled by those decisions, it is not surprising that they do not get from local government the response to their proposals that they anticipate. If a local authority is to plan its use of resources, it is surely essential that it has knowledge of the money that is to be made available.

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  The Secretary of State used the phrase "value for money". That is a concept that has always been open to considerable difficulty, because of the several value judgments that are involved. It is clear that the Government Front Bench consider that only one value judgment is relevant, and that is its. I question the validity of that approach. I much prefer to accept local government values in terms of the services that they need to provide within their communities than to accept the value judgments made by civil servants, who, with due respect to them, remain in London and take a completely different approach to the needs of some provincial towns and cities.
  Many hon. Members have worked as councillors in local government. I served for six years on a local council. We were continuously faced with trying to meet needs on the basis of scarce resources. We had to determine our priorities. We may have got those priorities wrong from time to time, but there is no doubt that we were more able to judge the order of priorities locally than will be the case if the Bill becomes law.
  Other hon. Members want to speak, so I shall attempt to draw my brief remarks to a conclusion. My right hon. Friend the Member for Ardwick pleased me when he said that if the Bill became law it would be repealed by the next Labour Government. I believe that we will have a good majority in 1984. [Interruption.] I thought that that would bring a cheer from Conservative Members.
  The localised institutions that we have protected over the years in local government represent a value that we cannot afford to allow the architects of destruction sitting on the Government Benches to do anything about. I understand that they must get the Bill through by the end of March. It is a responsibility for all Opposition Members to ensure that that is not possible. We know the answer. There will be a guillotine and the measure will be forced through because the Government have a majority. There is a lesson in that for Opposition Members. I hope that when the Labour Government are elected they will have no compunction, given a majority, about reversing many of the trends that we have seen on the Government Benches over the past two to three years.
  I remember the Minister for Local Government and Environmental Services and the Secretary of State for the Environment serving as the two chief spokesmen on the Aircraft and Shipbuilding Industries Bill during the Labour Government's term of office. They made some lengthy speeches, the gist of which often was that we were carrying out measures for which we had no mandate; they were unconstitutional, improper and so on. The Secretary of State has not spelt out where the mandate is for this measure in the 1979 Tory manifesto. Perhaps the Minister for Local Government and Environmental Services will tell us. No mention was made in the manifesto that the Government would introduce a Bill seriously to restrict the powers of local government to such an extent as to create the possibility of further moves towards a corporate State.
  I hope that there will be a maximum attendance of hon. Members like the hon. Member for Buckingham in the No Lobby, so that even this Government will not be so foolish as to proceed with this measure.
  8.14 pm
  Mr. Robin Squire: I had some sympathy with the earlier comments of the hon. Member for Preston,
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  South (Mr. Thorne), but I lost that sympathy rather easily when he spoke of guerrilla tactics during the night. Hon. Members are aware of what that means in practice. If there are defects in the Bill, the way to defeat them is by rational debate, not by hammering through the night.
  There is a song that runs
  "What a difference a day makes".
  In this case it is not a day, but just over a month. The House will be reassured when I say that I do not intend to sing that song. The difference is between the first and second Bills. I shed few tears at the non-appearance of the referendum proposals. They were, and remain, unfair in principle and in practice. They would have been costly and would have cut completely across the traditional relationship between the Government and local government. They will be largely unmourned by most people involved in the affairs of local authority financing.
  Similarly, I can work up few tears about the ban on supplementary rates, although I listened with interest to several hon. Members who could. I say that as someone whose support of local government generally is well known. The ban will be a relief to my constituents, and certainly to my small business men, of whom there are a large number.
  If we analyse why supplementary rates were ever used, we see that they come under two headings. The first is the change of control—the political decision. If that means that instead of changes being brought in in six months they are brought in in one year, with the inevitable consequence that should control change again the outgoing council will have a further six months' or a year's control, that is not the stuff of which dreams are made or about which fighting speeches are made. That is a comparatively small point.
  The second heading is potentially more important. I shall grandly call it the mistake area, where councils have underestimated either price inflation or wage inflation, often through taking advice in exalted places at the beginning of the year. However, those instances are comparatively rare.
  I welcome the Secretary of State's intention that if such a position were to arise in future the requirement would be on the local authority to repay that excess in the first quarter of the following year. That is important, because, as I suspect many hon. Members know, the local authority borrowing market in this country is sophisticated and enjoys a high reputation world-wide. It would be potentially damaging to our reputation as a capital market were that provision not to be included in the legislation. We need to reassure anyone who would lend to a local authority that his money is as safe as it was under the previous structure.
  There is a good consequence of part I, in that there is a certainty of expenditure for local authorities at the beginning of the year. However, in part II the situation is a little different because of the effect of clause 4, which has attracted considerable attention from different speakers. With the abolition of supplementary rates, local authorities may find, some time after the year in question has commenced, that they are required to lose the grant. The consequences could be fairly major, not least because, with the ban on supplementary rates, they will be doubly penalised.
  My hon. Friend the Member for Buckingham (Mr. Benyon) well described how the clause goes against a number of statements made in Committee on the 1979 Bill, now the 1980 Act, and indeed subsequent statements

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  about the Government's intentions. I regret that we have before us legislation that gives still greater centralising powers. I especially regret that the wide discretionary powers effectively mean that the volume of expenditure is no longer a realistic council decision. How many councils, currently in receipt of grants—we know that some are no longer in receipt of any grant—will risk jeopardising that grant? If we recognise that, we recognise that the essential decision is not being taken by the council itself.
  I realise that I may be in a minority of Conservative Members in deploring that, but I believe that this needs to be stated. I believe that we can get round it without facing legislation of this nature. The essential difficulty arises because there is an inherent fallacy in basing control on grant-related expenditure assessments. These are the successors to the old rate support grant. Hon. Members will remember that they were used as a guide to who should receive grant or assistance from the Government, and the substance and size of that support. It was never intended, however, that they should serve as a control on expenditure. They were never intended to be a volume control.
  The measurement of need may be very accurate. I grant to my right hon. Friend that the measurement of need may be better now than it has ever been. Within the mighty Wurlitzer of statistics, which is now part and parcel of block grants, we have assembled a most impressive measurement of need. Nevertheless, it is still an estimate, and I submit that some of the individual elements are not strong enough to stand up to the interpretation now effectively being placed upon them, especially if they are used to determine the direction of grant and to penalise local authorities when they seek to spend a little more or less on that assessment. That is its weakness, and that is where we make a false assumption.
  In recognition of the fact that other hon. Members wish to speak I shall curtail my comments on this aspect of the matter, except to repeat that it is unfair to expect local authorities to make sound and sensible adjustments if they are advised well into a year—in June or July, let alone later—that a fairly large sum may have to be found.
  To sum up on part II, I believe that local authorities should be in a position to be sure of their revenue when fixing budgets or, as the recent Green Paper "Alternatives To Domestic Rates" said:
  "To budget sensibly and tightly, local authorities need to be able to predict their income and their cash flow with reasonable precision."
  I turn to part III and the Audit Commission. I should point out that I am a chartered accountant, but I have no possible way of benefiting in any shape or form from the proposals in this or indeed any part of the Bill. Here I part company to some extent from my hon. Friend the Member for Devizes (Mr. Morrison), because, as an erstwhile auditor, I can readily appreciate that there are some genuine benefits for local government in providing wider experience on the part of those carrying out the audit.
  With the best will in the world, the existing direct audit, by its very nature, draws its experience from a narrow band. I shall pay full tribute later to that experience, but it is a very narrow band. There is therefore an obvious advantage in widening the audit to bring in the additional expertise and much more modern computer-based auditing techniques. That is not to say that these are not available to the district audit at present, but the sheer range of
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  experience which it cannot possibly have is an argument for recognising the inherent sense and soundness of the Government's main proposal.
  Nevertheless, I do not wish to forget the district audit and I fear that there may be a danger of going almost too far the other way and losing the advantage of the local authority experience that the district audit has. I am rather glad that the decision is not mine, as I do not know how the new commission will determine when to have a district audit and when to have a private audit. I can well see how within the private audit it will choose which private auditor in the ordinary way, but it is difficult to see what yardstick it will adopt in deciding on that essential switch. However, that may become clear in my right hon. Friend's summing up or subsequently in Committee.
  My other fear is that the powers at present set out for the direction of the Audit Commission by the Secretary of State seem to me quite wide. My own institute, the Institute of Chartered Accountants in England and Wales, in its submission on the consultation paper, said:
  "We believe that it would be inappropriate for the Secretaries of State to have any general power to give the Commission directions as to the discharge of its functions. Similarly we believe that the appointment of the Controller of Audit should be a matter for the Commission, not subject to the approval of the Secretary of State."
  I believe that there is great value in that observation and I certainly sympathise with it.
  I echo some of the points so well argued by my hon. Friend the Member for Carbon (Mr. Holland) who went much further and questioned the entire structure. I hope that the Government will look closely at his comments when the Bill goes to Committee.
  I cannot resist drawing attention to something relating to the Audit Commission said by the right hon. Member for Manchester, Ardwick (Mr. Kaufman) in his amusing speech. Suddenly, as if pulling a rabbit out of a hat, he became conspiratorial and claimed that under clause 9 there was all the evidence of a political conspiracy. In the hope of excitement I turned to clause 9, which is the position in Scotland, plus political conspiracy. Clause 9 provides:
  "The Auditor should consider whether, in the public interest, he should make a report on any matter coming to his notice in the course of the audit in order that it may be considered by the body concerned or brought to the attention of the public,".
  I wondered what could be so heavily political. Could it be clause 9(1)(a)? Surely not. Could it be clause 9(1)(b)? No. I realised that it must be subsection 1(c), which says that
  "the body whose accounts are being audited has made proper arrangements for securing economy, efficiency and effectiveness".
  That rang a bell, and I realised that the right hon. Gentleman must have been saying that that was a political gesture.
  I am sure that my right hon. Friend the Minister for Local Government and Environmental Services will draw attention to this when he sums up the debate, but the implication is that if one believes in those three qualities one would be well advised to recognise them as Conservative qualities. Whatever else they may be, they are certainly not qualities that appertain to the right hon. Member for Ardwick.
  Although some of my comments may be light, I still believe that the Bill can be seen only as an interim measure. My right hon. Friend the Minister for Local Government and Environmental Services said as late as November 1981 that that was how he saw the Bill and how

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  he hoped that it would be considered. If it is not to be considered in that manner, a number of other questions and queries must be raised.
  As well as that, we must see any measure of local government reform against an ideal. We have a Green Paper, on which I shall not comment, but we must see any short-term proposals against what we want to see as a final state of local authority financing. Those who have studied history and literature say that when Samuel Beckett wrote "Waiting for Godot" he took his inspiration from undertakings to reform local authority fund raising. Those who know the play will know that Godot never arrives. I have great faith that in this case something will arrive.
  If the Government adopt a non-centralist approach and recognise the need to reconcile more accurately those who benefit from the services with those who pay for them, we shall be on the right track. Provided the Bill is interim I shall give it qualified support. However, if it is merely a further instalment down the centralist path it is as mistaken as the block grant proposals were originally in 1980 and will similarly fail in its overall aim.
  Several Hon. Members rose—
  Mr. Deputy Speaker (Mr. Ernest Armstrong): Perhaps it will help the House if I inform it that five hon. Members are trying to catch my eye, and just over 50 minutes remain before the Front Bench speakers hope to catch Mr. Speaker's eye.
  8.27 pm
  Mr. John McWilliam: I listened with interest to the speech of the hon. Member for Hornchurch (Mr. Squire) and particularly to his comments on clause 9 to which I shall return.
  I was a member of the Scottish Commission for Local Authority Accounts and I am the only hon. Member who has served on such a body. It therefore gives me no great pleasure to attend the last rites of local government democracy, as we are doing this evening. The sparsity of the attendance in the Chamber is out of all proportion to the important and constitutional impact of this particularly obnoxious legislation.
  The Bill is obnoxious because it flies in the face of the principles of democracy and because, ultimately, it will not achieve the objectives suggested by the Secretary of State of more efficient, compliant and democratic local government. The Bill will not achieve those objectives because it contains nothing that practically helps towards that end.
  Indeed, I am surprised that the Secretary of State and his officials have failed to consider the Layfield commission's observations on the general points that the right hon. Gentleman made about this matter. I am even more surprised that, instead of referring back audit reports to the commission, the Bill proposes to refer them back to the courts. I would think that the Secretary of State has had enough of litigation and learnt that litigation will not necessarily help secure the kind of objectives that he wants to achieve.
  I redirect the Secretary of State's attention to the Layfield report, particularly to paragraph 19 entitled "The Search for Efficiency". It says:
  "What is the most efficient and economical way of doing something is very often a question of judgment".
  Paragraph 20 states:
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  "We believe that the best way of promoting efficiency and securing value for money by external means is through the dissemination of comprehensive but intelligible information on the methods employed by local authorities and the results they achieve".
  It does not say that that can be achieved by the litigious suggestions in the Bill.
  The hon. Member for Hornchurch spoke amusingly about clause 9, but missed the point. He referred to clause 9(3). I should like to refer to clause 9(1)(c), which states:
  "that the body whose accounts are being audited has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources and in the carrying out of its policies."
  I am sure that all hon. Members would laud those as good objectives and as things towards which we ought to strive.
  I also remind the hon. Gentleman of the institution to which he belongs and of the protections which that institution can and cannot afford. It is all very well saying that something may be contrary to law and that something may not have been brought into account, but any auditor would be expected to produce those facts, and any auditor's report should do so.
  However, when the Bill talks about
  "proper arrangements for securing economy, efficiency and effectiveness"
  in the use of resources, we come on to the subjective judgments of a local authority and the way in which it behaves. I suggest that the Secretary of State is in error here, because there is the danger that in reporting on those subjective judgments an auditor may well render himself liable under the law. For example, he could say some thing contestable that may not be true.
  As I have already said, I was a member of the Commission for Local Authority Accounts in Scotland. Had the relevant legislation been framed in the same way as this legislation, I would not have consented to join such a body. I remind the House that a Conservative Secretary of State appointed me to it. I would not have joined it for two reasons. The first is that I have a young wife and family, and I could not afford the possibility of the sort of action that could accrue as a result of the provisions of clause 9(1)(c). Secondly, I do not approve of the destruction of local government democracy.
  It pains me greatly that democracy in this country has come to such a sorry state that a clause such as this appears. I tell the House and, more notably, the ladies and gentlemen in the Civil Service box that the phrases about "economy, efficiency and effectiveness" were widely bandied about at the time of the Local Government (Scotland) Act 1973. The then Secretary of State for Scotland wisely did not incorporate such phrases into the legislation because he realised the dangers that they held, both for the auditors and for the members of the commission.
  As a member of the Commission for Local Authority Accounts in Scotland, I can tell the House that those phrases appeared frequently in circulars from the Scottish Development Department, which seemed to assume that, because it had privilege arising from the protection of the Comptroller and Auditor General and the Secretary of State, we had similar privilege. We had no such privilege, nor will any auditor or commissioner who is appointed under the Bill.
  I go further. As the Bill now stands, anyone who consents to be either an auditor or a commissioner is walking on dangerous territory if clause 9(1)(c) remains. He could be liable for heavy damages. I seriously advise

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  that, unless fundamental amendments are made to the Bill, no one presently employed by the local government audit service and no private auditor should become involved in any audit under the Bill. He will have no privilege whatever. He will be unable to say that a person has acted wrongly when he only thinks that a person may have acted wrongly. He has no defence and no privilege in law. The Bill is fundamentally defective in this area.
  I began by saying that it gave me no pleasure to be present at the death rites of local government democracy. My only hope is that sufficient Conservative Members are as aware as I am of the dangers of central Government extending their tentacles further into the direct control of local authorities and further destroying the existing level of local democracy.
  8.38 pm
  Mr. Michael Shersby: I listened with interest to the hon. Member for Blaydon (Mr. McWilliam), but I do not take such a pessimistic view of the Bill as he does. I do not believe that we are witnessing the death rites of local government. We are witnessing a scene in the Chamber where a Secretary of State is trying to grapple with the fact that local government expenditure now accounts for about 25 per cent. of all public expenditure and where, because of the action of several local authorities, he has striven to place before his colleagues in Parliament a proposal designed to deal with that action and to protect ratepayers who are disadvantaged by it. That is a serious position for any Secretary of State to face and for the House of Commons to have to consider. Therefore, we must approach the Bill with that in mind, put forward our views, express our reservations and see whether we can find ways to improve the position during the passage of the Bill.
  We have heard much from hon. Members on both sides of the House about the Bill imposing important changes in the delegated powers given by Parliament to local authorities in various statutes. They have been described by my hon. Friend the Member for Buckingham (Mr. Benyon) and others as constitutional changes. That is not an inappropriate description of some parts of the Bill, but it is important to point out that there is nothing basically wrong in Parliament reviewing the powers under which local authorities operate or requiring them to conduct their financial affairs in a way that is acceptable to Parliament, from which they derive all their powers and their very existence.
  In carrying out the review and considering the Bill, Parliament is exercising its powers properly. After all, local government has not assumed to itself powers to act independently of Parliament or parliamentary scrutiny. I am sure that most local government leaders accept that, but some commentators and hon. Members have lost sight of the fact that local government operates under a variety of statutes and Parliament has a responsibility to review them to make sure that they are up to date and meet the needs of modern society.
  Of course, local government has a right to question proposed changes in its powers and practices, and every hon. Member will wish to consider carefully the objections that have been put forward. The question is whether the proposals in the Bill are acceptable to the House and appropriate to changing the powers under which local
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  government operates. I wish to comment briefly on the Bill as it stands, and I hope that it will be improved in Committee.
  By abolishing the power of local authorities to levy supplementary rates my right hon. Friend the Secretary of State intends, as I understand it, to remove the fear and uncertainty to which domestic and commercial ratepayers have been subject in the past year. Such action is necessary because a comparatively small number of local authorities have pushed ahead with plans for public expenditure regardless of the exhortations of the Government or the ability of ratepayers suddenly to find an extra sum demanded by way of supplementary rate.
  Every hon. Member must know that supplementary rates have caused considerable worry and even hardship to domestic ratepayers, particularly those just above the rate rebate level. As my hon. Friend the Member for Hornchurch (Mr. Squire) pointed out, the payment of a substantial extra sum during the year in respect of a supplementary rate has meant an unbudgeted on-cost for small businesses to the detriment of those businesses and representing a threat to their profitability and to jobs, particularly in areas such as Greater London, part of which I represent.
  However, there are some dangers in abolishing the power of councils to make a supplementary rate. I am such that my right hon. Friend is aware of many of the dangers and has not brought his proposals before the House without weighing them in the balance, but I should like to spell out one or two of the problems.
  There is a danger that some councils will be tempted to levy a rate that is higher than they need to meet their expenditure, because there would be no let-out if they overspent. There is also a danger for the prudent, responsible local authority that budgets to break even, without providing a contingency fund. Such councils, most of which, though not all, are Conservative-controlled, rightly believe that they should not take money from ratepayers until they need it, but any reduction in grant through clawback would mean that a council would quickly have to cut its expenditure rather than raise a small supplementary rate. That could mean that private contracts with house repair firms would have to be stopped immediately. I give that as an example of the flexibility of a local authority to meet such an eventuality. I hope, therefore, that these dangers will be fully considered in Committee and that a way will be found of taking account of them.
  I come now to part II. We have discussed clause 4, in which the Secretary of State proposes to take power to reduce the amount given in grant after he has made the rate support grant announcement. It is a very sweeping power, and it appears to be retrospective. I hope that my hon. Friend in replying will spell out the reasons in more detail, because it is important that the House should know why the Secretary of State requires the retrospective aspect of those powers. Again, I am sure that the Committee will wish to scrutinise this matter carefully before agreeing to it.
  In paragraph (cc), which clause 4(1) seeks to insert in section 59(6) of the Local Government, Land and Planning Act 1980, the Secretary of State can seek to achieve
  "any reduction in the level of local authority expenditure … which he thinks necessary having regard to general economic conditions."

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  If that power has to be taken, I am rather sorry that it does not enable the Secretary of State to do the reverse, because circumstances could arise in which it was necessary. I believe that there is a danger that the use of this power, as set out in the Bill, could put a council in a "Catch-22" situation. For example, if the Secretary of State announces that the rate support grant for a local authority in any given year is so much, and the council budgets accordingly, and he subsequently announces that the grant is to be cut because of "general economic conditions", the council will have to cut expenditure immediately, because it cannot raise a supplementary rate. As I have said, this could cause real problems for a responsible local authority which has already cut expenditure to the bone, in line with the Government's target. It may have no option but to reduce or cut essential services. That aspect bothers me a great deal, quite apart from the general principle of any Secretary of State, irrespective of political party, having such sweeping powers to act without recourse to Parliament.
  I wish to put forward a suggestion for a better way of dealing with the problem, and I am glad that my right hon. Friend the Secretary of State is present to hear what I say. Surely a better way of achieving his general aim would be for the Bill to make it a statutory duty for a local authority to set itself a cash limit and then stick to it. That would leave the decision with the local authority, acting in accordance with the generally prevailing conditions. The local authority would then be required by statute to stick to it. I hope that this suggestion will be considered carefully in Committee, because if the Bill were amended in that way the Secretary of State would still control the limits of local authority expenditure through his grant penalties, but it would at least avoid a situation in which he arbitrarily reduced grant after having announced what it was to be. I hope therefore that my right hon. Friend will consider this type of cash limit set by the local authority itself.
  I am interested in the thinking behind part III, which proposes an Audit Commission. A number of leading councillors, some of them in London, believe that it is right to have more private sector auditors and that private sector expertise can be brought to bear on accounts. They welcome the provisions relating to public inspection of accounts, together with the right to challenge them, in clauses 11 to 14. However, I should like to be sure that the independence of the auditor will not be threatened by the fact that recourse to the courts could overturn his decision. The Committee will want to consider that point.
  An opportunity is already provided in clause 11 for any elector or his representative to question the auditor about the accounts and to make objections. The hon. Member for Blaydon (Mr. McWilliam) described a situation where an accountant would be loth to express his view freely for fear of incurring some penalty under the law if an action was taken against him in the courts. It was my impression that the auditors were already the beneficiaries of some qualified privilege and that this would continue. The hon. Member for Blaydon shakes his head. It would be interesting if my right hon. Friend, in his reply, could deal with that point.
  One of the most important points in the debate was made by my hon. Friend the Member for Carlton (Mr. Holland), who is well known for his dislike of all quangos.
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  I hope that the Secretary of State will consider carefully the suggestion that, instead of an Audit Commission appointed by the Secretary of State, the various professional institutions should be invited to appoint the chairman, vice-chairman and other officers of such a commission, that they should be responsible for running it, that they should report to Parliament and that they should be seen by Parliament, by the country and by local authorities to be absolutely and totally independent of Parliament, the Secretary of State or of any hint of ministerial privilege. That was a valid and important point. My hon. Friend the Member for Carlton has done the House a great service by drawing this matter to our attention.
  Many people believe that this is a necessary Bill in the light of events in the past year. They are worried about the powers in clause 4, but they, like me, accept that Parliament has given certain delegated powers to local government and that Parliament and the Government cannot stand aside when they see, as all have seen, some local authorities during 1981 impose swingeing supplementary rates upon their unfortunate ratepayers. There must be stricter rules for the levying of rates and greater scrutiny by an Audit Commission of the way in which money is spent. The public must be reassured that local authorities will act responsibly and that they will not be able to increase local taxation through the rates half-way through the financial year in the manner that has been seen in the last year or so.
  I believe that the Bill will ensure that local authorities, like every domestic and business ratepayer, work within their annual budgets. This will be good for all concerned. If there is any justification for hon. Members voting for the Bill on Second Reading, it should be the knowledge that many constituents have approached us to say that they cannot afford to pay the supplementary rate. They have asked hon. Members "Why don't you do something about it?" After all, they argue, Parliament lays down the rules under which local government operates. Those people look to Parliament to review the arrangements to see whether they are adequate in the light of present-day conditions.
  We are responding to people throughout the country who say that Parliament should do something. The Secretary of State is attempting to do something. I am certain, knowing my right hon. Friend as I do, that he is as reluctant as any hon. Member to take the powers proposed in the Bill. Like any hon. Member, however, my right hon. Friend cannot stand idly by while many people, who are not well off, are so worried about their supplementary rates that they feel they cannot afford to heat their homes properly and cannot easily contemplate their budgeting for the year ahead. These are matters that hon. Members should have in mind when taking a decision tonight.
  8.55 pm
  Mr. Stephen Ross: It is clear that the last few speeches have come from hon. Members with a knowledge of local government, and I welcome their contributions. The hon. Member for Uxbridge (Mr. Shersby) criticised the Bill, but then said that he felt that the Secretary of State was justified in taking the actions that he proposed.
  Nearly all the speeches to which I have listened have talked about people's inability to pay rates or

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  supplementary rates, but we have had no reference to the numbers of ratepayers, including constituents of mine, who have been asking in the last few days for more work to be done clearing footpaths and roads. We have had no reference to local industries which expect roads to be repaired for their lorries. I am sure that that has happened in Wales, which has suffered so badly during the recent adverse weather conditions. I can assure the House that it has happened in my constituency. I get an enormous number of inquiries from small businesses asking for help of one sort or another. We are not discussing a one-sided argument or a constant moan against the rates. People expect better services and want their local authorities to provide them. Unfortunately, in most cases the local authorities have not been financially able to do so.
  I want especially to congratulate the hon. Member for Buckingham (Mr. Benyon). His was an honest speech. It is obvious that the hon. Gentleman feels very deeply about what he sees as the ultimate effect of the Bill. I, too, believe it to be unnecessary and dangerous. The ultimate effect may be far greater than is appreciated on the Treasury Bench.
  I am opposed to the whole Bill, although I recognise that there has been some unnecessary and even wanton expenditure by a few local authorities, but the general public already have the answer. We have seen some of the results of local elections in the past 12 months and how those who, in the eyes of the public, have been guilty of exceeding their authority have suffered at the polls. At the end of the day, the public will call the tune and show their feelings in the best way possible, which is at the ballot box.
  I hope that I am responsible. I am probably the only hon. Member who is also leader of a county council and will have to present a budget in a week or two. I have occupied that position for the past nine months, and I recall what happened when my party came to power and took over from a Conservative council which had drawn up a budget that was a bit too near the bone. Our predecessors had not left enough in our balances. Last summer, when we had first the clawback and then the penalty imposed upon us, it was necessary for us to look for savings or cuts of £2¾ million when in our balances we had less than £2 million.
  Much as I should have hated the idea of being the first Liberal leader of a council to impose a supplementary rate, it seemed likely that we would have to introduce one, even though we had not spent anything new by then. If the Secretary of State had not changed the rules in September and introduced the GRE basis to replace the volume targets, we would have had to go for a supplementary rate because we would have moved into debt and would then have been trading illegally.
  That position could arise again for local authorities in the coming year. That is why I say that it is wrong to remove the right to raise a supplementary rate. There can be excellent reasons why an authority should go to the public and say that it is obliged to raise such a rate. There might be times when it had massive public support for doing so. The public might ask the council what it was doing about unemployment and about some of the damage caused by recent disasters. They would much prefer the local authority to levy a 3p or 4p rate to raise the necessary money to perform some job than to borrow it at an interest rate of 15 per cent. or more and have to find that money in the next financial year.
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  There are times when a local authority, if it appealed to the public properly, would be encouraged by electorate to levy a supplementary rate. Therefore, it is wrong to do away with supplementary rates. I am sorry that the local authority associations—the ACC and the Association of District County Councils—seem to have rejected that argument and to have accepted a sort of compromise in saying "All right, let us do away with the supplementary rate and have a real go at part II". They are wrong. We should fight to the bitter end.
  No responsible authority wants to levy a supplementary rate, but there are occasions—we are going through periods of high inflation—when the unexpected happen and a local authority might have to do so, and it might be the right thing to do. It is a pity to allow that power to go without a real fight. I hope that there will be one.
  Local authorities will now undoubtedly be overcautious and will build up their balances to protect themselves against a rainy day. My council feels that that will be necessary if we are to get through the coming financial year and if part II becomes law. Frankly, we do not know where we stand. If we have a clawback and then further penalties, we shall need sufficient balances to meet that. That, surely, is prudent financing.
  The uncertainty of part II is diabolical. It will mean building up against possible future clawbacks or perhaps grant abatement, should the Secretary of State so decide. We shall not know about that until June at the earliest. That was the time last year. We did not know about the change of policy until September, when we had already put wheels in motion to raise a supplementary rate. Thank God we were able to cancel it, but that cost money.
  There is a further difficulty, which I shall put directly to the Minister, because only he can answer it. In the council chamber last week I received a note from my county treasurer. Incidentally, I pay tribute to all county treasurers and treasurers of local authorities because, they are without doubt, very able and responsible people and we value their advice. His note said:
  "We have just received a message from the ACC's financial advisers that the DoE have made some sort of error in the data they have used in the provisional GREs of 21st December."
  Perhaps they "skewed" them wrongly.
  "The DoE are unable (or unwilling) to give details yet but warn that it could be significant for some authorities.
  The RSG order comes up on 25th January—exactly seven days before our Budget meeting and could mess up our strategy."
  Is there any chance that the Minister can give us the information that he apparently will not give to the ACC? Has an error been made in the calculation of GREs, and will we at the last minute find a further clawback of money of which we did not know before? That would be diabolical, because we are already far advanced in our plans for setting the rate. We very much hope that it will be within the GRE limits and within the guidelines set out by the Secretary of State. I can promise the Minister that we shall not spend more money than is prudent in our view.
  I recently attended a committee meeting—and this is typical—because I thought I had found something which could be cut. Our amenities and leisure committee wanted to appoint a site and monuments officer. I went in to the meeting hot foot to say that we could probably do without such an appointment, but the county librarian read me a letter from the Department of the Environment which made clear that the Secretary of State wants us to make such an appointment. The letter stated,

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  "There is no conflict to be seen between this initiative by the Inspectorate of Ancient Monuments and the Secretary of State's call for local authorities to monitor closely expenditure and staffing levels. For, in making this call, the Secretary of State's aim was to promote greater interest and a better balanced debate at local level on the relation of manpower and resources in the financial situation. It was not his intention to inhibit developments in this important area of our work."
  —namely, the protection of county sites and monuments. End of story. We are appointing a county sites and monuments officer. The Department of the Environment is funding half of the money for one year but after that the expenditure is totally ours. I am all in favour of recording our sites and monuments. However, it takes the ground from under one's feet when officers are able to read out such letters.
  I am opposed to part II. It is far too uncertain and some changes must be made to the Bill. It is unfair to leave local authorities in the dark about what the future may hold.
  When part III was first announced by the Minister I thought that there might be something in it. However, the more I look at it the more I feel that it is unnecessary. The present situation works pretty well. Local authorities have cost-effectiveness committees and manpower watches and the local authorities management services and computer committee gives us all the advice that we need. It is against current thinking to set up another such body and it is unnecessary. Hon. Members from both sides of the House have criticised the Audit Commission. The chartered accountants Arthur Young, McLelland and Moores are a nationally known firm and they have produced a good document about the Audit Commission. There is much criticism of the proposal, although the firm is in favour of it. I hope that there will be changes in the method of appointment of its members. Nevertheless, the com-mission is unnecessary. On the whole, local government is desperately trying to keep within the Government's guidelines, as it has always tried to do. Central Government should show more faith in local government. Above all, a Conservative Government should have more faith in locally elected representatives. It is a tragedy that a party that has always talked about devolving power and giving more responsibility at a local level should—as the hon. Member for Buckingham clearly stated—take such power away.
  9.6 pm
  Mr. Anthony Steen: All the ratepayers who are crammed into the Strangers' Gallery and all those who are listening to the debate on the radio, with their ears to the speakers, must be avidly trying to gather whether they will get better value for money as a result of the Bill. All ratepayers must be asking themselves whether they will get a better service for their local authority's expenditure. That is at the heart of the Bill and that is what ratepayers are concerned about. It is also a question for the Audit Commission. It must ask itself whether it can find a way of giving ratepayers better value for money.
  If the Audit Commission sees that ratepayers will get better value if the local authority contracts a service out to private enterprise, or that there is no need for a service, it should be able to say so. There is no point in setting up another quango if it has to remain silent. It must have a
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  voice with which to speak up and to say which questions should be answered by local authorities.
  If the Audit Commission sees that a local authority is not buying the best available, and continues to operate costly services, services that have a bad performance record, or services that private enterprise is likely to carry out more efficiently and economically, it should be able to say so, even if the local authority ultimately has to decide whether to take that advice.
  In response to a question, the Secretary of State blurred whether the auditors could question the prudence of local authorities. I hope that the Minister will let us know whether the Audit Commission can question a local authority's wisdom, even though it is for the local authority ultimately to decide what it wants to do. The Audit Commission's job should be not just to see that current public services are maintained, but to satisfy itself that the level of efficiency needs the present number of staff. It should satisfy itself that the rise in the number of local authority employees—from 2,154,000 in 1965, to 3,013,000 in 1980—is justified. It will need to consider whether the provision of more social and community workers has resulted in better community relations. It will need to satisfy itself that the provision of more planners has helped to reduce inner city decay. It must consider whether matters have become worse or better.
  Why can it not remind the local authority that private firms are less at the unions' mercy, that they benefit from commercial experience by carrying out the jobs for which they contract, and that there would be a reduction in the number of public officials on the local authority payroll?
  The Audit Commission should also be able to consider the number of working days lost because of industrial disputes in local authorities. We know that in 1977 1,236,000 days were lost in industrial disputes. In 1979, 2,563,000 days were lost. In 1980, the first real year of the Conservative Government, only 261,000 days were lost as a result of industrial disputes. The commission should consider that matter.
  The commission must also have regard to what is happening in other local authorities such as Southend, which my hon. Friend the Member for Reading, North (Mr. Durant) mentioned. He said that the council is saving £500,000 a year by utilising private contractors for cleansing services and refuse collection. Similar arrangements in Liverpool would lop £1 million from the council's £6 million annual bill, which includes nearly £300,000 for the administration of cleansing services. With public sector spending in excess of £1 billion a year for cleaning services and local authorities spending a further £300 million a year on internal cleaning, there is great scope for saving money and for the private entrepreneur.
  Nor should the Audit Commission confine its observation to local authorities who switch from private to public sector only for refuse collection. Private firms can keep roads gritted. We know what has happened during the recent appalling weather. The failure of the Liverpool city council to clean the side streets was disgraceful. We wish to see more private enterprise cleaning the side roads and keeping them gritted. Private enterprise can run school bus services, run day nurseries, maintain street lighting, erect bus shelters, organise grass verge cutting and maintain street signs.

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  McDonalds, the hamburger chain, provides varied and nutritious school meals in one American State. Would not our children prefer a McDonald's bill of fare to what comes out of most local authorities' kitchens?
  The build-up in the numbers of professional people seeking refuge in the sanctuary of public service rather than competing in the cut and thrust of private enterprise is well illustrated by the numbers of architects currently employed in the public sector. In 1978, 1,351 architects and their assistants were employed by central Government, 1,569 were employed in nationalised industries and 6,537 were employed in local government. Those numbers could be reduced considerably if fewer buildings remained in public ownership, building control regulations were relaxed and private architects tendered for new public buildings rather than have them designed automatically by in-house teams.
  As matters stand, local authorities are top-heavy with professionals. In addition to the architects and architectual assistants—Manchester metropolitan district employs 462 and Birmingham metropolitan district employs 197—many of the larger departments have staffs of structural engineers, structural engineers' assistants, quantity surveyors and their assistants, environmental engineers and their technicians, building surveyors, land surveyors and their respective assistants, and lawyers and their assistants. Manchester metropolitan district employs 111 lawyers and their assistants, whereas Birmingham metropolitan district employs 127. Manchester metropolitan district employs 150 planners whereas Birmingham metropolitan district employs 360. In Birmingham there are 960 accountants and financial assistants, and in Manchester 407. All are on the public payroll. They cost more and are often less effective than their counterparts in private practice. Will the Minister ensure that the Audit Commission can look at such things and that it will recognise the scope for private enterprise in community and social services?
  Paid neighbourly care could result in daily visits by a local housewife to old and lonely people near at hand. With nearly 10 per cent. of the city's population of pensionable age, the welfare services cannot cope with anything more than emergencies, so it usually makes contact with less than 20 per cent. of the aged.
  Most cities have suffered from managerial collapse at the town hall. They lack the skilled and far-sighted officials necessary for the long and sustained effort to cut costs, red tape and the numbers employed. Nor is it likely that those currently there have much desire to dismantle the vast edifice of public democracy which they have been responsible for building up and on which so many careers depend.
  Those are the questions that I would expect the Audit Commission to ask. It is no good the Government just talking about private enterprise. We need action.
  9.16 pm
  Mr. Dafydd Wigley: It is gratifying to see that Wales can be squeezed in at about 9.15 pm at the end of the debate, especially when hon. Members who have come in only in the middle of the debate are called and I have not missed a minute of it.
  What has happend in Wales in the past week or so is pertinent to our debate. Hundreds of thousands of pounds have been spent by local authorities which could not have foreseen the severe weather conditions, which are
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  probably the worst for a generation or two. The Government tell the local authorities that if they wish they can undertake the extra work and that if expenditure goes over what a penny rate in the pound can produce—more on some interpretations—the Government may provide extra funds. That is the Government's formula for local authorities in Wales to deal with the unforeseen eventuality, and it is central to what we are debating.
  The hon. Members for Buckingham (Mr. Benyon), for Preston, South (Mr. Thorne), for Blaydon (Mr. McWilliam), and speaker after speaker, have said that the Bill is a disaster and a threat to local government. Hitler's first action in Germany was to erode local government power. When democracy was reintroduced, the first step was to set up a strong system of decentralised government. Although the Secretary of State may not be aware of it, he is opening the door for the situation to be used in such a way.
  Far from being an interim measure, I see the Bill as a clear sign that there is not the slightest possibility in this Parliament of steps being taken to scrap the local rating system. The progressive attack on local government over the past three years has got under one's skin. The Bill is an attempt to keep the pot boiling in the local authority witch hunt.
  We should remember that we have placed many responsibilities on local authorities, and it is not surprising that it is more and more difficult for them to find the money for the services. However, over the past six years local authority expenditure on a constant basis has decreased by 21 per cent., although central Government expenditure has increased by 8 per cent., yet the venom in Bill after Bill is directed at local authorities and not at the Government.
  Paragraph 11 of the White Paper published in September 1979, which deals with Government controls over local authorities, states:
  "Apart from the plethora of specific controls by Government departments over the activities of local authorities, many statutory duties have been placed upon them in the past. The Government's objective is to provide councils with greater local discretion and automony".
  However, all we see is the further centralisation to which speaker after speaker has referred.
  A constitutional sledgehammer is being used to crack an economic nut. How often are supplementary rate increases imposed? What proportion of local authority expenditure is covered by supplementary rate increases? The problem is minuscule compared with the door that we will open by the proposed change.
  I am chiefly concerned about two areas of the Bill. First, local authorities will lose their flexibility in spending. We have heard what happens when control of a local authority passes from one party to another. It is the right of the incoming party to pursue its policies, whatever they may be. The Bill is slanted in one direction. If a radical party takes power and wishes to spend more it will be prevented from doing so, but if a reactionary party takes power and wishes to spend less it will not be prevented from doing so.
  The words "economy" and "efficiency" have been used. The word "economy" has taken on a political meaning during recent months, as in the case of the GLC problems with transport. Therefore, if the commissioners and the Government are placing special emphasis on the

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  economic performance of duty, that is a declaration of political intent. It will be a political job for those appointed to monitor the system.
  Local authorities will be placed in an impossible position. They will not know what their real income will be in the year for which they have to decide the level of rates. They will not know the exact amount that they will receive through grants. If they do not receive the full grant that they expect, they will be prevented from levying a supplementary rate. As a result, essential services will be cut, and that will be a severe body blow to all. To say that special temporary borrowing will be sufficient to overcome the problem puts all the powers into the hands of the Secretary of State. It is yet another element of the centralism in the Bill.
  My other main area of concern relates to the Audit Commission. It is a centralising factor, as can be seen in schedule 1(3), which deals with the Secretary of State's powers to give directives to the commission. We shudder when we think of the possibilities in that direction. The key jobs will be controlled by the Secretary of State. The commission will be a central body that will pursue the policies of that Government to the detriment of local government.
  There is not sufficient time to consider in detail many aspects of the Bill. They must be discussed in Committee. For example, there is a contradiction between clauses 11 and 22. Clause 11 advocates freedom of information, while clause 22 runs directly contrary to that. There is a question of public interest in clause 9(3) and its political implications.
  Misgivings about the Bill have been expressed by every Conservative speaker bar two. If, despite that, the Bill goes ahead, certain safeguards must be provided. There must be a strong local voice on the Audit Commission. No power should be given to issue directives to local authorities about their policies. Local authorities must retain the right to appoint their auditors. The staff of the commission must be independent of the Government. There must be an appeal procedure against the decisions of the commission.
  There are many issues that must be considered at great length. I hope that there will be an opportunity to do so in Committee. If we go down the proposed road without sufficient thought, we shall enter a new chapter in the political structure of the United Kingdom. That could lead to something that none of us has foreseen.
  9.24 pm
  Mr. Gordon Oakes: Every English and Welsh Member has a vital and important interest in the debate. Almost certainly, their district and county councils—whatever their political complexion—are opposed to what the Bill attempts to achieve. The hon. Member for Buckingham (Mr. Benyon) made what I am sure the House will agree was a characteristically honest and courageous speech and he stated that it was surprising—I underline this—how few Members from both sides of the House had attended the debate. At least all four parties whose members have contributed to the debate will vote against the Bill. Conservative Members share a greater degree of blame in that they missed many excellent speeches from their colleagues and they were also opposed either in entirety, as the hon. Member for
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  Buckingham explained, or to most of the Bill's provisions. It should be astonishing, therefore, to see them in the Government Division Lobby. With the reservations they expressed, they must surely vote against the Bill or at least abstain.
  As my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) stated in his opening speech, it is not only hon. Members who oppose the Bill; the three local government associations—two of them Conservative and one Labour-controlled—all oppose the Bill and nearly every provision in it. Indeed, to varying degrees, they are opposed to every provision in it.
  The Bill is opposed because it is of vital significance to local democracy as we have known it for decades—indeed, one could almost say for centuries. It cuts at the root of local democracy and breaks a constitutional partnership which has existed between central and local government and almost sacrifices it at the whim of the Secretary of State for the Environment.
  Conservative Members showed courage and devotion to local government only a few weeks ago when they opposed the Secretary of State's No. 1 Bill. I admired that. How did they square themselves with voting for this Bill? The Secretary of State mentioned that there were some 30 authorities with supplementary rates but we still get supplementary bills. There was a Local Government and Planning (No. 1) and a (No. 2) Bill. Hon. Members in Committee found Nos. 3, 4 and 5 Bills being advanced. The same has again happened with this Bill—a No. 1 and a No. 2 Bill. How competent can the Department be? No other Department seems to have No. 1 and No. 2 Bills every time it attempts to do something.
  The basic difference in the No. 1 Bill was that it proposed that local authorities should hold a referendum if they wanted to impose a second supplementary rate. Surely the Conservative Members who were so opposed to that were not merely opposed to the idea of a referendum. What they were opposed to and what their authorities had been saying to them was that the mischief of the Bill was the attack on local democracy. What does this Bill do? It takes out the referendum, but it does not allow a local authority even one supplementary rate, never mind a referendum, before a second supplementary rate.
  There was talk among many Conservative Members about the interim nature of the Bill. I cannot find anything interim in it. If it were an interim Bill, it would have to be renewed before the House. There is nothing to say that it will be renewed. I hope that the Minister for Local Government and Environmental Services will consider what he said on 12 November 1981:
  "Against the background that we must proceed as speedily as possible with the issues involved in the Green Paper, we nevertheless see a need for interim measures. I emphasise, as did my right hon. Friend the Secretary of State, that there are interim proposals. It was suggested that these measures should be on a time limited basis, possibly renewable annually or triennially. My right hon. Friend responded very positively to that proposal."—[Official Report, 12 November 1981; Vol. 12 c. 745.]
  That was the excuse used to try to get the Minister off the hook when so many of his hon. Friends opposed the No. 1 Bill.
  The No. 2 Bill is far more damaging and far worse for local authorities and local democracy than the No. 1 Bill ever was.
  A number of Conservative Members have said—this is so self-evident that I am amazed that the Government do

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  not recognise it—that the direct result of part I, especially coupled with part II, is that any prudent treasurer or chairman of a finance committee of a local authority—a job that I once held before I came to the House—will try to get the rate right the first time by building up balances for the authority. He will surely do that if he cannot levy a supplementary rate and if he can borrow only with the consent of the Secretary of State. It would be madness for the man or for the finance committee to do otherwise.
  Let us remember—I am not punning on the word—the climate in which the budget decisions are being taken. Local authorities have had to face enormous expenditures for which they probably did not budget. Putting salt on the roads and filling holes in the roads are only minor parts of a typical iceberg for local authorities. In the constituency of the hon. Member for Liverpool, Wavertree (Mr. Steen) there has been devastation among council houses. They will have to be repaired. Those who live in those houses will become a charge and a burden on the social service department. I have no doubt that that is equally true of parts of the constituency represented by the hon. Member for Caernarvon (Mr. Wigley).
  We depend on local authorities to carry out other functions. Many local authorities have had to look after and care for those who were trapped who did not live in their areas or in the constituencies of which they are part. We expect such things to happen. If I were back again as a chairman of a finance committee, I should bear very much in mind that I would not be able to raise a supplementary rate and that I could do nothing if I found myself in that difficult position.
  Part I of the Bill is worse than the No. 1 Bill. I hope that Conservative Members who had the courage to oppose the No. 1 Bill will have the courage totally to oppose the No. 2 Bill.
  I turn to the second part of the Bill, which begins with clause 4. It is a sort of Secretary of State general absolution clause for all sins past, present and future. It is one of the most retrospective pieces of legislation that I have ever seen before the House. It is naked retrospection because court decisions have been made against the right hon. Gentleman to which he has not yet responded or replied. He is using the House as an instrument to get him off the hook at the expense of crippling the financial arrangement between the Government and local authorities. That will be done at the expense of chaos for local authority finance committees throughout the country. There will be chaos for treasurers and finance committees.
  The mischief of the proposal that is set out in clause 4 is that the Secretary of State will be able to intervene in the affairs of an authority and change the grant after the level of grant has been fixed during the course of the grant year.
  The Secretary of State has said that it is terrible for a ratepayer suddenly to be faced with a supplementary rate. Very often the need for that supplementary rate has been created by the Government pruning too much the local authority's ability to expend. It will be even worse for the local authority if at any point in the grant year the Secretary of State can take a dislike to it, can intervene and can reduce the grant, coupled with the first three clauses that provide that no supplementary rate may be issued. Against that background we can see the mischief that the Bill is doing to the constitutional pattern between central Government and local authorities as we have known it.
  110
  The associations and practically every authority, regardless of political complexion, have completely and bitterly opposed the Bill.
  Yet less than two years ago the Secretary of State said on Second Reading of the Local Government, Planning and Land (No. 2) Bill, on 5 February 1980:
  "The new system in no way sets limits to what an authority spends, nor does it fix the level of an authority's rates. Those decisions remain with the authority."—[Official Report, 5 February 1980; Vol. 978, c. 251.]
  That is not so any more. We said during the course of that Bill that it was only a paving stone on the way to more draconian measures taken by the Government on a policy of centralism against local government and local democracy. I repeat to Conservative Members that, regardless of political complexion, the measures affect and tie in not only Labour controlled authorities, but Conservative controlled authorities, which have tried to be prudent but are utterly bewildered with the grant-related expenditure. It changes almost weekly and those authorities must read the gobbledegook that is meaningless to us and must be equally meaningless to the treasurer of a local authority.
  I hope that when he replies the Minister for Local Government and Environmental Services does not look only at his own words, which have been often quoted by the hon. Member for Buckingham (Mr. Benyon), among others, but at his Secretary of State's words, and that he realises that he must eat those words because a number of his hon. Friends like the hon. Member for Buckingharn were seriously concerned on Report. I was on the Front Bench when it was happening and I saw that they were on the point not only of abstaining but of joining the Opposition to vote against that Bill. There were not one or two, but nearly a dozen. Because of the soothing words of the Minister of State, they backed the Government. Now, presumably, they are sorry. The Minister of State must explain to those hon. Members why those words are no longer true. There is no doubt that they are no longer true as a result of the Bill today.
  I am not really surprised at the attention that part III ha s received. It contains important provisions, but compared to the damage done by parts I and II they are minor and minuscule provisions. However, even they are bitterly opposed by the local authority associations and by professional bodies. When he outlined the proposals, the Secretary of State had the impertinence to call to his aid the independence of the audit system, where the chairman of the Audit Commission is appointed by the Secretary a State. The deputy chairman is appointed by the Secretary of State. Every member of the Audit Commission appointed by the Secretary of State. That is significant with regard to quangos. One of the Conservative Members made a good point when he said that at least professional associations should have a say in decisions rather than the Secretary of State.
  Worse still, the hands of that body are tied. Schedule 1(3)(1) enables the Secretary of State to give the commission
  "directions as to the discharge of its functions and the Commission shall give effect to any such directions."
  So much for independence! The Secretary of Slate appoints the members and gives the directions. The commission has the power and the right not only to look at the ordinary accounts of the authority for the effectiveness and legality of its policy decisions, as in the

  111
  present audit arrangements, but clause 9(1)(c) goes further, as a number of hon. Members have said. It says that the auditor shall satisfy himself
  "that the body whose accounts are being audited has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources and in the carrying out of its policies."
  That is not policy. It is management. The commission, set up by the Secretary of State, his creature, obeying his directions by statute, is looking not only at policy decisions but at management.
  Under clause 19, powers are given to the commission to engage in studies. To me, studies always had an academic context, but now they have a more sinister one. If it studies something and issues a report which local authorities do not follow to the letter, what will happen to the local authorities? There is no true independence here.
  When we discuss these provisions in Committee, I hope that the Secretary of State will pay heed to the views of the Public Accounts Committee, the professional associations and the local government associations and will not retain this egotistical power to create his own creature which can sweep the land looking at local authorities and getting its own way because of the statutory power that this Bill gives to it.
  This is a most devastating Bill. Of the 31 clauses, not to mention the four schedules which themselves cover 10 pages, there is not one clause, not even a subsection, which is not opposed by someone, each one normally being opposed by everyone.
  As my right hon. Friend the Member for Ardwick said at the outset of the debate, we shall fight this Bill not only clause by clause but line by line and word by word—whether on the Floor of the House, as I hope that it will be since it is a constitutional matter, or in Standing Committee. Only the present Secretary of State for the Environment would have the arrogance to believe that a Bill of this nature could possibly receive Royal Assent by the date on which its major proposals are designed to come into effect—All Fools' Day 1982.
  9.42 pm
  The Minister for Local Government and Environmental Services (Mr. Tom King): As the House knows, the Bill is divided into three parts. It may help hon. Members if I deal with a number of specific points at the outset.
  My hon. Friend the Member for Reading, North (Mr. Durant) referred to water authorities. As my right hon. Friend the Secretary of State made clear in opening the debate, we feel that their position is more akin to that of nationalised industries. As the hon. Member for Islington, South and Finsbury (Mr. Cunningham) said, the Bill will have the effect of removing the power of objection from individual ratepayers, but it will bring the water authorities into line with nationalised industries in that they are subject to the Monopolies and Mergers Commission, their auditors will be appointed by the Secretary of State and there will be answerability to the House and its Select Committees on their behaviour. I am sure that with the energy that the hon. Gentleman's constituents have shown in this matter they will find adequate ways of continuing to monitor the water authority in their area.
  The hon. Member for Greenwich (Mr. Barnett), in referring to comparisons of GREs, spoke only of standards
  112
  of service. He will know that, like the previous needs assessment, the size of the client groups also influences the overall GRE per head—a point that he perhaps did not take fully into account in his contribution.
  The hon. Member for Woolwich, East (Mr. Cartwright), who referred to mandarin groups determining GREs for particular areas, is perhaps not familiar with the complex network of grant working groups and expenditure sub-groups, comprising considerable numbers of local authority representatives, who combine together throughout the year in the work that forms the basis for the GRE assessment for the various authorities.
  The hon. Member for Goole (Dr. Marshall) referred to the problems of the drainage rate. He and I have corresponded on this and I am aware of the problem. I do not conceal from the House the fact that it raises difficulties. I am willing to look at the matter again, although I should make clear that I do so without commitment. Nevertheless, I shall genuinely look at it again, as he raised a perfectly fair point today, as he has done on previous occasions.
  My hon. Friend the Member for Buckingham (Mr. Benyon) referred to the arbitrary power, as he saw it, of the Secretary of State in a number of these matters. I make once again the point that I have made before to my hon. Friend and to the House in this connection. Any decisions made by my right hon. Friend, and any determinations that he wishes to make, are subject to the approval of the House. That safeguard exists at all times in any of the proposals that we make in this respect.
  I stand by the statement that I made on an earlier occasion, which has been quoted by a number of hon. Members. It remains the case that, while the Government still have a responsibility for the distribution of grant, the levels of rates are the responsibility of the the local authorities. They have to determine them and remain answerable to their electorate.
  The hon. Member for Preston, South (Mr. Thorne) found difficulty in finding any evidence of overspending by local authorities. However, the latest figure that I have is £1,300 million for the current year. If the hon. Gentleman fails to regard that as a signififcant level of overspending, I am not sure what he would regard as a serious level.
  My hon. Friend the Member for Peterborough (Dr. Mawhinney) made it clear that it is against that background that the Government have been forced to act. The Labour Government, faced with a similar problem, were also forced to act, although they now prefer not to draw the attention of the House to that too frequently.
  My hon. Friend the Member for Uxbridge (Mr. Shersby) spoke of the qualified privilege of auditors. My understanding is that that already exists for auditors in their work, and it will continue to do so both for district auditors and for approved auditors.
  Mr. McWilliam rose—
  Mr. King: If the hon. Gentleman will forgive me, I am trying to cover a number of detailed points which I know hon. Members will wish me to cover.
  Mr. McWilliam rose—
  Mr. King: The hon. Gentleman is putting me in a difficult position.
  The hon. Member for Isle of Wight (Mr. Ross) asked about lowering the GRE. There is no error in the GREs.

