Sitting of 15 March 1984

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
PRAYERS

  PRIVATE BUSINESS
  GINNS AND GUTTERIDGE, LEICESTER (CREMATORIUM) BILL (By Order)
  Order for consideration, read.
  To be considered upon Thursday 22 March.
  NOTTINGHAMSHIRE COUNTY COUNCIL BILL [Lords] (By Order)
  Order for further consideration, as amended, read.
  To be further considered upon Thursday 22 March.
  TEES AND HARTLEPOOL PORT AUTHORITY BILL (By Order)
  Order for Second Reading read.
  To be read a Second time upon Thursday 22 March.
  ALEXANDRA PARK AND PALACE BILL (By Order)
  Order for Second Reading read.
  To be read a Second time upon Wednesday 21 March at Seven o'clock.
  DARTMOOR COMMONS BILL (By Order)
  Order for Second Reading read.
  To be read a Second time upon Thursday 22 March.

Oral Answers to Questions
  HOME DEPARTMENT

    Road Accidents (Metropolitan Area)
    Mr. Andrew F. Bennettasked the Secretary of State for the Home Department how many people involved in road accidents in the Metropolitan police area had personal property detained after the accident.
    The Secretary of State for the Home Department (Mr. Leon Brittan): This information is not collected centrally.
    Mr. Bennett: Will the Home Secretary confirm that the Metropolitan police handbook gives specific instructions about what officers should do when there is an accident and an individual's property is found'' Will he confirm that chapter 18, paragraph 13, makes it quite clear that the duty of the police officer is to take any personal property to the hospital and get a receipt for it? Will he say why that did not happen in the case of Duncan Campbell?
    Mr. Brittan: I have no reason to believe that anything inconsistent with the normal instructions occurred in that case. Indeed, the contents of the panniers on Mr. Campbell's cycle were examined as part of the routine process of checking and listing property that comes into police custody.
    Mr. James Lamond: Can the Home Secretary say whether our ambassador in Moscow was sent for by the Russian Government to hear their concern expressed about this violation of human rights under the Helsinki final act that occurred when Mr. Duncan Campbell's property was taken?
    Mr. Brittan: No, Sir.
    Mr. Kaufman: Is the Home Secretary therefore saying that the normal instructions—he used that phrase—to the Metropolitan police are to rifle the belongings of people who are injured in accidents? Why was it that it was just the one individual who had the accident whose belongings were rifled? Will the right hon. and learned Gentleman, as the police authority for London, give instructions that this form of police-state activity should not take place?
    Mr. Brittan: I do not think that the right hon. Gentleman seriously believes a word of what he said. He must appreciate that it is the duty of the police to snake arrangements for the safe-keeping of the possessions of the victims of road accidents, and that part of that duty is to register and make a list of the property that is taken into possession as a result of road accidents.

    Mercenaries (Recruitment)
    Mr. Proctorasked the Secretary of State for the Home Department what recent representations he has had about the recruitment of mercenaries within the United Kingdom; and if he will make a statement.
    The Under-Secretary of State for the Home Department (Mr. David Mellor): We have received no such representations.
    Mr. Proctor: When will my hon. Friend introduce legislation to implement the recommendations of the report of the three Privy Councillors who reported to this House in August 1976 about mercenaries, and, in particular, their recommendation 7 for introducing legislation to empower Her Majesty's Government to forbid the recruitment of mercenaries within the United Kingdom for specified armed forces abroad?
    Mr. Mellor: I am afraid that I can hold out no prospect of any such legislation in the near future.

    Police Manpower
    Mr. Bruceasked the Secretary of State for the Home Department what representations he has received from police authorities for increased manning.
    Mr. Brittan: Six police authorities in England and Wales have applied for increases totalling 52 posts in their police establishments for the financial year 1984–85. I shall shortly be considering these applications in the light of advice from Her Majesty's inspectors of constabulary, together with applications outstanding from four other police authorities for the current financial year.
    Mr. Bruce: Does the Minister acknowledge that, given that the Government are allocating more money to deal with law and order, priority should be given to putting more policemen on the beat and in the community, rather than taking additional powers for the police which undermine individual liberties? Will the Minister acknowledge that my police authority in Grampian has requested an increase of 85 extra policemen, but has been allocated only 15 this year and 15 next?
    Mr. Brittan: I have no responsibility for policing in Scotland, but I understand from the Scottish Home and Health Department that in Scotland, for the period in question, the increase in police strength has been 1,756, with an increase in full-time civilians of 517, and of part-time civilians of 192. That is the equivalent period that was dealt with in the answer on 5 March in relation to England and Wales. I entirely agree that it is not just a question of police numbers. It is absolutely right and necessary to establish clearly what police powers are, and what safeguards there are for them, and that is exactly what is being done in England and Wales in the Police and Criminal Evidence Bill.
    Mr. Andrew MacKay: As detection is acknowledged as the best form of deterrent, does my right hon. and learned Friend agree that, notwithstanding his helpful offer of an extra 100 policemen in Thames valley at the end of last year, we still have almost the worst police-to-public ratio, and that we need more assistance?
    Mr. Brittan: I hear what my hon. Friend says, but I think he will agree that the increase in the police establishment that I was able to announce has been widely welcomed in the area concerned.
    Mr. Fry: May I remind my right hon. and learned Friend that one of the applications that he will receive is from Northamptonshire? The application is especially important, as the county has undertaken a major reorganisation of policing, and has completed the first part of that, but the success of the consequent reorganisation will depend upon a favourable reply from my right hon.
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    and learned Friend. As this reorganisation will put many more policemen on the beat, deterring crime, will he please favourably consider the county's application?
    Mr. Brittan: I am grateful to my hon. Friend for giving the basis for the application, and I assure him that I will consider his points very carefully.
    Mr. Dubs: Will the Home Secretary acknowledge that hundreds of police officers are involved in keeping prisoners in police and court cells in London and southeast England, and this despite his firm commitment to clear those cells by the beginning of the year? Was it not cynical of him to stick by that commitment for two or three days only before the prisoners were back in those court cells? They now number 200 or so every night.
    Mr. Brittan: The hon. Gentleman is being less than his customary fair self, because if he had followed what was clearly said, he would have known perfectly well that I indicated, at the time of announcing that that commitment was fulfilled, that I was anticipating that there would be a period of difficulty in the first part of the year, pending the coming into availability of fresh prison accommodation. The fact is that the numbers in police cells are massively down compared with last year as a result of the reorganisation in the prison department. They did reach the figure that I specified at the time, and the problem that has arisen since is exactly in accordance with what I anticipated.

    Prison Education
    Mr. Madelasked the Secretary of State for the Home Department if he will seek discussions with the Open University as to how prison education might be extended to more people while in custody; and if he will make a statement.
    The Minister of State, Home Office (Mr. David Waddington): The general question of access to prison education facilities is not a matter for the Open University. But the prison department keeps in close touch with it on the part it plays in the provision of undergraduate and associate student facilities for prisoners and young offenders.
    Mr. Madel: As the Open University can offer some very good courses for prisoners, and as the Northern Ireland Office and DHSS partly fund these and the tutorial costs, will the Home Office consider helping with the tutorial costs so that more prisoners might benefit from what the Open University has to offer?
    Mr. Waddington: The Home Office already funds undergraduate and associate student facilities in 27 prison department establishments. It is considering with the Open University the possibility of extending these facilities to more establishments.
    Mr. Flannery: Is the Minister aware that there was an inquiry into prison education by the last Select Committee on Education, and that one of the things that stood out clearly was that the very long queue of prisoners wanting education—even lifers—cannot be satisfied because of the cuts in education in the prisons? Will he do something to help? Will he look at some of the details of that report?
    Mr. Waddington: I have read the report. However, I think the hon. Gentleman will concede that a prison

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    building programme, an increase in the number of prison officers and improved management of the prison service are more likely than anything else to enable more opportunities for study to be made available.
    Mr. Greenway: Does my hon. and learned Friend accept that I feel that his Department has made some progress in responding to the Select Committee's report on prison education, but not enough? Will he re-read the report with a view to considering whether the time has not come to give all prisoners the right of access to education? Will he put education in prisons on the same level as work and pay prisoners a suitable wage for it?
    Mr. Waddington: I shall bear in mind all that my hon. Friend said. I am sure he will acknowledge that if there is a shortage of space in prisons, that in itself makes it difficult to provide the comprehensive facilities that we all wish to see. Therefore, I am surely right to say that the prison building programme on which we have embarked is of the greatest importance.
    Mr. Alex Carlile: Is the Minister aware that while well over one third of prison staff in some prisons are being used on escort duties every day there is not the remotest prospect of proper education facilities being provided in those prisons because of the lack of adequate staff on site?
    Mr. Waddington: I said earlier that I attach importance to the prison building programme and to the increase in the number of prison officers. The hon. Gentleman is right in saying that much prison officer time is taken up with escort duties. However, it is not easy to find a solution to that one.

    Air Weapons
    Mr. Chapmanasked the Secretary of State for the Home Department if he will now make a statement on his assessment of the effect of his national publicity campaign about the misuse of air weapons in November and December 1983.
    The Minister of State, Home Office (Mr. Douglas Hurd): First indications from police forces suggest that the campaign succeeded in making people more aware of the law on air weapons. Some forces said that the campaign had also reduced levels of misuse but most said that it was too soon to judge this. We will be better able to assess what effect the campaign had on misuse when the statistics on air weapons offences become available.
    Mr. Chapman: As there is strong evidence that in the use of air weapons teenagers are the main culprits, especially in shooting at pet animals, will my right hon. Friend make his national publicity campaign a continuing one, especially by using the media during school holidays?
    Mr. Hurd: My hon. Friend knows that there are special restrictions on the use of air weapons by teenagers. For example, it is illegal for them to buy or hire an air weapon. When we have a clearer or complete evaluation of the success of the recent campaign, we shall consider how to revive it.
    Mr. Loyden: Will the Minister investigate the use of imported high-velocity air guns from Germany? One of my constituents, a veterinary surgeon, has complained about the number of animals that are brought to his surgery
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    with bones shattered and deep penetrations as a result of th use of air guns. Will he pay specific attention to high-velocity guns when he is considering air gun control?
    Mr. Hurd: We have to keep a close eye on the technical development of these weapons. If the hon. Gentleman sends me particulars of the case to which he has referred, I shall look into it.
    Mr. Loyden: I have already sent the details to the Minister.

    Football Hooligans
    Mr. Peter Bruinvelsasked the Secretary of State for the Home Department what new plans he has to control football hooligans.
    Mr. Mellor: Primary responsibility within the Government for this matter rests with my hon. Friend the Minister with responsibilities for sport, who, in the light of recent incidents in Paris, will be reviewing whether, and if so what, further measures might be appropriate to deal with this problem. We keep in very close touch with my hon. Friend on these matters. I am satisfied that a proper framework of law exists to deal with football hooliganism in this country.
    Mr. Bruinvels: I thank my hon. Friend for that answer. It is vital that we control football thugs once and for all. Is my hon. Friend aware that I should like to see the introduction of identification cards, on-the-spot fines and the definite and distinct possibility of prison sentences?
    Mr. Mellor: The issuing of supporters' cards is being considered by my ministerial colleagues and the liaison group. I warmly endorse the words of Lord Justice Lawton in the Court of Appeal on 12 January, when he said that sentences on football hooligans must deter future violence and that unless there is exceptional mitigation those aged between 17 and 21 who are found guilty of acts of violence against police officers or innocent supporters should receive an immediate custodial sentence.
    Mr. Caborn: Will the Minister take up with his colleague, the Minister responsible for sport, the problem of the differential pricing at some of the grounds as between home and away supporters, which has been a major source of concern at some grounds, not only for the public who follow football, but for the police; for example, in a recent incident at the Grimsby ground?
    Mr. Mellor: If any differential pricing were to lead to fans of one team not going into their part of the ground that would be a serious matter, as segregation of rival supporters is an important way to minimise the risk of trouble. I shall bring the hon. Gentleman's helpful suggestion before my hon. Friend the Minister.
    Mr. Eldon Griffiths: As football hooligans and others are known by the police occasionally to conceal knives, drugs and sometimes liquor under their woollen caps, will my hon. Friend be good enough to reconsider the Government's decision to prevent the police from requiring removal of that headgear so that they can conduct searches for those items before trouble starts?
    Mr. Mellor: I cannot usefully add to the debate that we had in Standing Committee on this matter. I hope that what my hon. Friend said will not blind the rest of the House to the real powers given to the police in the Police

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    and Criminal Evidence Bill to search for offensive weapons in almost every other part of clothing apart from hats.
    Mr. Denis Howell: While the Minister responsible for sport obviously has a role to play in this matter, since when has he been responsible for law and order? Were not this Government elected on a law and order ticket, and has not the problem got progressively worse with every one of the five years that the Government have been in office? Therefore, why did the Minister responsible for sport the other day fatuously call on overseas countries to deal vigorously with our own problem?—[HON. MEMBERS: "Too long."] This is a very important matter—
    Mr. Speaker: Order. The Minister can answer only for the Home Office, not for the Minister responsible for sport.
    Mr. Howell: That is my point, Mr. Speaker.
    I point out again to the Home Secretary, on behalf of the Opposition, our willingness to enter into any discussion to produce new laws or procedures that will stop this disgraceful behaviour by British citizens overseas, who disgrace the name of this country.
    Mr. Mellor: On the right hon. Gentleman's first point, I am sure that he, like every other hon. Member, will welcome the news out today that the number of offences known to the police last year was below the figure for 1982—a welcome development. As to the right hon. Gentleman's other point, we do not doubt our responsibility for law and order. I have already made it clear that there is a framework of law that will ensure that hooligans are not merely brought to book but are appropriately sentenced. We have increased the number of attendance centres and brought forward a range of additional penalties to enable courts to deal severely where necessary with this serious problem.

    Ashford Remand Centre
    Mr. Norman Atkinsonasked the Secretary of State for the Home Department how many prisoners have been kept at Ashford remand centre deportation block during 1983; and what was the minimum and maximum general length of stay.
    Mr. Waddington: The information readily available relates to 1982. In that year, about 700 people were received into Ashford remand centre under the Immigration Act 1971. The average length of detention under the Act for persons discharged from all prison department establishments in England and Wales was about four and a half weeks. Equivalent information is not yet available for 1983.
    Mr. Atkinson: I appreciate that the multiplicity of religions and languages at Ashford probably leads to food problems, but is it not time to investigate the many complaints made about poor standards of food and cleanliness there? If people are to stay there on an average of four and a half weeks, is it not necessary to give not-convicted prisoners reasonable conditions for their stay?
    Mr. Waddington: I confess that such complaints have not been brought to my attention, but now that they have been mentioned by the hon. Gentleman I shall certainly look into the matter. If he wishes to pass on any specific complaints made to him, I assure him they will be looked into with the greatest care.
    Mr. Stanbrook: How many inmates at Ashford have had their periods of detention prolonged because of interference by Members of Parliament in the due process of their cases?
    Mr. Waddington: I would not call it interference, because Members of Parliament have the right to make representations in those cases. Prolonged representations often lead to people remaining in custody for longer than one would wish.

    National Prosecutions Service
    Mr. Berminghamasked the Secretary of State for the Home Department what discussions he has had with the Prosecuting Solicitors Society with regard to the setting up of a national prosecutions service; and with what results.
    Mr. Brittan: Representatives of the Prosecuting Solicitors Society have had discussions on this matter with my hon. Friend the Under-Secretary of State and with officials. These meetings have established a valuable basis for future co-operation.
    Mr. Bermingham: Does the Home Secretary agree that as most of England is now covered by well-organised prosecution services they, in turn, could form the basis of the national prosecuting service that is envisaged in the White Paper and in current discussion?
    Mr. Brittan: The concept of forming the basis of a national prosecuting service covers a multitude of alternatives. The comments received in response to the White Paper are being assessed. I hope as soon as possible to make an announcement of our decisions on the organisations of the new service.
    Mr. Budgen: Will my right hon. and learned Friend explain why he favours the further recruitment of a centralised bureaucracy rather than the use of private practitioners?
    Mr. Brittan: I do not believe that the use of private practitioners is a possible alternative to the existing arrangements or the new arrangements proposed in the White Paper. We are talking not about a vast new bureaucracy but about staff costs of advocacy under an independent prosecuting service, which will be about £3·2 million lower than at present. It remains to be seen exactly how we organise the service. It will be of benefit to do what the Royal Commission recommended and have an independent prosecution service.
    Mr. Ashley: While the Home Secretary is considering a national prosecution service, will he consider also setting up an independent forensic science service, because the present service is employed wholly by the Home Office and is used almost exclusively in favour of the prosecution? Is he aware that the scales of justice are rigged in favour of the prosecution when considering forensic scientific evidence and that many distinguished lawyers are worried about the present position?
    Mr. Brittan: The question on the forensic science service raises completely different issues. The existing forensic science service has a high standard and is independent in its professional judgment. For that reason, I believe that it has the country's respect.
    Mr. Bill Walker: As the parliamentary spokesman for the Scottish Procurator Fiscal Society, I draw my right

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    hon. and learned Friend's attention to the fact that the procurator fiscal system in Scotland works extremely well for the benefit of the public and the police.
    Mr. Brittan: I am grateful for that advice and information. The experience north of the border is one of the factors that have led us to take our present view on the need for this system and the feasibility of change.

    Civil Defence
    Mr. McQuarrieasked the Secretary of State for the Home Department if he will make it his policy that local authorities should act as agents for central Government in carrying out their civil defence responsibilities.
    Mr. Hurd: Civil defence is, in our view, best regarded as a partnership between central and local government.
    Mr. McQuarrie: Is my right hon. Friend aware that the so-called peace movement, which is anti-nuclear, has now brought civil defence into its activities and is using that to persuade people to join the movement? As civil defence was so highly respected during the last war, and as tremendously heroic efforts were made by those concerned with civil defence at that time, may I ask him to insist that local authorities carry out their obligation to ensure that civil defence plays a major part in the activities of local government?
    Mr. Hurd: My hon. Friend is right to say that civil defence is an essential part of local government, because there fall on local authorities many of the tasks of planning and training which could save many lives in the event of conventional or nuclear attack.
    Mr. Neil Thorne: I accept that civil defence is necessarily a partnership between central and local government. For how long will my right hon. Friend be prepared to wait before taking action against local authorities that fail to comply with their obligations under the new regulations?
    Mr. Hurd: That is an important point. We shall, later in the spring, ask local authorities to what extent they have so far implemented the regulations that the House approved in December. We shall see after that what further action is necessary.
    Mr. Kirkwood: Is the right hon. Gentleman aware that there is deep and widespread resentment among hard-pressed local authorities, in Scotland in particular, about the rate-borne expenditure, outside Government grants, that falls on them for civil defence expenditure? Does he accept the logic of the question of the hon. Member for Banff and Buchan (Mr. McQuarrie), that if this issue is concerned with military establishments it should come under the Ministry of Defence and be paid for by that Department?
    Mr. Hurd: It is concerned not with military establishments but with the protection of the public as a whole. The financial argument that the hon. Gentleman advances does not hold water when one considers that much of this expenditure by local authorities is 100 per cent. funded by central Government, and the remainder is 75 per cent. funded, the total amounting to £13·1 million.
    Mr. Kilroy-Silk: Would it not be a further unfortunate and unnecessary erosion of local democracy if authorities were compelled to act as agents of the central Government
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    in this matter? In any case, how can they plan properly for civil defence when the Government refuse to tell them of the catastrophe that they are supposed to be anticipating?
    Mr. Hurd: We are not proposing to treat them as agents but as partners. Parliament has put certain obligations on them in this respect, as in others. We have already made it perfectly clear that we cannot with any credibility start listing likely targets of an enemy whose plans we do not know.

    Electoral Law
    Mr. Knoxasked the Secretary of State for the Home Department whether Her Majesty's Government intend to conduct any subsequent wider review of electoral law than that announced in their response to the Home Affairs Committee.
    Mr. Mellor: If my hon. Friend has any particular issue in mind I should be happy to consider it.
    Mr. Knox: Do the Government ever intend to do anything about the recommendation of Mr. Speaker's Conference in the 1970–74 Parliament to reduce the age at which people can stand for election to this House?
    Mr. Mellor: That matter remains on the table. I am not promising early action on it.
    Mr. Beith: Has the hon. Gentleman forgotten the Select Committee's firm recommendation that multiple registrations should be ended so that people did not have the right to vote in a large number of constituencies at parliamentary elections by virtue of the number of properties they owned? What does he intend to do about that?
    Mr. Mellor: We made clear in the White Paper that we do not believe that it is practicable or desirable to change those arrangements. That White Paper is now before the House and we shall be receiving comments on it before making final decisions on the shape of legislation that we intend to bring forward next Session.

    Members of Parliament (Contact with Prisons)
    Mr. Alex Carlileasked the Secretary of State for the Home Department in what circumstances hon. Members may deal directly with the governors of Her Majesty's prisons and their senior medical staff.
    Mr. Hurd: Hon. Members may, of course, approach the governors of Her Majesty's prisons and the senior medical staff direct. Where the request is for factual information, which is not confidential or controversial, the governor may reply direct. Other inquiries are referred to prison department headquarters so that they can be considered before a reply is given.
    Mr. Carlile: Is the Minister aware that a large number of inquiries by hon. Members to prison governors and their senior medical staff are answered by junior civil servants who have never set foot inside a prison? Is he further aware that this is frustrating not only for hon. Members but, in particular, for prison medical officers?
    Mr. Hurd: The distinction here is one of common sense, and it applies to areas of administration other than prisons. Where an hon. Member is asking simply for a factual statement, it is reasonable that he should get a local

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    reply direct. Where he is asking about matters of policy, it is reasonable, in the interests of all concerned, that it should be considered where policy is made.
    Mr. Rowe: Is my right hon. Friend aware that the governor of the prison in my constituency has consistently and rapidly replied in full to every question that I have asked him and I am confident that he will continue to do so?
    Mr. Hurd: I am delighted to hear of my hon. Friend's refreshing experience.

    Special Branch
    Mr. Winnickasked the Secretary of State for the Home Department if he is satisfied with the operation of the special branch of the Metropolitan police.
    Mr. Brittan: Yes, Sir.
    Mr. Winnick: Few people would dispute the need for the special branch, especially in view of terrorism, but is the Home Secretary aware that aspects of recent special branch operations give rise to considerable disquiet? Why is the Home Secretary opposed to a Select Committee looking into the operations of the special branch?
    Mr. Brittan: I understand the hon. Gentleman's concern, which he has expressed in the past, but I do not believe that anything that he has brought to light justifies such an inquiry or makes it likely to yield useful results.
    Mr. Nicholls: Does my right hon. and learned Friend accept that the national crime statistics to which he has referred today and the figures published in February in relation the Metropolitan police show that it is a very efficient organisation, in which the special branch plays a valuable part?
    Mr. Brittan: Yes, I believe that that is so. It is notable that the figures published today show a fall in recorded crime of 1 per cent. following increases of 10 per cent. in the two previous years. I know that the House will be especially impressed by the fact that robberies were down by 3 per cent. in 1983 and that murders decreased substantially.
    Mr. Dobson: Can the Secretary of State confirm that the number of crimes cleared up by the average Metropolitan police officer is 4·2 per year?
    Mr. Brittan: The detection rate can be improved and the Commissioner of Police of the Metropolis is taking firm measures to improve efficiency in crime detection. The figures speak for themselves. It is remarkable, for example, that the stealing of motor vehicles increased by an average of 7 per cent. per year for a decade but fell by 7 per cent. in the past year.
    Mr. Tracey: Is my right hon. and learned Friend aware that most law-abiding members of the community very much value the work of the special branch and accept that those who have nothing to hide have nothing to fear?
    Mr. Brittan: I have found widespread public understanding of the value of the special branch and I have no doubt at all that, in relation to both public order and terrorism, the country would be a much less safe place if the special branch was not doing its work.

    Non-violent Offences (Sentences)
    Mr. Yeoasked the Secretary of State for the Home Department whether he is satisfied that non-custodial sentences are being given, wherever possible, to those people convicted of non-violent offences.
    Mr. Mellor: The courts impose non-custodial sentences on most non-violent offenders and the Court of Appeal has made it clear that in such cases custody should be avoided wherever possible. The application of that principle to particular cases is a matter for the discretion of the courts.
    Mr. Yeo: I recognise that prison sentences are essential for certain types of violent offender, not least for public protection, but can my hon. Friend say whether the very welcome and interesting proposals made yesterday by the Home Secretary herald a trend towards greater use of non-custodial sentences, whose effectiveness in preventing rather than punishing crime may have long-term benefits?
    Mr. Mellor: I am not sure whether it is inconsistent to recognise on the one hand that there must be room for custodial sentences, even for some non-violent offences such as burglary, where it is the courts' duty to pass custodial sentences, when, on the other hand, my right hon. and learned Friend is only too well aware of the need for fresh imagination in dealing with less serious offences—something that he is considering.

    Civil Defence
    Mr. Bill Walkerasked the Secretary of State for the Home Department what research work has been carried out by his Department over the past five years to determine the most cost-effective means of using the civil defence budget.
    Mr. Hurd: We keep expenditure under continuous review, but decisions on the size of the civil defence budget and its effective use are essentially policy decisions for Ministers.
    Mr. Walker: I thank my right hon. Friend for that answer. Are any Home Office staff employed exclusively to monitor the efficient use of the limited budget available?
    Mr. Hurd: Yes, we have a division in which this is included as a responsibility and we are considering whether and how it should be strengthened to deal with implementation of the regulations approved by Parliament in December.

    Central London (Traffic)
    Mr. Nicholas Bakerasked the Secretary of State for the Home Department what representations he has received about the regulation of traffic in central London.
    Mr. Hurd: A considerable number, on a wide variety of subjects.
    Mr. Baker: Will my right hon. Friend inform himself about the traffic experiments being conducted by the Metropolitan police, with often unnecessary mini-roundabouts and traffic lights such as those at Hyde Park corner, which actually slow the traffic down rather than hurrying it up? Will he discourage the Commissioner from undertaking such experiments?
    Mr. Hurd: The Commissioner has been removing policemen from traffic duties. I should not like to speculate as to the effect of that on the traffic. I shall look into the point that my hon. Friend raises. A large part of our correspondence on these matters complains of too much regulation, while most of the rest complains that there is too little.

    Civil Defence
    Mr. Leighasked the Secretary of State for the Home Department if he will seek discussions with his French counterpart about civil defence capability.
    Mr. Hurd: We and the French Government are represented on the NATO Civil Defence Committee, which develops guidelines for civil defence programmes and provides a useful forum for discussion.
    Mr. Leigh: Has my right hon. Friend noted that French policy is to evacuate civilians from high-risk areas and to require all new buildings in towns with more than 50,000 people to have shelters? Will he comment on that?
    Mr. Hurd: Yes, I have noted that. Every NATO country sets about the problem in a somewhat different way. We have made judgments on both matters, but they are kept under continuous review, especially the question of evacuation.

    Thames Valley Police
    Mr. Andrew MacKayasked the Secretary of State for the Home Department if he will make a statement on police manning levels in the Thames Valley force.
    Mr. Brittan: During the past five years the strength of the Thames Valley police has increased by 516, from 2,653 to 3,169 at the end of January 1984. It is the responsibility of the police authority to fix the authorised establishment of the force, subject to my approval. Since May 1979, 270 additional police officer posts have been approved for the Thames Valley police, bringing the establishment up to 3,267. I understand that the 100 posts that I authorised last November will be filled by July 1984.
    Mr. MacKay: Does my right hon. and learned Friend agree that police to population manning levels in Thames Valley are still very low and that there is great pressure on the force because it has to attend the Greenham common base to protect a national deterrent?
    Mr. Brittan: That is right and it has been recognised by extra financial provision. The first point raised by my hon. Friend is recognised in the fact that Thames Valley police has had the largest increase of any non-metropolitan police force since January 1979.
    Mr. John Fraser: Why does the Home Secretary praise the police for employing more people and spending more money when his colleagues castigate local government for doing exactly the same thing?
    Mr. Brittan: I think that the hon. Gentleman will find that there is no difference of opinion in the Government about the priority to be given to law and order and the means of securing it.

    Licensing Hours
    Mr. Greg Knightasked the Secretary of State for the Home Department if he will introduce legislation to permit flexible licensing hours in England and Wales.
    Mr. Mellor: We have at present no plans to do so. Any decision to relax the licensing laws in England and Wales must be compatible with our strategy for helping to prevent alcohol misuse.
    Mr. Knight: Does my hon. Friend agree that in this age of enlightenment—the age of the microchip, men in space and nuclear power—it is ludicrous that an Englishman still cannot buy a pint of beer in the middle of the afternoon or visit a public house after 11 pm? Does he agree that our archaic licensing laws should be brought up to date forthwith, to bring us more into line with the rest of Europe?
    Mr. Mellor: I am much moved by the eloquence of my hon. Friend's plea. As he well knows, however, there is another case to be made, and that is about the increasing problem of alcohol abuse in our community. The arrangements that he seeks have applied in Scotland for some years and my right hon. Friend the Secretary of State for Scotland proposes to examine closely the impact of that. I believe that we should wait until we have the benefit of that report before reaching any final conclusions for England.
    Mr. Key: Does my hon. Friend agree that if ever there was a case for harmonisation with our European Community partners, it is in respect of the increasing number of British vineyards, which are not allowed to offer the degustation facilities that are available in other Community countries? Would that not be a major boost to Britain wine producers?
    Hon. Members: Hear, hear.
    Mr. Mellor: There is no doubt that this question is bringing out the best in my hon. Friends. I am sure that my hon. Friend has a point.

    Crime and Violence
    Mr. Woodasked the Secretary of State for the Home Department whether he will make a statement about recent levels of crime and violence.
    Mr. Mellor: The number of offences of violence against the person recorded in 1983 was 111,000, 2 per cent. more than in 1982. The rate of increase was the lowest in the last 10 years. The number of robberies fell by 3 per cent. The total of all notifiable offences recorded by the police in 1983 fell by 1 per cent.
    Mr. Wood: All hon. Members will welcome that news. Does my hon. Friend believe that the significant factor has been bringing policemen back on the beat? Secondly, are there things that individual citizens might do to help reduce the level of crime?
    Mr. Mellor: I am certain that returning police officers to the beat has materially helped, and that it will help even more in the years ahead: As well as taking precautions to protect themselves against the most common crimes of burglary and auto crime, I hope that individuals will participate and co-operate with the police in the burgeoning neighbourhood watch schemes. A true

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    partnership between the police and the community could send our crime figures down even more, and that is what we hope to achieve.

  PRIME MINISTER

    Engagements
    Mr. James Lamondasked the Prime Minister if she will list her official engagements for Thursday 15 March.
    The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today. This evening I shall be holding a reception for the Commonwealth Parliamentary Association.
    Mr. Lamond: Now that the Government have turned their attention to bullying teachers of peace studies, would it not be even-handed if they also looked at the sabre-rattling speeches often made on school speech days, such as the one made by Lord Home in north London recently? Lord Home praised nuclear missiles and said that the Russians were not to be trusted in negotiations. Is not that point of view contrary to the Government's latest policies, or is this just another case of an ex-Prime Minister trying to pull the rug from under the current Prime Minister?
    Mrs. Thatcher: I welcome Lord Home's speeches. I only wish that more young people could hear them and pay attention to them.
    Mr. Lyell: While praising the miners' union for making strike ballots possible, will my right hon. Friend condemn those who seek to frustrate them by violence and intimidation? Above all, will she make it crystal clear that there will be no repeat of the events at Saltley cokeworks under the present Government and that the law will be fairly but firmly enforced?
    The Prime Minister: Most of the miners want either to go in to work in peace or to go in to exercise their right to ballot. Those are both peaceful, law-abiding pursuits. It is the duty of the police to uphold people's rights to go about their law-abiding business in peace. They have powers to limit the number of pickets, to disperse pickets and to prevent excessive numbers of pickets from assembling. If necessary, they can stop vehicles carrying pickets. They have the resources and the facilities for mutual support which they require. I am certain that the police will carry out their duty of upholding the rights of law-abiding citizens to go about their duties. In that they will have the full support of the Government and the overwhelming majority of the people, including the miners.
    Dr. Owen: Although there must be no equivocation on upholding and enforcing the rule of law on pickets, will the Prime Minister acknowledge—as she said herself—that most miners want to work and that the real anxiety is not redundancy pay but the feeling in many of the communities associated with mines that there will be no jobs? Will the Prime Minister look at BSC Industry Ltd., which has created 19,000 jobs since 1978 in steel communities that have been hit by closures and consider introducing a similar NCB Industry Ltd. to create jobs for miners who are threatened by pit closures?
    The Prime Minister: I know of the job-creating activities of the British Steel Corporation. It was extremely successful, especially in places such as Corby. The real way to keep jobs in coal is to concentrate production on the newest and most excellent mines and try to reduce expensive production at the loss-making mines. In that way there will be a very good future in the coal industry for sales in Britain and exports overseas.
    Dr. Marekasked the Prime Minister if she will list her official engagements for Thursday 15 March.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Dr. Marek: Why does the Prime Minister continue to block questions on Oman tabled by the shadow Leader of the House? What has she to hide? Will she now say whether she has met Mr. Jamil Amyuni, the middle east director of Cementation Ltd.? If she has, when and where did she meet him and what did they discuss?
    The Prime Minister: I have not met the gentleman in an official capacity—I do not answer in any other capacity from the Dispatch Box. With regard to answers on Oman, I have answered repeatedly that I did not raise the interest of any individual companies which at that stage could have been interested in securing the right to negotiate on aspects of the university project. I raised, as I was advised to do, Britain's general interest in all aspects of the project. During my tour round the Gulf, which was intended to help get jobs for Britain, contracts came to Britain as follows: National Guard hospital in Saudi Arabia—the total value of that contract to date is £120 million; Hawk trainer aircraft for the Emirates and later for Kuwait on another visit—the total value of those contracts granted to British Aerospace is approximately £160 million; a major defence contract in Qatar—total value £70 million; memorandum of understanding to BP for the exploration of the north-west Dome gas field in Qatar. In India, during the April visit I raised the issue of the power station and a coal mine project, subsequently granted to Northern Engineering Industries, and valued at about £250 million. I was trying to get business for Britain, in spite of the miserable-minded people opposite.
    Mr. Neil Hamilton: Although I accept my right hon. Friend's statement about police powers to deal with civil disorder, is she satisfied that those powers are being used effectively and that the law is being enforced?
    The Prime Minister: Police constables are making strenuous efforts to uphold the law and I believe that we should give them every support.
    Mr. Penhaligonasked the Prime Minister if she will list her official engagements for Thursday 15 March.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Penhaligon: Can the Prime Minister explain to my constituents why the Government have decided that people who let homes for holiday use by the week, fortnight and month should pay less tax on their income and investment than people who let houses for family homes?
    The Prime Minister: If that is correct, it is a matter that the hon. Gentleman must take up with my right hon. Friend the Chancellor.
    Mr. Kinnock: Will the Prime Minister today instruct the Chancellor to withdraw his take-away tax, as many people now realise that it is unfair in its effect and absolutely plain daft in its operation?
    The Prime Minister: No, Sir. If that is the only complaint that the right hon. Gentleman has of the Budget, it shows the paucity of his argument and his contribution.
    Mr. Kinnock: I have many complaints about the Prime Minister and her Government, but since I do not have as much time during Question Time as the Prime Minister, I cannot list them all. How can she justify taxing the food of some of the least well-off people in Britain while at the same time giving major tax concessions to people with savings of more than £70,000?
    The Prime Minister: The right hon. Gentleman complains about my right hon. Friend the Chancellor extending the VAT base as he did. I remind him that in April 1974 the Labour Government extended VAT to confectionery, soft drinks, ice cream and potato crisps. In April 1975 the Labour Government applied VAT of 25 per cent. to electrical appliances, radios, televisions, hi-fi, boats and caravans, which nearly ruined those industries.
    Mr. Kinnock: Will the Prime Minister now answer the question, instead of referring to something that happened 10 years ago, 2 million jobs ago and £40,000 million worth of oil revenue ago? Will she tell the House how she justifies giving huge tax concessions to some of the best-off in society while imposing major taxes on the foodstuffs of some of the poorest people?
    The Prime Minister: The right hon. Gentleman knows that we raised thresholds, which obviously affect—[Interruption.] Obviously right hon. and hon. Gentlemen do not want to remember that. Under the Conservative Government the real value of thresholds rose, but it did not under Labour. We believe in justice for all taxpayers.
    Mr. Beaumont-Dark: Does my right hon. Friend accept that all hon. Members understand that the law on picketing is meant to be good enough to enforce the rights of people who want to work, and of those who wish to strike? Does she accept that that law has done nothing to stop the flying cohorts of intimidation of Scargill, and that unless the police are given the powers and the reinforcement to stop such intimidation the law will be held in disrespect and the intimidation of those who wish to work will grow?
    The Prime Minister: I agree with my hon. Friend that intimidation and violence must not win. I made it clear that the police have the powers to limit the number of pickets, to disperse excessive pickets, to prevent excessive numbers of pickets from assembling and, for that purpose, to stop vehicles carrying pickets if necessary. They also have the resources and facilities of mutual support. The police are active in upholding the rights of citizens to go about their lawful business. We should condemn all those who seek to prevent people from going about their normal business and should support the police in every way.
    Mr. Cyril D. Townsend: While I bear in mind the Prime Minister's admirable message to President Alfonsin of Argentina following his democratic election, is it not
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    in the interests of Britain, the Falkland Islands and Argentina to restore diplomatic and commercial relationships? Has not the time come to deal direct with diplomats of that country, rather than work through the protecting powers?
    The Prime Minister: It would be difficult to restore diplomatic relations until Argentina said that hostilities towards us had permanently ceased, as it was the invading power. It is wise to try to restore normal commercial relations, and that we are seeking to do.
    Mr. Ray Powellasked the Prime Minister if she will list her official engagements for Thursday 15 March.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Powell: Is the Prime Minister aware that she is now known throughout the country as "take-away Thatcher" as she has taken away school meals, school milk, 3 million jobs and trade union rights? Is it not time that the Government realised that the miners will fight for their rights, as will the 10 million trade unionists in this country?
    The Prime Minister: The hon. Gentleman should also note that the Government over which I have presided have taken away national insurance surcharge, many of the top tax rates, which were stopping enterprise, some of the tax burden from people by raising thresholds, and reduced the standard rate of income tax from 33p to 30p. The fact that those taxes have been taken away from people, and that the tax on jobs has been removed, was welcomed both by those seeking employment and employers.
    With regard to what the hon. Gentleman said about the miners, I believe that the majority of miners are law-abiding, do not like violence or intimidation, wish to go to their place of work and wish also to have the right to ballot, which is being denied them at present.
    Mr. Michael Forsyth: If Mr. Arthur Scargill and his colleagues in the National Union of Mineworkers believe that there is a future for loss-making pits, will my right hon. Friend give them the opportunity to prove that by transferring those pits lock, stock and barrel to the NUM?
    The Prime Minister: If they wished to have a management buy-out, I am sure that we would consider it sympathetically.
    Mr. Eadie: Since the Prime Minister has announced to the House that she is very much in favour of ballots by miners, will she make her contribution to such ballots by giving the miners an opportunity to vote on whether they want Ian MacGregor to remain as chairman of the National Coal Board?
    The Prime Minister: The issue of who holds management positions is not a matter for ballots; whether or not there should be a strike is a matter for ballots. I did not notice the Labour Government giving the right to ballot on who should be chairman of the National Coal Board. Of course, they did not. They would not have been so damned silly.

Business of the House
3.30 pm
Mr. Neil Kinnock: Will the Leader of the House state the business of the House for next week?
The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen): Yes, Sir. The business for next week will be as follows:
MONDAY 19 MARCH—Conclusion of the debate on the Budget statement. Lords amendment to the Education (Grants and Awards) Bill. Motion on the European Assembly Constituencies (Wales) Order.
TUESDAY 20 MARCH—There will be a debate on a motion, to take note of the sixth to thirtieth reports in Session 1981–82 from the Committee of Public Accounts, the first to eleventh reports and the first special report in Session 1982–83, and the first to ninth reports in Session 1983–84 and the relevant Government observations.
Motion on the Rate Support Grant Supplementary Report (England) (No. 2)
WEDNESDAY 21 MARCH—Opposition day (eleventh Allotted Day) (Second Part): There will be a debate on an Opposition motion on fuel costs and poverty.
Motion on European Community document 7619/83 on developments in information technology (esprit)
Motion relating to overseas travel for the Computer Sub-Committee of the House of Commons (Services) Committee.
Consideration of any Lords amendments which may be received.
The Chairman of Ways and Means has named opposed private business for consideration at seven o'clock.
THURSDAY 22 MARCH—There will be a debate on foreign affairs, on a motion for the Adjournment of the House. Afterwards, a debate on CAP price proposals. The relevant document numbers will appear in the Official Report.
FRIDAY 23 MARCH—Private Members' Bills
MONDAY 26 MARCH—Progress on remaining stages of the Trade Union Bill.
The House will wish to know, Mr. Speaker that it will be proposed that the House should rise for the Easter adjournment on Friday 13 April until Wednesday 25 April.
[European Community Documents and relevant

Reports of European Legislation Committee.

Debate on 21 March (ESPRIT) (7619/83)

see HC 78-i (1983–84) para. 10

Debates on 22 March

The following documents are relevant:

(i) Foreign Affairs

4972/84 and 497211184 Commission Communication on Budget Discipline

see HC 78-xix para. 3 and HC 78-xx

(ii) CAP Price proposals

4326/84 ADD 1,2,3 Commission Proposals on the fixing of prices for certain agricultural products

4266/84 Report on the agricultural markets 1983 (unnumbered) Import of maize by-products

see HC 78-xix para. 1 and 2.]

Mr. Kinnock: I thank the Leader of the House for his announcement of the foreign affairs debate next Thursday, which will be on the Adjournment of the House. May we have a continued foreign affairs debate, since there is such a diversity of matters of concern that one debate in Government time is not likely to be enough during the next couple of months?
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Although the right hon. Gentleman has arranged that the debate on the common agricultural policy will be on the Adjournment, can he assure the House that there will be discussions to change the format of the motion if events during the next week require it?
May I point out to the right hon. Gentleman that we shall still wish to have a debate in Government time on the European summit as quickly as possible after the conclusion of the summit on 20 March?
Mr. Biffen: I accept that the European summit meeting next week will require consideration by the House as soon as possible and it will be subject to the usual discussions through the usual channels.
I confirm that the debate on the CAP price proposals, which now stands on a motion for the Adjournment of the House, could be revised in the light of subsequent developments.
I note the right hon. Gentleman's generosity in acknowledging the value of having a foreign affairs debate next week and his near greed in suggesting another reasonably shortly thereafter—not greed, mere optimism.
Dr. David Owen: May I explore that answer a little more carefully with the Leader of the House? Is he saying that the debate on Thursday will become a debate on the European summit on a motion rather than on the Adjournment of the House if there were to be a serious breakdown in the discussions? May I put it to the right hon. Gentleman that it is quite unacceptable that we should now be having the 11th Labour Supply day? Despite calling them Opposition days, they are completely monopolised by the Labour party, which decides whether any other party can have time. It has told us that they will be entirely Labour days and that no more days will be offered to any other Opposition parties. Is that fair and just? How does the right hon. Gentleman explain that in his role, not as a Conservative politician, but as Leader of the House with responsibility to all parts of the House?
Mr. Biffen: I am obliged by the rules of the House and until they are altered I shall continue to conduct my affairs as I do.
Dr. Owen: Change them.
Mr. Biffen: As to the earlier point, if the right hon. Gentleman consults Hansard he will see that the Leader of the Opposition had in mind the second debate on Thursday 22 March on the CAP price proposals.
Dr. Owen: That is not good enough.
Mr. James Molyneaux: In case there might be a misunderstanding may I place on record our appreciation of the fact that the Opposition have granted us our fair share of their Supply days?
Does the right hon. Gentleman intend to table a motion next week making it possible for us to debate our prayer against the Regional Rates (Regional Rate) Order (Northern Ireland) 1984 in the Select Committee on Statutory Instruments?
Mr. Biffen: I note the right hon. Gentleman's first point. I think it unwise for me to intrude into these relationships. It is bad enough conducting my job strictly on the terms of reference of the rules of the House.
I am happy to look at the right hon. Gentleman's second point. I can promise nothing, but perhaps it can be considered through the usual channels.
Mr. John Heddle (Mid-Staffordshire): Has my right hon. Friend seen early-day motion 567, which relates to an order tabled by my right hon. Friend the Secretary of State for the Environment?
[That an humble Address be presented to Her Majesty, praying that the Rating (Exemption of Unoccupied Industrial Hereditaments) Regulations 1984 (S.I., 1984 No. 221), dated 28th February 1984, a copy of which was laid before this House on 8th March, be annulled.]
Will my right hon. Friend try to find time next week or the week after to debate that matter, bearing in mind that the order will come into effect on 31 March? There are Conservative Members who do not consider that the order, which extends wide-ranging relief to industrial premises, achieves our manifesto commitment.
Mr. Biffen: I shall look at the point that my hon. Friend raises but I do not want him to be too optimistic.
Mrs. Renée Short: Is the Leader of the House aware that the Select Committee's report on the Griffiths proposals is published today? As the Secretary of State for Social Services has expressed the wish that there should be a debate in the House as early as possible, will he bear that in mind and see whether it is possible to have such a debate before the Easter recess?
Mr. Biffen: I am happy to reaffirm that I regard it as an important topic. I can make no promises, but I shall certainly consider the matter sympathetically.
Mr. Tony Marlow: Since our accession to the European Community was a major constitutional issue, confirmed later by referendum, which is limited in its financial implications to the 1 per cent. VAT ceiling, if, at a later stage that were to be increased, that would again have major implications for our constitution and sovereignty. Does my right hon. Friend agree that in those circumstances it is important that the matter should be fully debated and that primary legislation should be brought before the House?
Mr. Biffen: The most prudent thing that I can say at this stage is that it would be foolish for me to try to anticipate the outcome of the European Council meeting.
Mr. Max Madden: The Leader of the House will have seen early-day motion 578 entitled "Parliamentary Inquiries and Use of Select Committees". He will be aware that a number of hon. Members have withdrawn from the Register of Members' Interests in protest at the recent remarks of the chairman of the Select Committee. Will he tell the House where the Select Committee now is in regard to the formal complaints which have been made regarding the Prime Minister's involvement with and knowledge of her son's business interests?
[That this House notes that the Select Committee on Members' Interests has been considering formal complaints alleging the Prime Minister's failure to declare and to register her interests in relation to the Cementation contract in Oman; and believes that the House should use its committees to clear the matter up and end public speculation.]
Mr. Biffen: I understand that the Select Committee on Members' Interests is meeting this afternoon, and our Order Paper informs us of that fact. I am sure that the whole House will be concerned to have an early report from the Committee.
Dr. Alan Glyn: Will the Leader of the House consider extending the length of the foreign affairs debate, as we are to have only one day's debate on subjects that are very far-ranging at this time?
Mr. Biffen: I shall certainly look at that proposition.
Mr. Eddie Loyden: As the situation in Liverpool at the moment should be of great concern to the right hon. Gentleman and to the Government, will he arrange in the vey near future for a debate on the Floor of the House in order that this matter can be discussed fully?
Mr. Biffen: Certainly no provision has been made for next week, but I shall draw the attention of my right hon. Friend the Secretary of State for the Environment to the point that has just been made.
Mr. Nicholas Budgen: Will my right hon. Friend agree that, if the Government apply for an increase in the own resources of the EEC, they should honour the undertaking given by my right hon. Friend Lord Whitelaw on 24 November 1977 that this should be done only by Act of Parliament?
Mr. Biffen: As we are not yet at that ditch, I am not prepared to jump.
Mr. Gavin Strang: Is the right hon. Gentleman aware that it is quite unprecedented and disgraceful for the debate on the common agricultural policy annual price proposals to take place after 10 o'clock? Is he aware that for over 10 years that debate has been the one day's debate on the agricultural industry generally and that to have it after 10 o'clock is not only unacceptable to the House but an insult of the hundreds of thousands of people who earn their living in the agricultural and food industries?
Mr. Biffen: I appreciate the feeling with which the hon. Gentleman speaks. I am not sure that what is now being proposed is wholly without precedent. I have to take account of the very considerable interest there is in the House that we should have a foreign affairs debate, and we simply have to proceed along the lines that I have indicated.
Mr. John Browne: Will my right hon. Friend accept that there is a growing use of space for both active and passive military purposes, which is leading to growing concern among a large number of people? Please may we have a debate on this subject so as to prevent the unnecessary proliferation of active military uses of space?
Mr. Biffen: I think that that is a campaign which my hon. Friend can best further by himself seeking an Adjournment debate.
Mr. Doug Hoyle: Has the right hon. Gentleman seen early-day motion 560 on hare coursing? It is signed by 68 right hon. and hon. Members and calls for the introduction of a Bill to bring to an end this barbaric sport? Will he allow time for it to be debated, because the majority of the population want that to be done as quickly as possible?
[That this House calls for the reintroduction of the Hare Coursing Bill and for the Government to provide Parliamentary time in order to bring to an end this barbaric sport as quickly as possible.]
Mr. Biffen: Any legislation on this topic would probably proceed, but through the normal disciplines of private Member's time.
Mr. Peter Bruinvels: Is my right hon. Friend aware of the serious disquiet felt regarding the

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Lion intoximeter 3000, as reported in the Daily Express? Will he provide time for an urgent debate on the subject, since the machine seems to be completely unreliable?
Mr. Biffen: I wish my hon. Friend every success in the Adjournment debate that I know he will now seek.
Mr. Robert Parry: Will the Leader of the House ask his right hon. Friend the Chancellor of the Exchequer to consider the substantial loss of earnings by British seamen caused by his Budget proposal to phase out tax relief on overseas earnings? Is it not scandalous that seamen who have to work all over the world to earn their living should be bracketed with the very rich who spend most of their lives on world cruises?
Mr. Biffen: The problem of seamen's earnings could well be referred to either later today or on Monday, when there will be debates on Budget proposals.
Mr. Dennis Skinner: Following on what the leader of the Social Democratic party said on the allocation of Supply days, will the Leader of the House take into account the fact that there might be an opportunity if the leader of the SDP joined with the leader of the Liberals to decide on a debate in which the House could discuss why, although there is supposed to be joint selection, in the London, South-East constituency there is a Liberal and a Socialist—
Mr. Speaker: Order. I am sorry to keep on stopping the hon. Gentleman, but the Leader of the House is not responsible for that matter.
Mr. Skinner: I have not got to my point.
Mr. Speaker: Order. The Leader of the House is not responsible for negotiations or talks that go on elsewhere.
Mr. Skinner: It is a debate.
Mr. Speaker: Order. If the hon. Gentleman will put a question—
Mr. Skinner: I have done.
Mr. Speaker: A question about the business next week.
Mr. Skinner: If the Leader of the House cannot arrange such a debate next week—or any other week for that matter—will he take into account the fact that it will be difficult to arrange a Supply day on the night when the Leader of the SDP has a dinner arranged at £27.50 plus VAT?
Mr. Speaker: Does the Leader of the House wish to answer?
Mr. Biffen: Clearly, it is not a take-away dinner. Like most other topics for debate, it seems highly suitable for the Adjournment, and I can think of no better Member to raise it than the hon. Member for Bolsover (Mr. Skinner).

Collieries (Picketing)
3.46 pm
The Secretary of State for the Home Department (Mr. Leon Brittan): I will with permission, Mr. Speaker, make a statement about the picketing that has taken place at collieries in various parts of the country in the last few days.
The legal position is clear. Any attempt to obstruct or intimidate those who wish to go to work is a breach of the criminal law. The mere presence of large numbers of pickets can be intimidating. The police have the duty to prevent obstruction and intimidation, and enable those who wish to go to work to do so. They have the power to stop and disperse large numbers of pickets, and to take preventive action by stopping vehicles and people.
Picketing has been taking place in Durham, Leicestershire, Derbyshire, west Yorkshire, south Yorkshire, Lancashire and Wales. In those areas, the police have been able to ensure that those who wish to go to work are not physically prevented from doing so. The presence of pickets has, however, led to many miners feeling unable to go to work. Overall, 83 pits were working normally at the beginning of the week. Only 29 were doing so this morning.
There has, however, been substantial mass picketing in the Nottinghamshire area, and serious disturbances as a result. The police have been responding to this firmly. At any one time more than 3,000 police officers, from a total of 17 forces, in addition to the Nottinghamshire constabulary, are on hand. Of the 25 pits in the National Coal Board's Nottinghamshire area, seven today have been working normally; eight have been working at reduced capacity; seven have been open, but have had too few miners available to send men underground; three have not been working.
The most serious disturbances have been at Ollerton. The police estimate that as many as 500 pickets were present there last night and during the night a total of more than 200 officers were deployed. It was at Ollerton that a miner from Yorkshire, Mr. David Jones, died. I understand that a post mortem has been carried out, and that he died as a result of injuries to his chest. The House will wish to express its deep regret that this has happened. Although there is no reason to suppose that the police were involved in any way, the chief constable has decided in the circumstances that it would be desirable to have the case investigated by a senior police officer from a force not involved in providing support in Nottinghamshire. The House will understand that, in the circumstances, it would be inappropriate for me to comment in more detail on that incident.
Following the death of Mr. Jones, local management at Ollerton decided to end the night shift, all of whom had attended for work normally and the pickets moved away to other places. During events in Nottinghamshire yesterday, 10 arrests were made, and by the end of this morning some 33 arrests had been made since midnight.
I need hardly underline the seriousness of this situation. The law permits picketing for the purpose of peacefully communicating and persuading. What it does not permit is what some of the Nottinghamshire miners themselves, who have been the victims of disgraceful conduct, have called mob rule, and what is so horrifying is that it is mob rule that is being inflicted by miner upon fellow miner.

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Miners have the right to take part in a free ballot. In north Wales, Warwickshire and Staffordshire yesterday, they conducted a ballot to determine whether or not they will take strike action. The ballot starts in the Nottinghamshire coalfield today at 6 pm and is open for 24 hours. That ballot will be protected, and will go ahead.
A major co-ordinated police response, involving police officers from throughout the country, has been deployed to ensure that any miner who wishes to work at any pit may do so and any miner who wishes to vote may do so. I have made it clear to the chief constables concerned that they have my complete support in taking every measure open to them within the law to keep the peace and protect the right to work and to vote. The objective of the police is to prevent intimidation, obstruction and other criminal offences. They have mobilised every available officer in order to disperse excessive numbers of pickets. The police have extensive preventive powers under the common law, including, for example, the power to stop coaches, cars and people on foot who are clearly intent upon joining mass picketing which has become intimidatory, either because of the risk or threat of violence or simply because of the sheer numbers involved.
The House may have heard of an agreement recently announced between Mr. Chadburn and Mr. Arthur Scargill, which may lead to the withdrawal of Yorkshire pickets from Nottinghamshire. It does not, of course, affect in any way what I have said about the policy of the Government, the duties of the police, or the rights of the citizen under the law throughout the country. I have asked Sir Lawrence Byford, Her Majesty's Chief Inspector of Constabulary, to keep in close touch with the chief constables of the areas concerned. He has left for Nottinghamshire in the first place, and will report personally to me later today.
I look to the whole House to condemn unreservedly any attempt to force miners not to work if they wish to do so, or to intimidate them from voting freely in the ballots now taking place. The right of miners who want to work and vote is something that is fundamental to a free society. The police are currently doing everything in their power to uphold that right. In doing so, they will have the fullest support of the Government and, I am confident, of the House.
Mr. Gerald Kaufman: First, on behalf of my right hon. and hon. Friends, I wish to express our sorrow at the death of Mr. David Jones, and to offer our sympathy to his wife and family in their sad and untimely bereavement.
We in the Labour party condemn all violence in all circumstances, and that includes condemnation of violence in pursuit of industrial disputes, even when it occurs among people who feel impotent in the face of the destruction of their jobs, their industries and their communities.
It is the duty of the Home Secretary, above all other Ministers, to seek to maintain the Queen's peace, yet he seems to regard it as his function to stir up difficult situations, instead of seeking to cool them down. He did that during the Warrington Messenger dispute. He did it again following the incidents involving Mr. Ian MacGregor when, in search of party advantage, he repudiated his own Minister of State's honest statement of the facts. He has done it again today in a statement that goes far outside his departmental responsibilities as Home
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Secretary, and it is deliberately calculated to inflame a situation that requires conciliation. We all know that it is the Prime Minister who has put him up to it. [Interruption.] The fact is that it is this Government who are directly responsible for this lamentable situation, first, by forcing on to the statute book legislation deliberately calculated to inflame delicate industrial problems, and, secondly, by appointing Mr. MacGregor to carve up the coal industry. When the Government did both these things, they must have known what would happen. They may even have hoped for it to happen. [Interruption.] They have a vested interest in provoking industrial anarchy. [Interruption.]
Mr. Ray Powell: On a point of order, Mr. Speaker. Can we not stop the noise of the rabble on the Government Front Bench?
Mr. Speaker: Order. I must say that it does not come from one side of the House only. Whatever is said from the Dispatch Box can frequently be somewhat difficult to listen to, but I think we should listen in silence to what the right hon. Gentleman has to say.
Mr. Kaufman: The fact is that this Government have a vested interest in provoking industrial anarchy Only a few days ago, the Select Committee on Energy criticised Mr. MacGregor directly for his approach to the creation of redundancies. The fact is that the chairman of the National Coal Board is seeking to implement a unilateral closure plan without any proper consultation with the National Union of Mineworkers. The Government should now intervene by acting to bring the parties together so that a sensible plan can be worked out for the industry producing this most precious and essential fuel.
The Home Secretary has just asked the House to condemn unreservedly any attempt to force miners not to work, if they wish to do so. It is the Government's policies that are condemning not only miners, but 3 million others, not to work when they wish to do so.
Mr. Ivor Stanbrook: On a point of order, Mr. Speaker. I know that a certain latitude is allowed to Opposition Front-Bench Members, but is not a statement an occasion when questions should be asked about it, rather than a counter-statement lasting almost as long as the original statement?
Mr. Speaker: The hon. Member is quite right; latitude is given to the Front Bench, but I think that the right hon. Gentleman is coming to his last page.
Hon. Members: Page?
Mr. Kaufman: That is true, Mr. Speaker. As always, you anticipated correctly what I was going to do.
The person responsible for this sorry situation is the Prime Minister. [HON. MEMBERS: "Question.") It is she—[HON. MEMBERS: "Question."] It is she who appointed Mr. MacGregor to butcher the coal industry. It is she—[HON. MEMBERS: "Question."] It is she who has ordered the Home Secretry to make this provocative statement today. It is she who said, "Where there is hatred, let me sow love; where there is despair, let me sow hope." The Prime Minister has sown hatred and despair. [HON. MEMBERS: "Question."] I hope that she is satisfied with what she has done. [Interruption.]
Mr. Brittan rose—[Interruption.]
Mr. Speaker: Order. I ask the House, in a very highly charged situation, to conduct our discussions here in calmness.
Mr. Cyril D. Townsend: On a point of order, Mr. Speaker. Surely we are going way beyond the normal conventions? A statement has been made from the Opposition Front Bench. Is not the whole point of questioning by the Opposition to elucidate the statement made by the Home Secretary, not to make a highly flamboyant statement in such situations?
Mr. Speaker: I repeat to the House that this is a highly charged situation, inside and outside the House. I think that in the House we must today give a lead to the rest of the country.
Mr. Brittan: The right hon. Member for Manchester, Gorton (Mr. Kaufman) began what purported to be his questions on my statement with a condemnation of violence whatever its cause or source may be. Every single word that he uttered after that showed that that condemnation was no more than a ritual wringing of hands. [HON. MEMBERS: "Hear, hear."] The right hon. Gentleman had the effrontery to accuse me of stirring up incidents and of going beyond my departmental responsibility when I stated the facts, stated the law and stated my support for the police in upholding the law. The House will judge who is going beyond his responsibilities and who is unworthy of the office to which he aspires.
Mr. Jim Lester: I say on behalf of the Nottinghamshire miners in my constituency, who are both responsible and democratic, that they feel closer to what my right hon. and learned Friend said than to the statements of others—
Mr. Dennis Skinner: Question.
Mr. Lester—as they seek merely the right freely to vote on issues that they understand far better than anyone from Manchester.
Mr. Brittan: I am grateful to my hon. Friend for what he has said. Those who know him will be aware that he did not utter those remarks lightly and that what he says represents the views of his constituents.
Mr. J. D. Concannon: Is the Home Secretary aware that I would have preferred him not to make a statement today against the background of the highly charged atmosphere in Nottinghamshire, including my constituency? I appeal to all right hon. and hon. Members to recognise that an agreement has been made and that there will be a ballot in Nottinghamshire during the rest of today and tomorrow, which will be assessed on Sunday morning. The time to talk will be after the result of the ballot is announced on Sunday morning. I hope that the House will kindly belt up. I shall have to return to a highly charged atmosphere in Nottinghamshire, especially Mansfield, which is doing no one any good, least of all the National Union of Mineworkers.
Mr. Brittan: I am sure that the House will respect the right hon. Gentleman's desire that the ballot should go ahead peacefully, and that is exactly what we are seeking to ensure. However, after the events of yesterday, which are fortunately still rare in our national affairs, the House would have judged me to have failed in my duty if I had not made a statement on what had happened.
Mr. Eldon Griffiths (Bury St. Edmonds): Does my right hon. and learned Friend agree that one of the most difficult tasks of the police is to strike a balance between enforcing the law to enable people to vote and to work freely, and upholding the Queen's peace, which quite frequently requires them to use minimum force, thereby avoiding any unnecessary escalation of violence? Will he tell the House that it does not assist the police in striking that balance, which they do better than any other police force in the world, if there are inflammatory remarks in this place which can make their job only much more difficult?
Mr. Brittan: I entirely agree with my hon. Friend that inflammatory remarks do not help the police in the discharge of their duty.
Mr. Kaufman indicated assent.
Mr. Alexander Eadie: I hope that the Home Secretary will reflect on his statement, which on any description was not helpful in easing what my right hon. Friend the Member for Mansfield (Mr. Concannon) has described as a difficult and inflammatory situation. Why did the right hon. and learned Gentleman not place more emphasis on the agreement that has been made between Nottingham and Yorkshire that the violence, or the picketing, should end? Does he agree that a voluntary agreement is far better than violence or reaction?
Mr. Brittan: I referred to the agreement that the hon. Gentleman has mentioned. However, when events of this sort occur, I consider it my duty to make it clear that the police have the resources and the support to enable the law to be enforced. It would be a sad day for Britain if it should be regarded as matter of controversy to suggest that people should be able to go to work if they want to do so.
Sir John Osborn: Is my right hon. and learned Friend aware that as the only Conservative Member in south Yorkshire I should welcome an agreement between the miners of Nottingham and south Yorkshire? But is it not a fact that the intimidation and the consequences of intimidation may influence the ballot one way or the other? Miners have been subject to the flying picket and the brutality that goes with it, which could influence their decisions in future. Can my right hon. and learned Friend assure me that flying pickets have now ceased their activities throughout the country, especially when 30 or 40 of them use private vehicles to arrive at the pithead at short notice? That is something that miners fear.
Mr. Brittan: I fully understand my hon. Friend's anxiety that the ballot should be a genuinely free one. It is precisely to stress that and to seek to ensure it that I have made a statement outlining the powers of the police and their readiness to enforce them for the purpose that my hon. Friend has in mind. I cannot give my hon. Friend the assurance that nowhere in the country will there be flying pickers, for that is not within my gift. However, I can give him the assurance that everyone involved is well aware of what his duty is in the maintenance of law and order and will have my support in carrying out that duty.
Mr. A. J. Beith: Is the Home Secretary aware that in Northumberland, to which he did not refer, many pickets came from the Durham area to picket collieries such as Ellington, which voted overwhelmingly against striking, and suggested that if miners continued to report for work many more pickets