  113
  What we are seeking to do is to use the very latest information, including information on capital allocations, that affect loan charges for local authorities in their GREs. We will incorporate that as well to avoid one of the problems experienced this year, when there was a substantial adjustment in the GREs to take account of capital allocation. Those figures will be available this week and the effect will be about minus £56,000 for the Isle of Wight—that is an estimation. The hon. Gentleman may look as if the world has come to an end for him, but it is 0·15 per cent. of the authority's GRE, which is not a substantial change. That information will be available shortly.
  I understand the point raised by the hon. Member for Caernarvon (Mr. Wigley) about costs for disasters and special emergencies. As he correctly stated, the Government have made it clear that, as with the policy followed by the previous Government, for emergency expenditure over the product of the penny rate the Government will be prepared to pay 75 per cent. of the extra cost. That was the formula adopted by the previous Government, which we feel is helpful, and we intend to make clear the ways in which it will be covered in respect of block grant and any penalties so that it will be possible to meet councils' points on that. In the past, emergency expenditure has been coped with without any need for a supplementary rate and I hope that it will be possible to continue to do so in the future. The authority should expect to cope with emergencies in the normal way.
  My hon. Friend the Member for Peterborough put clearly to the House the background of the Bill. The Government face a challenge to the traditional voluntary relationship between central and local government which has always been observed by local authorities and councils of all political denominations. Certain local authorities are no longer prepared to respect the traditional relationship in which the Government set overall expenditure levels and local government, as a whole, seek to achieve those objectives.
  Against that background of a serious level of overspend, with the problems that it causes not only for Government and public expenditure targets but, as we all know, for a considerable number of ratepayers, the Government decided that it was necessary to act.
  I am grateful for the support that I have received in respect of part I. My hon. Friends the Members for Carlton (Mr. Holland), for Devizes (Mr. Morrison), for Hornchurch (Mr. Squire), for Peterborough, for Uxbridge and for Reading, North all supported our proposal to ban supplementary rates. Whatever views are taken about supplementary rates, there is no doubt that in the past year they have caused considerable distress to individual ratepayers, particularly the elderly and pensioners faced with an unexpected bill. They have also posed particular problems for many sections of industry, which budgeted their costs and were faced with a serious extra burden. I therefore make no apology to the House for our proposals to ban supplementary rates.
  Mr. Guy Barnett: I am grateful to the right hon. Gentleman for giving way. I ask this question quite seriously. Has he or his right hon. Friend made a serious attempt to obtain the co-operation of the so-called overspenders in the way in which the previous Government did and obtained it? Have they seriously
  114
  attempted by negotiation through the consultative council and with individual local authorities to gain the kind of co-operation that he says they are seeking?
  Mr. King: I assure the hon. Gentleman that we did precisely that. Faced with problems over the levels of local government expenditure, we invited the local authority associations to put forward their own proposals on how the situation could be met. I understand their problems, but I must tell the House that they were unable to advance any alternative proposals to the ones that we have put forward. They told us that quite frankly. If the hon. Gentleman wishes to check what I have said, he will find that that is so.
  The difference between the present situation and the one faced by the hon. Member for Greenwich as a Minister in the previous Government is that on that occasion local authorities of an opposite political persuasion—Conservative authorities—recognised their responsibilities and co-operated in the national interest. Now authorities of a different persuasion from the Government are not prepared to recognise the national interest.
  Part II of the Bill has commanded a slightly less enthusiastic response in certain quarters of the House. We put forward this proposal because the alternative is to do what the previous Government did. If there was a need to hold back grant, just as they did in 1976, it was done across the board so that all paid equally. As a result, the most prudent paid as much as the most extravagant. We are not prepared to tolerate such a situation. The only way in which we can protect the prudent is by the use of multipliers contained in the Bill.
  I am well aware of the concerns of my hon. Friends over a mid-year adjustment of the grant. This raises serious issues, which were referred to by my hon. Friends the Members for Reading, North, for Devizes and for Uxbridge. I understand the difficulty. The matter has also been raised with us by the Association of County Councils and individual local authorities. I cannot give any commitment tonight, but my hon. Friends have put their arguments forcefully, and we shall look at them carefully.
  The right hon. Member for Manchester, Ardwick (Mr. Kaufman) referred to the problem of retrospection. We announced this proposal in January 1981. Considerable consultations have been held since then, and a number of exemptions have been made. Obviously, nothing will be effected unless the House gives approval.
  I now turn to part III. Contrary to what the right hon. Gentleman said, there is much wider support for this proposal than he suggested. The Layfield report made clear its belief in the need for an independent organisation responsible for local government audit. The advisory committee on local government audit—appointed by the Secretary of State for the Environment in the previous Government, and which we have not changed—also recommended it. It is the system that is applicable in Scotland and the system that the right hon. Gentleman's Government brought into effect in 1975 when they came into power and which they now find extremely offensive. We believe that it will combine the strengths of the district audit and the private sector accountants and make a more effective organisation for local government audit.
  My hon. Friend the Member for Carlton expressed concern about what he thought was an unfortunate form of quango. He was kind enough to pay tribute to my right

  115
  hon. Friend's record in what he referred to as "quango hunting". Our score at the moment is 64 to five, which is a fairly convincing win. We understand his concern, but I know that he does not carry his campaign to the extent of saying that on no occasion should such an organisation ever be set up if we believe that it is manifestly the right organisation. He is concerned about the growth of such bodies. We have made clear our support for his views by the action that we have taken in severely curtailing the number of organisations involved with our Department. We believe that this is the right body. We do not believe that a new body, separate from Government, composed exclusively of chartered accountants or professional bodies would be right.
  The powers of direction and the position in Scotland, to which the right hon. Member for Manchester, Ardwick (Mr. Kaufman) took exception, is the system that his Government put into effect in Scotland. In our view, it has no great handicap. The importance that the Audit Commission will attach to greater value for money is probably the most important single ingredient in the Bill. My hon. Friend the Member for Liverpool, Wavertree (Mr. Steen) referred to that and my hon. Friend the Member for Reading, North drew attention to the scope for economies that exists within local government. Contrary to what the hon. Member for Isle of Wight said, there is no doubt that LAMSAC, which has done much good work, has not had the impact that one would wish to see more widely in local government. We hope very much that the Audit Commission will have such an effect.
  The hon. Member for Blaydon (Mr. McWilliam) and the right hon. Member for Widnes (Mr. Oakes) were concerned that it would be the responsibility of the district auditor to look into economy, efficiency and effectiveness. We believe that they are important in local government. It is not a matter of determining the policies. The sentence should be read as a whole:
  "economy, efficiency and effectiveness … in the carrying out of its policies".
  The Bill does not put the district auditor into the position of determining the policy. It determines the economy, efficiency and effectiveness of carrying out that policy.
  In my judgment, the hon. Member for Woolwich, East, for a member of the SDP, came perilously close to making a policy statement. It was immediately picked up and welcomed, rather graciously, by my hon. Friend the Member for Peterborough only, unfortunately, for him to be accused of misrepresentation by the hon. Gentleman. He appeared to be paying tribute to the previous rate grant system, and he was singular in that respect.
  The right hon. Member for Ardwick made his typical speech. He started with a point of order and then announced that he was going to call for a Committee of the whole House. He made an amusing speech. I enjoyed it more than I should have done, because he dealt flippantly with serious issues. His main charge was an outrageous accusation that the Bill was prompted by the moneylenders of the City of London because we were making borrowing a first charge on the revenue of the authority. We took that provision specifically from the Local Government (Scotland) Act 1975, an Act of the right hon. Gentleman's Administration.
  We believe that this measure, which is an interim measure in advance of our proposals for rating reform, as
  116
  highlighted and foreshadowed in the Green Paper, is important and should command the support of the whole House.
  Question put, That the Bill be now read a Second time:—
  The House divided: Ayes 298, Noes 255.

  Division No.37]

  [10 pm

  AYES

  Adley, Robert

  Dykes, Hugh

  Aitken, Jonathan

  Eden, Rt Hon Sir John

  Alexander, Richard

  Edwards, Rt Hon N. (P'broke)

  Alison, Rt Hon Michael

  Eggar, Tim

  Amery, Rt Hon Julian

  Elliott, Sir William

  Ancram, Michael

  Emery, Sir Peter

  Arnold, Tom

  Eyre, Reginald

  Aspinwall, Jack

  Fairbairn, Nicholas

  Atkins, Rt Hon H. (S'thorne)

  Fairgrieve, Sir Russell

  Atkins, Robert(Preston N)

  Faith, Mrs Sheila

  Atkinson, David(B'm'th, E)

  Farr, John

  Baker, Nicholas(N Dorset)

  Fell, Sir Anthony

  Bell, Sir Ronald

  Fenner, Mrs Peggy

  Bendall, Vivian

  Finsberg, Geoffrey

  Benyon, Thomas(A'don)

  Fisher, Sir Nigel

  Best, Keith

  Fletcher, A.(Ed'nb'gh N)

  Bevan, David Gilroy

  Fletcher-Cooke, Sir Charles

  Biffen, Rt Hon John

  Fookes, Miss Janet

  Biggs-Davison, Sir John

  Forman, Nigel

  Blackburn, John

  Fowler, Rt Hon Norman

  Blaker, Peter

  Fox, Marcus

  Body, Richard

  Fraser, Peter (South Angus)

  Bonsor, Sir Nicholas

  Fry, Peter

  Bottomley, Peter (W'wich W)

  Gardner, Edward (S Fylde)

  Bowden, Andrew

  Garel-Jones, Tristan

  Boyson, Dr Rhodes

  Glyn, Dr Alan

  Braine, Sir Bernard

  Goodhart, Sir Philip

  Bright, Graham

  Goodhew, Sir Victor

  Brinton, Tim

  Goodlad, Alastair

  Britten, Rt. Hon. Leon

  Gorst, John

  Brooke, Hon Peter

  Gow, Ian

  Brotherton, Michael

  Grant, Anthony (Harrow C)

  Brown, Michael(Brigg&Sc'n)

  Gray, Hamish

  Browne, John(Winchester)

  Greenway, Harry

  Bruce-Gardyne, John

  Grieve, Percy

  Bryan, Sir Paul

  Griffiths, E.(B'ySt. Edm'ds)

  Buck, Antony

  Griffiths, Peter Portsm'th N)

  Budgen, Nick

  Grist, Ian

  Bulmer, Esmond

  Grylls, Michael

  Burden, Sir Frederick

  Gummer, John Selwyn

  Butcher, John

  Hamilton, Hon A.

  Butler, Hon Adam

  Hamilton, Michael(Salisbury)

  Cadbury, Jocelyn

  Hampson, Dr Keith

  Carlisle, John (Luton West)

  Hannam, John

  Carlisle, Kenneth (Lincoln)

  Haselhurst, Alan

  Carlisle, Rt Hon M. (R'c'n)

  Hastings, Stephen

  Chalker, Mrs. Lynda

  Havers, Rt Hon Sir Michael

  Channon, Rt. Hon. Paul

  Hawkins, Paul

  Chapman, Sydney

  Hawksley, Warren

  Churchill, W.S.

  Hayhoe, Barney

  Clark, Hon A. (Plym'th, S'n)

  Heath, Rt Hon Edward

  Clarke, Kenneth(Rushcliffe)

  Heddle, John

  Clegg, Sir Walter

  Henderson, Barry

  Cockeram, Eric

  Heseltine, Rt Hon Michael

  Colvin, Michael

  Hicks, Robert

  Cope, John

  Higgins, Rt Hon Terence L.

  Cormack, Patrick

  Hill, James

  Corrie, John

  Hogg, Hon Douglas(Gr'th'm)

  Costain, Sir Albert

  Hooson, Tom

  Cranborne, Viscount

  Hordern, Peter

  Critchley, Julian

  Howe, Rt Hon Sir Geoffrey

  Crouch, David

  Howell, Rt Hon D. (G'ldf'd)

  Dean, Paul (North Somerset)

  Howell, Ralph (N Norfolk)

  Dickens, Geoffrey

  Hunt, David (Wirral)

  Dorrell, Stephen

  Irving, Charles(Cheltenham)

  Douglas-Hamilton, Lord J.

  Jenkin, Rt Hon Patrick

  Dover, Denshore

  Jessel, Toby

  du Cann, Rt Hon Edward

  Johnson Smith, Geoffrey

  Dunn, Robert(Dartford)

  Jopling, Rt Hon Michael

  Durant, Tony

  Joseph, Rt Hon Sir Keith

  117

  Kaberry, Sir Donald

  Prentice, Rt Hon Reg

  Kershaw, Sir Anthony

  Price, Sir David (Eastleigh)

  Kimball, Sir Marcus

  Proctor, K. Harvey

  King, Rt Hon Tom

  Pym, Rt Hon Francis

  Knox, David

  Raison, Rt. Hon. Timothy

  Lamont, Norman

  Rathbone, Tim

  Lang, Ian

  Rees, Peter (Dover and Deal)

  Langford-Holt, Sir John

  Rhodes James, Robert

  Lawrence, Ivan

  Ridley, Hon Nicholas

  Lawson, Rt Hon Nigel

  Ridsdale, Sir Julian

  Lee, John

  Rifkind, Malcolm

  Le Marchant, Spencer

  Roberts, M. (Cardiff NW)

  Lennox-Boyd, Hon Mark

  Roberts, Wyn (Conway)

  Lester, Jim (Beeston)

  Rossi, Hugh

  Lewis, Kenneth (Rutland)

  Rost, Peter

  Lloyd, Ian (Havant & W'loo)

  Royle, Sir Anthony

  Lloyd, Peter (Fareham)

  Sainsbury, Hon Timothy

  Loveridge, John

  St. John-Stevas, Rt Hon N.

  Lyell, Nicholas

  Scott, Nicholas

  McCrindle, Robert

  Shaw, Giles (Pudsey)

  Macfarlane, Neil

  Shaw, Michael(Scarborough)

  MacKay, John (Argyll)

  Shelton, William(Streatham)

  Macmillan, Rt Hon M.

  Shepherd, Colin(Hereford)

  McNair-Wilson, M. (N'bury)

  Shepherd, Richard

  McNair-Wilson, P. (New F'st)

  Shersby, Michael

  McQuarrie, Albert

  Silvester, Fred

  Madel, David

  Sims, Roger

  Major, John

  Skeet, T. H. H.

  Marland, Paul

  Smith, Dudley

  Marlow, Antony

  Speed, Keith

  Marshall, Michael (Arundel)

  Speller, Tony

  Marten, Rt Hon Neil

  Spence, John

  Mates, Michael

  Spicer, Michael(S Worcs)

  Maude, Rt Hon Sir Angus

  Sproat, Iain

  Mawby, Ray

  Squire, Robin

  Mawhinney, Dr Brian

  Stainton, Keith

  Maxwell-Hyslop, Robin

  Stanbrook, Ivor

  Mayhew, Patrick

  Stanley, John

  Mellor, David

  Steen, Anthony

  Meyer, Sir Anthony

  Stevens, Martin

  Miller, Hal (B'grove)

  Stewart, A. (E Renfrewshire)

  Mills, Iain (Meriden)

  Stewart, Ian (Hitchin)

  Mills, Peter (West Devon)

  Stokes, John

  Miscampbell, Norman

  Stradling Thomas, J.

  Mitchell, David (Basingstoke)

  Taylor, Teddy (S'end E)

  Moate, Roger

  Tebbit, Rt Hon Norman

  Monro, Sir Hector

  Temple-Morris, Peter

  Montgomery, Fergus

  Thatcher, Rt Hon Mrs M.

  Moore, John

  Thompson, Donald

  Morgan, Geraint

  Thorne, Neil (Ilford South)

  Morris, M. (N'hampton S)

  Thornton, Malcolm

  Morrison, Hon C. (Devizes)

  Townend, John (Bridlington)

  Morrison, Hon P.(Chester)

  Townsend, Cyril D, (B'heath)

  Mudd, David

  Trippier, David

  Murphy, Christopher

  Trotter, Neville

  Myles, David

  van Straubenzee, Sir W.

  Neale, Gerrard

  Vaughan, Dr Gerard

  Needham, Richard

  Viggers, Peter

  Nelson, Anthony

  Waddington, David

  Neubert, Michael

  Wakeham, John

  Newton, Tony

  Waldegrave, Hon William

  Nott, Rt Hon John

  Walker, Rt Hon P. (W'cester)

  Onslow, Cranley

  Walker-Smith, Rt Hon Sir D.

  Oppenheim, Rt Hon Mrs S.

  Waller, Gary

  Osborn, John

  Walters, Dennis

  Page, John (Harrow, West)

  Ward, John

  Page, Richard (SW Herts)

  Warren, Kenneth

  Parkinson, Rt Hon Cecil

  Watson, John

  Parris, Matthew

  Wells, Bowen

  Patten, Christopher (Bath)

  Wells, John (Maidstone)

  Patten, John (Oxford)

  Whitelaw, Rt Hon William

  Pattie, Geoffrey

  Whitney, Raymond

  Pawsey, James

  Wickenden, Keith

  Percival, Sir Ian

  Wiggin, Jerry

  Peyton, Rt Hon John

  Wilkinson, John

  Pink, R. Bonner

  Williams, D. (Montgomery)

  Pollock, Alexander

  Winterton, Nicholas

  Porter, Barry

  Wolfson, Mark

  118

  Young, Sir George (Acton)

  Tellers for the Ayes:

  Younger, Rt Hon George

  Mr. Anthony Berry and

  Mr. Carol Mather.

  NOES

  Abse, Leo

  Flannery, Martin

  Adams, Allen

  Fletcher, Ted (Darlington)

  Allaun, Frank

  Foot, Rt Hon Michael

  Alton, David

  Ford, Ben

  Anderson, Donald

  Forrester, John

  Archer, Rt Hon Peter

  Foster, Derek

  Ashley, Rt Hon Jack

  Foulkes, George

  Ashton, Joe

  Fraser, J. (Lamb'th, N'w'd)

  Atkinson, N. (H'gey)

  Freeson, Rt Hon Reginald

  Barnett, Guy (Greenwich)

  Freud, Clement

  Beith, A.J.

  Garrett, John (Norwich S)

  Bennett, Andrew (St'kp't N)

  Garrett, W. E. (Wallsend)

  Benyon, W. (Buckingham)

  George, Bruce

  Bidwell, Sydney

  Gilbert, Rt Hon Dr John

  Booth, Rt Hon Albert

  Ginsburg, David

  Boothroyd, Miss Betty

  Golding, John

  Bottomley, Rt Hon A. (M'b'ro)

  Graham, Ted

  Bradley, Tom

  Grant, George (Morpeth)

  Bray, Dr Jeremy

  Grant, John (Islington C)

  Brocklebank-Fowler, C.

  Grimond, Rt Hon J.

  Brown, Hugh D. (Provan)

  Hamilton, James (Bothwell)

  Brown, R.C. (N'castle W)

  Hamilton, W.W. (C'tral Fife)

  Brown, Ronald W. (H'ckn'y S)

  Harrison, Rt Hon Walter

  Brown, Ron (E'burgh, Leith)

  Hattersley, Rt Hon Roy

  Buchan, Norman

  Haynes, Frank

  Callaghan, Rt Hon J.

  Healey, Rt Hon Denis

  Callaghan, Jim (Midd't'n & P)

  Heffer, Eric S.

  Campbell, Ian

  Hogg, N. (E Dunb't'nshire)

  Campbell-Savours, Dale

  Holland, S. (L'b'th, Vauxh'll)

  Canavan, Dennis

  Home Robertson, John

  Cant, R. B.

  Homewood, William

  Carmichael, Neil

  Hooley, Frank

  Carter-Jones, Lewis

  Horam, John

  Cartwright, John

  Howell, Rt Hon D.

  Cocks, Rt Hon M. (B'stol S)

  Howells, Geraint

  Cohen, Stanley

  Hoyle, Douglas

  Coleman, Donald

  Huckfield, Les

  Conlan, Bernard

  Hughes, Mark (Durham)

  Cowans, Harry

  Hughes, Robert (Aberdeen N)

  Cox, T. (W'dsw'th, Toot'g)

  Hughes, Roy (Newport)

  Craigen, J.M. (G'gow, M'hill)

  Janner, Hon Greville

  Crawshaw, Richard

  Jay, Rt Hon Douglas

  Crowther, Stan

  John, Brynmor

  Cunliffe, Lawrence

  Johnson, James (Hull West)

  Cunningham, G. (Islington S)

  Johnson, Walter (Derby S)

  Cunningham, Dr J. (W'h'n)

  Johnston, Russell (Inverness)

  Dalyell, Tam

  Jones, Rt Hon Alec (Rh'dda)

  Davidson, Arthur

  Jones, Barry (East Flint)

  Davies, Rt Hon Denzil (L'lli)

  Jones, Dan (Burnley)

  Davies, Ifor (Gower)

  Kaufman, Rt Hon Gerald

  Davis, Clinton (Hackney C)

  Kerr, Russell

  Davis, T. (B'ham, Stechf'd)

  Kilroy-Silk, Robert

  Deakins, Eric

  Kinnock, Neil

  Dean, Joseph (Leeds West)

  Lambie, David

  Dewar, Donald

  Lamborn, Harry

  Dixon, Donald

  Lamond, James

  Dobson, Frank

  Leadbitter, Ted

  Dormand, Jack

  Lewis, Arthur (N'ham NW)

  Douglas, Dick

  Lewis, Ron (Carlisle)

  Douglas-Mann, Bruce

  Litherland, Robert

  Dunlop, John

  Lofthouse, Geoffrey

  Dunnett, Jack

  Lyons, Edward (Bradf'd W)

  Dunwoody, Hon Mrs G.

  Mabon, Rt Hon Dr J. Dickson

  Eadie, Alex

  McCartney, Hugh

  Eastham, Ken

  McDonald, Dr Oonagh

  Edwards, R. (W'hampt'n S E)

  McElhone, Frank

  Ellis, R. (NED'bysh're)

  McKay, Allen (Penistone)

  Ellis, Tom (Wrexham)

  McKelvey, William

  English, Michael

  MacKenzie, Rt Hon Gregor

  Ennals, Rt Hon David

  Maclennan, Robert

  Evans, Ioan (Aberdare)

  McMahon, Andrew

  Evans, John (Newton)

  McNally, Thomas

  Faulds, Andrew

  McNamara, Kevin

  Field, Frank

  McTaggart, Robert

  Fitch, Alan

  McWilliam, John

  119

  Magee, Bryan

  Sheerman, Barry

  Marshall, D (G'gowS'ton)

  Sheldon, Rt Hon R.

  Marshall, DrEdmund (Goole)

  Shore, Rt Hon Peter

  Marshall, Jim (LeicesterS)

  Short, MrsRenee

  Martin, M (G'gowS'burn)

  Silkin, Rt Hon J. (Deptford)

  Mason, Rt Hon Roy

  Silkin, Rt Hon S. C. (Dulwich)

  Maxton, John

  Silverman, Julius

  Maynard, MissJoan

  Skinner, Dennis

  Meacher, Michael

  Smith, Rt Hon J. (N Lanark)

  Mellish, Rt Hon Robert

  Snape, Peter

  Mikardo, Ian

  Soley, Clive

  Millan, Rt Hon Bruce

  Spearing, Nigel

  Miller, Dr M. S. (E Kilbride)

  Spriggs, Leslie

  Mitchell, Austin (Grimsby)

  Stallard, A.W.

  Mitchell, R.C. (Soton Itchen)

  Steel, Rt Hon David

  Morris, Rt Hon A. (W'shawe)

  Stoddart, David

  Morris, Rt Hon C. (O'shaw)

  Stott, Roger

  Moyle, Rt Hon Roland

  Strang, Gavin

  Mulley, Rt Hon Frederick

  Straw, Jack

  Newens, Stanley

  Summerskill, HonDrShirley

  Oakes, Rt Hon Gordon

  Taylor, Mrs Ann (Bolton W)

  Ogden, Eric

  Thomas, Dafydd (Merioneth)

  O'Halloran, Michael

  Thomas, Jeffrey (Abertillery)

  O'Neill, Martin

  Thomas, Mike (Newcastle E)

  Orme, Rt Hon Stanley

  Thomas, Dr R. (Carmarthen)

  Owen, Rt Hon Dr David

  Thorne, Stan (Preston South)

  Palmer, Arthur

  Tilley, John

  Park, George

  Tinn, James

  Parker, John

  Torney, Tom

  Pavitt, Laurie

  Varley, Rt Hon Eric G.

  Pendry, Tom

  Wainwright, E. (Dearne V)

  Penhaligon, David

  Wainwright, R. (Colne V)

  Pitt, William Henry

  Walker, Rt Hon H. (D'caster)

  Powell, Raymond (Ogmore)

  Watkins, David

  Prescott, John

  Wellbeloved, James

  Price, C. (Lewisham W)

  Welsh, Michael

  Race, Reg

  White, Frank R.

  Radice, Giles

  White, J. (G'gow Pollok)

  Rees, Rt Hon M (Leeds S)

  Whitehead, Phillip

  Richardson, Jo

  Whitlock, William

  Roberts, Albert (Normanton)

  Wigley, Dafydd

  Roberts, Allan(Bootle)

  Willey, Rt Hon Frederick

  Roberts, Ernest (HackneyN)

  Williams, Rt Hon A. (S'sea W)

  Roberts, Gwilym (Cannock)

  Williams, Rt Hon Mrs (Crosby)

  Robertson, George

  Wilson, Rt Hon Sir H. (H'ton)

  Robinson, G. (Coventry NW)

  Winnick, David

  Rodgers, Rt Hon William

  Woodall, Alec

  Rooker, J.W.

  Woolmer, Kenneth

  Roper, John

  Wrigglesworth, Ian

  Ross, Ernest (Dundee West)

  Wright, Sheila

  Ross, Stephen (Isle of Wight)

  Rowlands, Ted

  Tellers for the Noes:

  Ryman, John

  Mr. Ron Leighton and

  Sandelson, Neville

  Mr. George Morton.

  Sever, John

  Question accordingly agreed to.
  Motion made, and Question put, That the Bill be committed to a Committee of the whole House.—[Mr. Michael Cocks.]
  The House divided: Ayes 251, Noes 297.

  Division No. 38]

  [10.15 pm

  AYES

  Abse, Leo

  Booth, Rt Hon Albert

  Adams, Allen

  Boothroyd, Miss Betty

  Allaun, Frank

  Bottomley, Rt Hon A. (M'b'ro)

  Alton, David

  Bradley, Tom

  Anderson, Donald

  Bray, Dr Jeremy

  Archer, Rt Hon Peter

  Brocklebank-Fowler, C.

  Ashley, Rt Hon Jack

  Brown, Hugh D. (Provan)

  Ashton, Joe

  Brown, R.C. (N'castle W)

  Atkinson, N. (H'gey)

  Brown, Ronald W. (H'ckn'y S)

  Barnett, Guy (Greenwich)

  Brown, Ron (E'burgh, Leith)

  Berth, A.J.

  Buchan, Norman

  Bennett, Andrew(St'kp't N)

  Callaghan, Rt Hon J.

  Bidwell, Sydney

  Callaghan, Jim (Midd't'n &P)

  120

  Campbell, Ian

  Howells, Geraint

  Campbell-Savours, Dale

  Hoyle, Douglas

  Canavan, Dennis

  Huckfield, Les

  Cant, R. B.

  Hughes, Mark (Durham)

  Carmichael, Neil

  Hughes, Robert (Aberdeen N)

  Carter-Jones, Lewis

  Hughes, Roy (Newport)

  Cartwright, John

  Janner, Hon Greville

  Cocks, Rt Hon M. (B'stol S)

  Jay, Rt Hon Douglas

  Cohen, Stanley

  John, Brynmor

  Coleman, Donald

  Johnson, James (Hull West)

  Conlan, Bernard

  Johnson, Walter (Derby S)

  Cowans, Harry

  Johnston, Russell (Inverness)

  Cox, T. (W'dsw'th, Toot'g)

  Jones, Rt Hon Alec (Rh'dda)

  Craigen, J.M. (G'gow, M'hill)

  Jones, Barry (East Flint)

  Crawshaw, Richard

  Jones, Dan (Burnley)

  Crowther, Stan

  Kaufman, Rt Hon Gerald

  Cunliffe, Lawrence

  Kerr, Russell

  Cunningham, Dr J. (W'h'n)

  Kilroy-Silk, Robert

  Dalyell, Tam

  Kinnock, Neil

  Davidson, Arthur

  Lambie, David

  Davies, Rt Hon Denzil (L'lli)

  Lamborn, Harry

  Davies, Ifor (Gower)

  Lamond, James

  Davis, Clinton (Hackney C)

  Leadbitter, Ted

  Davis, T. (B'ham, Stechf'd)

  Lewis, Arthur (N'ham NW)

  Deakins, Eric

  Lewis, Ron (Carlisle)

  Dean, Joseph (Leeds West)

  Litherland, Robert

  Dewar, Donald

  Lofthouse, Geoffrey

  Dixon, Donald

  Lyons, Edward (Bradf'd W)

  Dobson, Frank

  Mabon, Rt Hon Dr J. Dickson

  Dormand, Jack

  McCartney, Hugh

  Douglas, Dick

  McDonald, DrOonagh

  Douglas-Mann, Bruce

  McElhone, Frank

  Dunlop, John

  McKay, Allen (Penistone)

  Dunnett, Jack

  McKelvey, William

  Dunwoody, Hon Mrs G.

  MacKenzie, Rt Hon Gregor

  Eadie, Alex

  Maclennan, Robert

  Eastham, Ken

  McMahon, Andrew

  Edwards, R. (W'hampt'n S E)

  McNally, Thomas

  Ellis, R. (NED'bysh're)

  McNamara, Kevin

  Ellis, Tom (Wrexham)

  McTaggart, Robert

  English, Michael

  McWilliam, John

  Ennals, Rt Hon David

  Magee, Bryan

  Evans, loan (Aberdare)

  Marshall, D (G'gowS'ton)

  Evans, John (Newton)

  Marshall, Dr Edmund (Goole)

  Faulds, Andrew

  Marshall, Jim (Leicester S)

  Field, Frank

  Martin, M (G'gowS'burn)

  Fitch, Alan

  Mason, Rt Hon Roy

  Flannery, Martin

  Maxton, John

  Fletcher, Ted (Darlington)

  Maynard, Miss Joan

  Foot, Rt Hon Michael

  Meacher, Michael

  Ford, Ben

  Mellish, Rt Hon Robert

  Forrester, John

  Mikardo, Ian

  Foster, Derek

  Millan, Rt Hon Bruce

  Foulkes, George

  Miller, Dr M.S. (E Kilbride)

  Fraser, J. (Lamb'th, N'w'd)

  Mitchell, Austin (Grimsby)

  Freeson, Rt Hon Reginald

  Mitchell, R.C. (Soton Itchen)

  Freud, Clement

  Morris, Rt Hon A. (W'shawe)

  Garrett, John (Norwich S)

  Morris, Rt Hon C. (O'shaw)

  Garrett, W.E. (Wallsend)

  Moyle, Rt Hon Roland

  George, Bruce

  Mulley, Rt Hon Frederick

  Gilbert, Rt Hon Dr John

  Newens, Stanley

  Ginsburg, David

  Oakes, Rt Hon Gordon

  Golding, John

  Ogden, Eric

  Graham, Ted

  O'Halloran, Michael

  Grant, George (Morpeth)

  O'Neill, Martin

  Grant, John (Islington C)

  Orme, Rt Hon Stanley

  Grimond, Rt Hon J.

  Owen, Rt Hon Dr David

  Hamilton, James (Bothwell)

  Palmer, Arthur

  Hamilton, W.W. (C'tral Fife)

  Park, George

  Harrison, Rt Hon Walter

  Parker, John

  Hattersley, Rt Hon Roy

  Pavitt, Laurie

  Haynes, Frank

  Pendry, Tom

  Healey, Rt Hon Denis

  Penhaligon, David

  Heffer, Eric S.

  Pitt, William Henry

  Hogg, N. (E Dunb't'nshire)

  Powell, Raymond (Ogmore)

  Holland, S. (L'b'th, Vauxh'll)

  Prescott, John

  Home Robertson, John

  Price, C. (Lewisham W)

  Homewood, William

  Race, Reg

  Hooley, Frank

  Radice, Giles

  Horam, John

  Rees, Rt Hon M (Leeds S)

  121

  Richardson, Jo

  Summerskill, Hon Dr Shirley

  Roberts, Albert (Normanton)

  Taylor, Mrs Ann (Bolton W)

  Roberts, Allan (Bootle)

  Thomas, Dafydd (Merioneth)

  Roberts, Ernest (Hackney N)

  Thomas, Jeffrey (Abertillery)

  Roberts, Gwilym (Cannock)

  Thomas, Mike (Newcastle E)

  Robertson, George

  Thomas, Dr R. (Carmarthen)

  Robinson, G. (Coventry NW)

  Thorne, Stan (Preston South)

  Rodgers, Rt Hon William

  Tilley, John

  Rooker, J. W.

  Tinn, James

  Roper, John

  Torney, Tom

  Ross, Ernest (Dundee West)

  Varley, Rt Hon Eric G.

  Ross, Stephen (Isle of Wight)

  Wainwright, E. (Dearne V)

  Rowlands, Ted

  Wainwright, R. (Colne V)

  Ryman, John

  Walker, Rt Hon H. (D' caster)

  Sandelson, Neville

  Watkins, David

  Sever, John

  Wellbeloved, James

  Sheerman, Barry

  Welsh, Michael

  Sheldon, Rt Hon R.

  White, Frank R.

  Shore, Rt Hon Peter

  White, J. (G'gow Pollok)

  Short, Mrs Renee

  Whitehead, Phillip

  Silkin, Rt Hon J. (Deptford)

  Whitlock, William

  Silkin, Rt Hon S. C. (Dulwich)

  Wigley, Dafydd

  Silverman, Julius

  Willey, Rt Hon Frederick

  Skinner, Dennis

  Williams, Rt Hon A. (S'sea W)

  Smith, Rt Hon J. (N Lanark)

  Williams, Rt Hon Mrs (Crosby)

  Snape, Peter

  Wilson, Rt Hon Sir H. (H'ton)

  Soley, Clive

  Winnick, David

  Spearing, Nigel

  Woodall, Alec

  Spriggs, Leslie

  Woolmer, Kenneth

  Stallard, A. W.

  Wrigglesworth, Ian

  Steel, Rt Hon David

  Wright, Sheila

  Stoddart, David

  Stott, Roger

  Tellers for the Ayes:

  Strang, Gavin

  Mr. Ron Leighton and

  Straw, Jack

  Mr. George Morton.

  NOES

  Adley, Robert

  Carlisle, John (Luton West)

  Aitken, Jonathan

  Carl isle, Kenneth (Lincoln)

  Alexander, Richard

  Carlisle, Rt Hon M. (R'c'n)

  Alison, Rt Hon Michael

  Chalker, Mrs. Lynda

  Amery, Rt Hon Julian

  Channon, Rt. Hon. Paul

  Ancram, Michael

  Chapman, Sydney

  Arnold, Tom

  Churchill, W.S.

  Aspinwall, Jack

  Clark, Hon A. (Plym'th, S'n)

  Atkins, Rt Hon H. (S'thorne)

  Clarke, Kenneth (Rushcliffe)

  Atkins, Robert (Preston N)

  Clegg, Sir Walter

  Atkinson, David (B'm'th, E)

  Cockeram, Eric

  Baker, Nicholas (N Dorset)

  Colvin, Michael

  Bell, Sir Ronald

  Cope, John

  Bendall, Vivian

  Cormack, Patrick

  Benyon, Thomas (A'don)

  Corrie, John

  Best, Keith

  Costain, Sir Albert

  Bevan, David Gilroy

  Cranborne, Viscount

  Biffen, Rt Hon John

  Critchley, Julian

  Biggs-Davison, Sir John

  Crouch, David

  Blackburn, John

  Dean, Paul (North Somerset)

  Blaker, Peter

  Dickens, Geoffrey

  Body, Richard

  Dorrell, Stephen

  Bonsor, Sir Nicholas

  Douglas-Hamilton, Lord J.

  Bottomley, Peter (W'wich W)

  Dover, Denshore

  Bowden, Andrew

  du Cann, Rt Hon Edward

  Boyson, Dr Rhodes

  Dunn, Robert (Dartford)

  Braine, Sir Bernard

  Durant, Tony

  Bright, Graham

  Dykes, Hugh

  Brinton, Tim

  Eden, Rt Hon Sir John

  Brittan, Rt. Hon. Leon

  Edwards, Rt Hon N. (P'broke)

  Brooke, Hon Peter

  Eggar, Tim

  Brotherton, Michael

  Elliott, SirWilliam

  Brown, Michael (Brigg&Sc'n)

  Emery, Sir Peter

  Browne, John (Winchester)

  Eyre, Reginald

  Bruce-Gardyne, John

  Fairbairn, Nicholas

  Bryan, Sir Paul

  Fairgrieve, Sir Russell

  Buck, Antony

  Faith, Mrs Sheila

  Budgen, Nick

  Farr, john

  Bulmer, Esmond

  Fell, Sir Anthony

  Burden, Sir Frederick

  Fenner, Mrs Peggy

  Butcher, John

  Finsberg, Geoffrey

  Butler, Hon Adam

  Fisher, Sir Nigel

  Cadbury, Jocelyn

  Fletcher, A. (Ed'nb'gh N)

  122

  Fletcher-Cooke, Sir Charles

  McQuarrie, Albert

  Fookes, Miss Janet

  Madel, David

  Forman, Nigel

  Major, John

  Fowler, Rt Hon Norman

  Marland, Paul

  Fox, Marcus

  Marlow, Antony

  Fraser, Peter (South Angus)

  Marshall, Michael (Arundel)

  Fry, Peter

  Marten, Rt Hon Neil

  Gardner, Edward (S Fylde)

  Mates, Michael

  Garel-Jones, Tristan

  Maude, Rt Hon Sir Angus

  Glyn, Dr Alan

  Mawby, Ray

  Goodhart, Sir Philip

  Mawhinney, Dr Brian

  Goodhew, Sir Victor

  Maxwell-Hyslop, Robin

  Goodlad, Alastair

  Mayhew, Patrick

  Gorst, John

  Mellor, David

  Gow, Ian

  Meyer, Sir Anthony

  Grant, Anthony (Harrow C)

  Miller, Hal (B'grove)

  Gray, Hamish

  Mills, lain (Meriden)

  Greenway, Harry

  Mills, Peter (West Devon)

  Grieve, Percy

  Miscampbell, Norman

  Griffiths, E. (B'ySt.Edm'ds)

  Mitchell, David (Basingstoke)

  Griffiths, Peter Portsm'th N)

  Moate, Roger

  Grist, Ian

  Monro, Sir Hector

  Grylls, Michael

  Montgomery, Fergus

  Glimmer, John Selwyn

  Moore, John

  Hamilton, Hon A.

  Morgan, Geraint

  Hamilton, Michael (Salisbury)

  Morris, M. (N'hampton S)

  Hampson, Dr Keith

  Morrison, Hon C. (Devizes)

  Hannam, John

  Morrison, Hon P. (Chester)

  Haselhurst, Alan

  Mudd, David

  Hastings, Stephen

  Murphy, Christopher

  Havers, Rt Hon Sir Michael

  Myles, David

  Hawkins, Paul

  Neale, Gerrard

  Hawksley, Warren

  Needham, Richard

  Hayhoe, Barney

  Nelson, Anthony

  Heath, Rt Hon Edward

  Neubert, Michael

  Heddle, John

  Newton, Tony

  Henderson, Barry

  Nott, Rt Hon John

  Heseltine, Rt Hon Michael

  Onslow, Cranley

  Hicks, Robert

  Oppenheim, Rt Hon Mrs S.

  Higgins, Rt Hon Terence L.