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would shortly arrive? Does he recognise that this is intimidatory action that prevents those who want to work from going to work, and action that prevents a pithead ballot from taking place? Does he think that Mr. Scargill, or the occupants of the Opposition Front Bench, have recognised that if they want to save jobs in the coal industry they must seek to win the argument with the public and not bring fear and violence to miners and their families?
Mr. Brittan: I am grateful to the hon. Gentleman for supplementing the facts that I presented to the House. He has underlined the importance and the necessity of taking the action that has been taken to protect the rights of individuals to work and to vote.
Mr. Andy Stewart: I thank my right hon. and learned Friend for his statement, bearing in mind the difficult conditions and the deplorable situation which arose yesterday evening in my constituency. I was there for the early part of last night and it was a deplorable scene. My constituents want to know whether they will have the protection of the law in going to work next week if they decide not to strike.
Mr. Brittan: They will have every protection that the forces of law are capable of giving.
Mr. John Home Robertson: Did the Home Secretary hear the Prime Minister say a short while ago that the miners want to work? Is he aware that just for once the right hon. Lady is right and that miners throughout the country are fighting for the right to work? If he wants to use the forces of law to ensure that people can go to their work, when will he initiate prosecutions against Mr. MacGregor and the man sitting beside him, the Secretary of State for Energy?
Mr. Brittan: If the hon. Gentleman is serious about prosecutions, no doubt he will refer them to the relevant prosecuting authorities.
Mr. Timothy Yeo: Has my right hon. and learned Friend had time to note the statement made by the general secretary of the TUC this afternoon, roundly condemning the violence that has taken place in the coal mines? Does he share my concern that no such condemnation has yet come from the president of the National Union of Mineworkers or the Opposition Front Bench? As it appears that over the past two or three days intimidation has affected the outcome of the ballot that is due to take place in certain coal fields, will my right hon. and learned Friend make a further statement next week about steps to be taken to prevent similar occurrences in future?
Mr. Brittan: Every statement condemning violence, especially from such a prominent source as the one to which my hon. Friend referred, is extremely welcome. Everyone must make his own decision on what his conscience causes him to do and not to do.
Mr. Neil Kinnock: You do that.
Mr. Brittan: As for the future, we must concentrate on ensuring that a free ballot takes place. We shall watch the situation as it develops.
Mr. Bob Clay: Does the Home Secretary accept that, every time a group of workers show some signs of being able to protect themselves against the
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attacks made by the Government, the Home Secretary turns that into a law and order issue? Although he has been successful to some degree in that tactic up to now, will he accept that he and the Government are taking on, certainly in my constituency and in the Durham area generally, people who will become more and more determined to save their jobs and their livelihood in that coalfield, and that that determination will increase the more that he and his colleagues attack them?
Mr. Brittan: It is not a question of tactics. I do not see how the hon. Gentleman can talk about people protecting themselves when what he is describing is large numbers of people assembling, with the inevitable threat of disorder flowing from those numbers, for the express purpose of trying to prevent their fellow workers going to work when they want to do so.
Mr. David Ashby: Is my right hon. and learned Friend aware that in my area of north-west Leicestershire, where we have already suffered perhaps the greatest number of pit closures of any area in the United Kingdom, the miners are most anxious to continue working? Is my right hon. and learned Friend prepared to give them added protection so that they can beat the bully boys of Kent?
Mr. Brittan: The whole tenor of my statement has shown my desire that those who want to work have the right to work and will have the protection that the law can provide.
Mr. Max Madden: What discussions or consultations took place between the NCB and the Government before the NCB sought an injunction earlier this week, which in the view of many with long experience in the mining industry, was provocative and counterproductive and played no small part in the substance of the Home Secretary's statement?
Mr. Brittan: The answer to the question is none. It is completely irrelevant to my statement. What was occurring that led to the statement being made began long before an injunction was made.
Mr. Ivor Stanbrook: Is my right hon. and learned Friend aware that, despite what he said, there were many cases, some of them shown on television yesterday, in which the police failed to prevent violence being done to those who wished to work? Before there are any further mass pickets such as this, will he kindly ensure that there are adequate police and that they do their duty fully?
Mr. Brittan: In a situation such as that which we have seen, it is impossible to prevent every act of violence. It is our duty to make sure that the police have the forces, the strength, the support and the powers to do everything within their grasp to secure people the right to go to work and vote. That is what I shall make sure that they do.
Mr. Skinner: Is the Home Secretary aware that, when David Jones and his mates went into the Nottinghamshire coalfield, they were fighting to save the jobs of workers at Cortonwood, a pit that was threatened with closure within a few weeks of accepting men from another doomed pit? Does he not have a cheek to talk about trade union democracy when the Government removed the freedom and liberty of trade unionists at GCHQ, and have handed over trade union rule to the High Court judges—
Mr. Speaker: Order. The hon. Gentleman must stick to the question.
Mr. Skinner: This happens every time I speak.
Mr. Speaker: Order. The hon. Gentleman gets on to the point and gets off it again.
Mr. Skinner: No.
Mr. Speaker: Yes.
Mr. Skinner: No.
Mr. Speaker: Order. I am not prepared to have an argument about it. We must hear the answer.
Mr. Brittan: I understand the hon. Gentleman's difficulty and I sympathise with him—
Mr. Skinner: How can I be out of order when I have been asking questions?
Mr. Brittan: It cannot be agreeable for any of us, particularly the hon. Gentleman, to see one set of people in the industry physically facing, in a violent way, another set of people in the same industry. That is a matter of regret and to be deplored; the right way to determine these matters is in the normal democratic procedure that we are seeking to make possible.
Mrs. Elizabeth Peacock: I welcome my right hon. and learned Friend's statement wholeheartedly. Does he not agree that not only the miners are intimidated by flying pickets, but their wives and children as well, and that the wives and children fear not only for themselves but for their menfolk?
Mr. Brittan: I agree with that entirely.
Mr. Tony Benn: Is the right hon. and learned Gentleman aware of the charge being made against him—that, having employed Mr. MacGregor to destroy the right to work in the steel industry, having destroyed the right of those in Cheltenham to vote on trade union membership, and now having released Mr. MacGregor to destroy the right to work of 20,000 miners, what he said was insensitive, provocative, odious and hypocritical and that he should accept responsibility for everything that is happening in the coalfields?
Mr. Brittan: Faced with the facts that Mr. MacGregor is investing twice as much as the right hon. Gentleman did, and that pit closures were proceeding at a far faster rate under the previous Labour Government than under the present Government, I do not think that it lies in the right hon. Gentleman's mouth to make such accusations.
Mr. John Powley: Would my right hon. and learned Friend agree that the overwhelming majority of ordinary people find repugnant the activities that they have seen on their television screens connected with these disputes, and they know that the only Government on which they can rely to uphold and maintain law and order are the present Government?
Mr. Brittan: I agree with my hon. Friend's first observation. That is why the people are looking to this House to give a lead and to reflect what they feel by condemning violence and ensuring the right of people freely to go about their business.
Mr. Dennis Canavan: Is it not a clear case of double standards for the Prime Minister, or any
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Minister to criticise the NUM for using mass picketing to stop people from going to work when the Government have used the violent weapon of mass unemployment to stop over 3 million people going to their work and to intimidate whatever work force is left, and the same Government have provoked the dispute by appointing Ian MacGregor to preside over more pit closures that will stop even more people going to their work?
Mr. Brittan: The hon. Gentleman is being most unfair to the NUM. It is not the NUM that is stopping people from going to work but one part of the NUM trying to stop another part.
Mr. Skinner: There was a majority for a strike on day one.
Mr. Speaker: Order.
Mr. Skinner: Well, I am not allowed to say it when I stand up.
Mr. Tony Favell: Would my right hon. and learned Friend agree that one of the best ways to defuse this ugly situation would be for Labour Members to recommend the NUM to hold a national ballot?
Mr. Brittan: That goes beyond my statement, but Opposition Members will have heard my hon. Friend's suggestion.
Mr. Allen McKay: Will the right hon. and learned Gentleman tell the House the number of pits where violence has occurred and the number of pits that were picketed with no violence, as opposed to those that he has highlighted. Is he aware that in my constituency, to which the hon. Member for Bolsover (Mr. Skinner) referred, miners were transferred but a few weeks before to the Cortonwood colliery when another closed, and set the whole situation going?
Mr. Skinner: Thank you.
Mr. Brittan: I have said where the most serious incidents occurred and I have told the House what was going on in other parts of the country. I am not presenting a picture of violence throughout the country. I have been concise in what I have said. However, I am saying that even in those areas where people were not physically prevented from going to work, overall, 83 pits were working normally at the beginning of the week and only 29 were doing so this morning. The House will draw its own conclusions.
Mr. Francis Maude: Is my right hon. and learned Friend aware that in Warwickshire coalfield, where a free ballot has already taken place, there is great anxiety that the flying pickets should be kept out of the area and not allowed to the pit gates at all?
Mr. Brittan: I can understand that anxiety.
Mr. Ray Powell: Can the right hon. and learned Gentleman assure the House that there will not be the violence from the police that I experienced in my youth in the Rhondda valley, and make sure that the strikers and the pickets are protected by the law?
Mr. Brittan: The police will carry out their duties in accordance with the law, which involves not using violence unless they are attacked. If they are attacked, they will defend themselves.
Several Hon. Members rose—
Mr. Speaker: Order. I must protect the business of the House. We must move on.

Collieries (Picketing)

  WELSH GRAND COMMITTEE
  Ordered,
  That the matter of the Government response to the First Report from the Committee on Welsh Affairs, Session 1982–83, entitled Water in Wales (Cmnd. 9138) insofar as it relates exclusively to Wales, being a matter relating exclusively to Wales, be referred to the Welsh Grand Committee for their consideration.—[Mr. Biffen.]

Orders of the Day
  WAYS AND MEANS
  Order read for resuming adjourned debate on Question [13 March].
  WAYS AND MEANS

    AMENDMENT OF THE LAW
    Motion made, and Question proposed,
    That it is expedient to amend the law with respect to the National Debt and public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

    (a) for zero-rating or exempting any supply;

    (b) for refunding any amount of tax, otherwise than by a provision relating to supplies to, and importation by, a government department within the meanings of section 27 of the Value Added Tax Act 1983;

    (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or

    (d) for any relief other than relief applying to goods of whatever description or services of whatever description.—[Mr. Lawson.]

    Question again proposed.

  Budget Resolutions and Economic Situation
  [Relevant documents: European Community Documents: No. 10156/83, Annual Economic Report 1983–84, together with the final version as adopted by the Council.]
  4.19 pm
  The Secretary of State for Employment (Mr. Tom King): It is a convention that the Opposition give some guidance about the aspects of the Budget on which they wish to concentrate on certain days. My presence reflects their interest in the subject of employment. I welcome the opportunity to concentrate on that aspect of the Budget debate.
  As Secretary of State for Employment, I believe that this is a Budget for jobs, for a stronger economy and for a more prosperous Britain. Hon. Members would not dispute the fact that the most intractable problem faced by all Western Governments—be they Socialist in France, Christian Democrats in Germany or Liberals in coalition in Holland—is the scale of unemployment. Those in government know that there are no easy panaceas to the problem.
  Oppositions pretend that there are instant solutions. Governments must deal with reality, not with pretence. None pretend more than members of the Labour party. Every Labour Government have promised to reduce uemployment, and every Labour Government have increased it. They fail because they never understand that there is no short cut or special measure that can cause a lasting change to real employment.
  The first essential requirement to change the position must be a strong and competitive country. No other major country depends so much on winning its share of orders in world markets and, therefore, there is no other country in which the importance of efficient and competitive production matters more. We can look at the background to our recent history and reflect on the number of markets and products in which we used to lead the world. I do not

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  know how many people remember that, only 30 years ago, we were the largest car exporting nation in the world, that the British motor bike was a world beater and that once even 25 per cent. of the world's shipping was produced in British yards. From that proud position of great achievement, the history of too many of the post-war years has been a story of decline and retreat. Poor design, bad productivity, shoddy quality and late delivery contributed to that sad story.
  Was it the fault of management, the unions, or the Government? There was poor investment, amateur marketing, bad industrial relations and too many strikes. Throughout the period there was an unwillingness to recognise the seriousness of the problem. Even in the 1970s, we were prepared to pay ourselves more than 300 per cent. more for only 17 per cent. greater output. That is the background of retreat and decline against which we have been struggling in the past few years and about which reality is at last beginning to dawn.
  I strongly assert that there is now no serious doubt that recovery is under way. The outlook for the economy is brighter than it has been for years. There is now momentum in the economy, and the Budget's object is to sustain and increase it.
  Our first priority has been the conquest of inflation. Inflation—the destroyer of so many jobs in the 1970s—is at its lowest for 15 years. From a peak of 27 per cent., inflation is now down to 5 per cent. My right hon. Friend the Chancellor of the Exchequer forecast—and my right hon. and learned Friend the Chief Secretary to the Treasury confirmed—that, by the end of the year, inflation will have fallen to 4·5 per cent. As the custodian of the RPI, I draw the attention of the House and those who have been studying recent figures to the increase of 1·8 per cent. in the RPI in the past six months. I suggest that that figure gives every encouragement that the Chancellor's forecast on inflation will not be exceeded.
  I am sorry that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is unable to be with us. I was intrigued to see that last May the right hon. Gentleman specifically forecast—later the right hon. and learned Member for Monklands, East (Mr. Smith) can stand up for his right hon. Friend and explain the basis of the forecast—that there was no doubt that inflation would be in double figures by the end of 1983 if a Conservative Government were re-elected. I was interested that yesterday the right hon. Member for Sparkbrook wisely avoided any further forecasts and concentrated on asking questions. He will be better informed if he follows that approach rather than his previous practice.
  Productivity is now at record levels. At last, our production costs are better controlled than at any time in the past 20 years. With that improvement comes increased profits, and that is the key to more investment and more jobs.
  Mr. Bryan Gould: If our industrial costs have improved, as the right hon. Gentleman says, how does he explain the fact that the IMF index of relative normalised unit labour costs shows a decline in our competitiveness since 1979 of 30 per cent.?
  Mr. King: The hon. Gentleman knows that the degree of competitiveness is affected by a number of factors, not just the level of productivity in industry. Exchange rates have much to do with that.
  Against that background—I hope that no hon. Member will underrate the achievements—we certainly cannot afford to be complacent. We are doing better, but not as well in some crucial areas as some of our competitors. It is vital, if we are to provide jobs, that we should be competitive. We cannot afford to relax. Even now, Japan, the United States of America and West Germany have lower inflation rates than Britain. If we lose our competitive edge, jobs will certainly be put at risk. I endorse what my hon. Friend the Minister of State, Treasury said last night—sensible pay settlements and continued improvements in productivity are vital to our future success.
  Mr. Nigel Forman: On the point of competitiveness, will my right hon. Friend say something now or on a more suitable occasion about the need for us to avoid supply-side bottlenecks, especially with regard to skilled labour, training and retraining? I am sure that those factors must make an important contribution towards sustaining the economic recovery.
  Mr. King: I shall say something about that later. I accept fully the importance of my hon. Friend's comment.
  There are reasons for encouragement in the recovery and present path of our economy. The greatest difficulty that Britain and other countries face is the problem of unemployment. In the past three years, the fierce winds of recession hit us when, to a great extent, we were unproductive, under-trained and uncompetitive. That is why we lost so many manufacturing jobs. As the House knows, last year that trend was checked. For the first time since 1979, the latest figures show a real increase in the number of people in jobs. As my right hon. Friend the Chancellor mentioned in his speech, between March and September 1983—the latest period for which figures are available—the number of people in work increased by 80,000. That is the first increase in the past three years in the number of people in work.
  The decline has been reversed. About 200,000 more people were employed in the service sector in the first three quarters of last year. The fall in manufacturing employment has begun to ease. There have been encouraging signs of more recruitment even in some of the manufacturing sectors, such as textiles and footwear, which people were readily writing off as the sunset industries. The latest available figures from my Department and from jobcentres show that last December, January and February the jobcentres placed 390,000 people in jobs compared with 335,000 placed in jobs in the equivalent three months a year ago. That is an increase of 16 per cent. Interestingly, that increase comes at a time when the unemployment figures are rather disappointing, as I said in my recent announcement.
  I was talking to one of the major executive recruitment agencies which for many years has done a regular monitoring of executive advertising in the newspapers. The interesting point was made to me that executive advertising for management, senior management, and senior technological posts is running this year at double the level of last year and is at the highest level for 20 years. That is another encouraging indicator of an improvement in the prospects for the economy.

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  It is against that background of improvement, but with a recognition of the real difficulties that we face in the problems of unemployment, that we have seen a substantial increase by this Government in the funds coming through my Department in measures to help employment and training. We shall spend this year more than £2 billion, four times as much in this area as was spent under the last Labour Government in their last year of office. In total, 670,000 people have benefited this year from the various measures. There are 124,000 long-term unemployed taking up places in the community programme. One of the most exciting new developments has been the encouraging start to the enterprise allowance scheme, which is designed to help people start up businesses of their own.
  As important as any other measure that we have introduced, there are 320,000 people who entered the youth training scheme. This is the largest and most comprehensive training scheme for young people ever introduced in Britain. I hope that, despite certain earlier comments, Opposition Members will, like the TUC, give the scheme the support that it needs. It has wide support among the TUC, trade unions and many employers and others who have been actively involved with it. For the first time in our history, all 16-year-olds have the chance to learn basic skills, to make the most of their ability and so to have the best chance for employment. I believe that increasingly it will be the way in which more and more young people come into jobs, with training that all too often in the past they have not had.
  Against that background of the serious situation that we face, but of the encouraging prospects that we now see for the economy, I come to the measures that the Chancellor announced in his Budget statement. I said at the outset that I regarded it as a Budget for jobs, and I welcome the steps that my right hon. Friend has taken—without putting at risk the basic strength of the economy and that continuing improvement on which the greatest hope for jobs must continue to depend—to help in that respect.
  I believe that I carry the whole House with me in welcoming the abolition of the national insurance surcharge. We have finally got rid of that surcharge—Labour's tax on jobs—and there could not be a clearer indication in the Budget of the priority that we give to employment: £1,350 million in a full year, £865 million of it for the private sector, a major improvement for its cash flow, with funds available for the greater development of its businesses, and with further opportunities for jobs.
  I welcome the changes proposed in company taxation. I not only accept the absolute correctness of the changes that my right hon. Friend has announced, but welcome also, from the employment point of view, the accelerator to the bringing forward of investment in buildings and plant for companies that wish to take advantage of the maximum allowances before their phased reduction. That will be encouraging for investment.
  I welcome in the Budget the measures to help small businesses and the raising of the tax thresholds in real terms, which will help employment. I particularly welcome, in the interests of employment, the announcement by the Chancellor of the changes in the VAT requirements for importers. Ending the unfair advantage that importers have enjoyed is to be warmly welcomed and must be in the interests of employment.
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  As important as any of the individual measures is the confidence that the Budget can create. It sets the framework in which business will be operating in the next four years. Those of us who served some of our lives in industry recall the late 1950s and 1960s, years of what seemed endless stop-go, when one knew the damage that was being done, the sapping of confidence, the undermining of industry and the difficulties that were being posed for investment decisions.
  There can be no gainsaying the importance of confidence and of industry really having some assurance that policies once established will be sustained. Industry can now feel confident that we are determined to keep, as our first priority, the achievement of low inflation, that we are determined to keep the tightest control on Government borrowing and that we are determined to reduce company taxation, so creating a climate that will encourage investment.
  Even before I rose to speak today, the first evidence of the benefits that can flow from the Budget was seen, with the announcement of the reduction in interest rates. That will be of enormous benefit, and will act as a stimulus for investment. Not just business men in this country have the message of our determination to maintain a sound economy. Business men abroad have got that message, too. They also see our determination to maintain our commitment to membership of the EEC.
  Who really thinks that the companies which are now starting to invest in Britain, and which see here a base for their operations within the European market, would have invested here under the economic policies of the Labour party, or under their foreign policy—if I may accord it such a grand title—of withdrawal from the European Community which they peddled at the last election?
  Would we have heard of the investment of Nissan or Shin-etsu from Japan or of United Paper Mills from Finland coming into Shotton to take over the paper mill there? Would we have had Northern Telecom coming from Canada with its investment; Texas Instruments; or National Semiconductor with one of the largest investments ever made in Scotland in new technology? Would we have had the investments by 3M, Bristol Myers, Columbus Foundries, Unimation, Commodore and United Technologies? They are all coming here because they have confidence to make investments here, and they will provide jobs for people in Britain.
  That is something in which I take great pleasure and pride. I know that such investment would not have been available if we had isolated ourselves from the economies of western Europe or submitted to the same old economic policies of the Opposition.
  Mr. Gould: Can the Secretary of State tell the House how much investment has been switched from this country to the EEC, and can he give the figures for investment flowing from the EEC into this country and vice versa? If he cannot give those figures, will he withdraw the point?
  Mr. King: I am surprised that the hon. Gentleman even begins to challenge that. I do not know his industrial and commercial experience, but he may know that business men like to look before they invest and be confident about what is happening. They need confidence that their investment will be competitive in the near future, is likely to stay competitive in the years ahead and is operating in a stable economic climate. Whatever technical and tricky

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  questions the hon. Gentleman asks, if he is seriously trying to tell the House that there will be fewer jobs and less investment in an economy that is unstable where there is lack of control over economic policy, what he says flies in the face of all experience. We are starting to attract more investment, which is welcomed generally, and I would be very surprised if the hon. Gentleman was seeking to despise rather than welcome it.
  The Budget comes at a crucial time in our history, when we face serious employment problems. It offers a great challenge to our people. We have, as my right hon. Friend the Chancellor says, a special combination of low inflation, higher productivity and faster growth, which has eluded us for all too long.
  The question that we must ask is whether we can use the real opportunities for business, industry and commerce offered by that combination of factors, in order to succeed. The Budget gives us a chance to seize that challenge and put the country on the road to jobs, prosperity and greater strength in the economy. In that spirit, I am delighted to support the Budget in the House today.
  4.43 pm
  Mr. John Smith: The major difficulty facing the Secretary of State for Employment in opening this stage of the Budget debate, which was painfully apparent in his speech, is that, unike the Chancellor, he cannot simply ignore unemployment, given his public office.
  Casting our minds back to the Chancellor's Budget speech, we can recollect his predictions, assertions and promises on financial and economic theory, the forms of monetary theory, the prospects for output, the path of inflation and the size of the borrowing requirement. The Budget documents contain a mass of details, some of which starkly show the consequences of the clampdown on services and pay, especially for the public sector. Details of the increase in output contradict the supposed recovery of our economy.
  There is a gaping hole in all that argument and philosophical, financial, actuarial and economic detail. There are no predictions of the Budget's impact and that of its promised successors on Britain's major problem, which is an unemployment total of at least 3·5 million, even on the Government's manipulated figures.
  Britain has by far the highest level of unemployment among the OECD's major industrial nations. It is an ignominious record by international comparison and in terms of our industrial history. Britain's economy is founded on the work of its people, yet we tolerate the addition of well over 2 million people to the dole queues since the Government came to power.
  Two statistics with horrendous consequences for Britain and its people are, first, the highest level of unemployment in our history and, secondly, the fact that we have slipped into a trade deficit in manufactured goods for the first time in our manufacturing history. Significantly, the Budget is totally irrelevant to both considerations.
  The level of unemployment is disastrously high, with many long-term unemployed. There are, regrettably, more than 1 million long-term unemployed—1,188,000 at the last count in January. In addition, 589,900 have been out of work for more than six months. The total of those two
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  figures is higher than the overall total of unemployment in 1979, when the Government took office complaining, if we can believe it now, that Labour was not working.
  We see an ominous new social problem of gigantic dimensions in that figure of 1 million unemployed. What is worse, that appalling total will remain for at least two to three years. Even worse than that, the proportion of long-term unemployed will not diminish and we shall have 3 million unemployed and 1 million long-term unemployed, which is a crucial sea change. Put plainly, Thatcher unemployment is long-term unemployment.
  What prospect is there for the long-term unemployed after two or three years? On a 10-year basis, as the Green Paper hints, there are no plans in present Government thinking to assault unemployment, long-term or other wise. The other alarming and deeply distressing feature of our unemployment scene is that 1,259,700 people under 25 are unemployed, even when those on a training scheme have been removed from the register.
  Youth training scheme trainees ask continually, "What will happen after the year of training is up?" A generation has been denied the life-enhancing opportunity to do creative work and to participate fully in the activities of their community. They are denied the opportunity to develop careers that will provide personal satisfaction and make a distinctive contribution to our wealth and culture.
  What will be the consequences for those young people as they grow older without work, and for those coming up behind them who face the same chilling prospect at the end of their formal education? Who is to say what the final social consequences will be on marriages and families which have been founded in the disillusioning and dispiriting framework of almost certain continuous unemployment? I do not know the final result. Indeed, which of us does? We know how adaptable is the human spirit, how socially stable are our communities, and how sturdy are our people. Perhaps those qualities will help the long-term unemployed, the young unemployed or others to weather their adversity better than we might be entitled to expect.
  The depression of the 1930s left its cruel mark on more than one generation. I believe that this self-induced depression must leave its mark, too, in different ways. I know, too—indeed, I believe, and on behalf of the Labour party I assert—that it is deeply wrong to tolerate such a level of unemployment in our society. We must quickly realise that it is our greatest social, economic and political problem.
  If the problem is of such dimensions and so important socially as well as economically and politically, why is it ignored in the Budget? Why are there no plans to mobilise the resources in the Budget? Why are there no plans to mobilise the resources of the state to bring down unemployment? Having listened to the Chancellor, and having read some of the comments in the financial columns of the press since, it is clear to me that he and those writers have little concept of the misery and waste of unemployment. Otherwise, the right hon. Gentleman would surely be moved to act. Instead, he boldly and simply but wickedly left unemployment out of account. A future historian reading the Budget speech would scarcely be aware from the internal evidence that the Chancellor was describing an economy in which 3·5 million people were out of work and the cost of their maintenance was £17 billion per year.

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  No doubt as the debate unfolds we shall be referred to features of the Budget which might help unemployment—indeed, the Secretary of State has done so already—but there is clearly no plan, no strategy and no determined attempt to bring down unemployment to any sizeable extent. It may be said that all is not lost because the odd measure in the Budget may marginally help, so we should not scorn it. One feature may indeed help, and the Secretary of State mentioned it first. The abolition of the national insurance surcharge is to be welcomed, but what will its impact be? It is clear to any observer that the previous reductions, bringing the surcharge down from 3·5 to 1 per cent. did not of themselves have a major impact on unemployment, which regrettably continued to rise steadily. It is plain that hopes of a significant reduction in unemployment cannot rest on the slender base of that change and the somewhat exaggerated terms in which the Secretary of State presented its financial consequences.
  Mr. Terence Higgins: Does the right hon. Gentleman agree that the effect on unemployment will be a great deal better if the money involved does not go in high wage settlements rather than in any other way?
  Mr. Smith: I hope that such benefits as come to employers will not be frittered away in excessive profit-taking either. In terms of employment potential, the best course is for the money to be invested in the future of the enterprises that receive the benefit. As the right hon. Gentleman knows, the difficulty is that one cannot predict whether it will go in higher wages or dividends or in greater investment. To what extent, therefore, the effect on the economy is uncertain. I make no bones about the fact that we welcome the change, but, given the scale of the problem, as a job-creating or job-saving scheme, regrettably its impact is likely to be minor.
  Reference has been made to changes in company taxation, although the Secretary of State did not make much of them. Most commentators have noted, no doubt correctly, that the changes are not easy to assess, but they appear to be tilted against manufacturing industry. It is ironic that the abolition of capital allowances, which will operate against manufacturing industry, will be used through the technique of delaying its introduction to bring forward some capital purchases which may be a welcome boost to the supplying industries. That welcome effect—a Keynesian intrusion on the monetarist scene—will, however, be short-lived and unrepeatable. The fashion of Government thinking seems to be against manufacturing industry and its capital re-equipment. We should remember that we cannot all be employed in creative financial services, software computer firms, silicon glens or other manifestations of the new economy, however desirable all those things may be in their various ways.
  Neglect of manufacturing industry has reduced us to the status of a net importer of manufactured goods. A great deal of our wealth depends on manufacturing industry. That is true in all areas of the country, but especially those not in the southern part. Recovery which brings fuller employment depends not only on the sustenance but on the development of manufacturing industry. Regrettably, however, the only aspects of the Budget that could remotely be considered as marginally helpful in terms of employment are clearly outweighed by other features working heavily in the opposite direction.
  With the construction industry toiling as never before—starved of work, riddled with bankruptcies and with
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  hundreds of thousands of construction workers on the dole—why on earth has the Chancellor decided to hit the industry even harder by extending VAT to building alterations? The Secretary of State need not take my word for that. I shall quote the Budget news release of the Building Employers Federation. To be fair, it begins by congratulating the Chancellor on easing the burden of stamp duty, which it believes will boost the private house building sector. I see the Secretary of State nodding his approval. I hope that he will take as careful note of the rest of the federation's views.
  The press release states:
  "The Chancellor's helpful move on Stamp Duty has been more than offset by his deplorable decision to impose positive VAT Rating on building alterations.
  This is a savage blow to the building industry. h will put thousands of reputable bona-fide firms at a severe trading disadvantage against tax-dodging 'cowboy' operators.
  Bringing building alterations into the VAT net will threaten the jobs of thousands of building workers in an industry where unemployment is already at record levels."
  Whatever the case for including alterations in the VAT structure, why on earth was it done now, when the construction industry is almost the hardest hit by the recession and unemployment in the industry is especially acute but the prospects of getting people back to work for relatively modest sums of investment are probably the highest on the entire industrial scene? It is a measure of the Government's insensitivity to the employment consequences of the financial measures in the Budget.
  Perhaps the most ominous feature of all in terms of future employment are the forecasts for public spending in the Budget and the public expenditure White Paper. The Government clearly intend to impose on public sector workers a savage wage limitation, well below the expected rate of inflation. On the basis of the Government's public expenditure proposals, there will be continuous pressure on all public authorities to reduce both manpower and quality of services—an ominous prospect for the people employed in those areas.
  The Budget as a whole is not neutral on unemployment. It may be neutral in financial terms, but it is certainly not neutral in employment terms. Above all, it is not neutral because it makes no basic change in the policies of deflation that have caused our present tragedy. The Chancellor talked about our being set on course as though we had done well in the past five years and should thus continue with the same prospectus, but if there is no change in the policies followed in the past five years, we shall have the same or worse results in terms of unemployment.
  I shall not be the only person to ask why the Chancellor did not accept the advice to embark on even a modest public works programme. The proposals are well understood by the nation. The Government have frequently been urged to do that by all sectors of industry, all parts of the nation and many parts of the political spectrum both within and outside the House. It is undeniable that our inner city infrastructure needs to be renewed. Our transport system needs to be modernised. The Victorian sewerage systems in many cities will collapse unless fairly urgent action is taken. The railways should be electrified. Much of our housing stock, especially in the public sector, urgently requires modernisation. All those things have been neglected. One

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  Victorian value that the Chancellor and his colleagues might seek with profit to emulate is the Victorian emphasis on proper public provision of certain essential services.
  Why are those urgent tasks to be so wilfully postponed? They are necessary, and if they are not carried out this year the need will be even more pressing next year and in the year after that. That those tasks will have to be undertaken is incontrovertible, and what is incomprehensible is that the Government should choose not to do them now, when they have unused resources on a massive scale and an army of unemployed who are desperate for work. Now is the time to match unmet needs with unused resources—in particular, unused human resources. Only the blind ideologues of the Government cannot see either the need for or the overwhelming desirability of a public works programme. I hope that the Secretary of State for Employment urged that point upon the Chancellor. If he did not do so, he was neglecting his special responsibility to the unemployed. The absence of some such programme from the Budget and the public expenditure proposals is a national disgrace.
  There will be no relief for the unemployed either this year or in the years ahead, and many of those at work feel—quite reasonably—apprehensive about the security of their employment. I condemn the Budget, not just because of that, but also because it shirks completely the moral responsibility of caring for the victims of the situation which this Budget and its predecessors have begotten.
  The problem of long-term unemployment is clearly here to stay. Many people have asked the Chancellor to extend long-term supplementary benefit, if not to all the long-term unemployed, at least to those with families. The case for doing so is overwhelming. All other recipients of supplementary benefit move automatically from short-term to long-term benefits with the passage of time. Only the unemployed have been singled out in the past, under successive Governments, for different treatment. The basis for that difference was always said to be that unemployment, unlike invalidity or sickness, was often temporary. That cannot be said now, when there are a million long-term unemployed, whom we know will remain unemployed for years. The cost of giving special help to families with children would have been less than that of many of the other measures, and trivial in comparison with many of the Government's concessions to the financial sector.
  The treatment of child benefit falls into the same category. The technical answer given by the Government when we complain about child benefit is that they have not yet made the announcement. Who, inside or outside the House, believes that if the Government intended to update child benefit by more than the rate of inflation they would not have referred to that fact in the Budget? Their silence on the matter is conclusive proof that they intend to increase it by only 35p a week. That is disgraceful, especially when compared with the abolition of the investment income surcharge.
  I have read with incredulity the opinion in the financial press that the abolition of the investment income surcharge should be regarded as the removal of an impost on elderly people living in retirement on slender resources, who had been heavily penalised in the past. I give credit to the hon. Member for Enfield, North (Mr. Eggar) who expressed his discontent yesterday evening with the Chancellor's scale
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  of priorities. Anyone with investment income of over £7,100 a year must have capital of between £70,000 and £100,000, and only such people will benefit. As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said yesterday, it is strange that capital accumulations of over £70,000 are not regarded as wealth when, for the purposes of supplementary benefit, a sum of £3,000 is regarded as wealth beyond belief.
  For £360 million—the cost of the concession on the investment income surcharge—the Chancellor could have done something for the children of the long-term unemployed and improved child benefit across the board. The fact that the Chancellor has dodged the problem is a disgrace. To be fair to the victims of the recession is not a matter for fine economic or social choices or the balancing of different considerations. In my opinion, and that of my party, there is a moral obligation. If we cause this distress, we must alleviate it. The means are well known, they are to hand, and their use was well within the Chancellor's capability.
  That failure will stimulate the tide of indignation about unemployment which is beginning to rise in the country. The British people are slow to rouse themselves in such circumstances, but my impression and that, increasingly, of my colleagues is that people realise that for too long they have tolerated the levels of unemployment inflicted on them. The flash point for anger is people's realisation that their children are to be denied the opportunities which any decent society should offer them. I believe that it is the parents of children who are denied employment who will provide the main engine for change, rather than those who are directly affected. We have a lamentable record in terms of protecting jobs, securing jobs for the future, and treating with justice the victims of the Government's policies.
  It would not be proper to pass judgment on the Chancellor and the Government without taking account of some of the features upon which the Secretary of State remarked at the beginning of his speech. He said that the history of Britain's economic development had been one of retreat and decline. He painted a picture of a steady erosion of Britain's economic growth over the years until 1979, when the Conservatives inherited a terrible legacy. According to the Secretary of State, they have been struggling against that great misfortune ever since.
  The Secretary of State and other apologists for the Government ought to paint the full picture. There have been endemic problems in the economy—although Conservative Members do not take their effects into account when judging the previous Labour Government and some of their difficulties. However, the Government have differed from all their predecessors, not just in terms of their policies, but in terms of the benefits which they have enjoyed.
  The true legacy which this Government inherited was North sea oil revenue, which no previous Government had enjoyed. The Government did not work for, plan for, or earn those revenues. They were bequeathed a legacy which has amounted to £25 billion since 1979. Every year a Conservative Chancellor has been able to spend between £7 and £9 billion of North sea oil revenues. Those revenues have had a desirable effect on the balance of payments and on the balance of trade, and their existence has masked the true effects of the deflationary policies of the Government

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  on the balance of payments and the balance of trade. As the revenues of North sea oil dwindle, those problems will become more starkly evident.
  The revenues from North sea oil are not the only benefit, but let us consider what the Government have done with their inheritance. They have not spent the revenue on re-equipping industry, retraining our people, improving the social infrastructure, giving us the best education system in Europe, improving housing stock, improving the Health Service or doing anything that a Government might reasonably be expected to have done with such a windfall. They have spent every penny piece on paying for the extra unemployment that they have created.
  The Select Committee on Employment has calculated that every unemployed person costs the Government a minimum of between £5,000 and £6,000 a year in unemployment benefit, social security benefit, lost insurance contributions and lost value added tax. If one estimates the number of extra unemployed caused by the Government's policies at 2 million—a conservative estimate—the cost of supporting them must be £12 billion a year—far more than the annual revenue from the North sea.
  It was my good fortune to be a Minister at the Department of Energy before those revenues came in. At that time, work was being done to secure the developments which were subsequently of benefit to the present Government. I thought then that there would be a major argument about the use of North sea oil revenues. I thought, perhaps naively, that the argument would be conducted on the traditional lines of dispute—that the Left, broadly speaking, would argue for the money to be used by the community in communal spending, regional policy development and the rest, while the Right, generally speaking, would argue for the money to be handed out in tax cuts to allow individuals rather than the community to make economic and political choices. If anyone had said in the years 1976 to 1978, when we began to think about North sea oil revenues, that we would follow neither course but have a special plan by which we would save it all up to pay for the extra cost of unemployment that our policies would cause during the time in which we had North sea oil revenues he would not have been believed. It is unbelievable, and future historians will find it staggering.
  Mr. Nicholas Lyell (Mid-Bedfordshire): Does the right hon. and learned Gentleman really believe the argument that he is advancing? Does he believe that increasing our wages by 300 per cent. while increasing productivity by only 17 per cent. was not the reason why our businesses were not competitive and why we were out-sold from abroad? Does he believe that, if it had not been for North sea oil, we should, with a Labour Government, have been able to go on spending on health, education and roads? If that is his case, does he believe it?
  Mr. Smith: That was not my case. I am sure that the hon. and learned Gentleman will read with profit the case that I was making if he did not comprehend it by listening. I was arguing that the money we receive in North sea oil revenues matches that which we have spent on extra unemployment. It does not seem unreasonable to correlate the two.
  I am asked to posit what might have happened if a Labour Government had continued in office. If such a
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  Government had kept the level of unemployment at its then level, we should have had all this money to spend on other things, as we should not have created the new level of unemployment because we would not have followed the savage deflationary policies that have undermined the competitiveness of British industry through an over-valued pound, high interest rates and all of the other features that have emerged since 1979.
  Sir William Clark: The right hon. and learned Gentleman is advancing an intriguing argument. What would the Labour Government have done about the world recession, and how would they have opted out of it?
  Mr. Smith: I am gratified to learn that the hon. Gentleman finds my argument intriguing. I hope that it is more than that—I hope that it is educative. I also hope that he and others will pay attention to it. Of course the Labour Government would have been affected by the world recession and by the fact that other Governments in Europe have followed the same stupid policies as the Conservatives followed here, but we would have attempted to moderate the effect of that recession rather than redouble its effect as the Conservatives have done.
  The hon. Gentleman brings me to the historical point about the record of the previous Conservative Government as opposed to the previous Labour Government. I remember the first Budget of the Chancellor's predecessor, now the Foreign Secretary. I checked up on it the other day to ensure that my recollection was correct. He said that it was a Budget of incentive and tax reform. I clearly recall Conservative Members, in the flush of postelection victory, waving their Order Papers. They told us that new politics and new economics had come to Britain. Not for them the continual decline of the past—this was a new era of prosperity. The Government had a great inheritance in terms of North sea oil revenues. They faced some problems from the world recession, but who was to think then that the cheering Conservatives and the Government they supported would lead us into the greatest post-war depression and into the highest levels of unemployment in our history? Where are the galvanised entrepreneurs now? Where are all those people whose energy was unleashed by the tax incentives that the former Chancellor gave? Why have they not been able to revolutionise the British economy and take us to new heights of productivity and efficiency? I deduce that Conservative Members have not learnt the lesson.
  The present Chancellor has a more difficult task, as he will find it more difficult to find excuses if his performance fails. His predecessor and the Prime Minister have been past masters at excuses. Each time they faced a problem they would find a cause that emanated from the United States, the Arabs, the Labour Government, the trade unions or the fecklessness of British working people. A series of excuses were readily made available. However, after five years of Conservative Government in which to make their policies work, it will become increasingly difficult to find scapegoats, despite the expertise that has been developed in the past five years.
  Mr. Robert McCrindle: What excuses are being offered by the Socialist Government in France, as they have tried all the policies to which the right hon. and learned Gentleman has drawn our attention and have signally failed?
  Mr. Smith: I am glad that the hon. Gentleman has drawn my attention to that comparison, perhaps out of a sense of misplaced generosity. I had not intended to bring it to the attention of Conservative Members, but there are several significant differences between Britain and France. First, France does not have the benefit of North sea oil revenues. Indeed, it has the massive problem of importing energy on a huge scale. Secondly, France's unemployment is nothing like as high as ours, because the French Government have followed policies to keep it down. Thirdly, France is not assisted by the deflationary policies of the Right-wing Governments in Europe, including Britain, which make its task all the more difficult.
  I would cheerfully exchange policies that are orientated towards full employment such as those in France for those that are being followed in Britain. As my right hon. Friend the Member for Sparkbrook said yesterday, and as we shall constantly remind the Government, no recovery without a reduction in unemployment is or should be acceptable to a civilised society. I believe that that will be asserted increasingly by Opposition Members and demanded by British people who for too long have suffered unemployment and the sterile policies that have produced it.
  5.16 pm
  Sir Ian Gilmour: I do not believe that speculation about what another Labour Government would have done after 1979 is fruitful or attractive, so I shall not follow the right hon. and learned Member for Monklands, East (Mr. Smith).
  My right hon. Friend the Secretary of State for Employment made a civilised, good and short speech. I hope that he will not think it ungracious of me if I begin with something that he did not mention—the Government's failure to give long-term supplementary benefit to the unemployed. I agree strongly with the right hon. and learned Member for Monldands, East on that, but the fact that the Labour Government failed to do the same thing puts his argument in some perspective. It is difficult for people to say that they care about the unemployed and then continue to support discrimination against them. The long-term unemployed are among the poorest in the country and it is quite indefensible that they are not properly treated.
  My right hon. Friend said that this was a Budget for jobs. Like him, I greatly welcome the abolition at long last of the national insurance surcharge. However, we must be careful of the thin ice of which my right hon. and learned Friend the Chief Secretary to the Treasury was not aware yesterday—if we boast too much about the final abolition of the national insurance surcharge and the good that it will do, one wonders why it was not done a bit earlier. Some of us have been asking for its abolition for about three years. Nevertheless, I am extremely grateful that it has happened and hope that it will do the good that my right hon. Friend hopes for.
  I do not fully follow my right hon. Friend's description of the Budget as a Budget for jobs. The Treasury seems pretty happy about the economy. If anything, my right hon. and learned Friend the Chief Secretary was even happier yesterday than was my right hon. Friend the Chancellor on Tuesday. Some of the reasons for happiness are good—inflation is greatly reduced, interest rates are coming down, the mortgage rate is coming down tomorrow, output is rising, there has been a large increase
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  in productivity and the balance of payments is still in surplus. The Treasury seems to think that all this has happened as a result of its actions in the past five years—its successful attempt to control the PSBR and its less successful attempt to control the money supply.
  There are two points to be made about the euphoria and the claim. First, to be happy about the economy, one must forget unemployment, which is rather a large factor to forget. It takes a heroic effort of abstraction, and my right hon. Friend the Secretary of State made no such effort. He put it in the forefront of his speech this afternoon. Many people, including myself, have pointed out that the increase in output since early 1981 has been less than the increase in our capacity to produce and, therefore, it does not qualify as a recovery because unemployment has continued to rise.
  In January, nearly three years after the trough of the depression, unemployment was probably at its highest since the war. Hon. Members will recall the recessions in 1958 and 1962, which were large enough to produce considerable political repercussions. But even in those years, output rose, as it did in every year between 1949 and 1973, a period about which my right hon. Friend was so scathing as years of stop-go. Those years saw a considerable increase in our prosperity and standard of living, which was greater than during any other period in our history. The relevant definition of recovery, then as now, is whether the expansion is large enough to bring down unemployment. On that criterion, the recovery has not yet started.
  My second point is that the Treasury must not pretend that history began in 1981: it began in 1979. That presents a slight difficulty. The Government praise themselves for the recovery since 1981, but take no responsibility for the previous recession. Hence the recovery is due to the Government and the recession due to the world. Similarly, the reduction in inflation has been brought about by Government policies but the increase in unemployment has not been caused by the Government's policies. It is in the nature of an act of God.
  By general consent, in 1979–81 the recession was far more serious than any other in the post-war world, so hon. Members should be distinctly alarmed if the Chancellor of the Exchequer meant what he said when he said that he would
  "continue the policies that we have followed consistently since 1979".—[Official Report, 13 March 1984; Vol. 56, c. 286.]
  Policies like those of the past five years would eliminate inflation but would also generate a further vast increase in unemployment, cause investment to fall, real output to be further reduced and industrial production to be decimated. As oil production is about to fall, our balance of payments would deteriorate catastrophically. Between 1980 and the last three months for which figures are available, the volume of exports, excluding oil, fell, while imports rose by nearly 20 per cent.
  I cannot give a clear interpretation of what the Chancellor of the Exchequer meant when he said that the Government would continue the policies they have followed since 1979, since these were all designed in terms of intermediate targets—the money supply and so on—which were seldom met. It is impossible to explain what has happened to the economy in terms of what the Government have done.

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  Unfortunately, the Government's long-term strategy is still expressed in intermediate targets—the formidable, ever-increasing battery of monetary aggregates and the PSBR—none of which has the slightest importance in itself. The continued resort to intermediate targets conceals, it seems to me, the fact that there is no economic strategy. I see it as politically expedient, if what happens to the economy cannot be coherently related to the policy gestures which have been made. The Treasury is therefore free to claim any favourable event as a success and anything unsuccessful as none of its business and outside its control. That shows considerable political ability. It is a way of absolving oneself of responsibility for what goes wrong. That may be good politics, but it is not good for the economy.
  The Treasury forecasts further growth for the next 12 months, although it will hardly be fast enough to reduce unemployment. I am sure that that work is done with competence and integrity, but the period taken is too short.
  The strategic predicament is crucial, and contains the following elements. There is little prospect that in the next few years unemployment will fall significantly, and to take a longer-term view, it seems more likely that it will rise slightly. The Minister pointed out some encouraging signs, which we greatly welcome. It is excellent that there is a slight increase in employment, but the last two months have been disturbing and I hope that they are out of line. Paragraph 2.19 of the "Financial Statement and Budget Report 1984–85" does not make a reasoned forecast, but assumes that the average growth rate for the next five years will be 2·25 per cent. a year. That is well below the rise in output, of which the Government have naturally been proud during the vast year, and which has been accompanied by a substantial increase in unemployment.
  Secondly, the trends in external trade are still extremely bad. If oil is excluded, exports have fallen and imports risen rapidly during the past five years, and that adverse movement continues. Yet the Government's figure for the current year shows it to be the best year for oil. It is the peak year, after which the oil balance will deteriorate and any real recovery will encounter a balance of payments constraint.
  Thirdly, the major problem in the future may continue to be inflation. Control of inflation is the Government's greatest achievement. It is a considerable achievement and has been caused largely by falling commodity prices, the high pound and high unemployment. Even with 3 million unemployed, inflation may edge up as well as edge down. We urgently need clearly thought-out policies to deal with these strategic issues. Now is the time to act, before the problem becomes acute and we have to act under duress, when our economic condition makes it essential to act.
  I am not equipped to give an exact description of or to devise such a large-scale strategy, but it should include the following elements. There must be an expansion of investment to pay for the imports we shall need when our oil production slows down. There must be a climate of good will with trade unionists, so that when we have an expansion worth that name we can have it without rekindling inflation. We shall need international cooperation. No country, not even America, can act with anything like complete independence. The costs associated with the European Community budget pale into complete insignificance compared with the costs we shall incur if we fail to co-ordinate our fiscal, trade and payments policies with our European allies. In other
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  words, we must face each major obstadle to sustained growth and, recognising the risks involved. devise measures appropriate to each.
  Thus, for all the bravura of the Chancellor of the Exchequer's brilliant performance on Tuesday and for all its excellent ingredients, especially the abolition of national insurance surcharge, the Budget is strong on tactics and weak on strategy. On its own figures, it will not significantly reduce unemployment and it does nothing to improve the treatment of the unemployed, which is a shameful omission. Despite the Chancellor's imagination, integrity and courage, the Budget fails to deal with the fundamental problems of the economy.
  5.29 pm
  Mr. Brynmor John: The Minister of State, Treasury is the latest of several Ministers who have tried to edge us away from discussing social security during the debate on the Budget on the basis that, as my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said, the statement on social security will not be debated until June. I understand why the Minister said that, but he is completely wrong. We cannot discuss the Budget without also discussing the social security benefits that affect, directly or indirectly, 40 million of our fellow countrymen.
  There are four reasons why those benefits should be a proper and central part of the Budget debate. First, as my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) reminded the House, in 1977 the present Secretaries of State for the Environment and for Foreign and Commonwealth Affairs, and the right hon. Member for Guildford (Mr. Howell), said that child benefit was part of the attack upon the tax burden, and demanded a debate on child benefit. Now the Government have changed their mind.
  Secondly, next year the social security budget will represent 29 per cent. of all Government expenditure, which is far and away the largest element of Government expenditure. If we discuss the Budget without including that element, it would be like Hamlet without the prince.
  Thirdly, as my right hon. and learned Friend said, some of the Chancellor's decisions have already been made. From what he said in his Budget statement, we know that child benefit and other social security benefits have already been decided. He might as well have written the May or June statement today, because we know that benefits will not increase by more than the level of inflation.
  Fourthly, in any Budget debate there is a swapping of arguments about fundamental differences of idealism and an examination of its objects. That is welcome and can never be changed, but all Budgets have some stated aims in common. In examining the Budget we must compare the methods of achieving those stated aims to see whether they are the best possible methods.
  One example of that is the Chancellor's statement that this year he should concentrate on relieving the tax burden through the threshold rates so that the low-paid who are on the margins of the threshold can be taken out of tax. We must consider whether the method that he has chosen will achieve that aim, and that brings us back, inevitably, to social security. That is why social security must be central to any Budget strategy.
  It is my contention that the Chancellor should have targeted his special help and attention this year on families

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  with children. During the past four years especially, single people and childless couples have fared markedly better in the burden of taxation than have families with children. The tax break-even point, by which the Child Poverty Action Group measures such benefits, shows a discernable shift against the family with children. That needs urgent revision. Poverty and relative deprivation are found more in families with children than in childless couples. According to the Government's "Family Finance Survey", low-income families, who include social security beneficiaries, have larger families than people on average or above average earnings. The survey shows that 36 per cent. of people with low incomes have three children, compared with the average of 20 per cent.; and 14 per cent. of low-income families have four children compared with an average of 5 per cent.
  Threshold increases help those at the margins of taxation, but do nothing to help families who are already covered by the threshold. The most recent figures, which were helpfully provided by the Government, show that 1·5 million children live with families whose incomes did not reach the 1982–83 threshold, so they will not be helped by the Budget. Not only that, but the help given by thresholds increases the higher up the income scale one is. The only way to help families whose breadwinners are either in or out of work—families who pay tax and families who are exempt from tax—and the only way to provide equitable help rather than help that favours the higher-paid, is substantially to increase child benefit.
  I have three suggestions to the Minister as to how that could be done. Two of them could be combined and need not affect the great threshold policy that the Chancellor outlined in his Budget statement, but one of them certainly does affect it. However, all the three would benefit families and would not penalise single people or childless couples. I am glad that the hon. Member for Croydon, South (Sir W. Clark) has left the Chamber, because my first suggestion would probably cause him to have a stroke. Instead of reducing the present PSBR requirement of £8 billion by £750 million, as the Chancellor did in the Budget, we should leave it where it stands. That alone would provide, above the 35p a week by which it would be necessary to increase child benefit because of inflation, a further £1·35 for each child a week.
  Secondly, the Chancellor could abolish the upper earnings limit on national insurance contributions. In the most moving passage of his speech the Chancellor talked about the burdens on middle and higher managers and higher-paid employees. However, the truth is that the higher-paid have had a free, or relatively free, ride in the national insurance system, because of the upper earnings limit. The difference between the upper earnings limit and average earnings has been reduced, and someone who is earning only one and a half times average earnings is hitting that ceiling for national insurance contributions. There is no longer any reason for the ceiling. The earnings-related supplement has been abolished by the Government, so when the upper earnings limit is reached—which in the coming year will be £250 a week—no further national insurance contributions are paid.
  In a full year the Treasury would gain £1,385 million if the upper earnings limit were abolished. That is the size of the opporutnity that is being missed. Taking into account the increase necessary to cope with inflation, that
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  would give to each child £2·50 a week, which is a substantial benefit, far greater than any benefit that might be gained by families by an increase in thresholds.
  If the concept of gathering any new revenue into the Treasury is anathema to the Chancellor, there is a third way that does not affect his threshold strategy markedly, but alters it slightly. If I am right in placing the greatest emphasis upon the need to help families with children, why does not the Chancellor choose merely to raise the threshold rates by the level of inflation-5·3 per cent.? That would mean that the single person and the childless couple would be in no worse position next year than they were this year or in past years. The difference between uprating only for inflation and the additional amount in a full year would be £1,130 million. That would provide an increase of £2·05 in child benefit per week per child over and above the increase necessary to compensate for inflation.
  Any of the three methods that I have advocated would give a clear advantage to families. If, as the Chancellor said in his Budget, he really does want to help low-income families, that is clearly and indisputably the best way to achieve it. It would give help where it is needed and lay the spectre that is all too common in Britain today that child rearing equals poverty. It is undesirable and unhappy to associate those two but, nevertheless, a young child means poverty for far too many families.
  I reiterate what my right hon. and learned Friend the Member for Monklands, East said about long-term unemployment. People become one of the long-term unemployed only when they lose unemployment benefit after a year. In the past the unemployment norm has been to be unemployed for a relatively short period. Now, one third of those unemployed are unemployed for more than a year. Therefore, the need for a long-term unemployment rate is much more acute. It is obvious that a household budget cannot be managed for a long period on the present short-term supplementary benefits.
  As the Budget involves taxation, may I remind the Minister, and therefore the Chancellor, that invalids and those in receipt of maternity and sickness benefits are still undergoing a 5 per cent. cut in their weekly income as what is laughingly described as "in place of taxation". A similar cut in unemployment benefit was also in operation until the House forced the Government to retreat, but they are still taxing the invalids on a 5 per cent. flat rate across the board.
  The Social Security Advisory Committee at paragraph 5.11 of its 1982–83 report said:
  "Unless taxation can be implemented in the near future we do not believe the benefits should continue to be reduced."
  Yet a year later there is still no solution either here or on the horizon. The size of the problem can be seen from the fact that in its report the Social Security Advisory Committee estimated that one in 10, or perhaps even one in five, of the people who have been paid invalidity benefits and forfeited their 5 per cent. would not be liable to pay tax if a taxation system were introduced. But when I received a reply to my parliamentary question from the Chancellor yesterday the figures showed that one in four people who receive invalidity benefit would not be paying tax were such a system to be introduced. Why, if the Government are so grotesquely unfair as to penalise one in four of the people in receipt of invalidity benefit, has no system of taxation yet been devised? If no system can

  541
  be devised, why have not the Government restored the 5 per cent. abatement in invalidity benefit? It is a scandal and an unfairness that ought to be corrected immediately.
  My right hon. and learned Friend very properly dealt with house alterations from the point of view of employment and their effect on the building industry. In my area, as in that of my right hon. and learned Friend, there are many Victorian houses that are unfit to live in because they lack one or more of the basic amenities. I was born and bred in a house that lacked all three, but if we are to make these houses fit for the expectations of the modern generation, central heating, double glazing, bathroom extensions, and other alterations are urgently needed. That is not idle, fanciful or academic. We must do that to transform the environment of the old industrial areas. Yet the Chancellor has put VAT of 15 per cent. on those alterations.
  Moreover, although commentators on the Budget have missed it, with that must be coupled the fact that improvement grants in my area have now been reduced from 90 per cent. to 75 per cent. That is a double blow. For every job which is valued at £100, under the 90 per cent. scheme and pre-VAT, the person doing the alteration contributed £10. Now that same person will have to contribute £28·75 from his own income for every £100 worth of work done. That will inhibit many people from commissioning the work. It will have a directly detrimental effect not only on the environment of our inner cities but on those employed to put these conditions right.
  The Chancellor pontificates about home ownership but he does not understand what it means in many old industrial areas, large cities and industrial valleys to find the sort of cash which makes such alterations possible. Unless the cash for grants is increased, far from just stagnating, the situation will regress. If jobs cost more, as they must do under the VAT system, the money allocated to the councils for such improvement grants in the coming years will cover fewer grants. Therefore, with fewer grants and people having to pay more of their own money towards such improvements we face an unhappy situation for the council and for those who badly need homes.
  In those three particulars and in many others the Budget has been in many ways a fascinating technical exercise on the part of the Chancellor, but it has missed what is imperative for Britain in 1984. We have had a Budget for the average shareholder when what we desperately need is a Budget for the average man and woman.
  5.47 pm
  Sir Brandon Rhys Williams: There are so many aspects of the present Budget that it is difficult to condense one's comments on them into a short speech. I shall try to touch on several points and I hope that the House will excuse me if I touch on them only briefly.
  The British economy today has three serious deficiencies. There is too little investment and too much consumption for the good of the economy, particularly of imports, which is leading to the under-employment of resources. There is inefficiency in the public sector both in the control of capital projects and the management of current operations; and there is a lack of incentive to work and save. The Chancellor is tackling some of those problems quite brilliantly but there is still a great deal which the House should encourage him to do.
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  First of all, in regard to investment, where the private sector is concerned this is an exceptionally well-constructed Budget. I will go through it item by item briefly.
  Removing the national insurance surcharge will increase the profitability of business, with particular advantage to the companies which employ a lot of people. These are the companies which we particularly want to encourage to invest at this time.
  Ending the investment income surcharge will help investors to think more keenly about ways of increasing their income through the fruitful use of capital to generate new wealth and real profits, rather than by seeking merely to make capital gains through the purchase of existing assets. Right hon. and hon. Gentlemen who have spoken so far have entirely missed the point of this change. It is not just to make things nicer for people with a lot of money; it is to persuade them to use their money to better effect for the sake of the whole economy. This change is long overdue, for it has long been a truism that the capital gains tax has been the lowest tax that could be incurred through the deployment of capital. This is a decisive step to remedy that situation.
  Obviously, lowering corporation tax will help to make a generally more robust private sector.
  Removing distorting factors such as stamp duty and capital allowances will help businesses to make the most fruitful use of their capital over a period of time. Capital investment is most fruitful when investors can make longterm decisions rather than be guided simply by short-term factors.
  Reducing capital transfer tax will help to remove an element of uncertainty which many businesses have not known how to provide for. This uncertainty has induced an attitude of timidity in private companies which has been extremely bad for employment. So that is another very welcome development in this Budget.
  The Chancellor's predictions of the trend of company taxation over a period of years will help many firms to take the plunge on investment projects now which have been held in suspense for a number of years during the recession. For really fruitful investment, businesses which want to make long-term predictions are helped by this Budget. They can better foresee market conditions and the trend of profitability, and can have reasonable confidence that investment decisions taken now will prove right. This is a factor which is bound to boost private sector investment. The Budget should certainly induce a spontaneous increase in private sector investment, with resulting gains in employment.
  Now, however, I have to express some quite strong reservations. Certain other things are needed, without which economic achievement in Britain will still lag behind what we are capable of.
  I am concerned about the effects of the Budget on the availability of funds for investment. The sums released in in income tax cuts are more likely to go into consumption—and perhaps into consumption of imported rather than British-made goods—than into savings.
  Secondly, the ending of life insurance tax bonus after a period of years will reduce the flow of funds from the taxpayer into the capital market by about £700 million a year. I know that it can be said that the insurance companies tend to be rather timid investors and that they purchase existing assets rather than put the savings which come from the public, and from the taxpayer in particular,

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  to the most fruitful use. Nevertheless, that is a very big loss of capital flowing into the capital market, and I would hope that we could look to the Chancellor to find other ways of stimulating savings. I should like to make two suggestions.
  Why not lift the upper limit on the amount that people can set aside for provision for their pensions to 100 per cent. of income and take away the restrictions which are at present applied under the Inland Revenue rules? The principle behind the taxation of pensions is "save now, pay tax later"; and the beneficiary does indeed have to pay the tax later, when the pension comes to be drawn. So the taxpayer gains in the end if people can be stimulated into putting more money into pension schemes. That is a good way of encouraging investment in the short run.
  Secondly, why not put the tax treatment of indexed debentures on the same footing as bank debt? The Government have shown that there is an area in the capital market where funds are looking for investment in indexed stocks with a high degree of security, but it is not accessible to the private investor at the present time. It so easily could be.
  I am concerned that the pressure to postpone necessary public sector investment projects is weakening the performance of the whole of the economy, both in the public and the private sector. I understand the Government's concern with the public sector borrowing requirement. Nevertheless, to give an example—I should like to declare a personal interest here because I am speaking from personal and, unfortunately, rather bitter experience—if sewage treatment facilities cannot be provided in a particular district, private investment in that district can be inhibited too. Of course, we have the problem of sloppy control in the public sector and, if I were to take up an hour of the House's time, I could give some excoriating examples in this field.
  There is another problem in the public sector which I do not think that either party has overcome. It is the imprudent choice of capital projects by the quangos and the nationalised industries. Our record of success in the choice of investments has not been good either in projects or in processes. But these are managerial deficiencies which need to be tackled directly as such. I am not convinced that merely keeping the public sector short of funds is an effective answer to the need to improve the efficiency and the quality of investment in the public sector. I am sure that it has an inhibiting effect on the private sector as well when, in our mixed economy, public and private investment projects cannot go hand in hand.
  I should like, therefore, to see greater latitude in the application of the Treasury rules for joint public and private sector ventures in the investment field. I believe that some relaxation of the Treasury rules could be very helpful, and the ingenuity and knowledge of the private sector could be brought to the aid of the public sector in choosing investments in the short run.
  As I have mentioned to the House, I have an interest in this project and I do not want hon. Members to fail to note that I am speaking from personal experience of one project which I think could be an important gain in a district in which I have an interest.
  The Chancellor clearly thinks that as a result of his Budget we may feel more optimism about a fall in the level of interest rates. I certainly hope that that is true. To me
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  it seems that the chief benefit from a fall in interest rates would be felt if we could bring the exchange rate for the pound more closely into line with its purchasing power parity. For over 50 years the pound has tended to be an over-valued currency. During that time importers have had the encouragement given by an artificial rate of exchange, and our exporters have laboured under an unnecessary burden. This may have been good for the economy in certain ways, but it has been bad for manufacture and for our position in world trade. So I would like to see a reduction in interest rates carried over into a fall in the exchange rate for the pound, not so much against the dollar as against the other currencies of the European monetary system, and in particular the deutschmark.
  It is a characteristic of the British economy that it is too large to be just one of the marsupial economies like Switzerland and Austria, which are carried forward by the progress of the deutschmark. Britain is too big an economy to be an appendage of the deutschmark, but at the same time it is not large enough to succeed as a law to itself, as it could have done in the 19th century and as the United States is able to do now. We have this difficulty, that in some ways our economy is too large and in others it is too small for our policies entirely to succeed.
  Looking at our relationship with the Common Market, since the breakdown of the Bretton Woods agreement, the yen area has been putting its act together alarmingly fast and is one of the great success stories of the world economy in the last 10 years. The dollar area, too, is recovering strongly, as might reasonably be expected. But the economies of the European time zone are still in a relatively chaotic condition and are not recovering from the recession as fast as they should.
  I believe that we have to recognise that we have only a few years left in which to make a success of our membership of the Common Market. Ten years have already gone by and we are not yet fully integrating the British economy with the economies of the other democracies of western Europe in a way which could bring us enormous benefit. All of us, as member states of the European Community, are passing the time in squabbles about relatively unimportant matters. Every member state is guilty of that. I am not speaking especially about the British Government, who are rightly taking a strong position on some issues. But we are not making the most of our opportunities. In the meantime, the yen and dollar areas are pulling ahead so fast that it will soon be impossible for western Europe technically to catch up with the developments that have been taking place in those competitive economies.
  Our main concern should be to create a true common market for services, including the full range of financial services and, most important of all, to create something that is already envisaged in the Rome treaty, and to which we are all committed as member states—a fully integrated European market for capital.
  That immediately raises the question of sterling's relationship with the European monetary system. I have not pressed for Britain to join the EMS as it stands. Nobody could be more committed that I am to the idea of European economic integration, but there is a right and a wrong way to proceed. To join the monetary system without adequate preparation would lead only to the same sort of disasters that we encountered previously when we went ahead of our strength.