  Osborn, John

  Hill, James

  Page, John (Harrow, West)

  Hogg, Hon Douglas (Gr'th'm)

  Page, Richard (SW Herts)

  Holland, Philip (Carlton)

  Parkinson, Rt Hon Cecil

  Hooson, Tom

  Parris, Matthew

  Hordern, Peter

  Patten, Christopher (Bath)

  Howe, Rt Hon Sir Geoffrey

  Patten, John (Oxford)

  Howell, Rt Hon D. (G'ldf'd)

  Pattie, Geoffrey

  Howell, Ralph (N Norfolk)

  Pawsey, James

  Hunt, David (Wirral)

  Peyton, Rt Hon John

  Irving, Charles (Cheltenham)

  Pink, R. Bonner

  Jenkin, Rt Hon Patrick

  Pollock, Alexander

  Jessel, Toby

  Porter, Barry

  Johnson Smith, Geoffrey

  Prentice, Rt Hon Reg

  Jopling, Rt Hon Michael

  Price, Sir David (Eastleigh)

  Joseph, Rt Hon Sir Keith

  Proctor, K. Harvey

  Kaberry, Sir Donald

  Pym, Rt Hon Francis

  Kershaw, Sir Anthony

  Raison, Rt Hon Timothy

  Kimball, Sir Marcus

  Rathbone, Tim

  King, Rt Hon Tom

  Rees, Peter (Dover and Deal)

  Knox, David

  Rhodes James, Robert

  Lamont, Norman

  Ridley, Hon Nicholas

  Lang, Ian

  Ridsdale, Sir Julian

  Langford-Holt, Sir John

  Rifkind, Malcolm

  Lawrence, Ivan

  Roberts, M. (Cardiff NW)

  Lawson, Rt Hon Nigel

  Roberts, Wyn (Conway)

  Lee, John

  Rossi, Hugh

  LeMarchant, Spencer

  Rost, Peter

  Lennox-Boyd, Hon Mark

  Royle, Sir Anthony

  Lester, Jim (Beeston)

  Sainsbury, Hon Timothy

  Lewis, Kenneth(Rutland)

  St. John-Stevas, Rt Hon N.

  Lloyd, Ian (Havant & W'loo)

  Shaw, Giles (Pudsey)

  Lloyd, Peter (Fareham)

  Shaw, Michael (Scarborough)

  Loveridge, John

  Shelton, William (Streatham)

  Lyell, Nicholas

  Shepherd, Colin (Hereford)

  McCrindle, Robert

  Shepherd, Richard

  Macfarlane, Neil

  Shersby, Michael

  MacKay, John (Argyll)

  Silvester, Fred

  Macmillan, Rt Hon M.

  Sims, Roger

  McNair-Wilson, M. (N'bury)

  Skeet, T. H. H.

  McNair-Wilson, P. (New F'st)

  Smith, Dudley

  123

  Speed, Keith

  Viggers, Peter

  Speller, Tony

  Waddington, David

  Spence, John

  Wakeham, John

  Spicer, Michael (S Worcs)

  Waldegrave, Hon William

  Sproat, lain

  Walker, Rt Hon P. (W'cester)

  Squire, Robin

  Walker-Smith, Rt Hon Sir D.

  Stainton, Keith

  Waller, Gary

  Stanbrook, Ivor

  Walters, Dennis

  Stanley, John

  Ward, John

  Steen, Anthony

  Warren, Kenneth

  Stevens, Martin

  Watson, John

  Stewart, A. (E Renfrewshire)

  Wells, Bowen

  Stewart, Ian (Hitchin)

  Wells, John (Maidstone)

  Stokes, John

  Whitelaw, Rt Hon William

  Stradling Thomas, J.

  Whitney, Raymond

  Taylor, Teddy (S'end E)

  Wickenden, Keith

  Tebbit, Rt Hon Norman

  Wiggin, Jerry

  Temple-Morris, Peter

  Wilkinson, John

  Thatcher, Rt Hon Mrs M.

  Williams, D. (Montgomery)

  Thompson, Donald

  Winterton, Nicholas

  Thorne, Neil (1IfordSouth)

  Wolfson, Mark

  Thornton, Malcolm

  Young, Sir George (Acton)

  Townend, John (Bridlington)

  Younger, Rt Hon George

  Townsend, Cyril D, (B'heath)

  Trippier, David

  Tellers for the Noes:

  Trotter, Neville

  Mr. Anthony Berry and

  van Straubenzee, Sir W.

  Mr. Carol Mather.

  Vaughan, Dr Gerard

  Question accordingly negatived.
  Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).

  Local Government Finance (No. 2) [Money]
  Queen's recommendation having been signified—Motion made and Question proposed
  That, for the purposes of any Act of the present Session to abolish supplementary rates and supplementary precepts, to require rates and precepts to be made or issued for complete financial years, to make further provision with respect to the borrowing powers of local authorities, to amend the provisions for relating to adjustments of the distribution of block grant and to make new provision for auditing the accounts of local authorities and other public bodies, it is expedient to authorize—

  (a) the payment out of moneys provided by Parliament of any sums required by the Secretary of State for—

  (i) making, during an initial period, payments in respect of the expenses of the Audit Commission established by that Act and for providing it with working capital;

  (ii) paying fees to that Commission in respect of services provided for government departments;

  (b) payments into and out of the National Loans Fund and the Consolidated Fund in respect of loans by the Secretary of State to that Commission and Treasury guarantees in respect of loans to that Commission by persons other than the Secretary of State; and

  (c) any increase in the sums payable out of moneys provided by Parliament under any other Act which is attributable to expenditure by local authorities in respect of borrowing or of services provided by that Commission.—[Mr. Brooke.]

  The House divided: Ayes 295, Noes 247.

  Division No. 39]

  [10.29 pm

  AYES

  Adley, Robert

  Atkinson, David (B'm'th, E)

  Aitken, Jonathan

  Baker, Nicholas (N Dorset)

  Alexander, Richard

  Bell, Sir Ronald

  Alison, Rt Hon Michael

  Bendall, Vivian

  Amery, Rt Hon Julian

  Benyon, Thomas (A'don)

  Ancram, Michael

  Best, Keith

  Arnold, Tom

  Bevan, David Gilroy

  Aspinwall, Jack

  Biffen, Rt Hon John

  Atkins, Rt Hon H. (S'thorne)

  Biggs-Davison, Sir John

  Atkins, Robert (Preston N)

  Blackburn, John

  Blaker, Peter

  Body, Richard

  124

  Bonsor, Sir Nicholas

  Gray, Hamish

  Bottomley, Peter (W'wich W)

  Greenway, Harry

  Bowden, Andrew

  Grieve, Percy

  Boyson, Dr Rhodes

  Griffiths, E. (B'ySt. Edm'ds)

  Braine, Sir Bernard

  Griffiths, Peter Portsm'th N)

  Bright, Graham

  Grist, Ian

  Brinton, Tim

  Grylls, Michael

  Brittan, Rt. Hon. Leon

  Gummer, John Selwyn

  Brooke, Hon Peter

  Hamilton, Hon A.

  Brotherton, Michael

  Hamilton, Michael (Salisbury)

  Brown, Michael (Brigg&Sc'n)

  Hampson, Dr Keith

  Browne, John (Winchester)

  Hannam, John

  Bruce-Gardyne, John

  Haselhurst, Alan

  Bryan, Sir Paul

  Hastings, Stephen

  Buck, Antony

  Havers, Rt Hon Sir Michael

  Budgen, Nick

  Hawkins, Paul

  Bulmer, Esmond

  Hawksley, Warren

  Burden, Sir Frederick

  Hayhoe, Barney

  Butcher, John

  Heath, Rt Hon Edward

  Butler, Hon Adam

  Heddle, John

  Cadbury, Jocelyn

  Henderson, Barry

  Carlisle, John (Luton West)

  Heseltine, Rt Hon Michael

  Carlisle, Kenneth (Lincoln)

  Hicks, Robert

  Carlisle, Rt Hon M. (R'c'n)

  Higgins, Rt Hon Terence L.

  Chalker, Mrs. Lynda

  Hill, James

  Channon, Rt. Hon. Paul

  Hogg, Hon Douglas (Gr'th'm)

  Chapman, Sydney

  Hooson, Tom

  Churchill, W.S.

  Hordern, Peter

  Clark, Hon A. (Plym'th, S'n)

  Howe, Rt Hon Sir Geoffrey

  Clarke, Kenneth (Rushcliffe)

  Howell, Rt Hon D. (G'ldf'd)

  Clegg, Sir Walter

  Howell, Ralph (N Norfolk)

  Cockeram, Eric

  Hunt, David (Wirral)

  Colvin, Michael

  Irving, Charles (Cheltenham)

  Cope, John

  Jenkin, Rt Hon Patrick

  Cormack, Patrick

  Jessel, Toby

  Corrie, John

  Johnson Smith, Geoffrey

  Costain, Sir Albert

  Jopling, Rt Hon Michael

  Cranborne, Viscount

  Joseph, Rt Hon Sir Keith

  Critchley, Julian

  Kaberry, Sir Donald

  Crouch, David

  Kershaw, Sir Anthony

  Dean, Paul (North Somerset)

  Kimball, Sir Marcus

  Dickens, Geoffrey

  King, Rt Hon Tom

  Dorrell, Stephen

  Knox, David

  Douglas-Hamilton, Lord J.

  Lament, Norman

  Dover, Denshore

  Lang, Ian

  du Cann, Rt Hon Edward

  Langford-Holt, Sir John

  Dunn, Robert (Dartford)

  Lawrence, Ivan

  Durant, Tony

  Lawson, Rt Hon Nigel

  Dykes, Hugh

  Lee, John

  Eden, Rt Hon Sir John

  Le Marchant, Spencer

  Edwards, Rt Hon N. (P'broke)

  Lennox-Boyd, Hon Mark

  Eggar, Tim

  Lester, Jim (Beeston)

  Elliott, Sir William

  Lewis, Kenneth (Rutland)

  Emery, Peter

  Lloyd, Ian (Havant & W'loo)

  Eyre, Reginald

  Lloyd, Peter (Fareham)

  Fairbairn, Nicholas

  Loveridge, John

  Fairgrieve, Sir Russell

  Lyell, Nicholas

  Faith, Mrs Sheila

  McCrindle, Robert

  Farr, John

  Macfarlane, Neil

  Fell, Anthony

  MacKay, John (Argyll)

  Fenner, Mrs Peggy

  Macmillan, Rt Hon M.

  Finsberg, Geoffrey

  McNair-Wilson, M. (N'bury)

  Fisher, Sir Nigel

  McNair-Wilson, P. (New F'st)

  Fletcher, A. (Ed'nb'gh N)

  McQuarrie, Albert

  Fletcher-Cooke, Sir Charles

  Madel, David

  Fookes, Miss Janet

  Major, John

  Forman, Nigel

  Marland, Paul

  Fowler, Rt Hon Norman

  Marlow, Antony

  Fox, Marcus

  Marshall, Michael (Arundel)

  Fraser, Peter (South Angus)

  Marten, Rt Hon Neil

  Fry, Peter

  Mates, Michael

  Gardner, Edward (S Fylde)

  Maude, Rt Hon Sir Angus

  Garel-Jones, Tristan

  Mawby, Ray

  Glyn, Dr Alan

  Mawhinney, Dr Brian

  Goodhart, Sir Philip

  Maxwell-Hyslop, Robin

  Goodhew, Victor

  Mayhew, Patrick

  Goodlad, Alastair

  Mellor, David

  Gorst, John

  Meyer, Sir Anthony

  Gow, Ian

  Miller, Hal (B'grove)

  Grant, Anthony (Harrow C)

  Mills, Iain (Meriden)

  125

  Mills, Peter (West Devon)

  Silvester, Fred

  Miscampbell, Norman

  Sims, Roger

  Mitchell, David (Basingstoke)

  Skeet, T. H. H.

  Moate, Roger

  Smith, Dudley

  Monro, Sir Hector

  Speed, Keith

  Montgomery, Fergus

  Speller, Tony

  Moore, John

  Spence, John

  Morgan, Geraint

  Spicer, Michael (S Worcs)

  Morris, M. (N'hampton S)

  Sproat, Iain

  Morrison, Hon C. (Devizes)

  Squire, Robin

  Morrison, Hon P. (Chester)

  Stainton, Keith

  Mudd, David

  Stanbrook, Ivor

  Murphy, Christopher

  Stanley, John

  Myles, David

  Steen, Anthony

  Neale, Gerrard

  Stevens, Martin

  Needham, Richard

  Stewart, A. (E Renfrewshire)

  Nelson, Anthony

  Stewart, Ian (Hitchin)

  Neubert, Michael

  Stokes, John

  Newton, Tony

  Stradling Thomas, J.

  Nott, Rt Hon John

  Taylor, Teddy (S'end E)

  Onslow, Cranley

  Tebbit, Rt Hon Norman

  Oppenheim, Rt Hon Mrs S.

  Temple-Morris, Peter

  Osborn, John

  Thatcher, Rt Hon Mrs M.

  Page, John (Harrow, West)

  Thompson, Donald

  Page, Richard (SW Herts)

  Thorne, Neil (Ilford South)

  Parkinson, Rt Hon Cecil

  Thornton, Malcolm

  Parris, Matthew

  Townend, John (Bridlington)

  Patten, Christopher (Bath)

  Townsend, Cyril D, (B'heath)

  Patten, John (Oxford)

  Trippier, David

  Pattie, Geoffrey

  Trotter, Neville

  Pawsey, James

  Van Straubenzee, Sir W.

  Peyton, Rt Hon John

  Vaughan, Dr Gerard

  Pink, R. Bonner

  Viggers, Peter

  Pollock, Alexander

  Waddington, David

  Porter, Barry

  Wakeham, John

  Prentice, Rt Hon Reg

  Waldegrave, Hon William

  Price, Sir David (Eastleigh)

  Walker, Rt Hon P. (W'cester)

  Proctor, K. Harvey

  Waller, Gary

  Pym, Rt Hon Francis

  Walters, Dennis

  Raison, Timothy

  Ward, John

  Rathbone, Tim

  Warren, Kenneth

  Rees, Peter (Dover and Deal)

  Watson, John

  Rhodes James, Robert

  Wells, Bowen

  Ridley, Hon Nicholas

  Wells, John (Maidstone)

  Ridsdale, Sir Julian

  Whitelaw, Rt Hon William

  Rifkind, Malcolm

  Whitney, Raymond

  Roberts, M. (Cardiff NW)

  Wickenden, Keith

  Roberts, Wyn (Conway)

  Wiggin, Jerry

  Rossi, Hugh

  Wilkinson, John

  Rost, Peter

  Williams, D. (Montgomery)

  Royle, Sir Anthony

  Winterton, Nicholas

  Sainsbury, Hon Timothy

  Wolfson, Mark

  St. John-Stevas, Rt Hon N.

  Young, Sir George (Acton)

  Shaw, Giles (Pudsey)

  Younger, Rt Hon George

  Shaw, Michael (Scarborough)

  Shelton, William (Streatham)

  Tellers for the Ayes:

  Shepherd, Colin (Hereford)

  Mr. Anthony Berry and

  Shepherd, Richard

  Mr. Carol Mather.

  Shersby, Michael

  NOES

  Abse, Leo

  Brown, Hugh D. (Provan)

  Adams, Allen

  Brown, R.C. (N'castle W)

  Allaun, Frank

  Brown, Ronald W. (H'ckn'y S)

  Alton, David

  Brown, Ron (E'burgh, Leith)

  Anderson, Donald

  Buchan, Norman

  Archer, Rt Hon Peter

  Callaghan, Rt Hon J.

  Ashley, Rt Hon Jack

  Callaghan, Jim (Midd't'n & P)

  Ashton, Joe

  Campbell, Ian

  Atkinson, N. (H'gey)

  Campbell-Savours, Dale

  Barnett, Guy (Greenwich)

  Canavan, Dennis

  Beith, A. J.

  Cant, R. B.

  Bennett, Andrew (St'kp't N)

  Carmichael, Neil

  Bidwell, Sydney

  Carter-Jones, Lewis

  Booth, Rt Hon Albert

  Cartwright, John

  Boothroyd, Miss Betty

  Cocks, Rt Hon M. (B'stol S)

  Bottomley, Rt Hon A. (M'b'ro)

  Cohen, Stanley

  Bradley, Tom

  Coleman, Donald

  Bray, Dr Jeremy

  Conlan, Bernard

  Brocklebank-Fowler, C.

  Cowans, Harry

  126

  Cox, T. (W'dsw'th, Toot'g)

  Kaufman, Rt Hon Gerald

  Craigen, J.M. (G'gow, M'hill)

  Kerr, Russell

  Crawshaw, Richard

  Kilroy-Silk, Robert

  Crowther, Stan

  Kinnock, Neil

  Cunliffe, Lawrence

  Lambie, David

  Cunningham, Dr J. (W'h'n)

  Lamborn, Harry

  Dalyell, Tam

  Lamond, James

  Davidson, Arthur

  Leadbitter, Ted

  Davies, Rt Hon Denzil (L'lli)

  Leighton, Ronald

  Davies, Ifor (Gower)

  Lewis, Arthur (N'ham NW)

  Davis, Clinton (Hackney C)

  Lewis, Ron (Carlisle)

  Davis, T. (B'ham, Stechf'd)

  Litherland, Robert

  Deakins, Eric

  Lofthouse, Geoffrey

  Dean, Joseph (Leeds West)

  Lyons, Edward (Bradf'd W)

  Dewar, Donald

  Mabon, Rt Hon Dr J. Dickson

  Dixon, Donald

  McCartney, Hugh

  Dobson, Frank

  McDonald, Dr Oonagh

  Dormand, Jack

  McElhone, Frank

  Douglas, Dick

  McKelvey, William

  Douglas-Mann, Bruce

  MacKenzie, Rt Hon Gregor

  Dunlop, John

  McMahon, Andrew

  Dunnett, Jack

  McNally, Thomas

  Dunwoody, Hon Mrs G.

  McNamara, Kevin

  Eadie, Alex

  McTaggart, Robert

  Eastham, Ken

  McWilliam, John

  Ellis, R. (NED'bysh're)

  Magee, Bryan

  Ellis, Tom (Wrexham)

  Marshall, D (G'gowS'ton)

  English, Michael

  Marshall, Dr Edmund (Goole)

  Ennals, Rt Hon David

  Marshall, Jim (Leicester S)

  Evans, Ioan (Aberdare)

  Martin, M (G'gowS'burn}

  Evans, John (Newton)

  Mason, Rt Hon Roy

  Faulds, Andrew

  Maxton, John

  Field, Frank

  Maynard, Miss Joan

  Fitch, Alan

  Meacher, Michael

  Flannery, Martin

  Mellish, Rt Hon Robert

  Fletcher, Ted (Darlington)

  Mikardo, Ian

  Foot, Rt Hon Michael

  Millan, Rt Hon Bruce

  Ford, Ben

  Miller, Dr M. S. (E Kilbride)

  Forrester, John

  Mitchell, Austin(Grimsby)

  Foster, Derek

  Mitchell, R.C. (Soton Itchen)

  Foulkes, George

  Morris, Rt Hon A. (W'shawe)

  Fraser, J. (Lamb'th, N'w'd)

  Morris, Rt Hon C. (O'shaw)

  Freeson, Rt Hon Reginald

  Morton, George

  Freud, Clement

  Moyle, Rt Hon Roland

  Garrett, John (Norwich S)

  Mulley, Rt Hon Frederick

  Garrett, W.E. (Wallsend)

  Newens, Stanley

  George, Bruce

  Oakes, Rt Hon Gordon

  Gilbert, Rt Hon Dr John

  Ogden, Eric

  Ginsburg, David

  O'Halloran, Michael

  Golding, John

  O'Neill, Martin

  Graham, Ted

  Orme, Rt Hon Stanley

  Grant, George (Morpeth)

  Owen, Rt Hon Dr David

  Grant, John (Islington C)

  Palmer, Arthur

  Grimond, Rt Hon J.

  Park, George

  Hamilton, James (Bothwell)

  Pavitt, Laurie

  Hamilton, W.W. (C'tral Fife)

  Pendry, Tom

  Harrison, Rt Hon Walter

  Penhaligon, David

  Hattersley, Rt Hon Roy

  Pitt, William Henry

  Healey, Rt Hon Denis

  Powell, Raymond (Ogmore)

  Heffer, Eric S.

  Prescott, John

  Hogg, N. (E Dunb't'nshire)

  Price, C. (Lewisham W)

  Holland, S.(L'b'th, Vauxh'll)

  Race, Reg

  Home Robertson, John

  Radice, Giles

  Homewood, William

  Rees, Rt Hon M (Leeds S)

  Hooley, Frank

  Richardson, Jo

  Horam, John

  Roberts, Albert (Normanton)

  Howells, Geraint

  Roberts, Allan (Bootle)

  Hoyle, Douglas

  Roberts, Ernest (Hackney N)

  Huckfield, Les

  Roberts, Gwilym (Cannock)

  Hughes, Mark (Durham)

  Robertson, George

  Hughes, Robert (Aberdeen N)

  Robinson, G. (Coventry NW)

  Hughes, Roy (Newport)

  Rodgers, Rt Hon William

  Janner, Hon Greville

  Rooker, J.W.

  Jay, Rt Hon Douglas

  Roper, John

  John, Brynmor

  Ross, Ernest (Dundee West)

  Johnson, James (Hull West)

  Ross, Stephen (Isle of Wight)

  Johnson, Walter (Derby S)

  Rowlands, Ted

  Jones, Rt Hon Alec (Rh'dda)

  Ryman, John

  Jones, Barry (East Flint)

  Sandelson, Neville

  Jones, Dan (Burnley)

  Sever, John

  127

  Sheerman, Barry

  Steel, Rt Hon David

  Sheldon, Rt Hon R.

  Stoddart, David

  Shore, Rt Hon Peter

  Stott, Roger

  Short, Mrs Renee

  Strang, Gavin

  Silkin, Rt Hon J. (Deptford)

  Straw, Jack

  Silkin, Rt Hon S. C. (Dulwich)

  Summerskil, Hon Dr Shirley

  Silverman, Julius

  Taylor, Mrs Ann (Bolton W)

  Skinner, Dennis

  Thomas, Dafydd (Merioneth)

  Smith, Rt Hon J. (N Lanark)

  Thomas, Mike (Newcastle E)

  Snape, Peter

  Thomas, Dr R. (Carmarthen)

  Soley, Clive

  Thorne, Stan (Preston South)

  Spearing, Nigel

  Tilley, John

  Spriggs, Leslie

  Tinn, James

  Stallard, A. W.

  Torney, Tom

  Varley, Rt Hon Eric G.

  Willey, Rt Hon Frederick

  Wainwright, E. (Dearne V)

  Williams, Rt Hon A. (S'sea W)

  Wainwright, R. (Colne V)

  Wilson, Rt Hon Sir H. (H'ton)

  Walker, Rt Hon H. (D'caster)

  Winnick, David

  Watkins, David

  Woodall, Alec

  Wellbeloved, James

  Woolmer, Kenneth

  Welsh, Michael

  Wrigglesworth, Ian

  White, Frank R.

  Wright, Sheila

  White, J. (G'gow Pollok)

  Whitehead, Phillip

  Tellers for the Noes:

  Whitlock, William

  Mr. Allen McKay and

  Wigley, Dafydd

  Mr. Frank Haines.

  Question accordingly agreed to.

  Joint European Energy Policy
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Brooke.]
  10.40 pm
  Sir Anthony Meyer: I asked for this debate because I was dissatisfied with the reply that I received from my right hon. Friend the Secretary of State for Energy on 21 December. I asked my right hon. Friend whether the energy objectives of the EEC member States could not be best achieved by a Community energy policy; and he replied that the achievement of the objectives which he had defined
  "does not imply a common energy policy of a centralised nature, such as the common agricultural policy, nor is there any reason to suppose that other Community countries would be prepared to agree to a policy that would give a substantial benefit to one member country."—[Official Report, 21 December 1981; Vol. 15, c. 610.]
  It is my contention that a Community energy policy in the EEC would be the most effective way of achieving the energy objectives of individual member States, the objectives as defined by the Secretary of State, and that the example of the common agricultural policy is one to follow, though avoiding the complications and the bureaucracy of the CAP, rather than to shun. The United Kingdom is far better placed than any other EEC member to advance a sensible energy policy and to get it accepted. The argument that should appeal to the super-subtle mind of the Secretary of State—I can hardly expect such deviousness from so untainted a politician as the Under-Secretary of State—is that merely by putting forward a scheme in which our good European intentions would be so manifest, we would enormously enhance our wilting reputation for being good Community members and thus appreciably improve our chances of achieving our other objectives within the EEC.
  The objectives of an energy policy, whether purely national or European, are to give industry and consumers assured supplies of energy at competitive prices. I believe that to some extent these objectives can be promoted by a centrally administered EEC policy to be applied within each member State, but I accept that the difficulties and the objections are powerful. I do not accept that they are so totally insuperable as the Department of Energy has always maintained under successive Governments. The CAP, with all its defects, has maintained a stable agricultural industry and assured supplies of food, even at times of world shortage, at prices which on average have not been nearly so far above world prices as most people seem to think. Such a policy can point the way to a Community energy policy which would be to the long-term benefit of the peoples of each member State as well as to the Community as a whole.
  If the argument against making any attempt to secure a common internal energy policy for the EEC, even to the limited extent of rapid convergence of national energy pricing policies and the intensification of cross-frontier and cross-channel energy transfers, is not accepted because of the difficulties posed by the entrenchment of national energy traditions, the arguments for a real effort to get a common external energy policy for the EEC are infinitely more compelling and more urgent.
  As Mr. Geoffrey Denton puts it in his article in the March 1981 Three Banks Review,
  130
  "the EEC should … operate as a unit, the better to secure its interests as against those of the US, Japan and other consumers. This is especially important given the weakness of the US resolve to stop and reverse its growing dependence on oil imports, and the great power of Japan as a trading nation to buy its way out of trouble by paying what the oil producers demand. The US has actually subsidised energy imports which, seen from Europe, is a ludicrous policy for a country with the largest energy consumption per capita, and one of the lowest prices, in the world. Pressure on the US to change the direction of its policy is a high priority for an EEC Common External Energy Policy."
  Can it seriously be argued that those objectives can be more effectively secured by even such relatively energy rich countries as the United Kingdom trying to exert pressure on their own? All the arguments for joint EEC external action for resisting United States or Japanese commercial pressure, which even so sceptical a European as the Secretary of State for Trade fully accepts, apply with equal or greater force in the matter of energy. Europe acting as one can limit the extent to which the United States can make every consumer and every firm in Europe pay for America's insatiable thirst for cheap petrol.
  If the main objective of a Community energy policy is to assure supplies of energy at competitive prices and because Europe is not self-sufficient in energy sources, it follows that a main element in any Community policy must be an attempt to reduce dependence on outside sources of energy, and to ensure that supplies from outside are as immune to interruption as possible. The latter objective is best secured by the EEC using its full muscle power, as the world's largest trading bloc, to get good long-term supply contracts. The former objective, that of reducing reliance on outside supplies, can be achieved by various methods—by stimulating new sources of energy and by encouraging energy saving techniques.
  At first sight, those two approaches can be almost equally well applied by individual nation States. The French nuclear programme is there to prove it. On the other hand, might not the rest of Europe, and perhaps even France herself, be enjoying cheaper and more secure energy supplies had not Gaullist France strangled Euratom in its cradle?
  I shall take another example nearer home, in my constituency. As the Minister knows, the Point of Ayr colliery in my constituency is to be the site of a twin pilot plant for the conversion of coal to oil by a pair of related processes evolved by the National Coal Board at its experimental centre at Cheltenham. I need hardly say how important that project is to my constituency in terms of jobs and spin off, nor need I stress its long-term significance to the United Kingdom, given that our oil will run out before our coal. None the less, in purely commercial and national terms, the scheme is so nearly marginal that the NCB is having a job to raise from private sources the necessary investment capital.
  I stress that I have been in touch with the NCB as recently as last Thursday, to ensure that no snags have arisen. I have been assured that there have been no snags. On the other hand, it is clear to me that that is just the sort of project that the EEC should be backing to the hilt instead of the relatively modest £7 million contribution that it is making. The oil companies should be fighting to get in on a good thing instead of playing Lady Bountiful because such a scheme, which offers the prospect of assured indigenous oil supplies until well into the next century, while it may be semi-marginal for the United Kingdom with the North Sea coming on full stream, is of tangible and immediate benefit to the EEC as a whole.

  131
  What about the gas-gathering pipelines? I understand that those are schemes that are dear to the hearts of energy Ministers but which have fallen victim to the Treasury's mania for saving 20p today, even if it will cost £1 million in five years' time. Those schemes, too, could not have been described as marginal even by the British Treasury, if they had been evaluated in the context of a wider and longer-term energy policy.
  At present, the British concentrate on getting their oil and gas ashore to Britain and the Norwegians theirs to Norway, with a bare minimum of purely bilateral mutual concessions for short-term objectives. A longer-term policy with a European dimension would envisage the day when United Kingdom supplies of gas were dwindling and Norwegian supplies exceeding requirements and would devise a pipeline system connecting Norway and the United Kingdom with the rest of Europe—a system under which we at first might be giving more than we received but of which we should be eventual beneficiaries.
  If there is to be a common energy policy of any kind, it will need money to finance the joint policy, although even the most visionary of European integrationists are not thinking in terms of billions of pounds. As one of the objects is to reduce imports of energy from outside the Community, the obvious source of finance is some kind of charge on imported coal, oil and gas. If this were set at a relatively high figure such as 6 per cent. or 10 per cent., it might have a really sharp impact on oil imports. It would also make a dramatic contribution towards solving the problem of the United Kingdom's unfairly large budgetary payments to the EEC, as we should not be net contributors under this head because we import so little energy. On the other hand, I recognise that the implications for other economic activities and for the United Kingdom's and the EEC's foreign commercial relations are so far-reaching that such an idea is in present circumstances a non-starter. However, a very low levy of, say, 1 per cent., while it would do nothing in itself to discourage imports and would make a negligible contribution to the solution of the United Kingdom's budgetary problem, would yield some £750 million per year, which could finance a number of really worthwhile projects in new energy sources or energy saving which might not be commercially viable without the Community energy policy providing the funds for them.
  In conclusion, I make plain what my charge against the Department is. I say "Department" and not "Minister" because I find disappointingly little change even under a new Government or a new Secretary of State or, perhaps even more relevant, a new Permanent Under-Secretary of unrivalled experience in European matters and universally admired judgment. I do not assert that the Department has been dragging its feet. I know that the Minister will tell me that we have paid our subscriptions in full and promptly by pledging the required reserves both to the international energy agency for major crises and to the EEC's own programme for sub-crises. I accept in advance what he will tell me, but he will not, I think, succeed in convincing me that we are taking all the tricks that are there for us to take.
  As Malcolm Rutherford puts it in his recent book, "Can We Save the Common Market?":
  "The Oil is already flowing to Europe, but Britain has so far failed to seek any compensating political reward. It is as if it were
  132
  all happening by accident, with no foreign policy conclusions to be drawn. The initiative lies with Britain. It is the only member with the resources credibly to propose a common energy policy. And the rest of the Community knows that this is so, because, whenever Britain starts to talk about energy, the Community begins to listen. The energy card is the one that no other member holds, and it is sheer timidity, or maybe just a surfeit of defeatism, not to play it. Failure to use the card means wasting it, not conserving it, because the oil is being consumed in any case."
  I do not think that I can improve on that. We have a unique opportunity and we are throwing it away.
  10.54 pm
  The Under-Secretary of State for Energy (Mr. David Mellor): I am very glad to have the opportunity to respond to my hon. Friend the Member for Flint, West (Sir A. Meyer) on the subject of EEC energy policy. The House has the warmest admiration for my hon. Friend and for his experience in foreign affairs and, above all, for his commitment to the European Community, which is restated regularly and eloquently in the House. I particularly welcome the fact that he is now taking an especial interest in energy policy.
  I begin by saying that it is right that the Community should have an energy policy suited to the needs and aspirations of member States. However, European Community energy policy guidelines must give member States the flexibility to frame their energy policies in the light of their own circumstances and priorities, but within an overall Community framework. Progress, to be real, must be based on consensus, and due regard must be had to national circumstances and interests. The Community must aim to develop sensible Community policies on areas of shared concern, but the structure must be based firmly on national programmes, complemented, where appropriate, by action at the Community level. In our view, only in that way can a realistic and effective Community energy policy emerge.
  Much has already been achieved by the Community—for example, on the fundamental question of oil consumption, which was at the heart of what my hon. Friend had to say. The EEC has set itself energy policy guidelines for 1990 about reduced oil dependence and oil use. As the House will know, these objectives are three-fold: first, to reduce to 0·7 or less the average ratio between the growth in energy consumption and the rate of growth of GDP; secondly, to reduce oil consumption in the Community to about 40 per cent. of gross primary energy consumption; and, thirdly, to cover 70 to 75 per cent. of primary energy requirements for electricity production by solid fuels and nuclear energy.
  The Commission has placed upon it the obligation to report on progress towards obtaining these guidelines, and the United Kingdom is playing its full part in achieving them. Indeed, in 1980 our oil consumption was about 40 per cent. of the United Kingdom's gross primary energy consumption, and more than 88 per cent. of our electricity was generated from coal and nuclear sources.
  The Community's energy policy is continuously evolving. Under the United Kingdom Presidency during the last six months of 1981, the Community made important progress in several areas. I should like to refer briefly to the Energy Council held on 27 October last year, at which I had the honour of sitting at the United Kingdom desk.
  On energy pricing, which lies at the heart of so much of the concern that hon. Members express about our

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  partners in the Community, the Council reached substantial agreement on conclusions that were formally adopted at a meeting on 3 December. These conclusions stated, first, that consumer prices must not be kept at artificially low levels and prevented from providing reliable market signals; secondly, and perhaps most important, that any differences in pre-tax energy prices that do not arise from genuine competitive advantage or from priorities consistent with Community energy objectives must be clearly identified and, to the extent that they arise from differences in public policy, progressively reduced; and, thirdly, that consumers should have adequate access to information on energy prices and the methods by which prices and tariffs are determined.
  The Energy Council reached agreement on guidelines for dealing with a limited shortfall in oil supplies as a basis for consultations with other industrialised countries in the IEA. The aim is to devise procedures that might be adopted to prevent a shortfall in oil supplies leading to unrealistic pressure on prices. This is plainly a matter where it is of the essence that there should be not just Community agreement but the widest agreement among industrialised nations.
  Looking to the future, there was also a most useful discussion on a Commission paper on the development of the Community's energy strategy. The conclusion reached was that the Council should keep this under review and refer to the matter again at a subsequent session as part of the developing discussion.
  Finally, and of relevance to those who rightly look to the EEC as a source of finance for research and development schemes on energy matters within the Community, the Council approved the seventh round of Community projects in the hydro-carbon sector, totalling 26 million ECUs. The House will be glad to know that United Kingdom projects represented about 25 per cent. of the total, which shows that we are obtaining a proper benefit from the scheme. Real progress was made and we look for further developments in the next 12 months.
  Turning to some of the points made by my hon. Friend, particularly about the problems posed by the international oil situation, I have already mentioned the limited shortfall provisions, designed to deal with the sort of situation that arose as a result of the Iranian revolution and the beginning of the Iran-Iraq war.
  We all know that the level of oil consumption is at the heart of Community discussions. The shock of the oil price increases in 1979 and 1980, following on the heels of the tremendous rises in 1973, has had a salutary effect on oil consumption across the world. For example, in Japan and the Federal Republic of Germany substitutions of other fuels for oil have proceeded apace, along with growing efficiency in the use of energy.
  High energy prices are unpleasant to live with, but, where prices have been allowed to signal real costs to consumers, worthwhile savings have been made. Progress has been made even in the United States, following the acceleration of the de-control of oil prices by the Reagan Administration. I agree with my hon. Friend that international pressure on issues such as unfair pricing is better exercised collectively and that our membership of the EEC can only be helpful. We are active members of the Community in that regard.
  As was recognised by all member States in the Council's discussion of limited shortfalls, the EEC, large
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  as it is, is merely a part of the industrialised world and progress is to be made it is essential that agreement be reached by the other developed nations in the IEA.
  My hon. Friend suggested that we do not gain political capital from our oil reserves. I remind the House that we have the oil available only because of the efforts of offshore licensees and operators, largely in the private sector, who put in the money and bought the expertise to exploit our resources. Those licensees have the freedom, subject to participation agreements, to dispose of their oil as they see fit, to our IEA and EEC partners. We cannot take the dubious benefits that complete political control over oil would confer, given our choice of harnessing private sector operators to exploit the reserves under licence. The only oil over which the Government have direct control is that taken as royalty and that taken at market price under the BNOC participation agreements.
  My hon. Friend referred to the gas-gathering pipeline. There is no doubt that such pipelines will be constructed, but they will be built by the private sector, as has been the case with previous oil and gas exploration work. The northern leg pipeline is to be connected to the FLAG system—the Shell-Esso pipeline from Brent to St. Fergus. That is an example of what the private sector can achieve.
  Much of the oil from the North Sea finds its natural market in the United Kingdom, but it is only in the past year that, in overall terms, we have become self-sufficient. The world energy market is not static. The demand for oil has fallen dramatically in OECD countries over the past two years. Most commentators expect oil to be freely available for a few years more, but it is important to make the most of what we have. Equally, we must take care not to over-rate its value. In the long term, it may be the case that oil will again become scarce and that political initiatives by the Community to seek out long-term supply contracts will become worth while. That moment is not now. I do not believe that we would be better placed by seeking to secure our supplies through a Governmental initiative than by leaving commercial operators, both State oil companies and the private sector firms, to trade in the market as now.
  Another aspect of our common European Community policy to which my hon. Friend referred is the funding of research and development and demonstration projects. The Community has a good record of carrying out and supporting research and development into renewable sources of energy. The Commission's report on the achievements of the first four-year programme—a copy is in the Library—shows the range of projects that have already benefited. We are now part of the way through the second four-year programme, which is larger and going well.
  A total of over £60 million expressed in European currency units is being made available on programmes covering energy conservation, solar energy, geothermal energy, hydrogen and energy systems analysis. The United Kingdom receives a good return from the programme. Now that our own research and development is in full swing, extensively developed under the present Government, we hope to do even better.
  I turn to demonstration projects. I understand my hon. Friend's interest in the coal liquefaction project. We have done our best to stimulate Community interest in coal research and demonstration projects. Coal conversion now plays its part in the demonstration project schemes offered by the Community that include solar energy, geothermal

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  and energy saving projects. The projected coal liquefaction plant illustrates the point I have already made about the link between national and Community arrangements. We have agreed to make available £5 million out of our own research budget. It is a substantial part of the budget. We know that substantial Community funds are also likely to be available.
  We attach importance to the availability of funds from private industry as well. At the end of the day, research and development will need to be commercially exploited. It is of the essence that there should be a genuine partnership between the Government and the Community on the one hand and the oil companies on the other.
  It would perhaps also be appropriate to mention, as my hon. Friend referred to Euratom, that the Community has always encouraged member nations to work together on nuclear research. The Community fusion programme is the most important Euratom research and development project. It has our full support. Its centrepiece is the JET project that has so far gone according to plan and time. The basic machine is scheduled for completion in 1983. It is hoped, in due course, that it will demonstrate the scientific feasibility of fusion, the first real step towards development of a fusion reactor. It is the only machine currently under construction that could acheive this.
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  There are a number of valuable Community programmes concerned with nuclear matters. The United Kingdom participates actively in all of them. In purely practical terms, we get back rather less than we contribute overall. There are, however, substantial benefits to United Kingdom scientific knowledge and useful contacts for United Kingdom industry. This is particularly true of JET.
  It is the firm view of the Government that there is a balance to be struck between action at Community level and action at national level. The main contribution in meeting the guidelines set out by the Community will come from the national energy programmes of member States, and we believe that that must be so. But we are equally clear that it will be necessary for these to be supplemented by action at Community level where this is beyond the resources of the private sector and where this is best conducted at Community rather than at national level. We believe that this proper partnership between national activities and collective Community action is the firm base upon which Community energy policy can develop and flourish.
  Question put and agreed to.
  Adjourned accordingly at 10 minutes past Eleven o' clock.

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Preamble
Reassembling after the Christmas Recess, the House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Derby.

Personal Statement by the Lord Chancellor
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, with the leave of the House, I should like to make a Personal Statement about the proceedings on the Social Security (Contributions) Bill and the Consolidated Fund Bill on 22nd December last.
I see from the Official Report that on a number of occasions the noble Lord, Lord Brockway, sought to address the House. These questions were all clearly debatable, but I understood on each occasion that the noble Lord had desisted from his attempt to speak in the face of opposition from the House itself. Having refreshed my memory from a reading of the Official Report and having listened to the tape of the proceedings, I am confirmed in my view that this is so. If I was wrong in this, I can only express my regret. But in view of the fact which appears from the Official Report that the next question was, in each case, moved from the Front Bench, I had no alternative but to propose that question.
I also see from the Official Report that when I was collecting the voices Lord Brockway continued to say "Not-Content". In each case I put the question twice and I heard no dissentient voice on the second occasion. If the noble Lord was still dissenting on the second occasion, I regret that I did not hear him. Had I done so, or had any noble Lord drawn my attention to the fact that he had said "Not-Content", I would have put the question again and, if dissent had been persisted in, in due course cleared the Bar for a Division.

Disabled People: Employment Quota Scheme
2.39 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 progress has been made in consultations about the recommendations of the Manpower Services Commission to replace the quota scheme for the employment of disabled people.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Earl Ferrers): My Lords, the Government have now received the views of a range of interested organisations and individuals on the Manpower Services Commission's proposals. We are
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anxious to give full consideration to the points which have been raised. This is bound to take a little time, but my right honourable friend the Secretary of State for Employment will make a further Statement as soon as practicable.
Lord Campbell of Croy: My Lords, I thank my noble friend for that reply. Is he aware that many disablement organisations are still reacting against the commission's report, because they are alarmed at the prospect of losing the quota scheme? In these circumstances, are the Government taking action to promote rational discussion of alternatives? It is not enough that the commission should be carrying out consultations, because they are naturally regarded as being predisposed in favour of their own recomdations.
Earl Ferrers: My Lords, that may well be so. But, of course, the representations will be made to the Secretary of State and he will take into account all those representations before he makes his further Statement.
Lord Molloy: My Lords, is the noble Earl aware that, even if there are amendments made to the quota system, what has always perturbed the disabled is the fact that there has not been enough enforcement of what Parliament has decided? Could this also be discussed with the organisations and representatives who might be meeting the Government?
Earl Ferrers: My Lords, of course such points will be taken into account. But the noble Lord, Lord Molloy, will be aware that the quota system refers to 3 per cent. disabled, which used to be the case some years ago. The fact is that there are now under 2 per cent. disabled and so, in fact, it is impossible for all firms to keep to the 3 per cent. quota, simply because mathematically it cannot he done.
Baroness Masham of Ilton: My Lords, may I ask the noble Earl which other EEC countries have safeguards for the employment of their disabled people?
Earl Ferrers: My Lords, so far as I am aware, each country has different legislation with regard to its own circumstances.
Lord Kilmarnock: My Lords, would the noble Earl agree that the record of the Civil Service in employing the disabled could be improved?
Earl Ferrers: My Lords, if the noble Lord would care to write to me saying in which way, I will certainly take it into account.
Baroness Fisher of Rednal: My Lords, would the noble Earl also consider that when we are talking about the handicapped we must also remember those who are suffering froms sensory handicap? More often than not, when we speak about the handicapped, we are referring to those who are physically handicapped. I do not want to take away any of their advantages, but the blind and the deaf also need some special consideration.
Earl Ferrers: My Lords, I think that they would be covered under the Disabled Persons (Employment) Act, which defines a "disabled person" as one,
"who, on account of injury, disease or congenital deformity, is substantially handicapped in obtaining or keeping employment, or in undertaking work on his own account, of a kind which apart from that injury, disease or deformity would be suited to his age, experience and qualifications".
I think that that would cover the noble Baroness's point.
Lord Campbell of Croy: My Lords, is my noble friend aware that one of the problems about carrying out the scheme, which has now been operating for nearly 40 years, is that many severely disabled people refuse to register for this purpose?
Earl Ferrers: My Lords, my noble friend is entirely right and that is one of the difficulties of the scheme. But it is also true that that is one of the points which my right honourable friend will be taking into account before he makes his further Statement.

Nuclear Weapons
2.43 p.m.
Lord Kennet: 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 will not follow President Reagan's lead, and no longer call certain nuclear weapons "theatre" or "tactical" when they are, in fact, as strategic to us as any weapon in the world.
The Minister of State for Defence Procurement (Viscount Trenchard): My Lords, the terms "strategic", used to describe those nuclear weapons systems defined as such in the Strategic Arms Limitation agreements, and "theatre", covering all other land-based nuclear forces, have been used generally in the past. It is preferable to talk in terms of range wherever possible, and I therefore welcome President Reagan's decision to describe the current negotiations in Geneva as dealing with intermediate range nuclear forces. But, while I have considerable sympathy with the thought expressed in the Question, the terms "strategic" and "theatre" have come to have well-understood meanings and they will still inevitably be widely used.
Lord Kennet: My Lords, is it not the case that the widely understood meanings which they have come to have profoundly corrupt perceptions of reality? Is it not also the case that all nuclear weapons are highly strategic to those upon whom they may land? Can the noble Viscount undertake that in their publications and official utterances from now on the British Government will use the new nomenclature; namely, identifying the system by range?
Viscount Trenchard: My Lords, as I have already said, since we have sympathy in wanting to use "range" wherever possible, we shall use it wherever we can, but
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there are no terms which cover everything without any form of doubt. To try to change the existing meaning of those terms would be difficult. So far as the perhaps unfortunate implications of the term "theatre" are concerned. I agree entirely with the noble Lord and would take this opportunity to say that theatre nuclear weapons, along with all others, are part of deterrence to war.
Lord Mayhew: My Lords, is the noble Viscount aware that for some time now the noble Lord, Lord Kennet, has been pressing both the United States Government and the British Government to accept this change in terminology and that the description of the Geneva conference as the intermediate range weapons conference is a considerable personal success for him?
Viscount Trenchard: My Lords, whether President Reagan's decision to use the term is entirely due to the efforts of the noble Lord I do not know but, as I have already said, the Government welcome using range wherever possible.
Lord Gladwyn: My Lords, is the term "inter-regional" acceptable in place of "intermediate", or is "intermediate" regarded as the same thing as "inter-regional"?
Viscount Trenchard: My Lords, if I heard the noble Lord correctly, he asked me whether "intermediate" and "inter-regional" are the same thing. Without a definition of what the noble Lord means by "inter-regional"—perhaps he would write to me on it—I hesitate to answer.
Lord Paget of Northampton: My Lords, if we wish to change from the conventional use, which used to be "theatre" and "strategic", have we really made a good selection in choosing "intermediate"? I remember my friend Aneurin Bevan on one occasion, objecting to somebody calling himself "a centre man", saying, "What does he mean? He has to look to his left and then he has to look to his right before he can ascertain where he stands". My Lords, intermediate between what and what?
Viscount Trenchard: My Lords, the noble Lord asks me, "Intermediate between what and what?" Between intercontinental strategic missiles on the one hand and short-range tactical use missiles on the other.
Lord Duncan-Sandys: My Lords, would the noble Viscount agree that whatever arguments there may be about vocabulary we ought to be concentrating our attention upon securing a balance of power over the whole field and not trying all the time to draw attention to specific weapons? It is a balance of power generally which matters.
Viscount Trenchard: My Lords, I agree entirely with my noble friend—a balance at the lowest level that we can achieve through the current disarmament initiatives.
Lord Jenkins of Putney: My Lords, is it not the case that these terminologies are often used to disguise the

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true horror of these weapons, and is not the terminology which the noble Viscount used just now when he referred to the "counter-force policy" as part of the deterrence somewhat concealing rather than exposing the realities of the new policies which are being advocated on the other side of the Atlantic?
Viscount Trenchard: My Lords, I think that the noble Lord is covering different ground from that covered in the original Question. I would merely say once again that the purpose of retaining all these very powerful—hideously powerful—weapons is to deter an aggressor who clearly at the moment shows no sign of dropping his aggressive habits.