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  The EMS is a solar system dominated by the deutschmark. If we were to join it, it would become a solar system with two suns moving eccentrically. Inevitably it would break up, perhaps even within a matter of weeks. A real revival of investment confidence in Britain requires a stable, profitable relationship with the other economies of the Common Market.
  I want accordingly to make two recommendations about the management of sterling. We should aim to bring it to its purchasing power parity with the Common Market economies, to keep it there and to let it be seen that that is the guiding influence behind the Bank of England's policy of intervention. Secondly, we should seek to stabilise capital movements by progressive integration of the capital markets of western Europe, and especially in Frankfurt and London. If there were really free arbitrage between London and Frankfurt over the movement of capital, speculators in Europe and outside would not expect to see differences developing between market conditions in London and Frankfurt. It is that risk which would make the EMS unstable if we joined it now. There are tremendous opportunities for the City of London in creating an integrated European market for capital. The Government and the Bank of England should seize those opportunities and give our City institutions every possible incentive to progress in this direction.
  I wish briefly to deal with the incentive to work and to save. How does the Budget encourage individual citizens to play an active part in the revival of the economy? For those with capital to invest and for those in full-time jobs, there are sizeable new incentives to invest and increase their earnings. We should welcome that; but I am concerned about the large element of the population—more than 7 million people—who are dependent on supplementary benefit. They are not always the same people. Over time, elements of the population move in and move out of dependency on supplementary benefit. Thus millions of people are discovering at the close of their working lives that there is no advantage for them in having savings. They have to run down their savings to qualify for supplementary benefit.
  All too many people in retirement have to apply for supplementary benefit because their occupational pensions are inadequate or for other reasons. Tens of thousands of people—perhaps even hundreds of thousands—also find that they have little to gain by taking legitimate employment. That is an extremely unsatisfactory position and quite contrary to the Government's ethos. It also touches upon the question of the efficiency of the public sector.
  I do not want to dwell at length on that subject, but certain points must be made. Our system for the redistribution of income is in a disastrous state and is rapidly approaching breakdown. That is coming about more rapidly than the introduction of computers to meet the need; and I believe that the way in which computers are being introduced is wrong. More than 25 million manual entries are made each week in the administration of the pay-as-you-earn system. I asked in a parliamentary question how many manual entries are made every week in the administration of national insurance and supplementary benefit. The answer came to me not through Hansard but in a letter. I was told that the figure is in excess of 90 million. We cannot continue in that way.
  To extend to the whole population the incentive to save, we must cope with the poverty problem by a basic income
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  guarantee—a tax credit system, reverse income tax or whatever it may be called—rather than by individual case work and means-tested assistance for the millions. To give the whole population the incentive to work, child allowances for those in work will have to be raised to the same level as we pay to those in need. The hon. Member for Pontypridd (Mr. John) spoke convincingly about the need to increase child benefit. I regret that my right hon. Friend the Chancellor has chosen to aim the changes in personal taxation at the tax allowances for single people and married couples rather than take the opportunity to increase child benefit.
  Child benefit is a selective increase in resources for those most affected by rises in the cost of living—those who are most likely to press for inflationary rises in wages. There is much that we could say about that topic. Child benefit is also politically a proper concern for a party that is committed to the institution of the family and concerned about the health and well-being of the next generation. I hope that when the announcements about social security benefits are made later this year, my right hon. Friend will bear in mind the hopes expressed now on both sides of the House that he should recognise the importance of achieving a real increase in child benefit—and not merely of keeping pace with inflation. Obviously, we cannot distribute wealth until we have made it. The Budget is good for the creators of wealth. Future Budgets must restore the unity of the nation.
  6.7 pm
  Mr. Archy Kirkwood: I listened with great interest to the speeches of the hon. Member for Kensington (Sir B. Rhys Williams) and the right hon. Member for Chesham and Amersham (Sir I. Gilmour). I undertake to read the speeches in the Official Report tomorrow, and I hope that the Treasury Bench will undertake to do the same. It could learn a great deal from what was said.
  As a new Member who joined the House in June, I was surprised to find that since then a whole series of financial measures have been implemented. The influence of the Treasury has been stalking the Departments of Whitehall in many different ways. For example, there is the way that the external financing limits were changed for the electricity and gas boards and for British Rail. That caused unnecessary increases in prices for the man and woman in the street. A housing benefit cut was forced upon us, which again showed the dead hand of the Treasury in the background. The building societies' tax regime changes were recently put through the courts. The discretionary home improvement grant changes that recently took place in Scotland—and I believe elsewhere—reduced the amount of grant from 90 per cent. to 75 per cent. Rent and rate increases have been foisted upon us by the local authorities because of the constraints on local government spending. The most recent change has been in prescription charges.
  I could not understand why those changes were not made in the Budget—until Tuesday, that is, when I eventually discovered the reason. The Chancellor appeared like a smooth, pseudo-radical financial cherub to deploy his Budget, having discounted all the agony previously. I wholeheartedly agree with the right hon. Member for Chesham and Amersham (Sir I. Gilmour), who said that the Budget might have been strong on tactics but that it was short on strategy.

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  The theme of the Budget was twofold—to restrain inflation and to reform the tax system. In so far as those were the Chancellor's objectives, he will probably achieve them, but that leaves many problems unanswered. The financial straitjacket that is imposed by the medium-term financial strategy will do nothing to stimulate the modest recovery that we hope is in its infancy at present. It will do nothing to increase capital spending or industrial investment. It will do nothing, as the right hon. and learned Member for Monklands, East (Mr. Smith) said, to increase employment. Certainly, it will do nothing to help the poor, the sick and the elderly. As Liberal spokesman on social security and taxation matters, I shall address the rest of my remarks to those subjects, bearing in mind the importance placed on them by the hon. Member for Pontypridd.
  In our view, the poorly paid pay too much tax. Surely, the number of families who are at present in the poverty trap is a scandal and indefensible. The system that we have—it was rightly criticised by the hon. Member for Kensington which allows any increase in gross income to result in a reduction, in some cases, in net income, following tax increases and reduced benefit entitlement, is indefensible and should be scrapped forthwith. There is nothing in the Budget, even in the Government's 10-year plan, to show that the Government intend to make any serious attempt at changing that system.
  The proposal to raise personal tax allowances was welcome in so far as it went. However, it does not restore the balance that existed in 1978–79 in terms of the burden of taxation on people with low incomes. The proposals to change the balance between direct and indirect taxation bear much more heavily on the poorly paid than they do on the better off. The proposal to increase child benefit by less than the proportion by which personal allowances were increased is wrong and indefensible.
  We do not believe that the proposed cuts in stamp duty will help first-time buyers, as the Chancellor said they would, because later in his Budget statement he said himself that 90 per cent. of first-time buyers would no longer pay stamp duty, because he had raised the threshold by £5,000. I contrast that with the cuts in housing benefit. In my opinion, neither the housing benefit cuts nor the stamp duty proposals will do anything to help the housing needs of the poor.
  In our view, the abolition of the investment income surcharge will not help many needy pensioners. It may have an impact on pensioners who have a nest egg of over £60,000, but that does not qualify them for the definition of "needy". However, to leave the basic pension to be raised only in line with prices—about 5·5 per cent.—will cause hardship. Again, that should be contrasted with the cuts that pensioners have suffered in housing benefits, bearing in mind, too, the fact that personal allowances have been increased by 12·5 per cent.
  Mr. John Smith: I fully agree with the hon. Gentleman about the investment income surcharge, and I am glad that the Liberal party takes that view. However, bearing in mind that the leader of the Social Democratic party on television two days ago welcomed the abolition of the investment income surcharge, will he tell us what
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  led his alliance partner to an opposite conclusion? What consideration of social justice led the Social Democrats to that view?
  Mr. Kirkwood: I am fortunate to be supported by my hon. Friend the Member for Ross, Cromarty and Skye (Mr. Kennedy), and I am sure that he will deal with that matter very adequately later.
  I come back to what was in the Budget. We do not believe that the revenue deployed by the Chancellor should have been allocated to the better-off in the way it was. We believe that the lower tax thresholds could have been further increased—by up to 5 per cent. Alternatively, if extra revenue was available, the Chancellor should have used it to relieve the increases that he imposed in indirect taxation.
  While I am on the subject of indirect and direct taxation, I add that neither the Budget nor the long-term financial plans that we were given on Tuesday do anything to redress satisfactorily the balance between direct and indirect taxation. We believe that there has been a significant shift in the burden of direct taxation away from the rich towards the poor during the past five years. The Low Pay Unit calculates that people earning 10 times the average earnings have benefited from a 23 per cent. cut in overall tax rates since 1978–79, and those on half average earnings, about £90 a week, have suffered an increased tax burden of over one third since 1978–79. On direct taxation, with the indexation of customs and excise duties, the low-paid, according to the calculations of the Low Pay Unit, are expected to pay an additional 91p a week more in indirect taxation. That more or less wipes out any income tax gains that they may make from changes in the thresholds.
  I come now to what was not in the Budget. Certainly, there are one or two things that we would have included. We would certainly have indexed child benefit in line with the tax allowances. It is clear from what was not in the Budget that child benefit will be indexed in accordance with the rate of inflation, which we shall not know until the retail price index for May is made available. That 35p increase will be paid only in November. If one applied the increase in the tax allowances to the level of child benefit the increase available in November would be about 80p. If we were to index child benefit, as happened with tax allowances in the past two Budgets, the increase in November would be almost £1. It is interesting to note that the Low Pay Unit calculates that the real value of the married man's allowance has increased at least 13 per cent. since 1978–79, while the real increase in child benefit has been about 2 per cent.
  Secondly, we would redress the tax burden for people on lower incomes. The tax-free income is 43 per cent. of the average male manual earnings in 1984–85. That is less than it was 30 years ago. It means that the tax level is now set below the official poverty line, and that cannot be right. It is also true that after the changes in the Budget three out of every four families considered poor enough to receive family income supplement will still be subject to income tax. That cannot be sensible.
  The changes to be made in the social security upratings after the May retail price index are not yet known. They will give the Government an opportunity to put some of these omissions right. I draw the attention of the Treasury to the thorny question of housing benefits. If the Government do nothing else, they should replace the £230

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  million cut in here. It is a cause of great hardship, and it deepens the poverty trap. The Treasury should get together with the DHSS and sort out the mess that the local authorities that now administer the scheme are in. Unless they receive help, the introduction of the new rates in April will create a worse mess, and again the poor and vulnerable will be hit. I urge people everywhere to protest about the housing benefit cuts, because that is the only way to persuade the Secretary of State to relent from this mean and callous action.
  The only concession for pensioners that I can see in the Budget was the Chancellor's abolition of the duty on kerosene. I found the way that it was introduced quite distasteful. Never mind the problems of safety, condensation and fumes—all that the Chancellor has given the pensioners in direct terms is the abolition of the duty on kerosene. That in itself is a ridiculous indictment of the Budget. The pensioners are faced with a whole series of problems. The death grant level has still not been fixed, and there has been an unexplained delay by the Government in announcing what they will do about it. Pensioners still suffer from the earnings rule, they still have problems of heating costs, and many of those who look after them do not qualify for invalid care allowance. More than 800,000 pensioners still do not claim all their benefit entitlements. Despite all that, the Chancellor does nothing more than abolish the excise duty on kerosene. It simply is not good enough. I hope that the Government will have a change of heart before producing the uprating of social service benefits between now and November.
  I notice there are some proposals to change the tax regime as applied to woodlands, under schedule D and schedule B. I give the Treasury Bench notice that we on the Liberal Bench—and I think I can safely include my hon. Friends on the Social Democratic Bench—will be considering carefully the possibility of stopping up the tax relief loophole available to woodland owners in the way that they operate in the forestry industry.
  This is a bad Budget. I follow the hon. Member for Kensington in hoping that the Government will be converted, even at the eleventh hour, to some sort of system of tax credit schemes to administer the benefits for the poor, because the interface of the taxation and benefits system operated in this country is ineffably complicated and wholly indefensible.
  6.21 pm
  Mr. Terence Higgins: In many previous Budget debates I had the privilege of sitting next to my late right hon. Friend, Maurice Macmillan. He made a notable contribution to a great many of those debates. Alas, he will not be able to give us the benefit of his wisdom today. He was a very kind and humane man, and, if there is one proposal in the Chancellor's speech which would have gladdened his heart, given his enthusiasm for wider share ownership, it is the share option scheme. That is greatly to be welcomed.
  Some of my hon. Friends have suggested that we should give the Chancellor two, or two and a half cheers. I think that there is a case for giving him at least three cheers, for in one Budget, he has succeeded in abolishing the national insurance surcharge, with considerable benefit to industry, abolishing the investment income surcharge—and half those who will benefit will be pensioners—and raising the tax thresholds to what I understand is the highest level
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  in real terms since the war, which will certainly make a contribution towards solving the problem of the poverty trap.
  I find remarkably little in the Budget to which one could reasonably object, although, having steered the whole of the original VAT legislation through the House some years ago, I always view with some doubt any proposals to change the ideal system which I had the privilege of introducing.
  There is no doubt—because we had some debate at the time on fish and chip shops, and whether one took them out or did not take them out—that the new line being drawn will be somewhat difficult to define. That is true also of the other change in the line affecting the construction industry. When the original line was drawn, one would not have had £650 million in a full year from making that alteration, which arises because of the extent to which take-away food has changed in the interim, and because its sales have greatly increased. Much of that of course, comes from teenagers and others who have considerable disposable incomes, compared with some of those who are older and have family responsibilities.
  I comment next on the backdating of the holiday lettings proposals, which will certainly be welcomed by my constituents in Worthing, as will the clear assurance by the Minister of State, Treasury that the proposal to abolish the tax position on insurance policies will not extend to those taking out insurance policies for pension purposes.
  Sometimes, Budgets hit particular people in a harsh way. I was surprised to receive a complaint from one constituent, who is an airline pilot. Because of the change that has been made in the taxation of those working overseas, one of the biggest tax increases in absolute terms ever imposed on individuals will take place.
  I wish to comment on the points made from the Opposition Front Bench, particularly those by the Shadow Chancellor. If one is to help the poorest members of the community, it is a great deal more expensive to dc so in terms of tax forgone that it is to help those who are further up the income scale. None the less, the Chancellor has concentrated his changes very much on the tax threshold, and that should be recognised.
  I was intrigued by the force of the shadow Chancellor's argument on child benefit. The implication of his speech as a whole was that child benefit should be taxed on a progressive basis. It was interesting that he did not follow through the full logic of what he was saying.
  Mr. John Smith: As the right hon. Gentleman is dealing with logic, will he explain the logic of giving a benefit to people with incomes over £7,160 a year from investment income, implying capital of £70,000 to £100,000, which makes them slightly unusual pensioners? Why is it given to them, while only 35p is given to child benefit? Why could not the money be used to help the poorer people, who must be in much greater need, rather than helping the people to whom I have referred, no matter how many of them live in the right hon. Gentleman's constituency?
  Mr. Higgins: The right hon. and learned Gentleman was not listening to what I said. The cost in terms of revenue forgone is a great deal more if one tries to help those on low incomes than one gains if one hits those on high incomes.
  Mr. John Smith: I am sorry not to have communicated with the right hon. Gentleman successfully. My point is that the cost of removing the investment income surcharge is £360 million, the application of which to child benefit, or to long-term superannuation benefit, would make a significant difference. I am talking about the same amount of money.
  Mr. Higgins: I understand well the point that the right hon. and learned Gentleman makes. None the less, if he pursues that line of thought, he ought to have gone in for the taxing of child benefits, which his right hon. Friend the shadow Chancellor did not do.
  The Chancellor put forward some specific micro-economic proposals, and some specific macro-economic proposals, of great importance. Far from being concerned only with tactics, he has concentrated much more than any of his predecessors on strategy. Indeed, he has added to his medium-term financial strategy what is, in effect, a medium-term tax strategy. This introduces an element of greater certainty for those who have to take business decisions than hitherto. Some of the changes that my right hon. Friend has made involve the abolition of taxes. Abolishing tax is surely much the best way to achieve tax simplification, and I hope very much that the earnings rule will be the next thing to be abolished.
  On the macro-economic side there are real difficulties in analysing the effect of the Chancellor's proposals. I think, that we have seldom if ever had so many complex financial changes. I cite the proposals for stamp duty, composite rates for banks, the abolition of investment allowances, the radical effect that that will have on leasing by banks and others, and the change made a few days ago as a result of the legal decision in connection with building societies. The effect of changes, and of a number of other proposals, such as VAT on imports and the question of asset sales, will be difficult to appraise. There will have to be a careful examination in the days that lie ahead.
  I am glad that the Chancellor did not go along with the proposals to tax the banks. Against the background of the earlier speeches in this debate, it is important that the banks should have adequate funds to help in the recovery. The strain on companies' finances following a recession is often a great deal more than in the downturn. As they seek to expand and recover and increase the level of employment, it is important that the banks should have adequate funds. Many companies have had their gearing—this is the distinction between equity and borrowed funds—seriously affected over the past five years. We shall have to analyse in greater depth the effect of the overall changes.
  It is important to consider expenditure and tax proposals together. It is unfortunate, and in contrast with the recommendations of the Armstrong committee's report, that we had a debate last week on expenditure and one this week on taxation. We need to bring the two topics closely together.
  I am still not sure whether the procedure within the Government for determining the level of public expenditure in certain areas is a right. First, there is series of bilateral negotiations between the Chief Secretary to the Treasury and others. The controversial issues go to the Cabinet and when those are decided everyone heaves a sigh of relief and says, "That is fine. Thank goodness that
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  is all over." No one stands back at that stage and asks, "Is the result that we have achieved sensible, and are there not some glaring absurdities within the overall picture?"
  Secondly, the Government have stated clearly that their policy is financially to determine the level of expenditure. That has been stated on a number of occasions, but I find it slightly difficult to believe. The decisions suggest that the opposite approache is taken. One has the impression that the battle goes on about public expenditure and that at a certain stage it is decided how to raise taxation to pay for it. That is a factor to which we should give more attention.
  We must consider also whether the priorities between expenditure and taxation are right. I go along to a considerable extent with one of the arguments of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). If the House were able to decide on a free vote whether it was right to save £185 million on housing benefit and sacrifice a tax reduction of a corresponding amount in terms of economic effect, I doubt whether it would declare that that was what it wanted. That is one example, but there are many others.
  The method of determining priorities in government is set against a background in which the House is taking a far more active role, as demonstrated by the debate on Thursday on Estimates. We must consider whether the mechanism for making decisions on priorities within the Government and the House of Commons is as good as it could be.
  The Government have rightly put great stress on cash limits, but are we giving adequate balance to real resources and considering in sufficient detail the areas of the economy in which there are unused real resources which would be brought into use, especially for investment, without having a serious effect upon the PSBR and the general state of the economy?
  I do not believe that the way in which the Government are treating the proceeds from asset sales is the right one in the context of debates in this place. As the Select Committee on the Treasury and Civil Service stated clearly in its report on the autumn statement, if the PSBR is calculated on the basis that the Chancellor suggests, which is treating asset sale proceeds as negative expenditure—that is a weird approach—that presents a distorted picture from year to year depending on how many asset sales take place in one year rather than another.
  From a debating point of view, and in terms of ascertaining the Government's real fiscal stocks, I feel that the proceeds of asset sales could be treated as revenue. However, their economic effect is much closer to a means of funding the borrowing requirement, and I feel that that is the right way to view these proceeds from the point of view of debates in this place. For other purposes the issue is more difficult and more technical, but I hope that we shall be able to reach a reasonable decision upon it during the proceedings of the Select Committee on the Treasury and Civil Service.
  It is the determination of the Chancellor to reduce the PSBR so that he can fund it at low rates of interest, rather than high rates. That is the right approach. The Government went wrong after 1979 because they had a high PSBR and high interest rates. Some of my right hon. Friends may disagree, but I think that the present approach is right. However, it will be of advantage only if we cut interest rates. In that context, the international situation is worrying, especially the American deficit. The chairman

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  of the Federal Reserve Bank, Mr. Paul Volcker, is to fund its deficit with high interest rates. The combination of the two factors raises difficult questions when one considers the effect that it will have on our exchange rate.
  We are very much in a position in which we should welcome what the Chancellor has proposed for specific tax measures. The Budget has been described as imaginative, and that is precisely what it is. There is one feature that gives cause for concern, and that is unemployment. The Red Book figures tell us that the percentage rate of growth in GDP will fall from 3 per cent. in 1983–84 to only 2·5 per cent. in the first half of 1984 to the first half of 1985. It seems that the rate of growth is planned to decline somewhat in the period from the first half of 1984 to the first half of 1985. I hope very much that the Chancellor will be able to deal with this in the course of his further measures. He has set out a clear pattern for the next five years. Indeed, he has done so for the next 10 years in the Green Paper, though that is something that we should debate on another occasion. The Green Paper provides a framework for further study, but no more than that.
  The Chancellor's speech showed considerable elegance and cogency. I believe that his proposals will help us achieve greater prosperity. I welcome the Budget. I hope that we shall be able to continue these debates and to go in greater depth into some of the topics to which I have referred.
  6.38 pm
  Mr. Bryan Gould: The Chancellor delivered himself of an extremely complacent Budget statement. He appeared to say that everything was going so well that he could afford to occupy his time in tinkering with the tax rates and tax rules.
  It is worth asking what the Chancellor was entitled to feel complacent about. It is clear that he could not have felt complacent, or should not have done, about unemployment. It is still at record levels and it is forecast to rise. Surely he did not feel complacent about business failures. Insolvencies are at record levels and rising extremely fast. Surely he was not complacent about manufacturing output, which has risen from the low point at which virtually 20 per cent. of our industry had been wiped out, but is making only the slowest and most painful of recoveries. He certainly could not feel complacent—indeed, he should be extraordinarily worried—about our performance in the balance of trade in manufactured goods.
  Last year, as is now well known, we recorded a deficit in our trade in manufactured goods for the first time. It was not just any old deficit, for it was one of over £5 billion. The latest trend, shown by the first month of this year—I know that it is unfair to take only one month's figures, but that is all that the Chancellor has—shows that the annualised rate of deficit on trade in manufactured goods will be over £9 billion. That should be terrifying to the Chancellor and should not leave him with a feeling of complacency.
  Looking forward to our economic performance over the next year or two, and particularly to our trade performance, clearly the Chancellor cannot feel complacent about the competitiveness of British industry. We hear much from Ministers trying to persuade us that the burdens heaped on industry have been justified by an improvement in competitiveness, but the facts are that every index one might choose to use shows the substantial
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  loss of competitiveness. The one that was hitherto most widely used, the IMF index of relative and normalised unit labour cost shows a loss of competitiveness of over 30 per cent. There can be no complacency there.
  The Chancellor might feel complacency on investment, but surely not. Investment has plummeted to 36 per cent. below the level that the right hon. Lady inherited when she entered No. 10. He might feel complacency about the level of public expenditure in real terms, the terms that matter, the level of services offered. Surely not, with the National Health Service, housing and education being slashed, with further major cuts in the pipeline. How can the Chancellor have been content to sit back and say that everything was going well? He was presumably relying to some extent on North sea oil, something that has come to the aid of this Government as it never did for any other. It has come to the aid of tax revenues to the tune of £9 billion, to the aid of the balance of payments to the tune of another £9 billion. However, we know that North sea oil production is about to peak and that revenues will fall before production peaks. That means that complacenc3, should not be found on the Treasury Bench, because the Chancellor must know better than anybody that the pitiful performance that has so far been achieved depended entirely on North sea oil.
  The Chancellor and the Government still talk about recovery, and we are told that we have turned the corner and are on the way up. It is true that if one throws the economy over the top of a cliff, sooner or later it will start the painful climb back once again. Even this economy has some sort of irreducible minimum below which it cannot sink. Even if we were to wave a magic wand and suddenly leap back to the rates of growth and the position that we could have been in if we had stuck to the trend before the wonderful monetarist remedies were introduced, we still could not argue that that sacrifice had been worth-while.
  Such recovery would still have left behind a loss of real wealth and resources that can never be made up. By that I mean not just the material resources not just resources, the lack of which have weakened our industrial infrastructure, but human resources. A whole generation of young people have been thrown on the scrap heap who would in other circumstances have expected higher or further education. Their chance will not come again, and as the economic ship of state has run onto the rocks, and the Government have jettisoned goods and people, we must recognise that we can never go back to pick them up.
  It might be said that, painful though it is, this process would be worth-while if we suddenly resumed a sustainable rate of growth better than anyting that we have been able to achieve in the past. Much play is made of improvements in productivity. However, I maintain that those improvements must be viewed in the light of improvements made by our competitors, and there is Little evidence to show that we are making real ground on them. There is little evidence that there is much improved productivity higher than the reviled trend established in the preceding decade. There is also some evidence that those productivity improvements are to a great extent a statistical illusion.
  What has happened is that the weaker firms have gone to the wall and the average performance of those that remain appears to be higher. It is rather as though the England cricket captain, worried about the batting performance of his team, decided to improve the average by shooting the tail-end batsman. In the case of the

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  England team, that might not work that way. We can all see what would happen. The average might go up, but the number of runs scored would decline, and this is what happened in the British economy. What is left of the British economy is not leaner and fitter, as the Government would have us believe, but smaller and weaker and that much less able to face the international competition that is intensifying all the time.
  Such a recovery as we have enjoyed has been partly the product of American recovery—based on policies that are anathema to the Government—and partly the product of a pre-election boom cunningly contrived and concealed. Treasury Ministers know perfectly well that in the period between the end of 1982 and early in 1983, they deliberately overfunded so as to keep the appearance of tight control over the money supply and then sold that money back through commercial bills to the private sector so as to circumvent their own monetary controls. That produced a boomlet that is about to peter out.
  There are some signs that the Government are about to learn a lesson. I recently tabled a question asking if the Treasury would publish a table showing the increase in sterling M3 on the one hand and prices on the other. It declined to do so. However, when I asked what was the relationship between the two statistics, the Treasury replied that it was according to prevailing circumstances. What a departure from the scientific precision with which monetarism was ushered in. All that one had to do was to control the money supply and, two years later, just as though water was being passed through a hosepipe, out would come the same level of prices. That was the theory, but we now know that mercifully the Government have abandoned that theory.
  The one thing in the Chancellor's speech which, paradoxically, gave me hope, was that he juggled with M0, MI, sterling M3 and EFL2 in such a way as to make it clear that he has no longer any real expectation of hitting any particular target. He reminded me of nothing more than a darts player who, despairing of his ability to improve his performance, concentrates on an amazingly complicated method of moving the dartboard once the dart has been thrown so that the dart has some chance of hitting the target after all.
  If I am right that in practical terms the Chancellor has abandoned the nonsense of monetary policy, what is left? We are left with the age-old crude deflation that Governments for too long have resorted to in an attempt to improve our international competitiveness. We are left with a classic financial orthodoxy which, whenever it has been applied in the past, whether in the 1920s or in the period of the aftermath of the Napoleonic wars, has always produced the same consequences. There is no magic about it—it is predictable that that orthodoxy will produce precisely the consequences of depression, high unemployment, and falling output that we have seen.
  Finally, what is left as the basis of the Government's policy is a crude ideological prejudice against the public sector. Ministers, the Prime Minister foremost among them, talk about the public sector as though it were a foreign country. The truth is that the public sector is part of our economy. What harms the public sector harms the economy as a whole. There is a great deal of pejorative talk about borrowing, but whenever resources are moved, for example from the corporate sector to the personal
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  sector, or vice versa, or from the public to the private sector, or vice versa, that is borrowing, but it is a perfectly sensible means of ensuring that all the country's resources are properly used. However, by constantly trying to drive down the economy's ability to use those resources, the Chancellor is ensuring that complacency is the last thing that he is entitled to feel.
  The Budget optimism rests on limited objectives. Even that optimism is heroic by comparison with what has been achieved in the past and what the Chancellor's policies are likely to achieve in the future. Without growth, pitiful though it is, without continued success with inflation, the ability to control public spending and all the other assumptions on which the Chancellor has based his strategy, that strategy will come crumbling down. The Chancellor should have introduced a bold and expansionary Budget; instead, he has produced a complacent Budget which does nothing more than fiddle with tax when we need a real approach to our problems.
  6.50 pm
  Mr. Alan Howarth: I add my warm congratulations to my right hon. Friend the Chancellor of the Exchequer on his Budget. With great imagination, he has introduced major policy changes which will do much to encourage the creation of wealth and jobs. He has managed even to spring the trap set for him in Strasbourg of making it
  "felony to drink small beer"
  in the words of a certain great poet from my constituency. In certain respects, I should have liked my right hon. Friend to be, if not bloodier, at least more bold and resolute in his blazing of the trail for the medium and the longer term. Nonetheless I draw much encouragement from the vigour and courage of his Budget.
  Since, over some time, I have urged my right hon. Friend the Chancellor and his predecessor to nail their colours to the mast and commit the Government to the achievement of price stability, I applaud my right hon. Friend for having taken that step and for reaffirming the commitment in his Budget statement. An end to inflation would be the greatest benefit the Government could confer on employment prospects, on the most vulnerable in our society and on the economy generally. The Government have the power to end inflation. hi our history, we have had inflation only when Governments have printed money and borrowed unduly. The hon. Member for Dagenham (Mr. Gould) might benefit from studying an interesting article in the April 1983 edition of the journal Economic Affairs. Ronald Halstead has shown that, of all the inflation experienced in the past seven centuries, 96 per cent. has occurred since 1936, when Keynes published the "General Theory of Employment, Interest and Money" and made deficit financing respectable.
  My note of reservation about the Chancellor's Budget and strategy is that, although he has willed the end—price stability—he has left it out of sight beyond the horizon of the medium-term financial strategy. That may not be unreasonable, but I am a little more worried that he has not unambigously willed the means of achieving that aim.
  The MTFS in its latest incarnation is distinctly modest in its ambitions for the medium term to 1988–89. We are invited to look forward—I do not think this is too crude a paraphase—to prices rising stably at about 4 per cent. per annum between 1985 and 1988. It is then anticipated

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  that inflation might come down to 3 per cent. in 1988–89. The Green Paper, it is true, alludes—only noncommittally—-to stable prices by 1993–94. We are told that the figures for 1985–86 to 1988–89 for the PSBR as a proportion of GDP are illustrative only. For prospects after 1988–89 we must turn to the Green Paper. The MTFS beyond the first year is studiously vague and imprecise, as it fades away from targets, through illustrative ranges, into the hypotheses of the Green Paper.
  The trumpet sounds, therefore, somewhat uncertainly over the distant uplands—and in interesting contrast to my right hon. Friend's bravura note for this year. There are bound to be important uncertainties. Unpredictable developments in the world at large will affect our economy profoundly. We know too that it is remarkably difficult, even with the best will in the world, to put salt on the tail of the monetary aggregates, and my right hon. Friend has been wise to seek safety in a proliferation of numbers there.
  One great contribution which it is undoubtedly within the Government's technical power to make towards the achievement of financial stability, is for the Government to balance their budget. Having in the past also urged my right hon. Friend and his colleagues to recognise the virtues of a balanced budget, I was intrigued to note my right hon. Friend's genuflection in his speech to that
  "classical formula for financial discipline".—[Official Report, 13 March 1984; Vol. 56, c. 290.]
  I was not quite persuaded by him that the MTFS, as vouchsafed in this year's Red Book, deserves comparable reverence. It lacks precisely the rigour and precision of the classical formula.
  It is true that, just as the apparently simple proposition that Governments should not go in for printing money opens a Pandora's box of technical disputation, so there is scope for abundant debate on the proper definition of a balanced budget. That should not worry us. It would be popular with economists, and everyone else would be quite clear about what the Government are driving at. It may indeed be that on a generous interpretation and if we are entitled to attach weight to the assumption in the Green Paper that the PSBR will fall to 1 per cent. of GDP in 1993–94, the Chancellor is moving to a balanced budget. If so, he is doing it fairly stealthily. My own feeling is that he would do better to commit himself clearly, as a necessary concomitant to his pursuit of price stability, to achieving a balanced budget. Markets would then have a firm point of reference. The great majority of people, I believe, would respect and welcome the Government's commitment to something which they could understand and which they would regard as self-evidently prudent.
  My right hon. Friend may have taken the view that it is wiser not to give such a hostage to fortune, but he has established expectations in respect of falling inflation, stable or improving public services, lower taxes and sustained growth. I, too, want to see all these things. The Chancellor's confidence, flair and determination will encourage those same qualities among decision-makers in the economy. They are necessary elements and will make strongly for success. None the less, my right hon. Friend has exposed himself to financial and political risks. There could be circumstances in which the Chancellor would need all the powers of wizardry now attributed to him if he is to keep all those balls in the air together.
  The Chancellor is banking on continued growth. He anticipates—I would not dissent from his view—growth
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  this year of 3 per cent. I am a little less confident than he is about prospects for a while thereafter. In his speech he perhaps rather hastily passed by two awkward factors. I should be surprised if it did not take the Americans a considerable time to come satisfactorily to grips with their federal finances. Whether the process turns out to involve continuing high interest rates and a very strong dollar or a capitulation to inflation and a very weak dollar, either way it will be bad for world trade. The debt problems of the non-oil, less developed countries are, to say the least, daunting, and that will continue to dampen our export performance for a long while yet. At home, it may well be that the personal income tax cuts which my right hon. Friend has introduced will sustain consumer spending as the savings ratio ceases to decline at its recent pace. I agree with my right hon. Friend that recovery in Britain has come from sound finance and lower inflation, but that reinforces my regret that the Government are not taking a more direct path to substantially lower inflation.
  Although, for those reasons, I would not take absolutely for granted the Chancellor's assumption of maintenance of 2·25 per cent. growth over the five years to 1988–89, I warmly congratulate my right hon. Friend on the reforms he has introduced to strengthen the supply side of the economy. His reforms of the financial markets and business taxation will do a great dealto promote good quality growth.
  I trust that the phasing out of the capital allowances and the much-praised removal of the fiscal bias against employment will not, however, lead to any falling off in truly productive capital investment. We are as a nation uniquely dependent on international trade, and we shall not for much longer continue to enjoy the same enormous benefit to the balance of payments from North sea oil. We need therefore to improve considerably further our competitiveness in export markets to ensure the growth posited in the MTFS.
  This means that British workers must have plant and equipment at their elbow as good as that of their rivals. I know that that is my right hon. Friend's appreciation too, but I have been a shade worried at the somewhat Luddite view, current a good deal in recent weeks, that we must stop displacing people by machines. That is a false antithesis other than in the short term. Of course we must get people into jobs—and that is a cardinal purpose of our policies. To achieve this, we must embrace new technology.
  We also need a coherent and thorough-going strategy to reform the labour market, and I welcome important elements of such an approach in the Budget—for example, the easing of the unemployment trap, the abolition of the national insurance surcharge and the reduction in stamp duty on homes.
  My right hon. Friend has done all that he responsibly can to promote growth. We should, however, keep a weather eye open for the event that external circumstances do not prove propitious. It is then that my right hon. Friend might have some trouble keeping all those balls in the air at the same time. It might even be that he should be prepared to put one of them down. In the event that growth were disappointing, I wonder whether he would give priority to lower taxes or to price stability.
  Not the least of the reasons why I would like to have seen a balanced Budget clearly established as a bench mark and as a necessary condition of success is that in the pursuit of price stability there could be phases when it

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  would be necessary to have higher interest rates or even higher taxes—as the Chancellor was brave enough to warn us last year. These melancholy contingencies would be more readily acceptable to a public who shared their Government's view of its need for a balanced budget.
  Another area of potential political difficulty is that if growth, through no fault of the Government, were to be disappointing, the pressures for more public spending would not abate. Indeed, in another recession they would increase, and we should all want to ensure effective help for people in real need.
  No doubt there will be other opportunities to debate the matters which are the subject of the Green Paper, but there are some points which I hope it is in order to make in the context of the Budget. There are two pertinent lessons from the years since 1979. One is that, as the Green Paper ruefully acknowledges, there is an inbuilt tendency for spending to rise; and an inbuilt resistance to expenditure reductions. The other is that people prefer it if they are confronted with the truth and are treated as adults.
  While I welcome the publication of a Green Paper on public expenditure and taxation over the next 10 years—credit is due to Treasury Ministers for its appearance—it is a disappointing document. The Red Book, musing over the fact that the PSBR will have turned out in the current year to be 25 per cent. above what it was forecast to be a year ago, remarks:
  "Local authority borrowing seems to have been running much higher than expected and central Government expenditure, particularly on non-cash-limited programmes, has exceeded last year's forecast."
  Quite so.
  The disappointment about the Green Paper is that it fails in any adequate sense to discuss the profounder causes of the doubling of public expenditure in real terms in the last 20 years, and it asks us to resign ourselves to the proposition that it is in the nature of public services that demands are "literally limitless". It makes only perfunctory and rather nervous references to the possibilities of transferring some services to the market sector, of charging more for others and of a presentation that would educate people to the real costs of so-called "free" services. The Green Paper then says manfully that the Government intend to continue to hold public expenditure "firmly in check", before in the very same paragraph adumbrating the possibility of the Government, after all, allowing public expenditure to grow by 1 per cent. in real terms.
  This hand-wringing, defeatist tone is strikingly at odds with the Chancellor's emphatic stress on the need to limit public expenditure. I do not want to see my right hon. Friend's strategy wounded, possibly mortally, by the pressures for public expenditure that will come at him from all directions and in a period when his revenues from North sea oil and asset sales will fall away. He would, I am confident, have much support from these Benches for a much more radical approach to public expenditure.
  I offer not just one practical suggestion to link consideration of taxation policy and public spending. I hope that in the debate that we shall have on the reform of personal taxation, my right hon. Friend will bear in mind the precedent of housing. That is a field in which, by offering a worthwhile fiscal incentive to individuals to
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  provide for themselves in the private sector, public costs have been successfully held down and consumer satisfaction has been outstanding.
  Before we succumb too completely to the undoubted attractions of lower rates of income tax, I hope that we will look at the possibility of using some leeway for personal tax reductions to offer systematic encouragement to people to opt away from state provision in spheres other than housing: education, health, pensions and elsewhere. In this way we would truly be tackling the control of public expenditure and the alleviation of taxation together. We should certainly not allow ourselves to be browbeaten by the predictable allegations about dismantling the welfare state and the like. There would be no compulsion in this approach; it would extend choice and allow an opportunity to have growth in those fields where we all want it.
  The alternative—which is really what the Red Book and the Green Paper hold out to us, while finding it hard to contemplate it unblinkingly—is a prolonged, heroic exercise in national denial. My apprehension is that in these circumstances, our national finances would remain precarious, our politics would be a matter of attrition and the condition of our society would be recriminatory. If, instead, my right hon. Friend would incorporate into the financial strategy a system of incentives to divert demand away from state provision, he would significantly reinforce his strategy to release the nation into prosperity and responsibility.
  7.6 pm
  Mr. Charles Kennedy: The hon. Member for Stratford-on-Avon (Mr. Howarth) will forgive me if I do not deal with the logic or direction of his interesting soliloquy. I accept that he is strongly in favour of a balanced budget.
  Last night, when speaking in another place to my noble friend Lord Diamond, he perceptively acknowledged that the initial impression about any Budget by any Government usually changes by the following Monday, once people have had time to digest it over the weekend. That is interesting in the context of this Budget, which has been given various names. The popular press has called it the take-away Budget and Labour Members have labelled it complacent. Having searched for a phrase with which to describe it, I would call it the Budget of lost opportunity. There can be no doubt that on Tuesday afternoon the Chancellor presented, in a journalistic sense, an astute fiscal package, and by so doing he delivered what I can only regard as his Budget of lost opportunity.
  The speech of the Secretary of State for Employment was appreciably selective. For example, he quoted the good news, about VAT on imports, but ignored the bad news about VAT on building alterations and the effect that that will have on the construction industry, already hard hit by reductions in home improvements and repair grants. That is one industry which provides an opportunity speedily to create jobs and in which to take action for the good of the environment, society and the community as a whole. Instead, the Budget has hit that industry.
  The Secretary of State spoke of optimism and challenge. If he came to my constituency he would find little of that, not because we face traditional industries in decline, the so-called sunset industries, but because we have had the riduculous situation of so-called sunrise industries closing during the tenure of office of the Conservatives. I refer, for example, to the aluminium

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  smelter at Invergordon and to the pulp mill at Fort William, both sunrise industries which were instituted only in the 1960s, which the Government have allowed to go under. It is difficult for Highlanders to respond to the brave charge to optimism and challenge represented by the Budget.
  It is significant that the Chancellor spoke at length and in detail in his Budget broadcast on Tuesday night about several factors, but did not use the word "unemployment". That a Chancellor can go on television to deliver a message to the British people and argue and defend his Budget proposals without mentioning unemployment serves only to increase the strong impression held in many parts of the country that the Government's ears are not tuned to them and that their hearts are not with them, because the Government do not understand. That is the Budget's central difficulty.
  The human dimension can be illustrated by the example of someone coming to Britain from another planet. He would not believe that our communities are in decline, that our infrastructure needs support, that our Health Service is understaffed and underfunded and that people are doing nothing while those problems exist. He would not believe that illustration if he came here without any political bias or social background because it is incredible, and little in the Budget will change that position.
  The Chancellor made it clear that it was a "more of the same" Budget, a revenue-neutral Budget alongside a slightly redefined medium-term financial strategy. In other words, it is not a surge towards the politics of prosperity but a litany of abeyance of our politics of poverty. The Chancellor was at pains to place his Budget in the context of the Government's tenure of office.
  It is only fair when one talks about the politics of poverty, to which the Budget was not addressed, to place the Government's record of poverty in context, too. One aspect cannot be considered without the other. Since 1979 the Government's record has included the repeal of the fair wages resolution, the failure adequately to amend the Equal Opportunities Act, the repeal of schedule 2 to the Employment Protection Act, a cut of 5 per cent. in invalidity benefit and a breaking of the link with earnings. The Government's record includes the abolition of industrial injury benefit, national insurance sick pay for the first eight weeks of illness and earnings-related pensions. Those and other measures have cut £2,000 million from benefit payments by the Treasury, pathetically camouflaged by the larger social security payments caused by the large increase in unemployment. That is the reality. If the Chancellor wishes to argue his case based on the Government's background and track record, he can base his argument on those changes.
  The right hon. Member for Chesham and Amersham (Sir I. Gilmour) was right to refer to the long-term unemployed. Unemployment benefit gives the lie to the Chancellor's argument. We saw him on television the other evening, using diagrams to compare Britain's performance in the league table of western European countries. He did not show us the league table of unemployment benefits paid in western Europe. In Great Britain, it accounts for about 25 per cent. of net average earnings, 55 per cent. for a married couple with two children. In Holland, benefit is 85 per cent. of net average earnings, in Denmark it is 87 per cent. and in Germany has been cut from 68 to 63 per cent. Whenever we argue about proportional representation, we are given the example of
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  Germany and other western European countries where coalition Governments have been cobbled together hastily with resulting lower benefits. The German benefit rates have been reduced, but they are still more than twice as high as in Britain. That is nothing to be ashamed of. If a coalition Government have brought the politics of prosperity, that argument in favour of proportional representation should be endorsed by the nation and by the House.
  The Government have given us the politics of poverty. Poor people, especially those with children, are suffering, and will continue to suffer, because of the Budget. I make a plea for them. It appears on paper—the Government should appreciate our suspicion—that final decisions will not be made for some time. The Chancellor spoke of lifting people out of the poverty trap. No one would disagree with that sentiment. He raised tax thresholds as a means of achieving that by 7 per cent. which is above the rate of inflation of 5·3 to 5·5 per cent. per year. yet he gave no adequate indication of what will happen to child benefit.
  The Conservative party was projecting itself strongly even before 1979 as the party of the family, the pensioner's friend, and so on. When in opposition, Conservative Front Bench spokesmen issued a statement that underlined
  "The Conservative party's commitment to treat increases in child benefit in the same way as reductions in taxation."
  The aim was to secure
  "an improvement in the real value of child benefit as part of an overall reduction in the burden of direct taxation."
  That is taken from a press notice on Commons early-day motion 420 of July 1977.
  The Conservative Women's National Committee—it is good to know that there is more than one woman in the party—recommended in its pre-1984 Budget submission that
  "child benefit be increased in line with any increases in tax allowances. The committee feels that this would be entirely appropriate remembering that child benefit has replaced the former system of child tax allowances."
  We were given fair warning just before the Budget that the 12 per cent. increase in tax allowances, at 7 per cent. above RPI, would not be matched by equivalent generosity in child benefit payments.
  The Chancellor says that he wants to do something to haul people out of the poverty trap, and the Government must be only too well aware of the body of opinion that increases in child benefit are one way of arresting the flow of people into the poverty trap. That opinion is held in many quarters—for example, by Samuel Brittan, which is a name to conjure with. He wrote in the Financial Times of 27 January 1983 that
  "the fact remains that an increase in child benefit has a much more powerful effect in alleviating the poverty and unemployment traps."
  The Chancellor has not taken that step, although it is not too late to do so. We plead urgently that he should bring forward something better before May or June, whenever the announcements are made.
  I shall claim the Daily Telegraph in support of the alliance case at the risk of offending my Liberal colleagues. It observed in a post-Budget leader:
  "Mr. Lawson is wrong to claim that there is no relatively inexpensive way to assault the poverty/unemployment trap. A substantial increase in child benefit would do more to hell) the sort of families who are most penalised by the present system of tax and benefits than a rise in allowances costing an equivalent amount."

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  If the Government will not heed the Opposition parties and the SDP-Liberal alliance, they might heed the Daily Telegraph leader writer.
  Generally, the Budget was indeed skilful and showed commendable journalistic presentation at the time of delivery—something to sit back and admire. In reality, however, it does not live up to the rhetoric of the Conservative party before and since 1979—as recently as the election campaign of June last year—about the importance of ethical considerations for the family and practical financial support to haul people with children out of the poverty trap by increasing child benefit. I hope that the Government will deal with that omission. Until then, for the unemployed and for the weakest members of society, it remains a Budget of lost opportunity. Through their unassailable parliamentary majority the Government have the means to do good for the most disadvantaged members of society, but they clearly lack the political will to follow that through.
  Mr. John Smith: Will the hon. Gentleman give way?
  Mr. Kennedy: I am about to finish. It is strange to seek to intervene in an hon. Member's peroration.
  Mr. Smith: I was promised an answer to a question.
  Mr. Kennedy: Perhaps I may finish my point.
  The Government lack political will and, sadly, many people in this country lack the means and must by now be losing the human will as a result of the Government's policies. I hope that the Government will reconsider their attitude.
  Having concluded my remarks to the Government, I shall now listen to the comments of the Department of Employment in exile.
  Mr. Smith: I am grateful to the hon. Gentleman for giving way as gracefully as he could. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), when I intervened in his speech, promised me—I do not know whether it was with the hon. Gentleman's permission—that the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) would explain to me why the leader of the SDP approved of the abolition of investment income surcharge. Perhaps the hon. Gentleman will be kind enough to do that. I ask only because I was promised an answer.
  Mr. Kennedy: I assure the right hon. and learned Gentleman that the alliance always delivers what it promises. I am not sure whether the right hon. and learned Gentleman was present at the beginning of my speech. Perhaps that is why the matter slipped my mind. I certainly intended to deal with it and I am happy to do so now.
  My right hon. Friend the Member for Plymouth, Devonport (Dr. Owen) rightly expressed, as the Chancellor pointed out on Tuesday, concern about people who reach pension age without a valuable nest egg and are thus penalised, and in that sense we share the concern. My hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood), speaking from the Liberal Bench, pointed out in a quite different context that it was immoral and impractical to provide those means when our arguments about child benefit had been overlooked. This is an important point. The Liberal-SDP alliance believes that the entire tax and benefit system should be overhauled and simplified through either tax credits or basic benefits.
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  In those circumstances, situations will arise in which Labour or Conservative Governments bring forward specific proposals in which one sees merit but which, within the overall programme, are objectionable. We have sought throughout to make that clear. I am sorry that the right hon. and learned Member for Monklands, East (Mr. Smith)—the only Labour Member present—is so steamed up about it. Perhaps the Government will acknowledge, as one more Labour Member arrives, that the proportion of alliance Members to Labour Members in the House today is more in keeping with the feeling of the country than it has been for some time.
  7.23 pm
  Mr. Charles Morrison: The final comment of the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) amounted to trying to have his cake and eat it as well. Lest I forget to do so later, I begin by agreeing strongly with my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) about the need to extend long-term supplementary benefit for the longterm unemployed. That is very important and I hope that Ministers at the Treasury and the Department of Health and Social Services will deal with it before long.
  In purely economic terms, I thought that the judgment on the Budget of the hon. Member for Ross, Cromarty and Skye was somewhat harsh. In politico-economic terms, however, his strictures may carry more weight in some respects. I agree with him that the Budget was skilful. When we were led to believe some time ago that we were to have a neutral Budget, the proposition did not sound very exciting, but the reality turned out to be very different. It is difficult to imagine any Budget speech a mere 80 minutes long providing more interest, variety, excitement or immediate euphoria. That was due not least to my right hon. Friend the Chancellor's delivery but it was also because, for once, the Budget set out to simplify rather than to complicate the tax system. Any Budget that abolishes two taxes entirely must be notable. One of them, the national insurance surcharge, has been a running sore and a dead weight for employment prospects ever since it was introduced by the Labour party. Naturally, therefore, when it is abolished, relief is enormous and joy overflows.
  The change of balance between capital allowances and corporation tax should achieve exactly what my right hon. Friend the Chancellor expects. As he said, it will operate
  "to encourage the search for investment projects with a genuinely worthwhile return, and to discourage uneconomic investment."—[Official Report, 13 March 1984; Vol. 56, c. 297.]
  We all have our pet hopes about the details of the Budget. Sometimes they materialise and sometimes they do not. In my racing committee hat, I was rather disappointed that the Chancellor felt unable to take any action on general betting duty. It is increasingly believed that the current unduly high level of duty is creating a growth in illegal betting, just as the Royal Commission on gambling predicted. That belief seems to be supported by the fall in betting turnover. The Government should be worried about that, because they will lose revenue but also because they cannot wish to encourage the growth of illegal betting. Nevertheless, I accept that, within the confines of a neutral Budget, a reduction in general betting duty may have been impossible on this occasion.
  The abolition of on-course duty, however, would cost a mere £7 million—scarcely more than a blink of the

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  Chancellor's eye—and would encourage not only legal on-course betting but attendances at racecourses, thus helping the racing industry. I hope to be able to return to that later, perhaps during the Report stage of the Finance Bill.
  I hope that it will also be possible to include in the Finance Bill suitable measures to guarantee the continuation of capital transfer tax agricultural relief on thoroughbred studs. Business relief is not equivalent for lifetime transfers or even necessarily for transfers on death. Without agricultural relief, many breeders of thoroughbreds may and probably will move abroad, which would have a serious effect on livestock export sales which are now worth a considerable sum and are a great help to the balance of payments. It would also have a limited but important effect on employment prospects in the areas concerned.
  I welcome the proposed reduction in capital transfer tax and the halving of the rate for lifetime gifts. That will do much to ensure continuity, especially for small businesses and farmers. However, it seems that the full rate will now not be paid except in cases of incompetence or bad luck—notably in the form of an unexpected death. Incompetence may be inexcusable, but bad luck is not a fair basis for taxation. I hope that the Chancellor will give further thought to that point in a future Budget.
  Lastly, I should like to congratulate the Chancellor on his generous increase in income tax allowances. Ultimately, however, the Budget will be judged, like its predecessors, not on immediate tax changes but on its effect on industry, the economy and people. Broadly speaking, industry seems to be excited by the prospects held out in the Budget, and no doubt its hopes will be realised. Likewise, the prospect for a continuation of the economic recovery seems reasonably good, and that will benefit many.
  The single most worrying cloud over the economy must be the excessive size of the American deficit, but at home we still have a major problem which should be transient but which is developing a dangerous air of permanency. I refer to the excessively high level of unemployment, coupled with the excessively high level of long-term unemployment. My right hon. Friend the Secretary of State for Employment has rightly said that there are no easy panaceas for this problem. I agree. My right hon. Friend was right to emphasise the importance of competitiveness, and he is also to be congratulated on what he has done to improve training prospects. Sadly, however, I do not believe that the Budget will greatly reduce unemployment. The right hon. and learned Member for Monklands, East (Mr. Smith) has pointed out that we now have the highest unemployment level of any OECD country.
  An unhealthy economy is worse for jobs than a healthy economy, but, nowadays, with technology and higher productivity—as my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) pointed out—even a healthy economy can create only marginal improvements in employment, and the fact that there are now more people in jobs is no consolation to those who are unemployed. Furthermore, although the Government can never be praised enough for their achievements in reducing inflation, low inflation will not automatically lead to improved job prospects. The experience of the 1930s should have taught us that.
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  We cannot expect the market alone to reduce unemployment. In my view, the only way in which the Government could help even some of the mass of unemployed is by acting directly. Above all, they should bring in schemes of public capital investment in necessary improvements and replacements to the infrastructure. The need for such schemes has been mentioned several times today. Some of us have drawn attention to it year after year. Each year, the need for improvements becomes greater, and the need to make inroads into the unemployment figures becomes more urgent. Why cannot those needs be met? We ask the question each year. and the Government reply by referring to the adverse effect on the public sector borrowing requirement and the consequences thereof.
  I am not particularly brave, but I think that the Government are being unduly fearful. I know that the PSBR is not quite as restrictive as it appears—because of higher revenue and higher asset sales—but this country has, proportionately, almost the lowest PSBR or equivalent among the major OECD countries. The PSBR may be slightly more generous than it seems at first sight, but if the Chancellor had intended to step up capital investment against that background, I think that he would have said so. It should not be forgotten, too, that, although the CBI has expressed delight about the Budget, before the Budget it asked for an increase in the PSBR of £1·8 billion.
  We now have an economy in which the Chancellor takes pride. In my view, he could afford to invest in it a little more. He could take the risks that any moderate and sensible investor may take—no more and no less.
  On that point, I disagree with my right hon. Friend the Member for Worthing (Mr. Higgins). I agree with him that low interest rates are a great help, but, as he admitted, we are not complete masters in our own house in that respect and, in any case, low interest rates do not directly affect unemployment.
  We have a hugely under-employed building industry, and that is the industry which would be most closely involved with the type of project which I suggest. The industry could meet greater demand without inflationary pressure. It should not be forgotten that unemployment itself is inflationary and that, in the end—it may be tedious to repeat this—it must make more sense to pay people to work than to pay them for enforced idleness.
  I find it hard to believe that the economic risks of greater public capital expenditure are of any significance, even if they exist, but whatever the economic risks may be, the equation also involves political risks. Last summer, the Conservative party won a famous victory. However, in spite of the size of our majority, the country has swung marginally against us. We won the election because of the remarkable leadership and determination of the Prime Minister during the Falklands campaign and also because of the shambles in the Labour party. The first of those factors is fading into history, and it would be unwise to rely upon a repeat of the second.
  Further, there is a paradox of which my right hon. Friend the Secretary of State for Employment should take note. Such is the generous and thoughtful attitude of the electorate at large that, given an improving economy, those who are in jobs will worry more and more about those who are not. That could have serious political consequences, and it would be a tragedy if the Government were caught in the backlash. High levels of unemployment cannot be ignored economically for the waste they

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  involve, any more than they can be ignored politically or personally for the hardship they bring and the threats they engender.
  The last thing we want is an American-type budget deficit, but, to my mind, there is a happier medium. I hope that the Chancellor will decide soon to demonstrate even more clearly his own confidence in the economy by moving in the direction that I suggest. If he did so, he would get the thanks of the unemployed, just as much as the employed.
  7.39 pm
  Mr. Roger Freeman: In the interests of brevity, I shall not pursue some of the points raised by my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth)—points with which I strongly agreed, especially on capital expenditure. I wish to address myself specifically to pensioners.
  My constituency has a comparatively high proportion of people aged over 65. They will welcome the Budget. Many pensioners in my constituency will be especially glad for what the Budget did not do. We should be grateful to the Chancellor that he did not interfere with tax relief on contributions to pension schemes by employers and employees. He also did not touch the tax exemption of pension funds. I strongly hope that he will resist the temptation which has been mentioned by some newspapers recently of coming back next year and removing some of those tax exemptions. I must tell my right hon. Friend the Chancellor and my hon. Friend the Financial Secretary to the Treasury that they should keep their hands off the tax-exempt status of pension schemes.
  Mr. D. N. Campbell-Savours: Why?
  Mr. Freeman: I hope to explain in more detail shortly.
  There are four features to the Budget which pensioners will welcome. The first is the significant increases in the thresholds that affect pensioners. The second is the abolition of the duty on kerosene and paraffin, which is relevant to many old people.
  With regard to investment income surcharge, I took exception to what the right hon. and learned Member for Monklands, East (Mr. Smith), who has now left the Chamber, said, as he seemed to imply that the abolition of that surcharge would benefit only a small section of the community that can well look after itself. I remind him and the House that more than 50 per cent. of people who have paid investment income surcharge are over 65 and that more than 40 per cent. would otherwise have paid the basic rate of tax. I cannot understand the insinuation that people aged over 65 who have paid investment income surcharge are second-class citizens. I do not understand why they should be subjected to a higher marginal rate than the rest of us on earned incomes. I warmly welcome the abolition of that surcharge, as it will benefit many of my constituents.
  With regard to withdrawing life assurance relief on new policies—the House will know that relief was available at 50 per cent.—
  Dr. Oonagh McDonald: Only about 180,000 pensioners are fortunate enough to have £70,000 or more in capital. That is a tiny proportion of pensioners. The rest have had their age allowance increased only in
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  line with inflation and have not benefited from any other part of the Budget. That is why my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said what he did about the investment income surcharge.
  Mr. Freemen: Many of the pensioners to whom the hon. Lady refers have no other source of income and might not have been included in an occupational pension scheme. I resent the argument that, having paid tax on the earnings for those savings, such people must pay a discriminatory higher marginal rate of tax on the income from those savings. With regard to life assurance, I believe that the abuses to which my right hon. Friend the Chancellor referred in his Budget statement could have been stopped without withdrawing basic relief. He has thrown out an attractive baby with rather dirty bath water. That is regrettable.
  I have two suggestions about the tax treatment of pensioners which I hope my hon. Friend the Financial Secretary will take on board in next year's Budget if not in the Finance Bill. The first concerns retirement, and the limit of pension in relation to pensionable salary. The House will know that, if someone's normal retirement age is 65 and he retires earlier than that, the normal two thirds limit, which is the maximum ratio that his pension can bear to his pensionable salary, is reduced. If he retires at 55, the ratio is reduced to 50 per cent. I do not agree with my hon. Friend the Member for Kensington (Sir B. Rhys Williams) who suggested that that limit of two thirds might be raised to 100 per cent. That might be a touch too generous. There is a bigger problem that we should attack now. If we wish to encourage the over-55s to retire early, one way in which to do that—in certain circumstances it will have beneficial effects on employment—is for the Inland Revenue to remove the regulations that abate the two thirds maximum on the pension. I should like the abatement rules to be abolished for everyone who retires within 10 years of their normal retirement date.
  There is still room for flexibility and improvement with regard to additional voluntary contributions because they will play an increasingly important role, especially with the withdrawal of life assurance relief. People in a pension scheme operated by employers and wanting to make additional voluntary contributions are at a disadvantage in relation to people who are governed by section 226 of the Taxes Management Act 1970—the self-employed. The first and most important element of discrimination is that some companies do not permit people to make an additional voluntary contribution. That bar should be removed.
  The second is that, if a person makes an additional voluntary contribution to save for retirement, works for a company and is a member of its pension scheme, it is difficult for him to vary the sum downwards. A self-employed person who makes an annual contribution under section 226 can increase or decrease his contribution. I am sure that we could bring more people within the ambit of additional voluntary contributions if there ' were such flexibility.
  The third element of discrimination lies in the maximum amount of additional voluntary contribution that can be made. There is a 15 per cent. limit on the pensionable salary that can go to a pension scheme run by an employer. For the self-employed that limit is 17·5 per cent. For the sake of simplicity and equity I should like the 15 per cent. limit to be raised to at least 17·5 per cent. My

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  hon. Friend the Member for Kensington made out an argument for withdrawing the rules altogether. That might be some years off—I am looking for some flexibility in the short term.
  The Red Book shows clearly that the personal savings ratio has fallen from 14·5 per cent. in 1980 to 9·5 per cent. last year. The Finance Bill and next year's Budget should build on the Chancellor's achievements this year and help rebuild that savings ratio. I hope that the Chancellor will be constructive rather than destructive towards occupational pension schemes. I say to the Chancellor: please, next year, hands off tax exemption of occupational pensions.
  7.49 pm
  Mr. Nicholas Winterton: I am grateful to you, Mr. Deputy Speaker, for calling me to speak in this important debate. I shall endeavour to be brief, to enable my right hon. and hon. Friends who wish to participate to have an opportunity to do so.
  Opposition Members from a variety of parties have accused the Government of being complacent in this Budget. That is an unjustified comment about a Budget which is encouraging to industry and which has met many of the requests made by the Confederation of British Industry. I hope that Opposition Members will agree that the CBI has not always agreed with the Government and has produced propaganda, documents and papers critical of them. The Budget as in no way complacent.
  The Budget was prepared by the Chancellor of the Exchequer, who on Budget day surprised me immensely with the lucid way in which he advanced the Government's case and package and uniquely held the House's attention during his entire speech, which lasted about 79 minutes. I have been in the House for almost 13 years and cannot remember a Chancellor of the Exchequer holding the attention of the House as well as my right hon. Friend.
  If I have a criticism, it is that the Budget shows a lack of understanding of the needs of industry, although some measures that were announced answered the CBI's call, not least the abolition of national insurance surcharge, which was introduced by a Socialist Government in 1977. I am delighted that we have removed that penal tax, which was a disincentive to employment. It is a pity that we have not heard more about what is good in the package from the Opposition as well as their complaints about what it lacks. It is impossible to achieve everything in a single Budget, but this Budget has gone a long way to restoring confidence.
  The Chancellor of the Exchequer had three themes. One was to reduce inflation, which is certainly the enemy of industry and therefore of investment and employment. I welcome that theme and hope that we shall get inflation lower than it stands now.
  The Chancellor's second theme was to stimulate investment and enterprise. He has achieved that to an extent, but, with my hon. Friend the Member for Kettering (Mr. Freeman), I deeply regret the abolition of tax relief on life assurance policies. That is a retrograde step and will deprive the City and the institutions, which are by far the biggest investors in industry, of funds which would have found their way into industry through investment and thus provided much-needed jobs. The vast majority of people do not have time daily to read the back pages of the national heavies or to study the Stock Exchange, and they may not be able to employ an accountant or know a broker
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  who could advise them. The life assurance package, which was often presented by some of the more reputable insurance companies, was a fine way to save. I deeply regret that the 15 per cent. tax relief on the premiums has now been abolished.
  The hon. Member for Dagenham (Mr. Gould) said that industry was not leaner and fitter, but smaller and weaker. That is wrong. Industry is decidedly fitter, but I agree with him that the manufacturing base is smaller. I am worried that when the real upturn in world economy takes place Britain will not have the manufacturing base to respond to the increased demand for manufactured goods that will result not only in Britain but in countries to which we have traditionally exported.
  Unlike some mandarins in the corridors of the Treasury, and with no disrespect to the Financial Secretary to the Treasury, I agree with an extract from the CBI News No. 4 of 24 February 1984. It highlights the importance of the manufacturing industries rather than the service industries and confounds the increasing number of my right hon. and hon. Friends who put their faith in the future totally in the services sector. CBI News states:
  "If we look at value added in the UK in producing our total exports of goods and services, roughly one half is directly attributable to manufacturing. A further quarter comes from supplying services to our manufacturing and helping them to get their products to the ports for sale overseas—everything from shipping to banking and insurance. Therefore three quarters of all our value added in exports is attributable directly or indirectly to manufacturing."
  I shall relate most of my remarks to manufacturing industry, because it creates real wealth and provides most employment. The cost of unemployment, which is currently more than 3 million people, is unacceptably high in human and financial terms. My hon. Friend the Member for Devizes (Mr. Morrison) said that it would be better if some of the money spent on unemployment, social security, supplementary benefit and other measures of short-term employment were directed to our manufacturing base to provide long-term jobs which would create real wealth, more confidence, more investment and inevitably, therefore, more jobs in the long term.
  Although my proposition to the Minister does not refer directly to his Department, I hope that its message will be passed to the Secretary of State for Trade and Industry: would it be possible to extend the small engineering firms investment scheme to the textile and clothing industry? It is one of the largest employers and is currently taking on additional employees, despite massive overseas competition, much of which is unfair. The House and the country can be proud of that.
  Our Euro-fanatics should note that these unfair schemes, which operate in Belgium, France and Italy, are to the direct detriment and disadvantage of the textile and clothing industry. The Government have a duty to that industry, which has the finest record in industry for investment, industrial relations and exports, to see whether they can help it, within European Community rules, to be more competitive. They can do that only by investment in the new equipment and high technology that is vital to that industry if it is to compete.
  I emphasise that point because I take exception to another measure announced in the Budget—the scaling down of capital allowances for plant and equipment., and for buildings. Plant and machinery and buildings are vital

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  to industry, but here we are depriving industry of allowances which most companies, although there have been abuses, have used wisely.
  The Chancellor justified that by saying that he has abolished the national insurance surcharge, and he has also scaled down corporation tax. I welcome his long-term view on corporation tax, but he said that the reduction in that tax would give companies more money to invest out of their self-generated profits. I must tell my hon. Friend that the Treasury is often grotesquely out of touch with what is happening on the ground. He will probably quote many companies in his reply tonight—or one of my hon. Friends will do so later in the debate, perhaps on Monday when we deal specifically with industry—that are turning in handsome profits. As an hon. Member who comes from a small business background, I can tell my hon. Friend that the profits being made by the majority of companies are very small and do not allow for the scale of investment that industry needs if it is to compete.
  The Budget was encouraging in many respects. It was presented extremely lucidly, and will lead to another encouraging Budget in 1985. However, the Chancellor must not over-estimate, as he clearly did, the improvement that is taking place in the economy and in productivity.
  Industrial costs are of vital importance to industry and commerce. I say with much reluctance, but I say it none the less because it needs saying and it will probably be said by Opposition Members, that the Government have generated unnecessary additional industrial costs. I refer with some tenderness to the Department of Energy—my hon. Friend the Minister used to be Under-Secretary of State there—which has put companies out of business. It has forced utilities to increase prices beyond what they wanted, and for industries where energy is a substantial industrial cost, that has been a killer blow. A typical example is Bowaters, a fairly efficient company in a depressed and deprived area—Merseyside—which was driven out of business purely because its energy costs were vastly above those of countries with which it was competing.
  I also criticise what the Government are doing about rates, which are a tax that people pay, not with reluctance, but with anger. Industry pays them with anger just as do domestic ratepayers. The Government are tinkering with the rating system, but we need a fundamental reform to spread the burden of funds that are required by local government across all earners.
  Having said that, I congratulate the Government on their achievements on inflation and interest rates. Again I am trying to strike a balance, because often from Conserative Members we hear eulogies about what the Chancellor has said. As a Member from the north-west—[Interruption.] The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) comes from even further north across the border, and God bless the contribution that the Scots make in many walks of life, not only in Scotland, but in the City of London. Our financial institutions are almost completely controlled by Scots, so if they are unhappy about what is happening in Britain, they have only themselves to blame.
  We have a great distance to go to ensure that the present brittle improvement in the economy is maintained. With my hon. Friend the Member for Devizes, my right hon. Friend the Member for Chesham and Amersham (Sir I.
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  Gilmour) and others, although I am not described traditionally as a wet, I am a pragmatist in economic matters. Although it might have meant increasing the PSBR by the £1,800 million for which the CBI asked—I support the CBI in that—the Budget could have included a public sector selective capital projects programme. I regret that omission, because most of the work that would result from that investment would go to the private sector, and it would have a dramatic effect all the way down the line.
  The construction industry has been mentioned, but allied to construction are the machinery, aggregates, cement, brick, steel and household furniture and fabrics industries. I could name many more industries that would benefit from such additional money, which would create not just tens of thousands, but hundreds of thousands of jobs. Then Britain would be on the way to a return to work, which I would wish to happen.
  I apologise to Labour Members who wish to speak, but many of us have sat throughout the debate, and some Labour Members have only now come into the Chamber. I was surprised that we ran out of Socialist Members and others—if I may describe them as others—who wished to contribute to the debate voluntarily.
  Although this year I fully support the raising of thresholds for the basic rate of taxation, and although I support the indexation of the bands further up the scale, next year will be the time—as some hon. Members have said—to pay more attention to helping those who are really in need and are suffering from deprivation. I refer to the proposition put forward by at least two Conservative Members today that the Government should increase child benefit above the rate of inflation. I would benefit from that improvement for only a short time, but I hope that the Government will pay attention to that matter and to the improvement that will be required in due course to long-term supplementary benefit. As someone who represents a region that has suffered, through no fault of its own, from high unemployment, may I say that it is wrong that those who have devoted many years and much skill to industry and now have no job should be forced to rely upon such low benefits. I hope that my hon. Friend the Minister will take on board that message so that, in next year's encouraging Budget, that matter will be attended to.
  As someone who has had experience in the construction industry, I regret—I shall accept it and not vote against it—the fact that household extensions and adaptations to property will now come within VAT. That will not bring the return that my hon. Friend wishes, but will increase the black economy. Instead of reputable small builders constructing such extensions to a high standard, the cowboys will come in and do the work for cash behind the back. To bring building extensions within the scope of VAT is a retrograde step.
  I want to make a plea on behalf of Britain's war widows, who did not feature in the Budget at all. The contribution made by the families of pre-1973 war widows to the freedoms that we take for granted is under-estimated and is something to which hon. Members do not pay proper tribute. War widows should, as of right, have a pension, as they do in most other countries. Countries such as America and Australia do far more for their war widows than we do for ours. The overall cost would be a decreasing amount because war widows from the first world war are, sadly, dying rapidly. We still owe them a

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  great debt as we do those who were widowed in the second world war, and I hope that at some stage the Government will introduce legislation to give those people a much fairer deal than they have had to date.
  The Chancellor has made a considerable reputation for himself in the last week. He has confounded the pundits. His Budget has reassured many of his severe critics, of which I was one, by the way in which he delivered it and the imagination that he showed in drawing it up. I have sought not only to praise him but to criticise those areas where the Government might have acted. We should not be too worried about the level of the PSBR. We have a phobia about that. Putting people back to work, earning money and contributing to Britain's economy and producing goods that can be sold will create a healthier climate from which we shall be able to reduce the PSBR.
  Capital allowances will have an effect upon a sector of Britain's industry which featured yesterday at the Dispatch Box, the dairy industry. Many in that industry are substantially in hock to the banks. Many people do not realise that they are not as wealthy as the papers are trying to project. In fact, they are deeply in debt to the banks. It is only because they have land and stock that they are able to borrow the money that they do to produce milk which, until recently, successive Governments have asked them to produce in greater and greater quantities. Now we are shoving the gear into reverse within a matter of 14 days. Many farmers have been in touch with me within the past 24 hours. Their equipment is on lease because they are not making sufficient profits to buy the tractors and the other equipment that they need to run efficient and effective dairy farms.
  I hope that the Government appreciate what they are doing to agriculture, not only in the effect that capital allowances will have in this particular area of leasing, but also in the summit. As things stand they will place 5,000 dairy farmers into liquidation and I estimate that about 300,000 prime dairy cattle will be in the market for slaughter in order to meet the requirements, not of the United Kingdom, because we are not self-sufficient in milk, but of the diktat of other members of the European Community. Is it right that France, which is overproducing to the tune of at least 100 per cent., should accept a reduction of only 2·5 per cent., while the United Kingdom dairy farmers have a reduction of 7·5 per cent.?
  The Government are gradually but slowly leading Britain back to a sound basis of prosperity for all, with only the odd hiccup. However, I hope that they will realise the impact that some of their policies are having upon vital sectors of industry and people, in particular pensioners, those who are out of work through no fault of their own, and war widows.
  8.14 pm
  Mr. D. N. Campbell-Savours: The hon. Member for Macclesfield (Mr. Winterton) has turned his philosophy of the past five years on its head. He was a monetarist and now he disowns the PSBR. It is a curious position to take, but perhaps it is consistent. He would do well to establish a consistent position in our debates, because some hon. Members have heard him on a number of occasions over the years and his inconsistency tonight stood out.
  To talk of those who support the Common Market as Euro-fanatics is to misunderstand what it is all about. We are not Euro-fanatics. Those of us who, historically, have
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  supported the European Community have a European dimension to our politics. That does not mean that we accept all the blemishes and deficiencies of the Community, but that we simply believe that it is the beginning of something and that it should be fought for, worked at and made to succeed. I hope that the hon. Gentleman will reconsider his remarks about Euro-fanatics.
  I have not attended all the debate tonight, because I have been involved in Committee and have only now been able to attend the Chamber. The debate has been marked by the absence of the former Member for Stafford, Sir Hugh Fraser, who always spoke in debates on the Budget. I always remember his contributions and the debate is perhaps less weighty in the absence of his valuable contributions.
  I, too, congratulate the Chancellor on his Budget to a certain extent. He has done what many believed for many years should have been done. He has set about dismantling much of the complexity of financial legislation—the conditionality that surrounds the financial legislation on our statute books. If that is the way that he intends to proceed over the coming years, he will make a substantial contribution not only to our debates in Committee but also to the generality of financial legislation.
  However, on the substance of the Budget strategy, that there is to be no reflation of the British economy, what the right hon. Gentleman has done is dreadful. In being unwilling to reflate, he has ensured that 3 million people will remain unemployed perhaps until the end of the decade. Indeed, it may be more than 3 million people. The real judgment of the Budget by the people will be its effectiveness in dealing with the problem of unemployment. They will not be concerned with its intellectual input—its willingness to interfere with financial legislation. Within 12 months the shine on the Chancellor of yesterday, which has been adequately illustrated in innumerable publications, will suddenly have to withstand the test of time and the measure will be how many people have been put back to work. To that extent the Chancellor will have failed.
  In historical city centres such as London, where developers currently preserve the facade of buildings but rip the guts to pieces and rebuild, there will now no longer be an incentive to do that because they will have to pay 15 per cent. VAT on their work. It will be defined as an improvement of those facades which are being kept for conservation purposes. The only way the developer will be able to proceed and yet ensure that he does not have to pay the 15 per cent. VAT is by knocking the facade down and putting up a new building. I believe that this is strongly against the interests of conservation. I believe that the Chancellor has failed to consider the conservation lobby and I hope that, in the light of my comments tonight, it will make a point of making representations before this item is allowed to reach the statute book, because we are building into financial law an incentive to destroy our heritage. I cannot believe that that could be the policy of any Government.
  Secondly, I want to refer to the arrangements governing what are called take-away foods. Clearly, many people throughout this country will be very angry about the arrangements introduced by the Chancellor in that area. In the main it is our supporters who eat fish and chips. There are more fish and chip shops per square mile in my constituency than there are in the plusher areas of

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  Kensington and Chelsea. Perhaps that is a crude way of putting it, but the point is that many people in this country regard fish and chips as part of their staple diet. I believe that this is a penalty that has been imposed upon them by the Government and that the Government should be truly ashamed, because it is our people who will have to pay the price.
  My final point in relation to the Budget concerns the arrangements for capital gains and capital transfer tax. Those arrangements this year once again reduce the amount which the Exchequer will receive from the better-off in society. They come only two weeks after a statement which increased prescription charges. I believe that the public is entitled to say that, to fund the tax relief for those who would otherwise pay capital gains and capital transfer tax, the Government are increasing the cost of prescriptions. That is quite appalling and it is part of the general shift of resources that has taken place over these last few years—certainly since 1979—from those who have little to those who have much.
  I ask the Minister to put it to his seniors that, during the course of the Finance Bill proceedings, this matter should be reconsidered. Over the last four years, whenever we have debated these matters, we have been totally unsuccessful with our amendments. I believe that the Government should reconsider in that area.
  The fight against inflation as pursued by the Government—and, indeed, by the Government of the United States of America under Mr. Reagan, under the general heading of Reagonomics—requires that a very heavy price be paid. This is true not only in the United States of America but equally in Europe and, in particular, in Britain.
  I should like to put it on record tonight that I take strong exception—as many people in France must take strong exception—to the statements repeatedly made in the House that in some way the French Socialist Government have been deficient in pursuing the strategy that they have sought to pursue in the last couple of years. France is in trouble today because of Kohl, Reagan and Thatcher. Their pursuit of economic policy in common has grossly undermined the economies of the western world. The fact that the French have been unable to reflate and put back to work the millions of people that they want to put back to work has nothing to do with the invalidity of their policy; if has everything to do with the deficiencies inherent in the whole process of implementing monetarism.
  The only way that western Europe is going to rescue itself from the present recession is by ditching the principle of monetarism and pursuing an interventionist reflationary strategy. That is the only way we shall get people back to work. If I agree with the hon. Member for Macclesfield on one small point, it is that we need that programme of public works more desperately today than we have ever needed it in our history.
  8.25 pm
  Mr. Nicholas Lyell (Mid-Bedfordshire): It is a pleasure to follow the hon. Member for Workington (Mr. Campbell-Savours), although I did not agree with his concluding remarks. I was struck by his point on heritage.
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  I can see ways round it and I hope that it will be thought about by my right hon. and hon. Friends on the Front Bench.
  I want to talk about unemployment, which is really the central theme of today's debate. Before I do so, however, I wish to welcome very warmly the Budget as a whole. I welcome the simplification of the tax system and I hope it will be followed by an effort to clear the miasma of social security benefits and their interplay with tax. I welcome the fairness shown by concentrating tax relief on the thresholds. That already helps to simplify, and housing benefit is an example.
  People with a small occupational pension of perhaps £15 or £20 a week above the old-age pension will find themselves substantially better off as a result of the raising of the tax threshold. If they have lost 41p a week housing benefit, they will have gained £2 a week by reduction in tax. That shows the benefit of simplification.
  I welcome very warmly the share option scheme, and I congratulate my hon. Friend the Minister on his part in this. I hope that he will see it through and make it a thoroughly effective way of persuading companies to give wider share options to all their employees and thus help to spread wealth, and the independence which comes with it, among a wider section of the population.
  The previous scheme did not work because it was subject to income tax and was far too complex. The Chancellor has cut the Gordian knot by making it subject only to capital gains tax. I hope that he will take every other possible measure to encourage businesses to take this up.
  I welcome the emphasis in this Budget on profitable investment. The investment income surcharge might seem at first blush a rather one-sided measure, but there are two overwhelming points in its favour. First, savings such as somebody in a reasonable, middle-range job might hope to build up during his or her lifetime are earned-income savings on which tax has already been paid. It seems to me to be wrong in principle that people should pay an investment income surcharge on them.
  The very rich can move their funds about the world as they wish. We want them to invest those funds in Britain—not in the Japanese stock market, or the art market, or a piece of land in Monte Carlo, but here in Britain where they will produce jobs. I believe that this measure will help to achieve that.
  I believe that there should be more direct measures to deal with unemployment. By that I do not mean an extra £1·8 billion worth of investment in a particular year. Frankly, I am agnostic as to whether that will greatly benefit us. It can do so only on a rolling basis. It would produce only 100,000 or 180,000 more jobs, if that, and it is not possible to use it more than once. I prefer direct measures, of the kind which have been so successful—the youth training scheme and the community programme—to bring people back into work.
  I am conscious of the 3 million unemployed and, while I believe that this Budget is good for jobs and for the long-term health of the economy, I do not believe that anybody would regard it as criticism of the Government to say that the Budget will not solve overnight or over the next two or three years the problem of the 3 million unemployed. It will take time to build up the strength of our economy and fight our way back. During that time there will remain a large number of people who are unemployed and who would love to do useful work if it could be made available,

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  and to train and prepare themselves better. That is why I so strongly applaud the youth training scheme and why I find the community programme so beneficial. There are 370,000 people on the YTS this year, and 162,000 on the community programme.
  When studying the Green Paper and recognising our future problems with health, education and the care of the elderly, we must remind ourselves that those out of work—1·2 million under the age of 25—are a resource. It should be the Government's object to get that resource into effective work.
  I also read in the Green Paper that the help that the extended family used to provide in the care of the elderly is drifting away. Young people have a part to play. We could set up schemes under which they could offer a service to the community. Much thought has been given to such schemes. The studies that I have made show that there would be a welcome response to such schemes from those working in the social services, the care of the elderly and in education, especially in the education of younger children. Between now and the next Budget, much useful work could be done on that basis. I dare to hope that hundreds of thousands of jobs could be provided on a cost-effective basis that will not only provide worthwhile employment but will bring a fresh insight into community problems.
  Young people who help with the care of the elderly or work in a hospital or school will bring fresh life to that work and they will learn more themselves. A great deal can be gained by such schemes. I do not believe that the cost will adversely affect our overall economic problems. I hope that between now and his budget next year my right hon. and hon. Friends will give serious thought to that matter.
  8.32 pm
  Mr. Robert McCrindle: Since I have been in the House for some 14 years without hitherto having contributed to a Budget debate, and since I have sat here today for five hours, the House might reasonably expect from me a wide-ranging speech. I am happy to tell hon. Members that they will not get one. I plan to concentrate my remarks on one area of the Budget's recommendations—an area in which the House knows I have an interest, and about which I have long made representations. I refer, of course, to the proposal to withdraw life assurance tax relief.
  I declare an interest as the parliamentary adviser to the British Insurance Brokers' Association. But the real interest that I bring in this matter is in large part that of the consumer, who has been well served by the British insurance industry over many years. I have one further interest, in that I represent a constituency that daily sends thousands of people to work in the City of London, many of them in the insurance companies and the large firms of insurance brokers.
  It is a pity that I am obliged to make certain remarks while we debate a Budget that has many commendable features. However, my right hon. Friend the Chancellor of the Exchequer has got it wholly wrong in his recommendation that life assurance tax relief should be withdrawn. It is a considerable blow to the industry. I do not doubt that, after a period, the resilient insurance industry will respond and will continue to market its life assurance products with assiduity and success. I also expect that the intermediaries, who are an important part
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  of the market, will return to the fold—perhaps even more aggressively, albeit with products that have a different emphasis. New avenues will be explored.
  I do not grieve for the companies, nor for the better-off taxpayer who has had considerable advantages from life assurance tax relief. I could have gone along with my right hon. Friend had he suggested nothing more than that there should be an end to the abuse to which life assurance tax relief is undoubtedly subjected by those companies that have put together packages which, although they may not have violated the letter of life assurance tax relief, have certainly violated the spirit. I could have gone along with him.
  The loss of life assurance tax relief risks affecting the ordinary man to a much greater extent than the better-off who, being sophisticated investors, will merely transfer their attentions to vehicles other than life assurance. The ordinary man who has been encouraged by the Government to accumulate capital will be affected by the disappearance of the incentive to save through life assurance. The man buying his property under an endowment house purchase scheme will, as from yesterday, find that it will cost him more to do so. The man who is concerned with protecting his family against his premature death will also be affected.
  Mr. Lyell: If those people have an existing policy, the changes will not affect them.
  Mr. McCrindle: That is correct. I wish to make it quite clear that those who will be affected are those who have not yet been able or have not chosen to provide for the various contingencies to which I have referred.
  The whole thrust of the Government's policy has been to encourage thrift and the development of self-reliance and to create what Conservative Members choose to call the property-owning democracy. The proposed measure on life assurance tax relief will considerably set hack that objective.
  No doubt other forms of savings will benefit—the unit trusts, building societies and the banks. I understand that the jargon for that is "fiscal neutrality". Would that in achieving fiscal neutrality we had chosen not to take it away from life assurance but to extend it to those other forms of saving on the basis that, by attractive savings, we discourage consumption, which, at least in part, is one of the Government's aims.
  I especially fear that, if we remove the incentive to provide a capital sum on which to rely in old age, we will force more and more people to rely on social benefits. The Government run the risk of saving money now by discontinuing tax relief on life assurance, only to discover that the total amount to be spent in 15 or 20 years on social security and supplementary benefits will substantially increase. I hope that that will not be the case, but the removal of the incentive must mean that there is a greater chance of that happening. It is the antithesis of the Government's hitherto stated aims.
  Thrift is being discouraged by the move, as are regular savings. Home ownership is being made more difficult and more costly, notwithstanding the welcome change in stamp duty. We are achieving a short-term benefit, but running the risk of a long-term effect on our social and economic policies that can only be detrimental.
  I wish to put a few questions to the Minister. If this move is the beginning and the end of it, we can lament it

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  but, arguably, we can live with it. I wonder whether there is not a suspicion in the minds of other hon. Members, as there is in mine, and as there is in the minds of some correspondents who have written to me over the past few days, about whether this is not just the beginning of a pattern which, if successful, would certainly reduce Government expenditure by a sizeable amount, allowing a substantial reduction in direct taxation, but at a considerable cost.
  Can the Minister tell me, for example, that there is no intention, now or in the future, to disallow tax relief against mortgage interest payments? I think I am correct in saying that some Ministers are on record as saying that that is no part of their intention; but if we take away the tax relief on one method of saving, and if we accept that purchasing a home of one's own is another method of saving, where does the fundamental difference lie?
  More important still, perhaps, what about pension contributions? Pensions are another way of building up one's entitlement to a standard of living in retirement, but so, too, is investing in life assurance. If we take away the tax incentive on life assurance, why should we not progressively move to taking it away on pensions contributions by the individual? They are on a par, in many ways. Then there is the tax relief on self-employed pension schemes, to which reference was made earlier. They have been adapted over the years so that they are now almost on all fours with endowment policies. Nevertheless, the life assurance tax relief has been removed from endowment policies, but remains—or should I say, remains for the moment—on self-employed retirement annuities.
  The House and the country have a right to know whether this is a one-off move on life assurance alone, or whether it is the beginning of a pattern which could result in a substantial reduction in direct taxation, but at a cost that I do not believe the people of this country want to pay. In fact, I would take a small wager with the Minister that if we were to stop the first 100 people outside the House this evening and ask them whether they would prefer to have a reduction of, say 5p in the standard rate, with none of these allowances continuing, or a slower downward movement of the standard rate while the tax reliefs remain, I suspect that a substantial majority would prefer to keep the tax reliefs on the various forms of savings to which they have become accustomed and for which they have budgeted in purchasing a property or a life assurance policy.
  Finally, I want to ask my hon. Friend whether it is not too late to suggest that he is taking a sledgehammer to crack a nut. There are undoubted violations of the spirit of life assurance tax relief that should be terminated, but what about the provision of a whole life policy that one cannot take advantage of for tax avoidance reasons? What about a lengthy endowment policy where the same situation applies? Should we not think seriously about retaining tax relief on those policies, while correctly terminating it on those where abuse has been the order of the day?
  I was told many years ago that life assurance, which can be a big comfort to people in sudden distress and a great reassurance to those who reach retirement, is not bought; it is sold. I very much regret that, the Chancellor now
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  proposes to withdraw one of the principal aids to selling life assurance. I hope that it is not too late for the Minister to reconsider, at least in some degree.
  8.43 pm
  Mr. Dave Nellist: Two days ago, before the Budget speech, the Chancellor of the Exchequer sat down in No. 11 to a dinner of smoked salmon and smoked trout. At the end of the Budget speech, there was VAT on fish and chips. That sums up for me, not the neutrality that we were promised in the Budget, but the class approach of the Tory Government.
  That approach was perhaps better illustrated when, within a couple of hours of the Chancellor sitting down at 5 o'clock, in the after-hours trading on the Stock Exchange, according to the late news on the radio, the Financial Times index rose by 20 points, based on the announcements that the Chancellor had made, adding £4,000 million to the value of stocks on the Stock Exchange. We should set that against the crumbs that working people got in the Budget. Perhaps about 5 per cent. of families in the poverty trap may get a little easement, but the majority of the Budget cake went to the big firms and businesses. That was evident from the glee and the waving of Order Papers by the Conservative business men on the Government Benches as each announcement came along.
  The gains for working people—I shall be blunt; perhaps I shall be hard—were pathetic. I cannot believe that the young worker on £35 a week, and four out of every 10 of our 16-year-olds, 17-year-olds and 18-year-olds who are lucky enough to have a job earning about £35 to £38 a week, will really be pleased with an extra 20p from the Budget. I do not believe that a married man on average wages getting a couple of quid a week will be wildly estatic about the Budget. However, the director on £35,000 or £40,000 a year will do fairly well on the £12 extra from the concessions that were made—six times that given to ordinary people in the Budget.
  For working people and their families, those rises will be eaten up by the increases in cigarettes, beer, petrol and VAT, and, outside the confines of the Budget, on gas, electricity, prescriptions and spectacles, although the sting was taken out of those rises by mentioning them earlier in the month. Child benefit was mentioned in one of the documents that came out with the Budget. Less than £1 a day is given in child benefit at present, and there will be a rise of 5p a day. What are parents supposed to buy for their children with an extra 5p a day in child benefit?
  It was significant that there was nothing in the Chancellor's speech about the unemployed. He made a great statement towards the beginning of his speech that profits were good for jobs. I looked at the Financial Times on 12 March, which said the profits had risen by 25 per cent. this year, but I have seen no equivalent rise in jobs or equivalent reduction in unemployment.
  I did not expect the Budget seriously to address the problems of the working people. In fact, when I spoke at 7.40 on Tuesday morning in the debate on unemployment in the Consolidated Fund Bill debate, I addressed myself to that problem, because I did not expect much from the Budget, so I was not surprised when not much came out of it for working people.
  I listened carefully and closely to the Chancellor's opening remarks, particularly his predictions for the economy and employment. He said that higher profits

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  would lead to more jobs, that economic prospects were more favourable than they had been for some time, and that the economic recovery could be sustained. What economic recovery? One of the Government's closest confidants, I assume, the deputy governor of the Bank of England, Mr. McMahon, speaking in the west midlands recently, said that the Bank of England had done some calculations and that once allowance is made for depreciation
  "net investment in manufacturing has been negative in the past three years."
  If one takes a reduced industrial base—that means fewer factories and fewer workplaces—and disinvestment by those industrial operations that have not been wiped out, what does one get? I quote the governor's words:
  "In response to an increase in domestic demand of 9 per cent. from the low point of the recession, UK manufacturing output has increased by less than 4 per cent., while imports of finished manufactures have risen by as much as a third."
  Where are the extra jobs in that sustained economic recovery to come from if there has been an increase of a third in imported manufactured goods?
  If it had not been for the crutch of North sea oil over the past two years, the economic growth that the Chancellor predicted in his speech of 2·5 to 3 per cent. this year would not be noticed. North sea oil has masked the calamitous decline in British capitalism, compared with Europe and countries in the OECD. Last year, for the first time in 200 years, Britain imported more manufactured goods than it exported. That fact seems to be greeted with complacency and is hardly referred to in Government speeches or by the Chancellor.
  What we have heard from the Chancellor in the past few months, talking about the importance of manufacturing industry in creating wealth, is that manufacturing industry can somehow be replaced. On 9 February the Chancellor said in a debate that he was at a loss to understand the selective importance attached by the Opposition, and some Tory Members, to the manufacturing centre. The reason why we attach importance to it is the we get real wealth from manufacturing. We get real wealth only when manufactured goods are produced and the wealth created can be distributed among services and other sectors of the community. In the last two or three decades our share of world trade—British capitalism—has fallen from 25 per cent. a quarter of all world trade, to about 6 or 7 per cent., and now, with a loss of even the domestic market, I would argue that the Budget strategy has been brought about by the loss of manufacturing industry and the refusal to invest.
  That net reversal in the amount of manufactured goods traded by Britain has not been affected by the Budget. The Chancellor promises more employment and better times around the corner, but I think that working people will not accept that to be true. If one looks at any of the major competitors of Britain and how they have fared over the last one or two years, one sees them climbing further ahead of British capitalism. The Budget offers nothing to redress that situation.
  In the west midlands, and in Coventry, the area which I represent, perhaps we have too high hopes, and wear rose-tinted glasses, because we look to Budgets to provide jobs and improved conditions for working people. How can I go back this weekend to the surgeries in Coventry, when there are 31 vacancies at the jobcentre, and only 700 out of over 5,000 had jobs on leaving school last summer,
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  and tell the school leavers about the Budget speech and its prospects for jobs? What will I say in the west midlands, where half the unemployed in the region have been out of work for more than a year, and where one household in three in the region lives on or below the official poverty line? How will 35p on child benefit, 20p on low wages through tax relief, and £2 a week for a married couple alter the position of mass poverty in what used to be a prosperous area of Britain? We have lost jobs in metals, textiles, engineering, coal, food and drink, yet the Chancellor does not address himself to those problems.
  A neighbour of mine in the west midlands is a Minister, the Conservative Member for Coventry, South-West (Mr. Butcher). It may surprise you, Mr. Deputy Speaker, to know that one job in this area has been lost for every half hour that the hon. Gentleman has been a Minister. The Government cannot be proud of that record.
  I am talking about unemployment, because in St. Michael's ward, in the south-east of Coventry, 31·5 per cent. are unemployed in the city centre, the Hillfields area of Coventry. With the best will in the world, and the best understanding, I cannot see what the Chancellor is trying to do. I cannot see anything that I can take back with me on Saturday to the surgeries in the centre of Coventry to tell the people, a third of whom are unemployed, about any prospect of jobs around the corner.
  It is not that there is no money that could be redirected if the Chancellor had had the will or wit to include such measures in his Budget speech. It has been possible for Governments to lift exchange controls. About £40,000 million has gone abroad to South Africa, Korea, Argentina, Thailand, Singapore and Brazil, countries where the unions are not allowed to function properly, people live at the barrel of a gun, and wages are at slave rates for the workers. The money has existed in this country, but it has gone in search of profits, not in search of jobs.
  To reiterate the case that I have made frequently m the House, the point has been reached at which the Chancellor must address himself to how British industry — capitalism in Britain—can ever hope to compete with Germany, Japan and America when, as is admitted by some of the best capitalist economists, there is a difference of £200 billion between the sum that it is necessary to invest in British industry to create jobs and the sum that is necessary to produce a similar result in those countries.
  I put to one of the Ministers in the Chancellor's Department a few weeks ago the fact that the Library staff, having looked at that figure, replied that they could not anticipate the gap being narrowed, not only in the next century, but even in the century after that, such is the low pace of investment in manufacturing industry. The Minister's reply was that he could not be bothered about what was happening in the next century, because he had enough problems in this century. I would argue that that was probably a fairly correct reply by the Minister.
  I do not think that the financial measures in the Budget go any way towards solving the underlying deep-set crisis in British industry. It offers no hope to the 4·5 or.5 million workers on the dole. It offers no hope—even to those who mistakenly voted Tory in 1979, or in 1980—of lower taxes, or of industry being set free from public expenditure constraints. The Government's policies have driven even more people on to the dole, resulting in greater expenditure on social services, and that burden has to be

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  borne by a smaller and smaller work force. Nothing in the Budget enables us to get to grips with the long-term decline in the British economy.
  Some of the facts that I have been able to give tonight are an indictment of the stewardship of the Chancellor, the Prime Minister, and the Conservative Government as a whole of the economy and society. I believe that next Monday the Budget should be rejected. I think that the Chancellor and the Government should resign. The only hope for the millions on the dole and those living in poverty in Britain is when working poeple can have in prospect a Labour Government with active Socialist policies to begin to transform British society. This would be based on public ownership, public accountability and the planning of resources. Money should not be allowed to flood overseas, with speculation in currency, the arts and property. There should be investment in jobs to create wealth to provide the services that we need.
  8.56 pm
  Mr. Timothy Yeo: The Budget has come in for a certain amount of criticism this evening from both sides of the House, but the fact remains that it was an outstandingly good Budget this year which has been widely welcomed, and properly so, in the last few days. It did a great deal more than anyone could reasonably have expected, most particularly the Opposition, whose embarrassment and squirming since Tuesday afternoon have caused much entertainment in the House.
  The excellence of the contents of the Budget was matched by the Chancellor's presentation on Tuesday afternoon. The debate today reflects the extent to which the Opposition are struggling to make points, in the face of the Government's case.
  On the overall strategy, the public sector borrowing requirement chosen by the Chancellor may be a little lower than I would have chosen. In a debate on the public spending White Paper last week I expressed the view that the level of public sector capital formation continues to give rise to concern. I believe resources should be devoted to that area in the coming year. I note that the PSBR has been reduced by the once-off inclusion of the £1·2 billion from the quite proper collection of VAT on imports, so that that may make the balance a little fairer.
  The Opposition have bemoaned the very few direct references to unemployment in the Buget measures. Of all the criticisms that could be made, that is the most extraordinary. It demonstrates how little they have learnt. I agree that the Budget is not neutral in its effect on unemployment, but almost every measure in the Budget will have a favourable effect on employment levels.
  I shall briefly run through the tax changes in the same order as that in which my right hon. Friend the Chancellor of th Exchequer introduced them. I welcome the halving of stamp duty for its effect in allowing the Stock Market to compete on equal terms in international markets, and, more particularly, for its effect on home purchases. The problem of stamp duty has been largely removed for first-time buyers. This will assist the highly labour-intensive construction industry.
  I welcome the exemption of capital gains tax on corporate fixed interest stock that is held for over a year. Lower inflation has revived the prospect of a corporate
  584
  bond market. That means that companies have a new method of raising money for employment-creating investment, which is to be welcomed.
  The House should recognise that the effect of incentives for equity investment feeds through to the creation of new jobs. I hope that next year attention will be given, as my right hon. Friend the Chancellor hinted, to dealing with the problems of capital gains tax which remains a tax on inflation gains for far too many. I hope that some new incentives can be considered for equity investment—direct investment by individuals—that are perhaps, along the lines of the French loi de Monory, allowing individuals to deduct against tax the cost of equity investment. Concessions of that sort could be quite reasonably paid for by the savings which have been made from withholding tax relief from life assurance policies.
  A major and historic switch has been instigated by moving away from taxes which penalise labour and encourage the substitution of capital fall-back. First and foremost, we have seen the most welcome abolition of the national insurance surcharge. Labour's tax on jobs bedevilled industry and all employers for so long. The effect of that abolition will permit industry to hire another 200,000 workers without adding a penny to its wage bill. It will be able to do so with the £1 billion and more that will be saved in a full year. Labour Members can huff and puff about the way in which oil resources should be used, but there is no better use of those resources and revenues than to remove the tax on jobs which they introduced when the previous Labour Government were in office.
  The Budget measures on capital allowances and corporation tax will help to rehabilitate profits. It cannot be repeated often enough that profits mean jobs. The phasing of these changes is extremely felicitous. With a 75 per cent. write-off available, there is still considerable incentive in the next 12 months for companies to invest in capital equipment. The profits which can thereby be earned will be taxed in due course at diminishing rates down to 35 per cent. The 30 per cent. provision for small businesses is especially welcome.
  The old structure encouraged employers to spend capital and not to hire labour. As someone with experience in manufacturing industry, I know that when a company reaches the end of a highly profitable year there is always a temptation to invest in new machinery that will allow increased production in the following year and not an enlarged work force. I hope that by redressing that balance we shall start to make inroads on unemployment.
  Everyone knows—even my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), who unfortunately is no longer in his place—that the greatest single factor that has contributed to unemployment over the past five years has been the colossal rise in wage costs. What level do the Opposition think unemployment would have reached if wage inflation had continued unchecked at the rate which prevailed when the Labour Government left office in 1979? What would have happened if it had continued at the rate which the Labour Government bequeathed to my right hon. Friend the Prime Minister? I believe that we could have seen it rise to 5 million or 6 million. That could have happened if 15 per cent. and 20 per cent. wage increases had been allowed to continue. The reduction in inflation was the greatest single factor in preventing an even more serious rise in

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  unemployment. Despite the endeavours of the hon. Member for Workington (Mr. Campbell-Savours), we are seeing that process in operation in France.
  I have mentioned the areas of the Budget in which we have seen helpful measures, but I have some reservations. My first reservation is on the extension of VAT to building alterations at a time when the construction industry is still recovering. This extension will not be helpful in increasing the number of jobs within the industry and I fear that it may cause a resurgence in the black economy.
  Secondly, I share the concern that was expressed earlier about the Government's refusal to extend the long-term rate of supplementary benefit to the long-term unemployed. The cost of implementing that extension would not be great and it should be given high priority in future.
  Thirdly, I am concerned that there is no commitment in the Budget to increase child benefit by the same amount that my right hon. Friend rightly decided to raise tax thresholds. I welcome the concentration of relief at the bottom end, but I think that when June comes we shall be looking anxiously to see whether child benefit has been raised by the same amount.
  Finally, there is one other particular interest of mine, the relief of VAT for charities. The argument that charities are burdened by VAT in a way that neither local authorities nor commercial companies are is well known. I am disappointed that the Chancellor has not been able to grant that relief this year. I am particularly disappointed that, in addition to not getting the relief, many charities will be faced with a much greater VAT bill as a result of the extension of VAT on to building operations. There are many charities that carry out alterations to their premises to adapt them for disabled people, and many families with disabled people resident in their households which will face higher bills as a result. It is a pity that, although he rightly recognised the importance of taking VAT off special vehicles for disabled people, my right hon. Friend has been unable to make a similar gesture on premises.
  This Budget is an extremely good one and deserves as much wholehearted support in the House as it will no doubt have from people outside the House.
  9.5 pm
  Dr. Oonagh McDonald: The mythology about the Budget has grown up already and is twofold. The first is the claim that the Budget helps the low-paid in particular as part of the Government's general strategy to ensure that people who are out of work look for work because they find that they are better off in work than living on supplementary benefit or unemployment benefit. The other piece of mythology that has grown up so rapidly is that this Budget provides a boost for jobs. Neither of these claims is true and the Opposition does not have to squirm about the Budget—all we have to do is look closely at what it entails, and first of all what it does for the low-paid workers.
  What it does in terms of increasing the personal allowances and in reducing the tax burden is by no means enough to restore the tax burden on the low-paid to the much lower levels of 1978–79 when Labour left office. We also observe that this Budget makes no significant impact on the poverty trap. The Chancellor raised personal allowances at a cost of almost £2 billion. That took 850,000 people out of tax. However, if he had merely indexed the personal allowances, 500,000 of these people would have been taken out of tax anyhow.
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  All the tables accompanying the Budget make it clear that the rise in child benefit will be only 35p a week, far less than is necessary to end discrimination against families with children. To end that discrimination, the child benefit should have been increased by at least 80p a week, and that will plainly not be done. In this carefully constructed Budget, the resources are no longer there for that purpose and the Chancellor has no intention of making the resources available for it.
  The tax threshold is still well below the official definition of poverty. For example, when income tax and child benefit are taken together for a two-child family, the tax-free income that they represent is equal to only 43 per cent. of average male earnings in 1984–85. That is well below the level at which tax becomes payable in most other EEC countries. That is the extent of the Chancellor's so-called generosity.
  As for the poverty trap, that has not been touched by raising the personal allowances in the way that the Chancellor has done. There are probably 160,000 low-paid families subject to income tax while in receipt of family income supplement. Those were in April 1983 figures and they have probably gone up since then. An extra £1 in earnings will result in a loss of 39p in income tax and national insurance contribution taken together, and a reduction of 50p in the family income supplement entitlement. The changes the Chancellor has made will affect only 15,000 of those families which suffer the effects of the poverty trap. The Budget has done nothing to help those people. Most of those families suffer from staying in work, paying tax and claiming family income supplement.
  Against that background, we must set the effects of the income tax cuts. In May, a married couple will on average receive £2.08 a week in tax benefits. A married couple on £25,000 a year, however, will receive £6 a week, and a married couple on £50,000 a year will receive £11.55 a week in benefit. The cost of reducing the tax burden of higher rate taxpayers will be £140 million. That is getting close to the sums the Chancellor would need—[Interruption.]—in relation to the housing benefit changes announced a few weeks ago. About 450,000 taxpayers in the higher rate band will benefit—a tiny minority of income tax payers. The Chancellor's statements about his Budget's effect on the low-paid are simply a piece of propaganda. Most of the benefits will go to those who are well off in terms of the amount they owe.
  We have talked already about the investment income surcharge, which has been defended by some Conservative Members who pleaded the case of widows and pensioners. About 150,000 pensioners—a tiny fraction of pensioners as I said in an intervention—will benefit from the change. This year, the vast majority of pensioners will face two measures from the Chancellor. Their age allowance has been raised only in line with the inflation rate. Many will lose out perhaps because the small occupational pension they receive will be affected by the housing benefit changes already announced. Yet the Chancellor was prepared to spend £360 million on that change in a full year.
  The change in the capital transfer tax threshold and rates will cost £49 million a year. Stamp duty alterations, which will benefit a tiny minority of first-time home buyers, will cost £400 million in a full year.
  In deciding how he should best spend the money resulting from the tax changes, the Chancellor has

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  carefully directed those benefits towards the wealthy. He has not benefited the low-paid or taken people out of the poverty trap.
  Mr. Conal Gregory rose—
  Dr. McDonald: Nothing in the Budget fits in with the propaganda the Government put out about unemployment—that work is available if only people were not content with the benefits they received and instead were prepared to go out to look for work.
  Mr. Gregory rose—
  Dr. McDonald: That is not true of the Budget. It is a piece of propaganda and mythology which the Chancellor has allowed to grow up in the two days since the Budget was delivered. That mythology has been carefully fostered by Conservative Members who seem to look at the Budget debate with a totally uncritical eye. I do not know what some of them expect from the right hon. Lady the Prime Minister. Perhaps they think that, having made such speeches, they will get a pat on the head or a cup of tea—[Interruption.]—because they have gone along with every change.
  Mr. Gregory rose—
  Mr. Tom King: The hon. Lady must give way.
  Dr. McDonald: I do not have to give way. Calm down. Some Conservative Members will not be getting a pat on the head. Nor will they be getting a cup of tea, unless it is tossed at them by the Prime Minister in view of their contributions to the debate. A number of their hon. Friends, however, have taken account only of the propaganda put out by the Chancellor and have not looked critically at the Budget's contents. They are not defending the interests of the majority of their constituents, be they the pensioners, the unemployed or the low-paid.
  They had better return to their constituencies at the weekend and explain the Budget changes to which I have referred, and then they will see how much their constituents like what is being done. They will find that they do not appreciate their fish and chips and take-away curry being taxed. Nor do they like the fact that the indexation of various duties will mean the low-paid losing out in indirect taxation by an average of 91p per week. They will see the tax concession which the Chancellor has given as a kind of crumb which will be swallowed up by increased indirect taxes.
  Another piece of mythology that has grown up around the Budget is that it will give a boost to jobs as a result of the removal of what Conservatives have described as the jobs tax, the national insurance surcharge. That has involved the removal of the 1 per cent. surcharge, the amount finally left from the 3·5 per cent. which was imposed by the then Labour Government in 1977.[Interruption.] I remind Conservative Members that it was imposed following extremely generous stock relief allowances costing the Treasury, in terms of lost revenue betweeen 1974 and 1979, £6 billion, and that was a boost to private industry in those years.
  Sir Geoffrey Johnson Smith: Because of the ravages of inflation.
  Dr. McDonald: It lasted for longer than the ravages of inflation. [Interruption.] I agree that that is why it was
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  introduced, but by the end of Labour's period of office the inflation rate was down to 10 per cent. The stock relief concession was still in existence and it was only in 1980, as the hon. Member for Suffolk, South (Mr. Yeo) pointed out, that the rate of inflation went up to 20 per cent.
  Mr. Yeo: Does the hon. Lady appreciate that the rate of inflation went up to 25 per cent. under the last Labour Government? Is she suggesting that Labour would reintroduce the jobs tax? Would the Labour party do that to finance capital allowances?
  Dr. McDonald: I intend to deal with all these matters in my speech. [HON. MEMBERS: "Answer."] I agree that the rate of inflation went up to 25 per cent. the year following the 1974 election. That happened partly because of the energy crisis and partly because of the threshold trigger for wages which the right hon. Member for Old Bexley and Sidcup (Mr. Heath) introduced, the effects of which we felt during our first year in office. It was a major achievement to have got inflation down to 10 per cent., and it was running at 8·4 per cent. in the last three months of our term in office.
  The decision on the national insurance surcharge, I remind Conservative Members, represents only a 1 per cent. reduction. During that time manufacturing investment fell by 43 per cent. in real terms, a massive fall. Unemployment continued to rise during that period. The 2·5 per cent. reduction in the national insurance surcharge did not do much for investment or employment prospects then. There is no reason to suppose that a 1 per cent. reduction will do much more now.
  The assumption on which the Government's medium-term financial strategy is worked out is that unemployment will stay at roughly the same level over the four-year period. Unemployment went up by 50,000 in January and February, to the consternation of Conservative Members. I noted with interest that they quoted figures ending in September. I am not surprised at that, as the number of vacancies began to fall in September, and has continued to fall. Job prospects do not look hopeful and I doubt whether the 1 per cent. reduction, although we welcome it, could be described as a boost for jobs.
  Coming to the changes in capital allowances, the CBI expects that investment will increase by 7 per cent. this year. It points out, however, in its conclusions on the January survey that most of the likely investment will be directed towards improving efficiency rather than expanding capacity and employment. Anyone in his right mind welcomes an improvement in efficiency, but the CBI points out that investment this year will be directed to that end rather than to expanding capacity and employment opportunities. The changes in the capital allowances in the next two years that were announced by the Chancellor in the Budget will do little to help investment prospects. They will certainly not help the high technology industries, which should be given most assistance.
  The changes may be in line with the Chancellor's hopes for the development of the British economy. In the Financial Times yesterday, Anatole Kaletsky commented that those changes
  "may move the British economy closer to the U.S. model, with rapid employment growth, particularly in the low wage service areas. The cost of this in the U.S. has been an internationally substandard investment and productivity performance, which is one reason why most other advanced industrialised countries still believe that the promotion of industrial investment is the key to generating extra jobs."

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  I know that the Chancellor feels that one should look to the service industries for future employment prospects. He seems to believe that it is enough to rely on North sea oil to boost our investments, to aid the balance of payments and to provide him with about £9 billion in revenue in the coming year and up to £11 billion in 1986–87. That will probably be frittered away on unemployment.
  Let us consider what has been happening in the service industries in the four years to 1983. Most of those sectors, including transport and posts and telecoms, have shown a decline in employment. Only three areas have shown an increase in employment in the past four years—retailing, hotels and catering and the banking, finance and insurance sector. Of those three sectors, only one has shown an increase in employment of more than 1 per cent. Retailing and hotel catering have shown an increase of 0·2 per cent. and 0·6 per cent. respectively, which does not hold out much prospect for growth in employment. Overall, that kind of growth in employment is not hopeful for many people. Growth has been in male jobs and part-time female jobs at the expense of full-time female jobs in those sectors. Therefore, although men may gain marginally from the growth in the service sector that the Chancellor seems anxious to encourage, women will lose prospects for full-time jobs, having already lost a great deal due to cuts in public spending and in various service industries.
  To describe the Budget as a boost for jobs bears no relation to the facts. The Government's fiscal stance seems tighter than originally expected, although the aims of the more stringent fiscal policy seem unclear. The Red Book shows no decline in the rate of inflation in the period of the medium-term financial strategy. It will fall only to about 4 per cent. If tightening up on the amount of money borrowed and on the range of monetary aggregates that the Government like to use will not get rid of inflation altogether or achieve the stable prices of which the Government dream, what is the point of doing it when the cost in unemployment is so high?
  As we have consistently argued, the Government should increase public spending at the cost of a modest increase in public sector borrowing, which at present is 2·5 per cent. of GDP whereas the average for industrialised countries is 4·5 per cent. We could afford a modest increase to engage in public works, capital investment and improving the efficiency of our economy as well as providing jobs. Even the CBI has called on the Government to
  "increase capital investment on public projects like transport, communications and sewerage systems"
  and has insisted that this
  "need not mean a return to inflation. It will give the construction industry a much-needed boost, and help create new jobs."
  For once, the Labour party and the CBI are in agreement. Such a strategy would indeed boost the economy, reflate demand and create new jobs.
  For the past 18 months or so the Government have relied on an expansion of consumer credit to provide more demand in the economy. They hoped that that would get them through the last general election, and it certainly helped. In December, consumer credit hit an all-time high of more than £900 million, but it is bound to peter out. Even the Government expect that to happen because, according to their own figures, growth will falter and decline next year. Consumer credit as a boost is bound to
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  falter. Conservative Members may be different, but for most people there comes a point at which they cannot take on new hire purchase commitments because they have to pay off those that they already have. There comes a time when one has to pay back the loan that one has managed to obtain, whether through Access, Barclaycard, the bank or some other means. The boost must therefore be shortlived.
  If the Chancellor really wishes to boost the economy, only public sector capital investment can provide a real and continuing source of demand which will provide jobs and improve the economy by giving industry a far more efficient infrastructure than it now has. Yet there is nothing in the public expenditure White Paper, the Red Book or the Budget itself, to suggest that the Chancellor is in any way committed to tackling unemployment in this country.
  The Budget speech did not refer to unemployment. As the right hon. Member for Chesham and Amersham (Sir I. Gilmour) rightly pointed out, unemployment was treated in the speech as a kind of abstraction. I think that those were the right hon. Gentleman's words. The Budget speech was constructed as though unemployment at such levels simply did not happen.
  Since Tuesday, the Budget has been described as a jobs Budget. That is arrant nonsense. The Budget is not designed to help the low-paid or to provide more jobs. Its tax reforms cannot, perhaps, be described as tinkering with the tax system; they are a cynical exercise in squeezing more out of revenue in order to hand it to those who are well-off at the expense of the poor. If ever the poor bore the rich man's burden, they will do so after this Budget and after four years of Tory rule. The Budget does nothing for most families. It is not a family Budget. It is not a jobs Budget. it is not a Budget for the low-paid. It is a cynical piece of work, designed to help the Government to continue to nurture their friends.
  9.32 pm
  The Financial Secretary to the Treasury (Mr. John Moore): First, I thank my right hon. Friend the Member for Worthing (Mr. Higgins) and the hon. Member for Workington (Mr. Campbell-Savours), who has apologised because he has had to leave the debate. Both my right hon. Friend and the hon. Gentleman paid appropriate and proper tributes to two of our late colleagues—Mr. Maurice Macmillan and Sir Hugh Fraser. On behalf of the House, I should like to welcome those tributes. We miss both our colleagues very much from our debates.
  Secondly, I am sure that my right hon. Friend the Chancellor and other Treasury Ministers will look forward with interest to the careful study by the Treasury and Civil Service Select Committee of what my right hon. Friend the Member for Worthing described as a Budget that is complex, difficult to analyse, and worth looking at. look forward to my right hon. Friend's detailed study.
  The way in which so much of the Budget has been greeted—not just in the media but in the House—is a vindication of the extent to which the Chancellor has taken a grip on the direction of our taxation and economic affairs and of the way in which over many years we have considered the nature of the highly complicated system of corporation tax. That has been at the core of much of the debate.
  Tonight's debate has centred on the nature of jobs, on the potential for employment and on the appalling nature

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  of unemployment, which has rightly been seen as an evil, a sickness and one of the prime difficulties that western society faces. I recognise that totally, and it is therefore crucial for us to indicate why and how we seek to tackle that problem through fundamental changes in—not through tinkering with—the corporation tax system.
  All serious analysts have recognised the nature of that system—the complex set of reliefs on high rates that has given us the worst of both worlds. The right hon. Member for Glasgow, Govan (Mr. Millan), in his very good speech last night, talked about the nature of that difficult set of unnecessary reliefs. I quote from a source that described our present system as follows:
  "With a theoretical 52 per cent. rate of corporation tax, companies are now paying some 11 per cent. only of their pretax profits in tax. The ready availability of a wide range of reliefs and allowances reduces the tax base considerably".
  Those are not the words of a Conservative. They are not an analysis of the direction in which we propose to go now. They are not—despite the words of the hon. Member for Thurrock (Dr. McDonald)—a cynical exercise. Those words on company taxation are taken from Labour's programme of June 1982.
  The document continues:
  "We must have a corporation tax system with lower percentage rates of tax than in the past, but with more restrictive reliefs and allowances. It must be less prone to manipulation that can reduce taxable profits below any fair assessment of profitability."
  I cannot disagree, and I am sure that Opposition Members will have some difficulty when they come to vote on substantial parts of the Budget. We know that the present system has produced an enormous emphasis on tax efficiency and distortion—[Interruption.] I shall get to the fundamentals, if the right hon. and learned Member for Monklands, East (Mr. Smith) will be as patient as I have been. I enjoyed his outstanding speech. Although I did not agree with the fundamentals of what he said, his speech was more than worth listening to and reading.
  There is no question in my mind of the need for action. The real question, which my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) and others asked, is why it is so critical to make such a major directional change now. One of the reasons is that, in our four years of office we have witnessed the start of the reemployment of our people in long-term secure jobs. Our prime problem then was to regain control of the economy to stop runaway inflation. We used the firm disciplines of the medium-term financial strategy to break the back of inflation. My hon. Friend the Member for Macclesfield (Mr. Winterton) saw clearly the connection between investment and jobs after the destruction of inflation. My hon. Friends the Members for Stratford-on-Avon (Mr. Howarth) and for Suffolk, South (Mr. Yeo) gave tremendous support to that.
  This is the first substantive Budget at the beginning of the Parliament. It was crucial to give a clear sense of direction. Moreover, corporate profits and liquidity have been recovering solidly, so there is a much better opportunity for change. Many right hon. and hon. Members have rightly pointed out that we have nearly 3 million people unemployed. Those of us who are anxious about that do not make cheap political points about it, but we have seen a steady and inexorable structural rise in unemployment since the 1960s. That must be uppermost
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  in our minds when we try to challenge and correct radically many parts of our society, especially the corporation tax structure.
  We live in a competitive world and one third of our gross domestic product is involved in trade. It is critical that we are competitive and we must ensure that we get the most effective use of our national resources in terms of people and capital. Whether we do and whether our class system has worked has been questioned in the past few days. The right hon. Member for Glasgow, Govan asked legitimate questions yesterday about our past corporation tax allowance system. It has not worked. If generosity in relation to comparable countries was the key, our system should have produced more investment to better effect. The right hon. Member for Govan asked about data. The data from OECD suggest that our tax distortions could be one of the critical factors behind the poor efficiency of United Kingdom investment.
  I shall take the example of the nine years between 1970 and 1979—not for political purposes—to show how much investment there has been in relation to the character of our generous allowances system which should have created more investment than in other comparable OECD nations. During that period, average real growth in investment in plant and machinery in the United Kingdom was 3·4 per cent. per annum, as compared with 5·2 per cent. for the major seven OECD countries.
  My hon. Friend the Member for Stratford-on-Avon was worried about a Luddite attitude to investment. We are dealing not with that but with the qualitative nature of investment as a result of the distortions. Whether measured by the rate of return on investment, output per unit of capital or the incremental capital output ratio, the returns on investment in the United Kingdom appear to have been lower than in the United States of America, Germany and France.
  For example, in 1979 the return on manufacturing investment was 5 per cent. in the United Kingdom as compared with 17 per cent. in Germany and the United States. The past system has clearly not worked. What do we now propose? We propose first—my hon. Friend the Member for Kensington (Sir B. Rhys Williams) was right to draw our attention to it—to take out the distortions in the corporate tax system as they decrease the quality of our investment and put people at a disadvantage to machines. We are not suggesting the absence of good investment but are simply saying that we should remove the disadvantage to people. It has also been more tax-efficient to borrow.
  The right hon. and learned Member for Monklands, East and my hon. Friend the Member for Macclesfield said that we must not simply consider services. I am considering all types of company—industrial, manufacturing and service companies. The reduction will fundamentally improve their profitability, first by the way in which we are doing it. Yesterday my hon. Friend the Member for Loughborough (Mr. Dorrell) drew attention to the fact that we would be phasing in the corporation tax reductions before the removal of reliefs. We recognise the problems of adjustment to change and the difficulties of adjusting to such a radical change in the taxation system. It will especially help companies in the future.
  Although the allowances changes and the corporation tax reductions will broadly offset each other in the next few years, in the long term the allowances are a cash flow change, while the abolition of national insurance surcharge and the reduced corporation tax rates are a

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  permanent major benefit to corporate profitability and liquidity. Many hon. Members who have experience of business and industry know that of equal and critical importance to companies is the added emphasis that that gives to management involvement in decision-making. Most investment comes from retained profit. The measures will increase those profits and thus management, not politicians via the taxman, will decide the direction of investment.
  The more that companies can rely on internally generated funds, the less they need to rely on banks or the financial markets. My hon. Friend the Member for Kensington and, yesterday, my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) stressed a feature of the changes that is unusual in British taxation and budgetary policy. By announcing four years of corporation tax rates, we have given companies certainty, a framework in which to work and, critically, encouragement to invest now in projects whose returns will be taxed at lower rates of tax than current projects. That is an opportunity for them.
  There has not been sufficient discussion, either yesterday or today, about the benefit to our companies in an unusually competitive world of our corporation tax rate. It would look attractive to those who wish to invest in Britain. The relative rates after the Budget are: for France, 50 per cent.; for West Germany, 56 per cent.; for the Netherlands, 48 per cent.; for the United States 46 per cent.; and for Japan 42 per cent. My hon. Friend the Member for Macclesfield drew attention to the difficulties of small companies. He will welcome—it has been welcomed outside—the fact that the many companies which earn up to £100,000 a year will now pay tax on profits at 30 per cent. That is an unbeatable rate in the developed competitive world. It is a crucial addition to encourage people to invest in British companies.
  I entirely accept that there are many factors behind the inexorable growth in unemployment during the past quarter of a century. In the Budget we tried to deal with the 3 million unemployed. I shall consider what the Budget, and the corporation tax package in particular, does for jobs. That question has been asked by the Opposition, first and fundamentally, because it has been the linchpin of Government policies since 1979. The package maintains the consistent approach of the medium-term financial strategy and our resolute anti-inflationary policy. Inflation destroys jobs, and further success in the fight against inflation is the way to secure sustainable growth in output and jobs.
  Secondly—some have described them as aspects of supply side economics—the Budget has tried to remove some short and long-term obstacles to increased employment. My right hon. Friend the Member for Chesham and Amersham, my hon. Friends the Members for Kensington and for Devizes, and my hon. and learned Friend the Member for Mid-Bedfordshire (Mr. Lyell) agreed—although my hon. Friend the Member for Macclesfield was a little unhappy about it—with the reform of the corporation tax and allowances. This will add to companies' profitability, and the rehabilitation of profits is the critical feature of what we are doing. It will stimulate and encourage investment, with higher quality returns, which in the long term will produce more sustainable, successful companies and thus more people in work.
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  The Budget removes, as my hon. Friend the Member for Stratford-on-Avon said, the disadvantage under which people suffer by removing the tax distortions chat have clearly gone in favour of machines. That is in no way a Luddite comment. There is no denial of the need for quality investment. My hon. Friend the Member for Devizes complimented the improved thresholds, which will significantly increase incentives and ease the unemployment trap.
  Mr. John Smith: The Minister said that the first thing which the Budget does to assist employment is to maintain the course of the medium-term financial strategy. Can he tell us how many jobs it has saved to date?
  Mr. Moore: It has enabled Britain, in the worst recession for half a century, to reach a position from which, one day, we may be not only competitive but able to produce secure employment. [Interruption.] The right hon. and learned Gentleman can try to debate this, and those who have wandered late into the debate can mutter all they wish. It might be of interest to those rot in the Chamber to know that, until 8 o'clock, Conservative members studied the completely empty Benches behind the Opposition Front Bench; that is peculiar, in what is supposed to be one of the most critical Budget debates that the country has seen.
  The fundamental destroyer of jobs is inflation, and the destruction of inflation, which has almost been achieved during the past four and half years, is the vital precursor to long-term recovery. The final and almost absolute cheek was the official Opposition's reaction to the abolition of the national insurance surcharge. My right hon. Friends the Members for Chesham and Amersham and for Worthing and my hon. Friends the Members for Kensington, for Devizes, for Macclesfield and for Suffolk, South welcomed the abolition. It is the height of impudence for the official Opposition, who introduced—[Interruption.] The hon. Members sitting on the Benches below the Gangway—who I believe are called the alliance—equal the size of the official Opposition in the Chamber, but I do not seek to equate their presence with the quality of the official Opposition.
  It is the height of cheek to criticise a Government who have, in four and a half years and in the face of many difficulties, removed this pernicious tax on jobs. Had we not removed it, it would now cost £3 billion a year. This is the last instalment of the removal, and I am delighted that it is welcomed by the Opposition.
  My hon. Friends the Members for Kensington, for Kettering and for Macclesfield were worried about the removal of life assurance premium relief. They believed, as did my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) that the removal went against the grain of Conservative attitudes towards the saver. My hon. Friend the Member for Brentwood and Ongar, who welcomed the Budget overall, made one of the most responsible and fervent speeches that I have ever heard about saving via insurance. I commend his speech to those who wish to invest via insurance. He also paid a justified compliment to Britain's outstanding insurance industry. As he rightly said, it will adjust to change because of its innate strength.
  However, I am unable to accept my hon. Friend's essential point. We are not against saving. On the contrary, we are for it. There is a suggestion that this

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  particular aspect of saving merits a particular form of tax relief. Let me put the figures into perspective, because there seems to be a suggestion that this is the destruction of all potential savings. In 1982, about £2,670 million went into life assurance policies, of which only £1,040 million received premium relief. That £1 billion should be seen in the context of the total personal savings that year of over £30 billion.
  Mr. John Smith: If the withdrawal of this taxation advantage to the insurance industry will do no real harm, why was it that in the campaign guide issued to Conservative candidates at the election it was mentioned as a threat that might follow the election of a Labour Government?
  Mr. Moore: One of the great pleasures that I had in the last election was to spend much more time trying to disseminate the Labour party's campaign guide to my constituents than my own.
  The Conservative party made its policies clear in the campaign and did not specify every issue on which it would subsequently try to decide Britain's future. I trust and hope that Labour Members will not expect every Government decision to be presaged in the manifesto. That would not be a wise way to seek to govern our country.
  Mr. McCrindle: My hon. Friend will remember that, towards the end of my speech, I said that this move could either be seen as an end in itself or as the forerunner to the disallowance of the tax advantages now enjoyed on such things as mortgage interest and pension contributions. I asked my hon. Friend to confirm that it was no part of the Government's plan, in their understandable move towards reducing direct taxation, to move towards the disallowance of those areas where tax allowance is granted at the moment.
  Mr. Moore: I remember, but I have a number of points to answer. I shall make one point clear. On 18 October my right hon. Friend the Prime Minister gave a firm commitment on mortgage interest relief. I do not think there is any debate about that at all.
  I found the debate on the investment income surcharge peculiar in two ways. Many of my right hon. and hon. Friends—my hon. Friends the Members for Kensington and for Kettering and my right hon. Friend the Member for Worthing—supported the Budget's proposals on that. However, I had great difficulty in trying to establish the policies of the Opposition and the alliance. Those who were not present might be interested to know that we were told that the Liberal party is morally against what the Government are proposing but that the Social Democratic party is for it. Therefore, we finished up with complete clarity on the official position of the alliance. Having said that, the Opposition's view is bizarre. We do not have time to go into the discussions that we had last night on the elderly, but it is extraordinary how it brought out the Opposition's distaste, not for people earning high incomes but for ownership. At no time during the debate did any of the Opposition compare somebody on an index-linked pension who might, for example, be receiving £20,000 a year and who under the present tax system would pay up to 60 per cent. with those who might have sold their fish and chip shop, their small business, for £70,000, have no
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  other income at all, be on half the income of an index-linked pensioner but be paying up to 75 per cent. The comparison between the owner of modest savings and a person who is in receipt of an index-linked pension is a classic illustration of the Opposition's detestation of ownership.
  Mr. Kennedy: Will the Minister please do the Alliance the justice of answering a central question, which both my hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) and I put forward—what are the Government going to do about child benefits? We quoted the whole range of sources which say that that is the best way of lifting people out of the poverty trap, which, commendably, is what the Chancellor said in his Budget statement he wanted to do.
  Mr. Moore: I appreciate that the hon. Gentleman has been present tonight, but he was not present last night when my hon. Friend the Minister of State covered the Government's position on child benefits. I am sure that he can read it in Hansard.
  My hon. Friend the Member for Devizes (Mr. Morrison) raised points concerning the position of stud farms. My hon. Friend has visited me with a delegation and I appreciate his interest in this. The Inland Revenue will be continuing discussions with the Horse and Pony Taxation Committee very soon and we shall certainly bear in mind the points which my hon. Friend has made.
  Many hon. Members raised points concerning the construction industry and the impact of the extension of VAT. The right hon. Member for Monklands, East, his hon. Friend the Member for Pontypridd (Mr. John), my hon. Friend the Member for Suffolk, South, my hon. Friend the Member for Macclesfield and the hon. Member for Workington were all concerned about this. This must be put in perspective. I accept that the extension is not welcome to the construction industry, but there was an extraordinary area of borderline debate and the clearing up of the absurdities concerning the borderline between alterations and repair and maintenance makes it easier to tackle fraud and evasion in this area. Seventy five per cent. of all the expenditure in the construction industry is still not affected by VAT because it is, of course, on new construction.
  Equally, I hope and trust that many of the small companies in this area will benefit immediately, as one would wish them to, from the reduction in corporation tax on small businesses.
  Many of my hon. Friends and many other hon. Members, but especially my right hon. Friend the Member for Chesham and Amersham and my hon. Friends the Members for Kensington and for Devizes raised again the points that they had made previously in public about public expenditure and the need to increase it. I draw their attention again to page 15 of the Government expenditure plans 1984–85 to 1986–87, table 1.13, which shows, despite views to the contrary, a relatively similar pattern of expenditure to that of the period 1978–79. I appreciate that they may argue that there should be an addition but, drawing their attention again to the 1978–79 outturn figure, in cost terms it is £21·7 billion against £21·65 billion planned for 1984–85.
  There is one point that I want to address to the right hon. and learned Member for Monklands, East. He has a couple of times questioned the fact that the Government

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  have not referred to the figures on unemployment. He will know from his previous experience in government that it is the convention to assume no change in unemployment for social security and other public expenditure planning purposes. This was the practice also of the previous Labour Government. No Government have published a forecast of unemployment.
  By the spring of 1979, our country had grown used to economic decline. Decline was seen as inevitable. It had become fashionable only to question its pace. Our relative poverty and comparative failure was in marked contrast to what was happening to our European neighbours. As inflation became deep-rooted in our economy and in our attitudes we had come almost passively to accept a pattern of genteel decay.
  Our first four years in office radically changed our role. Despite the worst recession in half a century, we broke the back of inflation, brought our borrowing under control, repaid a mountain of foreign debt and saw our people regain a pride in Britain and its role in the world. The discipline and firm control embodied in the medium-term financial strategy will continue. Sound money policies will destroy the cancer of inflation. The Budget confirms that. It also courageously faces some of the deep-seated structural problems that have produced the scourge of unemployment.
  Unemployment is an evil that we will not tolerate, but we will not solve it by the failed policies of the past quarter of a century. The Budget looks to the future—a future with stable prices, where people are—
  Debate adjourned.—[Mr. Major.]
  Debate to be resumed tomorrow.