Gibraltar: Access
2.49 p.m.
Lord Boyd-Carpenter: 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 the Spanish Government have yet withdrawn their obstruction of access to Gibraltar by land and sea and their interference with access to Gibraltar airport.
The Secretary of State for Foreign and Commonwealth Affairs (Lord Carrington): My Lords, it was agreed during the visit to London by the Spanish Prime Minister that direct communications between Gibraltar and Spain will be re-established on 20th April.
We have been assured by the Spanish Government that early practical steps will be taken in the interests of air safety to adjust the application of the Spanish prohibited airspace in such a way as not to impede the safe and effective use of Gibralter airport.
Lord Boyd-Carpenter: My Lords, while warmly congratulating Her Majesty's Government on the subject matter of that Answer, and my noble friend in particular in view of the well-known efforts he has made in this direction, may I ask him why the re-opening of the border, originally promised to him in April 1980, is deferred until April and not effected immediately?
Lord Carrington: My Lords, I am most grateful to my noble friend for his congratulations but, as he has pointed out in his supplementary, we are now back to where we were two years ago. Still, that is better than being further back than we were two years ago, and so I think we ought to be grateful for that. To reply to the noble Lord's question, I think the answer is that it has been difficult in terms of domestic Spanish politics.

Chevaline: Development Costs
2.50 p.m.
Lord Jenkins of Putney: 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 how much money was budgeted and spent on the Chevaline modifications to Polaris.
Viscount Trenchard: My Lords, as was said in the Statement on Defence Estimates—Cmnd. 8212–1—the estimated cost of Chevaline is about £1,000 million and development work is close to completion.
Lord Jenkins of Putney: But was not the original estimate for this rather less than £450 million and not £1,000 million? Can the noble Viscount say when the original Chevaline decision was taken and by whom? When Parliament first learned of the decision to spend up to £1 billion or more on modernising this weapon, how long was that announcement after the original decision to go ahead with the expenditure?
Viscount Trenchard: My Lords, the original funding decision was taken in 1974 by the last Administration and the estimate at that time was £240 million, in 1974 prices. The Administration previous to the last Administration—that is, the Heath Government—had taken a decision in principle to pursue the Chevaline route, but the main funding decisions were taken by the Labour Administration. If there be any doubt about all-party belief in the development of Chevaline, noble Lords will have noted that leading members of the SDP on a recent programme on television were clearly party to the 1974 decision.
I would only add that since 1974 there has been a considerable quantity of inflation, which would of course put up the price in any event. We were also developing something at the frontiers of technology, which I believe will be finally proved very soon, and that is always hard to estimate. So the Government generally believe that, at £1,000 million or thereabouts, we have got very good value in maintaining our independent deterrent in the cause of peace.
Lord Bruce of Donington: My Lords, could the noble Viscount, Lord Trenchard, inform the House just how much of the work done was performed under contracts which guaranteed a profit? Is the noble Viscount aware that there is some anxiety in the country following recent reports that the guaranteed profits on certain defence contracts have been grossly exceeded in many cases? Will the noble Viscount inform the House whether any of the Chevaline contracts were involved in this?
Viscount Trenchard: My Lords, the noble Lord, Lord Bruce of Donington, has raised two questions. The vast majority of defence contracts, if they are not competitive contracts, are controlled closely and within a very small percentage of certain targets which have been agreed by successive Administrations. So far as the Chevaline contract is concerned, I believe that the major part of this is a non-competitive contract, but it is very closely regulated in accordance with the procedures for ensuring that undue profits are not made.
Lord Avebury: My Lords, I thought that I heard the noble Lord, Lord Jenkins of Putney, ask whether the noble Viscount Lord Trenchard, could say when the original announcement was made in the Defence

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Estimates. If it was not in the 1974 Defence Estimates when the decision to fund this programme was taken, could the noble Lord say in what year this announcement was first made? Could he also say under what heading of the Defence Estimates the Chevaline programme was contained before it was publicly announced?
Viscount Trenchard: My Lords, I am af aid that I do not have the exact date of the first announcement to Parliament and I will have to write to both noble Lords who have raised this question.
Lord Mayhew: My Lords, may I ask the noble Viscount, Lord Trenchard, whether the Government will take into account the very heavy cost of Chevaline, and also the very heavy cost of replacing the motors in the Polaris missiles, when they come to consider whether they should proceed with the Trident project?
Viscount Trenchard: My Lords, the point which the noble Lord raises has of course been examined in great detail and continues to be examined. I would only say to the noble Lord at this stage that the planning for Trident extends to the maintenance of an independent deterrent well into the next century and different considerations apply to the considerations which will make it necessary for some degree of Polaris remotoring to take place in this decade.
Lord Brockway: My Lords, would the noble Viscount the Minister agree that this is a great gamble? Is it not the case, hopefully, that the Geneva talks may make it quite unnecessary? Would e not agree that it is the case objectively that the next Government may not proceed with Trident and may even cancel Polaris? Cannot the Government delay a decision on this matter in order to take a consensus of the opinion of our electorate?
Viscount Trenchard: My Lords, I do not agree with the noble Lord, Lord Brockway, that this question is a gamble. It is quite clear from all current opinion polls that the public do not think so either. So far as the outcome of Geneva is concerned, should in the future any disarmament talks affect our own nuclear weapons, there will be no hesitation in taking the correct action. But at the moment the Government are quite clear that we have to deal with the facts of the situation as it is and continue to deter aggression. I believe that any future Government—and we have aspirations in that respect—will have to pay attention to the facts of the situation.
Lord Harmar-Nicholls: My Lords, will my noble friend bear in mind the reply given by President Reagan—If not us, who? If not now, when?—when we are thinking in terms of protection in the future?
Viscount Trenchard: Yes, my Lords.
Lord Mayhew: My Lords, may I just ask the noble Viscount the Minister to clarify his answer to me? Did he say the Government are proposing to carry on with the Trident project?
Viscount Trenchard: My Lords, the Government have decided to replace Polaris in the 1990s with Trident. There is now the question which the Government have been studying which stems from the United States' decision to move from the C4 Trident missile to the D5. The Government's decision on that matter is not yet ready but will he announced as soon as it is reasonably possible.
Lord Brockway: My Lords, the noble Viscount the Minister referred to Gallup polls. Is he aware that the recent Gallup poll showed a large majority against the adoption of Trident?
Viscount Trenchard: My Lords, I think we are getting into different questions. I have debated public opinion polls with the noble Lord before and will do so again.
Lord Jenkins of Putney: My Lords, was it not the case that the original decision to go ahead with a modification for Polaris was concealed from both Houses of Parliament at the time? Considering that we have had to go ahead with this without an opportunity to discuss it, this must raise the question of whether we are similarly tied in relation to Trident. The increase from £240 million to over £1,000 million is tied to some extent to American decisions and we are liable to be equally tied in relation to Trident. Therefore, will the noble Viscount ask his colleagues to look again at the Trident position, which might involve us in a totally untenable position if we go ahead with it?
Viscount Trenchard: My Lords, that too is an entirely separate question. We shall conduct our affairs in the way that this democratic Government have always done in matters of supreme importance such as defence.

Future Business
Lord Denham: My Lords, at a convenient moment after 3.30 p.m. this afternoon my noble friend Lord Mansfield, with the leave of the House, will repeat a Statement which is to be made in another place on the Invergordon smelter. This will be followed by my noble friend Lord Bellwin, who will repeat a Statement on London Transport and the Greater London Council, It might also be for the convenience of your Lordships if I inform the House that it is now expected that the House will rise tomorrow, Tuesday, 19th January, at approximately 8 o'clock and that dinner will not therefore be available.
Currency Bill
The Bill, having been brought from the Commons on Wednesday, 23rd December last, and printed pursuant to Standing Order 47, was read a first time.

Social Security (Contributions) Bill
3 p.m.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Elton): My

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Lords, I beg to move that this Bill be now read a second time. The primary purpose of this Bill is to finance the many benefits that will be available to people in the coming tax year. It therefore has to provide that the income to the national insurance fund from contributions will be sufficient to meet the likely demands made upon the fund in the coming year without leaving an unnecessarily large surplus. It is a function of the Government Actuary to estimate what that demand is likely to be. This estimate is published in the report of the Government Actuary on the financial provisions of the Bill which was presented to Parliament by my right honourable friend the Secretary of State in December of last year. From this it will be seen that we are likely to be paying out very substantially more in national insurance benefits during the year 1982–83 than during the current tax year.
Total expenditure from the fund on benefits next year will in fact be little short of £19 million. That is rather more than £1·6 billion above what will be expended this year. It is also a very striking fact that, of the total expended—which will be just under £19 billion—no less than £13½ billion will go on retirement pensions. Retirement pensions now account for over 70 per cent. of national insurance fund expenditure on benefit. Indeed, they represent about one-eighth of the whole of Government expenditure in a financial year. Taken in conjunction with the current expectation that the numbers above the present retirement age which are expected to increase until the end of the century—which is now only 13 years away—and that we expect the number of people aged 75 and over to increase by a fifth within that time and the number of those aged over 85 to have gone up by a half, these figures will be seen to be of more than passing interest.
This Bill, however, is concerned only with the financial year immediately ahead of us. It makes provision for demands expected to be made upon the national insurance fund and it does so while preserving the traditional way of funding the national insurance scheme. This is known as the "tripartite arrangement. The three main sources of funds are respectively the employer's and the employee's contributions and the Treasury supplement. The employer's and employee's contributions are paid into the fund, which is run on what is termed a "pay-as-you-go "basis. It would perhaps be less confusing if it was called a "pay-as-they-go "basis, because what it means is that those now in work and their employers are paying for those no longer in work and it is their contribution which has to balance the demands made upon the fund in the year in which they pay them. Today's contributors are paying today's benefits in the confident expectation that when they themselves need to draw a benefit it will be paid from the contributions of people then in work.
The three sources of income that I mentioned are not, of course, the only sources from which money arrives in the fund. There are also Class 2 and Class 4 contributions by the self-employed and voluntary Class 3 contributions by other people wishing to preserve their contributions record for pensions purposes. In addition, there is the investment income of the fund. In spite of this investment income, however, and next year it is estimated to amount to nearly £6,000 million, it has always been accepted that, while employers, employees and other contributors
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may be expected to provide the bulk of the income to the national insurance fund, it would not be reasonable to expect them to do so unaided. It is for this reason that they are boosted by an addition from the Consolidated Fund. This is the so-called " Treasury supplement ".
The purpose for which the supplement was introduced has always remained the same but the way in which it has been applied has varied from time to time, as has its proportionate amount. Originally it was principally applied to enable benefits to be made available under the old flat rate scheme to people with contribution records which did not suffice to qualify for them. As the graduated scheme succeeded the flat rate scheme, and as in time the present fully earnings related scheme for employees came in, the changes have been reflected in the Treasury supplement. There is nothing new, therefore, in proposing changes in the rate of the supplement as this Bill does.
Lord Bruce of Donington: My Lords, I am most reluctant to interrupt the noble Lord, but when he spoke about investment income he mentioned £6,000 million. Should this not be £600 million?
Lord Elton: My Lords, I am advised that indeed it should and I misread the script. I am most obliged to the noble Lord for the close attention which he pays as well as for his very helpful intervention. To save me making a formal apology later I should like to apologise to the House now.
I am making this relatively simple explanation for my own benefit as well as for anybody else's. If any noble Lords find that I am being too simplistic, I apologise for pitching it at my level, rather than at theirs.
My description would be a good deal too simple if I left the impression that all the money paid by way of contributions actually arrived in the fund. As your Lordships will know, there are also elements which are specifically earmarked for other purposes. I refer, of course, to the National Health Service allocation and the employment protection allocation. All contributions—employers', employees', and others—contain the National Health Service allocation. It does not provide a great deal of money in relation to the overall expenditure on the National Health Service: the total for 1982–83 is expected to bring in a little over £1·6 billion. This means that of total NHS spending only 12 per cent. will come from national insurance contributions. But this does provide a worthwhile contribution towards the costs of the health service. The inclusion of the National Health Service allocation is a desirable means by which people in work and their employers, together with others paying contributions, help to fund benefits for all those who need them.
The same could be said about the employment protection allocation, although up to now it has been confined to the employer's contribution. The money raised from the employment protection allocation—and it will be some £584 million in 1982–83—is paid into the redundancy and maternity pay funds. What this means is that, through their contributions, employers and now employees collectively will provide income to the fund from which some help, although

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as I shall say later, only limited help, is given to individual employers towards the cost of the redundancy payments which they make to their employees.
Your Lordships will be aware that changes in national insurance contribution rates and in the earnings limits for liability are usually made by statutory instrument. This Bill contains a number of changes which could have been made in this way. But because a Bill was needed to provide for those changes which could not be made by order, the Government decided that it would be convenient for both Houses if all changes proposed for 1982–83 were contained in a single piece of legislation. To be specific, the total increase in the employee's contribution and the introduction of an employment protection allocation in the employee's contribution require legislation: the other changes could be achieved by order.
Baroness Wootton of Abinger: My Lords, may I intervene for one moment to ask the noble Lord whether after all these changes it is reasonable to describe this as an insurance fund in the normal meaning of that term?
Lord Elton: My Lords, I will leave that to the judgment of your Lordships when you have heard the end of my tale. I believe indeed that the purposes for which the fund is used and the means by which it is funded are fairly generally understood by those people who pay close attention to these matters, at least in general principle, and that it is proper to retain the name by which it has always been known.
This is a Bill which aims to strike a proper balance between general taxation and contribution revenue and aims also to apportion the burden of meeting the extra costs of benefits where they can most readily and fairly be met. I shall say more about the specific objectives of particular clauses in the Bill as I come to them. It is to the specific contents of the Bill that I now turn.
I shall look first at Clause 2 which proposes a reduction in the Treasury supplement. Next I shall consider what I might call the " non-national insurance " elements in the employee's contribution—the National Health Service allocation and the new employment protection allocation—which are dealt with in Clause 3 and to which I think the noble Baroness was referring in particular. Finally, I shall return to Clause 1 which covers national insurance contribution rates and earnings limits. In that context I shall deal with the overall effect on both employers and employees of the proposals in the Bill.
Clause 2 of the Bill provides for the Treasury supplement to be reduced from 14·5 per cent. to 13 per cent. I would remind your Lordships of what I have said about the nature of the supplement. It is a contribution from the Consolidated Fund to the national insurance fund, but there are no hard and fast rules about its size. The percentage is that of the amount of net contributions of all classes received in any one year, after deducting payments towards the cost of the National Health Service and into the redundancy and maternity pay funds. Contributions paid at a reduced rate by contracted out employers and employees are treated for the purpose of calculating the supplement as if they were paid at the full rate.
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In deciding on the level of Treasury supplement that is appropriate for the coming tax year, the Government have looked at the amount of benefit expenditure in general that will fall to be met from the Consolidated Fund. This represents a straight burden on the tax-paper, and it is a burden that has tended to grow in recent years. The overall proportion of benefit expenditure—both contributory and non-contributory—which is met from general taxation has gone up from 37 per cent. in 1975–76 to 45 per cent. in the current year. The Government take the view that it is not reasonable to expect the general taxpayer to finance a significantly greater proportion of benefit expenditure in 1982–83, when total expenditure on social security benefits will be in the region of £30 billion. The reduction in the Treasury supplement will achieve a steadying of this proportion: it will still be about 45 per cent. I recognise, of course, that the reduction in the Treasury supplement will bring about a change in the relative amounts of expenditure met by, on the one hand, people in work—who are contributors—and, on the other hand, the general taxpayer. But the extent of that change should not be over-rated. We are holding the proportion of benefit expenditure financed by the general taxpayer steady: the change in the proportion of the national insurance fund funded from Treasury supplement will therefore result in a slightly greater emphasis on contributions to it made by people in work. That contribution is in itself the essence of the national insurance scheme: the idea that those in work pool their collective contributions to meet the costs of the contributory benefits for those who are not in work. The change in the rate of the Treasury supplement endorses this contributory principle and the idea of social insurance to which successive Governments have rightly attached such value.
I should also emphasise that the reduction in the percentage of the Treasury supplement will not in itself greatly reduce the actual amount of supplement going into the national insurance fund. The Government Actuary has estimated this as £2,591 million for 1982–83 —this is only £9 million less than in the previous year—a reduction of only 0–35 per cent. Nevertheless, the reduction in the Treasury supplement will achieve a saving in public expenditure of £260 million. This in itself represents a welcome relief, however small, of the pressure on the public sector borrowing requirement.
I turn now to the first part of Clause 3 of the Bill, which will increase the National Health Service allocation in the primary Class 1 contribution and in the Class 4 contribution by 0–1 per cent. I have already outlined the case for a National Health Service allocation, and the increase in its percentage will bring in an extra £104 million. This is, obviously, a useful contribution towards the increased expenditure on the National Health Service which we are planning for 1982–83. And that increase is a substantial one. We shall be spending just over £12 billion in England on the National Health Service in 1982–83 compared with rather under £11 billion in 1981–82. So we will be spending over £1,000 million more on health in the corning year.
Baroness Jeger: My Lords, can the noble Lord say whether that increase is due to inflation and rising costs, or whether it is an increase in real terms?
Lord Elton: My Lords, I was about to tell your Lordships that we have, in fact, increased expenditure in real terms by 5 per cent. since 1979. I am talking about real terms—one would not perhaps gather so by reading some of the media or listening to some of the speeches in this House.
The Government take the view that it is not unreasonable to look to those in work to pay towards the services they can get, and that part of the growth of the National Health Service should therefore be financed from an increase in the allocation. In general we believe that people are ready to pay more for health by way of a specific contribution than through general taxation. An increase in the National Health Service allocation recognises this preference. But it recognises it without imposing an unwarranted extra burden. As my right honourable friend the Secretary of State pointed out in the Second Reading debate in another place, the increase in the National Health Service allocation does not amount to more than an extra 15p a week for a man on average earnings.
One final point, however, to which I should draw your Lordships' attention, is that we have not increased the amount of National Health Service allocation in the Class 2 contribution. This is in recognition of the need, to which I shall refer again, to keep additional burdens on the small businessman to a minimum. The aim of keeping the burdens on industry in general to a minimum is also recognised in the second part of Clause 3 of the Bill. This introduces, for the first time, an employment protection allocation into the primary contribution—the employee's share. It will be 0·35 per cent. The employment protection allocation is, as I have already said, paid into the redundancy and maternity pay funds, from which payments are made to employers to help finance their redundancy payments. There is, of course, already an employment protection allocation in the secondary contribution—the employer's share. It is currently 0·2 per cent.
An increase in the employment protection allocation is needed to keep the redundancy fund within the statutory borrowing limit of £300 million which came into force on 7th December. There has been a sharp increase in redundancies over the past year, with correspondingly heavier calls on the redundancy fund. Even though we believe that we have now passed the peak, there will still be a need for extra finance for the redundancy fund next year. Cutting the size of the rebates given to employers would be no answer. Even a cut from the present 41 per cent, to, say, 35 per cent. would save less than £50 million. This would not be nearly enough to keep the fund within its borrowing limits. And for such a modest return, there would only be more troubles—most obviously, an immediate direct effect on the cash flow of firms who already have problems, leading in turn to even more redundancies.
I have already emphasised our desire to keep new burdens on employers to a minimum. The existing burden of redundancy payments is already a heavy enough one for them, and it is one which at present they shoulder alone. Employers can get only 41 per cent. of the redundancy payments which they make to their employees refunded to them from the redundancy fund: the remaining 59 per cent. is entirely
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a liability on them. And, of course, under existing arrangements the financing of the redundancy fund is a burden on employers alone. What this amounts to is that the entire cost of financing redundancy payments is at present met solely by employers as a group.
We have decided that it is right to ask employees to contribute to the cost of redundancy payments. There is an obvious—and, I believe, fair—analogy between asking people in work to contribute towards unemployment benefit to people out of work, as they already do, and asking for a similar contribution for payments for people who lose their jobs. It is an accepted principle that benefits should be funded primarily from contributions on the earnings of those who work. The contributions will bring in some £353 million in 1982–83, and this should be enough to keep the fund within its statutory borrowing limits. I should add that this will still leave employers meeting three-quarters of the cost of statutory redundancy payments.
I come now to Clause 1 of the Bill and the overall effects of what is proposed there. Clause 1(1) raises the lower and upper earnings limits for Class 1 contribution liability from £27 and £200 a week to £29·50 and £220 a week respectively. These changes are purely routine: the lower earnings limit is linked to the basic rate of retirement pension by the Social Security Pensions Act 1975, and the upper earnings limit has to be between 6½ and 7½ times that rate. The upper limit proposed in the Bill falls within that range: it is in fact 7·43 times the basic rate.
Clause 1(2) raises the employee's contribution from 7·75 per cent. of liable earnings to 8·75 per cent. This is, of course, the total amount by which the contribution is raised—it includes the additional National Health Service allocation of 0·1 per cent. and the new employment protection allocation of 0·35 per cent. that I have already dealt with. There remains 0·55 per cent.; of this 0·25 per cent. compensates for the reduction in the Treasury supplement and 0·3 per cent. is needed to keep the national insurance fund in broad balance. Your Lordships will find the detail of these changes set out in the report of the Government Actuary. What they will mean to a man on average earnings of £150 a week is £1·50 a week more in contributions if he is not in contracted-out employment and £1·57 if he is. The employer of a man on these earnings will have no more to pay if he is not contracted-out and 11p more to pay if he is—because a raised lower earnings limit increases the band of earnings on which the full rate of contribution is paid.
In proposing these changes, the Government have been at pains to afford the maximum possible protection to employers. They could only be spared the effect totally if those changes did not include raising the upper earnings limit for contribution liability; but this would in itself have the undesirable effect of distorting the shape of the national insurance scheme. It would also disappoint the legitimate expectations of low paid and high paid alike—of the low paid that earnings limits should rise with inflation, so that those at the upper end of the earnings scale meet their fair share of higher costs; and of the higher paid that their additional pension rights should not be impaired.
By sparing employers any increase in their contribution rates to meet the needs of the national insurance

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and redundancy funds and of the National Health Service we have gone as far as we reasonably can to protect them. And that is a long way: of the estimated £652 million increase in employers' contributions in 1982–83, only £140 million—21·5 per cent.—results directly from the higher earnings limits. The remaining £512 million will come from increased earnings and would have arisen anyway. So we have done all that we reasonably can in an earnings-related scheme to help bring about the recovery of industry and a drop in unemployment.
Some noble Lords may cavil at my decision to favour the employers in this. It is one of the curses of British industrial history that the politicians of at least one party traditionally think of employers and employees as having interests which always differ and always conflict. Never has it been a greater fallacy than now. The failure of a business does not assist its employees—it renders them unemployed. The unprofitability of a business does not assist the unemployed; it merely inhibits the creation of new jobs into which they could move. The success of a business is just as important to its employees as it is to its employers.
It is a principal object of Her Majesty's Government's policy to create conditions in which businesses can become both more efficient and more profitable. That is the way in which they can acquire the strength to expand and to sign on larger workforces. I make no apology, therefore, for the steps we have taken to limit the cost of our proposals to employers.
Lord Molloy: My Lords, will the noble Lord give way?
Lord Elton: My Lords, I ought to have injury time for interventions already. I think that I ought to continue. Clause 1(3) of the Bill raises the contribution payable by married women and widows who have the right to pay the lower rate from 2·75 per cent. to 3·2 per cent. In doing this, we are recognising that opted-out women should not be protected from the increase in the National Health Service allocation—which they already pay in full; this is because they benefit from the health service and it is fair that they should pay the new employment protection allocation as they can qualify for both redundancy and maternity payments. Nor do I think it unreasonable to expect them to contribute to the general costs of the national insurance scheme, though of course it is necessary to preserve a proper differential between their contribution and that of others who are eligible for the range of benefits that opted-out women have chosen to renounce. The difference between the reduced and full rate contributions will be 5·55 per cent.
The contribution rates for self-employed people are dealt with in Clause 1(4) and (7) of the Bill. Just as we have been concerned to protect employers from the full force of changes in contribution arrangements for 1982–83, so too the Government have been particularly anxious to build on the encouragement and stimulus that we have given, and are continuing to give, to small businesses by sparing the lower earner among the self-employed. If we had continued to apply in full the formula for calculating the Class 2 contribution which
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has been used since 1978, the new rate would be about £4. Instead the Bill proposes a rate of £3·75 a week. This represents a suspension of the formula for the coining year to provide a further modest encouragement to the small businessman, but not on such a scale that we have had to look for an extra weighting on the Class 1 contribution. A self-employed person with profits less than £3,450 will only have to pay £18·20 a year more—and if he expects to make less than £1,600, he will be able to obtain an exception from any liability at all.
While we have not been able to provide quite so much shielding for the higher earners among the self-employed, who have a liability for Class 4 contributions, we are nevertheless raising the Class 4 contribution rate by only 0·25 per cent. Application of the usual formula would have demanded an increase of 0·35 per cent. This again offers a further small stimulus to self-employed people. The level of profits at which these contributions will become payable will be raised in line with inflation, like the upper earnings limit for Class 1. This is required by the basic nature of the national insurance scheme, but your Lordships may feel that by and large the self-employed have got not a bad bargain at all in this Bill.
This Bill is rendered necessary by the changing and difficult economic conditions of our time. In it the Government have maintained the just balance which is an essential feature of the national insurance scheme and of our whole system of benefits. At the same time we have done everything within our power to see that the changes which we are making assist our present climb out of recession and our battle against unemployment. It is a Bill about financing benefits of various kinds—the national insurance benefits, the benefits of redundancy payments, and, of course, the wider benefits of the National Health Service. It will enable us to increase our spending on national insurance benefits by £1.6 billion next year. It will also mean that we raise an extra £104 million specifically for the National Health Service. To achieve, or rather to redress, the balance which I have mentioned, the Bill will make a very modest redistribution of the burden of financing social security benefits between people in work and the general taxpayer: this accounts for the reduction in the Treasury supplement.
Similarly, I have argued that it is fair also to ask employees now to carry a part—although still a very small part—of the other burden, of redundancy payments, which employers at present shoulder alone. With a heavy, though decreasing, load of redundancy payments next year and with employers needing every relief that we can give them, it is reasonable to ask people in work to contribute towards helping their colleagues who lose their jobs.
I have laid repeated emphasis on the two concepts of fairness and balance because they are what underlie this Bill. We are providing for increased spending on national insurance benefits—with the lion's share going to the retirement pension—and on the National Health Service and redundancy benefits. All of them provide help where it is needed—a basic requirement of fairness. We are also providing for this spending to be met in a way that maintains a fair distribution of the burdens which it inevitably imposes. I regret if I have spoken for too long; perhaps I should not have

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given way so often. On the other hand, the interventions were most useful.
Baroness Wootton of Abinger: My Lords, before the noble Lord sits down, I wonder whether he could now answer my question. An insurance, as it is commonly understood, means that the insured pay certain premiums in exchange for which in certain contingencies they have the right to certain benefits. Is this now still an insurance scheme?
Lord Elton: My Lords, I am anxious not to be drawn into a protracted argument about semantics at this stage. I shall merely say that this is the term that was coined to describe the " pay-as-you-go " scheme. It has always been based on that principle. I think that it is the right term. I beg to move that this Bill be read a second time.
Moved, That the Bill be now read a second time.— (Lord Elton.)
3.30 p.m.
Baroness Jeger: My Lords, this is clearly a Treasury Bill, and a bad Treasury Bill at that. No one could say worse of any piece of legislation that comes before your Lordships. In our view, it is a mean and regressive measure, the main purpose of which is to reduce the Treasury's contribution to social security and to load an increased burden on to contributors. For reasons of order, obviously we must concentrate today on this destructive little Bill, but I would remind the House that it has to be read in the context of other policies and other measures by which this Government are deliberately impoverishing increasing numbers of our people. It has to he considered against a back-ground of high inflation; intolerable unemployment; increased rates and rents; a decrease in the real value of many benefits; higher prescription charges; and increased charges for many social services. This Bill shows a totally insensitive approach to the casualties of this Government's policies.
The underlying difficulties are in fact much more fundamental than can be dealt with in this measure. In the first place, the problems are the result of the Government's economic policies, and, in the second place, the result of a failure to give the basic necessary thinking to the whole question of social security in the 1980s. I am not making a party point on this, because I think that neither this Government nor the previous Government have really taken on board the changing situation in this matter. We have stumbled on from Lloyd George to Beveridge, and since Beveridge we have not really had a fundamental rethinking of social security in the 1980s. So we have a series of stop-gap measures about social security which confuse applicants and even administrators. It is as though we—again I refer to both Governments—are running about putting our fingers in the dyke when we should be rebuilding the dyke itself.
It is more than time that we faced up to the need for a total review of the post-Beveridge situation. I believe that we have to balance between income tax and insurance contributions in a totally different way. The Government's policy of reducing income tax, which
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benefits the richest people, and increasing national insurance contributions, which is harmful to the poorest people, seems to me totally wrong. It reveals with clarity the social and economic prejudices of this Government.
I would remind noble Lords opposite that in the Conservative manifesto of 1979 these words were printed:
" We have muddled on from Lloyd George to Beveridge and it is time that we had a completely different attitude ".
Then there is this sentence on page 27 which says:
" Our social security system is now so complicated that even some "—
perhaps not all, but some—
" Ministry officials do not understand it ".
We have certainly not done anything to make our social security system more understandable even to these clever Ministry officials, and certainly not to the people who queue up at the offices week after week trying to find out what benefits they are going to get.
Beveridge envisaged a tripartite scheme of contribution, and successive Governments upheld that decision. The Beveridge policy was that the Exchequer should pay one-third of the cost of unemployment benefit, and one-sixth of pensions, disability and maternity allowances. But now the Government are chipping away at these principles and increasingly transferring the nation's responsibility from income tax to individual national insurance contributions, which have infinitely less relevance to a person's ability to pay. In fact, if noble Lords ever meet any ordinary people they will find that most of them look on national insurance contributions just as a bit more on top of their tax. My friends just talk about their take-home pay, and they do not differentiate between the deductions for national insurance or for pay as you earn. It is just one lump taken out of the pay packet. In the practicalities of budgeting they certainly do not differentiate between tax and insurance. It is all just one big piece of deprivation.
I should like to ask the noble Minister who is to reply to this debate how much it would be necessary to increase income tax to take care of the increased contributions which they are asking for in this Bill. Would it be a penny in the pound on the standard rate, or what? It is the view of myself and my friends that where there is a need to raise more revenue it should be done on the fairest possible basis of asking those who earn most to give most. It would be interesting for us to know what addition to income tax would be necessary in order to block out this Bill.
Clause 1 of this Bill alters contribution liability and thereby increases, albeit silently, the inequitable switch from income tax financing to individual insurance contributions. I am not very good at figures but I have worked hard on this and I find—and I am subject to correction—that in 1979 a worker on average earnings paid about 6·5 per cent. of his income in national insurance and about 33 per cent, in income tax. Now the 6·5 per cent. to national insurance has gone up to 8·75 per cent., and the tax has shifted down to 30 per cent.
There was a reference to this in Hansard of another place on 17th December at column 469. This clause raises the lower limit in Regulation 7 of the Contribu-

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tions Regulations Class 1 from £27 to £29·50. I submit that this figure is far too low. It must be the very poorest people in this country whose income is £29·50 a week. It is below the basic retirement pension of £29·60. Even this Government have admitted that the calculation of that pension was wrong and that it should have been higher if it was to keep pace with inflation.
I ask, who are these people who earn £29·50 a week? I can tell noble Lords because I know many of them. It is usually part-time workers, very often women, who clean offices at dawn or do odd jobs, evening shifts, in factories, or shops or launderettes. Under this clause, as I understand it—I hope perhaps I may be corrected—if such an impoverished worker has the chance of, say, a £1 a week rise, he or she will have to beg the employer not to give the increase because, once a worker gets above £29·50, he or she will have to pay a contribution on the whole amount and not just on the amount above the threshhold. Somebody working hard—as I thought the Conservatives wanted us all to do—earning an extra £1 a week would then immediately have to pay £2·60 a week in insurance. What kind of sense does this make?
At the same time, there are the uneven contribution records of such persons who may be earning £29·50 at some time and then for a little while get a little more and come into the full scheme. What happens to their benefit entitlement when their contribution records are examined? This £.29·50 is far too low. It really ought to be a shame for any noble Lord to think that there are people in this country today earning as little as £29·50 a week. What sense is there in a policy which reduces the net income of the poorest and lowest paid people? What incentive have they to work harder if they end up taking home less pay?
From next April when all this comes into effect a person receiving five times the average earnings—say, £35,000 a year—will pay 2.9 per cent. of his income in national insurance. But a worker on £140 a week, which is about the average, will pay 8.5 per cent. of his income in national insurance. It seems that it would be infinitely fairer to increase the standard rate of tax so there was a more equitable distribution between different wage earners. Thus, we have at present an inequitable and irrational tax collecting scheme. I am not contesting the Government's need to raise more money. After all, we on this side want to see higher benefits, better conditions and more investment in the National Health Service, and of course we recognise the inevitability of the Government having to raise more money. But this Government are having to raise more money to pay for the bandages for the wounds of unemployment which they have themselves inflicted on the people of our country.
If we accept the need for more income for social security purposes, surely we can ask whether Clause 1 is the right way to raise funds. That clause raises the upper limit from £200 to £220 and I must ask whether that fully takes care of inflation. Does it mean that somebody earning £500 a week pays the same as a neighbour earning £220? Where is the social justice in that, if that is the case? And the greater the stoppages out of income and the lower the take-home pay, the more wage increases will be demanded,
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and reasonably so, so that at the end of the day the nation will have gained nothing because we shall have reduced the spending power of thousands of people and will have made it that much more difficult to get out of the recession, which must be the objective of all noble Lords.
I have a specific question to ask about Clause 1 in relation to contributions. What will be the position of young people who take part in the new scheme for youth training? I understand that young people under the YOP scheme are having some credits arranged for certain benefits. We understand that under the new scheme these young people are to be paid £15 a week. Have any arrangements been made for their social security contributions to be credited or for them to have cards that will be franked? If not, they will be in trouble in later life on the basis that their contribution records may be inadequate, and I hope we shall have an answer to that.
On the general question of contributions—I appreciate that this does not come strictly within the Bill but, because of the implications of Clause 1. I feel it is fair to raise the point—are the Government giving any thought (as I wish my Government had done) to computing these on an annual, rather than weekly, basis? We assess income tax on an annual basis but social security contributions are assessed on a weekly basis. I am sure that in these magic days of computers we should be compounding all the liabilities which the citizen has to contribute to national funds in a more reasonable and time and labour saving way.
Annual contributions would be fairer to many seasonal workers. For instance, a seasonal worker earning £50 a week for six months of the year pays more in national insurance than someone earning £25 a week throughout the year, although their annual income is the same. I will not press this point today, but it is one to bear in mind because I have never understood—I repeat, this applies to various Governments who have been in power—why national insurance must be on a weekly assessment and income tax on an annual one. The sooner we can get the two closer together, the better for all concerned.
Clause 2 provides for the Treasury supplement to be reduced to 13 per cent. of relevant contributions. In 1975 the Treasury contribution was 18 per cent. and in 1980 it was 14½, per cent. Now we are to go down to 13 per cent., which represents a reduction of £261 million. A fair question to ask is what the Treasury intends to do with this windfall of £261 million. If they said it was to go towards implementing the Mental Health Bill or the National Health Service or something useful, we should find it more acceptable. However, I read carefully the Official Report of the debates in the other place and no answer was given to the question what the Treasury intends to do with the additional £261 million which it is taking out of the pockets of the working people.
It is not a question of the Treasury saving that money; they are transferring it, and it will be the lowest Treasury contribution ever in the history of the national insurance scheme. It was accepted under the Social Security Act 1973 that 18 per cent. would be fair, and that was maintained for several years by successive Governments. I can find no trace of any Conservatives objecting to the figure of 18 per cent.

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What, therefore, is the basis of the calculation of 13 per cent.? Next year, will it be 12, 10 or 9 per cent.? Has someone just picked it out of the air? There seems to be no rational basis for the figure. In my submission, it is another indication of the balance being tilted the wrong way, away from general taxation, from which the Treasury gets its money, towards higher individual contributions.
The Government seem to take the view—the noble Lord, Lord Elton, also seemed to take it—that it would be unreasonable to expect the general taxpayer to meet higher costs of benefit. But surely most of the time the worker and taxpayer is the same person, except of course for a few lucky people living on unearned income. It is because the cost of benefits, especially non-contributory pensions, is rising that the Treasury supplement should not simply be maintained but should be increased. More old people are living longer, and I count myself among them and long may that last, and I say the same to colleagues on both sides of the House. Are the Treasury worried because they know there will be even more people unemployed? When they say their expenses are rising, it is clear that they are rising because they are putting people out of work and are then complaining because the numbers receiving unemployment benefit are going up. That is the rationale of the situation.
The Government have refused to make good the 2 per cent. fall in the value of unemployment benefit and at the same time have abolished the earnings-related benefit. A person becoming sick or unemployed now receives about £17·50 a week for 26 weeks less than he would have received had he been on average earnings. A lower paid worker—somebody earning, say, two-thirds of average pay, would have received £10·50 for 26 weeks. They have paid for that benefit, but the Government have abolished it. I suggest to your Lordships that if any private insurance company had behaved in that way it would have found itself in the dock very quickly. Nothing in the Government's manifesto suggested such drastic measures. In fact, in my reading of social history I have to go back to the May Committee in the 'thirties to find similar excesses.
The Minister said in another place (Hansard, 17th December, column 494) that abolishing the earnings-related benefit would save the Government £445 million. So that means that another £445 million has been taken away from contributors, taken out of their purchasing power, thus adding to the recession and increasing pressure for wage rises. So the Treasury—I that some noble Lord will help me if I get it wrong—has taken away £445 million which people have contributed in respect of earnings-related benefits, and has taken £261 million in relation to reduced contributions. I make that a total of £706 million loaded on to contributors.
People cannot accept that there is fairness in those arrangements, and I stress very sincerely that it is only on the basis of a sense of fairness that our social security system can really work. It must be based on a concept that the Government, employers and employees should share in the funding of the welfare state. Once a sense of fairness is eroded, people will feel resentful and unco-operative, and the compassion of a caring society will fade.
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I should like to refer briefly to Clause 3, which deals with the allocation of contributions. I am sorry to take so long, but the Bill is more complicated than would appear at first sight, and its impact on our people is worse than has been previously understood. Clause 3 deals with the allocation of the higher contributions, and 0·1 per cent. of the increase is to help the National Health Service. Of course, we would all agree that the National Health Service needs more resources—which makes all the more harsh the fact that Clause 2 of the Bill cuts the Treasury contribution towards financing national insurance. I should have thought that it might be more acceptable had the money been given directly to the National Health Service.
But the most disastrous and unacceptable part of the clause is contained in subsection (3), which provides—and this for the first time in history—that workers are to contribute to the employment protection allocation, which of course includes redundancy payments. This benefit was introduced by the Redundancy Payments Act 1965. It was agreed by successive Governments that it should be funded by Government and employers, and that was confirmed in consolidation measures in 1973 and 1975. I can find no trace of any Conservative voting against that.
So why the change? Is it that the Government, for all their guarded optimism, know that next year more money than ever will be needed to help redundant workers, that increasing numbers of our people will be declared redundant? Will the Government have to look for more money and take it off other workers, so that they can meet the bills? As the recession deepens and both bankruptcies and factory closures increase, many people fear that there will be many more calls on the redundancy fund. In my view the very fact that these fundamental, novel changes, are being considered by the Government is incontrovertible evidence of the failures of the Government's economic policies. They are coming to the House this afternoon saying that things are going to get worse and so we must find some more money from somewhere.
The Government are saying to people who are in work that they must finance their own coming redundancy, they must bail themselves out of the disasters that the Government have created. It is as though a man condemned to death was to be asked to pay for the rope that was to hang him. That really is what the present situation is like. I understand that about £353 million a year will be taken from contributions for this purpose. I quote that figure from the House of Commons Hansard of 15th December, column 175. We believe that the basic principle is wrong. The main reason why we believe it is wrong is that workers do not usually have a share in the decisions which cause their unemployment. And the sense of injustice is enflamed by this new policy—which was certainly not mentioned in the Conservative manifesto.
It is all very well for the Government to say, as the noble Lord the Minister said this afternoon, that the lucky people in work should pay for those who are out of work. But it is not the worker who sacks his mate. It has to be the employer who sacks him, often forced by Government policies into painful decisions on reducing manpower, in regard to which the extra payment on national insurance is of course a salient point.

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I must remind the House that redundancy payments are made only to workers who have been with one employer for a minimum of two years. Under the Bill a man or woman will be forced to contribute to the redundancy fund. But I must ask this: If they are sacked after, say, 18 months, will they get nothing? Will they not even get back their contributions? Again the sense of injustice will be bitter indeed. Lucky indeed are the people who nowadays can be sure of being in work, in the same job for two years. A Minister in another place invited people to get on their bikes and go around looking for jobs. If the jobs do not last two years, under the Bill those men and women will have contributed to the redundancy fund; but if they are sacked perhaps only a day or two before the two years is up, they will get nothing. I cannot see the fairness of that, and I hope that the Government will look again at this point. The people who change their jobs the most often are likely to be the lowest paid and the unskilled in depressed areas, people who must move from firm to firm to get jobs. And if people are made to feel that they are putting money into a benefit fund from which they will never get anything, there will be a great sense of injustice.
I must again apologise for having gone into so much detail on the Bill, but that seemed to me to be absolutely necessary. We have spoken a great deal about statistics, percentages and abstractions, but this Bill is about people. It is about how people, including some of the most impoverished and hard-up people in this country, are to manage over the coming years. If people are made to feel they are paying more and are receiving less and less there is a very real sense of injustice.
It has been said before that there is no sight more unacceptable than a fat man telling a thin man to tighten his belt. We are in a situation of increasing unemployment which diminishes the limits of people's tolerance, not only financially but in every ether way. This Bill has the very miserable effect of increasing the disfigurement of poverty in our society, of decreasing the efforts made by many of us on all sides of the House towards a greater degree of social justice. It is I believe an indication of the Government's total failure to come to terms with the economic problems of this country or to bring any element of compassion and social justice into their policies.

The Invergordon Smelter
4 p.m.
The Minister of State, Scottish Office (The Earl of Mansfield): My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Scotland. The Statement is as follows:
"With permission, I wish to make a statement about the closure of the British Aluminium Company's smelter at Invergordon.
"Towards the end of last year the company told the Government that the very large losses it was incurring at Invergordon had reached the point at which the survival of the whole group was seriously
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and immediately threatened; it was therefore proposing to close the smelter by the end of 1981. The Government nevertheless decided that our first priority should be to try to keep the smelter in operation, and urgent discussions took place with the company in search of a basis on which the smelter could continue.
"To enable it to continue in operation the company would have required the disputed charges of £47 million due to the North of Scotland Hydro-Electric Board to be written off and electricity charges to be reduced to a level which would have caused the board to make annual losses on the power contract of around £16 million a year, continuing at that level, and possibly increasing, until the year 2000. The Government therefore concluded with great reluctance that such commitments in respect of one company would be an unacceptable burden to the taxpayer and that the closure would have to proceed. The company then entered into discussions with the board about the termination of its power contract. Because these discussions were still in progress, the Government were not in a position to make any announcement to the House before the beginning of the Recess.
"Under the terms of the settlement reached between the company and the board, the company's rights under the contract to electricity supplies from Hunterston B to the year 2000 were valued at £79.328 million. From this sum the board deducted £47.049 million in settlement of disputed power charges. At the date of termination of the contract the outstanding balance of the Government loans to the company, including interest due, totalled £33.527 million. Because it was the Government's intention that there should be an equitable settlement which would reduce the threat to the company's other activities caused by the continuing losses at the smelter, my right honourable friend the Secretary of State for Industry did not insist, as he was entitled to do, that the whole of the remainder should go towards repayment of the outstanding balances of the company's loans. Of the remaining £32.279 million the company paid £4.488 million to the board in settlement of current debts for electricity supplied and £12.279 million to my right honourable friend in part repayment of the loan, and received £15.512 million.
"The payment of £12.279 million was sufficient to repay the principal and interest of the 1975 loan in full (£6.547 million) and the interest due and part of the principal of the 1968 loan (£5.732 million). With the approval of the Treasury, the remainder of the principal of the 1968 loan, amounting to £21.248 million, was waived. The European Commission are being notified.
"As I said on the day the closure was announced, the Government regard it as a profound disaster for the area. We fully understand the serious consequences which it will have for Invergordon, and the wider Moray Firth area, both in terms of jobs lost and its effect on the local economy.
"The company has undertaken to maintain the smelter in a usable condition for a period of six months and to co-operate with the Highlands and

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Islands Development Board in its efforts to find a new operator for the plant. We are already working with the Highlands and Islands Development Board and Locate in Scotland to ensure that every effort is being made to find a new operator. We are ready to assist the North of Scotland Hydro-Electric Board and any potential new operator in their negotiations.
" In the event that no new operator comes forward every effort will be made to try to attract new jobs to the area. The Government have agreed to provide a special extra allocation of funds, amounting to up to £10 million over the next three years, to enable the Highlands and Islands Development Board to undertake special measures to provide new employment opportunities. My department, the Highlands and Islands Development Board and the Scottish Development Agency will give the highest priority to finding new projects which may be established in the area."
My Lords, that concludes the Statement.
4.4 p.m.
Lord Ross of Marnock: My Lords, one of the outstanding features of this closure is the brutal sudden-ness with which it was announced and the speed with which it is being effected. In any other area of Scotland (or of the United Kingdom, for that matter) the loss of 890 jobs would be serious: in this particular area it is really shattering—a disaster of major proportions. Can the Minister, who we thank for repeating this Statement, tell us when the negotiations in fact started? Can he tell us whether Ministers were personally involved in these negotiations; and, if so, which Ministers? Did the Government at any time offer a package to BACO, the British Aluminium Company, which would have allowed them to carry on operations at Invergordon? Altogether, how long did the negotiations last from start to finish, to the point where the Government (and I stress this) informed the British Aluminium Company that termination was the only way?
On the terms of what is a complex and complicated financial settlement, can the Government tell us why there would appear to be very considerable generosity to the company? The workers get nothing out of this; and all that the local authorities which have been involved with the Scottish Office in building up the infrastructure over a period at a cost of millions get out of it is losses. But it would appear to me that we have been fairly generous to the company. In particular, I should like to know why the £21 million repayment of the original loan was waived. Had it anything to do with the smelter at all?
What is the position now? Who owns the plant? Is it the British Aluminium Company? Bearing in mind what the Minister has said about seeking anxiously to get a new operator, I think we must be careful not to mislead people or raise hopes here. What can the Government offer to a new operator in order to encourage it to come in and operate this smelter that they failed to offer BACO to continue its operation? Are BACO now in a position (because I presume the answer to my previous question is that they own the smelter and the site) to veto any new
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operator coming in? Have the Government any guarantees about scrap value, say, for the smelter and sites if someone does want to take it over?
Further, do the Government appreciate that not only are the 890 jobs in the smelter directly affected here but that there are a lot more affected in transport and British Railways? The British Steel Corporation, I believe, have just announced the closure of a plant in the centre of Scotland which was directly related to the smelter. So the knock-on effect is very considerable, and we shall probably have to double the number that we have already suggested here. The Government say that they are anxiously seeking new jobs. Remember, of course—the North will remember—that it was the Government who turned down the gas-gathering project, on which many hopes had been pinned in respect of new jobs, not necessarily only in this area but in other parts of Scotland.
Lastly, can the noble Earl tell me what are the special measures that the Highlands and Islands Board have in mind, or the Government have in mind? I do not think that at the moment the Highlands and Islands Board are short of money for any viable project that they can get, and this £10 million over three years is a bit of financial windowdressing, but it will deceive no one in the Highlands. It is a sad day, and certainly it is a sad day for me, too. I can remember the competition that there was for aluminium companies to get Invergordon. There were other companies as well; and it is sad that they have reached this particular stage. I wish the Government well in their efforts to attract new industry, but I fear it will be a long time before we get anything employing that number of people. This really was the linchpin of the Highlands development project, and it has gone.
Lord Tanlaw: My Lords, from these Benches we, too, wish to thank the Minister for his Statement, his first in the New Year, and would wish to repeat what was said to the families of the workforce there. The message that the Statement contains will bring no joy to the New Year in that district and far beyond it. I will not repeat the questions already raised and to which we shall be interested to hear the answers. I have three questions for the Minister. I cannot understand how calculations can have gone so far out of kilter as to create a sudden closure of the smelter. Smelters operate with hydro-electric plants because one can forecast the cost of electricity for many years ahead. It is not related to OPEC prices. The first question is this. How do other smelters with their costs of electricity manage to continue, and how does the North of Scotland Hydro-Electric Board base its charge for hydro-electricity? Is it on a cost-plus basis; or has the company tried to relate the cost of electricity to the consumer to OPEC prices?
Secondly, can the noble Earl explain to the House, if the North of Scotland Hydro-Electric Board is to lose £16 million a year due to not having adequate charges paid to it for its electricity, who is going to consume the extra electricity of approximately 200 megawatts? If no one is to consume it then the North of Scotland Hydro-Electric Board will receive a nil return for their electricity generation costs. Is it not better for them to get something rather than nothing for their electricity, as apparently they are going to get at the moment?

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Can the Minister give the House any information of any new industrial complex which is going to come to the area—and I hope it will—with the encouragement of the Government? We wish the Minister well in his efforts to attract it.
The Earl of Mansfield: My Lords, I should like to thank both noble Lords for their reaction to this Statement. So far as suddenness is concerned, I understand that British Aluminium losses were by September running at half a million pounds a week and it was in those circumstances, when the company apparently decided that its whole viability as a group was coming under threat, that matters started to move. There were considerable and very urgent negotiations thereafter. The noble Lord, Lord Ross, asked who has taken part, I think, on the part of the Government. Many officials from different departments in the Scottish Office started the process off, particularly in the Scottish Economic Planning Department, but as things developed my honourable friend Mr. Fletcher and subsequently my right honourable friend the Secretary of State were both consistently and to a large extent of their time involved in these negotiations. The negotiations took place with representatives of British Aluminium, among others.
A number of points were put forward on the part of the company upon which they would need to be satisfied before they would continue to operate this plant. I do not intend to go into the details of them all now, but in the end the matter came back to the question of the disputed charges as between the company and the North of Scotland Hydro-Electric Board and the continuing losses which would be made by the board if the company was to continue in operation at an energy cost which was satisfactory to itself. It was in those circumstances that eventually the question became as stark as I have illustrated and the Government, with great reluctance, had to come to the conclusion that the cost of £16 million—which represented something like £16,000 a job, which would escalate as the year 2000 approached—was not in the public interest.
The noble Lord, Lord Ross, asked in effect, why the Government behaved generously—I think that was the word he used—to British Aluminium in the matter of the £20 million with which it has been left. I have to go back to the original encouragement which the Government—when I think the noble Lord was Secretary of State for Scotland in the late 1960s—gave to British Aluminium in the first place. There was what was described as a letter of comfort sent from the Minister of State of the Board of Trade, then Mr. Edmund Dell, to the company. That letter, and the sentiment, played some part in the Government's thinking now.
Furthermore, in view of the very serious situation in which the whole group found itself, and particularly because the Government had in mind the continued operation of the smelters at Lochaber and Kinlochleven and the continued operation of the company's other plants, for instance, at Falkirk and Burntisland, the Government wanted to see the settlement—and it was a settlement—equitable and one which would enable the company to close Invergordon without further heavy losses and which would enable it to carry
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on these other plants. Out of the £20 million, the company has had to meet all closure and redundancy costs and has already met a bill of £4·9 million in respect of its December electricity.
I am replying at length because of the number and detail of the questions which the noble Lord, Lord Ross, quite properly asked. He asked who owns the plant. The plant is owned by British Aluminium, as I think the noble Lord realises. He asked what offers would be made to any other company or undertaking which might show an interest. That would depend upon the commercial judgment of any potential purchaser, and I have no doubt that his judgment would depend upon the terms of any power contract which could be negotiated with the electricity board. The Government obviously will want to discuss any proposal made with the board. I cannot offer any commitment at this stage, but we would consider carefully any proposals which came forward.
The noble Lord asked what special measures the Highlands Board is taking apart from the £10 million, which the noble Lord rather dismissed with the phrase " window dressing ", which it has been given to help it in its work. There is at the moment an urgent study being carried out between the Scottish Economic Planning Department and the Highlands and Islands Development Board to see what are the best ways of urgently carrying out this extremely important and vital work to attract new industry into the area even if a buyer cannot be found for the whole undertaking. Finally, I think the noble Lord asked about the scrap value and any guarantees. The answer is that the Government at the moment are negotiating with British Aluminium on this point.
The noble Lord, Lord Tanlaw, also asked about the sudden closure. I hope that I dealt adequately with that. He also asked about other smelters. Of course, the other two that I mentioned at Lochaber and Kinlochleven have old but nevertheless serviceable and extremely valuable private hydro-electric generating machines which supply their electricity; and therefore their costs are very much less than that which the unfortunate undertaking at Invergordon had to face. It is a long and complicated story of how this came about. Basically, British Aluminium bought a slice of the Hunterston " B " nuclear generating undertaking. In return they were to be given a very large amount of electricity, lasting until the year 2000, at the cost of production. Unfortunately, the cost of production, and also measures which have been rendered necessary by safety considerations, have escalated those on-going costs. That is the reason why all this trouble ensued over the years. I hope that I have answered the noble Lord, Lord Tanlaw, sufficiently. As I have said, it is a long and extremely complicated history.
Lord Wynne-Jones: My Lords, in view of the noble Earl's reply, in which he referred to the cost of electricity, can he tell us whether the closing down at Invergordon is going to add substantially to the surplus of productive capacity in Scotland for electricity? If so, why are we continuing with building a nuclear power station?
The Earl of Mansfield: My Lords, it is not possible at the moment to predict future electrical demand. The

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real point of the noble Lord's question is: Why are we continuing to build the nuclear station at Torness? The answer is three-fold. First, arrangements for the building and the equipment which has been ordered are at a very advanced stage. To cancel them now would cost a very great deal of money indeed. Of special importance is the fact that we estimate that if we cancel them we would lose 2,000 jobs. That must bear very heavily on any decision that a Government makes.
Thirdly, Governments have always been castigated in the past because they have underestimated the amount of electricity that would be needed by industry. We are in the midst of a very deep and severe recession. I believe that as we pick up and leave it we shall need in the future all the electricity that we can supply. Electricity is going to be increasingly important to us in the future because it will take the place of hydrocarbon fuels, particularly oil.
Lord Ross of Marnock: My Lords, I think the Minister is right in stressing that we may need all the electricity that we have on-stream at the moment. We also may need the aluminium smelting capacity. From the point of view of the economic wellbeing of the country I hope that he will continue his efforts to try and find someone who is prepared to do it and that he will he a little bit more forthcoming to them than he has been in respect of British Aluminium there.
Has any estimate been made of the cost to the Government and the country of the actual losses involved? This is not just the loss of jobs, the cost of unemployment, but the loss to the North of Scotland Hydro-Electricity Board of the contract, of the take up of electricity, but the loss to the Inland Revenue in respect of the tax that perhaps over 1,000 men would have been paying. I hope these matters were taken into the equation before the Government made their decision. There is also the cost of any new industry going in. That could be very high indeed. I hope the Government took that into account.
The Earl of Mansfield: My Lords, in so far as these matters which the noble Lord raised are quantifiable—and some which the noble Lord illustrated are not and others which he did not mention are—the Government took all these into account in so far as they could.

London Transport Fares
4.25 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Bellwin): My Lords, with the leave of the House, I beg leave to repeat a Statement which is being made in another place by my right honourable friend the Secretary of State for Transport. The Statement reads as follows:
" Before Christmas I told the House that I was not prepared to legislate to let the GLC go back to their unbalanced transport policies which placed such huge burdens on ratepayers.
" I said, however, that I was willing to see the GLC leader anytime if they had problems. Since then Mr. Livingstone and other GLC leaders have come to see me and explain their problems.
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" In immediate response to these the Government are prepared to act in two respects.
" First, although the GLC have powers under the Local Government Act 1972 to spend up to the product of a 2p rate which could be used to finance concessionary fares for the elderly, it is clear that they are not in a position to continue relying on these powers alone. Nor are the London boroughs able to get a concessionary fares scheme worked up in time.
" I have, therefore, stated the Government's willingness to legislate to give to the GLC the same powers as other local authorities have, to operate a concessionary fares scheme.
" Second, the high cost and low fares policies of recent months have led to a large accumulated deficit. I have said that we would be prepared to legislate to let LT pay this off over a reasonable period.
" Regrettably the GLC has had to raise fares 100 per cent. not just to get back to 1980 levels but to pay for the heavy costs of inefficiencies imposed on LT in recent months.
" But in the Government's view there is no need for further large increases in 1982. Talk of this, or of large scale redundancies, is raising thoroughly unnecessary alarm.
" The GLC leaders have indicated their wish to come for further talks on the future of London's transport system in the longer term. I welcome these as providing an opportunity for constructive discussion on the needs of the public in London and how these can be best met and financed ".
My Lords, that is the end of the Statement.
Lord Underhill: My Lords, I thank the noble Lord for repeating the Statement made by his friend in the other place. The Statement is grossly inadequate to meet the problems of transport not only in London but elsewhere which have been thrown up by the Law Lords' judgment. Naturally, it is not appropriate for this Statement to discuss that judgment.
The first and last paragraphs of the Statement are, in my view, related. I welcome the readiness of the Secretary of State to meet the GLC leaders to discuss further the needs of the public in London. I should like to ask whether this will include discussion on how far subsidies can be paid to meet the judgment. As the judgment laid down no criteria whatever on that matter, how will this be determined by the Secretary of State? Does this not indicate that there is need for wider legislation to clarify this most important matter, particularly as there seems to be general agreement that the judgment has brought chaos into the financing of public transport? Also, the GLC believed that they were following what was intended when the London Transport Act of 1969 was introduced.
What is the meaning of the reference in the Statement to the heavy costs of inefficiencies? Has not London Transport shown an increased productivity? Has not the " fair fares " policy led to an 11 per cent. additional use of London's buses and a 7 per cent. additional use of London's Underground? Is that not rather an unfair charge to make against both London Transport and the GLC? I welcome the decision to introduce legislation to clarify the position regarding concessionary fares for the elderly. Incidentally, one notes that there is

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another piece of legislation which is apparently in need of clarification. When is this legislation to be introduced? It is a very urgent matter. Undoubtedly, the GLC and other authorities will need to take this matter into consideration for its budget for the next year.
Will the necessity for the GLC to increase fares in general mean an increase in the cost of this concession scheme? If so, how much will be entailed and will that be set against the rate support grant? It would seem to be unfair if that is to be the case. Finally, has there been any consultation with the Secretary of State for the Environment regarding the restoration of the £110 million penalty by the cut in the rate support grant to the GLC, in view of the proposals now being made by the GLC to comply with the terms of the Law Lords' judgment?
Lord Tanlaw: My Lords, we on these Benches thank the noble Minister for repeating the Statement. However, we have considerable doubts as to whether the contents of the Statement will be either welcomed or understood by the ratepayers of the GLC. Could the noble Minister explain to the House whether the Government intend to give a grant to Mr. Livingstone and the GLC which in net terms is either less or more than before the " fares fair " policy came into operation?
Secondly, could the noble Minister come out into the open and tell us whether Her Majesty's Government really approve of public transport and wish to encourage it, certainly in the capital city of this country? I believe that the general public now are confused and worried as well as being inconvenienced by the inefficiencies of London Transport and the lack of capital replacement that has taken place. Will the noble Minister explain the term " cost of inefficiencies "? Is that a reference to equipment of an advanced and modern type, of computer and television systems that have remained unused by London Transport, or does it mean inefficiencies of operation or the inability of London Transport or the Government to deal competently with the unions in operating the transport system?
Finally, would the noble Minister not agree that the London Transport system is now years behind those of other European cities? Is it not about time that it was updated in capital terms and that the ratepayers of Greater London were given some indication and some hopes for the future so that they may be encouraged to travel on London Transport in comfort?
Lord Bellwin: My Lords, I thank both noble Lords for their observations on the Statement. The noble Lord, Lord Underhill, asked whether the discussions to which I referred will result in some subsidies which would help to meet deficiencies. He also referred to the need for wider legislation. I think that these and the other questions he asked have to be borne in mind against the background of what caused the situation in the first place; and the fact is that, as a result of the policies that the new GLC administration (if I can call it that) imposed, the increase to London ratepayers, including the loss of grant, was 10 times—I repeat 10 times—what the cost was before. Quite clearly there were tremendous burdens upon those ratepayers, and
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that is what led to the whole situation. What we are now saying is that we have listened to the representations made by the GLC leaders, and the Statement says that we will continue to have discussions with them to try to help them, if you like, to restore to some reasonable level a situation which clearly has gone dramatically out of balance. It is the need to fix a proper balance between what ratepayers should pay and what transport users should pay that is the nub of this particular problem.
The noble Lord, Lord Underhill, asked when legislation would be introduced regarding concessionary fares and he also asked whether there would be subsidies. I think what he was asking was whether they would enable the authority then to meet those fares. I cannot tell him exactly when the legislation will be introduced, but I very much take his point that clearly there is a need for some urgency in this whole matter.
As to his question about any consultation with the DoE regarding the restoration of penalties, I am not aware of any such discussions. Whether or not that is something that goes on to the table as a result of what may be decided will have to be seen when the discussions take place, I presume.
The noble Lord, Lord Tanlaw, asked whether the Statement would be understood by ratepayers. My Lords, the ratepayers certainly understand the effect of the judgment on what they will be called upon to pay by way of supplementary rates. There is no doubt about that: they know that. He asked whether it would mean more grant. I would think that would depend on the discussions, as I have already tried to indicate in answer to the noble Lord, Lord Underhill.
As regards whether the Government approve of public transport, I would remind your Lordships that we are subsidising it to the extent of £1·2 billion this year. But of course there will always be a dilemma: how much is enough? That is a debate that can go on for ever, I should have thought.
As to the point about the inefficiencies to which the Statement refers, different people will have their own ideas about that subject; but some may think that, when the GLC inherited an 8 per cent. pay settlement, for example, and then instructed London Transport to reopen negotiations to give an additional 3 per cent., that was a contribution. And some may think that that, when they added several hundred extra staff upon taking office, that was also something that contributed to the situation. When they added 6 million extra bus miles to the routes, you could argue that that was an inefficiency or an addition to service, depending on what happened. But there is little evidence to show that they in fact did, despite what the noble Lord, Lord Underhill, mentioned by way of his figures, achieve a great deal of what was the declared objective of this exercise. However, I do not think it advances us very much today to go into that. The fact is that we are today concerned about what is to he done about a very serious situation for London Transport, and I think that the Statement illustrates the Government's willingness to try, jointly with them, to help to get them out of a position into which they have put themselves.
Lord Boyd-Carpenter: My Lords, in view of what my noble friend has just said and the sorry story he

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has told of the handling of this matter, not only in the immediate chaos but for some period back, is not one forced to the inevitable conclusion that London Transport should be removed from the control of the GLC and put again under the Ministry of Transport?
Lord Bellwin: My Lords, hear what my noble friend says and I am sure that there are many who would feel as he does, but clearly that is part of the wider issue, and today I am not in a position, as I think he knows, to comment upon it.
Lord Davies of Leek: My Lords, is it not a fact that, whatever Government have been in office this last quarter of a century, the problem of the co-ordination of road, rail and bus transport is of paramount importance, and that the judges' decision has created chaos in the minds of many people? Is the noble Lord further aware that it is no good running down British transport alone? Those of us who have knocked around the world at rush-hour periods anywhere can see this problem and I think some Governments should face it with courage, even if they use part of the defence programme to make road and rail strategically valuable.
Lord Bellwin: My Lords, with respect, it is not the Government's decision which is creating chaos: it is the GLC's decision that created chaos where previously it did not exist.
Viscount St. Davids: My Lords, may I declare a double interest? I am on the one hand a ratepayer of Camden and, on the other hand, by a very nice piece of timing, I am about to become an old age pensioner next month. Is it really fair and is it possible to continue in these days to hold that the transport system of a capital city is really able to hold its own without subsidy in view of what happens in the capital cities of other countries? Is it also right that in a capital city such as ours, where a great many of the people who take advantage of that transport come from many other parts of the country right outside the London ratepayers' area and are indeed visitors from many foreign countries, all these people should benefit at the expense of the London ratepayers?
Lord Bellwin: My Lords, the whole problem is this: what is a reasonable level of subsidy? Of course, it is not unreasonable that there should be a subsidy. Other capital cities help with subsidies, and there is no suggestion that there should not be a subsidy in the case of London Transport. The whole issue is: what should be that level of subsidy, how should it equate and, as I said before, how should it balance between the ratepayers, the taxpayers and the users of the transport?
Lord Molloy: My Lords, is the noble Lord aware that an additional, very serious, issue at stake here is that for many people the Fares Fair programme seemed to be eminently satisfactory? It has already made a contribution to enabling more people to use London Transport. The abolition of the concessionary fares for pensioners is giving great concern. But the point that I want to put to the noble Lord is this. In so far
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as the legal advisers, the lawyers to the largest local government council in the world, gave them legal advice that they could proceed with what they had put into their manifesto, and it was another branch of lawyers who said that what they had done was illegal, what we have to do is this: the threat seems to be a threat against democracy in local government, so when will the Government change the Act concerned, even to make it permissible for the GLC to introduce a Fares Fair programme, so that that can then be judged not by any form of judiciary but by people at a subsequent election?
Lord Bellwin: My Lords, I am in no position, any more than, with respect, is, I think, the noble Lord, to pass an opinion upon the opinions of the lawyers who gave advice to the GLC, or, indeed, with great respect, upon those who gave a contrary view, and I certainly do not intend today to embark upon that. When the noble Lord says that the Fares Fair policy was satisfactory, he means from his point of view and from the point of view of those who feel likewise. I can assure him that it was very unsatisfactory from the point of view of many other people, and I think he would agree to that. I am pleased to say—and I am glad that the noble Lord raised the point—that the pensioners do not have any need to he concerned that their interests are, and will be, taken care of.
Lord Underhill: My Lords, I have no desire to detain the House unduly, but the noble Lord has not replied to the question I asked about who will determine the criteria, and how they will be determined, for the rate of subsidy. The noble Lord made two statements in reply to questions, and I paraphrase what he said. He said that the main issue is how to determine the balance between transport costs and the burden to be borne by the ratepayers. Then, in reply to another question, he asked: what is a reasonable level of subsidy? That is the very question that I asked, because the Law Lords' judgment did not say what is a reasonable level. When does £80 million become a reasonable level of subsidy and when does £130 million become an unreasonable level of subsidy? Therefore, this question of criteria is very important.
Lord Bellwin: My Lords, I think the noble Lord would concede very quickly that he asked me a very great number of questions, which I tried like mad—if I may put it in that way—to write down. If I did not cover them all, I apologise to him. I know that he will understand; he always does. He asked: what is the right rate of subsidy? What is a reasonable level? How do you retain a balance? I cannot tell him today what is the right level. That will depend, I assume, upon how one defines a fair and reasonable balance. What I do know is that the Law Lords felt that the existing level was certainly not the right level. One would have to read the judgment very closely, as I have done, and as I am sure the noble Lord has done—and, I would respectfully suggest, to read it more than once—to decide what view one would take as an individual. However, at the end of the day, of course, it is for the GLC themselves to decide in the light of the ruling, in the light of their interpretation of what was said in the judgment and

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in the light of the new situation in which they now find themselves.

Social Security (Contributions) Bill
Second Reading debate resumed.
4.45 p.m.
Lord Banks: My Lords, perhaps the House may now return to considering the Social Security (Contributions) Bill. I should like to begin by thanking the noble Lord, Lord Elton, for his very thorough explanation of the contents of this Bill. As he stated, the Bill increases the employee's contribution from next April by 1 per cent. and reduces the Treasury supplement from 14½ per cent. to 13 per cent. of total contributions. There is no increase in the employer's contribution rate. Last year, a similar increase of 1 per cent. was imposed on employees and the year before a quarter of 1 per cent. So, since the Government took office the employee's contribution has increased from 6½ per cent. to 8¾ per cent. That is an increase in the percentage rate itself of 34·6 per cent. We have to remember, as the noble Baroness, Lady Jeger, pointed out, that national insurance contributions are much more regressive than income tax, having a lower threshold, and because once you pass the top limit in earnings the contributions which you make to national insurance become an increasingly smaller proportion of your earnings.
The employer's contribution to national insurance has risen from 10 per cent. to 10·2 per cent. That is a percentage increase in the rate of 2 per cent. So that is a 34·6 per cent. increase for employees and a 2 per cent. increase for employers, and we on these Benches disagree with increasing the employees' contributions without an appropriate increase in the employers' contributions. We appreciate that employers are hard-pressed at the present time because of the recession and as a result of some of the policies pursued by the Government. But we believe that the way to help them is by a reduction in the 3½ per cent. national insurance surcharge, which is pure taxation and does not go to national insurance at all.
The employees' contributions have gone up in real value, while some national insurance benefits have been declining in real value; and, as the noble Baroness, Lady Jeger, pointed out, earnings related supplements, except in relation to the retirement pension, are being abolished. So far as short-term benefits are concerned, the 5 per cent. abatement was followed by the 2 per cent. under-estimate, so that Pay More and Receive Less would seem to be the Government's policy for employees.
The noble Lord, Lord Elton, pointed out that the increase of 1 per cent. to be paid by employees is to be allocated 10 per cent. to the National Health Service and 35 per cent. to employment protection, and I share some of the views expressed about that by the noble Baroness, Lady Jeger. The question is raised as to whether employees should be expected to finance their own redundancy payments. Redundancy payments have been regarded in the past as compensation for loss of job and it is not customary for victims to be asked to
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contribute to their own compensation. Twenty-five per cent. of the increase goes to offset the reduction in the Treasury supplement and 30 per cent. towards balancing the national insurance fund. The Government Actuary has pointed out that the additional contribution receipts of the national insurance fund in 1982–83 are estimated to amount to £776 million and, as the noble Baroness, Lady Jeger, has emphasised, £261 million of that is necessary to offset the reduction in the Treasury supplement.
The Government's argument for reducing the Treasury supplement again and raising employees' contributions to offset it was put again this afternoon by the noble Lord, Lord Elton. It is that expenditure on social security, met from general taxation and including the Treasury supplement, has increased from 37 per cent. to 45 per cent. since 1975–76. It is important to remember that expenditure on noncontributory benefits is only 33 per cent. of the total and not 45 per cent., because the 45 per cent. includes the Treasury supplement which helps to finance contributory benefits through the national insurance fund. So non-contributory benefits do not represent so large a percentage of the whole as might at first be thought.
But of course I do not question that there has been an increase in the percentage of total social security expenditure represented by non-contributory benefits. That has increased from something like 24 per cent. in 1975–76 to 33 per cent. in 1980–81. However, the introduction of child benefit to replace family allowances, which was partly paid for by the elimination of income tax relief for children, was the major factor in this increase. The increase in the cost of child benefit in 1980–81 over the cost of family allowances in 1975–76 nearly equals the cost of the income tax allowances in 1975–76. So it is not really an additional cost for the Government to bear.
The second major factor is the increase in supplementary benefit allowances, due very largely to the increase in unemployment owing to the recession and due in part to policies pursued by the Government. If we take the cost of the increase in child benefit over family allowances and the cost of the increase in supplementary benefit allowances over the period we have just been thinking about, we find that they account for two-thirds of the increase in non-contributory expenditure. In other words, two-thirds of the expenditure increase in non-contributory benefits, the grounds on which the Government say that national insurance contributors must pay more, is caused by the replacement of the cost of allowances against tax by expenditure on a positive cash benefit and by Government economic policies, resulting in higher unemployment.
Why should employees be asked to pay more for national insurance benefits on those grounds? Further-more, while it is technically true that employees are being asked to pay more for contributory benefits derived from the national insurance fund, they are in effect, in my view, being asked to pay towards the cost of non-contributory benefits. So long as we have a contributory system I believe that that is wrong. I say " so long as we have a contributory system " because I hope that we shall move to a tax credit system which would replace the contributory system completely. I was encouraged by the remarks made by the noble

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Baroness, Lady Jeger, about the need for a thorough review of the whole working of our social security system. I hope that she will become an enthusiastic supporter, too, of the concept of a tax credit system.
To turn to one other aspect of the uprating, during the Second Reading debate on this Bill in another place on 15th December the Chief Secretary to the Treasury said, reported in Hansard at col. 225:
" If hon. Members consider the extra expenditure that we seek to finance, they will see that the overwhelming balance of that money will be spent on increased expenditure on retirement pensions. That is what we are talking about. The figures show that of a total increase in benefit expenditure between 1981–82 and 1982–83 of £1,632 million, about £1,450 million extra will be spent on retirement pensions ".
Further on the Chief Secretary to the Treasury said:
" The overwhelming balance of the money that we seek to raise will be spent on retirement pensions ".
It seems to me that these remarks are more than a little misleading because they appear to suggest that contributions are being increased, at least in part, to meet the increased cost of pensions. Yet the prediction for expenditure on retirement pensions for 1981–82 made by the Government Actuary in December 1981 was almost exactly the same as he made in November 1980—slightly less, in fact. But the prediction for unemployment benefit was £537 million more. If the assumption about unemployment had not had to be corrected in this way and if the Treasury supplement had been maintained, no increase in contributions would have been necessary to meet expenditure from the national insurance fund.
No problems of a serious nature arise with regard to pensions at this stage. That problems will arise in the early part of the next century seems inevitable. Future generations are expected to pay for the pensioners of their day more than we are prepared to pay for our pensioners today, but that is a problem which will arise in the future. The cost of pensions at the present time, although it is by far the largest single item in the national insurance fund expenditure, cannot be claimed as a reason for this year's increase in employee contributions.
For reasons which I hope I have made clear in the course of my remarks, my right honourable and honourable friends in another place voted against the Bill. According to custom, we shall not oppose it this afternoon, but we on these Benches certainly cannot express any support for it.
4.58 p.m.
Lord Boyd-Carpenter: My Lords, although in the economic situation which faces our country today it may well be that a measure of this kind is needed, I am bound to say that no one who has been associated with social security administration for any length of time is likely to welcome it with uncritical enthusiasm.
The noble Baroness, Lady Jeger—I am glad to be able to agree with her for a moment because I shall have one or two observations to offer to your Lordships about other parts of her speech—said one thing with which I agree: that this is a Treasury Bill. It is appropriate that a Treasury Minister—indeed, if he will allow me to say so, the best goalkeeper in this House—my noble friend Lord Cockfield is to wind up at the end of the debate. Although I have been an admirer of the noble
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Baroness both in another place and here for many years, I hope she will allow me to say that I was extremely disappointed with her speech. To begin with, to speak, as she did at the start of her speech, about the Government seeking deliberately to impoverish large sections of the community is claptrap. The noble Baroness must know that. She is entitled to argue that the effect of Government measures may adversely affect some sections of the community. It is difficult to envisage Government measures which do not have some such effect. But to say of a Government in the 1980s, in a Parliamentary democracy such as ours, that they have set out deliberately to impoverish large sections of the community simply confuses counsel and does not, with respect, help the careful analysis which this Bill requires and which one might have hoped that it would receive from that Box.
Perhaps I may just follow up a point which was made by the noble Baroness, Lady Jeger, which I do not think history will bear out. She said that no changes had been sought to be made in the general structure of national insurance since Beveridge. Only that natural modesty which is one of my more distressing failings prevents me from reminding her that in the National Insurance Act 1959 the significant step was taken of moving over from a system of flat rate contributons and benefits to a graduated system in respect of both. Although the measure in which that was embodied was of modest dimensions, it did in fact mark not only the result of some very hard thinking in the then Ministry of Pensions and National Insurance, but also was followed by successive Governments of all parties and has very much changed the structure of our scheme. Therefore, it is not really fair to suggest that those successively charged with responsibilities in this area have simply gone on repeating Beveridge up to this day.
Having said that, I should also like to follow up what was said by the noble Baroness when she suggested that instead of the increases in contributions which this Bill will effect, there should have been increases made in income tax. I do not want to widen this into a general economic debate but it is on the whole pretty well known that income tax above a certain level has a most damaging effect on enterprise, on savings, and on incentives. There are some of us who believe that to claim off any part of a man's earnings more than 50 per cent. of what he is earning is downright confiscation.
To follow that point a little further, the noble Baroness sought to contrast the proportion of the income of a man earning £35,000 a year and a man on £140 a week, and demonstrated to her own satisfaction that whereas the lower paid man paid (I think her figure was) a little over 8 per cent. in national insurance contributions, the higher paid man was having only some 2·2 per cent. extracted. That is the kind of statement which, although undoubtedly true, if confined to that is misleading, because the £35,000 a year man is paying not 8 per cent. but 60 per cent. of his earnings above certain levels. It is not possible to make a fair comparison unless the national insurance contribution and income tax are put together and the total impact on that man demonstrated. This is how the person concerned feels it, whether he is on £35,000 a year or £35 a week, because in practically every case

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both the national insurance contribution and income tax are deducted at source from his wage packet, be it weekly, monthly or three-monthly. When the income tax system, heavily graduated as it is, and still very heavy on the higher earnings, is taken into account, the picture really is totally different. It really is misleading to the House to make straight comparisons of national insurance contributions while excluding what is already deducted in respect of income tax.
5.4 p.m.
Lord Wells-Pestell: My Lords, if I may interrupt the noble Lord, Lord Boyd-Carpenter, am I correct in saying he advocates that national insurance contributions should be added to income tax to calculate the total burden on a taxpayer? Then the noble Lord talked about very high rates of tax on those earning high incomes. Did he not leave out of his calculation that national insurance contributions are only payable up to one and a half times average earnings, whereas the very high income tax rates only come into force for incomes which are more than one and a half times average earnings—perhaps three times or four times the average?
Lord Boyd-Carpenter: My Lords, the noble Lord, Lord Wells-Pestell, is only repeating what the noble Baroness has said; that national insurance contributions only fell—I will not say in the lower tranches of income because I believe that I am right in saying that they now go up to £220 a week, which are substantial earnings even these days. The noble Lord is only saying what the noble Baroness has said. I am glad he agrees with me that the crucial figures are the cumulative effect of the two. As the noble Lord himself said, it is a fact that on the higher tranches of income—leaving national insurance contributions aside altogether because those drop off, as he said earlier—60 per cent. and not 8 per cent. is taken in taxation. It is really not good enough, with respect, to deal with one while wholly ignoring the other.
I have one other remark to make about the noble Baroness and then I will have done with her. She referred in very critical terms to the provision in the Bill—one of the few parts of the Bill with which, on the whole, I agree—under which some small part of the employee's national insurance contribution should go to help to finance the redundancy funds. The noble Baroness made a remarkable observation, which I took down. She said: "No worker sacks his mates." I ask the noble Baroness to think again. Is that not precisely what many workers in British Leyland have done? Is it not precisely what many workers in British Steel have done? Indeed, is it not what some people in ASLEF are doing at this moment? It is really quite misleading to suggest that the responsibility for redundancies is solely that of employers. A trade union which by its strike action disrupts the working of a company or firm, perhaps sometimes to the point of bankrupting it—
Baroness Jeger: My Lords, if I might interrupt—
Lord Boyd-Carpenter: My Lords, may I just finish my sentence, and then I will give way with the greatest of pleasure? No trade union which disrupts the work
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of a company and perhaps bankrupts it, and no set of workers who extract as a result of certain action excessively high rates of pay so that others have to be dismissed can shrug their shoulders with regard to responsibility for dismissing their mates.
Baroness Jeger: My Lords, the noble Lord is very fair-minded, as I remember almost with affection from the other place. Would he apply what he was just saying to what has happened to the workers at Invergordon? Surely it was not the fault of any trade union activities at Ivergordon that we had the Statement we heard this afternoon.
Lord Boyd-Carpenter: My Lords, I am so sorry about the "almost" and I hope that upon reflection the noble Baroness will have that removed from Hansard. On Invergordon, I do not know enough of the facts of that situation, although it rather looks as if it is as the noble Baroness has said. It was not I who said that in every case the worker sacked his mates; it was the noble Baroness who made the generalisation, " No worker sacks his mates ". The examples which I quoted, and they are examples involving very considerable numbers, do show that that statement is invalid. No one would go to the same extreme in reverse as the noble Baroness has done and say that there is no other cause. There are many other causes, alas, in the present state of our economy—but plainly it is wrong to say that " No worker sacks his mates."
Now let us come back quickly to the main structure of the Bill. Its theme is fairly clear. It is not to make a reduction of public expenditure, although it would have, from the Chancellor of the Exchequer's point of view, the attraction of reducing certain sums of money required to be voted in the Estimates. But the expenditure is maintained, and maintained simply by putting a larger share of the cost of maintaining our enormous national insurance scheme onto the contributors.
That includes the employers. I am extremely sorry to see, from the Financial Memorandum to the Bill, that the Bill will have the effect of increasing the employers' national insurance contribution by £47 million. Several of us have complained about this levy, originally imposed I think by the Party opposite, as being a tax on employment, which is precisely what it is. It is almost as bad as the Selective Employment Tax—I was going to say imposed on the advice of the noble Lord opposite; it was imposed, as I understand it, on the advice of the noble Lord who was opposite a minute or two ago—and of course was a disaster. It really is not sense at this moment increasingly to tax the provision of employment.
I know it is difficult for my noble friend at this stage of the year, but I hope he can give us some indication that, although the Government feel bound in this Bill indirectly to increase by £47 million the national insurance contribution levied on employers, there is some hope in the forthcoming Budget that that process will be reversed. He knows that the Confederation of British Industry put this highest of all in their priorities for tax reduction. And surely it does not need the CBI, or the arguments of noble Lords in this House, to say that when you wish to encourage employ-

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ment, as we all desperately do, to impose high and increasing taxation simply on the provision of jobs really does not make sense.
I am sorry, too, that the Bill increases by a substantial sum the contribution made from national insurance contributions to the National Health Service. I concede at once that there has always been some such contribution. That indeed does go back to Beveridge. I suppose it is a residual trace of the old National Health Scheme, which itself goes back to that very remote age when we actually had Liberal Governments; that little residuum survived the Beveridge analysis. But it is quite illogical. The National Health Service is not an insurance benefit. There would have been a good deal to have been said if it had been made so, and I understand that the Labour Government in 1945 considered that but the late Mr. Aneuran Bevan did not like the idea. If it were an insurance benefit we would be able freely to charge foreigners who have not contributed to our national insurance funds, unless there were reciprocal agreements with their countries.
There would be much to be said for making the health service an insurance benefit. But simply to take a fairly small sum out of the national insurance fund and transfer it in release of the Treasury for payment to the National Health Service is not making it a contributory fund. It is simply introducing what in other circumstances the Treasury dislike, hypothecated taxation, which is exactly what it is. So that, and the reduction of the Exchequer contribution, which I am happy to think Social Security Ministers of my era would not have been disposed to accept, is another feature of this Bill about which I feel rather sad.
The noble Baroness referred to the insurance concept. A little more than 20 years ago when I was responsible for these things we attached great importance to the insurance concept, that people felt they were getting good value for their contributions. We did raise very large sums of money, with, I think, a great deal less pain and discomfort and difficulty than involved in raising any other sums of taxation, because people felt that this was a true insurance scheme. The trouble is that Bills like this, with relatively small changes against the whole vast expenditure of the scheme, carried on cumulatively year after year, nibble away at and erode the insurance concept. Possibly the abolition of the stamp and the deduction of National Insurance Class 1 contributions through the Inland Revenue helped also to do that. I do fear today that the insurance concept has gone, and this seems to me socially a great pity and one likely to add to the practical administrative problems of the Government.
Therefore, it seems to me, in view of the difficulties—and they are real ones—in view of the unhappiness which I myself and I suspect others feel at some aspects of this Bill, it is up to the Government to demonstrate that it is really necessary. I know my noble friend will say, and will be right to say, that the actual and prospective expenditure on social benefit is now enormous, that it has to be maintained, and in those circumstances this Government or any Government are driven to all sorts of shifts and expedients to secure the funds. But I hope my noble friend will accept that what a lawyer would call the onus of proof lies on him, and that to effect these changes in the national insurance scheme at this stage of its development is a matter tha
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causes—I will not say hostility but a certain measure of concern among many people, including, I suspect, some people who sit with him on this side of the House.
5.17 p.m.
Lord Kilmarnock: My Lords, this is a Bill about which we can have little enthusiasm. We understand the difficulties. The noble Lord, Lord Elton, referred to the changing and difficult economic conditions of our time, which we do not dispute. We understand that something in the region of £30 billion will have to be found in 1982–83 for social security benefits, of which about £13½ billion will go on retirement pensions. It is all too clear that the redundancy fund will also require additional finance. But we very much question the way the Government have gone about finding this money.
The Bill has two main prongs. The first is provision for an additional 1 per cent. levy on Class 1 contributions between the new lower and upper earnings limits of £29·50 and £220 respectively. The second—and I find this amazing—is a reduction in the Treasury contributions from 14½ per cent. to 13 per cent., which as far as I can discover is the lowest it has ever stood at since the inception of the national insurance fund in 1949. The noble Baroness, Lady Jeger, raised this point, and I am glad to hear that our homework came up with the same results.
If I may turn first to the employed person's contribution, the additional 1 per cent. is to be divided up as follows: 0.1 per cent. is for the National Health Service; 0.25 per cent. is to compensate for the reduction in the Treasury supplement, to which I shall return; 0.3 per cent. is to keep the national insurance fund broadly in balance; and 0.35 per cent, the largest proportion of all, is to go into the redundancy fund. Thus, employees, ordinary working people, are being asked, nay forced, for the first time ever to contribute a very large sum, in the region of £350 million, to the cost of their fellows' or indeed their own imminent redundancies, while the allocation from the employers' contribution for this purpose remains fixed at 0.2 per cent.
Of course, it is perfectly understandable that the Secretary of State should not want to saddle employers with any more charges. But again I ask, is this the way to go about finding the money that he needs?
From now on, if this Bill becomes law, those in work earning more than £29.50 per week will be contributing 8.75 per cent. of their earnings—and this means, of course, all their earnings, because there is no threshold—at a time when the value of short-term contributory benefits, and some long-term ones, is actually falling. One leg of the tripartite funding of the national insurance principle—employer, employee and Treasury—and of course I refer to the Treasury leg, is being so dangerously weakened that the original Beveridge scheme is in danger of collapse. Unemployment benefit was increased by 5 per cent. less than the rate of inflation last time round, and earnings-related supplement is being phased out. Despite the Government's undertaking to pensioners, retirement pensions are running currently about 3 per cent. behind inflation owing to the Government's clawback of 1 per cent. and underestimate of 2 per

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cent. for the current financial year. I know that the Government have undertaken to make this good next November, but it will be of little help to those pensioners who have died in the meantime.
I will not weary your Lordships with other instances, but it is hard to detect behind the Government's measures in this field since they came to power any principle other than that contributions should go up and benefits should fall. No insurance principle that I know of—and I worked in insurance for a brief period in my life—says that higher premiums mean lower benefits. The truth of the matter is that the social security system is simply being used as an additional tax gathering agency. Most people see this quite clearly. They are not fooled by the use of the word " contribution rather than " tax Indeed, the noble Baroness, Lady Jeger, made this point. The great objection to this is that it is an extremely regressive form of tax-gathering, as the noble Lord, Lord Banks, pointed out. It does not take a higher proportion from people with higher incomes, as progressive taxation does; it hits the lowest paid hardest of all. It simply clobbers the poor.
During the Second Reading debate in another place the Secretary of State spoke with some pride of having raised the upper earnings limit from £200 to £220. He said that it would be regressive to hold the upper earnings limit at its present level, as this would place a disproportionately greater burden on the lower paid. But, my Lords, this modest adjustment upwards of the upper earnings limit does precious little to change the essentially regressive nature of the additional 1 per cent. Can it possibly be right that someone on (let us say) half average earnings who gets a modest rise will have 38·75p deducted from every additional £1 that he receives, while anyone earning over £220, getting a rise, will only have 30p deducted from every additional £1? I fail to see how this can be just. It cannot, of course, be seen in isolation either. For just as the contributions have risen, the income tax threshold has shrunk from 45 per cent. of the average wage in 1979 to 38 per cent. today, bringing 1¼ million lower paid workers into tax. At the same time, higher earners have been given a £½ billion bonus.
There is, of course, a philosophy behind this. It is the supply-side or " trickle-down " philosophy, according to which additional incentives to the higher paid encourage investment and initiative with a beneficial spin-off effect on the jobs and living standards of the large majority. This, in fact, is the case which was advocated by the noble Lord, Lord Boyd-Carpenter. However, this approach is not working even in the United States, where Mr. David Stockman has had the honesty to admit to its failure. And it certainly is not working here, where some of the Government's other policies are in direct conflict with it.
No, my Lords, this is not the way to go about it. Getting the relatively poor to pay for the very poor is not the right way out of our difficulties—or rather, I should say, of getting the Treasury out of the mess it has got itself into. There are better ways I can think of to spread this national burden—the burden of our old and sick and unemployed—more fairly and more evenly through society. In the first place, the Treasury contribution should not be cut from 14½
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per cent. to 13 per cent. At this of all times it should have been maintained, or if anything restored to something like 17 or 18 per cent. where it stood in, I think, 1975. In this way general taxation would properly relieve the lowest paid workers of some, if not all, of this burden.
If, on the other hand, the Government remain determined to raise additional revenue through a so-called national insurance contribution, then I cannot for the life of me see why the upper earnings limit should be pegged between 6½ per cent. and 7½ per cent. of the basic pension rate. I realise of course that this is the requirement of current legislation—the Social Security Pensions Act 1975—but there is no earthly reason why this should remain sacrosanct for all time. Why should the contribution of those earning above £11,000 per year suddenly flatten out on to a plateau where it remains up to any income you care to name? Why on earth should those earning £30,000, £40,000, £50,000 or even £100,000 a year make relatively less—I should say progressively less—sacrifice than those struggling to get by on £30, £40, £50 or £100 a week?
If the Government will undertake to introduce a Bill to right this injustice I—and I hope to carry my noble friends with me—will undertake to support it. Perhaps the noble Lord, Lord Cockfield, when he comes to wind up will tell me whether the Government will consider this, and if not, why not? And to take up the point which the noble Lord, Lord Boyd-Carpenter, made that the higher taxpayers are already shouldering a large part of the burden, it is surely the case that their tax liability has been decreased while that of the lower paid has been progressively increased.
Finally, I am left with the feeling that always afflicts me after each and every of our debates on social security questions; namely, that our system which was the finest in the world and the envy of many other nations is breaking down, and possibly reaching a stage beyond repair. I am certainly not alone in this feeling. Time and again I noted from the Second Reading and Committee stage debates in another place that Members referred to the national insurance fund as a " farce ". This word and the adjective " farcical " occurred again and again. And it came from all political parties. In fact, it was a Conservative Back-Bencher—I paraphrase him of course—who pleaded urgently for the reform of a system that was getting worse and more opaque and more complex and more unpopular as the years went by.
The Conservatives themselves have been responsible for some good reformist thinking in the not so far distant past. If I am not wrong, it was from the Bow Group stable that the negative income tax idea emerged in the early 1970s. I believe that the noble Lord, Lord Cockfield, had something to do with that. But now all that has been forgotten and we are faced with the present sorry spectacle of the Government scraping the barrel and coming up with a large slice of the earnings of the very lowest paid workers in our society.
In the Explanatory and Financial Memorandum to the Bill the Government set out the financial effects of the Bill on the Treasury's book-keeping. What is not pointed out with such clarity is the financial effect on the ordinary people which is, if my arithmetic is correct, to take something over £700 million—I