  Budget Resolutions and Economic Situation

    WELSH GRAND COMMITTEE
    Ordered,
    That during the proceedings on the matter of the Government response to the First Report from the Committee on Welsh Affairs, Session 1982–83 entitled Water in Wales (Cmnd. 9138) insofar as it relates exclusively to Wales, the Welsh Grand Committee have leave to sit twice on the first day on which they shall meet; and that, notwithstanding the provisions of Standing Order No. 67 (Meetings of standing committees), the second such sitting shall not commence before Four o'clock nor continue after the Committee have considered the matter for two hours at that sitting.—[Mr. Major.]

  Liverpool (Council Budget)
  Motion made, and Question proposed, That this House do now adjourn—[Mr. Major.]
  10 pm
  Mr. David Alton: For the past one and a half days the House has debated the important issue of the nation's Budget. On 29 March, the city of Liverpool will be determining its budget for the next 12 months, and hon. Members will be aware that that has been shrouded in controversy.
  I welcome the opportunity to raise that matter on the Adjournment tonight, and wish to divide my remarks into four parts. First, I shall give a brief description of the problems facing the city of Liverpool. Secondly, I shall say a few words about the Liberal record, and, thirdly, about the Labour record. Fourthly, I shall give the alternatives facing the city council on 29 March.
  It would be fair to say that the city is becoming a latter-day Carthage, dying through lack of investment and commitment and badly damaged by mindless militancy, coupled with insufficient compassion or understanding from a Government who have become so alienated from the city and its problems that, for the first time in history, in common with the city of Glasgow, not a single Member of the House from the Government Benches represents a constituency in the city of Liverpool.
  At the heart of the city's problems is chronic depopulation. During the last decade, Liverpool has been losing jobs and people hand over fist. Some 100,000 people have been lost in 10 years. It is, by and large, the employable and the mobile who have left. With their exodus, rates and valuable rate support grant have been lost.
  In answer to a question on 5 March the Minister—I am grateful for his presence tonight—admitted that over successive years, beginning when the right hon. Member for Bethnal Green and Stepney (Mr. Shore) was the Secretary of State for the Environment, our RSG had been reduced in total by some £140 million. Rate support grant in the city in 1976 stood at £160 million, and this year it stands at about £124 million.
  While we have been losing people, the rates that they pay and the rate support grant, the demand for services has never been greater. In particular, there is a great demand for services for the unemployed. Never have we had so many people on the dole queue. The so-called curse of Adam—the curse of work—has become for many in Liverpool a privilege. One in five of the population are out of work, with 92,780 people unemployed and only 2,221 vacancies listed as available. The debate on the national Budget in the House during the past one and a half days will be of no benefit to the unemployed people of Liverpool. Failure to increase the public sector borrowing requirement will ensure that the tide of unemployment will not be turned. In future, even the fish and chips that the unemployed eat will be taxed.
  The second area of concern is the special problems of those who will be left in the city, many of whom will be unemployable or elderly. The fastest growing group in the city is the over-80s. One in four of our population is over retirement age. Clearly, that requires more home helps, meals-on-wheels and other services—all of which are being reduced because of the reduction in rate support grant.

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  There was an Adjournment debate on education on 9 February, to which I refer the Minister. I shall not bore him now with the arguments raised then. Nevertheless, the same special problems caused by depopulation apply in education too. No other local authority in Britain has had to contend with so many disadvantages, so many real and serious problems, at a time when Government funds have been massively cut.
  I come now to the Liberal record, which has been attacked. The hon. Member for Blackburn (Mr. Straw), whom I am pleased to see in his place tonight, has attacked that record. The Labour party was the largest party in the city for many years, but it refused to govern. It fell to my party to do its best in those difficult circumstances.
  Figures that I have obtained from the House of Commons statistical section demonstrate that the Liberal record is no better, and no worse, than any Labour-controlled authority in the country. There are 23 metropolitan districts controlled by Labour. Let us take manpower. In a decade, the Liberals never made a single employee compulsorily redundant. Of course, some Labour councils have sacked men to make savings, because of cuts in rate support grant. There has been natural wastage, but that it true everywhere.
  Mr. Jack Straw: Will the hon. Gentleman give way?
  Mr. Alton: The hon. Gentleman has been here long enough to know that in an Adjournment debate he can speak only with the permission of the hon. Member and if he seeks to do so in advance of the debate. I shall furnish him with the figures afterwards, if he wants the details.
  Some Labour councils have sacked employees—
  Mr. Straw: Name them.
  Mr. Alton: Newcastle and Wakefield, to name two. For the period September 1979 to September 1983, Liverpool reduced full-time staff by only 3·9 per cent., and increased part-time staff by 4·9 per cent. In the 23 Labour authorities, 11 had a better record than Liverpool, and 12 had a worse record in terms of full-time employees.
  Mr. Robert Parry rose—
  Mr. Alton: The hon. Member for Liverpool, Riverside (Mr. Parry) should know that he can speak only by agreement with the speaker who is introducing the Adjournment debate and the Minister.
  Mr. Parry: Tell the truth.
  Mr. Alton: I am telling the truth.
  Mr.Parry rose—
  The Deputy Speaker (Mr. Ernest Armstrong): Order. The hon. Gentleman can see that the hon. Member for Liverpool, Mossley Hill (Mr. Alton) is not giving way.
  Mr. Alton: These figures were given to me by the house of Commons Library, and, if they are wrong, the hon. Gentleman should take the matter up with the Library.
  In respect of the number of part-time employees in Labour-controlled authorities, 20 authorities have a worse record than us, and three have a better record. The Labour party constantly says that we have built no municipal accommodation for rent. That is not true. Over the past
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  decade, 7,311 local authority homes were built for rent, 3,274 housing association properties were built for rent, and thousands of low-cost homes were built for sale. From January to February last year, Liverpool built 388 public sector properties. Twenty-one Labour authorities had a worse record than Liverpool, and two had a better record. Some built none at all. In one area alone, we top the league—we have more empty properties in the public and private sector than any other local authority—8,162. That will not be helped by the Government's cuts in improvement grants. Nor will it be helped by the Chancellor's announcement about VAT charges on improvement grants.
  The Government should not underestimate the scale of housing problems facing any local authority in Liverpool, because 7,517 homes lack basic amenities, 3,237 homes are unfit and 37,000 are in need of renovation, and the council's decision to put the brake on the improvement grant programme and switch £300 million of public sector resources instead over the next decade into one small area of publicly-owned property, will not help the problems of Liverpool. I suspect that that £300 million is a figment of the council's imagination. It will not be forthcoming. People's hopes are being raised unnecessarily.
  Labour also say that the Liberals underbudgeted and did not put up the rates sufficiently. Indeed, the Secretary of State implied much the same. In fact, last year the local Conservatives wanted to bring in a smaller budget. That would have led to redundancies. The Liberals opposed that and broke the Government guidelines, putting up rates by about £3 million more than the Government wished to protect jobs and services. The rates went up by 7·1 per cent. The hon. Member for Blackburn, if he checks the figures, will see that of the Labour-controlled authorities, 14 brought in smaller increases and nine brought in higher increases.
  I contend, therefore, that in difficult circumstances the Liberals did a good job. I contrast that with the record of the militant politicians in Liverpool since last May. Low-cost home schemes have been abandoned, co-operative schemes have been banned, and even Mother Theresa's hostel for the homeless was threatened with closure at one stage. Schools are to be closed, despite the wishes of 70,000 objectors. There have been irresponsible financial and fiscal policies. For instance, there have been handouts from the rates to one group of people. There has been propaganda on the rates. Councillors have been gallivanting around the country to Labour party conferences on the rates, and the money is then subject to penalty from the Government.
  A bogus manifesto was produced which would have required a 200 per cent. rate increase to enact. The city is being used in a power struggle between Labour's militants and the Prime Minister, and in an internal battle between Labour's militants and the Labour party hierarchy.
  That brings me to what the council and the Government can usefully do before the meeting on 29 March. The Government could respond by ensuring that regional resources, such as the central reference library in Liverpool which cost some £1 million this year and is used by people all over Merseyside, be excluded from the city's rate support grant in terms of penalties. The Government could also ensure that housing debt charges, some on properties which have already been demolished, but with over 40 years left to pay, could be written off by the Government. That would be of great practical help.

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  The Government should also respond to the bravery of the seven Labour councillors who have refused to break the law, and respond to those moderates from all parties in Liverpool who want to do their best for the city, by looking again at the way in which the city's rate support grant is calculated, and reviewing the upper limit on the city spending targets.
  The council, too, could respond to the city's crisis—by repudiating the catalogue of threats, intimidation, bludgeoning and blackmail which has emanated from individuals, including the deputy leader of the city council. These can only damage the city's reputation and image, and lose for the city chance of further Government support, or private investment from people who believe that Liverpool is being given a bad name.
  As to the effect on businesses, the chamber of commerce is concerned that the threats, and the prophecy of violence and riots will drive potential businesses away. Indeed, some firms are even taking the name "Liverpool" off their letterheads, such is the situation created by mindless militancy.
  My call, therefore, is to the moderates on the council to work with one another to form a government of talent, putting the city's interest before narrow party interest. The cause of the city of Liverpool can only be damaged by aggression and militancy.
  As the Liverpool Daily Post said this week,
  "The time has now come for all people of moderate opinion to work together in the true interests of Liverpool, and to reject totally the immature and destructive Marxist policies which have brought the city to its present predicament."
  I am grateful for the allocation of time to debate this important matter. I thank my hon. Friend the Member for Southwark and Bermondsey (Mr. Hughes), the Liberal spokesman on local government, who gave much of his time during his most recent visit to the city to help us work out an alternative strategy, and who is present tonight to support my case.
  10.12 pm
  Mr. Simon Hughes: The Liberal party accepts that the targets that the Government have set are unattainable, and the target this year of £216 million for the forthcoming 12 months, 2·5 per cent. above the previous year, is impossible for any local administration in Liverpool to fulfil, so it is the Government who are firstly responsible.
  With two weeks to go before the budget statement in Liverpool on 29 March, the local authority must first open up its books to the public and not delay the publication of the books — which would be highly unusual, and unprecedented in the history of Liverpool city council.
  Mr. Parry: On a point of Order, Mr. Speaker. As I understand it, the debate concerns rates. I rose to ask a question, and the hon. Member for Liverpool, Mossley Hill (Mr. Alton) refused to allow me to intervene. Why is an hon. Member for a London constituency taking part in the debate?
  Mr. Deputy Speaker: As the hon. Member knows, the half-hour Adjournment at the end of the day is a matter for the Member who has been fortunate in the ballot. Other speakers are normally allowed, if arrangements have been made, with the consent of the Member concerned and of the Minister. I understand that that has been done.
  Mr. Hughes: I am grateful, Mr. Deputy Speaker. The Liberal party is as concerned for Liverpool as any other hon. Member and party in the House.
  We do not suggest that any Liverpool city council employees should be sacked. That is not necessary. What is clearly necessary is that there should be no filling of vacancies, but that an equal number of jobs be provided under community development programmes in the coming year which would improve, rather than worsen, the position of employment on Merseyside.
  It is also necessary for the city council to consider the land that is unnecessary for the city—woodland that is owned, recreational land, a golf course north of the city and land in north Wales—that could be sold to reduce the amount of budget deficit in the coming year. Perhaps overtime may have to be reduced for those fortunate enough to have jobs, so as to give those who are less fortunate the opportunity to have a city that is within budget as opposed to outside it. It is the responsibility of the city administration to consider the possibility of transferring from the accounts that attract Government penalty the moneys which it needs to spend on housing stock which is in great need of repair.
  There are several possibilities for alleviating the enormous burden that the citizens of Liverpool are bearing and which are open to the city council. It has been urged by its natonal leadership to be responsible. It is in the interests of no one in Liverpool that there should be an illegal budget or no budget. The Liberal party is prepared, if the Labour party is not, to offer an alternative. I hope that the Government will realise that our pressure, and that of others, can still bring about a responsible option for the people of Liverpool. I hope that the Government will then themselves act and accept their responsibility to help Liverpool more, as they should have done over the past years, and especially the past few months.
  10.17 pm
  The Under-Secretary of State for the Environment (Mr. William Waldegrave): I can agree wholeheartedly with one sentiment expressed by the hon. Member for Southwark and Bermondsey (Mr. Hughes). It is that we all hope that a legal rate will be fixed, in the interests of all the citizens of Liverpool.
  I have listened to the suggestions that have been offered by the hon. Members for Liverpool, Mossley Hill (Mr. Alton) and Southwark and Bermondsey and I shall report them to my right hon. Friend the Secretary of State. However, it must be my job tonight to make clear to the House the Government's view of what is happening in Liverpool and what the Government's role is.
  The key issue is how Liverpool city council will act, not what the Government might do. Responsibility for running Liverpool rests with the elected city councillors, not with Ministers or my officials in Marsham street. I intend to concentrate, therefore, on the position of the council.
  The hon. Member for Mossley Hill and other hon. Members are familiar with the city council's Labour group's line of argument. For those who have, perhaps, the good fortune not to have to listen to it quite so closely as the hon. Gentleman and the hon. Member for Blackburn (Mr. Straw), who I know is also an expert on these matters, and I am glad to see him in his place, I shall outline the argument. The Labour group claims that the Government have turned their back on the problems of

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  Liverpool and withdrawn grant indiscriminately. It claims a mandate from the May 1983 elections to reduce rents, create jobs and increase expenditure. It claims also that the budget for 1983–84 which it inherited from the Liberals was impossible to balance.
  Mr. Parry: It was.
  Mr. Waldegrave: I hope that those who have contributed to the debate will accept what I am about to say in the spirit in which it is offered. The problems of Liverpool are, and have been, great, but I do not believe that the situation is such that a party political broadcast by any party is in order. The problems are so severe that we should not try to make party political capital out of them.
  The Labour group has concluded that the city must receive £30 million in extra grant from the Government, though without pointing to the tree on which the cash is grown. It says that if the money is not forthcoming there will have to be a 200 per cent. rate increase, or 5,000 job losses. It adds that it will not accept either of those options and that if the Government do not provide the money it is left only with the option of rating illegally.
  The logic of that argument escapes everyone—I think that it escapes the hon. Member for Mossley Hill—but I imagine that Labour councillors believe that if they repeat their story often enough someone will believe it. If the argument is examined closely, I believe that it becomes clear that it does not stand up.
  I do not want to exacerbate the position, so I shall run through the argument point by point and let the facts speak for themselves.
  Mr. Parry rose—
  Mr. Waldegrave: I shall let the facts speak for themselves. If the hon. Member for Liverpool, Riverside (Mr. Parry) had approached me earlier, we might have arranged to share the time.
  Mr. Parry: I spoke to the Secretary of State.
  Mr. Waldegrave: The Government have most definitely not turned their back on Liverpool. The evidence of our considerable efforts to ease the social and economic problems of the city is there for all to see. Over the past three years—1981–82 to 1983–84—capital expenditure on Merseyside under the Department of the Environment's main programmes has reached £650 million. This includes about £140 million specifically for Liverpool through the urban programme and the Merseyside Development Corporation.
  The Department of Trade and Industry has given an average of £110 million a year in the last three years to companies within the Merseyside special development area. The Mersey Docks and Harbour Company has received a total of £134 million in financial assistance and the Manpower Services Commission is expected to spend £90 million in Merseyside this financial year. On top of all this, Merseyside is the only area of the country which has a special departmental task force assigned to it. Other major initiatives in the area are relevant to the city, such as the huge clean-up-the-Mersey campaign, on which, in the end hundreds of millions of pounds will have been spent.
  Secondly, Liverpool has not been singled out for specially tough treatment under the rate support grant
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  system. Distribution of grant is made on principles which apply to all authorities. For 1984–85 Liverpool's expenditure target implies a relatively small reduction in spending. Other authorities face a much higher reduction.
  Liverpool city council has been asked to make savings since 1979, like every other council. However, unlike other local authorities, it has had huge resources that have not been available to others rightly directed to Merseyside.
  Mr. Frank Field rose—
  Mr. Waldegrave: I have not given way to others, and, although I hate not giving way to the hon. Gentleman, I shall not do so.
  Thirdly, there is the mandate argument. There is a Kipling story about a village that voted that the earth was flat, but the earth remained round. Whatever Councillor Hatton may have said before the election, he has no mandate to alter the rules of arithmetic.
  Fourthly, the Labour group may have inherited a tight budget position which required savings to balance the books, but it is by no means unique in facing tough political choices in 1984–85. It was elected to take such decisions. During 1983–84, the council has done nothing to help itself. It has not only failed to find savings, but admits to having increased expenditure. The hon. Member for Mossley Hill referred to some of this. Over £1 million—£16 per council tenant—went as a decoration allowance, a veiled method of reducing rents.
  Fifthly, the Labour group certainly does not need to increase its rates by 200 per cent. or make 5,000 people redundant to balance its books in 1984–85. The deputation from Liverpool which recently met my right hon. Friend the Secretary of State for the Environment admitted that a 60 per cent. increase would cover what it described as a standstill budget. Combined with the Merseyside county council precept increase, which we understand will be 9·4 per cent., that would make a total rate increase for Liverpool residents of 46 per cent.—bad enough. I should stress that that is without any cuts in the real level of expenditure in 1983–84.
  If the council chooses to make cuts, for each £5 million it saves, it will gain an extra £10 million in rate support grant, bringing a total benefit to ratepayers of £15 million, which is equivalent to 20p in the pound. As the hon. Member has pointed out, the Liberal group on the council believes that next year's rate increase could be as low as 8 per cent. I make no comment on that. It is for locally elected councillors to decide what can be achieved. It does suggest, however, that there is an alternative to what the Labour group proposes.
  I should add that the deputation which my right hon. Friend met on 22 February promised to provide figures substantiating the claim that a 200 per cent. rate increase was required. We are still waiting for these figures.
  Mr. Parry rose—
  Mr. Waldegrave: I hope that I have now made it clear to the House that Liverpool councillors have no shred of justification for the wild statements that they have been making. The council faces tough decisions, and the larger group of Labour councillors may have to eat some of their ill-chosen words. There is no doubt, however, that it is well within the council's scope to make a responsible and properly balanced budget and rate for next year.
  Labour councillors are coy about the consequences of failure to make such a properly balanced budget and rate.

  605
  In Militant of 3 February this year Councillor Hatton is reported as saying that he does not expect Liverpool to go bankrupt as the result of any action that he might take. He expects to be taken to court before the money runs out. That statement is remarkable enough in itself—a councillor finding reassurance in the prospect of ending up in court. Mr. Hatton is not willing to spell out the real consequences of illegal rating action—understandably so, perhaps.
  I can tell the House what those consequences would be. The services which the city council provides to local residents would be threatened with collapse, council employees could go unpaid and there could be serious personal consequences for the councillors concerned. The overall result of failing to make a proper rate would be far worse for Liverpool than anything that might flow from the action necessary to achieve a balanced budget and rate. Liverpool's ratepayers and council staff would have to carry the can. The Labour group has made much play with the 5,000 redundancies it claims are necessary to keep rates down next year. I hope that I have shown already that claim is unfounded. Councillor Hatton should be telling us how many redundancies would follow from the action, that he is threatening.
  The Labour group claims to be concerned about the loss of jobs in the city. I can think of nothing more calculated to reduce industry's confidence in Liverpool than the kind of statements, that we are now hearing. The hon. Gentleman referred to people taking the name of Liverpool off the letterheads of their notepaper. One business man is quoted as saying:
  "We have spent a great deal of time telling people how hard working our craftsmen are"
  —I have no doubt they are—
  "but these extremists are ruining all that. I don't want to abandon the name of Liverpool until I have to, but when it starts to threaten the jobs of my employees then I will have to give in."
  The Merseyside chamber of commerce and industry has written to the city council as follows:
  "This"
  —the budget-making process—
  "is now affecting the stability of local trade and industry and, consequently, the well-being of all those who live and work in Liverpool. Whilst the Chamber recognises the democratic process and that political decisions must be allowed to frame the City's finance and policies, the Chamber is appalled at the prospect of no budget or of an illegal budget being constructed and an unsound rate resulting therefore."
  In short, the statements of the Labour group will do nothing to put the new life into the city which the Government, and I am sure all hon. Members, want to see. They will do quite the reverse.
  I am pleased to see from the press that the message is beginning to get through. I understand that local representatives of NUPE and the NUT have voted against joining in a day of strikes in the city on 29 March to support the council's case. Seven Labour councillors—I believe all hon. Members would wish to pay tribute to them—in Liverpool have said that they will not support illegal action. The national leadership of the Labour party—one of its representatives, the hon. Member for Blackburn, is in the Chamber—has voiced concern
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  about the course the Labour group has said it will follow. The national leadership has taken a close interest in the matter and given the benefit of its experience and advice. We can hope only that the process of isolation will continue and that Mr. Hatton and his colleagues will see the error of their ways. It is hard not to believe that part of their object is to cause damage to the democratic process.
  Mr. Parry: Mr. Hatton is not the leader of the Labour party in Liverpool. Councillor Hamilton is its leader.
  Mr. Waldegrave: Councillor Hamilton is indeed formally the leader of the Labour party in Liverpool.
  The hon. Member for Mossley Hill asked about the Government's policy towards Liverpool city council's 1984–85 budget. It is simple and is the same as our policy towards any local authority. The city council has been elected to take responsibility for running its city. The council has a duty to raise sufficient revenue to cover its budget. Like all other authorities, it undoubtedly has scope to produce a properly balanced budget and rate. and the Government expects it to do so. In the circumstances, it would be out of place for me to speculate about what will happen if the council does something which is clearly illegal and is against the interests of all the people of Liverpool—the ratepayers, the council employees and the councillors themselves.
  Against that background, this debate and the debate in the other place should send a signal to all people of good will in Liverpool. There are people of good will in Liverpool, in all parties. As I have said to the hon. Gentleman—I hope he will accept the rebuke in the way it was meant—I do not believe that any one of us has much pride in the circumstances that arose in Liverpool. The position of the lengthy minority government has shown some of us the weaknesses of that former government, which might be thought to follow from proportional representation. That is an argument to strengthen us in our basic belief about the faults of a system which, on the whole, makes coalitions form and write their manifesto programmes before an election rather than fight after the election in the council. It is similar to putting forward a proposal in council and then lobbying in the streets against it the next day. The long period of minority government made some of us open our eyes about the weaknesses of some of the arguments advanced.
  The position is more serious than the knockabout of the normal party political battle. That is why I have tried to avoid scoring party points, even against the Liberal party. It is always difficult for members of either of the large parties to avoid making a shot or two at the Liberal party, because it makes itself an easy target. It is difficult to miss hitting its members on every occasion, however bad one's shooting. The House should send out a more serious message—that there are people who have the opportunity of ocasting one of our great cities into chaos. I hope that they will draw back from the brink.
  Question put and agreed to.
  Adjourned accordingly at half past Ten o'clock.

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Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Rochester): The LORD CHANCELLOR on the Woolsack.

Traffic Disruption: Access to Parliament
Lord Boyd-Carpenter: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are satisfied that the Commissioner of Police of the Metropolis, in closing the Mall, Marlborough Gate and Constitution Hill to traffic on 24th January in order to facilitate a political demonstration, complied with the Sessional Orders of both Houses requiring him to facilitate access to the Palace of Westminster during the sitting of Parliament.
The Parliamentary Under-Secretary of State, Home Office (Lord Elton): My Lords, we are satisfied that the commissioner discharged his duty. He gives effect to the Sessional Orders by directing his officers to disperse all assemblies or processions of persons causing, or likely to cause, disruptions or any disorder on any sitting day within a specified area around Parliament. The march on 24th January did not enter that area. The police sought to minimise the traffic disruption. Where roads were closed, traffic was diverted by other routes. Had those roads remained open, traffic would have flowed into the path of the march, causing greater disruption and delay. The police had given advance warning of the likely traffic difficulties to motorists. All officers on traffic duty were instructed to assist the passage of Members of Parliament.
Lord Boyd-Carpenter: My Lords, I thank my noble friend for that comprehensive reply. Is he aware that on the date concerned the roads specified in my Question were not at all occupied by the rather pathetic little demonstration which was taking place elsewhere in the town, but were entirely empty as a result of being closed by the police? Is my noble friend satisfied that the commissioner of police understands the purpose of the Sessional Orders, which is the paramount importance of keeping access to this palace open on occasions when Parliament is sitting?
Lord Elton: My Lords, of course I share my noble friend's anxiety that Parliament should not be inconvenienced by demonstrations of this or any other kind. I can tell him that the steps which police officers can take to asssist Members on such occasions include stopping a march to allow a Member through, enabling a Member's vehicle to move out of a traffic jam where that is possible, taking charge of a Member's car while he makes his own way to the House, or taking him in a police car. When I say "Member". I mean a Member of either House.
Lord Molloy: My Lords, is the noble Lord aware that the noble Lord. Lord Boyd-Carpenter, made no complaint about those people on the march? He even described the demonstration as being small and pathetic. The complaint that the noble Lord, Lord Boyd-Carpenter, made was about the police closing roads which there was no need to have closed, and I am sure that the House should like to have an answer as to why that was done.
Lord Elton: My Lords, I was not aware that my noble friend had made any complaint. I thought that he made an honest inquiry for information, which I gave him. As to the interpretation which the noble Lord. Lord Molloy, puts on it. I have to say that in order to implement the effects of the Sessional Order, which in fact applies to the precincts of the Palace of Westminster, the commissioner seeks to keep empty of demonstrators an area very much larger than the precincts. My noble friend was concerned as to why that area should be so empty. The answer, I suppose, is that once one is in such an area, it is possible, as a Member, to come more swiftly to the House, but it is first necessary to identify oneself as a Member to a police officer, who can facilitate one's arrival at the boundaries of the area.
The Earl of Halsbury: My Lords, is the noble Lord aware that when I tried to get information and help from the police in Kensington Gore, the only answer I could get was to go on until I got to Trafalgar Square? That does not seem to me to be giving access to Parliament.
Lord Elton: My Lords, I was aware that the noble Earl had experienced difficulty; I was not aware of its location or extent. Of course one must look at such occasions with very great care to see that they do not recur.
Lord Harrington: My Lords, was it not possible for whoever was in charge of the particular operations on that day on seeing that there was little likelihood that it would be necessary to close the streets in the way that had been expected, there and then to have opened up the streets in the ordinary way; in which case the noble Lord, Lord Boyd Carpenter, would not have had any cause to put down the Question?
Lord Elton: My Lords, the operational decisions of the police are a matter for the chief officer of police, who in this case is the Commissioner of Police for the Metropolis, and he must take those decisions as the occasion serves.
Baroness Macleod of Borve: My Lords, does not my noble friend the Minister agree that there are many other routes of access to the Houses of Parliament besides the Mall, Marlborough Gate, and Constitution Hill? Does he also not agree that on this occasion plenty of warning was given over the radio and in the press that the demonstration was to take place, and that if one wanted to circumnavigate those particular roads, there were other roads which could be taken?
Lord Elton: My Lords, when I was last asked about this matter I recited to your Lordships the various

855
occasions on which, and places where, warnings were given. I am grateful to my noble friend for allowing me to remind your Lordships of them and also to remind some of your Lordships that it is possible to approach this place by other routes.
Lord Glenamara: My Lords, will the noble Lord look at the idea of issuing a car sticker or badge to Members of both Houses, so that they can be identified? At the moment we have to join a motor club in order to obtain one. Surely stickers should be issued by the House authorities?
Lord Elton: My Lords, if memory serves—and it is some time since I had a motor car of my own—I believe that it is possible to acquire a sticker by belonging to the Houses of Parliament Motoring Club or the House of Lords Motoring Club, and I think it will cost the noble Lord £1, or possibly £2.
Lord Boyd-Carpenter: My Lords, is my noble friend aware of the fact that, whereas individual police officers are, as always, extremely helpful in these situations, it is quite useless to have a pass or document which a Member can produce if, between one and the closed area, there is a solid block of traffic which has been held up by police action? Even with the best will, the police cannot get one through a solid mass of motor cars, trucks, et cetera. Will my noble friend ask the commissioner to think a little more clearly, on future occasions, how good access is to be obtained to Parliament, and bear in mind that a mere warning that it may be difficult is not sufficient to enable the Legislature to function?
Lord Elton: My Lords, of course I shall see that the commissioner has the whole of these exchanges drawn to his attention. My noble friend will recall that there are a number of actions which the police can take, which I mentioned earlier, which could be of assistance even when one is blocked in to a queue, nowhere near the head of it. But I think that the best way to answer my noble friend's question is to say that I shall put this point to the commissioner.
Lord Jenkins of Putney: My Lords, will the noble Lord make it clear to the commissioner that there is no general or widespread complaint here?
Lord Elton: My Lords, the noble Lord's remark will be among those printed in the record which the commissioner will see.
Lord Monson: My Lords, would the noble Lord not agree that the freedom of certain groups to demonstrate not in Hyde Park or some similar open space on a Sunday, but through the crowded streets of central London on a weekday in fact conflicts with the freedom of the vast majority of ordinary people to go about their lawful business without undue obstruction or delay? Are the Government sure that they have got right the balance between the conflicting freedoms of demonstrators on the one hand and a majority of peaceful citizens on the other?
Lord Elton: My Lords, I think that we must recall that there should be a balance and that the freedom to demonstrate against a Government who may not always be of one's own choosing is a valued freedom—
Noble Lords: Oh, Oh!
Lord Elton: I think that—I am so unaccustomed to support from that direction that I have forgotten what else I was going to say.
Lord Inglewood: My Lords, would my noble friend agree that it is not often easy to assess how large demonstrations or processions will be and how many people will be participating, and therefore it is necessary to ensure an adequate police presence? Does not my noble friend also agree that once it is apparent that the numbers are not as large as expected, the police are slow to stand down their very large numbers of reserves, and this sometimes lies behind the difficulty in this connection?
Lord Elton: My Lords, my noble friend raises a question which deals with the operational matters of the police which I can only pass on for absorption elsewhere. I think it is worth also mentioning that demonstrators, sometimes I think ill-advisedly, measure the success of their demonstration by the amount of aggravation that they cause to the noble Lord, Lord Monson, and many others like him. It occurs to me that they may actually be wrong in that assessment and that the better they succeed in that regard, the more they fail in their main objectives.
Lord Leatherland: My Lords, may I ask the Minister, when he writes to the commissioner, to inform him that in the opinion of this House our police are wonderful?
Lord Elton: My Lords, they are indeed. And also, I observe, increasingly young.
Lord Morris: My Lords, may I ask my noble friend whether he can possibly recommend that on these particular days Westminster tube station is used more fully?
Lord Elton: My Lords, I think that I have dealt with that, and I am not sure that it is a matter for the commissioner.

Adult Job Training
3.11 p.m.
Baroness Lane-Fox: My Lords. I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many adults will be able to enter training programmes as a result of their recent White Paper Training for Jobs (Cmnd. 9135).
The Minister of State, Privy Council Office, and Minister for the Arts (The Earl of Gowrie): My Lords, as the White Paper Training for Jobs makes clear, primary responsibility for skill training must rest with

857
employers although the Government will continue to explore ways of encouraging them to do more, and more effective, training. The restructuring of the Government's own adult training programme announced in the White Paper would enable over 250,000 people to be trained each year, which compares with some 110,000 under existing programmes.
Baroness Lane-Fox: My Lords, while thanking my noble friend the Minister for that very encouraging reply for the Ides of March, may I ask him whether there is any news as to progress on the programmes announced for training generally in the White Paper?
The Earl of Gowrie: My Lords, in paragraph 40 of the White Paper we said that the Manpower Services Commission proposes to start implementing its proposals experimentally this year, that is 1984–5, and to begin restructuring its own programmes in 1985–6. One of the things that we hope to learn from the pilot schemes is how rapidly we are able to implement the proposals. I cannot therefore be more precise at this stage.
Lord Dean of Beswick: My Lords, is the noble Earl aware that I agree with the noble Baroness in her welcome for the Minister's first comment? The full attainment of the proposals in the White Paper, when that happens, will be welcome. Surely, however, the Minister must be aware that there are already hundreds of thousands of people with special skills ranging from the professions to artisan types—highly skilled and highly trained—who are waiting the opportunity to work. When will the Government implement some proposals to get these people who are already trained back in work?
The Earl of Gowrie: My Lords, the noble Lord will be aware of the difficult phenomenon that is not restricted to this country, but experienced by all the industrialised countries, known as mis-match. It is not always easy to deploy a highly skilled worker in one field, which may be in decline structurally, towards another field of employment without retraining. And retraining is what we are trying to do in these circumstances.
Baroness Lane-Fox: My Lords, may I ask my noble friend the Minister whether there is any news on the proposal of a loan scheme for adult trainees?
The Earl of Gowrie: My Lords, I would need a little prior notice about that, but I shall examine whether it is possible to establish such a scheme if it does not exist.

Air Route Structure
3.14 p.m.
Baroness Burton of Coventry: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government, in view of the Government's answer on 27th January 1983, col.
858
365, that "the European Air Navigation Planning Group intends to review the air route structure regularly from now on", what progress has been made since then on this review.
Lord Lyell: My Lords, the European Air Navigation Planning Group held several informal meetings between September 1982 and November 1983 to review air traffic service routes and associated navigational aids and proposed a number of improvements in the alignment of routes including all 10 routes criticised by IATA. At its subsequent formal meeting, the group adopted almost all the proposals unanimously, and recommended them for endorsement by ICAO. The concurrence of the military authorities in the countries concerned will be needed before the improved routes can be made available to civil air traffic. A specialised working group to review area navigation routes and the deployment of radio navigation aids every two and a half years is to be set up.
Baroness Burton of Coventry: My Lords, the noble Lord will recall that in the statement of 27th January three steps were deemed necessary before the restructuring of these routes would come into effect? Can the noble Lord say whether all these three steps have already been implemented? On what he has stated, can he say when he expects that final approval will be given? Does he recall that his noble friend Lord Cockfield, who helped a great deal on these matters, did say on that same date of 27th January that we should have greater efficiency in the operation of civil air transport in Europe and a considerable saving in costs? Is the noble Lord able to comment on that?
Lord Lyell: My Lords, so far as the noble Baroness's last question is concerned, only the airlines can answer as to the exact saving of costs in monetary terms. I can, however, confirm that the Government agree with IATA's calculations of mileage that will be saved and which we hope is, indeed, being saved. As to the three steps mentioned in the earlier comment, two of them, I understand, have been taken and the third is at present under discussion. We have high hopes of that.
Baroness Burton of Coventry: My Lords, while thanking the noble Lord, I do not know how good he is at looking into the crystal ball but can he possibly say when he expects these routes to become operational?
Lord Lyell: My Lords, I think that it is exceedingly dangerous, certainly for myself, although I do not know about the noble Baroness, to look into a crystal ball to see what we might find. If the noble Baroness is concerned about these new routes, I understand that one of the upper air limit routes is at present operational. We hope that there will be a second one over the United Kingdom. I understand that there are three more which it is hoped will become operational. This matter is, I think, covered by the last part of the reply that I gave to the noble Baroness's first question.
Lord Whaddon: My Lords, in considering changes in controlled airspace will the noble Lord bear in mind that the vast majority of United Kingdom registered

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aircraft are not airliners but are in general aviation? Is he aware that it is a continual nuisance to see the extension of controlled airspace and very much against the interests of general aviation, particularly when the extension is into lower levels? Will he bear in mind the interests of general aviation in such changes and try to avoid the extension of controlled airspace particularly into levels, say, up to 4,000 feet?
Lord Lyell: My Lords, I thank the noble Lord for his question. It impinges possibly on the whole question of air safety. I cannot comment upon his question today, but I shall note everything that he has had to say most carefully.
Lord Whaddon: My Lords, on the matter of air safety, will the noble Lord bear in mind that the more the Government extend controlled airspace, the more they are likely to have incidental incursions into it by general aviation?
Lord Lyell: My Lords, this is all the more reason why we need further and more sophisticated control of the available airspace.

Farming Grants: The Environment
3.18 p.m.
Lord Hunt: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what changes they propose to make to the present system of grants to the farming industry, with a view to providing effective protection of landscapes and wildlife, as well as meeting the needs of agricultural production.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead): My Lords, our present capital grants arrangements already provide for conservation and wildlife considerations to be taken into account. In addition, the Ministry's Agricultural Development and Advisory Service provides advice on how best to achieve a balance between agricultural and conservation or wildlife objectives.
Lord Hunt: My Lords, in thanking the noble Lord for that Answer, will he accept that I do not feel particularly encouraged or impressed? Is it not abundantly clear that the provisions for protecting environmental interests under EC structural directives for agriculture, our own Countryside Acts and under his Ministry's grant policies and indeed advisory services, are proving woefully inadequate to prevent serious and lasting damage being done to landscapes and to wild life habitats?
Is there not incontrovertible evidence of this provided by the chief scientific officer to the Nature Conservancy Council? Does not the opportunity now arise to amend the new regulations which will replace the existing structures directives so as to correct the serious imbalance between agricultural and environmental interests? Finally, was the noble Lord correctly-quoted in a letter in The Times of 20th February,
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from the director of the Council for the Protection of Rural England, as having said to a deputation from that body that his Ministry.
"has no intention of moving willingly"
towards accepting amendments that would build conservation into farm planning?
Lord Belstead: My Lords, I well understand the concern of the noble Lord. Lord Hunt. But if I may say so, I do not think that the noble Lord sufficiently recognises all that is being done and. I agree, needs to be done and has to be done. For example, the notification arrangements for grant applications in national parks and SSSIs anticipated the Wildlife and Countryside Act; then the 1981 Act built safeguards upon that, and I believe that those safeguards are having an effect. The noble Lord in his second and third questions asked me about the structures proposals in the European Community. Those proposals are still under consideration. I should like to make crystal clear my attitude, on behalf of the Ministry of Agriculture, to these proposals in answer to the noble Lord's last question. The proposals certainly contain more references to conservation than in the past, and I am absolutely delighted that that is so. We shall certainly continue to work to this end in the negotiations which are still taking place.
Viscount Massereene and Ferrard: My Lords, am I not right in thinking that the Government are now giving a grant, or are going to give a grant, for the replanting of hedges? Perhaps I am wrong.
Lord Belstead: My Lords, on 1st December last year we increased grants to 60 per cent, in the less favoured areas for wall, hedges, fences and tree shelter belts; we ended the very last vestiges of grant-aid for hedge removal, and we also ended grants for land reclamation in the lowlands—and that was at a time when we were having to cut £30 million off capital grants.
Baroness White: My Lords, has the noble Lord the Minister had an opportunity to study the recently published report, mentioned by the noble Lord. Lord Hunt, produced by the chief scientist of the Nature Conservancy Council, which indicates the very considerable degree of loss in habitats and similar areas in recent years? Has he also had an opportunity personally to study the commitments entered into by Her Majesty's Government in February 1983 and reaffirmed at the Stuttgart summit subsequently, which indicate that agricultural policy should be closely integrated with policy for the environment, particularly in relation to agriculture and forestry?
Lord Belstead: My Lords, as regards the last question asked by the noble Baroness, the position is as I gave it just now in answer to the noble Lord, Lord Hunt. So far as the report of the chief scientist of the Nature Conservancy Council is concerned, of course I take very seriously what the NCC says because it is the Government's adviser on conservation matters.
As regards the removal of hedges. I hope that I have made clear in my answer to my noble friend Lord Massereene and Ferrard where the Government's heart lies in that respect. So far as the reduction in area of broad-leaved woodland cover is concerned. I must

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remind the House that the Forestry Commission census of woodland in England and Wales revealed that there has not been a reduction in total in broad-leaved woodland over the years, even though the mix of species has changed to some extent; and it is true that there has been some reduction in what is known as "ancient woodland".
Lord Gisborough: My Lords, in view of the consideration given by farmers and landowners over hundreds of years to the conservation and appearance of the countryside, and to the build-up of the countryside that we now like so much, will my noble friend do his best to kill the knocking of farmers and landowners by often ill-informed, self-appointed "towny" conservationists?
Lord Belstead: My Lords, the best answer to my noble friend Lord Gisborough is that I am happy to be able to report to the House today that I understand that there are now branches of the farming and wildlife advisory groups in every single county in England and Wales—and. I believe, in Scotland also. I am not making a slighting reference to matters north of the Border; it is just that that part of the country is not my right honourable friend's responsibility, and I am not quite so sure of my ground on that point.
Lord Cledwyn of Penrhos: My Lords, will the noble Lord confirm that over the next five years £3.5 billion will be available under the CAP by way of farm grants? Will he and his right honourable friend ensure that part of that money is allocated to be spent on nature conservancy as well as on obtaining more efficient agricultural practice?
Lord Belstead: My Lords, the answer to the noble Lord is that nobody knows how much money will be spent under the structures proposals because the negotiations are still continuing. But in case we forget what I endeavoured to say to the House earlier, let me point out again that there are more references to conservation in the structures proposals as they are presently being negotiated then there have been in the past. On behalf of the Government, I am delighted about that, and we are certainly going to work to that end.
Lord Bruce-Gardyne: My Lords, can my noble friend say whether he is entirely satisfied with the workings of the compensation arrangements under the Wildlife and Countryside Act? Are we not beginning to see that the warnings that were given by a number of noble Lords, including my noble friend Lord Onslow, at the time of the passage of this Act, were correct? Those warnings were that if we made provision by which people were going to be compensated for doing things that it probably would not have occurred to them to do in the first place, we would be liable to find a substantial rip-off of the Treasury. Is that not now precisely what is happening?
Lord Belstead: No, my Lords, I do not think that it is happening. There are, indeed, many cases where management agreements have been accepted by the farmers concerned at lower levels of compensation than the full loss of profit—and it is right that I ought
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to say that. On the other hand, my noble friend is raising a difficult and important point. Yesterday my right honourable friend's department and the Department of the Environment met with the Broads Authority and, as the newspapers have reported today, we are trying to work out something a little different in that area—particularly Section 41 designation of the Wildlife and Countryside Act, which we believe might be a way forward in that particular area.
Lord Hunt: My Lords, will the noble Lord inform his noble friend Lord Gisborough, in case he cannot hear me, that I, for one, have no intention of knocking the farming industry? I am not a member of the "environmental Militant Tendency", and the wording of my Question surely makes it clear that I spoke of harmonisation. Is it not clear from these exchanges and, indeed, from the copious correspondence and articles in the press in recent weeks, and from three Questions in another place on 1st March, that there is widespread and growing public concern about this matter? Is it not the responsibility of the Government to create the conditions at the highest level for the harmonious integration of the two interests, both of which are of great interest and importance to the nation? Will the noble Lord take this into account when the report of the sub-committee of your Lordships' Select Committee comes before him?
Lord Belstead: My Lords, harmonious integration is possible provided it is clear what the structures proposals are supposed to do. It is accepted by all the member states of the Community that those proposals are supposed to give help, where it is needed, to agriculture. I repeat: there are stronger references this time round to conservation than there have ever been previously. I give an assurance to the noble Lord, Lord Hunt, that this is most acceptable to the Government, and we will try our very hardest to ensure that those references firmly remain in the proposals.

Coal Miners' Strike: Picketing
3.28 p.m.
Lord Denham: My Lords, at a convenient moment after 3.30 p.m. this afternoon my noble and learned friend the Lord Chancellor will, with the leave of the House, repeat a Statement that is to be made in another place on coal miners' picketing.

Prevention of Terrorism (Temporary Provisions) Bill
3.29 p.m.
Read a third time.
Clause 12 [Powers of arrest and detention]:
Lord Shackleton Lord Shackleton moved Amendment No. 1:
Page 10. line 36. at end insert—
("(3A) The power of arrest conferred by subsection (1)(b) above in respect of an act of terrorism referred to in subsection (3)(b) above shall not be exercisable unless the Secretary of State has, by order made by statutory instrument, provided for a Code of Practice comprising such guidance as appears to him to be appropriate for constables in their use of the powers contained in this section.")
The noble Lord said: My Lords, I beg to move Amendment No. 1, and I suggest to your Lordships that it would be convenient if we deal also with Amendment No. 2.
Amendment No. 2: Page 13, line 27, after ("section") insert ("12(3A) or").
First, I should like to say how glad I am to see the noble Earl, Lord Jellicoe, here. I maligned him when I last spoke because I said that I thought that he was either in Siam or in Australia; but I understand that he has been in Mozambique. I would think that the name of the noble Earl, Lord Jellicoe, has been used several thousand times—almost wholly with approval—in connection with his admirable report. I endorse nearly everything that he said. I would only give him a word of warning. When I produced my report on antiterrorism some years ago I was rather tabbed with that title. Subsequently, I reported on the Falklands, and I can only suggest that if the noble Earl wants to get away from terrorism—in due course he might produce a report on the Falklands.
I have been a supporter of the Government's legislation, and like the noble Earl—and I do not think that any of us would expect him to take part in today's debate—I am deeply aware of thie dangers of legislation of this sort. Like me, on balance, the noble Earl came to the conclusion that this legislation was necessary. There are aspects of it which I do not like and there are probably aspects which the noble Earl does not like. Nonetheless, the Bill has gone through and now, on Third Reading, it would be quite inappropriate to debate it.
However, the Government and my noble friends are in agreement in every respect except in relation to the desirability of legislation. As I understand it, the noble Earl, Lord Jellicoe, recommended that anti-terrorist legislation should be applied in Britain or in relation to terrorist acts or threats which took place in Britain. He excluded what might be called non-British terrorism; he made it as narrow as possible. The Government have chosen to amend the Bill in such a way that it can apply to terrorists who come here from any part of the world. At first glance one might say that that is reasonable enough, for terrorism is evil and we wish to play our part in restricting it throughout the world. I do not believe that that was in the mind of the noble Earl, Lord Jellicoe. The Government have agreed that in this respect they have gone beyond the original Jellicoe recommendations.
Furthermore, in another place the argument was used by the Minister—and I am sorry to have to go through all this again, but some noble Lords may not appreciate the issue—that, in effect, we are narrowing the provisions of the Bill because the original Act did not confine Clause 12, about which we are talking, purely to Irish terrorism. I repeat: when I carried out my study I considered whether there ought to be some amendment, but I was assured that, even though the clause was there, it would be quite inappropriate—indeed, improper—to use it without parliamentary authority. The Government have accepted, and the noble Lord, Lord Elton, has accepted, that, although one can argue about the wording of the original Act, nonetheless this is an extension.
At this point I only need to read what the noble Lord, Lord Elton, said at the Report stage, because he and I are completely at one on this. He said that the Government were at one with us in what we seek to do. Then he said:
"However, your Lordships are parliamentarians and, understandably, do not like the will of Parliament as expressed in statute to be curtailed, even knowingly, by administrative means unless there is no alternative"—(Official Report, 8/3/84; col. 394.)
I should like to take this opportunity to say that I am exceedingly grateful to the noble Lord, Lord Elton, not only for the care and courtesy with which he has argued his case—and he has some other awkward ones to deal with in your Lordships' House—but for the effort that he has made to try to meet the requirement, which was set out in the earlier amendment and which is now set out in a modified form in this amendment, that the power to exercise control over terrorist acts committed abroad and not in this country should be carried out by statute. The Government intend to do it by issuing a circular. Earlier, the noble Earl, Lord Jellicoe, had said that matters of this sort were much better dealt with by statute or in parliamentary form than by circular.
Therefore, in order to restrict this we have tabled an amendment. The fear has been expressed by a number of very responsible bodies—not only by the National Council for Civil Liberties, but by the anti-apartheid movement and the National British Refugee Organisation—that those who may be engaged in other countries in what might be called terrorism there could be picked up under this Bill unless in some way it is restricted. The Government have made it perfectly clear that there is no question of this being applied in the case of those involved in anti-apartheid activities. Perhaps I may give an example. Mr. Sam Nujoma, whom I happen to know, who is the leader of SWAPO, has been to this country and has seen the Foreign Secretary—and, as he was due to see the Foreign Secretary, there was no argument about letting him in—but he was unable to go to Germany because of the threat of legal action there. This country has always been a haven for refugees, although we have to control their entry. The concern is that people who might be fleeing from oppressive governments—and I stress that there is no difference between the Government's attitude and my attitude on this—might not know whether they can come here safely or whether they will be picked up.
The Government have said that they will give effect to this; that unless there is the prospect of an arrestable offence or deportation, they will ensure that the powers are not exercised in this way, and that they will issue a circular to the police. What the noble Lord, Lord Elton, sought, as I did, was some way in which to get this into the statute. It would, of course, have been much better to indicate in the Bill itself the extent of these powers. We accept that certain offences are already capable of being tried in British courts, including hijacking and piracy, and even a certain power of conspiracy has recently been enacted. All these exist, and one accepts them.
However, my concern and the concern of noble Lords—and this is a matter on which the House of Lords has a particularly good record—is that those powers and how they are to be exercised should be

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under parliamentary control. This is what we sought to achieve. At the Report stage I moved an amendment which would have required the Government to seek parliamentary approval to a statutory instrument under the affirmative procedure, which would make them publish the guidance that they were issuing to the police. This seemed quite a reasonable proposition; and to anyone except some very skilled draftsmen and lawyers—and again I pay tribute to the draftsmen—on the face of it, this would seem to be suitable.
On the previous occasion I suggested that the word "direction" should be used in the amendment and that the Government should publish the direction. Objection was taken to that on the ground that the Secretary of State ought not to give directions to the police. I accept that. Therefore, I have now amended it to "guidance". It was also pointed out that the Government might wish to move quickly and ought not to have to wait to obtain the approval of the House. Therefore, in the second amendment I have altered my original proposal to provide for the negative procedure so that there need be no delay in a recess. I do not know, and I await with interest, what arguments the Government can adduce as to why this should not be incorporated by means of the amendment which I now wish your Lordships to consider.
I suspect that one of the reasons is that the Government do not want this to go back to another place. They do not want to have further arguments there. I am quite sure that the business managers do not want to see it in another place. But we are not constrained in this way, and I would hope that even at this stage, unless the Government can give some very binding reason, your Lordships will accept this amendment, and that it will be sent to another place where they will be able to consider it and accept it, or amend it. I beg to move.
3.41 p.m.
Lord Elton: My Lords, it might be sensible, since my position differs somewhat from that of the noble Lord, Lord Shackleton, if I were to speak now so that your Lordships can judge for yourselves—and so that he in fact can judge—between what he has said and what I shall be saying on behalf of the Government. I hope that the result of that may in fact be a meeting of minds.
We return to a familiar problem and a problem that is no less difficult because it is familiar. Our concerns were very wide at the beginning of our debates. Discussion has brought us to the kernel of the matter. I will not retrace the paths by which we have come to this point. It is enough to know that your Lordships have accepted the necessity for this Bill, and you have accepted, in particular, the necessity for the powers of arrest and detention which it provides. You have accepted them in part because of undertakings the Government have given about the way in which the working of this Act will be overseen.
There remains, however, one anxiety. It is a real and proper anxiety and one which I entirely understand. It is an anxiety that arises from the drafting of Clause 12. The effect of that drafting is to give to the police a power of arrest and detention that is wider than the use
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that it is intended to make of it. Some of your Lordships felt, and they had my entire sympathy, that Parliament should not grant powers that it did not intend should be used.
Again, I will not retrace the paths of argument. It is enough to know that your Lordships have accepted that it is necessary to draft the powers as wide as this, unwelcome though that must in some respects remain. The ground over which we have been going since Report concerns not the formulation of the powers but the formulation of the restraints upon how the powers are used. The intention—and again there is no difference between us on this—is to see that these powers are not used to arrest people whom we could not see a prospect of either charging in a court of the United Kingdom or of deporting.
The concern of the noble Lord, Lord Shackleton—which he has lucidly explained—is to see that curtailment established, if only indirectly, on the face of the Bill. He had an amendment to that purpose on the Marshalled List at Report, to which he has just referred, and we debated it with some care. It was an amendment in which I saw some serious difficulty, but its aim was to require the Government, in statute, to pursue exactly the course I had proposed we should pursue without the benefit of statute. There seemed to be tantalisingly little between us and I undertook therefore to bend my very best efforts, and those of our advisers, to devising some means of drafting an acceptable amendment.
We did so, and we did so—as the noble Lord, Lord Shackleton, was kind and generous enough to acknowledge—in no mean spirit. We did so to the exclusion of much other pressing work, but we came always to one inescapable difficulty. There are others, which are perhaps of less consequence, but the chief is this. The Secretary of State for Home Affairs has no power to direct either chief officers of police or constables of any rank in operational matters. I know that the noble Lord has helpfully struck the word "directions" out of his amendment. At Report stage the code of practice which they proposed was to "comprise such directions as appear" to the Secretary of State to be appropriate. Today it is to "comprise such guidance as appears to him to be appropriate". I can well understand that to a layman's eye, and even to eyes so sharp and experienced as those of the noble Lord, Lord Shackleton, and the sure and practised lawyers' eyes such as the noble Lord, Lord Mishcon, and the noble Lord, Lord Wigoder, whose name appears on the Marshalled List, and the experienced eye of the noble Lord, Lord Henderson, as well, that may seem a sufficient distancing of the Secretary of State from a claim to determine what a constable shall and shall not do in operational matters. Sadly, that is not so. What the amendment would do would be to give express statutory effect to the notion of guidance by the Secretary of State directly to the police about the criteria for the exercise of a power of arrest. In some matters, even that would be proper. In disciplinary matters, for instance, where the Home Secretary is the appellate authority, it is proper for him to issue guidance and it can be recognised in statute. But this matter is an operational matter and we touch here on a constitutional issue of very considerable importance.