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think that the noble Baroness, Lady Jeger, said £760 million—out of the pockets of people who are already very hard pressed indeed.
It is therefore some consolation to me that our Liberal allies appear to attach very considerable importance to their tax credit scheme—which was mentioned by the noble Lord, Lord Banks, who is, of course, a great expert on it—which would go a long way to removing some of these appalling anomalies and righting these injustices. I was also delighted that our party's spokesman in another place stressed the importance of considering the questions of poverty, social security, pensions and taxation together as a coherent whole and not in the piecemeal fashion in which we are obliged to swallow the Government's measures in this field. I look forward to the day when a genuinely reforming Government will, as a matter of high priority, address the task of bringing both sense and sensibility to this very important realm of public policy, which is in my view one of the principal tests, if not the principal test, of a civilised society.
5.27 p.m.
Lord Spens: My Lords, I think that most of us accept the fact that all of the 22½ million people still in work should contribute a bit more towards the three million who are out of work. In that 22½ million still in work there are very nearly 2 million self-employed people. I was very pleased to hear the Minister say that the Government realise that they must still offer incentives to small businesses and that therefore they have not increased the contributions for the self-employed by possibly the full rates that they should have done actuarially.
But the self-employed have a grievance. They believe that they are being seriously discriminated against by the present system of national insurance contributions. All of the self-employed pay a Class 2 contribution which is a flat rate of, at the moment, £3·40 a week which will rise to £3·75 a week. The only people employed who may not have to pay that contribution are those with incomes of, at the moment, less than £1,475 a year rising to £1,600 a year under this Bill. But, of course, if those people do claim an exception not to pay their contributions, they are missing out on the establishment of contributions towards their pensions. Therefore, it is not really advantageous to them not to pay their contributions, even if their incomes are as low as those limits. However, I think that we all accept that the Class 2 contribution is fair and should be paid.
It is when we come to the Class 4 contribution that the self-employed raise their objections. The Class 4 contribution is assessed in arrears on the taxable profits of the self-employed's business between the lower limit of, at the moment, £3,150, which will rise to £3,450, and an upper limit of £10,000 a year, which will rise to £11,000 a year. At the moment those contributions are assessed at the rate of 5·75 per cent., which will increase to 6 per cent. Therefore, as soon as the self-employed, starting their businesses, find themselves earning taxable profits of more than £3,450, to look into the future, they will find themselves being assessed to this additional tax.
They complain about it for two reasons. First, it is a pure tax. No insurance benefits are offered for
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paying it. It is just like the national insurance surcharge on employers; it has to be paid and they get nothing out of it. But even more so, they complain because they are not allowed to charge it to tax when it is assessed, whereas all employers can charge their element of the Class 1 contribution to tax and have it deducted before the tax is assessed. In the self-employeds' situation the tax is assessed on their profits and they are not allowed to deduct that assessment from the profits before they pay.
The problem here is not only this discrimination, but rather more than that. An employer can recoup his increased Class 1 contribution by increasing his prices and he still charges it against tax, and that is that. The customer has to pay. However, if the self-employed does a similar thing and raises his prices—and he cannot charge it against tax—to the extent that he is successful in persuading people to pay those higher prices, he is increasing his taxable profit and, therefore, he is increasing the amount of Class 4 contribution that he will have to pay, and he is also increasing the amount of income tax that he will have to pay. So there is a very serious discrimination here about which the self-employed are very unhappy.
A year ago, when I raised these points, the noble Lord the Minister who is to reply today sought to draw my attention to a discussion document issued by the Department of Health and Social Security in October 1980 called, The Self-Employed and National Insurance. In that document the Minister asked for proposals for other ways of dealing with the self-employed and asked that those proposals should be sent in by 31st March 1981. Nine months later I want to draw the Minister's attention to that same document and ask him what has happened about it. Has any progress been made? Are useful discussions being held to help the self-employed get away from this feeling of discrimination?
First, I should like to see the Class 4 contribution abolished altogether. I understand that that is most unlikely to happen in the near future. But what about allowing the self-employed to contract out of the insurance scheme and make their own arrangements? I believe that they would be very pleased to be allowed to do that, and I think that it is a possibility. If not, what about allowing them to charge the Class 4 contribution against tax?—so that they can deduct it from the tax that they pay rather than pay it in addition to the tax that they have to pay. Finally, in order to help those unemployed people who may start up new businesses and thus become self-employed, what about giving them a tax holiday from the Class 4 insurance contribution for the first three or five years, or something like that?
It is a great blow to anyone who has made a modest profit of, say, £5,000—and a profit of £3,450 is less than £70 a week net pay—suddenly to find that he is assessed at 6 per cent. on the difference between £5,000 and £3,450. It comes out of the blue, in arrears, and he has to pay it with his income tax. I hope that the Minister will ask his colleagues to consider the special plight of the self-employed.
5.37 p.m.
Lord Wells-Pestell: My Lords, when I looked at the list of speakers at 2.30 p.m. to see which noble Lords were to participate in this Second Reading debate I

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came to the conclusion that by the time it was my turn to speak there would be nothing to say, because it is the first time for a long time that I have seen a list in which each Member of your Lordships' House down to speak has a recognised competence in this particular field.
It was my intention to say very little, but the intervention of the noble Lord, Lord Boyd-Carpenter, gave me something of a blood pressure. That being the case, I do not think that I can sit down quite so soon as I intended. Sometimes it is a great pity when the noble Lord—who has unrivalled experience in this field in this House—gets up and spends a disproportionate time defending, the Government, when he acknowledges, as he did at the very beginning today, that he has reservations—my word rather than his. I hope that he does not think I am being too presumptuous when I say that, with his unrivalled experience, I think he would serve this House and his own party much better if he went for his party, in the nicest possible way, and pointed out to them from time to time the error of their ways. As he acknowledged, they have an excellent goalkeeper; of course, he has a shocking team in front of him so he needs to be a good goalkeeper. I think that the goalkeeper to whom he referred is very capable of dealing with any points that arise.
I had a sense of satisfaction when I saw that the noble Lord, Lord Cockfield, was down to speak, because it led me to believe that the Government had a guilty conscience about this particular Bill, and therefore, had imported the one person—and they have imported him on more than one occasion into various debates, and I am not thinking of when he attends this House in his official capacity as a Minister from the Treasury—who is so plausible (and I use that term in the best possbile sense). " Plausible " means persuasive, and the noble Lord is a persuasive speaker, but it is backed, as we all know, with a great deal of knowledge, even if we sometimes disagree with his economic approaches. There are other economically able noble Lords in this House who also disagree with him.
The noble Lord, Lord Boyd-Carpenter, took exception to my noble friend on the Front Bench saying, or implying, that the Government deliberately do this. Most of us on this side of your Lordships' House are balanced, integrated persons. We do not blow hot and cold. We do not go up and down. But we have been forced into the situation in the last two and a half years of believing that this Government have deliberately set about the lower earning group. There have been abundant examples of it: the abatement in the unemployment benefit and in other social security benefits; the shortfalls in the retirement pension. Is it not deliberate? If they did this, was it not a deliberate act on their part? Does it not affect only a particular section of the community? The noble Lord expects—and I say this kindly; he knows I am not cross—
Baroness Gaitskell: I am.
Lord Wells-Pestell: One must not get cross in that sense. Angry, yes. The noble Lord expects us to have a certain amount of sympathy for the poor individual earning £35,000 a year who he says is subject to
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60 per cent. taxation. Of course, it leaves the £35,000 a year man with only £300 a week to live on. Poor soul! Does the noble Lord really think that that group of people earning that amount of money and more are having a lower standard than the people who are now to be asked to pay 8¾. per cent. of their earnings up to £220 by way of national insurance? Of course they do not.
Lord Boyd-Carpenter: My Lords, would the noble Lord allow me? I am so glad to hear that he is not cross. Would the noble Lord address his mind to this aspect of the matter? Does he not accept that experience has shown that very high levels of taxation on persons whose earnings are apparently high because they are regarded as valuable people has resulted again and again in one of two things happening? Either they have gone abroad and we have lost their services, or alternatively the incentive and the vigour that they ought to be putting into leading our economy and the rest of us into prosperity has been weakened. Surely if there is anything to be learned from the experience of the Governments which the noble Lord supported it is that, and it has a great deal to do with the mess they left the country in.
Lord Wells-Pestell: My Lords, I thought they were the patriots who support the Conservative Party. Is the noble Lord really saying that they arc doing this? If this is so, then we can do without them, and we are in a bad way if we cannot. If that is their idea of patriotism and of supporting the country, then, as I say, we can do without them. But I want to get back, because I want to ask the noble Lord for some help in this particular matter. We are asking a very substantial number, millions, of men and women who are working in this country to pay 8¾ per cent. of their earnings up to £220 a week. They already represent a declining labour force, and as things are going at the moment they are going to get less and less and less. Are they always going to be expected to carry the burden of those who are unemployed and those who, through no fault of their own, have to go for social security benefits?
I know that the noble Lord will say, " Yes, this is all very well, but it does not all come from national insurance; it comes from taxation as well ". But they too are taxpayers, and here we are, a group of people who earn up to £220 a week, paying 8¾ per cent. They are the very people who are suffering from the effects of inflation and, if I may say so, the group to which the noble Lord, Lord Boyd-Carpenter, referred have got far more money left to meet inflation than the group that we are talking about today.
Furthermore, they are men and women who, although inflation stands at something like 12 per cent., are also denied a reasonable increase in wages to meet that 12 per cent., and consequently—I do not think that anybody is going to deny this—for the last three years their standard of living has fallen. Now we are going to impose an added burden upon them. What I do not understand—and this is probably entirely due to ignorance on my part; I believe there are other ignorant people in the House as well, from an aside I overheard—is why cannot those earning more than £220 a week be expected to pay 8¾ per cent. of what they earn?

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It seems to the uninitiated, the uninformed, like myself, grossly unfair to say to one man that when you reach £220 a week you pay 8¾ per cent. all the way up, but when you get to £320 and £420 you will still pay the same amount of national insurance as the £220 a week person will pay. There must be an answer to this, and I hope that the noble Lord will feel able to give me one. Would it not be possible to band the earnings of those earning above £220 so that the higher up they go they pay more than they are doing at the present moment and more than they will do under this Bill?
I want to refer to some remarks made by the Secretary of State for Social Services in another place on 15th December last when he introduced this Bill at Second Reading. He said:
" Of this, about 19 billion will come from the national insurance fund and the rest from general taxation.
" Of the estimated spending from the national insurance fund of about £19 billion, £13½ billion will be spent on the retirement pension—about £1½ billion more than this year. This will enable us to fulfil our pledge to pensioners that their pensions will keep up with the cost of living. It recognises our obligation to the pensioners which The Times set out fairly in a recent editorial when it said:
'The elderly contain the largest single area of poverty and sickness in Britain. They lack the strength and mobility to adjust to the inflationary gale '.".
I think most of your Lordships—certainly a large number of us on this side, who perhaps have a great deal more contact with the elderly in one way or another—realise what a tremendous burden is placed upon them. They find making ends meet rather difficult.
In recent weeks I have been appalled at the conditions of some of the elderly people in the area of Oxford where I live. I know it has been an unusual period, but I have been appalled to find how some of them are having to live. A large number of them live in one room and there is no possibility of their buying even one cwt. of coal; it is difficult to get and if they are able to purchase one cwt. of coal there is nowhere to put it.
It may surprise your Lordships to hear that I live in a small house, which has not been built many years, and there is not a single place where I could keep one cwt. of coal. True I have central heating, but an open fire is nice from time to time. I have to go out and do exactly the same as the old age pensioner, which is to buy a bag of 44 lbs. of coal. That coal gives off an awful lot of smoke, but I do not live in a smokeless zone. That bag of 44 lbs. costs £2·6, which works out at £123 a tonne. If I want to buy fuel which does not not give off smoke, I can buy 22 lb. bags of smokeless fuel for £1·65, which works out at £165·50 a tonne. Anyone who can afford to buy a tonne of fuel—while the people about whom I am speaking have nowhere to put it, many people have places—can obtain smokeless for £122 a tonne, whereas buying it by the bag works out at £165. Smoking coal can be bought for £90 a tonne, whereas buying it by the bag costs £123 a tonne.
I do not know whether the Government have any control over coal prices, or indeed if they have ever looked into the matter of the cost of coal. I sincerely ask them to look into it. It seems perfectly scandalous that elderly people, because they live in one room and have nowhere to keep coal, should have to pay 50 per
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cent. more for their fuel, be it smokeless or not. Some pensioners have told me that a 44 lb. bag of smoking coal or a 22 lb. bag of smokeless can be made to last three or four days provided it is not burnt for more than three of four hours a day.
If the Government want to do something to help the elderly—I gather that the Secretary of State has shown grave concern about the issue—I hope they will inquire into the whole question of coal prices. I know the Government want to do something to help with additional fuel bills. That I understand and appreciate, but it does not alter the fact that for the remainder of the winter (for every winter, for that matter) these people are paying a disproportionate amount. We on this side of the House feel that a substantial section of the community obtain a disproportionate consideration compared with those who receive and earn a great deal more, and that is why I am in complete agreement with my noble friend Lady Jeger and the noble Lords, Lord Banks and Lord Kilmarnock. Noble Lords opposite have not yet come to grips with the conditions in which a large section of people in this country live. The sooner they do so, the more charitable they will be towards them.
5.55 p.m.
Lord Molloy: My Lords, having read the Official Report of the debates in the other place on the Bill and having listened to the debate today in your Lordships' House, I—and any fair-minded person—must come to the conclusion that in the view of the majority of those who have contributed there is very little to find in favour of the Bill. The question which must therefore be posed is why the measure has been introduced, and in my view the answer is simple. It is that the Conservative Party have always hated the concept of the welfare state. When the National Health Service was introduced in the other place they voted against it tooth and nail at every stage. The principle of decent and compassionate welfare has been accepted by them only because the mass of ordinary people have the vote and want it to continue.
As a result of that, we have a very strange attitude on the part of noble Lords opposite, an attitude which I thought was exemplified by the noble Lord, Lord Elton, who was frightened by the increase in longevity among our fellow citizens. He pointed out that it would mean more and more pensioners. I should have thought that was a good thing, because it would also mean that before becoming pensioners they would have lived long enough to make a contribution to the economy. Unfortunately, we are now in the position when even upon leaving school people are not able to make a contribution to the economy. It is clear where the finger is pointing; Saatchi and Saatchi did not know what they were doing with their fake advert. The Conservative attitude to the youth of the country is to tell them to join the dole queues, and because they are not contributing the Government are having to look at ways of saving money, and they save it by introducing nasty little measures like the one before the House today.
The noble Lord, Lord Elton, went on to say in effect that we should overcome the fact that one great party in this nation favours the workers and the

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other great party favours the employers. That is no longer the case, at least so far as the Conservatives are concerned; they have no time either for the workers or the employers. The rate of bankruptcies and the ever-increasing length of the dole queues prove that beyond peradventure.
In view of the way in which the noble Lord, Lord Boyd-Carpenter, with his great experience and ability expressed what I thought was some grave apprehension about what is proposed in the Bill, that should be a sign to the Government. There are not many among the extinct volcanoes in the other place who can compare for knowledge and ability with Lord Boyd-Carpenter. I hope the Government have taken careful note of what he said. The only criticism I would make of the noble Lord's speech was when he tried to draw some analogy between a family living on £25 a week and a family on £20,000 a year. I ask noble Lords to imagine for a moment trying to live on 25 quid a week. Even the thought could almost cause a few heart attacks. To try to put that in juxtaposition with someone on £20,000 a year is almost too ludicrous to contemplate.
I would say this, too, if I may, to the noble Lord, Lord Boyd-Carpenter. He makes contributions in this House that I always enjoy. However, the noble Lord always seems to get worked up whenever he talks about trade unions on the one hand and employers on the other. So I would say to him and to the Front Bench Opposite that if only we could garner the billions over which the rich cheat in not paying their income tax, there would he no need for this Bill. I would hope that the Government might entertain this idea. They could have a mind as shrewd as that of the noble Lord, Lord Cockfield, to look into this, and I should love to help him. I am quite sure that he has the ability and the earnestness to block some of the gaps which allow the extraordinarily rich in this country to take full advantage in not paying their way. These are the people on whom we ought to concentrate, not the broad mass of the working men and women in this country who belong to trade unions.
The fact of the matter is that the extra payments are required because of the Government's economic policy. This point was illustrated not in any extreme, left-wing socialist journal, but in the " Thunderer " itself, in The Times of 15th December. I quote what The Times had to say:
" The plight of the unemployed is the worst it has been in the past decade ".
Consider those few words, my Lords. Think what the situation means to the family of those who are unemployed. If we could take a cross-section of them, even the Front Bench opposite would not merely heed the words of the noble Lord, Lord Boyd-Carpenter, and of my noble friend Lady Jeger, and indeed of myself, but would join with us in seeing that this evil little measure was done away with.
What has happened is that all benefits were cut last year—even unemployment and invalidity benefits. So the philosophy seems to be this: you shall be punished for being sick and out of work. Are we going to approve that in your Lordships' House? I do not believe that we can. Long-term supplementary benefits have been slashed and so, too, have injury benefits,
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child benefits, and even mobility allowances. I hope that we shall recognise the ploy of the Government in the statistics that we were given this afternoon and which were given in the other place to justify this measure. I would sum them up by describing them as arid statistics, designed to strangle compassion.
I should also like your Lordships to understand that the Bill affects millions of our fellow citizens. It is not a bit of use members on the Front Bench opposite talking about Government spending. It is a fact—we have always said it—that it is the people who are doing the spending. I. should have thought that the average British citizen does not mind giving up some of his money so that those who have nothing shall have something and can spend, so that mothers can spend, and so that those on the dole can spend. As Keynes pointed out in the 'thirties, even by simply spending they are making a contribution towards easing the economic difficulties now facing us.
If the disabled could not buy all the aids that they require, if the 3 million people on the dole could not buy food and clothing for themselves and their children—if they could not do that from Social Security and other benefits, then there would be less produced, there would be more unemployment, and round and round we would go. Indeed, this measure itself could make a contribution to increasing unemployment.
There is so much that I should like to say about this measure arising from personal experience of 13 or 14 years in local government and a similar number of years in another place. visiting people, talking to them at our surgeries, meeting them in times of distress, and understanding the anguish and the agony that they go through. I know, too, of the same kind of agony and anguish that the small businessman goes through when he is forced to become bankrupt. All these things concern the human attitudes that I believe it behoves us in your Lordships' House to take note of.
I wish very briefly to turn to a suggestion that I should like to make concerning the Department of Health and Social Security and local government. It seems to me that under successive Governments we have never really tackled this particular problem, and, if I may, I shall explain to your Lordships what I think it is. It causes irritation among ordinary people, and I would ask the noble Lord, Lord Cockfield, to take it on board. I do not ask him necessarily to answer the point at the end of this debate, but I am sure that he will be prepared to consider it. There is a need for much closer-knit liaison between local government at perhaps borough level and the local DHSS office. So many people are not quite sure where they have to go. Very often the town hall is a mile or two away from the Department of Health and Social Security office. The civil servant has to say, " I am afraid that this is a local government problem, you will have to go to the town hall ", or, conversely, the town hall official has to say, " You will have to go to the office of the DHSS ". I should have thought that it would not be beyond the wit of administration to have some form of liaison so that that kind of situation could be entirely avoided, or so that ordinary people could at least be saved much trouble, tribulation and trudging, particularly in weather such as we are at present experiencing. I hope that that idea might be looked at.

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I find the situation of the lower paid and the poorer people terribly distressing. With this Bill we are behaving in the way that the nations behave one to another: the richer nations are becoming richer, and the poorer nations are becoming poorer. This measure will mean that the poor of our country will become poorer, and if we do not do anything about tax evasion, the rich will become richer. As I have already said—it is worth reiterating—I should like to see someone such as the noble Lord, Lord Cockfield, given the particular task of closing all the loopholes of tax evasion—I am quite sure that a number of noble Lords on this side would love to aid him—and then there would be no need for this measure.
The Government must have a brand-new policy overall if they are to avoid stooping to implementing this distasteful, nasty, little measure. The Government need a brand-new policy. I do not want to use the term " U-turn ", but there is nothing wrong in the Government saying bluntly, " Our policies have not turned out as they ought to have turned out. It is time to change them ". That would show courage and, what is more, it would be beneficial to the nation. The Government themselves claim to be a Government of businessmen, but all they will do with measures such as this will be to put their customers out of business.
The 1908 Act was bitterly opposed in this Chamber. That Act marked the laying of the foundations by Lloyd George of the great welfare state, which the world has since admired, and in these terribly difficult times in which we live surely it is this principle above all that we must hang on to. I noted that in regard to the introduction of the 1908 Act, which was bitterly opposed in both places, a noble Lord said that the scheme was so prodigal of expenditure that it might be dealing a mortal blow to the Empire; and other noble Lords went on to say that it would weaken the moral fibre of this country. We all know what a lot of rubbish that was. We all know of the gallant efforts of those who were not even born then, in 1908, to save this nation from the evil clutches of fascism. What is more, we saw our chidren becoming healthier and healthier; they, in turn, became healthier and better parents; and, consequently, the nation was enriched.
I hope that this debate in your Lordships' House will make Her Majesty's Government think again. If I could appeal to Lord Cockfield, I hope that at least he will take back to the Government some of the views and some of the ideas that have been expressed on both sides of this House; because, if I may say this in conclusion, the real answer to all the problems that we face—and it will stop measures like this having to be brought before us—is a return to full employment, so as to build up our economic strength, from which we can succour the less fortunate.
6.11 p.m.
Lord Bruce of Donington: My Lords, I think few of us would dissent from the view which has just been expressed by my noble friend Lord Molloy that, in general, this Bill is not one (to put it mildly) that has aroused any profound enthusiasm in your Lordships' House. Indeed, speaker after speaker has got up and made very valid points that go right to the root of the Bill's validity. My noble friend Lady Jeger
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has already covered in detail much of the ground that was put forward with great clarity by the noble Lord, Lord Elton; and she has therefore made it unnecessary for me to cover it again. I prefer, with your Lordships' permission, to deal with some of the matters that have been raised in the course of this debate itself.
I am bound to say that I hope the noble Lord, Lord Cockfield, when he comes to reply, will be able to deal fairly and succinctly with what the House may consider to be the excellent contributions from the noble Lord, Lord Banks, and the noble Lord, Lord Kilmarnock, as well as with the points that were made in regard to the self-employed by the noble Lord, Lord Spens, whom I was very tempted to ask, when he was pursuing his taxation questions, whether he would be in support of individual employees being entitled to deduct their National Insurance contributions from their gross income before assessment for tax. I still wonder what his answer would he to that. Then, as usual, we had a very moving speech, indeed, from my noble friend Lord Wells-Pestell, who, as always, brings these matters into the human perspective and draws so much on his very rich experience in the fields about which he talks.
Last but not least, there was the contribution of the noble Lord, Lord Boyd-Carpenter, which brings me to the theme of my speech to your Lordships this evening. He said, " This is a Treasury Bill "; and he also said that it was fairly replete with what he described as shifts and expedients. I could not have put it better myself, although (to use a cricketing as against a football metaphor) he allowed himself a long-stop in what he was going to say by half expressing the hope that his noble friend Lord Cockfield would act as an effective goalkeeper. I gather he had misgivings himself but that he hoped that, in so far as his misgivings were shared by the House, the noble Lord, Lord Cockfield, would be able to dispose of them when he came to reply.
My Lords, it will be within the recollection of your Lordships' House that the noble Lord, Lord Cockfield, very often speaks last as well as first, when of course he cannot be answered; and I would remind him that on this occasion there is a Committee stage to follow. If his observations this evening have the usual mechanistic quality which has become associated with many of his replies of a mathematical nature, then they can at any rate be reviewed in Committee. One issues that by way of warning to the noble Lord in case we have the very slick answer this evening that all the sums are absolutely correct, the principles are right, QED and that is the end of the matter. As I say, these matters will be subject to review in Committee.
My Lords, one thing which emerges from this squalid little measure, which one hopes the Government may still see fit to withdraw before it goes any further, is, of course, that it takes away from the poor for the sake of saving the rich. My noble friend Lord Molloy made that point, I thought, very well. But if there is any doubt about it in its generality, let me say this. The noble Lord, Lord Boyd-Carpenter, himself posed the question when he said that an employee's contributions by way of income tax and by way of national insurance should be taken together. Fortunately, the sums have been done for us in the other place by an Answer to a Written Question on 21st December,

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at columns 301 and 302, where the whole array of increases in the proportions of net incomes at various levels—half of the average income, three-quarters of the average income, average income, one-and-a-half times average income and twice average income—has been set out in taxation categories, which should commend itself to the noble Lord, Lord Cockfield.
He will find, as the House will find, that, in every grade and at every level of the incomes that I have mentioned, the proportion of income paid out by employees in that category, taking taxation and national insurance combined, has increased, and in some cases has increased significantly. This, of course, is what one would expect, because your Lordships will remember that, in a fit of optimism which has now frittered away into despair, the Government established a new taxes and prices index on August 29th, 1979, which according to them was to be a much more reliable indicator than the retail price index, and as we all know—and I do not need to remind the noble Lord—the taxes and prices index has now gone very much above the ordinary retail price index. What is more, that in itself has gone up by an unconscionable amount since, notwithstanding anything that the noble Lord said—and he will recall that when, about three months ago, he said that the rate of inflation was going down, I ventured to query it and gave him a warning—the inflation rate is still running at 12 per cent., or above what it was when the Government took office.
All that this miserable little Bill does is once again to put an extra burden on the employees generally in this country, on those whom we will call, broadly speaking, the workers of this country. That is all it does. This is a little odd because the whole story at the time of the general election—and it is enshrined in all Conservative philosophy—was that people ought to have more money in their pockets and that they ought to have much more incentives. This lay at the whole base of it: that taxation was going to be reduced and that all kinds of things would happen so that the amount of money left in a person's pocket was going to be more and would fructify and give the necessary incentives. In fact, what has happened since this miserable Administration took office is that the ordinary worker in this country has a less proportion of his earned income in his pocket than ever he has had before.
I am afraid that the noble Lord will not be able to get round this one—no matter with what mathematical dexterity or quirk of what he would term logic he may care to answer. This is the truth. But the Government will say that, really, this is nothing to do with them at all; that it is all part of the working of the national insurance scheme, that the reduction in the Government's own contribution to the national insurance fund is not deliberate—just to make the point of the noble Lord, Lord Boyd-Carpenter, who seems to think that the Government may occasionally act by accident—but it was all because of the necessity of maintaining a balance in the national insurance fund. And to that, with your Lordships' permission, I should like to turn, because there arc one or two things that mystify me about it.
The noble Baroness, Lady Wooton, in the course of her speech ventured to query the existence at all of
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the national insurance fund. I have no doubt that the noble Lord will be able to prove that it existed. Well, in due course we shall see whether it exists or not. I should like to draw your Lordships' attention to the fact that, according to the Government Actuary's Department, apparently the balance of the fund at 31st March 1981 was of the order of £5,000 million. That point struck me as a little odd; because " of the order of " implies a lack of precision, that they did not know quite how much it was but that it was of the order of £5 billion.
Where does that £5 billion come from? If it exists at all, surely it must have come about because of an excess of income into the fund over the expenditure. One has instances of this phenomenon on page 6 of the Actuary's report where it shows a deficit of £153-million for 1981–82 and a deficit for 1982–83 amounting to £9 million. Yet here is that figure of £5,000 million. If one also refers to page 6 one comes, in the income column, to investment income of £570 million in 1981–82 and £595 million estimated for 1982–83. As it says " income from investments it means that the fund holds investments. One would like to know what the investments are that make up this £5,000 million.
I am bound to say that on the basis of the investment income yields disclosed for 1981–82 and projected for 1982–83 and on the assumption that the whole of the £5,000 million is invested, as distinct from lying about somewhat amorphously in the Consolidated Fund, the projected income represents about an 11 per cent. return in both cases. The interest rates in this country have been running at between 14 per ent. and 15 per cent. for a year. If there is £5,000 million in the fund, would they not have done better to leave it on deposit? There would have been sufficient in it then to have avoided the contribution by the workers of this country into the redundancy fund; because that would be about the extra amount of money that would be available if the money had been put on deposit.
Or perhaps the money does not exist at all. Perhaps it is merely another form of bookkeeping entry. Perhaps the investment income is an assumed figure of an amount that the Consolidated Fund is deemed to have paid into the insurance fund by reasons of the book-keeping accumulated surplus over the years. These are all things on which the noble Lord, Lord Cockfield, doubtless can expatiate at some length. But it will be interesting to know. Also one sees—and I am surprised to find this in the estimate and income of the national insurance fund—an item called, under " Outgoings ", " other outgo " amounting to £3 million for 1981–82 and £4 million for 1982–83. What is " other outgo "?
On the whole, I am bound to say that the nature of the accounts presented to us today, which is supposed to be explanatory, is something which, if a company laid it before its shareholders or if a company tried to get a quotation on the Stock Exchange on the basis of it, it would never get past first base. In short, all that has really happened is that the Government Actuary has been told what the Government want to do and—no doubt very accurately on the basis of his expertise in his profession and taking into account the expectation of life of the individuals involved, particularly on the retirement pensions side and the other assumptions he was given—he has produced an answer.

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A Parliamentary Question was asked in another place as to what assumptions had been given to the Government Actuary? On 21st December Mr. Ray Powell asked the Chancellor of the Exchequer what criteria he had used in making the working assumptions of the level of unemployment in 1981–82 and in 1982–83 which were used by the Government Actuary in drawing up his report on the financial provisions of the Social Security (Contributions) Bill 1981— (Cmnd. 8443). Mr. Brittan replied and his reply must commend itself to all who believe in frank answers to questions and in open government. His reply was:
" As usual, the working assumptions took account of recent trends in unemployment ".
This is frankness taken to an embarrassing extreme. Fortunately, the Actuary stated the assumptions upon which the calculations were made.
The House will be interested to learn the assumptions on which he was instructed to work: the number of unemployed, including school-leavers, was 2,600,000 in 1981–82 and 2,900,000 in 1982–83. We already know now that the working assumptions on which the Actuary was instructed to work predicted the rise in unemployment which has already been adumbrated in other parts of the country by other economists who at the time when they made their predictions of over 3 million or 3½ million unemployed were called " dismal Jimmies " and were repudiated at the time.
The other assumption upon which the paper was drawn up was that average in earnings in the tax year 1981–82 are 11.3 per cent. higher, and the average in the tax year 1982–83, 7½ per cent. higher. In other words, the Government Actuary was told to assume that there would be a cut in the standard of life of the ordinary working-class during these two periods, because the rate of inflation, owing to the miserable and asinine policies of the Government, has maintained itself steadily around 12 per cent. as distinct from the 10·3 per cent. when they took it over.
The noble Lord, Lord Boyd-Carpenter, took exception to the use of the word " deliberate " by my noble friend in regard to the Government's action. The Government are composed of the wonderful people, the people who are really expert in every field, and who were going to put things right. It would be unjust to them to say that they do anything by accident. It is all carefully calculated, as no doubt the noble Lord, Lord Cockfield, will prove when he replies.
One must assume that those that will the means, will the ends. The fact of the matter is that all this Bill does—this miserable little Bill—is to put an extra burden on people who can least afford to bear it.
6.32 p.m.
The Minister of State, Treasury (Lord Cockfield): My Lords, perhaps I may start by giving the noble Lord, Lord Bruce of Donington, a measure of reassurance on one point. The Government have no intention whatever of withdrawing this Bill, which they regard as right, necessary and proper. The noble Lord will therefore be able to look forward to the Committee stage when we will debate with him many of the points which have been raised today which in fact are essentially Committee stage rather than Second Reading points.
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The debate has ranged very widely indeed. The Bill itself is a very limited one, dealing with the level of contributions. It does not deal with the price of coal. I realise that the noble Lord, Lord Wells-Pestell, has very strong feelings on this matter. I think it is only right when he gives expression to those feelings that he should also bear in mind the heating allowances which have been provided to help people in that situation.
Nor does the Bill deal with the general state of the economy, although a very great deal was said about that. I listened of course to all the points that were made with very great interest. I listened in particular to the speech of the noble Baroness, Lady Jeger. If I may say so with respect, never have I heard a speech in which so many fallacies were so elegantly woven together to form a skein of such elegance, sincerity and lack of substance. The noble Baroness referred to the Government's policy as being one of impoverishing large sections of the community. This point was dealt with very completely in a speech of great force by my noble friend Lord Boyd-Carpenter. I do not wish to add very much to what he said. It has never been the policy of this Government or any previous Government to set out to impoverish large sections of the community.
Baroness Jeger: My Lords, will the noble Lord allow me to intervene? He said that he did not wish to add to what the noble Lord, Lord Boyd-Carpenter, said, but I do. What is it other than deliberate impoverishment when we know that the unemployment pay has not kept pace with inflation and that retirement pensions on the Government's own admission are below what they should be and the Government have agreed that these should be increased to take care of this mistake? I do not think that the word " deliberate " is amiss in that context.
Lord Cockfield: My Lords, the noble Baroness had ample opportunity to make her point; but as she raises it again, may I deal with it? The same point was also raised by the noble Lord, Lord Wells-Pestell. If both of them care to search their memories they will remember that in the time of the Labour Government a change was made in the basis on which retirement pensions were uprated. The change was from a past basis to a future forecast basis. The effect of that change, if I may dare use the noble Baroness's own phraseology, was to impoverish the pensioners by the sum of £500 million. The next thing that happened—again in the lifetime of the Labour Government—and I hate to mention these things and, unless provoked, I never do—was that in all good faith at the end of their term of office they underestimated the rate of inflation. One of the first things that we did was to make good that shortfall in the retirement pension. A similar underestimate occurred this time. These are estimates made by both Governments in perfectly good faith. We have made it abundantly clear that so far as the retirement pension is concerned that shortfall will be made good next year. That disposes altogether of that point.
Lord Wells-Pestell: My Lords, will the noble Lord give way?
Lord Cockfield: My Lords, the noble Lord has had ample opportunity; we cannot go on all night on this matter.
Lord Wells-Pestell: My Lords, if the noble Lord wants to attack this side, let him do so; but let us remind him that only a short time ago pensions were increased after 54 weeks and not 52, and the pensioners were robbed of two weeks' increase of pension as a result.
Lord Cockfield: This Government, my Lords, have behaved towards the pensioners with perfect propriety and perfect fairness. The noble Lord is accusing me of attacking noble Lords opposite. Nothing is further from my thoughts. It is quite unnecessary for me to do so. They stand convicted out of their own mouths. I only expanded on this point because the noble Baroness herself intervened and I felt that out of all courtesy it was therefore necessary for me to reply to her intervention.
The next point that I want to make is this: we entirely reject the accusation that the present difficulties of the British economy are entirely or primarily the result of Government policy. On the contrary, this is the first Government which have had the courage to tackle these deep-seated problems. Those noble Lords opposite who listened to the speeches of their noble friend Lord Kaldor will realise how deep-seated these problems are. The 3 million unemployed is due to the increasing uncompetitiveness of the British economy which have been building up over a long period of time. At each successive turn of the trade cycle noble Lords will find that the levels of unemployment and the levels in inflation were higher than they had been in the previous turn of the trade cycle.
We propose facing up to these deep-seated problems. We propose to tackle them and to persist with our measures until they reach ultimate success. I simply do not accept the pessimistic view put forward by the noble Lord, Lord Wells-Pestell, in which he talked of an ever-decreasing number of people shouldering these great burdens. We must as a country look forward to the time when, in common with the other industrial nations of the world, we come out of the present recession—which has been a great contributory cause of the problems that we now face—and when employment in this country expands once again. I know there is a phrase which appears, I think, in Dante:
" Abandon hope all ye who enter here ".
That may be the policy of the Labour Party but it is certainly not the policy of Her Majesty's Government, who look forward to the opportunities rather than bewail the troubles.
Now, may I take the next point. The Bill was represented by the noble Baroness, Lady Jeger, with the support, I am sorry to say, of my noble friend Lord Boyd-Carpenter, as a Treasury Bill. This is not the position at all. It is perfectly plain—the figures are set down in the Government Actuary's report—that, of the increase of 1 per cent., 65 of 1 percentage point is a direct reflection of the rising level of unemployment. And 1 per cent., making a total of three-quarters of 1 per cent., is the additional contribution to the National Health Service; and we have increased expenditure on the National Health Service in real terms, as my noble
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friend Lord Elton pointed out. It is only the one-quarter of 1 per cent. which is a reduction in the Treasury supplement.
The amount of the Treasury supplement has fluctuated very greatly from one year to another. In the early years of the present scheme—that is after 1948—the Treasury supplement was at a very high level because the people who came into the scheme without a complete contribution record were drawing benefits substantially greater than those they had contributed to, and the Treasury came in and made good the deficit. As the years went by the amount of the Treasury supplement was adjusted, and in 1975 it was in fact fixed at 18 per cent. But there is nothing sacrosanct about that figure. It needs to be reviewed in the light of circumstances, and the circumstances are these. In 1975–76 non-contributory benefits accounted for 24 per cent. of total benefits; last year the figure was 35 per cent., and this coming year it will increase still further to 37 per cent. The share of the total cost of all benefits, contributory and non-contributory, borne by the Treasury was 37 per cent. in 1975–76, 45 per cent. this year, despite the reduction that was made last year in the amount of the Treasury contribution, and this coming year it will still be approximately 45 per cent. despite the further reduction proposed in the Bill.
The noble Lord, Lord Banks, suggested that the change from child tax allowances to child benefit was a major factor in this change. It was a factor but not the major factor. May I draw his attention to two points? First, of course, the child benefit went much more widely than the old child tax allowances and indeed one of the purposes of introducing the child benefit was to give support to families with children who were not income tax payers. So that in fact was a genuine expansion of the non-contributory benefit; and our record on child benefit, I may say, is an extremely good one and does not in any way justify the strictures expressed by the noble Lord, Lord Molloy. The other point is that a very large part of the increase in benefits is the increase in supplementary benefit and that goes not only to the unemployed but also of course to the elderly.
Lord Banks: My Lords, I wonder whether the noble Lord could give the comparative figures. It would be most helpful if he could. He said that while child benefit was a factor it was not the main factor. Would he not agree that it was a factor of something around £1,700 million and that perhaps the supplementary benefit was somewhere around £480 million? Would that not suggest that the child benefit was a major factor?
Lord Cockfield: My Lords, the child benefit was a factor. I will certainly see whether the figures can be obtained and I will send them to the noble Lord. But in addition to the child benefit there was a whole range of other non-contributory benefits introduced in this period. I think it is also relevant to point out to the noble Lord, as I did earlier, that part of the cost of the child benefit is itself a non-contributory benefit. It is not just a replacement of the child tax allowance.
One of the major themes that ran through the speech of the noble Baroness, Lady Jeger, was a desire to abandon the principle of insurance and to change over

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to financing the scheme entirely through taxation. I was sorry to see that in this respect she was joined by the noble Lord, Lord Banks, who now wishes to cast aside the only tattered remnant of the heritage the Liberal Party has received from Mr. Lloyd George. We believe ourselves that the contributory principle is an important one. The Bill reinforces that principle—it does not abandon it. This, of course, is a major issue on which people are perfectly entitled to hold different views. We note the fact that the official Labour Party view is now that national insurance as such should be abandoned and that it should be financed entirely out of taxation. We do not accept that such a view is valid. The noble Baroness spoke as though the only difference between the two was that the income tax would fall upon people with investment income while the National Insurance contribution fell upon the workers.
Baroness Jeger: I am sorry, my Lords, I must interrupt because I did not use the words " investment income " in my contribution at all.
Lord Cockfield: My Lords, I am grateful to the noble Baroness. I was merely trying to help her to marshal her thoughts in an understandable fashion. If it does not fall on investment income and does not fall on earned income, perhaps at some stage she could explain to me what it is she is endeavouring to tax. The fact of the matter is, of course, that the income tax does fall, for example, on the incomes of the elderly and the retired. I hope the noble Baroness is not seriously suggesting that we ought to tax the retired in order to provide benefits for those in work, because if that is her proposition it seems to me to be a most extraordinary one. The noble Baroness and others also suggested that the upper earnings limit, as it is described, should be removed altogether. To do so would obviously weaken the contributory nature of the scheme, because benefits are also linked to the upper earnings limit. The abolition of the upper earnings limit would also have a serious effect in increasing still further the contributions paid by employers.
May I deal very briefly with that point? There was objection raised by a number of noble Lords opposite—by the noble Lord, Lord Banks, in particular—to the way in which the increase in contributions has been charged on employees and not on employers. Perhaps I may remind the noble Lord that for many years the contributions paid by employers and employees were approximately equal, and that remained the position right up until 1974. In 1974 and 1976, a dramatic change was made and the ratio of employer to employee increased from approximate parity to 1 to 1½ times. After the change that we have made this year, the employer will still pay rather more than the employee; in fact, the ratio is 1·09 to 1. So we have done no more than move part of the way back to what had been the position accepted over a long period of years. That is the first point.
The other point is this. If one looks at the way in which incomes and profits have moved over the last four years, there has been a substantial increase in net disposable incomes in the personal sector. There has correspondingly been a very large reduction in the
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level of the profits of industry. One of the major problems that this country faces is the low level of profitability: and we shall get adequate investment in this country, leading to the creation of new employment opportunities, only when there is an improvement in the level of industrial profitability. This, therefore, would be the worst possible time at which substantially to increase burdens on employers, so we have done everything we can in this Bill to avoid such an increase occurring.
It was impossible to do this—if I may say this in reply to my noble friend Lord Boyd-Carpenter—in relation to the employer's contribution as a result of the increase in the upper earnings limit. If we were to reduce, or not to increase, the upper earnings limit, it would have a depressing and downward effect on the amount of pension that people would be earning under the state pension scheme, and I am sure that that is something which none of us would want to see—
Lord Boyd-Carpenter: My Lords, would my noble friend allow me to intervene at this point? It would, would it not, have been perfectly possible, as an alternative, simply to have reduced the rate of the surcharge on the employer's national insurance contribution?
Lord Cockfield: My Lords, I am grateful to my noble friend for his intervention, because he has raised the next point that I proposed dealing with in my reply. The question of the national insurance surcharge is entirely a budgetary matter, and, as a former distinguished Treasury Minister—perhaps I may rephrase that and say, as a distinguished former Treasury Minister—my noble friend will realise that on matters of that kind I can make no comment at this time of the year—
Lord Boyd-Carpenter: I can take a hint.
Lord Cockfield: My Lords, we do, of course, note all the opinions that have been expressed on this matter. I am grateful to the noble Lord, Lord Spens, for his expression of appreciation of the way that the Government had endeavoured to temper the wind to the shorn lambs, if he will forgive the use of such a phrase in relation to so vigorous a section of our national economy. So far as the discussion document which was issued in 1980 is concerned, as my noble friend the Secretary of State for Social Services, said in another place, consideration of this issue is still continuing and I understand that he now hopes to make an announcement in the near future.
The noble Lord, Lord Molloy, among many other statements to which I took the strongest possible exception, said that the Conservative Party have always hated the idea of the welfare state. There is no substance at all in that statement. Indeed, over the years the Conservative Party have contributed as much as, or more than, anybody to the development of the welfare state.
There was considerable support expressed in your Lordships' Chamber for the tax credit scheme. As the original author of that scheme, perhaps I may make a very brief comment on it, although, in fact, it has nothing to do with the Bill which is in front of your Lordships. The scheme was, of course,

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advanced by the Conservative Party, and the people who killed it at the time were the Labour Party. I hope that this will always be remembered to their credit. The problem that we face at present, of course, is that while in the golden days of Conservative rule we could well have afforded the £1,300 million that the scheme would have cost, the cost has now greatly escalated and the financial difficulties that we face are much greater. Of course, the scheme has obvious attractions, but I should not like your Lordships to draw any inference from that beyond that, as the original deviser, as it were, of the scheme, I not unnaturally have a certain affection for it.
There were views expressed in various parts of your Lordships' Chamber that the time had come when a thorough-going review of the whole of the national insurance system was required. I can do no more than note the expression of such opinions. My own experience—and a rather better experience, if I may say so—is of the very great difficulties that beset radical reform, and if radical reform is not possible there is everything to be said for the process, to which my noble friend Lord Boyd-Carpenter referred, of making improvements in an existing system as and when one can.
The noble Baroness also suggested that the national insurance scheme might be brought into line with the income tax scheme and dealt with on an annual basis. I feel some hesitation in having to inform her that many of the great difficulties to which the PAYE scheme gives rise are in fact, the result of its being on an annual basis, and, far from simplifying matters, it would greatly complicate them. The present position is, of course, that the operation of PAYE is not computerised. We are now taking the first step in that direction, but it will be some years yet before the whole of the PAYE scheme is on a computerised basis.
I have spoken for 25 minutes. As I indicated earlier, very many of the detailed points which have been made are essentially Committee stage points. We look forward to debating them in due time. The Government regard this measure as an essential one in present circumstances, to meet the regrettable rise in the cost of providing benefits, most of which is due to the rising level of unemployment. Our policies are directed towards ensuring that the economy is put on a sounder basis in the long term.
Despite the somewhat gloomy prognostications of noble Lords opposite, there are already a number of encouraging signs. Output is increasing. Output for the last quarter of 1981 was, in fact, higher than for the second and third quarters, which suggests that the view that the bottom of the recession was reached in the middle of last year has now some support. The retail price index, which was announced a day or two ago, indicates a stabilisation in the rate of inflation and we look forward in the not too distant future to a resumption of the decline in the level of inflation. These are all encouraging signs from which we all ought to take heart, rather than denigrate them. But, because this is an essential measure to deal with a problem which must be dealt with, I commend it to your Lordships.
Baroness Jeger: My Lords, before the noble Lord sits down—I am sure the whole House will be grateful for
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the way he has replied to this very full and detailed debate—may I ask him to deal with two points which I raised earlier. I will accept it if he says he will write to me about them. Replies on these two points will help us at the Committee stage. First, may I ask the noble Lord what is to be the social security status of young workers who go into the Government scheme, for which I understand they are to be paid £15 a week. Is there to be any system of crediting or franking their cards so that they come into social insurance? Secondly, when people have paid into redundancy funds and are themselves declared redundant before the end of the two-year period, will it be possible for them to get back their contributions? Will the Government at least give some attention to this point? I shall be quite happy to receive a letter from the noble Lord, but I should like to hear from him before the Committee stage.
Lord Cockfield: My Lords, I am grateful to the noble Baroness. So far as the first point is concerned, the details of the new scheme have not yet been worked out. However, the benefit position of those young people who are at present participating in the Youth Opportunities Programme is not affected by their participation. We expect this to be true of those involved in the new, extended programme. So far as the other point is concerned, I will write to the noble Baroness.
On Question, Bill read a second time and committed to a Committee of the whole House.

Civil Aviation (Amendment) Bill
7.2 p.m.
The Parliamentary Under-Secretary of State, Foreign, and Commonwealth Office (Lord Trefgarne): My Lords, I beg to move that the Bill be now read a second time. This Bill is straightforward and uncontentious and I shall therefore be brief. It contains three main provisions: to increase the statutory financial limits of the British Airports Authority: to increase and clarify the financial limits of British Airways: and to enact amendments necessary for the consolidation of civil aviation legislation.
Before I come to the detail, I should like to deal briefly with a number of points common to the provisions for increasing the financial limits of British Airways and the British Airports Authority. The first, rather obvious, point is that these provisions do not in themselves increase public expenditure. Neither do they affect external financing limits which limit the new borrowings made by individual industries in any one year for the purposes of controlling the public sector borrowing requirement.
Secondly, I should point out that these provisions require the Secretary of State to seek the approval of another place for any increases in the financial limits over and above the levels initially provided for on enactment. Additionally, Government control over the borrowings of British Airways and the British Airports Authority is retained through existing statutes which require Government approval for specific new borrowings, even within the new financial limits. I should also add that the proposed limits will make no difference to present arrangements for controlling individual major items of capital expenditure. These

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will continue to require Government approval which will normally be subject to their being expected to achieve a required rate of return.
Finally, although I hope that this is already clear, the Bill and these provisions for increasing the financial limits do not in any way represent a departure from current Government policy. The Government remain determined that British Airways and the British Airports Authority should operate efficiently. The Government will continue to work with the industries to this end by, for example, agreeing suitable performance aims with them. These are important points and I hope that they are useful in clarifying exactly what we are considering in this Bill.
Against this background I should like to turn to the increase in the financial limits of the British Airports Authority. Clause 1 increases the financial limit of the authority to £200 million on enactment and provides for a further increase, subject to the approval of another place, to £300 million. This is intended to provide adequate scope for the borrowings that we expect the British Airports Authority to need for its present medium-term investment plans. These are expected to cost £700 million at outturn prices over the next six to seven years. It is right that the British Airports Authority should be able to supplement internally generated funds with external borrowings to meet the extremely uneven investment profile which characterises large airport developments. The authority's cumulative debts can be expected to increase with the borrowings necessary for this programme from the current level of £62 million to £200 million in 1985. This increase in borrowings should be viewed against the British Airports Authority's capital base of £820 million, £763 million of which are reserves built up as a result of consistent profitability over the 15 years of the authority's existence. Indeed, the authority has been able to finance almost all of its capital expenditure so far without borrowing.
The British Airports Authority's investment plans include work on the fourth terminal at Heathrow which started last year and the continuing programme for improvement and modernisation of existing airport facilities. These also include the development of a second terminal at Gatwick, subject to the outcome of the current planning inquiry. But I must make it clear that the limits proposed in the Bill do not carry implications for whether the Gatwick development will go ahead. My right honourable friends the Secretaries of State for Trade and the Environment are still considering the additional submissions which they invited on that application following the publication of new air traffic forecasts.
Neither, for that matter, do the new limits have any implications for the developments which the authority have proposed at Stansted and which are being considered by the present public inquiry. The decision of my right honourable friends will be taken in the light of the inspector's report on that inquiry, and if this was in favour of the development the authority would still have to submit detailed costed plans for Government approval before any expenditure could be made. I hope I have made it clear that on increase in the authority's financial limits would have been required even if the developments at Stansted and Gatwick had not been proposed.
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I should finally touch on one last issue of topical interest concerning the British Airports Authority—that is, user charges. My right honourable friend the Secretary of State for Trade and the British Airports Authority are currently joint defendants in a legal action taken by foreign airlines concerning user charges and the financial target agreed between the Government and the authority. I therefore note, but no more, the British Airports Authority's recent announcement of a freeze in user charges for the next financial year.
I turn now to British Airways. Clause 2 increases the airline's financial limits from the current level of £1,000 million to £1,200 million on enactment of the Bill, with provision for two further increases by order, subject to the approval of another place, to a maximum of £1,600 million, a figure designed to last the airline for another five years or so. The main reason for the increases lies in British Airways' heavy capital investment programme in new, fuel-efficient and quieter aircraft to replace their Tridents. This changeover to fuel-efficient aircraft must be accomplished, despite the present depressed trading conditions, if British Airways are to hold any prospect of competing with other world airlines on an equal footing in the future.
The present depressed conditions of the air transport market will be well known to all. Many major airlines have been reporting heavy losses over the last year and expect similar losses this year. British Airways are no exception. Indeed, the airline's loss last year of £145 million, which led to borrowings of over £300 million, is one of the main reasons why an increase in British Airways' statutory financial limit is necessary so soon after the last increase. However, we can be encouraged by the economy measures which British Airways announced in September last year which showed the management's determination to get the airline into the most streamlined and competitive shape possible to take advantage of the upturn when it occurs. With market conditions still unpredictable, it is impossible for me to say how soon British Airways will have recovered sufficiently to enable us to privatise it, but I can say that the Government remain committed to this objective.
Another reason why British Airways' total borrowings are close to the current financial limit is found in the increase last year in the value of their uncovered foreign borrowings. This increase was beyond the airline's control and was solely the result of exchange rate movements. At the moment, foreign currency borrowings which are not covered by a Treasury exchange risk cover scheme are valued according to day-to-day exchange rates. With the cessation of the Treasury exchange cover scheme in April of last year and the fall in the value of the pound against the dollar, which is a major currency for British Airways foreign loans, the airline's borrowings would have increased in value by about £30 million even if no new borrowings had actually been made. This introduces an element of uncertainty into the assessment of British Airways' position against the financial limit and could even lead to British Airways exceeding the limit as a result of exchange rate movements alone. Clause 3 of the Bill aims to remove this uncertainty by fixing the value of British Airways' uncovered foreign borrowings against the limit.

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Finally, I turn to Clause 4 of the Bill, which gives effect to the highly technical amendments and repeals in the two appended schedules. The bulk of civil aviation law has not been consolidated since 1949 and since then of course the law has developed enormously and is now spread over eight or more statutes. It is high time that these scattered provisions were brought together and put in order. A consolidation Bill for this purpose was prepared by the Law Commission and introduced into your Lordships' House on 17th December and, as is customary, will be taken by a Joint Committee of both Houses. The pre-consolidation amendments which we are considering here are necessary to iron out inconsistencies in the details of existing statutes which would otherwise make consolidation difficult. I hope that both sides of your Lordships' House will welcome this long overdue rationalisation of civil aviation legislation.
To conclude, this Bill aims to increase the borrowing powers of British Airways and the British Airports Authority to cover their necessary investment and other needs for at least the next five years—but it leaves parliamentary scrutiny and Government control over those borrowings intact. For their part, the Government are very much aware of the need for both British Airways and the British Airports Authority to operate their services in the most efficient way possible and, indeed, the investment allowed for by this Bill is directed towards this end. We must also recognise the very important contribution that a healthy and efficient British Airways and, likewise, British Airports Authority can make towards the United Kingdom's civil aviation sector. I therefore commend this Bill to your Lordships. I beg to move.
Moved, That the Bill be now read a second time.—(Lord Trefgarne.)
7.13 p.m.
Lord Ponsonby of Shulbrede: My Lords, may I thank the noble Lord, Lord Trefgarne, for introducing this Bill in a very short, 10-minute speech and I shall certainly try to make certain that in making my remarks I shall not exceed the pattern which he has set us this evening. As the noble Lord has said, this is a very simple and non-controversial Bill to increase the borrowing powers of British Airways and the British Airports Authority and to enable consolidation of earlier civil aviation legislation to take place. However, it does give your Lordships the opportunity to discuss at some length—although in view of the lateness of the hour I hope it will not be at too great a length—some of the problems which affect the civil aviation industry at the present time. I have no doubt that some of the noble Lords who are to speak in this debate will be raising matters which are of particular concern to them.
The Bill is not perhaps as radical a measure as one would have hoped. The increases in the borrowing limits proposed are basically to restore the historic value of those limits. They do not in any way alter the basic concepts on which the financial arrangements for British Airways and the British Airports Authority are based. I have often expressed from this Dispatch Box my concern that today's users of the airports owned by the British Airports Authority are being asked to
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pay for facilities which are to be used by tomorrow's users. That concern is in no way alleviated by this Bill, although I must say that I am glad to hear that the peak hour landing costs, which remain high at Heathrow, are to be frozen until April 1983. Whether this is the result of resistance shown by airlines to earlier increases or a phasing out of the policy of persuading airlines to switch their operations elsewhere—specifically to Gatwick—one does not know. Certainly one has noted yet again the increased activity by Schipol to be regarded as London's third airport and advertising in this connection. However, this is not really the opportunity, which I am sure we will have in the next session if not in this session, to debate the whole question of airports policy. I do regard this as a matter which is very vital to the prosperity of British Airways and to tourism generally. It is a matter for which I know a number of your Lordships have great concern.
British Airways face many severe problems, some of which are in the competence of this Government to solve. The noble Lord, Lord Trefgarne, in introducing the debate, reaffirmed the Government's insistence on keeping the measure to privatise British Airways on the statute book. This threat has been hanging over British Airways for more than a year. I thought at the time we passed this piece of legislation that it was a waste of time passing it at that point in time because the financial state of the international airline industry was such that the sale of the coporation at that time, and even more so the sale of part of the corporation now, was a forlorn hope. That has proved to be the case. Could not the Government at least remove this fear from British Airways? I fear that the noble Lord, in his introductory remarks, has already removed any hope that that might happen.
As the noble Lord said, the international civil aviation industry is facing a major challenge at the present time. Many operators are finding themselves in dire financial difficulty. Some have had to sell off precious assets to stay alive and others have had tortuously to renegotiate their arrangements with their bankers. These problems have come about as a result of the dual effect of unrestricted competition on the North Atlantic routes and the vast increase in fuel costs, so that an airline such as British Airways finds that almost a third of their costs are on fuel as opposed to a mere 10 per cent. not so long ago. Such a situation is particularly difficult for an airline such as British Airways with such a vast network of routes to contain.
In this sort of situation we must be particularly concerned about the competitive edge of British Airways and of their ability to compete effectively in a very difficult market. The noble Lord has referred to the economy measures which British Airways have achieved. They have managed during the past year to sell surplus planes and property to the value of some £105 million. They have managed to reduce their staff by some 11,000 employees. They have managed to bring into service more fuel-efficient aircraft. They are very much concerned in fact to see that they are effectively operating as an airline. Their levels of punctuality have increased, and in many other spheres they have managed to meet some of this challenge.
One of the areas which we have not discussed at length in your Lordships' House, but which I know

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British Airways are very concerned about, is that they believe that their profitability could be very much enhanced if they were able to carry out all their international operations from a single terminal in the United Kingdom. I have no doubt that when your Lordships come to discuss airports policy the plea of British Airways for a fifth terminal at Heathrow will be one which your Lordships will want to consider. We do know that in fact many other airlines throughout the world have found very great economies in being able to operate their services from a single terminal and not having them spread over. British Airways are in the position of being not only spread over terminals at Heathrow but also having various operations from Gatwick as well. This is an area which we will have to look at later.
On the final clause of the Bill, concerning consolidation, we of course welcome very much the proposal to combine the earlier statutes into a single Act. This measure of consolidation, which has been going on in various fields, is one which is always welcome. I think the noble Lord, Lord Trefgarne, although he has now moved from the Department of Trade to the Foreign Office, will know that in the field of company legislation it would be even more welcome if we were able very soon to have that particular Bill.
7.22 p.m.
Earl Amherst: My Lords, I also should like to thank the Minister for taking us through this short amendment Bill. Although short, it does have implications and does raise some questions. We welcome the consolidation aspects, as they should clear away some of the anomalies and confusion which have long plagued the industry. We also welcome the provision of increased borrowing powers of British Airways which we understand should take care of that corporation's needs in that aspect for the next five years. I understand that all but some 25 per cent. of these funds will be allotted to the provision of new more fuel-efficient and less noisy aircraft, and the balance of 25 per cent. will be used mainly to re-equip such technical equipment as engineering computers, and the improvement of sales offices. This relief comes usefully at a very critical time when the corporation is coming close to the successful culmination of an extremely difficult and delicate operation to reduce and reconstruct the corporation to what Mr. Roy Watts, the chief executive, has described as a leaner, more efficient and more competitive airline. Can the Minister assure us that once this Bill is passed there will be no delay in the corporation being able to start to reap the benefits of this so as to proceed at once with their forward planning.
Although these reorganisation plans are still to be completed, I think it right and timely to offer congratulations to the chairman, Sir John King, his chief executive and deputy chairman, Mr. Roy Watts, and their staff, for their valiant work in effecting this reorganisation, and indeed also to the workforce, who are reported to have been most co-operative in the general effort to overcome the considerable problems involved.
We understand that the increase in the borrowing powers to be afforded to the British Airports Authority is to provide that authority's immediate requirements
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for the improvement of facilities for both users, the airlines and the public, with special reference to Heathrow and Gatwick, to provide finance for the fourth terminal at Heathrow, but not, if I heard the Minister aright, to provide funds for the development of Stansted as it is now planned. As we know, the public inquiry on the Stansted proposition is in full spate and likely to go on for some time, to the end of this year or even longer. The authority is concerned with legal actions taken against it by various airlines on the question of its charges. Even so, there are questions which arise which I want to ask and put on record, despite the possibility that I may be fobbed off with the excuse that matters are now sub judice and cannot be discussed today.
Before going on to my questions, may I take the opportunity to offer congratulations to the authority for the many improvements they have made at both Heathrow and Gatwick in the past year. And as far as Gatwick is concerned we might also include British Rail. In my experience many things are a good deal better there now than they were a year ago. That is not to say that there is not room for considerable improvement. There seem to have been conflicting reports on how the Government are now thinking regarding the proposals to develop Stansted. Can the Minister tell us if the Government still have an open mind on this matter? Further, have the Government finally decided against consideration of the development of the Perry Oak site at Heathrow as an alternative proposition, bearing in mind that, apart from other important considerations, it is estimated that it would cost £324 million, including removal of the sewage farm, as opposed to the estimated cost of £869 million for Stansted, and that the majority of the airlines now using Heathrow would much prefer it to Stansted, notably British Airways, and they are the largest operator at Heathrow?
Has any thought been given to taking a leaf out of the John F. Kennedy book and handing over such a fifth terminal to British Airways for its use and management? I understand the corporation would welcome such an idea. During the last Session (this was a point raised by the noble Lord, Lord Ponsonby of Shulbrede) I asked as a supplementary question if the financing of future capital requirements almost exclusively out of present revenue was not to some extent responsible for the fantastically high charges the authority is levying on the airlines, which in turn impinges on the high air fares now charged at least domestically. I received a somewhat abrupt, " No " as an answer. With respect, I still think that this practice must reflect to a certan extent on the reason for these monstrously high charges, the highest in the world, and as an on-going result the high air fares.
What is the reason why the authority cannot go to the market for at least some of its finance or, as is sometimes done in the United States, go for a bond issue? I have read that in another place it was said that the reason was that it was not contained in the Government's election manifesto. If that is so, it must be that it is a result of some regulation or order, possibly Treasury inspired. But, even so, Treasury inspired or not, cannot such regulation or order be altered, amended or even cancelled? Also, by the same token, is the rigid demand that the authority must

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achieve a 6 per cent. per annum return on investment still valid in the light of continuing recession in the airline business? Perhaps the Minister will be able to throw some light on these queries.
It is reported that an earlier decision to increase the airport charges by 12 per cent, this year has now been rescinded, but even so the present charges remain the highest in the world. Even if the Minister cannot give an answer today, can he indicate when we may be able to discuss these questions together with the whole set-up of the British Airports Authority and even that startling question asked in another place as to whether the authority in its present shape is really a national requirement? Apart from all that, my colleagues on these Benches will be happy to give the Bill a Second Reading.
7.31 p.m.
Baroness Burton of Coventry: My Lords, as the Minister implied, this is a straightforward Bill containing only five clauses. There was no real dissension from this proposition when it was put forward in another place by the Minister and I think that there has been no dissension here today. As the noble Lord, Lord Trefgarne, said, of course, this Bill does increase the borrowing power of the British Airports Authority, and the Secretary of State in another place gave valid reasons as to why that should be done. But there was a considerable amount of discussion about the manner in which the British Airports Authority is financed, and I should like to return to that aspect later in my remarks.
It does seem questionable, to me anyway, that the customers of today should pay for the airports of tomorrow. This was a point which disturbed—I note that the noble Lord, Lord Trefgarne, is shaking his head—the noble Lord, Lord Ponsonby of Shulbrede, and it certainly has disturbed me. I regret that my noble friend, Lord Taylor of Gryfe, is not with us today, because he has knowledge and experience of the financing of public bodies, monopolies and nationalised industries. For myself, speaking as a customer, and as I have just said, I do think it would be much fairer that the customers of tomorrow should pay for the airports of tomorrow. While accepting, as I believe the Minister also said, that the restraint on these matters is the concept of the public sector borrowing requirement, I am going to leave that to the economists and the financial experts. But it does seem to me that this restraint and concept are in need of urgent revision.
Obviously, in the absence of my noble friend Lord Taylor, I have made certain inquiries only to realise more than ever that the financing of nationalised industries is, to use an understatement, most complex if one is not well versed in financial matters. I am sure that the House will know that in December last the 100 Group of chartered accountants published a report on The Financing of State-Owned Industries. Then I found out that we have volumes 1, 2 and 3 of the Eighth Annual Report of the Treasury and Civil Service Committee, which includes submissions from the chairmen of the nationalised industries. Obviously, I could have read extracts from all this invaluable information, but I never think that to read material with which one is not really familiar renders a service
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either to the House or to the Member concerned. So the House will be spared that, and I am serving notice on my noble friend Lord Taylor of Gryfe that these are all matters for him at our Committee stage.
However, included in any financial consideration must be the aspect of airport charges. It really is nonsense for the Government to imply that these have little effect on air fares. Indeed, the noble Lord, Lord Trefgarne, told us on 26th November last that the cost of airport landing charges does not increase the price of air travel. I should like to know where the noble Lord thinks the airlines get the money from if it is not from their customers.
I am hoping that the Minister will clarify this area for us today, because it really does seem as though those in authority do not know their own mind, or at any rate did not anticipate the opposition that would be provoked. When we rose for the Christmas Recess, existing landing charges were sub judice because of the action brought by airlines in protest at what they had to pay. But I did intend anyway to raise what we thought were to be the proposed new charges. Now we are told that the British Airports Authority is to freeze landing charges until April 1983. I should like to ask the Minister whether other charges are to be frozen too, or will they rise as forecast and, in that case, could we be told the actual figures?
I noticed that when the noble Lord, Lord Trefgarne, was speaking he said that " user charges " were to be frozen. My understanding is—and he certainly should know better than me—that it was the landing charges which were to be frozen. I should have thought that all the others put together were user charges, but perhaps the noble Lord can help us about that when he comes to wind up.
Lord Trefgarne: My Lords, I should be very happy to try to do that in a moment. In the meantime, can the noble Baroness explain what she defines as " user charges " in this context?
Baroness Burton of Coventry: Yes, my Lords, I am coming to that. The noble Lord, Lord Trefgarne, will know that there was considerable discussion on airport charges at all stages during the progress of the Bill in another place. The problem of security charges is one of particular relevance to this House. Those of us opposed to the method of raising this money by direct charge on the customer lost by only two votes at the Committee stage on 20th March 1978 when the previous Government were in power. I remain opposed. As the House will know, these charges have been reduced from £1·50 to £1·20—but only for a period of six months and they will then revert to £1·50. On this particular matter, I was glad to note that the Under-Secretary of State in another place said that he would look again at this problem of the security levy and how it is dealt with in other countries. I remember saying, when we discussed the matter on Second Reading, that no other country in the EEC did so in this way. Therefore, we were being a trend-setter in the wrong direction. That was on 9th March 1978, and it now appears, unfortunately, that I was right. So security charges are a user charge, and I shall come on to the others later.
While we sympathise with all airlines, I think that

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we should emphasise to the Government, as indeed the noble Lord, Lord Ponsonby, did, too, the position of our national airline, British Airways. In a debate which we had on 23rd July 1980, I stressed to the Government the concern of British Airways at the recent demand for a considerable increase in what they termed " Government charges "—namely, route navigation, airport and security charges—which would average 40 per cent. for them in the year ahead. They emphasised that this was an increase of 40 per cent. over the charges paid the year before. British Airways suggested to the British Airports Authority and the Civil Aviation Authority that they should do something about their own productivity improvements and not just say that these total costs should be passed on to the consumer.
The Minister, I am sure, will clarify this area. However, all sorts of figures were bandied about before the Recess and it would be a help to know whether they were right or wrong. For example, there was talk of increases in general of 17 per cent. for Gatwick and Heathrow. There was talk of an increase of 30 per cent. for parking charges at Heathrow during peak hours. There was talk of an increase of 16 per cent., from £52 million to more than £60 million, in the total bill for British Airways from the British Airports Authority.
I was interested, and depressed, to note that British Airways say that their charges and those of other Government-supplied services now represent a significant part of airlines' total costs and that in the case of British Airways the figure is 9 per cent. It does seem a great deal. I understand that the freezing of landing charges will save them some £10 million, but I should be glad if the Minister could clarify some of those other figures.
Airport users, airlines, customers: we all feel, frequently, that we are just brushed aside by Government and Government-appointed agencies, or fobbed off with meaningless answers when we raise this matter. Yet it is not only us. Some of these charges specifically, or the total collectively, will also have an impact on the actual location of flights. We expect and will be glad to receive a detailed and up-to-date picture from the Minister.
This may be a straightforward Bill with only five clauses, but in another place Members found that it gave them an opportunity to raise many topics of general interest in civil aviation. I hope that we shall discover the same opportunity. After all, the whole House wants a healthy civil aviation sector in our economy. Here I should like to congratulate Mr. Roy Watts, the chief executive of British Airways, on his plans—which I expect noble Lords have read—for a consortium of airlines. He wants these to collaborate on the introduction of a European air shuttle service. This he would like to serve at least five capital cities.
Mr. Watts envisages the creation of a single, London-based, international organisation with airlines pooling their aircraft. As the House will he aware, in addition to his position with British Airways, Mr. Watts this year holds office as chairman of the Association of European Airlines. Not resting content with his suggestion that his proposed European air shuttle service should cover London, Paris, Brussels, Amsterdam and Dublin, Mr. Watts is encouraging British
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Airways in new talks with European airlines in the hope that travellers will see much reduced one-way tourist fares to many European cities.
Before concluding, I want to raise one other aspect, and for today I am leaving aside bucket shops and discount fares. There is uncertainty about the number of future air travellers. There is certainly uncertainty about what the Government really believe and what they intend to do. We all hope for the major growth assumed by airlines, airport authorities and the Government. But forecasts have been altered, with the result that the Government have announced that they are postponing a decision on the Gatwick extension, which had been recommended after a inquiry in 1980.
The muddle in policy becomes even more pronounced when we realise that two nationalised bodies—British Airways and the British Airports Authority—are totally opposed, one to the other, over whether there should be a new airport at Stansted or a fifth terminal at Heathrow. As the House knows, an inquiry is now proceeding into this matter. It is expected to take until at least the end of the summer or early autumn. Following that, informed criticism assumes that it will take at least a further 10 months or so for the Government to rule on the matter and that by then we shall be in the run-up to a general election.
Apart from this apparently endless delay, I am worried about something else, and I do not like what I am worried about and hope that the House will realise the real concern that I have on this matter. It is assumed—I believe correctly—that the two front runners at this inquiry are Stansted and Heathrow. But the Government have said that it is quite definitely their policy that the fifth terminal at Heathrow should not be built. As recently as 13th May last year, the Secretary of State, replying to a Parliamentary Question, reaffirmed the Government's view that a fifth terminal at Heathrow should not be provided. So that no doubt could possibly be left in the Member's mind, the Minister concluded:
" I do not think this can leave you in any doubt about the Government's view on the matter ".
If the noble Lord, Lord Trefgarne, would care for the reference, it is the House of Commons Hansard as recently as 16th November 1981, at column 79.
So I ask, what is this inquiry about? If the Government have decided not to allow a fifth terminal at Heathrow, why are we wasting all this money on an inquiry? Is it simply a smokescreen to cover Government intentions? I should like to make it quite clear to the House that today I am holding no brief either for Stansted or for Heathrow in what I am trying to convey to the House. But I think that the whole procedure has a nasty smell, and that is the best way I can describe my feelings.
My quarrel is with bureaucracy, which seems to exist and to flourish whatever political party is in power. Today I think that we are in danger of being choked by it, but perhaps I may return to the inquiry. On 29th June last, I told the House how I had met this bureaucratic machine over Stansted as long ago as 1968, when I was chairman of the Council on Tribunals. On that occasion we made a special report to the noble and learned Lord the Lord Chancellor under the Tribunals and Inquiries Acts 1958 and 1966. If I may

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quote just one sentence, at column 62 of Hansard of 29th June last year, I said:
" Stansted has now reared its head again and I would warn the House that we are by no means through that battle ".
Perhaps if we probe enough we may be able to discover what part of the bureaucratic machine, wielding considerable power and intluence—we should never forget that—is determined to have a major airport at Stansted. After all, this is the third attempt.
In common with many other noble Lords, I have been following the evidence given at this inquiry, and what has really shaken me and given rise to what I am trying to convey to the House today is what Mr. Graham Eyre, QC, the independent inspector appointed by the Government, has had to say about evidence given by the Ministry of Agriculture in December last. I should like to interpose here a comment as to the high opinion of Mr. Eyre held by all with whom I have come into contact. What was worrying him about this evidence was that it was too limited and the scope most unsatisfactory. As a result, the Ministry of Agriculture is to make new surveys, the details of which I need not relate to the House.
But the Minister must be aware of all this. When he comes to wind up the debate today, will he tell us what reply the Government make to the comments made by critics last year that the Ministry had limited its evidence deliberately because, although it opposed the expansion of Stansted, it was bound by a Cabinet minute to promote the airport there? The noble Lord, Lord Trefgarne, will find this theme developed by the environment correspondent of The Times, Mr. Hugh Clayton, on 8th January. Having read that, I then read in the paper on 15th January—and I have not had time to check this—that the inspector has had further cause for concern. Perhaps I may just quote this; it is from The Times of 15th January:
" The inspector at the Stansted public inquiry complained yesterday that he had been placed in an intolerable situation by the failure of the Department of Transport and British Rail to produce a proper feasibility study for a new rail link from London to the proposed airport ".
If we are getting insufficient evidence or no evidence from Government departments to bolster this third attempt to have an airport at Stansted, I think that we should all be aware of it and I hope that the noble Lord will give us some information when he comes to reply.
In conclusion, I should like to remind the Minister that I have limited my remarks to three main sections: the financing of the British Airports Authority, airport charges in general and the financing of security charges, or the security levy, in other countries, and the inquiry into a third London airport. I hope that the noble Lord will deal with all three so that we may have a correct picture of the present position. That is the only way to correct misleading impressions, if indeed they be misleading.
7.50 p.m.
Lord Balfour of Inchrye: My Lords, I do not propose to say one word about airports, but I should like to be allowed for a few minutes to make some remarks concerning British Airways. The background to this increase of borrowing powers, as the Minister said, is world airlines going into the red and each of them trying
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to avoid a slow slide down to a state of bankruptcy. Every airline is losing money. So appropriate to this Bill is one fundamental question: how far will the exercise of these borrowing powers lift British Airways from being a big loser to a position of solvency, or would the exercise of these powers only increase the risk of raising British Airways' debt, and increase the inevitable crisis from which the corporation is now suffering. I have here the latest issue of British Airways' News. The words of Mr. Roy Watts are:
" The crisis is by no means over ".
It is worth considering whether this will help to restore British Airways to solvency; or might it possibly increase British Airways' indebtedness. Here I should like to associate myself with the noble Lord, Lord Ponsonby of Shulbrede, in his tribute to Mr. Roy Watts and to the organisation of British Airways. It is something to have reduced manpower from 58,000 to 43,000 this June without any great industrial upheaval. It is something to have increased pilot productivity by 12 per cent. It is something to have cut away the thoroughly uneconomic routes. It is something to their credit that new types of aircraft are on oder.
It must be said that British Airways Corporation has done its part in making an effort to try to meet the justified demand for low cost travel, but I say with all the force I can, and after some good many years in aviation, that low cost travel must allow a reasonable return on capital invested and at the present time that is not the position. As the noble Lord, Lord Trefgarne, said, even on the North Atlantic, which should be one of the most profitable routes, the combined airlines last year lost £340 million. British Airways themselves lost approximately £3 million. Here I should like to interpose one sentence. I believe that airlines have brought this very much upon themselves by their past conduct in the fat years. They exploited the public by international agreements, pools, operation of monopolies, and unjustified high levels of fares on closed routes. Now things are different. Even Laker, who did so much to break the high cost levels in the fat days, is now suffering and is in difficulties in maintaining solvency.
Last year British Airways lost, I think it was, £140 million. I think they are budgeting this year for a loss of £100 million. British Airways is responsible for about 80 per cent. of our civil air effort. Another 10 per cent. is represented by British Caledonian. There were £140 million lost last year, £100 million this year, but British Caledonian is still, I believe, just within the profit margin. Why this difference? It needs some examination.
Is the answer that big is not always beautiful in nationalised corporations? We have the example of British Leyland. With hindsight were we right to have followed the Edwards Committee in merging two small enterprises with profitable histories and smaller structures into one vast great organisation? In the air world of those days economic conditions were right for creating one single, grand structure, but unfortunately it has turned out a loser. I think with hindsight those in charge of aviation were right to have done what they did, but it has not worked out as was intended. It is a line of thought worth considering when we are offering borrowing powers for another £200 million.

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I hope that the answer to the fundamental question that I asked at the beginning is that British Airways will be restored to solvency and helped materially by this increase in borrowing powers. But the future alone can tell whether that is the positive answer, or some other answer on which I do not wish to dwell at all.
7.57 p.m.
Lord Trefgarne: My Lords, I am grateful that this debate has not been too strictly confined within the terms of the Bill before us, for it has thus allowed the Government, in particular myself, an opportunity to hear and note the views of your Lordships on a wide range of topics of interest within the civil aviation sector generally, as well as specific points about British Airways and the British Airports Authority. I shall endeavour to deal with as many points as I can. If time prevents me from dealing with all of them I shall certainly undertake to write to those noble Lords whose points I have not been able to cover, with as full an explanation as I can manage.
I shall run through the speeches broadly in the order in which they were delivered. May I first take up the point made by the noble Lord, Lord Ponsonby, about the privatisation of British Airways. As I said in my opening remarks, it is still most certainly our policy that British Airways should be privatised as soon as is ever possible. The noble Lord referred to this as a threat hanging over British Airways. It is no such thing. It will be a very good thing for British Airways when they eventually come into the private sector, as I hope they will in the not too distant future.
The noble Earl, Lord Amherst, referred first to the Government's position relating to the development of Stansted, and the noble Baroness, Lady Burton, raised this matter as well. The Government's attitude to the Stansted development has been made clear at the inquiry and by my right honourable friend the Prime Minister in a letter to the local Member of Parliament which has, I think, been published. Our preference is that Stansted Airport should be developed to meet the forecast growth of air traffic in the South-East. But other alternative sites have been put forward for consideration by the inquiry and the inspector has been asked to hear the evidence on these too and to take them into account in formulating his recommendations. If, having heard the evidence, he recommends development at another site, other than Stansted we shall of course weigh that advice most carefully before taking the final decision.
Perhaps while on the question of the Stansted inquiry I could cover some of the points, rather out of sequence, made by the noble Baroness, Lady Burton. She described a number of shortcomings, as she thought, with regard to the Government evidence being put forward to that inquiry at Stansted, and I would make two points on that. With regard to the evidence of the Ministry of Agriculture, I am not specifically briefed on the point to which she was referring, but naturally that Ministry will be delighted to provide the inquiry with further assistance when the inspector has called for it, and that, I imagine, is what they are doing. As for the unsatisfactory nature of some of the other evidence that was put forward, if that is what the inspector thinks,
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then doubtless that view will be reflected in his final report.
Baroness Burton of Coventry: My Lords, I interrupt the Minister simply to say that he surely does not think that what he has said is the slightest answer to what I was trying to convey to the House.
Lord Trefgarne: I listened carefully to what the noble Baroness said tonight, my Lords, as I always do. She is aware that the inquiry is proceeding at present and I do not think it would be right for me to go into greater detail than I have, because of the nature of the inquiry, of which she is well aware, but I shall return shortly to the other points the noble Baroness made. To revert to the speech of the noble Earl, Lord Amherst, who referred also to the question of the Perry Oak site which might be a site for a fifth terminal at Heathrow, that is of course covered at the Stansted inquiry and if there is merit in that proposal, doubtless, it will come forward in the report which the inspector will prepare.
It might not be entirely appropriate this evening to go into the philosophy behind the British Airports Authority's finances, a matter raised both by the noble Earl, Lord Amherst, and the noble Baroness, Lady Burton, but it is perhaps worth saying—I fear I have said it before to your Lordships—that the mere possibility of BAA borrowing substantially to cover current capital costs would not necessarily have any effect on the current level of charges. A properly conducted business organisation like BAA must depreciate its existing assets in accordance with current values. That is what they do and that is, thus far at least, the source of the majority of their capital funds.
The noble Baroness, Lady Burton, to whose speech I now come, also raised the question of the terminal charges on air fares, and I have discussed this matter with her across the Floor of the House before. It is of course the case that the longer the flight, the smaller proportion of total costs is represented by terminal charges. I do not have the figures in my head, but I shall, if I can discover them and write to the noble Baroness with them. I think that terminal charges on medium and long-haul routes account for about 5 per cent. of the total operating cost, although I would accept that the percentage is rather higher than that on short-range flights, particularly domestic flights within the United Kingdom.
The noble Baroness also asked for details of the freeze which BAA announced recently. The situation regarding BAA's proposals for their user charges is that their original proposal was that their charges, including landing fees, parking fees and passenger charges—we are not here talking of security charges, to which the noble Baroness referred, which are not specifically raised by BAA—should be increased by an average of 12 per cent. They now propose, however, to make no increase in those charges until April 1983 at any of their airports, and the effects on their costs (claimed by British Airways, for example, and I think those were referred to in the debate in the other place) are clearly no longer relevant.
My noble friend Lord Balfour asked particularly about the borrowing powers that we are granting to British Airways and he asked specifically whether I could give an assurance that these borrowing powers

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would restore British Airways to profitability. British Airways will need to do a number of things to regain profitability. One is to slim down the operation to make sure that their operations are more efficiently conducted than they have been in the past, most specifically with regard to manpower, and as at least one noble Lord said, British Airways have been able very significantly to reduce their manpower in recent months, and they are certainly continuing to do that.
The other arm of their return to profitability must be the acquisition of more efficient aircraft, particularly aircraft which use less fuel, aircraft which make less noise and are thus able to operate for a longer period during the day, and aircraft which carry in many cases more passengers. Among the aircraft which British Airways are in the process of acquiring is, for example, the Boeing 757, and the new borrowing which is being authorised for British Airways by this legislation and any orders which may be made under it will be used largely for those capital purposes, and I hope that reassures my noble friend about the purposes for which the funds will be used.
I hope I have covered the main points that have been raised this evening, maybe not to the total satisfaction at least of the noble Baroness, Lady Burton, who I hope will understand the constraints upon me with regard to the Stansted inquiry and with respect to the legal action to which I referred in my opening remarks. Doubtless there will be an opportunity for further debate of some of these points in Committee on the Bill, but as I said at the beginning of the debate, we are not dealing here with a major policy change. Indeed, the Bill is in itself, uncontentious and its main provisions are necessary and straigthforward. As such, I hope your Lordships will agree that it should now be read a second time. My Lords, I beg to move.
On Question, Bill read as second time, and committed to a Committee of the Whole House.

ECC Reports: Transport Policy
8.8 p.m.
Lord Kings Norton Lord Kings Norton rose to ask Her Majesty's Government whether they agree with the conclusions of the report of the European Communities Committee on Combined Transport (1st Report, H.L. 19), and whether they expect progress on the Common Transport Policy (43rd Report, 1977–78, H.L. 255).
The noble Lord said: My Lords, the immediate motive for this Unstarred Question is the publication of the report of your Select Committee on the European Communities on Combined Transport, which, in the terminology of the EEC Commission, is the transport of freight partly by road and partly by rail or inland waterway. The impact of the Commission's proposals on the transport arrangements of the Ten, whether or not amended before adoption, as your committee believe they should be, is not likely to be great and, in the case of the United Kingdom, would undoubtedly be small. Nevertheless, there are points of principle and equity involved in their drafting which your committee believe deserve your Lordships' consideration.
Further, the proposals represent a small step in the progress towards the formulation of what is called the EEC Transport Policy, a progress which, unless the noble Earl, Lord Avon, is able to tell us of recent moves, appears to have been singularly lethargic. After all, the transport policy looms nearly as large as the agricultural policy in the text of the Treaty of Rome and, fundamentally, appears to be of comparable importance. But it certainly does not loom nearly as large as the agricultural policy in the Community.
Your Lordships' Select Committee reported on the transport policy as long ago as July 1978, following an inquiry conducted by the noble Viscount, Lord Simon, who unfortunately is unable to be here this evening to take part in the discussion. The Select Committee concluded its report by recommending that it should be:
" as source material for any general debate on transport policy in Europe ".
Well, I would not describe tonight's discussion as a general debate, but the general issues involved in the development of the common transport policy do indeed provide the background to the much more detailed proposals on combined transport, and indeed before putting the detail of the combined transport issue before your Lordships, I should like to say a few words about the transport policy.
I think that it is fair to say that such progress as has been made is of two kinds: proposals, such as those of 1962, of a supremely general kind, under such headings as " Co-ordination of Investment ", " Liberalisation of Transport Services ", " Organisation of the Transport Market ", " Harmonisation of Competitive Conditions "; and proposals of a strictly practical character, such as those related to the quotas for road transport crossing frontiers, the lorry weights to axle loadings, tachographs, and delays to freight at frontier posts—a matter what I heard discussed recently, and with some feeling, in Strasbourg by MEP's of the European Parliament's Transport Committee. If I may at this stage insert a purely personal opinion, it is that we are likelier to achieve positive results by resolving such relatively minor but definable issues than by attempting to codify the pious generalities.
As a result of an exchange between the Council and the Commission, the latter was persuaded in 1977 to issue, in the form of a draft resolution, a list of priority actions to be taken by 1980. Abbreviating the list, which is given on page xvi of the Transport Policy Report of your Lordships' Select Committee, we have:

(a) developing a coherent Community infrastructure by strengthening procedures for national authorities to consult each other about future national investment plans;

(b) agreeing a common tax structure for commercial vehicles;

(c) adopting uniform principles for calculating railways' costs;

(d) promoting competitive marketing arrangements for inland shipping and road transport, in particular by agreeing the Commission's proposals for opening up the international road haulage market by extending the Community quota and establishing maximum permissible weights and dimensions of commercial vehicles;

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and, finally,

(e) defining appropriate Community measures including rules of competition for ports, maritime shipping and civil aviation.

Can the noble Earl who is to reply tell your Lordships whether anything has happened as a result? So far as I am aware, the Council has done no more than " take note " of the Commission's programme. Certainly a lot of it is still in the area of acceptable, though difficult-to-implement, generality, but the bits about permissible vehicle weights are in the area of practicability, have long been the subjects of discussion, and have been dealt with in the Armitage Report. So the noble Earl may be able to inform us of some progress.
It is in this area of practicability that the modest proposals on combined transport lie. The inquiry into the draft directive and the draft regulation was conducted by Sub-Committee F of the Select Committee concerned with energy, transport, research, and technology, and the sub-committee heard evidence from the Department of Transport, the British Railways Board, the Road Haulage Association, the British Waterways Board, and Mr. Gabert, MEP, a member of the Transport Committee of the European Parliament; and they had written evidence from the Union of Industries of the European Community and from Novatrans (Europe) Limited.
I think that it would be most convenient if I deal first with the straightforward case of the draft regulation. This enables member states to grant financial aid from national exchequers to combined transport facilities without breaching the Community competition rules. Such expenditure would be discretionary. Community expenditure would not be involved. Neither the Department of Transport, nor your Lordships' Committee, saw any objection to this draft measure. However, I have heard from the Secretary of State for Transport that at their meeting on 15th December last, because of the reservations made by one member, the Transport Council was unable to adopt the proposed regulation.
And now for the more complex case of the directive. For the purpose of the draft directive, " combined transport " means the carriage of goods by a unit of equipment which can be transferred between different means of inland transport—rail, road, and waterway. Transport by sea is excluded. The units of equipment contemplated are lorry, trailer, semi-trailer or their swap body (it I may be technical) or container. An impediment to the full use of combined transport as envisaged by the Commission is the fact that the loading gauge of British Rail is different from the loading gauge in use on the Continent.
I have discovered that some of your Lordships are not quite sure what the loading gauge is. The track gauge, 4 ft 8½in, is the same on the Continent as it is here, but whereas we have the tunnels, platforms and space between tracks limiting the trains to those which can pass through a space 13 ft high by 9 ft 3 in wide, the corresponding limit for continental trains is 14 ft ½ in high and 10 ft 4 in wide. So while, given a cross-Channel link, a British train could run on Continental tracks, a Continental train, unless specially constructed for use in the United Kingdom, could not run on British rail. What is more, in the context of
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combined transport a British lorry, with which I would include trailer, semi-trailer, and swap body, cannot be carried by train in this country, though it can be so carried on the other side of the Channel. That is one of the reasons for the container system which has been so highly developed in the United Kingdom.
The objective of the proposed directive is to reduce the volume of road traffic by making greater use of the carrying capacity of the railways, and it seeks to achieve that aim by tax concessions on road vehicles involved in combined transport. The Commission argues that a substantial portion of present road traffic should, by its proposals, be transferred to combined transport, but the likelihood of this happening is indeed really small. The sub-committee learned that less than 1 per cent. of inland freight transport in the community used combined transport and that even the Commission, optimistic about its incentives, did not foresee a growth beyond 5 per cent. The effect of the directive in this country would be much less. In our report we go into the financial implications in some detail and conclude that by implementing the directive, as at present drafted, the tax relief would be trivial in amount and too small as a proportion of overall freight costs to be a worthwhile incentive.
If the draft directive is taken further, however, and if there is a real chance of some such set of proposals being adopted by the Council of Ministers, then certain amendments are essential. First of all, if we have interpreted the not unambiguous wording correctly, the directive, as at present drafted, encourages the carriage of lorries by train and discriminates against containers. In so far as containers are considered for tax relief, it is for a period of five years only; and ultimately the only advantage to British carriers would accrue if their lorries were carried on trains on the Continent. From the British viewpoint it would be necessary to insist that the final taxation system treated lorries and containers on equal terms. Our container system is highly developed, and could be still further improved. It must not be put at a disadvantage in competing with (to use the current jargon term) the piggy-back lorry, the lorry carried on a train.
Secondly, the proposals give only half-hearted support to inland waterways, which, our British Water-ways Board argued, should be treated comparably with the railways, and your Committee are sympathetic to this view. Quoting our report:
" the Committee do not expect that this extension of the scope of the proposals—already suggested by the European Parliament—would make any detectable difference to road traffic in the United Kingdom, but it would provide a small boost to the waterways and would be fair ".
From the United Kingdom point of view a far more important omission from the proposals is maritime transport. The Commission did not forget it, but proposed to delay consideration of measures to incorporate it. This is perhaps of no great consequence to mainland Europe, but in the context of combined transport it is of great importance to the United Kingdom; and the Commission proposals bringing in sea transport, when they come, may affect profoundly the choice between containers and lorries. The committee firmly believe that in its final form the directive should cover sea transport. Roll on/roll off transport of road vehicles on ferries should not, however, be regarded as

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combined transport. If it were, the tax incentives would have the effect of encouraging road traffic, not discouraging it.
Combined transport considerations would, however, be very relevant to the design of a cross-Channel link involving in whole or in part a tunnel. The choice of loading gauge would decide whether or not lorries would be carried across the Channel by rail.
Your Lordships' committee concluded that if the proposals were enacted without amendment they would be moderately harmful to British Rail and to the development of the container system in the United Kingdom. In the long run they might encourage rather than discourage road traffic in the United Kingdom, especially for the first and final sections of long-distance trans-Europe lorry journeys. The committee suggest that the proposals should be amended to give equal treatment to piggy-back lorries, containers and water transport. With such amendments there would be some modest advantage, though not enough to reduce substantially the proportion of freight traffic on the road network.
The committee retain doubts whether the whole exercise would be worth the trouble and cost of administration, especially of the proposed tax concessions or rebates, and suggest that the practical problems arising should be more thoroughly examined before any such proposals are approved.
8.24 p.m.
Lord Underhill: My Lords, I am certain your Lordships will be grateful to the noble Lord, Lord Kings Norton, for asking this Question; for explaining the work of your Lordships' committee and the conclusions arrived at; and for putting them forward (if I may say so with humility) in such a clear way that even a person such as myself can understand fully what is involved in the proposals. It would seem to me that the objectives of the Commission are admirable, but, as the noble Lord has pointed out, at the moment, even in the Community as a whole, only 1 per cent. of all inland freight transport uses combined transport, and even the Commission's own aim is only that it might achieve 5 per cent.
I find that I am in agreement with the committee's view that the overall effect of the proposals as they stand could be to encourage the use of piggy-back lorries and discourage the use of containers. Therefore, the proposed tax reductions, which are the incentives for the development of combined transport, would mean that a British lorry could travel piggy-back on continental rail but not in Britain. I noticed the statement of British Rail—and I quote:
" this island would just become a road delivery and collection area for the piggy-back system in Europe ".
The noble Lord, Lord Kings Norton, has detailed the conclusions of the committee, and without going over them again I would say that, on the report and the evidence presented, in general I not only agree with the conclusions of the committee but I also find myself in general agreement with the proposed amendments that the committee feel should be made to the draft directive. I must say that the committee's view that (and I quote again)
" The actual proposals pale beside those grandiose claims "
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which were made in the directive seems to be borne out by the report; and it would appear that so far as the United Kingdom is concerned, it could be much ado about nothing.
I am very grateful to the committee for subjecting the proposals to such detailed consideration and for the way in which they have exposed the weaknesses in the draft directive and have indicated the amendments that should be made if the directive is to be proceeded with. I am particularly pleased that the committee paid such attention to the wording of the draft directive with regard to reduction or exemption of taxation, as this is the incentive for the development of combined transport. The Commission has declared that no member state must give any relief from fuel duty, and as far as the United Kingdom is concerned it can apply only to relief on vehicle excise duty. Therefore, it is important, I believe, as the committee have stressed, that the actual wording of the taxation proposals should be precise.
Another reason is that the European Assembly have proposed that taxation relief should be made compulsory and not discretionary, as is proposed in the draft directive; and also that the directive should include provision for taxation relief for vehicles used only occasionally for road haulage, as defined in the draft directive.
The noble Lord, Lord Kings Norton, referred to the evidence of Mr. Gabert. I noticed that he also supported the proposal that there should be equal treatment for combined transport, whether used for road and rail or for road and inland transport. That was the view of your Lordships' committee, and it is the view which I also support. I must say that in view of the length of the inland waterways that there are in some EEC countries, I have found it rather difficult to understand why help for waterways should be confined to transport of containers. It seems so logical to me that there should have been the extension as proposed by your Lordships' committee.
It seems that the objective of the draft directive appears to have been looked at through continental eyes. There we have long distances and we have the frequent crossing of frontiers, all of which would seem to make combined transport beneficial in those countries. I note that Mr. Gabert claimed that combined transport decongests roads and contributes to the reduction of expenditure on road building and to the protection of the environment, and assists road safety. But when Mr. Gabert was asked whether he thought that combined transport would have a very small effect in reducing road congestion in the United Kingdom, I find that he replied that he could not say what would be the effect in Britain but it would have a strong effect in continental Europe. That seems to bear out what I have said, that it was being seen through continental eyes.
Mr. Gabert also expressed the view that the proposals would be important for Britain with regard to containers. But I note that your Lordships' committee accepts the British Rail criticism that the investment required to secure limited increase in container traffic would not be justified, particularly as tax relief would end after five years. I support the view of your Lordships' committee that the transport of containers must be given comparable advantages