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If the Secretary of State is empowered by statute to issue guidance to the police, the courts can test their observance of that guidance and quite quickly you will find that the guidance acquires the force of direction. That would be unfortunate in this matter, the matter of the limitation on the use of arrest. But it would be of even greater concern in a wider context because this would be to begin to place the power to control the operations of police forces everywhere in the hands of central government. If we were to take that fundamental step it would surely only be proper to do so in response to an issue more serious even, and wider in its effects on British citizens, than the one now before us. I hope your Lordships do see the sensitivity of this. I hope you will also accept that when I found our way barred by this consideration I again returned, and led officials to return, to seeking other ways than the noble Lord's to get the limitation of these powers on to the face of the Bill. And again, in spite of much effort, we failed.
We have honoured our undertaking to search for a way to do this in the Bill. I genuinely regret that we have not succeeded. I am not, however, entirely empty handed. I and the Government want your Lordships to be satisfied that these powers will not be used otherwise than we have said they will be used and I should like to repeat, and to enlarge on, the commitment I gave, with the full authority of my right honourable friend the Home Secretary, last week. The commitment is that the circular incorporating the guidance will be published. Arrangements will be made to make the circular available in the Library of each House. As an earnest of our intentions I can read to you today from the paragraph in which that guidance will be embodied the two extracts which bear most closely on the concerns expressed both in your Lordships' House and in another place.
The extract begins:
"In the case of acts of international terrorism committed or to be committed outside the United Kingdom, the powers should be used only when it appears that there is some prospect of a charge before United Kingdom courts or of the person concerned being deported. That is to say that the powers should not be used unless either deportation is in prospect or it is thought that the involvement of the person concerned in such acts constitutes an offence under United Kingdom law. This restriction is likely to mean that although the powers may be freely used in connection with acts of international terrorism committed in the United Kingdom, their use will rarely be justified in connection with acts of international terrorism committed outside the United Kingdom".
The second extract begins:
"In cases where there is no reason to suspect that the involvement of a particular person in acts of terrorism outside the United Kingdom might render him liable to being charged here for an offence or an ancillary offence such as conspiracy, an arrest under section 12 should not be made unless the person in question is a non-British citizen and there is some prospect of his being deported on the grounds that his presence here is not conducive to the public good".
That is the end of the extract.
These extracts, which are amplified within the same paragraph by details of the acts which may, if committed abroad, render persons liable to proceedings in the United Kingdom, are the core of the guidance which will be given. The circular, I repeat, will be published and any substantive revision or replacement of it will be published also.
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The next question is how will Parliament be sure that this guidance is being observed? We propose that the commissioner who is to be appointed by the Secretary of State, following the notable intervention of the noble Lord, Lord Henderson of Brompton, and his supporters at an earlier stage, to monitor the operation of the legislation, and who will, as I told your Lordships, have access to individual cases, should be asked to pay particular attention to the use of the powers of arrest and detention in respect of international terrorism and to include specific reference to this in his report.
This will be a very powerful safeguard. If the commissioner were to find that the guidance was being ignored or was not working effectively, and that the use of the powers was going wider than the Home Secretary envisaged, this would be a most serious matter, and the Home Secretary would have to consider very carefully what further action he should take. And so, no doubt, would your Lordships have your interest closely engaged. In fact, our experience with the circular which restricted the use of the powers in the 1976 Act to Northern Ireland terrorism strongly suggests that there will be no such problem. Nevertheless, the scrutiny by the commissioner which I have suggested, and which I am prepared to undertake to provide for, could act as a valuable safeguard to ensure that the guidance has the intended effect.
I hope your Lordships will agree that the publication of the guidance, and of any subsequent guidance on the use of the powers—to which my right honourable friend is firmly committed—and the specific remit for the commissioner would, taken together, ensure a proper degree of parliamentary scrutiny for those powers and one that would be comparable to that which would be provided by the amendments now before you. I hope that your Lordships will understand why the Government have come to the conclusion that to proceed as the amendment proposes would have undesirable consequences which could, whatever the consequences for this Bill, severely distort and prejudice the traditional and delicately-balanced relationships between the Home Secretary and the police.
We have come to this point through the patient and thoughtfully persistent work of the noble Lord, Lord Shackleton, and with the support of several Members of your Lordships' House. We should be grateful to them for ensuring that the Government will exercise, and will enable Parliament to exercise, a proper supervision of an unusual Act.
I do hope that your Lordships will be content with what I can offer and will not seek to impose in a Division that which I cannot offer, and which I firmly believe would be contrary to the best interests of the British people.
3.45 p.m.
Lord Denning: My Lords, I hope your Lordships will reject the amendment, especially in view of what has been said by my noble friend Lord Elton on behalf of the Government, because here we have a constitutional point. In 1963 the Court of Appeal had to consider the relations between the Secretary of State and the Commissioner of the Police in regard to a case brought by Mr. Blackburn. It was there stated that the

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police must be independent of the Executive. The Secretary of State has no authority whatever to direct the police to make an arrest; otherwise it might in some time, not in this, be used for simply political ends.
The power of arrest is the independent responsibility of the chief officer of the police and the people with him. It is not the responsibility of the Government and it would be quite unconstitutional for any proceedings to be taken by way of direction or anything of the kind to the police by the Secretary of State.
As I see it, the amendment does not mention directions. It mentions guidance, but in a code of practice which is to be issued by the Secretary of State as to the way in which it appears to him that the powers of arrest should be exercised. In no time that will not merely be a code of guidance, it will, in practice, be a code of directions which the police will feel it necessary for them to observe.
I have seen many codes—for example, the Highway Code and the industrial employment code—and with all these codes once one gets lawyers on to drafting them they get much too legalistic, much too abstruse, so that one does not understand where one is going. That is not the right thing for ordinary constables and police officers to have to go by.
A code of guidance is a guide which can be issued in simple language. Let us take for example the problem of what is an "act of a political nature". Are we to consider those who come from Libya or Arabia or whatever? Guidance surely should be given upon that, but only guidance. What is "reasonable cause to suspect"? Is one to consider what action a terrorist has taken, whether he has a gun or an armoury a few yards away? One cannot give explicit directions to the police or any more guidance than that they are to do what is reasonable in the circumstances of the case.
In all our powers of arrest, in all our history, the common law entrusted the constable with the power of arrest if he had reasonable cause to believe that a felony had been committed. He had to decide himself whether it was a felony or a misdemeanour. Then, in the 1967 Act, the constable was given power of arrest if he had reasonable cause to suspect that an "arrestable offence" had been committed. He has to find out what is an arrestable offence. It is usually something for which a sentence of more than five years may be imposed.
These are not matters for directions by the Secretary of State or, as I would suggest, for guidance in a code of practice, but guidance, as was so helpfully explained by my noble friend Lord Elton, by the Minister in a circular not binding on the police but giving guidance which they will observe. I hope that would meet the constitutional point and the position which is needed. It is necessary to have the power of arrest for these international terrorists who are beginning to be a threat to us ourselves. We should not allow ourselves to provide a haven for international terrorists. I oppose the amendment.
Lord Mishcon: My Lords, I am sure that your Lordships would recognise that any amendment—especially in regard to this painful Bill that we have to deal with—that is supported by my noble friend Lord Shackleton deserves the rapt
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attention of your Lordships. I say this not only because all of us know the regard in which his report on this Bill was greeted by your Lordships' House and, indeed, nationally, but also because your Lordships will know, as he himself said, that he has supported the enactment of this Bill. He has supported the major part of its provisions and has merely sought to amend this one. I know that your Lordships will have listened to him with great attention and would want good reason not to follow the line that he has sought to take in this amendment.
We also recognise with equal respect in your Lordships' House, and especially in regard to this measure, the name of the noble Earl, Lord Jellicoe. Throughout, the noble Lord the Minister has echoed the recommendations of the noble Earl, has paid tribute to them and has said how these recommendations, with very little variation, have been incorporated in the Bill before your Lordships.
I turn to the recommendation of the noble Earl in his report. I need quote only from one sentence following upon that in which he dealt with the question of international terrorism. He recommended clearly in relation to international terrorism where the conspiracy and the act were perpetrated within our own shores, although a conspiracy outside these shores to do something inside these shores would also be caught by our normal criminal law.
The noble Earl was most careful about incorporating a recommendation about international terrorism forming part of this Bill. I am reading from page 27, paragraph 77:
"I make no firm recommendation as to the appropriate means of achieving this change, but my strong preference is for the proper extent of the section to be clear on its face and not"—
I emphasise the word "not"; it is my own emphasis indicated by my tone of voice—
"and not, as at present, left for restriction by government circular. In any case, such a change should not be made without explicit parliamentary authority. The re-enactment of this legislation, which I recommended in Part I, would be an appropriate opportunity'.
That ends the quotation from the noble Earl's report. He says two things. He says: "If you deal with this matter of international terrorism, then do it on the face of the Bill so that we all know where we are. And do not do it by circular". That is exactly what this amendment says. And it says, "Take advantage of the opportunity of a re-enactment Bill to do that very job!" That is the course that he recommended. That is exactly what this amendment seeks to do.
Against this, one hears the sympathetic voice of the noble Lord the Minister, sympathetic to the idea, wanting to carry it into practice but finding himself against what he believes to be—and one treats that with respect—a constitutional difficulty. Then all the weight of the noble and learned Lord, Lord Denning, has been used. He is an ardent supporter of this Bill. He has supported every single clause and has resisted every single amendment—and he is quite entitled to do so. So you have the powerful voice of the noble and learned Lord, Lord Denning. And far be it from a humble member of the same profession to differ from him unless that person feels with some confidence that he has good reason.
I am afraid that I did not follow the noble and learned Lord in his reasoning He depicted the

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constable who ought to be allowed free rein to decide on his own evidence whether to make an arrest. If I may say so with the deepest respect, it was a most unrealistic observation in regard to the matter which we are now considering. That poor chief constable can hardly decide for himself on whether or not it is proper to make an arrest without guidance in regard to an act—and this is really what we are talking about in this amendment; and only what we are talking about—of international terrorism committed abroad. He cannot see anything of that and one does not know therefore how that is applicable.
Then the noble and learned Lord said that the police must be free to carry out their powers of arrest without let or hindrance—indeed, without influence from the Executive. I appreciate that point—and your Lordships will do so—in regard to our general criminal law; although there may have to be exceptions to that rule. Again, this is not this case; because—and this is really the answer to the noble Lord the Minister, as well—it is proposed to issue a circular (and I quote the noble Lord the Minister this afternoon) which will say that an arrest should not be made. I quote his words. They are not: "Please exercise your discretion and unless you think that it is extremely harmful or unjust make the arrest: but if you do think so, don't make it!" The circular will say that an arrest should not be made.
Whether that constitutes a directive or not I leave to your Lordships' discretion; but Heaven help the police officer, one would have thought, when before him there is a circular (which I have no doubt he will keep permanently in his waistcoat pocket when he is carrying out his duty) from the Home Office and from the Home Secretary which says that an arrest should not be made. Heaven help him if he makes it!
This is a guidance matter, so the noble Lord the Minister says, which will be carried in a circular. Either that is constitutionally wrong because the Home Secretary should not be saying, "An arrest should not be made", or it is constitutionally in order. If it is constitutionally in order in a circular which gives guidance, where, I ask the noble and learned Lord, is the difference between a circular and a code of practice which can be headed (if all of us want it so) "Circular"; and, underneath, "Code of Practice"? It is still a circular. And it is still something which is an advisory matter as to how the practice should be carried out.
Either we shirk our responsibility, a responsibility which is a very realistic one, and we are—and I do not use the word offensively—"fobbed off' with some rather elitist constitutional argument; or we carry out our duty—and it is the last opportunity that we have to do it—of amending this clause in the way which carries out Government policy, which makes it clear. Just before I conclude, I ask your Lordships to have in mind the sort of people we are protecting. It may very well be that in your Lordships' minds at this moment is the thought that there is some abstruse point here and, really, if there is somebody who is guilty of international terrorism as defined in this Bill and he does come to our shores, do we really want him? Should he not be arrested and indeed deported? Please, why is all this fuss being made?
This is a very difficult world in which we live, and in some parts of that world they have not got the rights
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that you and I have in order to try and defeat an unjust government. There is not a ballot box or, if there is a ballot box, they are not allowed to put a vote in it because of their colour. All of us hate violence but all of us know that at some time or another human beings who are fighting for a cause where they have no other alternative are driven to violence. It is, indeed, the anti-apartheid movement, among others, who are pleading for this amendment to be passed. They have written to me, and I have no doubt that they have written to others of your Lordships. They have done so because of the danger that exists that unless this is on the face of the Bill at least in the way that this amendment proposes there can be a tap on the shoulder, an arrest and detention, and possibly deportation, because of an offence which they have allegedly committed in regard to what is defined as international terrorism which has nothing to do with your Lordships, nothing to do with our country, nothing to do with an attack on our Government. We owe them a duty at this moment, and if I may say so my noble friend and those who have supported this amendment have tried to bring this duty to your Lordships' attention on this the last occasion upon which we can do it.
Lord Donaldson of Kingsbridge: My Lords, on behalf of my noble friend Lord Wigoder, whose name is on the amendment, may I say from these Benches that we have always regarded this as one of the most difficult and most important issues of this Bill. We have no hesitation in supporting the amendment which has been very clearly and, if I may say so, at considerable length expounded by both noble Lords, Lord Shackleton and Lord Mishcon. I shall say no more than that. We are behind them in their wish to deal with this very difficult problem.
4.10 p.m.
Lord Campbell of Alloway: My Lords, I shall be very brief. I came with an entirely open mind to listen to the noble Lord, Lord Shackleton, not only because of the faith that I have in his judgment but because of the respect that I have for his knowledge of this subject. I also have faith in the judgment of all other noble Lords who have set their names to this paper. This is an operational matter of constitutional importance upon which, not only for the reasons given by the noble and learned Lord, Lord Denning, but also for the reasons given by my noble friend Lord Elton, surely it is proper to rely upon ministerial assurances in this exceptional instance both as regards the issue of circulars and as to the system of monitoring. Why?—because it is operational, because the circumstances are wholly exceptional, because it is concerned with security, because men's lives are at stake. In this context the point made by the noble Lord, Lord Mishcon—and I do not see it from his point of view—was made very well, but there is the obverse of the coin. It goes both ways, does it not? For those short reasons I would oppose this amendment.
Lord Henderson of Brompton: My Lords, dare I say a brief word about this amendment, to which my name is attached? I must congratulate the noble Lord, Lord Shackleton, for having worried at this like a terrier from Second Reading to Third Reading. The

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reason he has done so is because this is a most important matter. International terrorism is a matter of the utmost importance, and this is an entirely new provision in the Bill. The reason why the noble Lord, Lord Shackleton, took so long in opening the proceedings today was, if I could encapsulate it in one phrase, because one man's terrorist is another man's freedom fighter. There you have the problem, and that is why we are so exercised about it and have been pressing the Minister so hard.
But we must have regard to what the Minister has said today and try to see whether or not his assurance is sufficient for us to be able to ask the House not to divide. I must confess that, like the noble and learned Lord, Lord Denning, I was impressed by the constitutional point; and I do not need to elaborate on that. I was not quite so impressed with the argument about the circular. Of course it is very important that this circular should be printed and perhaps published as a Command Paper. Perhaps the noble Lord would say how he proposes the circular should be published; and he might also like to tell us what circulation it would have. That might influence the House, if they knew that it was not just going to lie on the Table of either House or in the Libraries, but that it would be freely available to all who were interested.
The point which perhaps weighs with me more than any other is that which the noble Lord made about the commissioner. This is the one major concession we have extracted from the Minister—or perhaps I should say that he has vouchsafed to us. I do not know how he would care to put it; but I am very much impressed by this parliamentary safeguard. This means that these Clause 12 powers will be scrutinised by both Houses closely when they come to the affirmative resolution; and, as the Minister said, there will be a special part of the commissioner's report devoted to the use of these Clause 12 powers. If that really is the case, I personally think that is a sufficiently powerful argument for this amendment not to be pressed to a Division.
The Lord President of the Council (Viscount Whitelaw): My Lords. I do not wish to intervene on the issue itself because my noble friend Lord Elton has made the position perfectly clear. Indeed, I have been closely associated with him, as the noble Lord, Lord Shackleton, will know, in some of the discussions on this Bill because I was particularly anxious to make sure that it was correct for your Lordships.
Perhaps the only point I would make in answer to the noble Lord, Lord Henderson, is that the circular will be made freely available. I have just asked my noble friend Lord Elton about that. I wish to intervene on a different aspect, about which I feel strongly, because I think your Lordships should have this point to consider before deciding whether to divide on this amendment.
The noble Lord, Lord Shackleton, said that perhaps the Government were holding back and not accepting an amendment of this sort because they did not wish this Bill to go back with an amendment which would have to be considered in another place. I think it would be very proper for me to say—and the noble Lord, Lord Shackleton, having been one of my distinguished predecessors, will surely appreciate this—that I could not accept that doctrine in any way as Leader of this
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House. If this House decides to send a Bill back to another place with an amendment, that is what this House will do. I would stand up for its absolute right to do so. Therefore, if your Lordships decide to do that—and I shall seek very hard to persuade you, so far as one vote is concerned, not to do so—that will be your Lordships' right and I would stand up for that right in every way. I quite understand why the noble Lord, Lord Shackleton, said what he did, but I hope no one will think that what he said is any part of the Government's business; nor anything which I, as Leader of this House, would take any part in whatsoever.
Lord Shackleton: My Lords, I am quite sure that the noble Viscount would defend the House of Lords, but I am quite certain that the business managers in another place do not want to see this Bill back there. The noble Viscount's enthusiastic indignation in defence of this House is very encouraging but I do not know whether he operates with the same influence in another place. Perhaps he can ask the chairman of the 1922 Committee on that matter.
I should like to make this remark with the utmost friendliness. I believe that what the noble Lord, Lord Mishcon, said to the noble and learned Lord, Lord Denning, is the crux of the matter. I do not see the precise difference between a circular (especially in the form of words that has been given to us) and whether or not it is in the statute. The difficulty is that the Government should have defined the limitations actually in the clause. They resisted attempts to do that because of the difficulty of drafting, and I imagine that is why we are in this situation. It is not a difficulty we have created: it is a difficulty the Government have created.
Let me deal with the constitutional point, because there is also a matter of parliamentary decency in this matter. We are doing something without Parliament's powers. The noble Lord, Lord Henderson, said that since there had been a concession which does not obtain in the Act with regard to a single commissioner, this took care of it. It precisely does not take care of it. We are not talking about this Government but about future Governments. It is arguable that this is a temporary provisions Bill, but, as the noble Earl, Lord Jellicoe, made clear, it is very unlikely to be temporary, although it will come again in five years' time. Then I hope that Government will put it into the main body of the Bill.
I see grave objections that, under an Act of Parliament, a circular is to be issued by the Home Office as an instruction to the police (whether or not, as the noble Lord said, it will amount to an instruction) and this is going to be done without Parliamentary control of any kind. I must say to your Lordships that we are not legislating with regard to the present Government. I entirely accept the sincerity of the Government in this matter, but we are legislating also for the future and there are a lot of people who are very concerned about this point. There is no chance of this being upset in the Commons. Only your Lordships, who have a reputation for standing up for liberal issues, are prepared to put this into the Bill. If the Government do not like the amendment, they still have time, even though they plan Royal Assent next

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Thursday, to get this into some sort of statutory form. There is no difference other than the fact that parliamentary control is not there.
I hope, therefore, that your Lordships will accept the parliamentary point and not the inwardness of the constitutional argument. I totally fail to see the difference between what the Government are doing and what I ask them to do. I hope that the Government will now accept that they ought not to give this sort of power without exercising control. Therefore, I shall divide the House.
4.20 p.m.
On Question Whether the said Amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents, 93; Not-Contents, 142.

DIVISION NO. 1

CONTENTS

Airedale, L.

Listowel, E.

Ardwick, L.

Llewelyn-Davies of Hastoe, B.

Attlee, E.

Aylestone, L.

Lloyd of Hampstead, L.

Barnett, L.

Lloyd of Kilgerran, L.

Beaumont of Whitley, L.

Longford, E.

Beswick, L.

Lovell-Davies, L.

Birk, B.

McIntosh of Haringey, L.

Bishopston, L.

McNair, L.

Bottomley, L.

Masham of Ilton, B.

Brimelow, L.

Mayhew, L.

Brockway, L.

Mishcon, L.

Brooks of Tremorfa, L.

Molloy, L.

Burton of Coventry, B.

Mulley, L.

Caradon, L.

Nathan, L.

Cledwyn of Penrhos, L.

Nicol, B.

Cooper of Stockton Heath, L.

Oram, L.

David, B.

Peart, L.

Dean of Beswick, L.

Phillips, B.

Diamond, L.

Ponsonby of Shulbrede, L. [Teller.]

Donaldson of Kingsbridge, L.

Elwyn-Jones, L.

Reilly, L.

Ennals, L.

Roberthall, L.

Ewart-Biggs, B.

Rochester, Bp.

Ezra, L.

Rochester, L.

Fisher of Rednal, B.

Ross of Marnock, L.

Fitt, L.

Sainsbury, L.

Gaitskell, B.

Seear, B.

Gallacher, L.

Sefton of Garston, L.

Gladwyn, L.

Serota, B.

Graham of Edmonton, L.

Shackleton, L.

Hale, L.

Shinwell, L.

Hall, V.

Stallard, L.

Hampton, L.

Stedman, B.

Hanworth, V.

Stewart of Alvechurch, B.

Hooson, L.

Stewart of Fulham, L.

Houghton of Sowerby, L.

Stoddart of Swindon, L.

Hughes, L.

Stone, L.

Hunt, L.

Strabolgi, L.

Irving of Dartford, L.

Strauss, L.

Jacques, L.

Tavlor of Blackburn, L.

Jeger, B.

Underhill, L.

Jenkins of Putney, L.

Wells-Pestell, L.

John-Mackie, L.

White, B.

Kaldor, L.

Wigoder, L. [Teller.]

Kearton, L.

Winterbottom, L.

Kilmarnock, L.

Wootton of Abinger, B.

Leatherland, L.

NOT-CONTENTS

Alexander of Tunis, E.

Auckland, L.

Allen of Abbeydale, L.

Avon, E.

Ampthill, L.

Bauer, L.

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Belhaven and Stenton, L.

Kinnaird, L.

Bellwin, L.

Kitchener, E.

Beloff, L.

Lane-Fox, B.

Belstead, L.

Lauderdale, E.

Bessborough, E.

Lawrence, L.

Blake, L.

Lindsey and Abingdon, E.

Bolton, L.

Long, V.

Boyd-Carpenter, L.

Lucas of Chilworth, L.

Caccia, L.

Lyell, L.

Caithness, E.

McAlpine of West Green, L

Campbell of Alloway, L.

McFadzean, L.

Carnegy of Lour, B.

Macleod of Borve, B.

Cathcart, E.

Mancroft, L.

Chelmer, L.

Marley, L.

Clitheroe, L.

Massereene and Ferrard, V.

Cobbold, L.

Maude of Stratford-upon-Avon, L.

Cockfield, L.

Coleraine, L.

Merrivale, L.

Cork and Orrery, E.

Middleton, L.

Cottesloe, L.

Monson, L.

Craigton, L.

Mottistone, L.

Cullen of Ashbourne, L.

Moyne, L.

Daventry, V.

Murton of Lindisfarne, L.

De Freyne, L.

Northchurch, B.

Denham, L. [Teller.]

Nugent of Guildford, L.

Denning, L.

O'Brien of Lothbury, L.

Donegall, M.

Orkney, E.

Drumalbyn, L.

Orr-Ewing, L.

Effingham, E.

Pender, L.

Ellenborough, L.

Plunket, L.

Elliot of Harwood, B.

Porritt, L.

Elton, L.

Portland, D.

Ely, M.

Rankeillour, L.

Enniskillen, E.

Renton, L.

Erroll, E.

Richardson, L.

Fanshaw of Richmond, L.

Rochdale, V.

Ferrers, E.

St. Davids, V.

Fortescue, E.

Sandford, L.

Fraser of Kilmorack, L.

Sandys, L.

Gainford, L.

Savile, L.

Gardner of Parkes, B.

Seebohm, L.

Gibson-Watt, L.

Sempill, Ly.

Gisborough, L.

Shannon, E.

Glanusk, L.

Shaughnessy, L.

Glenarthur, L.

Simon of Glaisdale, L.

Gormanston, V.

Skelmersdale, L.

Gowrie, E.

Somers, L.

Granville of Eye, L.

Stamp, L.

Gray, L.

Strathcarron, L.

Gray of Contin, L.

Strathspey, L.

Greenway, L.

Suffield, L.

Gridley, L.

Swansea, L.

Hailsham of Saint Marylebone, L.

Swinton, E. [Teller.]

Terrington, L.

Halsbury, E.

Teviot, L.

Hankey, L.

Thomas of Swynnerton, L.

Harvington, L.

Tonypandy, V.

Hawke, L.

Tranmire, L.

Hayter, L.

Trenchard, V.

Henderson of Brompton, L.

Trumpington, B.

Henley, L.

Tweedsmuir, L.

Hives, L.

Ullswater, V.

Holderness, L.

Vaizey, L.

Home of the Hirsel, L.

Vaux of Harrowden, L.

Homsby-Smith, B.

Vickers, B.

Hylton Foster, B.

Vivian, L.

Ilchester, E.

Westbury, L.

Inglewood, L.

Whitelaw, V.

Killearn, L.

Wise, L.

Resolved in the negative, and amendment disagreed to accordingly.
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, does the noble Lord move Amendment No.2?
Lord Shackleton: My Lords, I must apologise. There was too much movement for me to hear. The noble and learned Lord will be happy to hear that, in

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view of the success of the whipping on the other side, I am not moving Amendment No. 2.
[Amendment No. 2 not moved.]

Coal Miners' Strike: Picketing
4.19 p.m.
The Lord Chancellor: My Lords, will it be convenient if I repeat the Statement now, before there is a debate on the Motion, That the Bill do now pass? With permission, I will repeat a Statement made by my right honourable friend the Home Secretary in another place about the picketing that has taken place at collieries in various parts of the country in the last few days. The substance of the Statement begins as follows:
"The legal position is clear. Any attempt to obstruct or intimidate those who wish to go to work is a breach of the criminal law. The mere presence of large numbers of pickets can be intimidating. The police have the duty to prevent obstruction and intimidation, and enable those who wish to go to work to do so. They have the power to stop and disperse large numbers of pickets, and to take preventive action by stopping vehicles and people.
"Picketing has been taking place in Durham, Leicestershire, Derbyshire, West Yorkshire, South Yorkshire, Lancashire and Wales. In those areas the police have been able to ensure that those who wish to go to work are not physically prevented from doing so. The presence of pickets has, however, led to many miners feeling unable to go to work. Overall, 83 pits were working normally at the beginning of the week. Only 29 are doing so this morning.
"There has, however, been substantial mass picketing in the Nottinghamshire area, with serious disturbances as a result. The police have been responding to this firmly. At any one time more than 3,000 police officers, from a total of 17 forces in addition to the Nottinghamshire Constabulary, are on hand. Of the 25 pits in the National Coal Board's Nottinghamshire area, seven have been working normally; eight have been working at reduced capacity; seven have been open but have had too few miners available to send men underground; three have not been working. The most serious disturbances have been at OHerton. The police estimate that as many as 500 pickets were present there last night and during the night a total of over 200 officers were deployed. It was at Ollerton that a miner from Yorkshire, Mr. David Jones, died. I understand that a post mortem has been carried out, and that he died as a result of injuries to his chest. The House will wish to express its deep regret that this has happened. Although there is no reason to suppose that the police were involved in any way, the Chief Constable has decided in the circumstances that it would be desirable to have the case investigated by a senior police officer from a force not involved in providing support in Nottinghamshire. The House will understand that in the circumstances it would be inappropriate for me to comment in more detail on this incident.
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"Following the death of Mr. Jones, local management at Ollerton decided to end the night shift, all of whom had attended for work normally, and the pickets moved away to other places.
"During events in Nottinghamshire yesterday, 10 arrests were made, and by the end of this morning some 33 arrests had been made since midnight.
"I need hardly underline the seriousness of this situation. The law permits picketing for the purpose of peacefully communicating and persuading. What it does not permit is what some of the Nottinghamshire miners themselves, who have been the victims of disgraceful conduct, have called mob rule, and what is so horrifying is that it is mob rule that is being inflicted by miner upon fellow miner.
"Miners have the right to take part in a free ballot. In North Wales, Warwickshire and Staffordshire yesterday they conducted a ballot to determine whether or not they will take strike action. The ballot starts in the Nottinghamshire coalfield today at 6 pm and is open for 24 hours. That ballot will be protected, and will go ahead.
"A major co-ordinated police response, involving police officers from throughout the country, has been deployed to ensure that any miner who wishes to work at any pit may do so and any miner who wishes to vote may do so. I have made it clear to the chief constables concerned that they have my complete support in taking every measure open to them within the law to keep the peace and protect the right to work and to vote. The objective of the police is to prevent intimidation, obstruction and other criminal offences. They have mobilised every available officer in order to disperse excessive numbers of pickets. The police have extensive preventive powers under the common law, including, for example, the power to stop coaches, cars and people on foot who are clearly intent upon joining mass picketing which has become intimidatory either because of the risk or threat of violence or simply because of the sheer numbers involved.
"The House may have heard of an agreement recently announced between Mr. Chadburn and Mr. Arthur Scargill which may lead to the withdrawal of the Yorkshire pickets from Nottinghamshire. This does not, of course, affect in any way what I have said about the policy of the Government, the duties of the police, or the rights of the citizen under the law throughout the country. I have asked Sir Lawrence Byford, Her Majesty's Chief Inspector of Constabulary, to keep in close touch with the chief constables of the areas concerned. He has left for Nottinghamshire in the first place, and will report personally to me later today.
"I look to the whole House to condemn unreservedly any attempt to force miners not to work if they wish to do so, or to intimidate them from voting freely in the ballots now taking place. The right of miners who want to work and vote is something which is fundamental to a free society. The police are currently doing everything in their power to uphold that right. In doing so they will have the full support of the Government and, I am confident, of the House".
My Lords, that concludes the text of the Statement that I have to repeat.
Lord Mishcon: My Lords, the House will have heard with many emotions, not least the emotion of sorrow, the Statement the noble and learned Lord has just courteously repeated which has been made in another place by his right honourable and learned friend. At the very outset may I make it perfectly clear, if clarity is needed, that my noble friends and I, speaking on their behalf on this occasion, will never uphold violence from whatever source it may come. The history of trade unionism knows of violence. This movement was born and had its chapters of growth built upon the fact that originally trade unionists fought against the violence which they and their children suffered. So there is unanimity in all parts of the House in condemning violence.
Is it not a tragedy that a Statement of this kind has to come before Parliament, a Statement in which it is said that miner is fighting against miner? It is a tragic fight of those miners who, because of their family responsibilities and financial commitments, find themselves unable to make the sacrifice which other miners may find easier. There is no breaking of the ranks among miners as to whether their industry is suffering a very dreadful and, as they feel, unnecessary blow.
Does it help to reduce the violence merely to talk of the police? Obviously it is a very necessary force that we must use, but does it help to leave it at that and not to talk at all of attempts at conciliation? May I say this—and I say it with the intention of reducing tension and not increasing if, does it help for the chairman of the National Coal Board to say at this moment, at a meeting which he had with journalists, reported in this morning's Times:
"My friend"—
that was, I believe, a somewhat satirical reference to Mr. Scargill—
"is not interested in the welfare of miners"?
Does that help? Does it help, when he goes on to answer the question on how long the strike would last, to say:
"Three months, six months—who knows?"
Possibly it does not matter to Mr. MacGregor personally whether this lasts for three months or six months. It does to the miners and their families. So my plea at this moment on behalf of the Benches I represent is not to say anything which can inflame, but only to plead with the Government and the National Coal Bord to meet, talk, try to conciliate and get rid of this dreadful atmosphere which has been created.
One has, of course, every conceivable sympathy with the family of Mr. Jones who we learned from this Statement met his death. I do not know—and I am not going to make any other reference to this because of what the noble and learned Lord has said about a policy inquiry—but is the press report correct that Mr. Jones was indeed one of the picketing miners and not a miner who was trying to get through the picket lines?
May I conclude what I have to say by trying, when talking of this hope of reconciliation and talks, to cling
880
on to one sentence in the Statement which the noble and learned Lord repeated:
"an agreement recently announced between Mr. Chadburn and Mr. Arthur Scargill may lead to the withdrawal of the Yorkshire pickets"—
and I believe the noble and learned Lord said, and this is not in my copy of the Statement.
"from Nottinghamshire".
One little bit of agreement has resulted from talks. Can there not be more talks? Can they not be speedy? And can your Lordships be spared another Statement of the kind your Lordships have heard this afternoon?
Lord Rochester: My Lords, from these Benches I should like to join in thanking the noble and learned Lord the Lord Chancellor for having repeated this very serious Statement. I need hardly say that we deeply deplore the violence and disorder, culminating in the death of Mr. Jones, which occurred in Nottinghamshire last night and this morning. As the Statement says, the mass secondary picketing which has been taking place is in breach of the criminal law, and our first concern must be to give our full support to the police whose duty it is to enforce that law on behalf of us all.
I must ask the noble and learned Lord if he is satisfied that the ballot which we are told is to go ahead in Nottinghamshire this evening and tomorrow will be held under conditions which are secure enough to ensure that all those wishing to vote can do so without risk to themselves?
We are extremely disturbed by the report that Mr. Chadburn has reached a compromise deal with Mr. Scargill that Nottinghamshire miners will go on official strike from six o'clock this evening on the understanding that flying pickets from Yorkshire will be withdrawn. What are we to make of this—that in the National Union of Mineworkers intimidation has for the moment so far triumphed over the democratic process, that it is possible for people to vote as to whether or not they should go on strike only after they have done so? How can we be sure that we shall not next be told that under the constitution of the NUM a ballot can only be held at the work place and that as the men are on official strike this cannot be done?
I am sorry to speak strongly but I think on this occasion it is necessary. I can only take comfort from the thought that, if there is one kind of behaviour which the British people will not tolerate for long, it is the conduct of the bully.
Finally, will the Government accept that unlike, it seems, the noble Lord, Lord Mishcon—whose opinion I respect but with which I cannot on this occasion agree—we take the view that there is no reason why the Government should now intervene in the dispute beyond ensuring that the law takes its due course?
The Lord Chancellor: My Lords, I am grateful to both noble Lords for their comments. First of all, may I answer the question which was asked by the noble Lord. Lord Mishcon, about the identity of Mr. Jones who unfortunately died. The Statement refers to him as a miner from Yorkshire. That is the only informa-

881
tion I have, but I think it answers the question which the noble Lord put to me.
May I next deal with the question asked by the noble Lord, Lord Rochester, about the ballot. The Statement says:
"The ballot starts in the Notinghamshire coalfield today at 6 pm and is open for 24 hours. That ballot will be protected, and will go ahead".
That is the nearest thing to an answer which I can give to the noble Lord. I must apologise to the noble Lord, Lord Mishcon, if the text which he had is slightly defective. At the very last moment before I entered the Chamber, I received a manuscript alteration which the House will have heard and which I will read again:
"The House may have heard of an agreement recently announced between Mr. Chadburn and Mr. Arthur Scargill which may lead to the withdrawal of the Yorkshire pickets from Nottinghamshire".
That was the text I read out. I realize—because I too had an earlier text at an earlier stage—that the noble Lord's text might have been defective in that respect. As regards the agreement, I have no information to give the House other than that which is contained in the Statement which I read out in its amended form. I would rather not, therefore, comment any further than that on the basis of inadequate information.
I was glad to hear the condemnation of violence by the noble Lord, Lord Mishcon, and the strong support for that condemnation as a first concern—the breach of the criminal law—echoed by the noble Lord, Lord Rochester.
I cannot go along with the noble Lord, Lord Mishcon, who suggested that the Government should intervene in what is an internal dispute in the coal industry. The noble Lord asked a number of questions, more or less rhetorical, about whether it helps, and he quoted what were purported to be remarks made by Mr. MacGregor. I can only say that I rather doubt whether it would help very much if I criticised either side and I rather doubt whether it did help very much if the noble Lord criticised one of them.
I should have thought that the prospects for coal in this country were very good indeed. I would not have accepted that it was suffering from an unnecessary blow. On the contrary, I should have thought that all the evidence pointed to a bright future and not a bad one, assuming that all those concerned in it work together for the common good of the industry. I do not think it was fair to suggest—as the noble Lord, Lord Mishcon, did—that the Statement merely talked of police. It talks about the criminal law and that is not a question for the police. It is a question of the law of the land and of breaches of the criminal law; although I think that Parliament was entitled to be told exactly what police measures were being taken to prevent a repetition of such breaches as had undoubtedly taken place.
That deals with all the questions I can answer. I realise that I have not answered the last question of the noble Lord, Lord Rochester, but that is because I do not have any information to give other than that which I have already given. I think that I have dealt with the other questions.

Prevention of Terrorism (Temporary Provisions) Bill
4.52 p.m.
Lord Elton: My Lords, perhaps we may now return to the Bill. I beg to move that this Bill do now pass. The work of your Lordships on this Bill has been concentrated and effective. It has not, for once, resulted in great changes in the way the Bill is drafted. It has resulted in considerable changes in the way its use will be supervised. Moreover, your Lordships have given Parliament itself more power to supervise the working of the Act. When it comes before your Lordships again, well before the date of renewal, your Lordships will have more information about how its provisions have been operated and more information about the guidance given to the police about it than has been the case in the past.
Parliament does have a very important role in monitoring the operations of this legislation and the undertakings which have been given to your Lordships will play a significant part in informing this process. I should like to acknowledge the contribution which noble Lords all round the House have made in formulating the undertakings which I have given from this Dispatch Box. They reflect great credit on those who have taken part in these exchanges and I think that they show that your Lordships' House is effective in the way that it influences the course of events. In view of the long exchanges that we have already had on the Bill this afternoon I will not detain your Lordships longer with rhetoric. I think we have done a good day's work and I thank your Lordships for your help.
Moved, That the Bill do now pass. —(Lord Elton.)
Lord Mishcon: My Lords, I have a strong suspicion that the concluding words of the noble Lord the Minister constituted a strong hint that anyone who spoke from these Benches should speak with the same brevity that he did and with the same clarity; if one could copy his clarity, which is exemplary. I will try to do so.
Nobody enjoyed this Bill. The Government did not enjoy it. The Opposition felt that it was their duty, consonant with what the noble Earl, Lord Jellicoe, said in his report that unless we were sure all this was necessary and that it had public support then we were achieving nothing, to put to the House, as was done in another place, what the problems were and why it was felt over the years, although this had been a necessary, unpleasant experiment by way of extraordinary legislation, that one might wonder at this stage whether or not it was a good thing to pass yet another Bill.
Democracy spoke in the other place. Democracy spoke in your Lordships' House. The Opposition therefore tried to carry out their duty by putting before the House amendments which they thought should be included in order to preserve as much as we could of our very sacrosanct principles of civil liberty and rights. I hope we fulfilled that purpose. We were certainly met with a courteous response, as always, from the noble Lord the Minister. I am getting a little tired of paying him compliments and I have an idea that he is equally tired of hearing them. I am thinking

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of saying at the end of every other Bill on which I have the honour of addressing your Lordships in answer to a Bill which has been fathered by the noble Lord the Minister. "May I say the same, please, as I said on previous occasions". That will shorten proceedings.
Of course there were some disappointments. I mention them but briefly. There was the disappointment, for example, that the exclusion procedure in Part II of the Bill had to remain. We opposed it and we argued against it, but your Lordships decided that exclusion orders have to remain. In many parts of the House we did not find it acceptable that the crime of failing to give information should be made a criminal offence, if one had some knowledge of a terrorist attack which was about to take place or which had taken place. We tried. We failed. Again, we attempted a battle on Clause 12, which your Lordships renewed this afternoon, in regard to international terrorism. On Clause 13 we dealt with the crime of failing to pass on information.
Our battle is over, and one can only pray that the battle against terrorism will soon be over. With that hopeful remark and again with appreciatory words from this Front Bench to the Front Bench opposite, and to all your Lordships who have been courteous enough to listen to the arguments on this Bill, I now sit down.
Lord Wigoder: My Lords, may I on behalf of noble Lords on these Benches who supported this Bill in principle—that means the noble Lords on the Liberal and SDP Benches—but who sought to strengthen and make the Bill more acceptable, say now grateful we are to the noble Lord the Minister for the care with which he has listened to all our suggestions and the genuine efforts which the Government have made in order to meet the improvements that we proposed. We are grateful to the Minister and we believt .hat as a result of our deliberations this Bill and the undertakings that have been given now make it far more acceptable than it was when it first came to your Lordships' House.
Lord Henderson of Brompton: My Lords, as a Cross-Bencher who has taken part in the proceedings from Second Reading until this Motion. That the Bill do now pass, may I say that as a supporter of the Bill I am also extremely grateful to the noble Lord the Minister for the concessions he has made in response to arguments advanced in the House. In my view the House has rightly concentrated on four areas: exclusion orders: Clause 11—that is, information about acts of terrorism—the powers of arrest and detention, which we worried at right to this very stage today: and, last but not least, parliamentary control. I believe that this House has extracted (if that is the right word, although I think I used another word earlier) or the Minister has vouchsafed three important undertakings.
I would only observe before I sit down that the success of this House as a revising Chamber should not be judged solely on the number of amendments made to a Bill during its passage. In this case it should be judged on the number of undertakings which the Minister has given. In my submission, there having been no amendments made, the undertakings are of no less value than if amendments had been made.
Lord Elton: My Lords, in a minimal reply to that brief debate, may I respond to the kind things which noble Lords opposite have said? I think that your Lordships are perhaps too modest in taking so little credit for the quality of the work which has been done. Had it not been for the contributions of all noble Lords who have spoken and of some others, we should not have come to such a fortunate conclusion so swiftly. Having said that, as we have done our work and as there is other work to do, I commend the Bill to your Lordships.
On Question, Bill passed.

Future Financing of the Community: ECC Report
5 p.m.
Lord O'Brien of Lothbury Lord O'Brien of Lothbury rose to move, That this House takes note of the Report of the European Communities Committee on the Future Financing of the Community (12th Report, 1983–84, H.L. 126).
The noble Lord said: My Lords, this report by the European Communities Committee has been completed by Sub-Committee A with help from four co-opted members from the sub-committee on agriculture and with outstanding support from staff and specialist advisers. We are also grateful to all those who gave evidence to us, particularly those who did so both orally and in writing.
Concern about the future financing of the EEC has been growing for many months. Just over a year ago, the Commission published a Green Paper on the subject and followed this in July 1983 with a memorandum to the Council of Ministers which discussed the wider issues involved and made draft proposals regarding the Community's own resources and future financing. It was at this time that your committee decided that they should undertake the study of this fundamentally important subject. They did so in the knowledge that it was beset by controversial issues which occupied minds in all member states so completely that the longer-term future of the Community received little attention.
A principal aim of the report before your Lordships is to restore a proper balance between the productive development of the Community in the future and the problems which now beset it. Those problems are obviously of great political importance, and the committee did consider whether it would be helpful to issue an interim report before the Athens Summit last December. This would inevitably have been a rush job while our studies were still incomplete, and I am glad that we did not pursue the idea, particularly in the light—if that is the right word—of the fiasco of the Athens meeting.
Nevertheless, we were well aware that a report, however deeply considered, which appeared after the political decisions had been taken would serve little purpose. I am glad therefore that at the cost of driving the committee and its staff rather hard we were able to publish the report on 1st March and to have this debate before the Brussels Summit on 19th and 20th March. Whether anyone will be influenced by what is

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said in the report or the debate is another matter. I confess that I was disappointed by the almost total lack of interest by the press in the report, despite our efforts to brief them. No doubt Fleet Street's own troubles in that week were partly responsible. I suppose had we strangled a Treasury witness we might possibly have had some attention—but whether favourable or unfavourable of course I cannot say.
While anxious that the report should be timely, the committee were equally concerned that it should be informative, so that the opinions expressed and the recommendations made could be adjudged in the appropriate context. This is why the report is rather long: but I hope, nevertheless, that it will be found to be easy to read and to understand.
As I said earlier, the long-term future of the EEC has been much in our minds. We felt it important therefore to retrace our steps, reminding readers of the original aims of those who created the Community, as enshrined in the Treaty of Rome, and of what it has achieved so far. We then looked at the future and to the possibilities for fruitful development which it holds. No doubt deeper and more detailed studies can and will be made. We did the best we could in the time available, and I hope that the evidence we have taken and what we have written in Parts 2 to 6 of the report will help those who come fresh to the subject.
It is all too easy to become defeatist about the future prospects of the EEC because of the intractability of current problems. Certainly they have to be solved if there is to be a future, and perhaps that is the best assurance that in the end they will be, if not next week then some time later this year.
If the present causes of acrimony can be removed by agreements reasonably satisfactory to all member states, the way should be open to a more positive and creative attitude towards the fruitful development of the Community with all the encouragement that this should give to the 270 million people who live within it. We should beware of being starry-eyed about the future in which, at best, progress will no doubt be painfully slow and sometimes halting. But we need to regain momentum and your committee believe that this is possible.
The subject of our inquiry was the future financing of the Community—that is to say, we had to ask ourselves whether the resources available to the Community were and would remain sufficient to permit fulfilment of all EEC policies which now or in the foreseeable future will require to be financed from the Community budget. Many matters impinge on this question, some directly and others indirectly. The argument about the need for a permanent arrangement to secure a fair distribution of net contributions to the Community budget for each member state comes within the latter category, on the assumption that redistribution implies no change in the total revenue accruing to the budget.
Other matters have a direct bearing on the adequacy of the budget revenue. Of these, the common agricultural policy is the most important. It currently absorbs some 65 per cent, of all budget revenue, its demands on which are increasing at the rate of about 30 per cent, per annum. Other policies like regional development and social needs take small amounts by
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comparison with agriculture, but such funds are nevertheless growing. There is an urgent need to accelerate that growth with the aim of narrowing the disparity between the economically prosperous and more impoverished regions of the Community. New policies also need to be developed in many areas, notably in the field of scientific research and technological development.
If Spain and Portugal secure entry into the Community by 1st January 1986, as now seems probable, extra budgetary expenditure totalling perhaps as much as 9 per cent, of the present total revenue looks like being necessary. Additional demands on budget resources are therefore in close prospect. It is questionable whether they can be met from economies in present expenditure. It is one thing to slow down the growth of CAP expenditure, quite another actually to reduce it. A more efficient use of budget resources generally would help, and here the work of the Court of Auditors is most valuable and should be supported.
Taking all such considerations into account and the evidence given to them, the committee concluded that an increase in the resources made available to the Community for budgetary expenditure will have to be agreed before long. Early action is made more imperative by the long process of ratification of such decisions by national governments. The committee are not in favour of short-circuiting this procedure, feeling that national governments should have the opportunity, say, every five years, of reviewing the course of Community finances.
Nor are the committee in favour of accepting a proposal for the increase of EEC budgetary resources in advance of the solution of current problems; namely, the containment of expenditure under the CAP and the construction of a mechanism to ensure that net budgetary contributions by each member state are fair in relation to their economic circumstances and remain so. If these two problems are not solved coterminously with an increase in budgetary resources, they never will be. The increased resources will simply go into the agricultural pot and compound the problems we already face. With this emphatic caveat, I turn now to consideration of ways in which the two problems might be solved. The agricultural problem is clearly the more difficult of the two. Various methods of containing agricultural expenditure were proposed in evidence to the committee. Many were defective, partly because they depended on resolute action which in the past has been notably lacking when the need arose.
The committee eventually became convinced that a fixed limit on the amount of agricultural support expenditure was the only mechanism which would achieve the necessary degree of restraint long-term. This could be reinforced by appropriate commodity-by-commodity restraints, such as a reduction in cereal prices, which the Court of Auditors very convincingly claimed would produce substantial savings.
The committee looked at the procedure for price fixing and its history to date. They noted that it took place in what amounted to a purely agricultural forum, in which wider considerations, such as the interests of consumers and taxpayers, appeared to take second place. They recommend that Ministers of

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Financ be associated at all stages with such negotiations in future.
Finally, the committee considered the thorny questions of fair net contributions to the Community budget. They support the general rejection within the Community of the concept of the juste retour (or fair return), under which all members would get out as much as they put in. There is no hope of harmonising or equalising economic development in Europe by that route.
The concept of a fair net contribution to the resources of the budget, having regard to the economic strength of each member state, is an entirely different matter, and on this the committee strongly support the position of Her Majesty's Government. Since it has been accepted by the Council of Ministers in so far as refunds to the United Kingdom have been authorised for the last three years, it is difficult to see where the obstacle lies to a long-term solution, particularly when it was declared during the negotiations for United Kingdom entry that if unacceptable budgetary situations arose for particular member states,
"the very survival of the Community would demand that the institutions find equitable solutions".
I should guess that those words are going to be put to the test in the not too distant future.
Lord Bruce-Gardyne: My Lords, will the noble Lord allow me to intervene? I apologise for interrupting him, but I have studied with great interest what is said in paragraph 103 of the committee's report and I wonder where the word "budgetary" occurred in the context of what were unacceptable situations. I thought that the reference in the original text was to "unacceptable situations". Where did the reference to "budgetary situations" come from?
Lord O'Brien of Lothbury: My Lords, I am unable to take up that particular point of the noble Lord. An "unacceptable situation" is an unacceptable situation—which I guess is what Her Majesty's Government think the present one is.
Having considered various proposals of national governments and the Commission laid before them, the committee came to the conclusion that they had seen nothing as good as the proposal of Her Majesty's Government for a safety net, whereby only countries with a GDP higher than an agreed level would be net contributors to the budget. They did, however, favour an elaboration of this proposal suggested to them, which would ensure that those countries with a GDP below the agreed level would be assured net beneficiaries. So enlarged, this scheme would solve the budgetary problems of the United Kingdom and Germany on the one hand and those of the poorer countries—Italy, Ireland, and Greece—s on the other.
To conclude, your Lordships will have seen that the committee's recommendations, independently arrived at, follow very much the line taken by Her Majesty's Government, to which we believe it is very important that they hold. If they do so successfully, there can be argument about whether the Community will then soon need further resources. The committee believe that it will, because their overriding message is that the Community must progress and develop if it is to fulfil
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even some of the ideals and aspirations of its creators and the many later supporters of them. My Lords, I beg to move.
Moved, That this House takes note of the Report of the European Communities Committee on the Future Financing of the Communitv (12th Report. 1983–84, H.L. 126). —(Lord O'Brien of Lothbury.)
5.14 p.m.
The Chancellor of the Duchy of Lancaster (Lord Cockfield): My Lords, the speech of the noble Lord, Lord O'Brien of Lothbury, in introducing this debate has been particularly penetrating and constructive, not only in analysing the present situation and the problems we face, but also in pointing the way forward. The establishment of the European Community was one of the greatest flowerings of the human imagination. It was one of those rare occasions when mankind had a vision of the future and gave expression to that vision in concrete form: that out of disaster should come triumph, and that out of decay should come new life.
Nearly forty years have passed since that disaster was brought to its end. More than 25 years have passed since the new beginning in the Treaty of Rome. Twenty-five years is a brief span in human history—much longer than the empire of Napoleon lasted; much shorter than the empire of Rome. During these 25 years much has been accomplished. The Six have become the Nine; the Nine have become the Ten; and soon, we hope, the Ten will become the Twelve.
Output has expanded; trade has grown immeasurably, prosperity has increased. We travel abroad more freely; our goods circulate more easily. Democracy has been entrenched; the frontiers of tyranny pushed back. Even in foreign affairs the Community has begun to find a voice of its own; and that voice has begun to be heard. These are not just significant achievements; they are great achievements. Of course there are problems, and indeed failures—great problems and important failures. But when we contemplate our problems, when we look at our failures, let us do so in recognition of the backdrop of success against which we should see them.
We as a country have benefited from our membership of the Community. But the other members of the Community have benefited from our membership even more. Our exports to the other members of the Community now total £26 billion a year. The Community's exports to the United Kingdom total £30 billion. In the case of manufactured goods the disparity is even greater. Our exports to the other members total £15 billion. Their exports to us total £22 billion. So that on manufactures we have an adverse balance of payments of £7 billion; or putting it the other way round, the other members of the Community have a favourable balance of trade in manufactures with us of no less than £7 billion.
British membership of the Community has given the other member states free access to the United Kingdom domestic market. This is of immense value to them, and they have certainly taken advantage of it. This is something our partners in Europe need to bear very much in mind if they are ever led to question the value of British membership of the Community.

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As the report which is the subject of our debate this evening indicates, the greatest of the problems facing the Community, the problem which straddles over the whole breadth of the way forward, is that of financing the Community. For this reason the report of your Lordships' Select Committee is particularly apposite. It is both valuable and timely. Next week the European Council meets and these questions must form the most important item on the agenda. The elections to the European Parliament (the Euro elections) are in June, and it would be for the common good that these matters should by then be behind us.
Central to the problem of finance is that of the common agricultural policy. It is a major absurdity that the whole future of the Community could be placed at risk because of the demands of the agricultural lobby in Europe. What we have and what we must fight to preserve is a European Community, not just an economic Community; still less an agricultural Community. There is a proper place for agriculture in the scheme of things, but it is entirely wrong that it should have been allowed to pre-empt the centre of the stage in the way that it has.
It is no more important—and, indeed, many people would claim it was less important—than manufacture or trade. It is for these reasons that we have said that there must be a strict financial guideline for agricultural expenditure. It is bad enough putting the cart before the horse, as the common agricultural policy does, but to put an oversize cart before an overworked horse is likely to lead to the whole lot careering downhill.
Here there are at last signs of willingness to make progress. The agreement reached by the Council of Agricultural Ministers on Tuesday of this week on tackling the growing milk surplus is, as my right honourable friend the Minister of Agriculture said in his Statement yesterday:
"a historic step forward in bringing sanity to the common agriculture policy". [Official Report. Commons, 14/3/84; col. 402.]
Let us hope that it is, as it must be, the harbinger of other effective measures to come.
But in drawing attention to the absurdities of the common agriculture policy, let us not allow our natural indignation to rub off in criticism of our own farmers. They have, over the years, achieved remarkable progress in terms of output and efficiency. We now produce some 70 per cent, of our total requirements of food in this country. We have the most efficient agriculture in Europe and it is, indeed, the very fact of our efficiency which makes the common agricultural policy, which caters essentially for the smaller and less efficient farmers, so unfavourable to us in budgetary terms. But we do need to recognise that the adjustments needed will be just as painful for our farmers as for farmers everywhere. The sacrifices which have to be made are necessary and inescapable.
Perhaps I might now turn in more detail to the subject of the Government's approach to the current negotiations and the prospects for next week's European Council. My right honourable friend the Prime Minister will be pressing for firm arrangements on budgetary imbalances and on budgetary discipline. Without such arrangements, we have made clear that
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we are not prepared to consider any incrase in the Community's own resources.
On budgetary imbalances, we are seeking an arrangement which would, in the words of the Stuttgart declaration,
"avoid the constantly recurrent problems between the member states over the financial consequences of the communitiy's budget and its financing".
To achieve this, we need a corrective mechanism which fulfils five criteria. First, it must measure our budgetary burden correctly, taking full account of boths sides of the account. Second, it must provide relief in accordance with member states' ability to pay as measured by relative prosperity and gross domestic product. Third, the corrections required must be made on the revenue side of the budget. Fourth, the solution must last as long as the problem and be incorporated in the own resources system. Finally, the solution must operate in respect of 1984 and subsequent years. We believe that the Government's proposal for a safety net would satisfy these five criteria. We have yet to see any other proposal which does so satisfactorily. I am glad that the committee endorses the safety net in its report.
On budgetary discipline, we regard it as essential to establish effective control over the rate of growth of agricultural and other expenditure. The management of the Community's resources must be based on the same strict rules as those governing the management of public finance in the member states. Expenditure must be determined by available revenue and not vice versa. The difficulties of the present agricultural price-fixing negotiation merely add to the vital necessity of achieving proper discipline. We are looking for two specific improvements. First, as I said before, we want to secure the adoption by the community of a strict financial guideline which holds agricultural expenditure markedly below the rate of growth of the own resources base and which binds the Commission and the council during the price fixing. Second, we would like to see agreement on the establishment by the council at the beginning of the budgetary procedure of a "budgetary envelope" for the overall budget, binding all three Community institutions. We will be pressing next week for the adoption of arrangements on these lines in principle, with the details of how they are to be embodied in the Community's procedures to be subsequently worked out by the Council of Ministers.
On the Community's own resources, we are simply not prepared to consider any increase until satisfactory arrangements for a fairer sharing of the budgetary burden and for more effective control of agricultural and other expenditure are agreed. In this context, I strongly endorse the conclusion of the report before us, which says:
"Agreement on an increase"—
that is, an increase in own resources—
"must not take precedence over the solution of the problems of the excessive and accelerating demands of the common agriculture policy and unbalanced net payments to the budget by member states".
The noble Lord, Lord O'Brien, in his speech, very rightly underlined this point.
We will be approaching the summit next week in a positive spirit, concerned that it should "relaunch" the Community, to use the currently popular phrase, and

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put an end to the internal difficulties which I referred to at the outset of my speech. The effort made by all member states to reach agreement on milk production at this week's Agriculture Council shows what can be achieved if the political will is there. We hope and trust that this political will can be extended to cover next week's Council as well.
Next week's Council is of vital importance for the Community as a whole. Member states are faced with what are the most crucial decisions of the decade. It is all too easy to say that the choice is between stagnation and progress: but this is an excessively simplified view. The present system, with its imbalances between different sectors of expenditure and as between one country and another, is not a stable system, so that stagnation would contain the seeds of its own destruction. Nor is progress without reform possible, either, because without reform the imbalances which produce instability would grow worse and produce even greater instability. If you have an unstable system, you have to root out the causes of that instability. That is what we aim to do.
The future of the Community rests in the hands of the member states—not in our hands, not in anybody else's hands, but in the hands of the Community collectively. That is the measure of the importance of the summit and the measure of the challenge which faces the Community.
5.30 p.m.
Lord Barnett: My Lords, I should like to begin by joining the noble Lord the Minister in congratulating the noble Lord. Lord O'Brien, and his committee on a most excellent report with a first-class analysis which I personally found very useful and helpful—especially the tables. While I share his regret that it was not more widely recognised. I hope that it will become more widely recognised for the excellent report that it is. I would also like to join the noble Lord the Minister in congratulating the noble Lord, Lord O'Brien, on the way in which he introduced the debate today.
I wish to turn immediately to the key question raised in the report: namely, whether we should allow the vision which founded the Community—which has been referred to by both the noble Lord the Minister and the committee in paragraph 137—or even the wider vision of the new Messina, referred to by the Leader of my own political party recently, to be lost by constant haggling over comparatively small sums of money. In seeking to answer that question I come immediately, as did the committee, to two issues which lie at the heart of the problem: first, the common agricultural policy and the budget generally; and secondly, the imbalance between member states.
I shall deal first with the question of the CAP upon which the noble Lord the Minister also rightly dwelt in some part of his speech. The committee—in my view quite rightly—referred in paragraph 139(ii) to:
"The dangers of an over-rigid approach".
One does not need to be an agricultural expert—and I certainly am not one—to be aware of the impossibility of achieving anything near an exact balance between supply and demand. It is difficult enough in industrial goods, even in money, about which the noble Lord,
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Lord O'Brien, knows considerably more than I do; it is certainly impossible in farm produce, given the vagaries of the weather and the many other problems that affect the production of agricultural products.
So those who now speak so glowingly of the agricultural system before we joined the EEC would perhaps at least agree that even that was not an ideal system, as indeed it could not be. On the other hand, we must also agree with the Minister and the committee that the present common agricultural policy, which produces vast surpluses at huge cost—which is well brought out in the report—is a nonsense which must be ended. The question which is more difficult is how we end it.
The committee discussed various options. The three main options which the committee discussed were restrictive pricing policies: a system of guarantee thresholds, whereby excessive production would lead to a reduction in prices the following year; and what it described as "super-levies" on production beyond fixed quotas. To put it mildly, none of those will be easy to implement. The Commission and the United Kingdom Government propose overall limits, and the committee agree.
Anyone who has studied what has happened in the Community since we joined and indeed before we joined is hardly likely to be optimistic that we shall obtain total unanimity at the summit meeting that is to take place soon. I join with the noble Lord the Minister in congratulating the agricultural Ministers on recently reaching what appeared to be an agreement on milk production. But it is important that such an agreement should prove real and lasting. In the light of past difficulties, speaking for myself I would want to study the detail before I would be convinced that what was achieved the other night (and late into the night) will actually prove to be real and lasting.
We have seen already the instant response, not of the European farmers—to which the noble Lord the Minister referred—but of our own farmers and the short note that they have dropped some of us about the problems that they face. So one would have to be very careful indeed about recognising the difficulties of obtaining the kind of agreement that some of us would like to see, indeed that I imagine many of us would like to see.
Apart from the reaction of our own farmers, we also know that there are likely to be one or two similar reactions from the French and German farmers. So we know something about the extent of the difficulties. But I personally would accept, as the committee did and as the Government do, the idea of overall limits or, indeed, a mix of any one or more of the other proposals to which the committee refers. The trouble is—and we have to recognise it—that it is not what I or the committee could accept, but what can be achieved with other member states that will be at issue here. It would be foolish to expect anything other than a compromise of some kind.
I know that the word "compromise" has become something of a dirty word in more than one context recently. I personally have no wish to become involved in personal arguments between the present Prime Minister and a predecessor. But there is nothing to be ashamed of in the word "compromise". Indeed, we

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should not involve ourselves in either local or national politics, let alone international politics, if we are totally unwilling to compromise. A politician should not join a club, and certainly not a cabinet of a democratic government, if he, or even she, is unwilling to compromise occasionally. It is the extent of any given compromise and the general circumstances that are always a problem, and it particularly applies in the case of the common agricultural policy.
The trouble with the CAP is that there is so little room for real compromise if we are to achieve a lasting solution. The committee in my view were right when they said at paragraph 95, "A binding constraint is … needed". On the other hand, we must recognise the political difficulties of others in the EEC in agreeing to such binding constraints. For my part, providing we can get a binding agreement that meets our long-term objectives in a relatively short period of time, we should be generous so far as transitional arrangements are concerned.
Before I leave this particular part of what I hope will be a brief speech I should like to add a personal note. Paragraph 139(iii) to which the noble Lord, Lord O'Brien, also referred in his speech, says that Ministers of finance should be closely associated with Ministers of agriculture in the negotiations. I agree that that would be a very sensible proposition. But, as one who has attended joint ministerial meetings of finance Ministers and agriculture Ministers, I must tell your Lordships that it will not necessarily help very much. My personal experience stems from a joint meeting where the West German Agriculture Minister—a certain Herr Ertl—was a very well-known FDP member of the coalition in the West German Government. Whatever the Social Democratic German Finance Minister wanted, he needed the FDP Agriculture Minister to stay as well. I am afraid it did not help very much to have both of them present. The problem did not become any easier. Nevertheless, I welcome the idea—
Lord O'Brien of Lothbury: My Lords, I hesitate to intervene but I think that the committee, in making this point, did not mean that the two should sit side by side at an international conference on the subject, but that the finance Minister should be associated all the way through the prior discussions so that his views would be fully taken into account when the agriculture Ministers, for example, were to meet around the table.
Lord Baraett: My Lords, I am obliged. Of course, that happens now; certainly in the Government which I had the honour to serve the finance Minister did have a major say in what the agriculture Minister was able to do during an agriculture Ministers' meeting. But, as I have said, we should not hope for too much in these circumstances no matter how bright and brilliant and commonsensical finance Ministers may be.
I turn now to the second key issue; namely, the question of imbalance. For my part, I certainly agree with what the committee says in paragraph 99 that we should reject the idea of "juste retour". That is certainly no way to enable the Community to proceed satisfactorily. But, equally, I agree that it is wholly unacceptable to maintain the unfairness that exists at the present time. The unfairness is well brought out in
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the tables, and, as is also shown in Tables 3 and 5, it applies equally to West Germany, although at least the Germans have the consolation of having the highest percentage share of GDP in the Community, apart from Denmark.
However, while insisting on a better balance, we should be careful to put the problem into perspective. Your Lordships should be grateful to the committee for doing that, because Table 4 shows that our net payments in 1983–84, on admittedly what is called "stylised", but not unreasonable, assumptions, would be some £402 million, and that at a time when our gross domestic product is in excess of £300 billion. Therefore, I really think—and I hope that your Lordships will agree with me—that it is important to put the matter into that kind of perspective.
Against that background I am more confident of a solution to the problem of imbalance than I am to the question of the common agricultural policy. But just what should the detailed solution be? For my part, I do not know what we shall be able to achieve, but I think that the noble Lord and his committee were right to dismiss, as they do in paragraph 106, "restructuring". They discuss other possible mechanisms, which are well set out in paragraph 107. Like the committee and the Government, I personally prefer the "safety net". But provided that there is reasonable fairness, we should be ready to accept that dreaded word "compromise", because we almost certainly will have to, and I am sure that the Government will have to.
I am far less confident of achieving anything other than a poor compromise on the common agricultural policy—a compromise which I suspect may well be unsatisfactory. For as the committee clearly recognised in paragraph 98, the problem of containing common agricultural policy expenditure is politically highly sensitive in all member states.
Therefore, I conclude by returning to the question that I posed in my opening remarks: should we allow the great vision which founded the Community to be lost because of an inability to agree on changes in the common agricultural policy? As I have said, I believe that the question of imbalance is a much smaller issue, and it should be perfectly possible to agree a satisfactory compromise solution.
My answer to the question must be that the very future of the EEC itself is in jeopardy if a real and lasting solution is not found to the worst nonsenses of the common agricultural policy. The House must be indebted to the committee for so clearly showing how a solution can be obtained. On this I would only emphasise that an inadequate, patched-up compromise will not do. In any event, one is bound to say that, however much, from the very beginning, I and others desperately wanted the Community to succeed, I always knew that the great vision would be clouded by the practical politics and the practical policies of national interest. I have said that in your Lordships' House on another occasion. Frequently I found it to be so when I sat round those ministerial Council tables. It will not get easier with the accession of additional member states. But that is just one more vital reason to get it right now. If we do, it will still take many years to re-create the vision of the Community founders.

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To the question which I raised at the outset, as to whether we should allow it all to be lost by haggling over comparatively small sums, I give an immediate answer. In my view, it is better to work for a lasting solution now, even if it involves an immediate crisis, rather than to settle for a bad compromise which will keep the Community in permanent and recurring crisis. So until we get a binding and lasting solution to the common agricultural policy, I agree with the noble Lord the Minister that we should not support an increase in own resources or an increase in value added tax.
I do not like to see Heads of State spending summit after summit in perpetual wrangling over the common agricultural policy and our imbalance when there are so many big issues for them to confront. So I wish them success at the next summit. The committee has helped them—if only they would read the document. It would be tragic for all of us if they fail. There is much worth fighting for. On that I cannot do better than end with some words from the article by my own party leader, whom I quoted at the outset of my remarks, who said:
"Our future, like our past and present, lies with Europe for historical and geographical reasons … The inspiration of the EEC as an organisation to bind and stabilise the democracies of Western Europe was—and is—decent and desirable."
I say, "Hear, hear" to that, and I hope that at the next summit the leaders will keep that and the original great vision in mind. They have my good wishes for a successful meeting.
5.47 p.m.
Lord Gladwyn: My Lords, I must begin by congratulating the noble Lord, Lord O'Brien of Lothbury, on what seems to me, and on what I am sure seems to all of us, an excellent report. I should also like to say how much I agree with the last speaker, that if we are to enter into any kind of negotiation, and particularly this kind of negotiation, we must be prepared to compromise; that is to say, we need not necessarily stick to our original thesis or proposals, whatever they may be. I do not know if that is the policy of the present Government, but I only hope it is.
I was also pleasantly surprised by the general tone of the remarks made by the noble Lord, Lord Barnett. I only hope that everything he said was in entire agreement with his leader in the other place. I hope that he cleared his speech with him and that from now on that will be the policy of the Labour Party.
I began composing this speech which I propose to inflict on your Lordships in a state of considerable gloom a day or two ago. As I think I said when we last discussed the broad subject of the future of the Community, including the best means of financing it, it looked as if little, if any, progress had been made on the great outstanding difficulties for so long under discussion; namely, the reform of the common agricultural policy and our own contribution to the budget.
Since then, unexpected agreement on a really substantial limitation of milk production has to some extent lifted the clouds—on the assumption, that is, that Prime Ministers and heads of government will be able to enforce it over what I must say will probably be
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the dead bodies of all the farmers concerned, but more especially those in Ireland and in France But there still remains agreement on the vexed question of the MCAs—the monetary compensation accounts— satisfaction on which might admittedly moderate agricultural fury across the Channel. Let us hope so; we can only wait and see. I hope that the noble Lord who is to wind up the debate will confirm that there is some faint hope of progress being made even on the MCA side.
Anyhow, all still depends upon the outcome of the momentous European Council meeting next Monday, and all "Europeans" will just have to keep their fingers crossed. I can hardly imagine that the latest breakthrough on milk production will be welcomed as a portent by the majority of the Labour Party in this country, whose policy at the moment (unless I misunderstand it) is to get out of the Common Market as soon as possible and then to negotiate some new kind of association with, I should have thought, a very remote prospect of success. That is what I understand the policy to be and what I am told it is.
Lord Molloy: My Lords, if the noble Lord will give way, perhaps I may correct him; I am sure that he would not want to mislead the House. What he has just said has not been uttered by any outstanding and leading member of the Labour Party. We believe that if the Community is to be all that the Treaty of Rome says it should be, then we must all get together and put it right and get it out of the squalid mess in which it is now.
Lord Gladwyn: My Lords, of course we have to get together to resolve these difficulties. Nobody disputes that. But as I understand it, the policy laid down by the Labour Party is that our membership of the Common Market is not good in itself under the present conditions; that it must be totally reformed; and therefore we must get out of it and negotiate something better. That is how I understand it to be. Perhaps I am wrong, and I stand to be corrected.
In the meantime, we can, I hope, join in congratulating the committee sincerely on producing a report which sets out the issues with admirable clarity, even if not all noble Lords can associate themselves (as I am sure is the case) with the conclusions. Personally, I can say at once that I for my part associate myself with all the conclusions, subject to a couple of points with which I shall deal in one moment. More especially I should like to commend paragraph 137(v) in the hope there expressed that agreement on the two major outstanding points should open, it says, a new era in European co-operation in which our country should play a prominent and enthusiastic part. It also suggests, which is surely common sense, that given such agreement we should at once become complete members of the European monetary system. I can only hope that the Treasury will, at long last, hoist that one on board should agreement be forthcoming on Monday next in Brussels, or even partial agreement, for that matter.
Basically, the report obviously rests on the classical thesis, as I would call it, which I believe a majority of your Lordships, or perhaps all of your Lordships, can share; namely, that there should be no agreement on our part to any increase in the funds now available

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until there is also agreement on the two major outstanding difficulties. But it also suggests—and this is something which may not be generally acceptable; I do not know whether it is even acceptable to the Government—that once these difficulties have been overcome, and as soon as they are overcome, there should be such an increase in the general funds. That is what I think the report suggests.
What appears to lead the committee to this conclusion is the pretty obvious fact that the extension of the Community to include Spain and Portugal, which most of us would welcome on political grounds, will involve expenditure bringing the budget, even after a reform of the CAP, over the limit imposed by existing funds available. That, unless I misread it, is the conclusion of the committee. But I think it is also inferred that an increase in what are called the ressources propres is in itself desirable if only to make better use of regional and social funds and to lay the foundation of some much needed industrial policy, to say nothing of the funds needed to arrive at a pooling of research. This no doubt is what the report means when it speaks of, "a new era of positive European co-operation".
Thus there are really only two points on which I myself would venture to question the general attitude of the committee. The first is a rather minor one, perhaps; namely, the matter dealt with in paragraph 138(ii), which lays down that:
"The procedure for provision of further increases should not be transferred from national parliaments to the Council and European Parliament".
Here I must say that I agree with the British Members of the European Parliament, Lord Douro and Mr. Jackson, who were interviewed. It is not altogether clear whether or not their views on this point were shared by other British Members of the European Parliament, but I hope they were. They argued that such a new procedure would not entail an open-ended commitment because of the safeguards of the budgetary machinery at present existing, and the accountability of the European Parliament towards the electorate; that is the direct accountability of MEPs.
Surely the MEPs are right. What is the point of electing them at all unless they are given, along with the nominated council, of course, this kind of very limited responsibility? No doubt this issue, as the report says, could become an emotive one here, as perhaps no doubt in France and Denmark, though not in any other Community country as far as I can see. But so far as Britain is concerned, I believe that, given agreement on the outstanding issues and the spirit of enthusiasm which, as the report suggests, that would engender, any Government here determined to make progress towards the goals which they accepted themselves in Stuttgart would be able to overcome predictable opposition in Parliament—for instance, by Mr. Enoch Powell or Mr. Teddy Taylor, or any of the other isolationists in the Tory Party. After all, Mrs. Thatcher has an enormous majority in the other place and would in any case have the support, I think, of the 27 Alliance Members, to say nothing, no doubt, of a few rebels from the Labour Party as well when the crunch came.
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My second point is perhaps of greater significance. It has to do with the committee's broad view of the best way to revise the present system of calculating the United Kingdom's contribution to the budget, which of course theoretically is admittedly unjust and out of all proportion from a practical point of view. On the other hand, the so-called "safety net" which appeals to the Government, and is recommended by the committee, though no doubt perfectly justified logically, would seem to reduce our contribution from a theoretical and astronomical sum of something like £2 billion or so—though, of course, much less in practice as a result of the various reforms and revisions of our liability which have taken place in the last 10 years—to, as I understand it, a modest £300 million.
I repeat that this, as a claim, may be perfectly logical, but is it desirable? I believe that our current liability for 1983, taking into consideration the £475 million refund which is being held up by the European Parliament pending agreement on the outstanding difficulties, is about £633 million. Not only would I not quarrel with something of that order of magnitude if it formed part of a long-term agreement which might conceivably come up for revision in, say, five years' time, but I would even be prepared to accept something slightly higher for the following reasons.
In a general way I feel that a tough line, however logical, would be both unproductive and, indeed, unbecoming. Does it really matter all that whether our net contribution works out at £600 million, or even, say, £650 million, as opposed to the £300 million for which it looks as though we are sticking out for now? After all, if no agreement is reached in Brussels owing to our refusal to contemplate any such obligation, and if for that reason only—the CAP having once been settled, or more or less settled—we refused to allow an increase of, say, 0·4 per cent. in the VAT element in the Community's resources, would not the amount that we should stand to lose as a result of some gradual collapse of the Community, or alternatively as a result of our virtual exclusion from it (for either of which events we should certainly be held responsible, rightly or wrongly), come to far more financially than the extra £300 million or so that we might otherwise agree, or have to agree, to turn into the Community chest? I only ask the question.
Besides, I have always rather suspected our argument that we are one of the poorer countries in Europe. In so far as we are by a strict comparison of various GDPs, depending on how they are calculated, considered to be "poor", it is largely our own fault for producing goods more expensively than our neighbours owing to an outdated trade union structure, labour difficulties, and often poor management as well. If all this changes—as the Government say it will change during the next few years if they have their way, and we must all hope it will—there is no reason why we should not eventually be as rich as France and Germany are now.
It is also a fact that owing to oil we have a very healthy balance of payments that is likely to continue for many years, perhaps for ten years. For that reason alone we are regarded on the continent by our less favoured partners as already "rich" rather than "poor".

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Thirdly, our claim to special treatment because we are so poor must surely be qualified by our preference for importing much food and fodder from outside the Community, which in itself necessitates a higher contribution to the common funds than would otherwise be the case.
Lastly, we should never forget that in 1955–56, by our own deliberate choice, we allowed the Common Market to be created without us. Had we not withdrawn from the Messina negotiations there is considerable reason to suppose that we might, before Suez, have had agreement on terms of membership much less onerous from the financial point of view. When we did come in—of course, it was not our fault that we failed to do so six years later—it meant that our partners had to contemplate abandoning some of their accrued advantages in order to admit us. So, in a general way, we should not complain overmuch if we are now asked to subscribe rather more than is sometime described as our "fair share" of the necessary finance.
I repeat: I wonder whether the Government have really thought out the long-term financial implications of any collapse of the Community, or, alternatively, of our withdrawal consequent on some repetition in Brussels of the appalling fiasco in Athens last December. We can only hope that our present leader will at least survey the prospective extent of the fall before she decides, if she does, on what might be called logical patriotic grounds, to step over the edge.
6.3 p.m.
Lord Seebohm: My Lords, I too, must congratulate the noble Lord, Lord O'Brien of Lothbury, for the way he has handled this complicated report and investigation. I should also like to congratulate him, on behalf of the Select Committee, on how well he has put our case forward to the House today. I think the time has come for short speeches, and I do not propose to make a long one. I shall not go over any of the ground that the noble Lord, Lord O'Brien, dealt with so ably, but I want to make certain comments, particularly why I think that it is absolutely essential that the resources of the Community should be enlarged.
First, we have to put into perspective—the noble Lord, Lord Bamett, has done extremely well—the extent to which the payments we are making are a real burden. I point out, as we do in the report, that the total refunds were equivalent to about £7 a head in the United Kingdom. That is to say, if a family of four paid this amount that would be less than half the cost of a television licence. Furthermore, I think I am right in saying that the additional subsidies made by national governments are greater than the whole of the CAP. Taking these matters into consideration, we cannot consider our contribution to the CAP as being a heavy, unbearable burden weighing down on our shoulders.
To return to the need for more resources, one of the most important objectives of the Treaty of Rome, second only to the elimination of war, was expressed in Article 2, where it says that it must,
"have as its task an accelerated raising of the standard of living and closer relations between the states belonging to it".
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In order to do this, the regional fund and the social fund, among other things, were established to assist the more backward nations to raise their standards of living nearer to those of the more prosperous nations. These two funds, useful as they are, have remained pathetically small. Since 65 per cent. of the entire income of the Community is absorbed by the CAP, that does not leave much over for these necessary funds. I believe that these funds will need to be substantially augmented if they are to produce appreciable results in the long term, and will be even more strained now that Greece is in the Community—and we shall probably admit shortly Portugal and Spain. On these grounds alone, I am convinced that once some sense has been introduced into the CAP—there seems to be a little hope about that now—and some fairness into the assessment of members' contributions, the additional own resources of the EEC are fully justified.
I believe also that now is the time to have both these questions settled. We do not want a compromise on the second point about the fairness of our contributions while the matter is still hot. If we give way now it will be a long time before it is solved. Having said that, I should like to point out to your Lordships that what we are talking about today is only one of many of the various matters that have to be decided if the EEC is to survive. I trust that your Lordships will not consider it out of context if I enlarge on this for a few minutes.
The report we are debating is only one of a whole series that the Select Committee has produced on the problems of the Common Market. In 1981 there was an inquiry into the internal market. Only a few weeks ago we debated the report on the EMS. I shall deal very briefly with these two matters. The problems of the internal market described in our 1981 report are even worse today than they were then. I hope the Government will feel able to co-operate fully now with the proposals of the European Parliament to try to move some of these obstacles out of the way and to put these matters right.
Exactly three weeks ago today I attended a conference in Brussels called by the European Parliament's Committee on Economic and Monetary Affairs, chaired by the President of that Committee, Jacques Moreau, to discuss this problem of the internal market. The object of this conference was to bring together all the national governments as well as the European Parliament to see whether there could not be some consensus of opinion between the national governments and the European Parliament on what should be done. I was glad to say that when I was there all national parliaments were represented by one or, mostly, two people, apart, unfortunately, from the House of Commons, from whence nobody appeared. This, I am afraid, was noticed and was the subject of comment in the full session.
We were informed by the president that the cost of frontier delays alone and the procedures that go on at frontiers were costing about £ 12 billion ECUs. This is more than the total cost of the CAP. These delays were putting a cost of between 5 per cent. and 10 per cent. on all goods imported across frontiers.
While we were in Brussels there was the protest by lorry drivers on the Italian frontier, which brought the

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whole topic very much into focus and was the subject of considerable discussion. I hope that while this matter is still hot in people's minds our own Government might take it up and press for some reform at the frontiers. It seems as if there might be some ganging up by the customs officers to protect their own status and employment, and so on, to make the matter as awkward as possible. Most lorries are held up for between 10 and 20 hours. Passengers and ordinary people in their private cars might have to wait hours, apparently for no reason—because they open neither the bonnet nor the boot at the end of the period—before they are let through.
I wish to say a few words about the EMU, but not to go over the same ground we debated before. Things have happened since then, and I have the advantage of looking at a graph that was obtained for me by the noble Lord, Lord O'Brien, from the Bank of England. It showed the relationship between sterling and the ECU from 1979, when it started, and after the crazy petro-currency period, when the pound went to 2·40 dollars. It settled down about the middle of 1981 and, in fact, the situation has been very different. According to the graph, the relationship between sterling and the ECU at the end of 1981 was about the same as it was at the end of 1983. There have been some ups and downs in the meantime, but they seem to match each other pretty accurately. I should have thought that if we had been in the EMU, with a certain amount of support from the other member states, and if we had been in the exchange rate mechanism, we should probably have survived and might have done something to encourage not only our reputation and position in the Community but also, possibly, the use of the ECU.
This is a subject in which I have always been interested. As a banker, one of my reasons for being so enthusiastic about the Common Market was to get ultimately to a common currency, just as America has in all her states, so that the movement of capital, goods and people would become realistic. It was interesting to read a report in the February issue of Banking World, and also to read an article on Tuesday in the Financial Times, on what they called the "up and coming ECU", which showed that predictions that its use would be limited and its life short-lived had been proved completely false.
The rapid progress of the ECU since 1979 has confounded these cynics. In fact, I believe I am right in saying that there are now 18 banks at which one can open a deposit account or a current account in ECUs. They have a clearing system between them which works quite well and, possibly, it is not all that far off when one might have an ECU in one's wallet. I know that recently both the Soviet group and the Americans have insisted on having their deals and papers calculated in ECUs.
Those are just two points that I have dealt with very briefly, and I hope that the Minister in reply will make some reference to these matters because they are all in line with the other subjects that have been discussed today. I do not believe that there is much use in talking about increased resources, and so on, unless some other problems are dealt with at more or less the same time and in the near future.
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The other matters which were discussed in Brussels were all the things that have not happened, such as a common standard in all sorts of matters; for example in insurance and banking and, particularly in technology—which so far, in spite of Article 100 of the treaty, has not come about.
I shall not delay your Lordships any longer, but I believe that unless we deal with some of these obstacles we in the Community will preside over an orderly decline in prosperity instead of what is now there for the taking: increased prosperity and a successful Community future.
6.13 p.m.
Lord Bruce-Gardyne: My Lords, I should like to join with other noble Lords who have congratulated the noble Lord, Lord O'Brien, for introducing this subject today so lucidly, and also for the admirable report of the committee which is the subject of our debate. I should also like at once to offer my apologies to the noble Lord, Lord Ardwick, and my noble friend Lord Cockfield because it is possible, owing to a longstanding dinner engagement for tonight, that I may not be able to stay until the end of our debate. But I shall be very careful to read their remarks. If I may refer briefly to what the noble Lord, Lord Seebohm, has been saying about the EMS, I read carefully the previous report from your Lordship's committee recommending that we should take our place in the European monetary mechanism.
I must confess that I had then two reservations on that report and they have not been changed by subsequent events. The noble Lord, Lord Seebohm, said that if we looked at the relationship between sterling and the ECU over the past two or three years, it suggested considerable stability—as it did. But what had went on before was vast instability. I confess that I was unable to follow the conclusion which the committee reached in its report that we had no reason to fear that such instabilities would not occur in the future as a result of huge fluctuations in oil prices. That is a confidence which I find difficult to share.
The second problem that one has is that if one tends to believe—as I admit I believe—that a pre-condition for a return to stable prices and low inflation in this country is the observance of domestic monetary discipline, then we have to face the fact that on occasion the obligations of membership of the monetary mechanism may conflict with the preconditions. For both of those reasons one must think carefully about that proposition. That apart, like other noble Lords, I found many aspects of the report that we are discussing very constructive, and to my mind they are matters to which the Government should certainly pay careful attention in the course of the imminent meetings which we now face.
I would not go along with the noble Lord, Lord Barnett, although I agree with a great deal of what he has said. I thought he was a little rough on the proposition that finance Ministers should be drawn into the negotiation of the agricultural pricing review each year. I ventured to say on a previous occasion in your Lordship's House that leaving this to the agricultural ministers is rather like asking the Borgias to do the catering. Of course, I accept (as the noble Lord suggested) that what the committee is recommending

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would not get the Borgias out of the kitchen; but, at least, it would mean that there were a few guardians of the peace to keep an eye on their behaviour. I should have thought that that was a positive advance.
I agree with the committee rather than with the noble Lord, Lord Gladwyn, on the desirability of retaining in the long term the ultimate control over the budgetary process in the hands of national governments rather than the European Parliament. The noble Lord said that now that Parliament is directly elected, it can be expected to be financially responsible. I must say that I should have thought that only a Member of your Lordship's House who had never experienced the vagaries of an elected Chamber could hold to the belief that elected representatives could be trusted to be responsible in matters of finance. That is a point where I suspect that even the noble Lord, Lord Barnett, might not necessarily 100 per cent. disagree with me.
There are, however, two aspects of this report about which I must say that I had doubts. It is purely to those that I want to refer in my remarks this afternoon. The first proposition which I worry about is the proposition that, providing we are sensible, reasonable and show a spirit of compromise, our partners will recognise—and indeed do recognise—that we face what, in the words of the original agreement for the Community was referred to as "an unacceptable situation". In the first place, I intervened during the remarks of the noble Lord, Lord O'Brien, because I noticed in paragraph 103 of the committee's report the references to the declaration in the course of negotiations in 1972 that,
"if unacceptable budgetary situations arose … then 'the very survival of the Community would demand that the institutions find equitable solutions'.".
I do not know where the word "budgetary" came from. I have a feeling that it was not in the original agreement. However, that is not my main point. My main point goes to a considerable extent along the lines of what the noble Lord, Lord Gladwyn, was saying. It is that I really question whether our partners in the rest of the Community accept that the situation that we confront is an "unacceptable" one or one that is in any way unpredictable at the time we joined the Community.
I might have chosen, 10 years ago, to join the national farmers' club. I might have decided that within that great institution it would be nice to have a large proportion of piano tuners, of land owners, indeed, even of Members of your Lordship's House. But if at the end of 10 years of my membership I discover that these things have not happened and that essentially the national farmers' club has remained a preserve of what Peter Simple calls the Seth Rontgens of our countryside, and then I went to the secretary and said: "I want to have my subscription halved", I think I know what the answer would be.
Of course we were entitled to believe when we joined the Community that the balance between expenditure on agriculture and other estimable purposes which we had closer to our hearts, such as (shall I say?) rundown coal pits in Scotland or Scott Lithgow on the Clyde, would change away from agriculture. And it has not happened; but because it has not happened I do not
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believe that our partners accept that we are therefore entitled to claim that the balance of payments within the budget is fair and equitable and that we must have a permanent solution.
Of course, they have agreed, as the noble Lord, Lord Barnett, pointed out, to some intermediary payments in the last two years. They have done so, if I may say this to your Lordships, in the hope that perhaps we would then go away and stop boring them about our penury. But that is a vastly different matter from agreeing that we enjoy the full privileges and responsibilities of membership but pay as if we were some out-of-town or country member. I do not believe there is any likelihood of long-term agreement on that basis.
My second reservation about the committee's report concerns the suggestion—and this must come first, of course—that provided that we can get agreement on basic long-term budgetary share-out arrangements and provided that, above all, we can get some binding commitments on restraint of agriculture budget spending, we should recognise the need for the Community to have additional resources.
The other day, when I met Commissioner Tugendhat, I said that to my mind an agreement to increase the subscription of the Community at this stage was a little like a man who has a son with what the Americans call a drinking problem and who gives him a substantially increased allowance on the basis of an undertaking that he will keep away from the booze. If that happened I think we would say that he was out of his mind. I find it hard to believe that if we agree to an increase in subscriptions we are then going to get the lasting kind of reform to the agricultural expenditure which we expect and which I believe is indeed essential.
I would submit to your Lordships that this is not entirely a matter of speculation. Last weekend, before we had the news of the outline agreement on capping the butter mountain, my right honourable friend the Minister of Agriculture was reported as saying:
"It must be clearly understood that we have got to live within our means".
Fine! He then added:
"Of course, if the summit were to decide that additional resources were available, that would be a different matter".
Of couse it would; and if we agreed to increasing the subscriptions I believe we can write off the prospect of achieving a long-term reform of the Community's agricultural financing system.
Why did we get this agreement—and I agree with the noble Lord, Lord Barnett, that we should read the small print very carefully—to cap the butter mountain and ostensibly reduce the gap between our butter output and the consumption of dairy products by about half? I suggest that we got it wholly and exclusively because the money was running out. If that awareness had not been there, there is no evidence at all to suggest that we would have got that sort of agreement in the past or that we are likely to get it in the future.
I conclude on a note of some pessimism. I fear that I do not see much likelihood of an agreement next week on long-term budgetary or agricultural reform. It seems to me pretty unlikely that we are going to get the

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refund to which we believe the Community was committed at the Stuttgart meeting last year. I have said before, and will say again, that I see a risk that we should then be tempted to embark on the process of withholding contributions. I must say that I believe the consequences of that would be extremely grave. We should note what Monsieur Chirac said the other day:
"Perhaps the time is coming when it would be best for the United Kingdom to withdraw, at any rate temporarily from membership of the Common Agricultural Policy and effectively from the Community as such".
I do not think that was necessarily just an idle threat. I think it is one that we could face if we are not very careful. I would hope and pray, rather than seeking to insist upon a budgetary settlement for which I believe our partners can see no case, that we would insist upon the issue on which we have an overwhelming case: that is, that there can be no increase in the VAT contributions. We should use that as the lever to get the fundamental reforms of the agricultural system which the whole Community—not just us—needs and which I believe we will not get without it.
6.26 p.m.
Lord Brimelow: My Lords, I read with interest the article which the noble Lord, Lord Bruce-Gardyne, published in The Times yesterday. He has made substantially the same points to your Lordships this evening, and he will find before I have finished that I am in substantial agreement with him. But before I get to the gist of my speech may I deal with the question that he has raised twice already this evening? He asked how it was that in paragraph 103 of the report there was reference to,
"if unacceptable budgetary situations arose".
I was not a member of Sub-Committee A and therefore not concerned with the drafting of the report; and when I read it in typescript the same question occurred to me. However, when I saw the Minutes of Evidence I thought I had found the answers. In Answer 20, paragraph 2, on page 8 of the Minutes of Evidence, these words are quoted in full:
"should unacceptable situations arise within the present Community, or in an enlarged Community, the very survival of the Community would demand that the institutions find equitable solutions".
Therefore, the noble Lord was quite right to ask where the word "budgetary" came from.
If we go back to the beginning of that paragraph we see that in 1978 the Government of this country pointed out that it was going to become a substantial net contributor to the budget. That places it in the budgetary background. It was in reply to that that the Commission paper argued that adjustments in Community expenditure, other than in the area of agriculture, would result in a better balance. The paragraph ended with the important assurance that I have quoted—in other words, the whole context was budget. Paragraph 103 is summarising, and the word "budgetary" comes outside the quotation marks. But, in the context, I think its use is entirely fair and justified.
The title of this report is Future Financing of the Community. As a theme, the future financing of the Community is indeterminate. It is indeterminate as to duration, as to the number of countries which will
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eventually participate, as to the growth and the ultimate size of the budget, as to the sources of revenue, as to the objects of expenditure, and as to the division of expenditure between the Community budget and the national budgets.
When a subject is so indeterminate in many of its aspects, it does not lend itself to a once-and-for-all analysis. It calls rather for a succession of reviews as circumstances change and as new problems appear, and I hope that this report will be only the first of a series.
As the noble Lord, Lord O'Brien, pointed out, it is set in a broad context: a context of hope that one day the development of the Community and of its finances will be fruitful and fair. But the report concentrates on the narrower issue of the present crisis and the steps that have to be taken in the immediate future to remedy the problems which have arisen.
As an exposition of what everybody ought to know about the present crisis, may I say, as a reader and not as an author, that I find the report quite admirable, and I join in the congratulations which have already been expressed to the noble Lord, Lord O'Brien, the members of his committee and the specialist advisers who helped in the preparation of it. If I have a reservation about the report—and I share some of the reservations already expressed by the noble Lord, Lord Bruce-Gardyne—it is that, if anything, the report is too persuasive. It is very well constructed, and it is carefully worded. The reader is carried on from one point to another, and his attention is not drawn to the really difficult questions which will become consequential if the recommendations of the report are eventually accepted.
The value of the report, as I see it, is that it provides a yardstick for the assessment of what has already happened in the Council of Agricultural Ministers and in the Foreign Affairs Council, and it will also provide a yardstick for the assessment of what happens next week at the summit. Summits come and go, and they usually disapoint expectations—and I share the doubts already expressed by the noble Lord, Lord Bruce-Gardyne. But the problems go on, and we now have a very useful yardstick to hand.
I ask your Lordships to consider the Council of Agricultural Ministers. It is still in session; it resumes tomorrow, and so it is too early to make a final assessment. In relation to milk, it has taken a first step—a step in the direction recommended in the report. But by the criteria of the report, and equally by the criteria of previous reports by the Select Committee on farm prices and on the control of surpluses, that first step is totally inadequate. It has not capped the butter surplus, which will continue to grow; it has merely reduced the rate of growth. Expenditure on the common agricultural policy will continue to increase, and it cannot be met within the present limits of own resources. Already the Irish Government, according to the press, are asking to be allowed actually to continue increasing their milk production.
The Agriculture Ministers have given no grounds for believing that they are prepared to accept the view, expressed in paragraph 99 of the report, that what is needed is,
"a strict limit on the cash available each year from the Community budget."

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The criteria set out in the report relate to what ought to be agreed early in 1984, by which the authors of the report mean before the end of the present month, if a satisfactory basis is to be created for the future financing of the Community. In the field of agriculture, it already seems that that is unlikely.
Before I pass on from agriculture, may I comment that the protests already being made by dairy farmers, not only in this country, draw attention to two questions that are relevant to the future financing of the Community but which the report, with its emphasis on immediate problems, has left aside. First, to what extent will the governments of member states regard the diminution of farm incomes as politically acceptable; and, secondly, if they wish to limit that reduction, to what extent will they be prepared to meet the cost of so doing from national funds? Already quite a large part of the public expenditure on agriculture comes from national rather than Community funds, so the problem is one of proportions and practice rather than principle.
But there is a question of principle, and it was raised by the noble Lord, Lord Mottistone, in the course of oral evidence, when he asked whether an increasing share financed from national budgets would be compatible with the principles of the Treaty of Rome and, in particular, with Article 39. He received no answer of substance; and, indeed, the answer that he did receive implied that the question has not been considered. This is just one example of the larger long-term issues which the report, given its concentration on the immediate needs of the situation, did not tackle.
In paragraph 107(iv), the report comes down in favour of the United Kingdom's proposal for a safety net. In the context of a report which concentrates on next steps, I do not dissent. But I regard safety nets as a short-term expedient rather than as a suitable basis for the long-term financing of the Community. Even here, however, there are already signs of trouble. Yesterday, the noble Lord, Lord Trefgarne, informed this House that at the Foreign Affairs Council on 13th March two member states had been unwilling to approve the adoption of the regulations which will make possible the payment of the 1983 refunds due to this country. The noble Lord, Lord Gladwyn, elicited confirmation that the two countries were France and Italy, but this House did not elicit information as to the motive of those two governments. Could it be that their motive is to put pressure on our Government to secure advance agreement to the principle that the own resources of the Community should be increased? If such pressure is being brought to bear on the Government, I hope that it will be resisted with total intransigence.
The noble Lord, Lord Barnett, spoke of the need for compromise, and I agree that there is a need for compromise. But if pressure is being brought on us to depart from the agreement at Stuttgart, that the questions of control of common agricultural spending and budget inequalities should be considered and decided at the same time as the question of own resources, then I think that our resistance should be total, and I welcomed the very clear and explicit words used by the Minister in his opening statement.
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This brings me to the third recommendation of the report in paragraph 139(i); namely, that
"Provided that solutions to the problems of excessive CAP expenditure and budgetary imbalances are reached at the same time, a decision to increase own resources, by means of raising the one per cent. VAT ceiling, should be reached early in 1984".
That wording did not incorporate an exact figure for the increase in the VAT contribution. If by the time of the summit it is clear that agricultural spending as a whole is not being adequately restrained, or if we are still in difficulties over refunds and our net budgetary contribution, we should be limitative in our approach to the problem of increasing the Community's own resources. The readiness of the Community to mend its ways seems to be directly related to its shortage of funds.
May I make one last point. A safety net will not in itself limit the growth of Community expenditure, only our net contribution. But the size of the total Community budget is relevant to attempts in the member states to keep total public expenditure within limits. It is also relevant to and potentially incompatible with the last of the recommendations made in the report; namely, that the Community budget, after it has been brought under control, should have a redistributive role and should play a part in promoting the convergence of the economies of the member states. That is another of the large and long-term issues which this report has not examined in depth. I repeat, then, my hope that this report will be only the first of a series.
6.42 p.m.
Lord Roberthall: My Lords, in a debate of this nature where we are discussing a report it is difficult to think of something to say which has not been said already. I was very much struck by a remark of the noble Lord, Lord Cockfield, that some of the things which are happening now are happening in a way which is decreasing the stability of the Community. That remark ought to be borne in mind when we consider all the problems. Largely with that in mind, may I say a few words about each of the problems.
First, let me say a few words about the common agricultural policy. I have no doubt at all that it is necessary to amend the CAP in such a way as to ensure that the problem does not grow worse and worse every year, which is what has happened so far. If the CAP is looked at in terms of what ought to be the general objectives of the Community, it is now a monstrosity. The Community is trying to widen the market in order to improve the forces of competition. At the same time, the farmers are completely safeguarded from the effects of competition of any kind. This is because of the political problem, caused mainly to France and Germany by the small farmers.
However, the result in all of the developed countries of the world of trying to stabilise the incomes of farmers is affecting this country, too. The price is fixed to cover the cost of the small, inefficient farmer. This means that the efficient farmers increase their output and consequently their profits. This has resulted in the present position—the generation of large surpluses which swallow up a large part of the Community's funds. Those surpluses have to be either stored at great cost or dumped abroad. This policy is not only

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expensive; it damages the least developed countries, by reducing the price on the world market of the products that we import, and is very difficult to defend because of the discrimination which the developed countries exercise. And it is damaging our trade relations with the United States.
Therefore I agree strongly with the committee's recommendation that a limit must be placed on the total amount which is spent upon agriculture. I ought to mention that I was a member of the committee. Nobody minds certain safeguards for agriculture. However, a solution to the CAP has been continuously put off and each year the problem grows worse. It cannot be healthy for the Community to refuse to face a problem which is growing worse and worse. One can say that the amounts involved are not very large. Indeed, I shall say that in the next part of my speech. However, any problem which is growing faster than the means available to deal with it will ruin us in the end. It is very bad for the Community that we are not facing up to the problem.
Secondly, let me turn to the imbalance of our contributions. I do not believe that Her Majesty's Government have handled this problem as well as they ought. They have allowed us to drift into a completely indefensible position: how much, in monetary terms, do we put into and how much do we get out of the Community? At the moment we are arguing about £400 million, and £400 million is less than half of one per cent. of Government expenditure this year. It is an amount which the Chancellor of the Exchequer would hardly notice in terms of the difference between what he might expect to get from a tax and what he actually receives. The image of the Community is being damaged; it is felt by the public not to be fair to Britain. Of course, everybody who is on the losing side of any bargain adopts that attitude.
We ought to have put our case in a much more general way. We ought to have pointed to the enlargement of the Community and its acceptance of the three very small countries and said that it is impossible to expect them to pay more than they will get out of the Community. The balance between what is paid and what is received is one which no country which is sufficiently developed to be able to run an income tax system would dream of achieving. Although it could never be achieved, it is lipped in the direction of paying according to your ability and receiving according to your need. Although this cannot be made to work inside a country it could be made to work inside a community of countries. We ought to have said that we must face up to the problem and introduce a progressive tax system.
The report suggests that the tax system should be based on an assessment of the national income, but in a progressive way. I believe that this is the right solution. We ought to say that this is what we want and this is the direction in which we believe the Community ought to proceed; let there be a formula of this kind and we will accept whatever it may be. Even though we may agree on that we might still think it unfair. We all think taxes are unfair but we will pay our shot. In particular, I think it is a great pity that the country has been made to think of it in terms of trifling sums, which makes it a completely wrong approach—you get out what you pay in.
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That leads me to the question of the increase in the contribution. I think it is very unwise to talk about dying in last ditches and taking a final stand, but I think we at least should argue very stongly in this way. I am inclined to think that if we have a sticking point it ought to be the common agricultural policy, because if it goes on this way it damages and weakens the Community and prevents it from getting enough money to do the constructive things which are necessary, and which are now done in only a very small way.
I think we ought to be perfectly willing—if we get a stopper on the common agricultural policy—to contemplate an increase in the funds of the Community. We ought to bear in mind that the cost of it is trifling in comparison with our total funds. Talk about spoiling the ship for a ha'p'orth of tar! I think we ought to get away from the idea that it is wrong to spend any more than we can possibly help on the Community. I consider that our whole future, and the future of the other members of the Community, is bound up with its continuation and its success. If we object to it, it should be because we are objecting to something which is moving us in the wrong rather than in the right direction.
What a disaster it would be if the Community broke up or ground to a halt. We ought not to think about the value of the Community in terms of £400 million or what we get out of it. There ought to be much more stress on its general importance to us, and both the noble Lord, Lord Barnett, and the noble Lord, Lord Gladwyn, made remarks in the same vein. We are spending a great deal of time, energy and bad temper on sums which are trivial in relation to the main issue.
6.54 p.m.
Lord Tranmire: My Lords, I thank the noble Lord, Lord O'Brien, for his very clear, brief and penetrating introduction to this Motion. I should also like to congratulate him on its timeliness: the day before what will be a crucial meeting of the Agriculture Ministers. In four days there is going to be a vital summit meeting at which this will be reported—which will be more fortunate than has been the lot of the other reports on the future financing of the Community. We have here a trilogy. We started off with the Stuttgart Report of the Court of Auditors which came out in October; then the House of Commons EEC Committee brought out in November the report on future financing, and ours came out quite recently.
I found those three reports of tremendous value, but I want to say that if we are looking at the future financing of the Community one of the first things we have to examine is the evidence of financial management by the Commission and the Community. I have been very disturbed by the evidence on the actual financial management which I read and listened to in that sub-committee. The Stuttgart Report looked at the Guarantee expenditure in the last decade, pointed out that it has tripled and explained that it was largely due in their view—the view of the Court of Auditors —to the fact that the budget was expenditure-determined, and that at European level there was no function corresponding to that of a Minister of Finance in a national administration. That is very like the report which the Select Committee of the House of

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Commons gave in 1980 when it was looking at financial control. They said that to speak of financial control over Guarantee expenditure was largely meaningless. The Stuttgart report pointed out that it took five to six years after the end of the year in question for accounts to be cleared. When they are actually cleared, what happens?
Look back to the 6th Report on financial control and you will find that in the year 1977 the admitted frauds and irregularities came at that time to 9½ billion EUA, but of this 9½ billion less than a quarter was recovered. The explanation was that only two countries admitted frauds and irregularities. One was the United Kingdom and the other was Germany. Some of the countries did not agree what were irregularities.
On the structural side, the Stuttgart Report says that control of plans for aid for farm modernisation remains illusory. It is unsatisfactory that since the Court of Auditors were appointed there have been a great number of reports on the mismanagement of the finances, but this has never been dealt with during that period.
As the noble Lord, Lord Brimelow, said, this is only part of the pattern of the aid for agriculture in the agriculture expenditure. We had before us in the subcommittee Dr. Harvey from Newcastle University who told us that from the Commission's own evidence national aid was larger than the aid from CAP. When we asked him to give details of that in oral evidence, he said that the Commission had a study group for examining it but they had not disclosed their conclusions.
Thanks to the diligence of our chairman and the penetrating nature of his questioning, our inquiry was very complete. We covered a great deal of ground. But when we invited the Commission to give evidence before us it declined to give oral evidence or submit to questioning. I think that was extremely unfortunate because it would have been valuable to have had the Commission's replies to some of the points made in these other reports, such as the Stuttgart report I have mentioned.
There are a number of worries on this. Noble Lords will see on page 10 of the report the position of Italy in recent years. Italy's contribution has changed very much. Italy changed suddenly from being a contributor to being in benefit in 1977. After that it increased its benefit from the Community by 100 per cent. When the Treasury was asked in oral evidence to give an explanation, the reply, given on page 37 of the report, was that,
"the Italians have been extremely successful, over a run of years now, in building up their receipts from the Community budget. The main area where they have been successful is in persuading the Community to adopt new Mediterranean programmes for agriculture. So whereas in the mid-1970s and, indeed, in the late-1970s the Italians were still net contributors to the budget, with the help of these programmes mainly they have turned themselves round into a position where today they are the biggest net recipients from the budget by a long way".
As an illustration of that we were given in the Stuttgart report the example of tobacco. In the Community there are 85,000 tobacco producers, of which 60,000 are in Italy and 25,000 are in Southern France. The tobacco subsidy in 1982 came to 622
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million ECUs. That is a fairly substantial sum. To put that into perspective, exactly twice the amount that was spent on research throughout the whole of the Community has gone to 85,000 tobacco growers. We were told the reason was that the price of tobacco was three times the world price. For that reason I think that before we agree to any increase in contribution we must obtain some undertaking on a better financial management by the Commission and an improvement in the system of the common agricultural policy.
On that point may I make two remarks. The Government are to be congratulated on yesterday's announcement but, as was said, it is only a first step. It is very important that it should be followed up with other measures. As regards milk, I hope that my noble friend Lord Cockfield will deal with this when summing up. I understand that the co-responsibility levy will continue this year and then a supplementary levy will be brought in. At the moment with the co-responsibility levy all the other member states—particularly France and Germany—have exemptions that cut out most of their smaller farmers, whereas in Britain there are very few exemptions. Therefore, the co-responsibility levy is very unfair to British farmers. The great advantage in the supplementary levy which was announced yesterday is that there are to be no exemptions, although the Irish are trying to get complete exemption; on which I understand Mr. Jopling has reserved our position. Therefore, the milk situation is only a first step. It is not all that satisfactory because of the co-responsibility levy.
What is vital is the cereal position. Mr. Lelong, the President of the Court of Auditors, came to see us. He was a most impressive witness. He reminded us that in 1971 the United States decided on a change in policy to bring its cereal prices into line with world prices. This meant it could keep the whole of the agricultural economy working reasonably, bearing in mind that cereals are, in the main, raw materials for the meat and milk markets. We are now well divorced from the world price. Mr. Lelong said that if the Common Market agricultural policy could get back and do what America had done and bring cereal prices down to the world price level, in his view it would benefit 95 per cent, of farmers in the Community and would harm only 5 per cent. who are probably the biggest farmers and could afford that reduction in income. I ask the Government to think about this before tomorrow's debate. There is not much time.
I believe that is the solution. We suffered in the common agricultural policy. One of the reasons it tripled was that when America changed its policy it added to the cost of exporting our cereal surpluses from the Community and it also cost us more to support the milk and livestock farmers. Therefore, if we could change back the agricultural policy and cut cereal prices down to world prices we would be doing three things. First, we would be saving many millions in the budget. Secondly, we would undoubtedly be helping the small farmer who relies on buying cereals for his meat and livestock production. Finally—and not least—we would be helping the hard-pressed consumers of food throughout the Community. I believe that deserves attention.
7.10 p.m.
Lord Kaldor: My Lords, I think I must repeat what most other speakers have said. We are all very grateful to the noble Lord, Lord O'Brien of Lothbury, and his colleagues. They deserve our thanks as well as our congratulations for the work which they have put into this report, including the painstaking examination of numerous witnesses. The report discusses in some detail the rapid and uncontrolled growth of expenditure resulting from the common agricultural policy and the inequities which follow from that, particularly for this country. As a result, as the report says, our net contribution to the Community comes to about £20 a year per head of the population, although our real income is below the Community average. Denmark, the richest member of the Community, receives a net benefit of £32 a head.
Expenditure under the agricultural price guarantees has risen so fast—by around 15 per cent. a year—that the limits on expenditure set by the so-called own resources of the Community have now been reached and therefore have to be extended if the existing guarantees are to be fulfilled. This gives us a certain lever in that the resources cannot be enlarged without our agreement, and, as the report suggests, we could couple such an agreement with a reform of the principles on which the contributions to the Community are based and establish as a general principle that the contributions should reflect the ability to pay off the different member states, just as in the case of ordinary taxation.
There are other commendable suggestions in the report. I do not wish to go into them all because of the lateness of the hour. If I understood it right, one of the suggestions is, at paragraph 98, that a limit should be imposed on the amount of subsidised production, and output over and above that limit should be sold in the free market—in the world, I presume. Since the report was written, yesterday or the day before the Community agreed for the first time to introduce a limit on the amount of milk which it is willing to buy at guaranteed prices. This will be administered by a system of quotas extending down to the individual farms or dairies which produce the milk. How this will work in practice is very difficult to say. My feeling is that long-term remedies cannot be sought on these lines.
But the more fundamental questions concerning the long-term reform of the CAP—indeed, whether that policy should have a long-term future at all or whether it should be gradually liquidated—were not within the terms of reference of the report; yet I feel that this is the time when attempts should be made to examine the basic principles of the CAP and to see how far they are consistent with, or should form an integral part of, the economic unification. The original purpose of the CAP was to secure the continued prosperity of Europe's food producers and give the benefit of assured supplies and uniform food costs to Europe's consumers. This was to be attained by the creation of a common market which removed all barriers to trade, given adequate protection from competiton from outside, which implied that stable internal prices should be isolated from the fluctuating prices in the world market.
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However, from the very start there was a confusion between the idea of a common market as a means of securing the best price for the consumer, through free and unhindered competition of the producers, and its artificial shadow—the idea that you can secure the hallmark of a common market (namely, a uniform price) by the most extreme forms of market intervention. That has the very opposite effect of what a common market was meant to imply; namely, it eliminates competition or protects producers from it. Whereas in the absence of market intervention free trade would cause low-cost French producers to invade the relatively high-priced German markets, and thereby bring about a situation in which production is more highly concentrated in low-cost areas at the expense of high-cost areas, the actual arrangements do the very opposite. Both low-cost and high-cost producers are encouraged to produce as much as they can, and if the resulting production exceeds consumption, the surpluses are dumped abroad or else made into a mountain.
If the same principles were applied to a manufacturing industry—say, motor cars—it would mean that German or French cars would no longer threaten British car producers, since the authorities of the Community, by virtue of a common automobile policy, drawn up as a perfect analogue to the common agricultural policy, would buy up all the cars which remained unsold when they left the factory gate, so there would be no incentive to sell cars in more distant areas. Japanese cars of course would be kept out altogether by the application of the principles of the variable import levy. The variable import levy is a more deadly form of protection than any other. It is always fixed in such a way as to keep out imports altogether, so long as there is domestic production which can satisfy the market.
However, in the field of manufacturing, where economies of scale are so prominent, and where a rising market share brings cumulative advantages and a falling share imposes cumulative handicaps, there are no such arrangements. We have butter mountains but we do not have motor car mountains. Failing any such arrangement, I suggest that entry into the market served to accelerate Britain's decline both absolutely and relative to our Common Market partners. It is true that our exports to Europe have been rising faster than to non-European countries, but our import of manufactures from Europe rose faster still, so that today, as the noble Lord, Lord Cockfield, said earlier this afternoon, we are importing one and a half times as much in manufactures from the Common Market as we are exporting to them.
Gone are the days of the "glad confident morning", when White Papers of successive Labour and Conservative Governments commended entry into the Common Market by holding out a promise of a rosy future entirely based on the rosy and greatly enhanced prospects of manufacturing industry. The Common Market would provide—and I quote from the White Paper:
"in effect a much larger and a much faster growing 'home market' for British industry than exists at present or would otherwise exist in the future. There would be substantial advantage … on account of these 'dynamic effects' which … assuming British industry responded vigorously to these stimuli, would be considerable and highly advantageous …

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"The acceleration in the rate of growth of industrial exports would then outpace any increase in the rate of growth of imports; the growth of industrial productivity would be accelerated as a result of increased competition and the advantages derived from specialisation and larger scale production which in turn would accelerate the rate of growth of national production and real income".
All of these are quotations from Cmnd. 4289.
That was written 13 or 14 years ago. It should be compared with the pathetic little reference to manufacturing in the present report, in paragraph 25—it was the only reference to manufacturing I could find in it—which says that,
"though there is a deficit on United Kingdom trade with the Community in manufactured goods, most of the causes of this decline in the United Kingdom trading position occurred before accession to the Community, reflecting the long decline in the United Kingdom's manufacturing competitiveness worldwide".
But what about the "dynamic effects" of our entry into Europe that was supposed to have changed all that? There is no mention of that in the present report.
Incidentally, I cannot help mentioning that the statistical advice at the disposal of the committee definitely leaves room for improvement. It is simply not true to say that,
"most of the causes of this decline in our trading position"—
meaning the deficit in the trade in manufactures—
"occurred before accession to the Community".
The facts are that prior to the year of accession in 1973 the United Kingdom was in surplus in manufactured trade with the other EEC countries in every single year, except perhaps 1972, when we were in approximate balance; we had a very small surplus. For many years there was a comparatively small deficit in the trade with Western Germany, but this was more than offset by a surplus in trade with other members.
Nor is it correct to say, as the report suggests—I quote again from paragraph 25—that,
"within the Community this decline has substantially levelled out in the last 10 years".
The facts are the very opposite. Our deficit in trade in manufactures rose from 276 million, or 9 per cent. of exports, in 1973 to 1,615 million or 15 per cent. of exports, in 1978; then to 2,743 million, or 23 per cent. of exports, in 1981; and then to 7,910 million—1 am subject to correction, but it is rather larger than the 7,000 million suggested by the noble Lord, Lord Cockfield—or 52 per cent. of exports, in 1983.
So our trading position has progressively worsened. This is not a matter of "flattening out", as the report suggests, but, on the contrary, it is a matter of "accelerating decline". All the figures that I have quoted are from official British sources, and if any noble Lord wishes to inspect them I have deposited a copy in the Library—
Lord Hankey: My Lords, will the noble Lord give way for a moment? If it is the noble Lord's intention to blame the Common Market for our industrial failure, is that really fair? Do we not have to take account of the colossal decrease in productivity in the United Kingdom while our workers were encouraged to quarrel about nothing but pay, and so on? We passed legislation which enabled anybody to do anything with complete impunity in British industry.
Lord Kaldor: My Lords, I do not know what the noble Lord is talking about. I wish to say merely that prior to our entry into the Common Market, our manufacturing production increased quite substantially. In fact, the 20 years before 1973 were years of the highest rate of growth of manufacturing production in the whole of British history, and since that time our output has stagnated.
What are the reasons for that? Obviously, one cannot blame the Common Market for that situation; one can only blame British industry for not being able to compete with the Common Market. But I think that the noble Lord is somewhat one-sided. If I understood him correctly, he puts the blame on the working classes. I think that the deficiencies of our management were more responsible for that—
Lord Hankey: My Lords, I beg the noble Lord's pardon for interrupting him a second time. I am really blaming our politicians for passing laws affecting industry which did not encourage the increase of productivity and which led to the disastrous decline of our performance inside the Common Market.
Lord Kaldor: My Lords, I accept the correction. I do not think that we can pursue this point at the moment, but I should be glad to hear precisely what kind of legislation the noble Lord has in mind.
Anyhow, the hopes that were held out at the time that we first applied for entry into the Common Market have not been realised. We were told that although costs were going to be high, and although our food would cost us much more, our manufacturing industry would derive such a large benefit that our standard of living would be very much higher than it possibly could be if we stayed outside. In the event the effects were good in agriculture and very bad in manufacturing industry. But the effects on agriculture could have been secured at a much lower cost to the consumer. Indeed, they were largely secured under the previous system of guaranteed prices.
Nobody has raised in the debate the question: what are the advantages of our being in Europe, and staying in Europe? Most noble Lords on both sides of the House, I gather from the tone of the debate, are in favour of our continued membership of the Common Market. But nobody has said why. The main advantage, it is now suggested, is political. Membership gives us a seat at the high table, which I dare say is important, though I do not think that it is so important for defence, where NATO is a much more important instrument than the Common Market. But if we spend the time at the high table in continuous quarrelling, as we have done in recent years, and are likely to do for years to come, is this a good introduction to the creation of a United States of Europe, or a bad one? I suggest that one could plausibly argue the latter.
If we stay in Europe, we must ensure, by fresh institutional arrangements, that we derive some genuine benefits from membership and not just costs; and these could come only through fresh "ground rules" governing trade in manufactured goods, as well as trade in agricultural products.
7.29 p.m.
Lord Ezra: My Lords, the special importance of the report which we are debating today, and on which the noble Lord, Lord O'Brien, and his sub-committee have rightly been congratulated, lies in the clarity and brevity with which they have set out the problems now confronting the European Community; and in my few remarks I propose to follow the example of their brevity.
Noble Lords who have already spoken have dealt in depth with the major issues—the issues particularly of the common agricultural policy and the contributions to the Community's budget. I should like to concentrate my remarks on Part 7 of the report which deals with future developments. I believe that the attempt now being made to resolve the difficult financial problems of the Community provides an admirable occasion to review the priorities facing the Community in the future. These are set out clearly in Part 7.
The Community has changed very much indeed since the common agricultural policy was set up in 1963. What has happened particularly is the massive recession through which all our countries have gone and which therefore raises a major structural problem. The report in Part 7 refers to the structural funds, the regional and social funds in particular. There is now an over-riding structural problem to be faced within the Community which, in its most visible and unfortunate aspect, takes the form of 13 million unemployed people. There have been massive reductions in some of the most important labour-intensive industries such as shipbuilding, textiles, steel, coal, heavy engineering and construction. There has been a major move into more capital intensive activities, particularly service activities. There has been the impact of high technology. There has been the impact of imports of goods from the newly emerging industrialised countries.
All these things, I believe, now need to be given a much greater priority in the future thinking of the Community than has been done hitherto. I hope therefore that, at the start of this important conference to take place next week, the heads of state and government will turn their attention to the priorities that we should be tackling before they turn their attention to how we should reform our finances. If we do not know what we are going to spend the money on, it is hardly worth arguing about the money. Secondly I believe that there is a big task to be done—the noble Lord, Lord Seebohm, referred to this—in making sure that the internal market begins to function as it was originally intended to function.
I am pleased to note, from many statements and speeches made by Her Majesty's Govenment's Ministers, both in this country and in Europe, that they, too, attach great importance to this. It was very noticeable at the time of the lorry drivers' strike that our attention was drawn, as the noble Lord, Lord Seebohm, emphasised, to the vast amounts of money that are lost as a result of the frontier difficulties within the Community. These frontier difficulties should certainly not exist by now. There are many other impediments of a non-tariff nature with which we are all familiar.
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The third area of priority, I believe, is that of research and technological development. The report admirably points out that if you add up the totality of the research effort undertaken by the various countries of the Community, it far exceeds that of either the United States or of Japan. But in effectiveness, it gets nowhere near to them. In other words, we should be rationalising and combining. A good start has been made with the ESPRIT project to which, I am glad to note, the Government have finally given their approval. We need to be introducing more joint projects of that sort in the high technology field. If we pursue them separately, our effort will get nowhere compared with the giant strides now being made in America and Japan. If we combine, we can make much greater progress.
Finally, there is the area of enlargement. This is undoubtedly going to cost money. But the whole intention of the Community was that it should progressively extend to comprehend as many of the countries of Western Europe as possible. So we have to face up to that problem. I hope, as I said at the start of my few remarks, that, at the beginning of the conference to be held next week in Brussels, a review of the priorities is undertaken and agreement is reached upon them before the heads of state and government begin to tackle the difficult financial issues.
7.35 p.m.
Lord Maude of Stratford-upon-Avon: My Lords, I should perhaps begin by saying that my promotion in the batting order is due to the fact that my noble friend Lord Bessborough was unable to stay. I should also perhaps start by saying that I am aware that my qualifications to intervene in the debate are not strong. I have never claimed to be a Euro-expert and still less a Euro-fanatic. I suppose that my attitude, since Britains' accession, could best be described as that of one who has gritted this teeth and hoped rather despondently for the best. I find myself particularly indebted to the noble Lord, Lord O'Brien, and his committee. Their report has helped to increase my knowledge, to widen my understanding and, often, to clear my somewhat befuddled mind.
If I have one criticism to make of the report, it would be that it seems to me to err on the side of rationality. That may sound a perverse criticism. One would obviously expect a committee of intelligent men and women to produce a rational and intelligent report. But the fact is that I cannot see that any of the decisions which have been made over the years and which have led, for example, the common agricultural policy into its present position, have been rational in any degree. They have been political expedients, fudged out generally in haste at the last moment but showing no signs of any rational policy or any appreciation of where the expedients were ultimately going to lead us.
We sometimes shrink I think from really understanding why the situation is as it is, and why sensible agreements have been impossible. Let us just for a moment consider what the Community is. The Community is very far from being a collection of similar or like-minded people. It is a collection of countries that differ widely in size, in population, in

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type of economy, in type and scale of agriculture, in prosperity and in size of national product. What is perhaps even more important is that at any given time the Community will contain countries whose governments are pursuing widely different internal policies on widely differing principles. There will be some countries with governments of the right, some with governments of the left; some with governments that are busy inflating their economy, some with governments that are busy deflating their economy.
Most important of all perhaps is the fact that none of these countries has elections at the same time. This is perhaps a matter that economists have tended not to notice or to give sufficient weight to. At any given time, there are some governments which have just got past elections and which are willing to take a chance and risk a little unpopularity, while other governments are just approaching elections and cannot afford to risk offending a substantial body of their constituency. It has always been obvious I think that it was never going to be possible to achieve any sensible agreement on the restructuring of the common agricultural policy until the money ran out.
I absolutely agree with the noble Lord, Lord O'Brien, with his committee, with my noble friend the Minister, and with other noble Lords who have said that it would be absolutely fatal for Her Majesty's Government to agree to any increase in own resources until it is quite clear that a genuine restructuring of the common agricultural policy is under way, and that it will work. I agree with the noble Lord, Lord Brimelow, that the agreement that has been reached on dairy products is very half-hearted. As he said, it will not prevent the output and production costs of dairy products from continuing to rise, and it goes only a little way towards solving the problem.
However, while I am dealing with the agricultural policy, I would go a litle further and re-emphasise what my noble friend Lord Tranmire said about cereals. We have become hypnotised with the dairy problem—the butter mountain, the milk powder mountain, and so on. But what we have not sufficiently realised is that the cereal question is having a devastating effect in distorting the agriculture of this country at least, and it is even having an adverse effect on the environment and ecology of this country.
In the past, countries—and this country in particular—have subsidised farmers and/or consumers for various reasons. The first reason was that it was desirable to keep people on the land and to enable them to make a decent living on the land because agricultural and rural life are part of our society and of our way of life. Secondly, it was desirable to retain some kind of price stability and to even out the distress which might be caused to farmers by alternating surpluses and deficits. But, thirdly, it was done for strategic reasons—it was desirable to keep a reasonable self-sufficiency of production of foodstuffs in case of war or other emergency.
We had an example of that in the 1930s and during the war. It involved the maintenance of a substantial reserve of fertility in the soil of our country. In other words, during the 1930s, when we continued to import large quantities of cereals from overseas, many of our farmers simply put their land down to grass and got by
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on the milk cheque. It was a quite common response. When the war came and our sources of cereal supplies were either cut off of they were difficult to transport, it was then possible to plough up thousands of acres of fertile pasture land with years of stored fertility in them and to produce from them yields of cereal crops which had never been achieved previously.
The situation is now very different. We have seen a spread of cereal production in this country—a form of prairie farming in some areas—which is quite foreign to the nature of our land. This has resulted, as my noble friend Lord Tranmire has said, in a very serious increase in the feedstuff costs to livestock and dairy producers. So long as we continue to concentrate solely on the dairy problem and ignore the cereal problem, I believe that we shall be intensifying and extending the distortion of our agriculture which has been gradually coming about.
I would conclude by saying once more that we are, in my view, never going to get any agreement on the re-financing of the Community or on the restructuring of the common agricultural policy so long as there is the slightest hope in the minds of governments of other countries that an increase in own resources can be secured without it. It is essential that that be made clear.
The noble Lord, Lord Barnett, has spoken about the need for compromise. Of course there is always a need for compromise in politics and in international relations. But a compromise in this connection would in my view be fatal. I agree entirely with the noble Lord, Lord Seebohm, that Community own resources will have to be increased and, in the end, increased substantially—particularly in the light of possible enlargement. But there is no way in which we shall solve the problems if we yield on the increase of own resources before we get the assurances that we need. I hope that Her Majesty's Government have made up their mind firmly to stick by this resolve.
7.46 p.m.
Lord Hankey: My Lords, this is an arcane and esoteric subject where angels would certainly fear to tread if my noble friend Lord O'Brien and his very able committee had not illuminated it. We get a certain amount of mud slung at the House of Lords, but I do just wonder how many other legislatures can produce from their own members a committee including two ex-governors of the national bank—in our case the Bank of England—several former economic advisers to the Government and other members with such distinguished backgrounds and experience in banking, finance, industry, administration and government. The composition of this sub-committee is really remarkable and so is its report.
Certainly there is nothing superficial about this report and I think it really concentrates on the main issues and supports its conclusions with plenty of detailed evidence. I entirely support the report's conclusions. We have heard some suggestions in this debate that the report might have dealt with wider questions. In my experience when one goes into negotiations it does pay to fasten on the points which can be settled, and keep wider considerations, however interesting intellectually, for further and later treatment.

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First, I want to thank the noble Lord, Lord Cockfield, for his most useful speech which I thought threw an admirable light on the considerations which we have to bear in mind when embarking on these negotiations. Our delegation, led by the Prime Minister, will be going to Brussels very soon to discuss these difficult questions. They deserve, and I believe they do enjoy, our complete support on all sides of the House. Nothing we say or do in this debate should hamper them in those negotiations which are clearly vital to this country, to the European Economic Community and to the economic and political health of the "New Europe". I shall say a special word about that at the end of my remarks.
I support the main conclusion of the report that there should be agreement on solving the problems of the common agricultural policy's excessive pricing and over-production before, or simultaneously with, a solution of the imbalance in net contributions and the provision of more own resources for the Community. It would certainly be a mistake to settle any one of these without the others. The noble Lord, Lord Maude, knocked that nail in very hard and effectively.
I think that it is particularly important to settle the agricultural problem before Spain and Portugal become members. According to the OECD statistics, about 25 per cent, of Portugal's population is in agriculture and about 18 per cent, of Spain's. That represents a formidable section of the electorate in both countries, and we have learnt to our cost in Europe how hard it is for any government to make necessary but unpopular changes in those conditions.
Fortunately, the percentage of the population in agriculture has been falling continuously in many EEC countries. In Germany it is now about 5 per cent. and in France 8 per cent. In the United Kingdom it is, of course, only about 2·8 per cent. That is another reason for our being tactful in our handling of the problem, however firm we are, and I hope that we shall be very firm very politely. We really do need better relations on all these questions with our partners in Europe, and I agree with what has been said about the eventual necessity for some sort of a compromise.
I think that the recommendation in the report that the Ministers of Finance should in future be associated more closely with the Ministers of Agriculture is excellent. I do not think it matters very much how it is done, but the EEC should not allow itself to fall into the hands of any one pressure group, as it has done over agriculture, with disastrous financial results.
There is no doubt that in any general settlement we must eventually secure agreement on raising the level of the Community's own resources, presumably by the VAT rate, as the report suggests, but only when we know that it will not be wasted in financing even larger agricultural surpluses which have to be sold at a loss. I am delighted to hear that the Ministers of Agriculture are making a real approach to solving the problems associated with excess milk production and the associated mountains of butter and other milk products. I hope that this goes through.
This brings me to the question of sharing burdens and adjusting net contributions. I very much hope that the United Kingdom "safety net" proposals, perhaps with the modifications suggested in paragraphs 120 to 122 to help the poorer member nations, could form
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the basis of a solution to this awkward problem. It has caused acrimony and criticism most damaging to the EEC and probably quite out of proportion to the actual sums involved, as some of your Lordships have noted.
However, I believe that it is absolutely essential to take account of the gut reactions among our people, and I hope that the Government will pursue the problem firmly. It would be really dangerous to underestimate the effect that this irritating question could have on the attitude of our electorate to the EEC, especially if and when irritation is deliberately stimulted by the Left-wing militants. I believe that there is here an argument which our negotiators could validly use with their European colleagues. But no doubt they all have similar problems.
However, please let us remember that the burdens to be adjusted have to be calculated in national currencies and exchange rates. The pound is now worth only about 60 per cent. of its absurdly high value in dollars in 1980. The pound's variation in European currencies has been less and has been obscured by inflation across the Continent. But every time any considerable change occurs, it cannot fail to throw doubt on the validity of any agreement that we may have made about burden sharing.
Therefore, I urge that, as part of the deal we now make and as a condition of it, we agree to become full members of the European Monetary System. I entirely agree with my noble friend Lord Seebohm on this. We already co-operate very closely with the EMS, and I suspect that as things now stand we have most of the trouble and not many of the advantages. I can assure your Lordships that uncertainty about the exchange rate is a major impediment and embarrassment for our businessmen everywhere, especially for our exporters and importers and for all who have to conclude contracts abroad.
I believe that this change would be a major asset for our economic recovery. The EMS has not been unduly rigid and in recent years has dealt efficiently with many awkward questions. After my experience of OECD, I have no doubt that the British can help even more than they already do if they become full members. That would be to the advantage of all of us and I believe that the change would be very welcome to our partners on the Continent.
May I emphasise here that, if our economic recovery is to continue, it is vital that our business community should be able to rely on stable conditions. If exchange rates, interest rates, commodity prices or taxation rates, rules and conditions or, indeed, industrial relations are unstable, then boards of directors, farmers or any authority you like to name will hesitate to make the investments which we all need and will usualy put off a decision until a situation becomes clear.
I hope that the negotiations in Brussels will lead to more stability, not less, because otherwise I am sure that our economic recovery in Europe and in this country will suffer. In this connection may I say from these Benches how very helpful I think the Chancellor's Budget is likely to be for Britain's economic recovery. We really do need a European settlement of the future financing of the Communities to complete the picture.