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to those proposed for piggy-back lorries. From the evidence, I note that the evidence presented by the Road Haulage Association and that by the Union of Industries of the European Community are somewhat similar. They take the view that the use of combined transport should be encouraged on its merits alone and not be specifically used to achieve transfer of freight from road to rail. Nevertheless, they would approve minimal assistance on specific projects to assist the development of combined transport, but would not approve grants or subsidies on actual operations.
I note that the Road Haulage Association pointed out in their evidence that operations in Germany are limited by regulation rather than by market forces, that the number of road permits is severely limited, has not been increased for some years and that this is intentional to protect the German rail system. Then I note Article 4 of the draft directive which states that member states have to ensure that carriage by road as part of combined transport operations shall not be subject to any quota system or other quantitive restriction affecting access to the market. At present the Germans would appear to contravene that particular article.
I thought that the memorandum of the Department of Transport was particularly helpful in explaining the whole of this issue. I thought it an excellent memorandum. Paragraph 8 of that memorandum states that the draft regulation would amend Regulation 1107 of 1970 which provides that member states may give aid during research and development stages of any new transport systems and techniques and that such aid is not in breach of Article 92 of the Rome Treaty. The memorandum also states that adjustment to the 1970 regulations would be absolutely essential if member states are legitimately to continue their support for combined transport.
Then we find British Rail evidence, which I am certain we have heard in other debates, but which I will quote. It says:
" We are the only European rail whose freight business has to be commercial and cover its total costs; every other European rail system is supported by some form of governmental aid, and road haulage is restricted. Neither of these things is present in this country ".
In view of that statement and the known level of governmental aid to rail in most European countries and the similar help given to public transport in most of their capitals, far in excess of that which applies in the United Kingdom, I wondered how all this fits in with the Treaty of Rome. Therefore, in this connection, the second part of the Unstarred Question put down by the noble Lord, Lord Kings Norton, which raises the whole question of the European common transport policy, is important.
So I re-read the 43rd Report which, as the noble Lord has said, was issued in 1978. I find that page 10 sets out a number of EEC articles which deal with the common transport policy and the circumstances in which there might be state intervention in transport and also the provision of state subsidies. I am certain that your Lordships will agree that at this stage it would be wrong to reopen the debate on the 43rd Report which has been debated previously by your Lordships. However, I am sure that it will be interest-
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ing to learn of the Government's view on the common transport policy. I note that the Committee under the chairmanship of the noble Viscount, Lord Simon, explained that they recognised that what seemed sound in theory often proved in practice difficult to implement.
I noted in paragrah 46 of the report, that that committee while supporting the principle of a non-discriminatory and competitive market, also call for the exercise of common sense and realism in the measures taken to promote it. They believe that at present too much attention is being paid to " fair competition " at the expense of reaching agreements on specific matters such as construction and use regulations. I wonder whether the Government agree with the statement of your Lordships' previous report and whether that is the Government view at present. It is interesting to note that Article 9 of the draft directive proposes that every two years the Commission shall draw up a report on the development of combined transport as far as the application of Community laws is concerned. That will obviously bring up the whole question of the common transport policy, the whole question of the subsidies and the policy which is carried out at the moment by most of the European Community countries in contravention of the articles of the treaty.
Mr. Gabert was asked if he could elaborate on what the United Kingdom Transport Minister had told the European Committee on Transport when it was discussing combined transport. He replied that the British Minister and other Transport Ministers were very much in favour of the directive and the regulation to provide for combined transport. Then, in reply to another question, he said that the British Minister made no reservations. It may be that Mr. Gabert's statement was not in full accord with the facts. But, if it was, then I am surprised, in view of the reservations and the criticism made by witnesses on behalf of the Department of Transport, that our Minister did not make reservations and criticisms when this matter was being discussed in the Transport Committee of the Community.
My last point is on the question of the Channel tunnel raised by the noble Lord, Lord Kings Norton. This matter was drawn attention to by the committee. In their evidence, British Rail point out that their agreement with their French Rail counterparts is for a six-metre tunnel and they suggested that their French partners are luke warm to piggy-back transport generally whereas Germany is extremely enthusiastic. I readily understand the view of both British Rail and French Rail that so long as there is only a single tunnel, even if it is a larger one of seven metres, it would have to be confined to conventional rail traffic. It has been stated elsewhere (not in this report) that a larger tunnel of seven metres, instead of six metres would involve only an additional £75 million in costs.
I have no brief as to whether it should be a 6-metre or a 7-metre tunnel. But I would ask the Government to accept that in view of the possible development of combined transport and the fact that provided there are suitable amendments made to the directive there are possibilities of development, then urgent consideration must be given to the size of the tunnel. This should be considered by the Government, who, I understand, are going to make an early

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decision on the tunnel. This question should be considered as a matter of urgency alongside the principle of combined transport.
8.40 p.m.
Lord Sherfield: My Lords, I should like to add my thanks to the noble Lord, Lord Kings Norton, for putting down this unstarred Question. He is my successor as chairman of the relevant sub-committee of the Select Committee. I started off this report on combined transport. I handed over to him what I hope was not too poisoned a chalice, and he has brought the report before your Lordships' House.
It is a long time since there was a debate on European transport policy in your Lordships' House. A cynic might say: " This is because there ain't no such animal to discuss ". There is more than a grain of truth in that. In the Treaty of Rome, transport policy covers transport by rail and road and on inland waterways. Sea and air were to be included at the option of the Council. This was a limited start and the preoccupation of most member Governments with the financial subventions needed for their railways was the dominant factor in the formulation—or perhaps one should say the non-formulation—of a common transport policy.
Viewing the situation from a United Kingdom standpoint, the existence of the Channel ensures that, so far as rail and road transport are concerned, the United Kingdom's interest is a special and in some degree a peripheral issue. In the event, the history of the attempt to develop a common transport policy is that of a series of surges instigated by an active commissioner or member of Council followed by a period of reflux in which the problem has merely been tinkered with.
The first surge occurred before United Kingdom membership, when in 1961 the then Commissioner Schaus made a very creditable effort to get a common transport policy going. It led to the adoption of an action programme in 1962. But this petered out and only a few modest directives were agreed. The next surge was a British initiative in 1977, when Mr. William Rodgers, during a United Kingdom presidency, put forward, as chairman of the Transport Committee, a paper, Common Transport Policy Objectives and Priorities. This initiative was translated by the Commission into a communication outlining the priorities for action with an appropriate resolution attached.
However, in the event, the resolution was never adopted and the Council merely took note of the proposal. It was about this time that the Transport Committee of the European Paliament began to put pressure for progress on the Commission and the Council, and it was also at about this time that your Select Committee came on the scene and, in August 1978, produced a report on transport policy. I remember it well, as I joined the sub-committee halfway through the work and was impressed by the very considerable difficulty experienced by the chairman, the noble Viscount, Lord Simon, and the committee in hammering out a report from some pretty unpromising material. This report has been left on the shelf until tonight, when it is on your Lordships' agenda. Eventually the Council approved an improved consultation procedure, exchange of information and the like,
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relating to transport infrastructure projects. But by and large in the transport field the EEC went back to tinkering with the problem, and their main concern, as the noble Lord, Lord Kings Norton, has pointed out, was in relation to commercial vehicles, road transport, and transport bottlenecks.
A third surge occurred in 1978 when the Irish Commissioner Burke produced a Green Paper on community transport infrastructure. This was followed by discussions in the Commission and the Council. It was the intention of your Select Committee to scrutinise the relevant documents at this time, but, fortunately or unfortunately, the newly-formed transport committee in another place shot your Lordships' fox.
In its report on the Green Paper and on the action in it recommended to the Council, the enthusiasm of the committee in another place was noticeably restrained. On the Green Paper itself, the verdict was, " Though short, it was vague and depressingly difficult to read, and its arguments were tentative and uncertain ". On the basis of it, the Commission proposed yet another action programme and put forward a specific proposal for a financial regulation under which finance could be made available for infrastructure projects which had a " community interest ", though this phrase, " a community interest ", was not very clearly defined. The other place did not think much of this regulation, which as usual applied only to rail, road and inland waterways, and concluded that without its extension to airports, and ferries, it was of little interest or advantage to the United Kingdom.
The committee in another place was principally concerned—perhaps unduly concerned—with calculations as to the immediate financial advantages or disadvantages of various proposals to the United Kingdom—" the nicely calculated less or more "rather than with the importance of a long-range improvement of the European transport infrastructure to the Community as a whole and particularly to the enlarged Community. But in its initial form the regulation was no doubt too restricted and it contained some questionable proposals for assistance to non-Community members in order to assist Greece, which the committee in the other place—quite rightly in my view—advised the Government to resist.
The Ministry of Transport, and some other organisations which gave evidence on that occasion, while agreeing that the regulation needed amendment and that wider coverage was required, were favourably disposed towards the Commission's initiative. However that may be, the outcome of all this palaver was, first, that Her Majesty's Government replied in a White Paper to the report in another place in a positive way and the Commission produced a further report on transport bottlenecks. But today, as I understand it, that financial regulation, after three years, still lies on the table. No proposals for the extension of the resolution to ferries, docks, sea and air transport infrastructure have yet been produced, and the whole initiative on transport infrastructure appears to be stalled. Perhaps the Minister can throw some further light on this matter.
Against this background, last year's directive and regulation on combined transport, the subject of the

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second report before your Lordships' House this evening, appears to reflect a return to tinkering with the problem. I shall not say much about it. It has been well covered by the noble Lords, Lord Kings Norton and Lord Underhill. So suffice it to say that it has all the hallmarks of earlier initiatives—a preoccupation with rail and road as opposed to sea and, in this case, even inland waterways. Since piggy-back " is widely used on the Continent, it is heavily weighted in favour of " piggy-back " and against container traffic. These difficulties could, as the report points out, be easily overcome by amendment and would make the proposals quite useful, though the scheme would be costly to administer. The whole proposal seems to me to lie at the margin. In any case, as the noble Lord, Lord Kings Norton, has stated, the regulation has apparently been thrown out by the Council, though presumably discussions on the phrasing of the draft directive will continue.
However, it is easy enough to make critical and " knocking " speeches about the EEC's achievements in the formulation of a common transport policy, but the criticism, at least of the Commission, is not perhaps fully deserved. Comparisons are often drawn—the noble Lord, Lord Kings Norton, referred to them—between progress on the common agricultural policy and progress on transport policy, to the detriment of the latter. But, apart from the fact that both cover large areas of national and international policy and share certain exemptions in the Treaty of Rome from the strict doctrine of liberalisation and the free movement of goods, they are not in my view really comparable. We have already seen that the transport provisions in the Treaty of Rome, however extensive, were in effect, weak and restricted; and the Council of Ministers has certainly not felt the incentive to reinforce and liberalise them. Nor has it accepted the Commission's proposals for some Community financial support.
However, some progress at least has been made in certain areas, and if not much advantage has accrued to the United Kingdom this is partly the result of geography. It may be our misfortune that our railway gauge is different from the gauge on the Continent, but that is hardly the rest of Europe's fault. We have, I suggest, to try to take a broader view, as indeed it seems the Ministry of Transport does endeavour to do, and to judge the effect of particular measures on the welfare of the Community as a whole without expecting too much short-term advantage for the United Kingdom. But, as in the case of the present limited proposal under discussion, these measures, to be acceptable, should be non-discriminatory, and applicable to all forms of transport and to all devices for the transport of goods. Your Lordships will be looking forward to the Minister's views on all this.
8.53 p.m.
The Earl of Bessborough: My Lords, I, too, should like to thank the noble Lord, Lord Kings Norton, for asking his Question and for the manner in which he has presented the opinion and conclusion of the committee. I agree with the opinion of the committee and its conclusion. My remarks will be very brief because most of the arguments which I would have propounded have already been very ably propounded by
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the noble Lords, Lord Kings Norton, Lord Underhill and Lord Sherfield.
None of your Lordships could complain, I think, that I am not a good European and a supporter of a number of Commission proposals, but in this case I cannot urge the Government to support the directive which we are at present discussing. I am certainly generally and in principle in favour of a common transport policy in the EEC. Indeed, as the noble Lords, Lord Underhill and Lord Sherfield, have said, it is written with limitations into the treaties and therefore there should be a common transport policy just as there is a common agricultural policy, although I see very clearly that they are different. Nonetheless, it was written into the treaties. But, having said that, I cannot support this directive.
In regard to the directive proposal for a system of tax reductions for road vehicles proportionate to the distance for which they are carried by rail and tax exemptions for road vehicles which are solely for road haulage, as defined in the directive, in these cases the difficulties of administering such a system, which may appear to be obvious, seem to me to have been inadequately considered.
Then in so far as combined transport in the United Kingdom is concerned, I should emphasise that this consists mainly in transport by containers, and it would be certainly advantageous to this country if the system could be improved and developed. Greater use of containers would be encouraged if systems of locating them in transit and for reducing delays could be improved. Quality of service is, by common consent, a very important factor in the choice of methods of goods transport.
Finally, I should like to stress the special situation of the United Kingdom in the way in which other noble Lords have already done. This country is in an altogether different position from other EEC countries with the possible exception of Greece, which is not contiguous with any of the other member states. As the noble Lord, Lord Kings Norton, implied, maritime transport in particular should be given full consideration when transport policy is discussed. The fact that British Rail cannot carry lorries by the piggy-back system must also not be forgotten—a point which is especially important in any proposals for encouraging combined transport.
Therefore, while I am in favour overall of an EEC transport policy, I hope that in the Council of Ministers Her Majesty's Government will not support the directive even if perhaps they might, in my view, accept the regulation—a regulation which unfortunately has not been accepted by one particular member state. I hope in consequence that the Commission will be asked by the Council to look at the directive again, taking into consideration the special situation of the United Kingdom. I fully support the opinion and conclusion of the Committee and I congratulate the noble Lord on his presentation of them.
8.58 p.m.
Viscount Sidmouth: My Lords, as has been pointed out this evening, Article 3 of the Treaty of Rome called for a common policy, first in agriculture, admittedly, but secondly in transport. It made clear that progress towards these objectives was of the essence in building up the Community. So far there

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has been progress in agriculture but very little in transport, and many feel that the future prospects of the Community are threatened both by the over-emphasis on agriculture—for example, its over-importance in the Community budget—and the failure to evolve any sort of policy on transport.
A study of the Select Committee report on EEC transport policy shows that there have never been any doubts about the economic importance of a transport policy. Indeed, though classed as a service industry, transport is demonstrably a critical element in the whole process of production and distribution which constitute modern economic activity. It is on the political side that failure to agree arises, probably because of the heavy commitments of the Governments themselves in the transport field, where they have vast investments in both roads and railways. I am inclined to think, too, as the noble Lord, Lord Underhill, said, that the commitment of governments in the way of national aids in the transport field is also a stumbling block to progress which will have to be removed. It is doubtful whether any real progress will be made within a reasonable time limit until the principle of unanimity is set aside, presumably in favour of a voting system such as that set out in Article 148 of the Treaty. This procedure is, in fact, already provided for in Article 75(1) of that section of the treaty which deals with transport.
In his evidence to the Select Committee in May 1977, the then Minister of Transport said:
" All discussions on transport policy tend to start, and end, with the railways ".
Historically he may well have been correct, but in this 20th century it cannot be right. Just as the 19th century saw the rise of the railways on cheap coal, so the 20th century saw that of the internal combustion engine on cheap oil. At present within the EEC, road transport dominates the movement of freight, as indeed it does that of passengers. This is particularly so in the United Kingdom, as has been pointed out by other speakers, where out of the 1979 total of ton-miles worked, including coastal shipping, road was responsible for 65 per cent. as against 12·5 per cent. for rail. Road transport is not necessarily cheaper than rail in real terms—indeed, the Armitage Committee found that the average costs per ton-mile by road are five times higher than on railways—but it is far more convenient and thus is seen to be more cost-effective.
But as the 21st century approaches, is this pattern going to continue? The era of cheap and abundant oil is probably nearing its end, and the next century may well be that of electricity which can be generated from various sources, including alternative ones which are now being developed. This process might well change once again the basic economics of transport. Then, again, there are environmental problems arising from congestion and pollution, as a recent report about what is happening to Germany's forests helps to remind us.
This report of the Select Committee on the European Communities makes it abundantly clear that the need for a common transport policy is widely accepted, both in the Commission and in the European Parliament. It refers to the many attempts that have been
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made to define the objectives, all of which have failed to find acceptance by the Council. Quite rightly, it points out that, because of the political situation, there has been a lack of the instruments through which a policy could be implemented. Instead, there has been a trickle of minor regulations which are generally referred to as " small steps ".
Turning now to the Select Committee's report on combined transport, this arises, as has been said, from proposals put forward by the Commission in the form of a draft directive and a draft regulation, which aim at giving certain economic advantages to various forms of combined transport, of which that known as " piggy-hack "—that is, the trunk haulage of a lorry by rail or inland waterway—is apparently the one most favoured by the Commission. The report points out that the proposed tax rebates would be difficult to administer and probably not very significant in effect.
More importantly for this country, the railway loading gauge—that is, tunnels, bridges, gantries and, to some extent, platforms—precludes piggy-back " for lorries on ordinary flat wagons. Thus, even with a direct rail link to the Continent, increased " piggyback " as far as the Channel might well mean more lorries making their way through Kent by road. To adapt even one rail route to London—and British Rail have three rail routes from the Channel to London—to the continental gauge would cost perhaps £50 million and pro rata beyond London. In general, " piggyback " seems better suited to the very long hauls available in the USA and Canada, where it has become quite significant.
But, in saying that, I am sure that the noble Lord, Lord Underhill, is right in drawing attention to the importance of the loading gauge in the direct rail link Channel Tunnel, in that it would be inexcusably short-sighted to build it to the British Rail loading gauge—the restricted gauge. Seeing that this is a long-term project, we should undoubtedly be condemned as being short-sighted if we did not build it to the full continental gauge. That might raise some problems about funding—I believe that it would add about £100 million to the cost of the single-bore—bu, that would have to be faced as an essential part of the scheme.
However, before leaving combined transport, there are other forms of combined transport that are mentioned in the report which could be very important for this country. British Rail have made considerable progress with containers, and their Freightliner trains and depots now handle some of the less-than-wagon load traffic which has otherwise been lost to road. It is worth pointing out that private road transport has access to Freightliner depots, and indeed 40 per cent. of the traffic carried in that way comes in by private transport. This mode should certainly be encouraged for international traffic, as should the caisse mobile or swap-body, also mentioned in the report, which notes that it is making headway on the Continent.
With respect, I would disagree with what the noble Lord, Lord Kings Norton, said. This is not a trailer. It is a demountable body and, in fact, the last page of the report shows a diagram of a caisse mobile which is capable of being transported over the present British loading gauge. I am sure that it is has great advan-

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tages because, like most modern lorries, it is capable of being side-loaded with pallets, which of course you cannot do with a container, which is like a box-body. I think that this mode is something which should also be encouraged.
Reference is made in the report to inland waterways, which are very significant in Europe. The phenomenal rise of Rotterdam as a port has been one of the main features of European transport since the war, and the Rhine has played a great part in this. Quite recently I had the opportunity of observing the traffic on the Rhine and the Danube, and also to travel over portions of the great canal which the West Germans are building to connect the two. So far as this country is concerned, the only form of combined transport which would be significant to the waterways would involve a maritime clement, in the form of barge-carrying vessels. These could, for example, connect cities served by the new works on the Trent, which are in progress, with the North Sea and so with Europe.
Probably the most valuable part of these reports is that they draw attention to two important policy matters: the need to facilitate traffic between members of the Community and the suitability of rail transport for this purpose. On the first point, our Minister of Transport is quoted in the 1978 report as saying:
" As regards road freight transport, at present some 94 per cent. of intra-community movements are carried out under bilateral arrangements between the Member States, and only very limited categories are entirely free from quota and authorisation arrangements ".
This is far removed from the more liberal régimes envisaged in the Treaty of Rome and, indeed, already prevailing to a degree on the Rhine and Danube where I have seen for myself the varied national flags being flown by the barge trains.
At page 42 of the report reference is made to what, from experience, I believe to be a major source of restriction and delay in intra-Community transport; namely, customs. Obviously, it is up to the sender to do his homework and ensure that his documentation is correct, but there is still a degree of inflexibility and inertia built into the system which acts as a most unwelcome brake on such traffic. One might perhaps illustrate this by saying that senders often prefer to consign by road simply because a driver travels with the lorry, and it is well-known that they have strong views on delays far from home and forceful ways of expressing them. By contrast, a rail container stuck at a port or frontier point on some technicality can be delayed for a week or very much more. I believe that combined transport by rail could help substantially in easing this situation by making possible through transport to inland depots away from the concentration of traffic so many ports provide.
Finally, reference has been made to the Channel Tunnel. I believe that a study of these reports brings out the relevance and the urgent need for a direct rail link between this country and the Continent. This project has been identified by the Commission as being one of those capable of removing a bottleneck and so of being of great benefit to intra-Community transport. In consultation with the French, the Minister is currently considering several schemes and it is greatly to be hoped that he will come to a decision at an early date. In doing so, he will no doubt take into account that on the evidence of these reports
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the rail link is the priority element, and on grounds of cost the scheme put forward by British Rail and their associates is by far the cheapest. It also involves no unfamiliar technology and so could be put in hand and completed in the shortest time. International traffic, because it is on average long-haul, is inherently suitable for rail and yet at present, for the lack of a link, only 2 per cent. of all British Rail traffic is in this category as compared with 62.8 per cent. for Italian railways, 38.8 per cent. for French and 22.3 per cent. for German. A cross-Channel rail link would thus enable British Rail to compete for traffic which they can win on cost while at the same time, by the appropriate use of combined transport, retaining the convenience of road transport for collection and delivery. This I believe to be the most important point for this country arising from the debate on these reports.
9.12 p.m.
Lord Lucas of Chilworth: My Lords, I take part in this debate in the certain knowledge that I cannot be very far from other people's views. Certainly I endorse nearly all that the noble Lord, Lord Underhill, had to say. I, too, agree with the conclusion contained in the report of the Select Committee regarding combined transport. I might go a little further. In paragraph 41 they say that if the proposals were enacted they would be moderately harmful to British Rail. I believe that they would be more than moderately harmful. I believe that they would prove to be totally disadvantageous to British Rail.
The proposals are, of course, laudable in that they seek to reduce the volume of road traffic, to improve safety, to give rise to energy savings and so on. Those are all aspirations which anybody in the transport field wishes to meet. But the reality of the matter seems to me to force a subscription from Community Members to European railway systems, with little or no advantage to the United Kingdom. As has been pointed out, the European countries have less flexibility regarding transport modes and considerably more control as to direction on to State-run railways. We take the opposite view. We take the view that railways should be operationally self-supporting. That they are not so is sad. Nevertheless, we take this view. Our European colleagues take the alternative view, and I can see no justification whatsoever why, by a somewhat indeterminate (at this stage) tax reversion scheme which lasts for only five years, we should support that kind of view.
It seems to me that the general argument laid down in the proposals is very similar to that which has obtained in this country since the end of the First World War—the fact that more traffic must be moved from road to rail. We do not take the view that it must be forced that way. We take the view that there should be equal opportunity for the consumer to choose, and I think that is right. In fact, the evidence in paragraph 75 on page 21 and indeed our own independent report contained in the Armitage Committee Report, suggests that, even were rail able and willing, in this country or in Europe, to accept all the traffic that was available that they would wish to compete for on equal terms and would wish to carry, the net result would be insignificant in terms of meeting the laudable objectives of reducing road transport,

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improving safety and so on. If we are to get a combined transport system as the Select Committee so describe it, I believe that, first of all, we have to ensure a relaxation in the present permit situation.
It is really ludicrous that, for example, the French and the Germans will for each " piggy-back " transaction undertaking give another free permit. In unparliamentary terms, that is just straight blackmail. That is all that is. That is a situation which looks after one's own. That we do it is because we play cricket by the rules. That is the blunt fact of the matter. We should not subscribe to a system that prevents a free transport system. Some hauliers do indeed subscribe to this " piggy-back equals one extra permit " system, but the delays in delivery—the transhipment delays—are quite appalling. Until the termini, whether they have to be in the United Kingdom or in Europe, are sufficiently equipped with the machinery and the manpower, and have the modern expertise, there is just no point in transhipping. The few occasions when it is worth while are where the service element of delivery falls to a low level. Indeed, it was the noble Viscount, Lord Sidmouth, who made this point about the cost element. The cost element is one part only; it is the service which comes into this all-embracing phrase, " cost effectiveness ". From our point of view, as soon as we accept that the delivery, whether it is by road or rail, is merely an extension of the production line and that we have to get the goods to the market in the fastest time (and not always at the cheapest cost) I believe we shall be able to accept the value of a combined situation.
The haulage industry subscribed to this view, and their evidence is in paragraphs 88 and 89. What we have to do is to remove the current restrictions on permits and, again as the noble Viscount pointed out, the inextricable maze of difficulty, which results in delay, over customs. This really is appalling, and I do recall having the privilege of serving on one of your Lordships' scrutiny committees on trade and treaties some four or five years ago, when we examined the arrangements for customs clearance. We do not seem to have got any further forward on that. In fact, not to put too fine a point on it, the French—and to an extent, the Italians—are past masters at holding up pieces of paper. Normally in your Lordships' House one does not phrase one's expressions quite so bluntly. But one might just as well when looking at draft regulations and a draft directive which would be of a good deal of concern to us. What I am really trying to say is that I believe that the proposals put the cart well before the horse. Herr Gabert's evidence and discussions with the Committee suggest that there is an esoteric hope in the proposals but very little realisation of the effectiveness of them.
I believe that we should move to a more flexible system of moving goods and people, through the relaxation of permits, customs, and so on and so forth. That will then provide the market demand for additional services. Whether it is " piggy-back ", whether it is " swap-bodies ", whether it is different types of containers is at this time totally immaterial, because the marketplace itself will demand that which shall be supplied. That demand will then put upon the Community the responsibility of finding ways and
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means of producing the answers to the need. That is what I believe we need to do.
So far as the tax suggestion is concerned—and the Select Committee point this out quite clearly—it is so infinitesimal as to be almost unworthy of further consideration. I believe that the Union of Industries of the European Community in their paper to the committee say it all; I think they sum it up. In their paragraph 2 on page 57 they say:
" However desirable the development of combined transport should be, it should not be regarded as a substitute for conventional road transport, but as the introduction of a set of quite different techniques ".
That I believe to be true. That I believe is what the market will in fact demand, should the market go that way. They say in their paragraph 5:
" The quality of the service provided by the new techniques should at least be equal to that of road haulage (speed, dependability) and so on ".
They say in their final sentence set out on page 58:
" So long as the control of combined rail and road traffic remains a matter of conflict, the whole future of these facilities will be uncertain ".
While it is uncertain commercial enterprises are not going to put their money into it: neither are they going to subscribe to any system of taxation involving the removal of money which they themselves put into their own transport system by way of taxation being syphoned off into systems such as those described in the proposals.
I would finally say something about the EEC transport policy document which comes before us again tonight. In 1961 Ambassador Charles' Memorandum set out what he was really looking for. He said:
" A transport policy applying to the transport of the Community as a whole must, therefore, gradually replace national transport policies ".
I take that certainly out of context. That remains so today. And despite that initiative, despite the 1977 William Rodgers initiative, and despite the 1978 initiative, what has been done? Apart from niggling little harmonisation and regulatory rules, two things only have emerged in all that time: one tachographs—and we had problems there and we do not want to discuss those again tonight; we finally agreed. The other thing is the 40-tonne gross lorry. By far the biggest measure of concord, of agreement in the Community, is the 40-tonnes. Whether in fact the United Kingdom Parliament is going to accept that when we come to it we shall have to wait and see. But at least on that issue the Community has reached agreement. All the rest pales into total insignificance because it is only here, I believe, that we can do anything particularly useful. The noble Lord, Lord Underhill, underlined this point.
One may ask: What should Her Majesty's Government do to pursue a European transport policy? I believe that there are, in fact, only three areas where anything totally useful or totally practicable can be done and that is to get flexibility into the quota system; to get a customs simplification, which means free movement of both goods and people; and I have noted " the universality of the vehicle ". The noble Lord, Lord Underhill, referred to agreement under the construction and use regulations. That falls into two areas; harmonisation on the safety factors—brakes and steering—under the construction and use regula-

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tions; and the environmental features of noise, smell and so on.
Neither of those two objectives is outside our grasp because they are purely technical. They require only agreement as to the mean and the mean has been found in total weight of 40 tonnes. The mean can quite easily be found in all the other areas because the amount of money involved by virtue of the manufacturers and the retailers is insignificant compared to the whole. A trans-continental rig of 30 or 32 tonnes now costs something around £40,000 to £50,000. A fully equipped continental-going passenger coach is around £70,000. If one added £2,000 for a non-skid braking system it pales into insignificance. These are the areas in which I believe Her Majesty's Government should spend their energies. I think that we should abandon totally all hopes of total uniformity for uniformity's sake. I believe that transport is one of those businesses which excite the interests of the entrepreneur. The entrepreneur is prepared to take the risk. All that is required is a fair chance with all modes and utilising all modes wherever he operates.
9.28 p.m.
Viscount St. Davids: My Lords, first I should like to thank the noble Lord, Lord Kings Norton, for giving me the chance to make a speech that I have wanted to make for a long time. We are an island—we are surrounded by the sea, by water. That water is either a barrier which confines us or else it is a high road which takes us to Europe and the world. To neglect or to keep out of consideration the sea is a disadvantage to this country which never ought to be allowed. We have the facility to go anywhere with our ships, at least as far as seaports. One might think that the great continental countries would pay much more attention to land transport, and that, of course, is true in many ways. But it is noticeable that they also understand that you can carry cargoes in great bulk much more cheaply and easily and with much greater fuel economy—I should like to mention the words of the noble Viscount, Lord Sidmouth—on water. Therefore, they have been enlarging their waterways so that they can take a standard vessel which will carry 1,350 tonnes. That is a very big inland waterways vessel indeed. By the time the European system is complete, which will be some years hence but it will come, those vessels will be able to get not only through all Western Europe, but through all Eastern Europe as well, not only down the Danube but down into the Aegean through to Greece and Turkey and even as far as Asiatic Russia. That would be an enormous advantage.
What is more, although those vessels are called inland waterways vessels, they are quite capable of crossing the North Sea which, in their terms, can be regarded as an inland waterway. We should most strongly urge and so arrange matters that the provision by us of such vessels links us across the North Sea to the inland waterways of Europe. That at least would be a good start.
But there is something further that we can do better to link our transport with the rest of the world. I am thinking of the container, but I am thinking of the container possibly in rather different terms from most of your Lordships, because from my knowledge of the
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inland waterways of our country I remember how our little narrow boats became too narrow usefully to carry cargoes. Their gauge became too small. It will happen to the container. We cannot make containers bigger than a certain size because we cannot get them along the roads, and certainly we cannot load them onto road vehicles and " piggyback " them. But there is a way to make much bigger containers. You make them watertight and put them in the water. What is a good large barge but a floating container?—and it can be much bigger than anything we can put on the roads. What is more, it can be got across to Europe, and in Europe you do not even need to put it on a lorry or anything else; you make it into a raft, you put a tug behind it and push it or them in hundreds. Already in parts of Europe it is possible to push floating container cargoes of 7,000 tonnes. That is a big cargo on anybody's measurement.
What about containers coming to us? You cannot push them across the North Sea; they would not last very long in our normal weather. But you can load them into a barge-carrying ship and, loaded onto a barge-carrying ship, they can then be brought across, unloaded in our major river estuaries and be pushed happily up our canals. I am not talking about the little narrow canals of the Midlands; I am talking about the big cargo canals of which British Waterways has a pretty fair supply and is improving them, and could improve them still further with advantage. That can be done with no great trouble.
There was a very fine scheme called Bacat—Barge Aboard Catamaran—a doubled-hulled vessel with a space up the middle which drew barges up in between it which were then lifted onto its decks and carried across the sea. Those could go up our waterways, be dropped into the Continental great waterways and be made up into rafts of whatever sizes the locks would take—and, as I say, in some cases there could be 7,000 tonne rafts—and be pushed wherever they were required. I regret to say that that scheme was murdered. It was a scheme for one of the finest technological advances that have been seen in transport. It was murdered by a trade union, with the consent of a Government. Everybody on that matter should blush, and blush very hard, because that was a real way of advancing into the future; carrying bigger containers which you will not be able to get on to the roads, but which, with the modern European waterways system and with not much development of our own waterways system would work perfectly happily.
You may call this " piggy-backing " of an aquatic form; you may call it mixed transport. I do not know what you would call it, but it seems to me that with this directive and with all the actions taken so far this whole business has been neglected. I do not know whether it should be a good Tory motto, " Bring back Bacat ". Certainly it would be a fine one. If we could have something like Bacat back again, that would be the finest and cheapest way of providing future style transport for us; not merely today's transport, but tomorrow's transport. That at the moment seems to me to be being almost wholly neglected.
We have ships carrying barges coming across from the States and dropping their barges into the Medway and some of our other big rivers, but it is not the big ship carried barges that we should really be thinking of now,

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but the slightly smaller Bacat type barge which can be taken to the inland waterways of Europe, dropped there, rafted there, and really take goods from them to us back and forth in quantity and cheaply. Cheaply, not only as a method of transport but cheaply—and here I very much agree—in the matter of fuel; fuel conservation. One pusher-tug pushing a great raft of these things. It is in this direction that I should like to ask the Government whether they could direct their attention more; they should consider that the sea has always been our great advantage; that the North Sea is not that wide, and that this is the direction in which we should really he holding out our hand to Europe.
9.38 p.m.
The Earl of Avon: My Lords, I have listened to the speeches this evening with great interest. It has been a valuable opportunity to discuss not only the rather intricate proposals the Commission has made on combined transport, but also the wider aspects of Community transport policy as a whole. I am grateful to the noble Lord, Lord Kings Norton, for coupling these two subjects in his Question and thus providing an opportunity for a useful debate. I should also like to join with the noble Lord, Lord Underhill, in thanking the noble Lord, Lord Kings Norton, for his comprehensive introduction today, because it has set the problem in a realistic perspective.
The noble Lord asked first whether Her Majesty's Government agree with this report which the Select Committee has prepared on Combined Transport. The Government very much welcome this report. Thorough consideration has obviously been given to this complex topic, and evidence taken from an impressive number of interested parties, including the British Railways Board and representatives of road haulage and inland waterways transport industries. The Government are looking with great care at the conclusions of so thorough a study. I can say at this stage that we agree with many of them.
The Government certainly share the Committee's doubts about the significant impact which the Commission claims its proposals will have. As we have heard, combined transport plays only a comparatively small role in European transport, and even with the benefit of these proposals its contribution could not be great. Despite their general optimism about developing combined transport, the Commission recognise—and we have heard this again this evening—that it is unlikely ever to account for more than about 5 per cent. of freight movement. The Government broadly agree with this assessment and do not expect the proposals under discussion to do more than marginally affect the wider balance of choice available to freight consignors. I shall return in a moment to the specific question of choice between different forms of combined transport.
Because the proposals are so modest, the Government do not consider that they would interfere unacceptably with free competition between the main transport modes. Free competition is a fundamental principle of the Treaty of Rome and one which this Government would certainly not wish to see eroded in the transport sector. This debate has reinforced the committee's view that in encouraging combined transport, the principles of freedom of choice and even-handed treat-
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ment of different types of transport must still be maintained. The Government share this view and I should now like to develop this point further.
The committee noted that there remained some doubt about whether inland waterways were covered by the scope of these proposals. The Government fully share the committee's view that inland waterways should receive the same treatment in respect of combined transport as other modes. Of course, this is less significant for the United Kingdom than for some other member states, but we will continue to press in our negotiations in Brussels for fair treatment of inland waterways. I hope this House will accept, however, that on a matter such as this, where direct United Kingdom interests are substantially smaller than those of several other countries, there is a limit to the extent to which we can press the point. On the subject of inland waterways, I knew we should get an interesting speech from the noble Viscount, Lord St. Davids, which we did, blessed with his great experience and stimulating ideas, which I assure him we shall look at carefully.
A similar problem of even-handedness arises over maritime transport, which the committee recommends should be brought within the scope of these proposals. The Commission has said it is looking separately at the possibility of encouraging maritime and air combined transport. The question is whether these should be brought within the scope of the present draft directive. The Government agree with the committee's view that the conditions applying to sea crossings may influence the ease with which containers, or indeed lorries, can move easily between member states using combined transport systems. But aviation and maritime matters have traditionally been treated separately in Community legislation. The Community has not so far adopted many shipping measures and its major achievement has been agreement on a common approach to the United Nations work on liner conferences. The Government consider that the Community can play a useful role by acting in concert to support non-protectionist shipping policies.
On civil aviation, there has been less progress than the Government would have liked. Work is in hand in Brussels on inter-regional air services, air fares and a number of other measures. The United Kingdom favours a gradual, controlled liberalisation of civil aviation in Europe and the application to air transport of the competition articles of the Rome Treaty. It is, in any case, hard to see how the specific proposals in the present draft directive could apply to maritime or air transport; they are essentially concerned with aspects of road and rail freight movement and it would be necessary to introduce wholly new provisions into the draft directive, thus greatly increasing both its scope and complexity.
This House has from time to time commented unfavourably on Commission proposals which attempt too much either in scope or in detail. The Government, of course, do not disagree with the committee's view of the importance of maritime frieight links with Europe. We will ask the Commission to clarify their intentions for comparable measures to cover maritime combined transport, but the Government think it would he sensible to continue to limit the present directive to inland transport modes.

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The most important aspect of these proposals from a United Kingdom viewpoint is undoubtedly the treatment of containers. This was touched on by most speakers and particularly by the noble Lord, Lord Underhill, and the noble Viscount, Lord Sidmouth. As the committee point out in their report, containers are for us by far the most significant form of combined transport. As the evidence given by the Department of Transport and by British Rail shows, containers account for roughly 12·5 per cent. of rail freight moved in the United Kingdom. About a third of the containers moved by Freightliner are for foreign shipment. The United Kingdom is at the forefront of technical development of containers, and the Freightliner business is important to British Rail.
By contrast, on the Continent there is extensive use of " piggy-back " combined transport, and, as we have heard, the United Kingdom rail loading gauge precludes this. Some British hauliers find it useful to take goods by road and roll on/roll off ferry to the Continent, and then to use the " piggy-back " services. This is particularly useful if road haulage permits are in short supply; and on the very longest hauls, where a substantial rail leg can on balance save time. But because of our far greater interest in container transport, the Government will wish to be sure that the measures that we are now considering do not give undue encouragement to " piggy-back " transport at the possible expense of containers. We must work for a broadly even-handed approach.
On this point there is no need for concern about the draft regulation. Its scope is now such that the discretionary aids which it allows are not limited to " piggy-back " transport, but apply in a fully equal way to containers, where these are moved by more than one mode.
The problem of even-handedness applies essentially to Article 3 of the directive, which concerns relief from taxation for road vehicles engaged in combined transport. There is now a new version of this article which, if it were to be agreed, would in effect make tax concessions by the United Kingdom Government optional, and confine mandatory tax relief for lorries engaged in " piggy-back " to vehicles used wholly on the Continent. I hope that that will in some way satisfy my noble friend Lord Bessborough. Negotiations currently continue, and we cannot yet say whether this version will command general support. Should it do so, the Government would need to consider their attitude carefully, and would of course consult the Scrutiny Committees of both Houses, on the basis of a further explanatory memorandum.
I am, however, able to tell the House that the Commission has accepted the need to specify precisely in Article 3 the taxes that it has in mind. As the noble Lord, Lord Underhill, said, for the United Kingdom the only tax involved is the vehicle excise duty.
My right honourable friend the Secretary of State for Transport will meanwhile keep very closely in mind the committee's strong reservations, which he shares, about the administrative cost-effectiveness of any tax concessions to United Kingdom vehicles engaged in " piggy-back ", and also the committee's still more important point about the need for even-handedness of treatment for United Kingdom interests in different
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combined transport systems. We cannot, of course, rule out that the text could be still further modified, and this, too, would be reported to both Houses if need arose. But in appraising the need for evenhandedness, we must keep steadily in view the point that the balance between rail container and " piggy-back " traffic is at present decidely in favour of the former. Container traffic also has a healthy recent growth record.
We must look wider than the draft directive, and I should like, for instance, to draw your Lordships' attention to another measure, which the Council, under the United Kingdom presidency, adopted at the end of last year. This was a directive making permanent what had formerly been the only very temporary liberalisation of international rail container traffic from all quota restrictions. This measure, which would otherwise have expired at the end of 1981, constitutes a valuable incentive for the use of containers within the Community. In judging the even-handedness of the Community's attempts to develop combined transport, I hope that this House will agree with the Government's view that we must look at the whole range of relevant measures, and not concentrate simply on one draft measure.
I should now like to move on to the second strand of the Question, the European Community's common transport policy; and here I am sure that the whole House will join with me in saying how much we appreciated the exposé by the noble Lord, Lord Sherfield, of the European Community and his bringing us up-to-date historically since 1961. I have also taken careful note of what the noble Viscount, Lord Sidmouth, said, though much of it, I feel, referred to Brussels rather than to any governmental policy. I also noted what the noble Viscount and the noble Lord, Lord Lucas of Chilworth, said about the customs.
It is now nearly four years since the Select Committee reported on the common transport policy. At the end of that report, the committee said that it hoped that the report would serve as source material for any general debate on the subject. Let me say at once how useful the Department of Transport has found the report. It has been particularly helpful in providing an overall picture of what can appear to be a hopelessly disparate range of issues.
The noble Lord, Lord Kings Norton, asked whether the Government expect progress on the common transport policy. The brief answer is, Yes. It is perhaps more difficult to assess the future speed, or significance, of developments. It is understandable for people to be as disappointed now at the pace of progress as they were four years ago. There is still a large number of proposals unresolved, essentially lying dormant on the table. Some of these are significant measures in which the United Kingdom has taken a major interest, such as the draft directive on the adjustment of national taxation systems, which would give a common basis for taxation of heavy lorries, or such as the draft regulation on aid for transport infrastructure. The former, I am told, has been on the table for 13 years, the latter for seven years.
Having said this, we should not be too ready to belittle what has been achieved. Agreement on major issues such as those I have mentioned is inevitably difficult because of the importance of what is involved.

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But (using the expression that other noble Lords have used) step by step the Community has made progress with its transport policy, and that progress covers all the main modes of inland transport. In the same way as even-handedness is so clearly important in the case of combined transport, so, too, we have to make steady progress on all modes when it comes to the far wider issues of a common transport policy.
To answer, perhaps, some of the more specific questions of the noble Lord, Lord Kings Norton, to illustrate the progress that is being made and at the same time to answer questions from other noble Lords, it may be helpful if I outline the main points from the most recent meeting of transport Ministers in Brussels. The council was, of course, chaired by my right honourable friend the Secretary of State for Transport. At the December Council, Ministers discussed and agreed a resolution on railways policy, broadly setting out guidelines for the work needed on this topic. It stresses the need to concentrate on improving co-operation between the railways, to improve the economic position of the railways and to examine how best to make use of available railway capacity.
On road haulage, the Council reached agreement in principle on a modest increase in the Community road haulage quota. Although differences of view meant that only a 5 per cent. increase could be agreed for most member states, this represents a small step forward which is particularly welcome to the United Kingdom and to those member states who believe in liberalisation of road transport. The Council also made some useful progress on the draft regulation on aid for transport infrastructure. Ministers discussed what the next steps on this issue should be in the light of the very useful Commission report on the evaluation of Community interest. The discussion resulted in a resolution again charting the way forward, and thus bringing the possibility of agreement a little nearer. But I am afraid I must agree with the noble Lord, Lord Sherfield, when he says that progress on this is depressingly slow. The Government hope that the latest Council resolution will help, but at the end of the day it may be that real progress will not be made until it appears likely that funds can be made available in the Community budget.
The subject of lorry weights was touched on; and, as the House is aware, the Government have published a White Paper giving their response to the Armitage Inquiry and have invited views on their proposals. The next step must be to agree on a policy most suited to the United Kingdom domestic conditions. United Kingdom policy towards European harmonisation will have to be formulated in light of the domestic decisions. I should perhaps like to say something to my noble friend Lord Lucas of Chilworth. I think I should dispel the impression given by the noble Lord that the rest of the Community has reached agreement on the 40-tonne maximum gross weight for lorries. The European Parliament and Commission agreed on this point, but the other member states are widely divided on this issue. This is reflected by the very different legislation on lorry weights in every country.
On balance the meeting of the Council achieved slightly more than other recent Transport Councils, but was perhaps fairly typical of progress in the longer
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term. Certainly discussions and progress were fairly evenly spread over all main aspects of transport in the Community—a point to which most member states attach importance. I think it can be said that progress has been made fairly evenly over the main areas identified by the Select Committee's report.
On liberalisation of transport services, for instance, the size of the Community quota has increased from 2,835 permits in 1978 to just over 4,000 permits under the latest increase agreed in principle. A series of minor amendments to the first Council Directive of 23rd July 1962 has gradually extended the categories of goods which can move freely. As I said earlier, the road legs of international rail container journeys are now liberalised. These are just some of the measures that take us forward on this point. From a United Kingdom viewpoint, it is not fast enough progress, but we must always recognise the different, but equally strong, priorities of our Community partners.
The second main area identified by the Committee's report was co-operation of infrastructure investment. At the time of the report, Ministers had just adopted a decision setting up a consultation procedure on proposed investment in major transport infrastructure projects. Although this has not been extensively used by member states, the related Transport Infrastructure Committee, established at the same time, has done valuable work on aspects of the draft aid regulation, including the Community interest report I mentioned earlier.
Finally, there is the difficult problem of harmonisation of competitive conditions in transport. The committee points out the dangers inherent in harmonisation for its own sake. There may be valid reasons for some existing disparities. But the Council has agreed a number of sensible harmonising measures, including the introduction of a common format and mutual recognition for Community driving licences. Work is also in hand on the major question of public subsidies to the railways; and the " transparency " of railways' accounts. The Commission put forward in 1981 a new priority programme superseding that of 1977. Whereas in the past the Council had simply taken note of Commission programmes, in March 1981 the Council, after considering the new Commission's proposals, adopted a resolution setting out its own priorities. These cover the same ground as the Commission's. However, they reflect the political judgment of the Ministers of the member states as to what is most important and most practical.
Turning to one direct question asked about the Channel tunnel, the remarks of the noble Lord, Lord Underhill, and the noble Viscount, Lord Sidmouth, will be taken into account. The discussions with the French over possible schemes are still in progress; and not all tunnel schemes would be suitable for " piggy-back ", as British Rail pointed out. But we would expect all tunnel schemes to be suitable for container traffic. The Government will consider all these points at the appropriate time.
The noble Lord, Lord Underhill, mentioned the speech of my right honourable friend the Secretary of State for Transport at the European Parliament. I am not sure which one he had in mind. He may have been quoting from one he made in his capacity as President of the Council of Transport Ministers. He

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did not, therefore, seek to put forward a purely United Kingdom policy at that time. I assure the House that the Government recognise the importance of container transport to other member states. During the United Kingdom presidency, we did our best to take the Commission's proposals forward while at the same time taking care to protect British interests.
The Government fully recognise the importance of the common transport policy. The need for such a policy is clearly stated in the Treaty of Rome. As I have already said, the United Kingdom would like the policy to be developed more quickly and more effectively. We must also recognise, however, that the size and economic significance of transport in the Community means that progress cannot be easy. Transport accounts for about 6 per cent. of the GDP of all member states. Roughly 6 million people are employed in the transport sector. With so much at stake, we must not be surprised that the Community has tackled the problems cautiously, step by step. Indeed, the many difficulties underlined by many speakers tonight, and particularly by my noble friend Lord Lucas, bear out this approach.
I am sure that this House will have found today's debate useful and informative. It seems to me that the complexities and difficulties raised by the proposals on combined transport in many ways provide a perfect illustration of the problems confronting the common transport policy as a whole. In both cases we are seeking integrated, efficient transport services, which preserve genuine freedom of choice for the user, and free competition between modes. For good commercial and historical reasons, national interests differ, and so progress can only be made by careful and painstaking negotiation and close attention to detail. The House is, as I know the Government are, grateful to the noble Lord, Lord Kings Norton, and to his sub-committee, for the way in which they have brought these items to our attention.

  MR. MICHAEL WAIGHT
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  IMMIGRANTS: CUSTODY UNDER DUAL AUTHORITY
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  JUVENILES IN CUSTODY
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  ADOPTED CHILDREN
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  TRIDENT PROJECT: COST
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  CUMBRIA AND LAKE DISTRICT JOINT STRUCTURE PLAN
  CUMBRIA AND LAKE DISTRICT JOINT STRUCTURE PLAN
  KHMER ROUGE (POL POT): PROVISION OF ARMS
  KHMER ROUGE (POL POT): PROVISION OF ARMS