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Finally, I want to make a major point of policy. The good health of the European Economic Community is, I am certain, of major importance to all of us in Europe. I entirely agree with what my noble friend Lord Roberthall said about that. If the EEC were to founder, its demise could not fail to shake confidence all over the world—in North America, in Africa, in Asia and beyond, as well as in NATO. I believe that those would be the sort of circumstances in which some major miscalculation in the Kremlin, or among its hangers-on, might threaten the security of world peace.
It is time that the nations of the EEC settled these relatively small, if very irritating, questions and began to take much broader, strategic, forward-looking views. We are bound to cause a good deal of acrimony over the problems of financing the EEC, which really must now be settled. But let us balance this by ourselves promoting an approach to broader, strategic, forward-looking developments in the EEC. The report makes some valuable suggestions about this in paragraph 137, all of which I support. However, I conclude by leaving with your Lordships one final germinal thought. The European Economic Community is already an economic giant. Must it always remain a political pigmy?
7.58 p.m.
Lord Molloy: My Lords, I, too, should like to congratulate the noble Lord, Lord O'Brien of Lothbury, and the members of his committee on producing this extraordinarily valuable report, which, by and large, I support. What I found particularly good about the report was that it compelled one to think and go beyond the terms of reference to which the committee had to adhere. I believe that that is the acid test of a good report, and it did that. When the noble Lord, Lord O'Brien, moved his Motion in his expert way, he said, quite rightly, that this report was easy to read and easy to understand. That is certainly so. If one has read it and understood it, one is compelled to agree with the conclusion that the EEC is in a mess. That is where we have to start our thinking.
We were also encouraged by the remarkably good speech that we heard from the noble Lord, Lord Cockfield, from the Government Front Bench. If we despair too much, we should perhaps take heart from the example he gave when he said that we cannot build Utopia in one year or even 10 years, but we have to struggle on until we can begin to see it taking shape. I hope that the noble Lord holds those views on other economic issues that apply to ordinary people in this country, because they are very good views indeed.
Arising from one of the remarks made by the noble Lord, Lord Cockfield, I have always greatly criticised the EEC for its concentration on farmers—I have never met a poor farmer in my life—and its concentration on bankers—and the same applies to them. I have never heard of a banker being in a dole queue; I have never seen a farmer with his pitchfork signing up for some special assistance. They get it poured on them. This is what ordinary people know is unfair about the EEC.
Many of us on all sides of the political firmament want it to be a success. Speaking personally, I was
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opposed to our entry. It does not give me much encouragement to realise that all the things which, before we went in, I said might happen have in fact happened. I wish it were possible to say that they had not happened, but they have. That catalogue has been listed in Lord O'Brien's report today. We have to think deeply where we are going. We do not want to do as we have been doing over the past 10 years—enduring the frustrations of a broody hen sitting on a china egg.
We have heard all the arguments which still go on, and which started seven or eight years ago, about the gobbling up of funds by the CAP, of the beef mountains and the wine lakes. I went to have a look. I realised that the finance for the housing to put these beef mountains in, and these tremendous contraptions for saving the wine, could have wiped out half the homelessness of Britain, France or Belgium if that money had been spent in that way. So I said to myself that there was something wrong here, and that is what ordinary people say. This is underwritten in this magnificent report.
Our mistake has been in trying to be reasonable people—both our continental collegues and ourselves. We have nurtured the problems instead of trying to resolve them. In consequence, here we are in 1984 realising that this dream is slowly turning into a nightmare, when two-thirds of the budget this year will be allocated for farm spending to keep up the income of about eight million farmers and their farm workers. Everybody who works in every other industry—digging coal, making electricity, building houses (when they are allowed to come off the dole and do that)—says, "What about us?" The nurses, doctors, specialists in the health service, say, "What about us? What is special about the farmers? We know we have to eat, but if we do not eat they will not have the need to grow anything and will not get any profits". It is this simple thinking of ordinary folk which quintessentially is where our minds ought to be concentrated.
We also have to acknowledge—and this is where I thought Lord Cockfield's speech was so important in bringing back the idealism—that there is much bitterness within the Commission and in the EEC generally. At Athens, for example, the meeting of the foreign and finance ministers almost looked like a match between that body and the Brussels Commission. The umpire and the proposer recommended—that is, one of the Brussels commissioners—that the basis of each state's budgetary balance should be calculated differently in order drastically to reduce by one half Britain's real budgetary imbalance.
I would say that that was plain cheating. Therefore, I agreed with Commissioner Tugendhat when he said that the gentleman was suggesting that we should cook the books. He must have been an economic masseur of some sort. The President of the European Commission declared last month that member states must contribute more or, said Mr. Gaston Thorn, the regional and social fund would have to be plundered. In the view of a former leader of the Tory group, the entire Commission should be sacked.
Then I read today in the British press that Mr. Gaston Thorn says that we will require £1 billion more to make the EEC budget a reality. It is this sort of thing

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that we have to try to understand and see where on earth we are going. What has the membership of the EEC done to help our nearly 4 million unemployed? What has it done almost to bring about a strike in our National Health Service? There is something wrong somewhere. Is it because we have left too much to economists with these funny terms, "macro 1, 2 and 3", whatever they are, and neglected the real purpose of why the EEC was created, as the noble Lord, Lord Cockfield, said, which was to deal fundamentally with the humanities?
The proposal that the British Government are, or will be, submitting in the near future about the safety net I think is all right, but it can be regarded as only a temporary measure. What we are not doing is to try to resolve the most serious abscess on the body politic of the EEC, which is CAP expenditure.
The Select Committee agrees that the increase in Community resources will soon be necessary. I believe that that must be so. That is logical. If we are going to get on better and better, do more and more things for ordinary folk, and not concentrate on farmers, then we need more money. I would welcome the day when we had a debate in this House because, having taken the principle of the Good Samaritan and made it a reality in Great Britain, it was now going to be made a reality in the 10 or 12 countries of the EEC. Then we shall be making something real of the European Economic Community.
It is a return to this sort of thing that is important, based on the future financing of the EEC, which Lord O'Brien's committee has been examining—and I believe the report ought to be made a standard textbook in the next year or two so that we can examine just how far we are going—and, allied to that, the principles enunciated by the noble Lord, Lord Cockfield. If a partial solution is based on, as it was once described,
"a binding and permanent system to limit national contributions to the central funds in relation to national gross domestic product",
I shall have to reread that to find out exactly what it means. I think I have some idea. What we have to be able to say is that, whatever these things might really mean in economic parlance, the ultimate objective is to raise the standard of life of ordinary people so that we can remove from them the horrifying question of whether the EEC is a dream or a nightmare.
During the referendum I am bound to say that the antis—those of us who were opposed to entry to the Common Market—were much nearer the truth than the pros. Nevertheless, the people of our island race determined that we should go in, and we have gone in. All that has happened is not because of our entry, but the EEC has limped from one crisis to another and resolved very few of them, and is constantly shouting out for crutches to help it along. We must try to get back to the fundamentals of what we were told we could achieve by entry into the Common Market.
One of those was not merely a widening of the boundaries of that great principle of the National Health Service, but also that we would develop more and more cheap, wholesome food, together with the fact that everybody could afford to buy it because they would be in full employment, and we are not. We have many more of our families in Great Britain this evening, while we are debating this in this House, who
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are worried and sick to death because the husband or the bread-winner is now entering the second or third year of being on the dole. I wonder whether the Commission in Brussels is concerned about this. They ought to be, and we must be.
There are many other things I should like to have concentrated on, but much has already been said. I have to make a criticism of the Government because they have lamentably failed to get more from the social and regional funds which would have raised the status of the humanities aspect a little more. We have seen in the Common Market and in this country this hostility towards training for women. This has meant that we have forgone some £30 million which we could have had since 1979. At the same time we must realise that Government control on local authority spending has prevented local authorities from obtaining money from the social and regional funds for job creation and for training purposes; for an attack on unemployment, particularly an attack on the unemployment of our youth, which must almost be a criminal offence for us to put up with. We have suffered from this myopic madness where sheer incompetence has compounded doctrinaire stubborness.
On 14th February there was a debate in the Strasbourg Parliament on a draft treaty establishing a European union—the so-called Spinelli resolution. Among other things the treaty would remove the power of national governments to use the veto on matters of vital national interest, would take away from national parliaments the control over entries in the Community's own resources and would increase the European Parliament's legislation on budgetary powers. The distinction between compulsory and non-compulsory expenditure would be abolished so that the Parliament would have the power, within a fairly generous upper limit, to increase not only social and regional spending but also agricultural spending.
The facts were that these proposals have been supported on the one hand and condemned on the other. I believe they are a real challenge to the direction in which we are to go. Are we prepared to surrender some of our democracy to be better off for a short time? That is a difficult question, but I would be in favour of rejecting it and trying to find another sensible way. I believe that the ultimate objective should be a budgetary system which reflects the member states' net contribution to their ability to pay, that is the relationship of GDP per head. The United Kingdom is now the fourth poorest member state and must demand—I believe that the Prime Minister is right to demand and she is supported by the leader of the Opposition—that we should now obtain modest net benefits. We should seek to move towards the preamble of the Treaty of Rome to ensure harmonious development by reducing differences between the various regions.
The first move to obtain this needs a drastic reduction in the CAP share of the budget. That must be followed by, or run concurrently with, an increase in the social, regional and industrial spendings. The ordinary people in Italy, Germany, Belgium, France and Great Britain understand the regional, social and industrial spending and that would be a bulwark of morale against the threat of the evilness from the East. I do not suppose that ever enters the minds of the

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economic commissioners. It ought to and I hope that our Government will use their influence because that is vital and shows how high I place social, regional and industrial spending. In helping to obtain this, we should first reduce food surpluses by imposing substantial cuts in support prices for products in structural surplus. We should then shift the burden of support from the farmers through the consumer to the tax payer. The necessity of member states to support their own farmers would bring a sense of realism and open up new options for the future of the CAP and the EEC in general.
In conclusion, I want to say a few words about the European Parliament. I appreciate the hard work that MEPs do, members from all parties, but are they really getting to grips with the problems? Are not their constituencies in our island far too large? If an ordinary person wants to get hold of his Member of Parliament, nine times out often he knows who he is and where to get hold of him, but with these massive European constituencies I think we have made a grave error. I believe we were far better off when we sent members from this Chamber and from another place to represent Great Britain in the European Parliament. It was a better system than the so-called direct elections. I remember one momentous occasion when my noble friend Lord Bruce of Donington threatened the whole Commission that if they were not prepared to examine the views put forward by the British delegation he would have them examined by the British Parliament and he would call in aid the oldest parliament in the world. That had an effect. Members of the European Parliament cannot do that. I do not suppose that we have the joint meetings that we ought to and we might consider those in the future. We have to do this because we need better co-operation between parliaments, better understanding, better appreciation of control which could lead to the ideals of the founding fathers which the noble Lord, Lord Cockfield, quoted so well. That could mean a brighter future for the peoples of the member states. I believe it would also make a massive contribution to the moral defence of Western Europe, something that we could all cherish. That should be taken into consideration.
These things together mean that henceforth we must call for social justice to be the major flank of the policy of the EEC. If we work for that I believe we can make it not only a success, but a success that we recognise which would bring cheer to the hearts of everybody in Western Europe as well as in our own country.
8.16 p.m.
Lord Kilmarnock: My Lords, at this hour on a Thursday evening your Lordships will be relieved to hear that I have cut most of the decorative preamble from my speech. But I cannot refrain from saying that this report, for which we are so grateful to the noble Lord, Lord O'Brien of Lothbury, and his subcommittee, is one of the more important reports produced by the EEC Committee of your Lordship's House. I do not say that all the other 200-odd red books produced by that committee have not had their importance and relevance, but this draws on and refers back to others in the series and presents a coherent
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approach to where the Community should be going in terms of new development; the sort of things that the noble Lord, Lord Ezra, was talking about.
We find in part III a summary of the past and future political and economic benefits, though if the Community disintegrates there will be no economic benefits and it is doubtful whether the tender peripheral growth in political co-operation which the noble Lord, Lord Brimelow, sees as the main benefit, will survive. All this makes the need to resolve the present crisis in Community relations, centering largely on the budget, of great importance. This clearly is of a different order of magnitude from previous crises, partly because of the Athens failure and partly because the series of ad hoc refunds requiring yearly renegotiation have created an atmosphere of acrimony—a word used twice in the Committee's report and I think the noble Lord, Lord O'Brien, used it once in his speech—in which no healthy partnership can survive.
While rejecting the juste retour concept in favour of a mildly redistributive approach leading to a convergence of member states' economies, the Committee shows through the tables 1 to 5 of Annex 2 both the unfairness of Britain's contribution and net returns in relation to our GDP and the haphazard form in which such redistribution as occurs takes place. The anomalies of the system are well illustrated in paragraph 116 from which we learn that Italy, which is the third poorest member state, gets less than half the net benefits per head received by Denmark which is the richest, and Greece receives about one third of the net benefit received by Ireland, although it is significantly poorer.
In essence there are three interrelated problems to be solved. There is the control of CAP expenditure, there is the permanent correction of unbalanced net contributions like ours and the obvious need to increase the Community's income or own resources if any viable schemes, such as ESPRIT, for example, are to get off the ground or if the long deferred entry of Spain and Portugal is to take place.
Under one of these headings, the CAP, the meeting of agricultural ministers on 11th to 13th March as we heard yesterday, made modest but definite progress on the milk quotas and the butter subsidy. This is to be welcomed but at the same time it has to be said that the Commission has, over several years, advanced proposals on CAP reform which has been largely ignored. For that reason I very much welcome the recommendation made in paragraph 139 (iii) that Ministers of Finance should in future be closely associated with these negotations so that other and more general interests may be represented. The noble Lord, Lord Barnett, had doubts about this but I think the noble Lords, Lord O'Brien, Lord Bruce-Gardyne and Lord Hankey, had the better of that argument.
It is wrong, as the committee said, that the interests of the farming community should totally outweigh those of consumers and taxpayers. There is, in the committee's words, all-pervasive support that no other branch of European industry enjoys. This is all the more open to criticism when the numbers employed in farming in the 10 member states have declined from 17 million to 8 million in the past 20 years. The agreement of the agriculture Ministers is only a tiny

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step forward. It is therefore worth looking at some of the mechanisms proposed in the report for a more general re-designing of the budget.
On the agricultural side, the committee are sceptical of quotas and super levies on their own and they back the Government's line that there should be a cash limit on CAP expenditure. The committee recognise in paragraph 98 the political sensitivity of this issue in all member states but they are right, in my opinion, to advocate in paragraph 96 that the adverse effects of such policies on disadvantaged farmers should be mitigated by direct income aids, presumably through the social security system.
Let us look at the possible mechanisms advanced by the committee to achieve wider and more lasting budgetary reform. They rightly say that such reforms cannot be brought about merely by operations on the expenditure side or on the incomes side. They want unbalanced contributions to be corrected by a safety net based on the GDP of each member state; but they point out the difficulty of comparing GDPs at fluctuating market exchange rates. It is interesting to learn in paragraph 112:
"Exchange rates movements have largely determined the apparent increase in United Kingdom GDP per capita from 75 per cent Community GDP per capita in 1978 to 98 per cent in 1982".
The Commission has proposed an average of two indices, but the very existence of this technical problem is surely yet another argument for our joining the EMS, under which such comparisons would be much easier and the complicated system of MCAs could be phased out.
On the incomes side, the committee refers to the Commission's ingenious proposal to modulate or adjust the VAT contribution by relating it to an individual member state's shares in agricultural production, modified to take some account of relative prosperity. Modulated VAT, as envisaged by the Commission, would be on the basis of three indicators: the share of member states' final agricultural production; the GDP per head in each country; and each country's share in the Community's net operating surplus. So long as the total agricultural expenditure exceeded 33 per cent. of the total budget the difference between that and the actual proportion of agricultural expenditure would be financed through the modulated VAT. The bottom tranche of expenditure would be financed in the normal way; so that if agricultural spending amounted to 60 per cent. of the budget, then 27 per cent. would be financed through modulated VAT. This alone would not be sufficient (and the Committee said so) to eliminate the German and United Kingdom problems; but, in combination with other measures, it could be very effective. Although it did not find favour at Athens, I hope that the Government have not rejected it. It would achieve two related aims. It would reduce the imbalance in contributions and provide a fair basis for an increase in own resources. I should be most grateful to the noble Lord, Lord Cockfield, if he will comment on that when he comes to wind up.
This brings me back to the committee's firmly-stated conclusion in paragraph 138(i):
"For the Community to develop fruitfully and dynamically an increase of its financial resources will soon be necessary".
It is not only a question of the threat of bankruptcy nor
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of the barriers to any form of joint industrial research and development, for without more money the entry of Spain and Portugal will become virtually impossible.
As a Hispanophile and, to a modest extent, a Hispanist, I want to dwell for a moment on what we call enlargement. This unemotive, factual word does little justice in the case of these two countries to the heartening and praiseworthy political progress that they have made in recent years. Of course, we pay lip-service to the need to strengthen and underpin democracy, and so forth, and we recognise that membership of the Community will contribute powerfully to this end. But I wonder whether we have taken on board the quite remarkable achievements of the King of Spain and the post-Franco Spanish Government in steering their country between the reefs of terrorism and militarism.
True, the British Government's record has not been bad. Even the difficult Gibraltar question has not weakened our commitment in principle to Spain's entry. Only yesterday the noble Lord, Lord Trefgarne, after repeating a Statement in this House, went on to say (at col. 745 of Hansard) that the Government would be prepared to countenance a modest net contribution to achieve that particular outcome. I believe he was referring to the Spanish and Portuguese entry to the Community. But Portugal and Spain have been candidates since March and July 1977 respectively. How long can a country eager to integrate with Europe be kept outside the gates; and if that gate is never opened, where will that country go instead?
On the economic side of enlargement, I wonder whether the threat to our interests has not been exaggerated. I do not deny the difficulties over Mediterranean products, but I repeat my view that small farmers disadvantaged by a stricter CAP are proper subjects for relief by expanded regional and social funds and to some extent by national social security policy assistance. On the industrial side, following trade agreements in 1970 and 1976 Portugal and Spain have had access to the Community market and the effect of their exports has been very largely absorbed. Spain now ranks tenth among the industrialised countries of the world. Does not that, too, provide us with opportunities? Given the well-known appetite of Spaniards for latest brands of consumer goods, I should have thought that there could be a considerable dynamic effect on our economy following their entry. But there will be no enlargement and no dynamic effect if there are no new resources.
I would remind the House of what a number of noble Lords have said about the relative size of the money that we are talking about. The noble Lord, Lord Seebohm, referred to a cost of £7 per head to the citizens of this country. We have heard also that the size of the Community's budget in 1983 represented less than 1 per cent. of the Community's GDP and about 2 per cent. of total public expenditure in the Community. There is another point the committee made which no one else has mentioned so far this evening, and which should not be overlooked. It is that hostile British opinion has been moderated. This was one of the lessons that emerged from the last general election. Let us not forget that.

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Finally, in case my approach should be thought to err on the side of wetness, I should like to call in aid the Financial Times leader of the 12th of this month, which made some hard-headed, practical suggestions. In return for a durable system of compensation in place of the traditional annual haggle, it argued, the United Kingdom should be prepared to settle for smaller proportions of compensation than in the past. The article went on to assert that a similar trade-off must come into play over any increase in the Community's resources. The Commission has proposed that the VAT ceiling should go up from 1 per cent. to 2 per cent. Several member states want a much smaller increase. Those are perfectly reasonable negotiating positions. The much-used axiom about not going naked into the council chamber commands general agreement; but this does not mean that the only alternative is a suit of armour with rusted bolts.
8.29 p.m.
Baroness Seear: My Lords, we on these Benches have been dyed-in-the-wool supporters of the Community since the day when Monnet and Schuman were first bringing the Community to birth. First, in many ways this report and this evening's debate have been a cause of very great encouragement. The speech of the noble Lord, Lord Cockfield, brought applause unexpected, perhaps, from the noble Lord, Lord Molloy, and also applause from these Benches. We are not often all three in agreement. That makes for a pleasant change.
In the opening paragraph of the noble Lord's speech there was none of the traces of the Gaullism which have so often marred the speeches on the Common Market when they come from those Benches. Even more surprising and encouraging was the speech of the noble Lord, Lord Barnett. I had not realised how seriously I had misread the Labour Party Manifesto at the last election, and the news that the Labour Party is so strongly in support of the Community must give us all cause for good cheer—until, of course, I heard the noble Lord, Lord Kaldor, The noble Lord had read the Labour Party Manifesto in much the same way as I had. Once again I do not often find myself in agreement with the noble Lord, Lord Kaldor, but on this occasion it seemed that his interpretation and mine were much closer together than is usually the case. As for the noble Lord, Lord Molloy, I was still left uncertain at the end of his speech whether he was on the side of the Community or whether he was against it; but I take it that the Front Bench spokesman is the real representative of his party and therefore we must assume that the Labour Party—at any rate today in this House—is in full support of the Community.
When we look at this Report of the noble Lord, Lord O'Brien, and his extremely able committee, we realise that it takes people of real brilliance to make a subject as complex as this appear simple and straightforward; and that is what this report has been able to do. When we look at this report and we listen to the debate, I think the important thing is to recognise the difference of scale and importance of the opportunities and the potential of the Community in comparison with the problems which at the moment we are facing. The problems are with us now; they are real and they fill our minds. But the potential of the Community is
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on an altogether different scale. We must either go forward in the full development of the idea of the Community or the Community will fade away. There is no standing where we are at the present time. As I remarked in a debate on a similar subject not long ago, at the moment we are almost getting the worst of all worlds in relation to the Community. We are not reaping its benefits but we are paying its costs.
The future potential of acting together to face the problems which alone we cannot possibly face is something on which we must focus our minds throughout all these discussions. As regards the political potential, because we have had perhaps slow but real political success, we tend to overlook what has really been achieved in this part. And so far as we have failed to take advantage of the economic possibilities of the Community, to a very large extent this is our own fault. The market is there: the 270 million people are there for us to sell our goods to. If we fail to do so, it is not the fault of the Community but the fault of ourselves, because we have not been able to adjust to the demands of the Community and to win those markets in fair competition with other members of the European Community. That is our fault not theirs.
We have not taken advantage of the stabilising influence of joining the EMS. Here I join with other colleagues in saying that surely now is the time—and this appears also in the report of the noble Lord, Lord O'Brien—for us to enter into the EMS and gain the long-term economic advantages that such membership will give because of the stability it can bring, without which there cannot be any real economic progress.
So against the potential of the European Community, economically and politically, what really is the scale of the problems which we are now facing and which have got to be solved? As has been said again and again, it is the problem of the CAP and the problem of the British contribution. May I say just one word in support of this much-maligned CAP? Of course it has got out of hand and of course it needs to be reformed; but do not let us forget that it has enabled a reconstruction of agriculture in many countries of Europe without the evil social consequences that such reconstruction would otherwise have had. If the noble Lord, Lord Molloy, says that he has never seen a poor farmer, it is a pity that before the CAP he did not see some of the peasant farms of South-West France and the Massif Central, where there was a level of poverty which he would have found very hard to match anywhere inside the United Kingdom. It has been possible for the countryside throughout Europe to do that reorganisation and to save depopulation because of what the CAP has been able to do. It has largely done that, but it has made many mistakes in the process and therefore it is surely high time that it was reformed and that the proportion going to the CAP in relation to the other areas on which money should be spent should be drastically changed.
Also, of course, so much would not have gone to agriculture, as my noble friend said in his speech when he opened the debate from these Benches, if we had been there when the Community was being formed. The emphasis on agriculture would not then have been so great and the emphasis would have shifted, as it should shift now, to the social, economic, industrial

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and other fields. So the changes in the CAP, we all agree, must come; and that is the immediate fight.
There is also the question of our contribution which needs to be met, but—here I am only underlining what other Members have said—the amounts of money involved are chicken feed in relation to the scale of the opportunities in the EEC in the long run. I would say that in part it is a matter of attitude. Nearly every Member, and certainly the noble Lord, Lord Cockfield, has said that there can be no increase in our contribution and there can be no increase in own resources until these matters have been settled. Why not put it the other way round? Why not say: "There will be an increase in own resources. We will increase our own contribution once these other issues have been settled"? It means exactly the same thing but the tone is totally different, and the tone of our voices, and particularly the tone of the British voice when we talk at the summit next week, is enormously important.
We have been discussing these issues here in Westminster, but many of your Lordships know that when this is being looked at in Brussels the approach of the British has been seen as arrogant and grasping and "anti-Communaute" and has failed to show an appreciation of what the Community is really all about. I am not for one moment going back on the importance of insisting that we get these two problems solved, and rightly solved, or denying that anything much is wrong. But if only we can show our enthusiasm for the development of Europe, our determination to make our contribution and to do so in such a way as to convince our partners that we really are members of a European Community and not just a member fighting our own corner, then the chances of success would be a great deal better.
8.38 p.m.
Lord Ardwick: My Lords, I was a member of the sub-committee whose report we have so intensively discussed today and I am proud of the work that we did. I am grateful for the skill of the special adviser and the clerk, working against a deadline to bring order and clarity to a difficult and emotive subject. I am also profoundly grateful for the leadership of our chairman, the noble Lord, Lord O'Brien. This report could very easily have been turned into one more angry demand, with detailed justification for a lower British contribution to a scaled-down Community. It is the opposite of that. It is even-tempered throughout and it begins on a positive note. May I say that I was delighted to hear the noble Lord, Lord Cockfield, catch that mood himself today. It was a generous, hopeful and creative mood.
The Report begins by saying that a unanimous decision is needed to place further resources at the disposal of the Community, but stubborn obstacles impede this decision. While the problems of the increasing cost of the CAP, and the failure to find a long-term solution of the problem of net contributions towards the Community's financing remain unresolved, it is difficult to develop the Community positively and creatively and to agree upon the financial resources required in future.
The noble Lord, Lord O'Brien, stressed the positive and the creative sides of the report. If only this spirit had informed Britain's approach to the problem from
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the beginning, if only this message had gone out with every speech calling attention to the injustice that was being done, then the journey to a solution might have been no shorter but it would certainly have been much smoother.
One of the difficulties has been that the very question of membership of the Community has been part of the domestic political argument, and the Conservative Government have been able to win favour with both pro-and anti-marketeers by pitching their demands on their European partners in harsh terms. But now we are in a new period. The election is behind us, and even the old sceptics in my own party recognise that we are in the Community for some years ahead at least, and that we would be wise to make the best of it. Our policy has been questioned. What I am saying is that it seems to me to be a developing policy.
One of the positive factors, in which I take great pleasure, is that my party is establishing closer, more comradely, relations with the very positive socialist group in the European Parliament. I was a member of that group for four years, in the days when we had a nominated Parliament; and the British Labour Members, instead of having an agreed national policy, instead of having a caucus, were members of the socialist group as individuals and free to express their own views. Those who started out as sceptics may not have changed their views fundamentally. Nevertheless, they were very different people, with very different attitudes to Europe, at the end of their period of service.
One of the current hopes of the socialist group in the European Parliament is that one day the member nations will agree to co-ordinate their policies for economic growth. We have all learned from sad experience that no nation alone can attempt an expansion of any vigour without running into trouble. The French were the last to learn that bitter lesson. But there is in Europe among European socialists—and not only among the socialists, but among other groups, too—the knowledge that moving forward together can be far less dangerous than attempting expansion alone. One day that expansion must be attempted. We cannot live for very long with this appalling unemployment that spreads from this country right across Europe.
On the eve of this critical summit, the air is loud with the lamentations of ardent old Europeanists, as well as with the sharp cries of the critics and the sharp cries of the defenders of the status quo. The ardent old Europeanists long for the days when the Community had strong political leaders, with an evangelical zeal for European union. Those days, I am afraid, are long past. They belong to the golden youth of the Community, when the leaders were able to contemplate—such was their self-confidence—monetary union in about 10 years' time. They did not even bother to think out the difficulties ahead of such an ambitious attempt. All they said was that reason would follow the path that faith had prescribed.
This was the Community of faith that we entered; and then, almost at once, came the oil shock and the consequent recession, of which the noble Lord, Lord Ezra, spoke a few moments ago. The moment we went into the Community, the golden age ended and the

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dynamism went into decline. Every Government in the Community faced difficulties at home. Some of them experienced crisis after crisis and were under threat, particularly those based on rather fragile coalitions. There was unemployment, there was inflation and governments were in trouble. Ministers had the greatest difficulty in the Community in doing anything other than defend their own immediate and short-term interests. Of course, the old rhetoric remained for some years. It gradually died away; but the action to support the rhetorical hopes was lacking or was minimal.
We have seen recently—I think we have learned something of the mood of Europe—the anger and despair of the European steel workers as their old industries have to be cut down. We have seen them turn their anger on Brussels, as though the Community was the cause of the very problems that it is trying to rationalise and to smooth out. We have even seen the anger of the French farmers; and other farmers, I suspect, will follow their example in the next few days. A week or two ago, we saw the stubborn fury of the lorry men—as the noble Lords, Lord Seebohm and Lord Ezra, have reminded us—frustrated by the national customs officials who were behaving as though their country was not part of a free trade area.
The consequence of all this is that the Community has slowed down its development. It has been slow to discard its tariff barriers. It has not been able to create its regional and social policies to balance its agricultural policies. The linked problems of fair contributions and the CAP, in one way, are just another set of the problems which the Community has not yet had the heart and the will to solve. Yet these last ones, the ones we are discussing today, are special problems—key problems—because, as the report points out. the Community cannot get the resources it needs for creative development until these problems are settled.
The Community has of course made some modest progress, as the noble Lord, Lord Cockfield, pointed out. Even in these years of difficulty, the Community has developed the regional and social funds considerably, if not nearly enough. It has created the EMS and the ECU. It has used its giant economic strength to reach trade accommodations with the Americans and the Japanese, and it has developed its external political co-operation quite considerably. I remain hopeful. I cannot believe that the Community will fail to solve both these problems. I cannot believe that the Community has no future, except slow disintegration and a heightening of national barriers between member countries. Indeed, I see us now at a turning point in the history of Europe.
We are in the early days of a new industrial revolution, based on a variety of new technologies. Surely, the lesson is clear enough to all the statesmen of the member nations that, unless the Community shares its research and development, and unless it fosters joint companies with the whole of the Common Market freely available for their products, then we shall be left far behind America and Japan. In the transition, as the old industries recede and the new ones emerge, Europe—the Community—must do all that a community can do to minimise the subsequent unemployment.
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But not only are we on the threshold of a new industrial age. The political scene is developing on new lines. The best Europeanists have also been good Atlanticists, but the United States has thrown up a succession of presidents whose loyalty to the alliance is not seriously doubted, but whose political wisdom does not match their military strength. It is more and more essential to put the European political voice, a united voice, into the alliance. Doubts have grown in the past two or three years, when a combination of a nuclear arms race and hostile rhetoric has frightened many of us in Europe. The result has been to create what is called a peace movement of formidable size and some political influence. The West European nation do not have an identical view, even about the grand strategy of the alliance. But there is a general interest in preserving or restoring detente with the massive power on the community's eastern frontiers.
New ideas of defence are developing, all of them very different, from the simple faith in nuclear superiority to the simple faith in nuclear disarmament which we have known in the last 25 years. The Community has always prided itself on being a civilian community, not the European wing of NATO. But new ideas are now stirring about a defence community. They will require a great deal of anxious thought. I mention this only to make the point that there is nothing static in Europe. Europe is on the move. European thoughts are moving in new directions. We must hope that the leaders of the community will take courage, solve the most pressing of their problems and try to make the next 10 years more creative than the past 10 have been.
8.51 p.m.
Lord Cockfield: My Lords, with the leave of the House, I will endeavour briefly to reply to at least some of the points which have been raised in the debate—perhaps not briefly enough, having regard to the hour of the night, but certainly too briefly having regard to the importance of the contributions which have been made to the debate.
This is one of those rare but memorable occasions when a subject has been illuminated not by political disputation but by careful, thoughtful analysis of the problems which arise. A great diversity of views has of course been expressed, but that perhaps is as well. However, the one point which has come through so very clearly is the widespread support for our membership of the Community. It is not quite unanimous support, but certainly widespread support, and it is very deeply felt. I share this support for our membership; but just because we support our membership that does not mean that we ought to accept terms which we believe to be unsatisfactory. Nor does it follow that if we take, as we propose to take, a strong line in the defence of our national interests, this could lead to the stagnation or even the collapse of the Community. What the noble Lord, Lord Ardwick, said on this point was of very great importance. The Community does have great strength. It is very important that it should develop, and that it should go ahead. It is a Community where there does exist a very great community of interest among the members.
In my opening remarks I made the point that we have benefited very greatly from our membership of

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the Community. But, equally, other members of the Community have benefited very greatly from our membership. So there is a basis of community interest, out of which a solution could and, indeed, must emerge.
A number of noble Lords—in particular, the noble Lords, Lord Gladwyn and Lord Barnett—seemed to suggest that our present level of contributions was not an excessive burden. The noble Lord, Lord Gladwyn, even seemed to contemplate the possibility of an increase. The sums involved are not inconsiderable. In 1982, our net contributions before refunds amounted to approximately £1,200 million, and about £550 million after the refunds. Our net contributions for 1983 are likely to total £1,100 million, and around £700 million after taking into account refunds. The fact that they are not large in relation to our total GDP does not alter the fact that they are large in absolute terms; nor is there any reason why, irrespective of what the figures are, we should pay an unfair proportion or should accept a situation where CAP expenditure is allowed to increase without restraint. These are perfectly legitimate points to make, and they do not reflect in any way upon our commitment to the Community.
There was, I regretted to see, a streak almost of pessimism about the ability of the Community to solve these problems. Frankly, I do not agree. The noble Lord, Lord Brimelow, referred to the agreement which had been reached at Stuttgart. This clearly illustrates that at bottom there is a will to solve these problems. This point was underlined by the noble Lord, Lord Ardwick, in his concluding remarks. The 1 per cent. VAT ceiling on own resources cannot be increased without the agreement of all 10 member states.
The 1 per cent. VAT ceiling did in fact constitute an integral part of the terms on which we joined the Community. It dates from the 1970 own resources decision, which has treaty status. This is the answer to my noble friend Lord Bruce-Gardyne. It is simply not a matter of our wanting to alter the rules. All the other member states want to alter the rules, too. This is where the pressure to increase the 1 per cent. VAT ceiling comes from. It is perfectly valid for us to say that if the rules are to be altered they need to be changed in a way which meets our requirements as well as those of other members.
The noble Lord, Lord Brimelow, very properly made the point that willingness to tackle these problems was directly related to the availability, or perhaps I ought to say the non-availability, of money. My noble friend Lord Maude of Stratford-upon-Avon equally made it clear that no real reform was likely until the money had run out. That, of course, is the position which we face today, and it is equally why we are determined that the 1 per cent. VAT ceiling should not be increased unless and until the crucial points which I set out in my opening speech are met.
I take entirely the point that the noble Baroness, Lady Seear, makes about the tone in which things are said, but I need to enter one reservation on that point. It is crucial that there should be no misunderstanding of what the position is here—and there have been instances in the past of such misunderstandings having arisen.
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Inevitably this takes one to the CAP. There is and, indeed, there has for a long time been general agreement that the cost of the CAP must be controlled. Efforts have been made, but unfortunately so far they have failed. It is quite right for the noble Lord, Lord Barnett, to talk about the difficulty of controlling agricultural expenditure. That is precisely why we want an overall limit embodied in the Community's budgetary arrangements which binds the commission and the council in price fixing.
A number of noble Lords raised the question of the inclusion of finance ministers in CAP negotiations. We ourselves in the past have argued this point, but it did not find much favour with other member states. For the future, the most important point is to agree on the strict financial guideline. It is in this way that finance ministers would be able to exert pressure on the price negotiations, and this would be embodied in the Community's precedures. But we do not rule out some role for finance ministers as an adjunct to a satisfactory and binding guideline.
Still on the question of the CAP, a number of noble Lords—the noble Lords, Lord Brimelow and, later, Lord Molloy—raised the question of the possible financing of the CAP by individual national members. This possibility was raised by the President of the Commission, M. Thorn, in the European Parliament on 14th March. We have made it clear that the object is to secure control over agricultural expenditure. There may eventually be a case for national responsibility for some aspects of the CAP which currently fall on the community budget, but we will oppose national financing as a temporary expedient simply to bale out the CAP. The major problem is to solve the CAP. It may then be that one can move on to other measures as well.
It is perhaps an indication that there exists real hope of progress that agreement was reached this week on measures to deal with the growing milk surplus, which has been one of the biggest threats overhanging the Community. It is perfectly true that an additional supplementary levy—in addition to the co-responsibility levy—will be raised for a limited period of one year. This was the point raised by my noble friend Lord Tranmire. We share his views; we do not like the co-responsibility levy. It has, in fact, proved ineffective in milk production and it falls more heavily on the United Kingdom than on some others. We agreed to the 1 per cent, really as a quid pro quo for the transitional arrangements which have been made, I may say, very much in order to protect our own farmers, to ensure that the full reduction in the tonnage of milk will not occur until next year and that this year there will be substantial progress—but not towards the full amount of the target. That results in additonal expenditure. The agreement was that that additional expenditure should be financed through the supplementary levy. That arrangement was, in fact, negotiated really in the interests of our own farmers.
My noble friend Lord Tranmire, as well as my noble friend Lord Maude of Stratford-upon-Avon, raised the question of cereal prices. I agree that there is a serious imbalance between the cereals and livestock sectors of the CAP. The Commission have long paid lip-service to the need to improve what is called "the hierarchy of prices". We are seeking in the current negotiations to

939
achieve some hard decisions on cereal prices and, ultimately, the objective must be alignment with world prices.
A large number of noble Lords—the noble Lords, Lord Gladwyn, Lord Seebohm and Lord Hankey, and the noble Baroness, Lady Seear—all advocated our joining the European monetary system. We have had three debates in your Lordships' House on this particular subject. I had the duty (I will not say the privilege) of replying to all three of those debates, and I hope I may be forgiven if I do not now embark upon another debate on the European monetary system. Briefly, the position remains that Her Majesty's Government keep the question of membership under review. Several factors which bear on decisions—including the special position of sterling as a result of the United Kingdom oil production, and the status of sterling as a major trading currency—will have an important bearing on any decision in this field. Interestingly, there has not been much recent pressure from our partners for us to join the exchange rate mechanism.
The noble Lord, Lord Seebohm—and the same point was made by the noble Lord, Lord Ezra—pressed very strongly for progress in developing the internal market. We ourselves regard this as a top priority. We have pressed very strongly for progress on three important aspects in this respect. First, there is the question of frontier formalities. This is what is called "frontier facilitation". Secondly, there is the question of services, particularly insurance, air fares and so on. This is a matter in which I took a very considerable personal interest when I was Secretary of State for Trade. Finally, there is the question of the removal of non-tariff barriers, of which standards and standards requirements are an example. On these points we entirely share the views expressed by most noble Lords.
We agree also with the point made by the noble Lord, Lord Ezra, about the great potential for industrial co-operation across national frontiers. We welcome in particular his remarks on ESPRIT. We believe that this kind of co-operation in research and development of the new information technologies is exactly the kind of enterprise which the Community can help and encourage.
I entirely agree with the noble Lord, Lord Molloy, that unemployment is a major problem which faces this country and the other countries of the European Community. We have had a number of interesting and penetrating debates on this subject in your Lordships' Chamber. My views on this are well known. We all share the same objective. Where a difference of opinion occurs from time to time is on the means which need to be deployed to secure what is, after all, a common aim.
The noble Lord, Lord Kilmarnock, raised a most interesting point about modulated VAT. None of our Community partners—nor, indeed, the Commission itself—has talked about modulated VAT recently. We do not reject the project out of hand, although it is a very complicated concept and the rationale for it is open to debate. We believe that the best way of correcting our unfair contributions to the budget is via the safety net, since it would relate our contribution to
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ability to pay. Modulated VAT would not. in fact, achieve that result.
In conclusion, perhaps I may just say this. Of course, as we all recognise, we face very considerable problems in this field. These problems are greatly accentuated—as my noble friend Lord Maude of Stratford-upon-Avon has said—because of the sheer diversity which exists between the individual member states. Despite this disparity, there is a common interest shared by all the members of the Community. All members will benefit from success, but, equally, all will suffer the penalty of failure. It is this community of interest which offers the best hope of success.
I am grateful to the noble Lord, Lord Hankey, for what he said about the negotiations. We enter these negotiations with determination—a determination which reflects not just our own interests but the interests of our fellow members as well, because success is success for all of us.
9.8 p.m.
Lord O'Brien of Lothbury: My Lords, at the conclusion of this debate, may I on behalf of the committee thank all those noble Lords who took part in it. All made impressive contributions to what I think will be agreed was a high level of debate in which political tub-thumping played little or no part. On behalf of the committee I should like to thank all noble Lords for the generous tributes paid to our report. Perhaps especially I should thank the noble Lord. Lord Molloy, whose munificence alone will send the committee away with a song in their hearts. I also thank the noble Lord, Lord Brimelow, who lucidly answered the point raised by the noble Lord, Lord Bruce-Gardyne, which I had fudged. I am grateful to him for his intervention. He is the sort of man who is so lucid and perceptive at all times that in an ideal world he ought to be on all committees.
I also thank the Minister, the noble Lord. Lord Molloy—
Noble Lords: Oh!
Lord O'Brien of Lothbury: My Lords. I apologise to the noble Lord. Lord Molloy. It will be very embarrassing for him. I thank the Minister, Lord Cockfield, for his two magnificent contributions. His splendid statement of Government policy at the beginning and his fielding of the difficult questions at the end gave shape and substance to our debate. The members of the committee are very glad to find that they are marching in step with what amounts to a bi-partisan foreign policy, judging from the contributions of the noble Lord, Lord Barnett, and the noble Lord. Lord Cockfield. I am glad also to find that, despite varying views, as one would expect, on the value of the European Community, virtually all noble Lords support the views expressed by the committee, which the Government also share.
The noble Lord, Lord Cockfield, spoke about the exchange rate mechanism of the European monetary system and his participation in three debates on that subject already. Let me assure him that those debates have not ended. The protagonists will still be after him. All I should like to say this evening is that, although many people have spoken about compromise. I am sure no one wants a fudge on these

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two important points which the committee believe must be satisfactorily settled before any question of an increase in the Community budgetary finance can be agreed. It must be a real settlement not a fudge. I am sure the Government know that as well as anyone.
In conclusion, on behalf of the whole House I should like to give the Government our best wishes for a successful conclusion to their forthcoming negotiations.
On Question, Motion agreed to.

Maze Prison: Hennessy Report
9.11 p.m.
Lord Underhill Lord Underhill rose to ask Her Majesty's Government what further actions they are proposing to take following the publication of the Hennessy Report on the Maze Prison (H.C. 203).
The noble Lord said: My Lords, asking the Question standing in my name on the Order Paper gives us an opportunity to debate aspects of the Hennessy Report: a debate which I urged when the Statement on the publication of the report was made in your Lordships House on 26th January. There are a number of reasons for such a debate. The seriousness of the escape from the Maze cannot be underestimated; the more so as it followed the organised outbreak from the Belfast Crumlin Road prison only two years earlier. Moreover, the publication of the report aroused immediate widespread public concern, considerable media coverage and a strong reaction from the Prison Officers' Association. In addition, since the Question was tabled there have been the statements made following the funeral of the murdered assistant governor, William McConnell.
I urge that I do not intend to go into details of the escape. Nor do I expect the Minister to give any information that may endanger security. I fully appreciate the detailed inquiry carried out by Sir James Hennessy and his team and the comprehensive nature of the report, together with its many conclusions and 73 recommendations; but there appear to be some gaps and matters on which information is required, and also details of action being taken. The report reveals many deficiencies, most of which are mentioned in the conclusions in the report. These weaknesses were not all at the actual prison level. One aspect that seems to stand out is the confusion of accountability at various levels.
It must be put on record that the prison service in Northern Ireland has had to cope with a greatly increased number of prison inmates—an increase from 600 to over 2,500 within the period of 15 years from 1969—and with the consequential rapid increase in staff. There are further exceptional conditions which should be put on record. Paragraph 1.15 of the report states:
"The vast majority of the inmate population had been convicted of offences connected with terrorist activities. They were quite unlike the population of any prison in England or Wales in their dangerousness, there allegiance to a para-military organisation, their cohesiveness, their common determination to escape and their resistance to the efforts of the prison authorities to treat them as ordinary criminals".
If I may quote another extract, paragraph 3.01 states:
"Once they have been convicted most prisoners settle down to serve their sentences and ask nothing better than to be left alone to
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do so. But the para-military prisoners of Northern Ireland are taught from the time they join up that if they are caught their first duty is to get out and rejoin the fight".
In paragraphs 8.05 and 8.06 are set out the considerable pressures on staff and the threats and often personal attacks on them and their families or their homes.
Recently I have been given details of many threats and attacks made on a number of members of the staff since the publication of the Hennessy Report. We should keep in mind that 23 members of the prison service have been murdered. I think that everyone was moved by the recent murder of William McConnell, the deputy governor of the Maze, and the letter that he left giving a premonition of his possible death.
Paragraph 7 of the introduction to the report states:
"The Northern Ireland Office made available … all papers relevant".
Paragraph 4 states that the inquiry team:
"interviewed 115 past or present members of staff".
There is no reference to any formal meetings with the Prison Officers' Association or with the Prison Governors' Association, yet I am informed that Sir James met representatives of the POA who gave him minutes of their meetings with the Maze governor. Why is there no reference to these two matters?
The report stresses the prevalence of a military command structure operated in the prison by the paramilitaries and their influence in getting previous orderlies removed and the selection of their own men, including some who were very high risk. The Prison Officers' Association alleged that this was tolerated by the authorities, and although they voiced various complaints and apprehensions there is no reference to that in the report.
Your Lordships will recall that, when responding to the Minister's Statement, I referred to the problem of morale in the prison service, and this question comes out in various parts of the report. This has also been emphasised at meetings I have had with representatives of the Prison Officers' Association. Although the report comments favourably on the efficiency and conscientious work of many members of the staff, paragraph 8.03 states that others show little concern for their duty.
I am certain that all noble Lords will agree that breaches of duty cannot be condoned, but this may be linked to the emphasis in the report on the comparative inexperience of many of the staff and also the inadequate training. Paragraph 1.13 states that the Maze staff numbers about 1,000 but only 4 per cent.—that is some 40 officers—had 10 or more years' service and that almost 50 per cent, have served less than four years. Paragraph 8.10 refers unfavourably to the training given compared with that received by new entrants in Great Britain. I understand that following the report training is to be improved, but why was there this lack of adequate training? I appreciate that the Northern Ireland Office is a separate Department of State, but is there no check on such matters with the United Kingdom Inspectorate of Prisons? Are there no consultations between the Home Office and the Northern Ireland Office prison service? There are criticisms in the report of faults in deployment and management of staff and of various security matters.

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Were there no consultations on these issues? Were there no visits to check on them? Who is it who talks to prison governors about these particular questions?
The Prison Officers' Association has expressed serious concern about what it considers to be political agreement reached on the five demands by the paramilitaries following the end of the blanket protests and hunger strikes. The report deals with this matter in paragraphs 1.08 to 1.10. I do not intend to comment on whether or not such an agreement may have been appropriate in the circumstances; but the Prison Officers' Association felt, and still feels, very strongly that it was in no way consulted. It was not taken into the authorities' confidence about something which in the absence of any such consultation looked to the prison officers like appeasement—yet they had to carry all the subsequent problems and stresses. This particular aspect of the change is dealt with in paragraph 9.27.
If I may, I shall just quote the last part of that paragraph. It concludes:
"the effect on staff morale was considerable. Many members of the staff spoke to us of this period of great bitterness, suggesting that thereafter there was no point in attempting to resist the prisoners' demand; the best policy was to appease them".
It has been stressed to me that one of the essential aspects missing from the training of officers is the psychological one of how to handle pressures exerted by the prisoners.
The report refers to the selection of high-risk prisoners as orderlies and also to the allocation of work. Paragraph 3.10 states:
"The Security Department should also have advised on the selection of orderlies and monitored their selection and employment".
Paragraph 3.11, which refers to the problems of providing employment for all prisoners, states:
"It would, in our view, have been prudent to have sought the advice of the Prison Department, who were unaware of the difficulties, before doing so".
The Prison Officers' Association states that concern on these two particular issues was stressed time and time again, but that instructions came from above. In fact, it is alleged that in the allocation of duties the prison officers had foisted on them a system which they had little power to control. That would appear to be borne out in paragraph 3.11, which states:
"the Governor had been instructed"—
instructed, my Lords—
"at the end of the most recent hunger strike to provide employment for all prisoners ending their protest".
Paragraph 9.03 points out that,
"the Director of Operations makes it a practice to spend two or three days a week visiting establishments and this, together with his close personal knowledge of the Maze, should ensure that he is up-to-date with developments in the prison".
I must ask: why, then, were all the many complaints made by the Prison Officers' Association apparently not given attention; or, if given attention, not acted upon?
It is also alleged that no Minister visited the Maze for a period of nearly two years, up to July 1983. Is that correct? If it is, one must ask: why?
In the period from July 1982 to June 1983, some 13 meetings took place between the governor and the
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Prison Officers' Association at which, it is claimed, 30 approaches were made by the POA with reference to manning levels and many aspects of security. It is also claimed that the staff were fully aware of the inherent dangers, and in consequence made management also aware of those dangers. It is alleged that repeated requests for standby reinforcements were met with the argument, allegedly supported by Home Office advisers, that deployment of additional officers would not ameliorate the situation, but could provoke the prisoners and be counter-productive.
I have seen summaries of issues raised at these meetings, and they show a wide range of important matters. Obviously, it is very encouraging to know that the governor held regular meetings with the Prison Officers' Association; and I understand that minutes of the meetings were agreed between the governor and the association, following which a copy was sent to the Northern Ireland Office after each meeting. So far as I can see, the Hennessy Report makes no reference whatever to those meetings, to the minutes or to the serious issues raised in them, nor to their submission to the Northern Ireland Office. Again, I must ask: why? I am assured that copies of the minutes were handed to Sir James when he met the Prison Officers' Association. What happens to such minutes when received at the Northern Ireland Office? Are they acted upon? If so, by whom, and how? I am not seeking to be an apologist for the Prison Officers' Association, but these various points need to be explained and clarified in the interests of restoring confidence and improving future proceedings.
A press notice, issued by the Northern Ireland Office, of a meeting of the Assembly Security and Home Affairs Committee with the Secretary of State on 28th February stated that 27 of the recommendations are being implemented and a further 46 are still under consideration. I would ask whether the Minister, without giving information that he should not give—I know that he would not—can comment on that statement and on the progress. In my view, what we must ensure in the context of the Hennessy Report is a good and humane prison system under the control of public scrutiny and enjoying respect and public confidence. It is in that spirit that I put the Question on the Order Paper.
9.25 p.m.
Viscount Brookeborough: My Lords, I should like to thank the noble Lord, Lord Underhill, for his very clear introduction. I should like to say how much I endorse everything that he has said and all the questions that he has asked. I hope that I will not repeat his questions and that I will deal with the report from a slightly different angle.
We have been through a very bad week in Ulster. Three people have been wounded. Two part-time members of the Ulster Defence Regiment have been murdered and one prison officer has been killed. Mr. Adams and his friends were, indeed, fortunate in that they were only wounded and I would like to condemn without reservation all attacks against whomever they may be. However. I thought that the noble Lord, Lord Fitt, made a very pertinent remark when he said that Mr. Adams was now a casualty of his own war in which he is a fanatical believer.

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The main subject of our worries—my worry and that of very many people in Northern Ireland—is that we believe that the Government have been grossly unfair to the prison service in the allocation of blame for this escape. The true gravity of the break-out is even now not fully realised. Nineteen men escaped, but between them they had committed many hundreds of crimes. One wonders how many more they will commit before they are apprehended again. There is no doubt, reading the report of Sir James Hennessy, that prison officers were to blame for the actual escape. However, as the noble Lord, Lord Underhill, has stated, this is not the full story. There are many parts of the story that are not really mentioned even in the report, and I shall be interested to hear the answers to the questions that the noble Lord raised.
Political decisions have been taken by successive administrations over many years concerning the Maze. The resultant changes have been so great that I am surprised that we have such a fine body of dedicated men in the prison service. I salute them. They need our support. I wonder whether my right honourable friend the Secretary of State would consider recommending for a George Medal or some such decoration the prison officer who was killed in the course of duty. I believe that he deserves it. It would be an immense boost to the morale of the prison service were that done.
My right honourable friend and his team of Ministers have shown, like many teams before them, a dedication to the cause of Ulster, peace and prosperity. It therefore gives me no pleasure to speak in terms of criticism about his administration today. But when my right honourable friend arrived in Ulster his office issued a statement which said that the special, prime responsibility of the Secretary of State was to be "security and operation". The operation of the prison service must clearly be in that category.
The conditions in Northern Ireland are totally different from those in Great Britain. It would never have been right, in Northern Ireland terms, for the Secretary of State to have resigned, and I believe that he was quite wrong when he offered his resignation if policy decisions were wrong. Any decision to resign should only be taken if it would further peace and prosperity in Northern Ireland. I do not believe, in this instance, that it would have done. The prison service of Northern Ireland is not like the police service. The police service is an independent arm of the law responsible to the law and to the police authority. The prison service is the administrative instrument of the Secretary of State. Over the years it has had to accept and administer a constant stream of political decisions about which, in our opinion, it was not consulted. Those decisions have made our prisons quite unlike those in Great Britain and it is well sometimes to recite the various changes which have occurred.
Up until 1972 there were internees in the prisons and what are called "ODCs" (ordinary decent criminals). After 1972, as a result of a decision by my noble friend Lord Whitelaw, there was an added category called "special category". In 1976 a very courageous decision was taken by the then Government; it was intended to phase out "special category". That produced the blanket protest,
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followed in 1978 to 1981 by the dirty protest. Then we had the hunger strike, and lastly we have had the post-hunger strike.
All those changes required political monitoring on a daily basis and the involvement of Ministers. Decisions were taken often in direct opposition to those of the governor and the prison staff. I am not criticising those decisions when they were taken in the light of the information that people had at their hand at that time. What I am saying is that in the light of subsequent actions sometimes they may not have been as right as they would have been. I am saying absolutely clearly that the Secretary of State and his Ministers were politically involved in decisions which had quite a lot to do with the escape in the long run. I shall give some instances of those decisions.
During the hunger strike the Government appeared to recognise the Provisional IRA high command structure. They ordered the staff at the prison to bring Mr. McFarlane, who was the IRA commander, from a cell in an H-block to meet the hunger striker McIlwee who was in hospital. That was a political decision. The Irish bishops were allowed to visit the hunger strikers in hospital. But when they arrived there they asked to see McFarlane. The governor refused, but he rang the Northern Ireland Office and his decision was overruled by a political decision. Finally, there was the fateful decision to allow the concession of limited association after the hunger strike. That decision was taken against the advice of the governor and it was this last decision which, as described in the Hennessy Report, allowed the conditions to develop to enable escape to happen and the guns to be smuggled in.
Under the conditions prevailing in the Maze, how could Ministers not be fully involved on a daily basis? From the recent debate in another place it was clear that the Member for Mansfield, the right honourable John Concannon, was in touch daily and he was often in the prisons. I should like to contrast the decision by the right honourable Don Concannon to attend the funeral of Albert Myles, whom I knew, and the absence of Ministers at Mr. McConnell's funeral. At a time when the morale of the prison service was low, I do not think that that was the right decision. So it was political decisions which set the scene, and the Government should accept their share of the blame.
To compound this, I find it very difficult to understand that the Government were unaware of the low morale of the staff at the Maze. It was bound to be a major problem for the staff. The Government had given way; they had conceded. The prisoners constantly insulted the warders during the period immediately after the concession. As the report of Sir James makes clear, the Government have a duty, and had a duty, to give leadership. Leadership must be personal; it must be constant and it must be friendly. It cannot be achieved by passing messages down through civil servants to the staff. It must be a politically responsible presence; and it is here that I find the Government wanting.
In the critical period from September 1981 to August 1982, the Minister responsible—my noble friend Lord Gowrie (to whom I passed a message to say that I would mention his name)—visited the prison only three times, and the gap between the second visit

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and the third one was over 10 months, and this at a time when the staff had suffered what I might call a slap in the face. They watched the Government accept segregation, again. The whole purpose of the Maze was not to have segregation. They saw the Government apparently recognise the Provisional IRA command structure. That was the moment when they needed leadership. Instead of leadership and support, they have had to take all the blame for the escape. I do not believe that that is fair.
At the moment the level of tension is very high in Ulster. We require a period of calm. We need the assurance that there will be no new initiative further to heighten tension, and above all no pandering to Republican ideas bred from the Dublin forum.
9.37 p.m.
Lord Fitt: My Lords, because of all the circumstances attaching to this escape I do not think that anyone can exaggerate the concern that has existed since the outbreak from the prison and even up to the very moment. One would have thought that with the publication of the Hennessy Report and the subsequent debate in another place, something would have been said which would serve to have allayed the feelings of concern in Northern Ireland regarding this escape. The contrary has been the case because in both communities in Northern Ireland discussion is still taking place daily about the circumstances of this escape; what the Hennessy Report contains, and what is left out of it; and what was said and not said in another place. I certainly recognise that it might be better if this debate was not taking place here tonight. But knowing the concern and the suspicions that exist in Northern Ireland, I think it is right that any misgivings which are being felt should be spoken of here. I have no doubt that this debate in itself will not conclude by allaying the suspicions that we have had for so long in Northern Ireland.
I read this report on the day of its publication, and I read it again an hour ago. I find some strange contradictions in it. But most of all, I am taking part in this debate because of the very tragic death of the deputy prison governor, Bill McConnell, and the letter which he left behind. He was a man who knew that he was facing death and he had the courage to sit down and put this on paper. There are not many people around who, knowing that they will possibly be assassinated, can sit down and put their thoughts on paper. It is the thoughts which he put on that paper which motivate me and many others in Northern Ireland to call into question the conclusions of the Hennessy Report.
Prior to the Maze escape and the publication of the Hennessy Report, I think that I had spoken to one prison officer throughout all the years that I have lived in Northern Ireland. It is unfortunate that in the debate in another place—and I hope that it will not permeate this Chamber—if you took a particular point of view you were saying, either "Are you supporting the Government?" or, "Are you supporting the prison officers?" I am supporting neither. I certainly am not lending myself to the hysterical demands that were made on publication of this report calling for the resignation of the Secretary of State or his minister for
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prisons. I think that this Secretary of State and his minister for prisons are as good, or as bad, as any other set of ministers we have had since the onset of direct rule in Northern Ireland.
I know that the Secretary of State has gone out of his way to try to do what he can in the difficult situation we have had in Northern Ireland. Since 1972, when direct rule was imposed on Northern Ireland on the abolition of the Stormont Government, Northern Ireland then became the sole responsibility in every aspect of life of the Government of the United Kingdom. In fact, direct rule replaced, or put into effect in a different way, Section 75 of the Government of Ireland Act, which stated that all matters, persons, places and things were under the direct jurisdiction of the Westminster Government. If that were so, then the Maze prison, and every circumstance surrounding it, became the responsibility of Her Majesty's Government.
I find—and it is a roundabout way to go about it—something already referred to by my noble friend Lord Underhill when he spoke about staff training. It begins at page 44, paragraph 8.10. Halfway through, the paragraph states:
"Thirdly, there is a need for more training. At present an officer joining the Prison Service in Northern Ireland spends a two-week familiarisation period at a prison followed by a five-week residential course, before joining his establishment. This compares very unfavourably with the training received on joining by a new entrant in England, who spends four weeks at an establishment undergoing training, followed by an eight-week residential course."
If the Hennessy Report could arrive at that conclusion, then certainly it must have been known by the Home Office. It must have been known by the Inspector of Prisons in 1972, and in 1974 when the new cellular block was being built at the Maze. It is too late, after a dangerous escape 10 years afterwards, to say, "Well, we realise now that adequate training was not given". It was not the fault of the prison staff, it was not the fault of the governors, if there was not the training given. That was the responsibility of Her Majesty's Government. Take into consideration page 12, paragraph 2.28, what happened as a result of this escape. The conclusion of that paragraph states:
"Of the prison staff who had been on duty in the prison on 25th September one, Officer James Ferris, died. Four others were stabbed, two were shot, thirteen were kicked about and beaten, and forty-two were subsequently off work with nervous disorders."
In view of the treatment that was given to the prison officers by that gang of very dangerous murderers, some of the criticism was totally unjustified, and even if it were justified it was said at the wrong time and in the wrong way.
Those prison officers are dealing with a prison that is unique not only in the United Kingdom but indeed in all Europe. No other prison—not in Italy, where they had the Red Brigade; not in Germany, where they had the Baader-Meinhoff Gang; not in France, where they had their terrorists as well—in no other country in Europe had the same problem of so many dangerous men incarcerated in one place in such a small community as Northern Ireland, and the intolerable pressures under which those men were trying to carry out a job. One would have had to have been a prison officer to have understood.
We have heard that so many facets of training were not available to the prison staff and that, in effect, led

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to a serious deterioration in the standards which one may have expected at that time and in that place. One of the main reasons why that escape took place—it has to be said; many people will not say it because of the possible consequences or because it may seem that they were anti-Government—was largely due to a political decision made at the ending of the hunger strike. That decision was the right of free association. Emanating from that political decision to grant free association to those dangerous men meant that they were able, in the words of the Hennessy Report, to take over complete control of an exercise yard, to take over complete control of two dining rooms and thereby to take over complete control of H-Block 7.
Lord Donaldson of Kingsbridge: My Lords, may I just question the noble Lord? We want to get this right. I do not think that any right of free association was given. What was given was the right to segregation. I think that was a disaster, but it probably was inevitable. However, there was never any question that one block could have association with another block, which is what the noble Lord seems to be suggesting. If so, I withdraw, but I thought it was not.
Lord Fitt: My Lords, no, it was exactly the same block. It was the in-between bar of the H. They are different places; the two bars of the H and the in-between bar which allowed them association with the other leg of the H block. They were therefore able to take over and to work freely within the confines of that block.
One of the contradictions which I see is that on page 14, paragraph 3.07, is one of the most hurtful paragraphs in the whole Hennessy Report in which severe criticisms are made of the prison staff. Halfway down that paragraph we come to a sentence which, after going on about having interviewed prison officers, and so on, says:
"We believe that, while some of these claims may have been justified, a number of officers had been moved because of over-familiarity with prisoners, while others were transferred for over-zealousness".
If those officers were transferred it means that there was a senior authority overseeing them which was able to see at first hand that they were being over-friendly and, on the other hand, which was able to see that they were being over-zealous. So there was supervision. There was someone looking at the actions and the everyday activities of those officers. Those officers cannot be blamed for the actions they took at that time because political decisions had been made.
I do not want to cause any rancour or ill-feeling, but I ask the Minister whether it is true that a Minister in Her Majesty's Government, at the conclusion of the hunger strike in 1981, said to certain prison officers, "We want to get the Maze off the front pages of the press"? But political considerations are taking priority over security decisons and, if that is so, then it was very wrong. Political considerations getting the Maze prison off the front pages were creating a security problem within that prison and a security problem for the prison officers. That was totally wrong.
And that problem still exists. Since the publication of the Hennessy Report six prison officers' cars have been burned outside their homes. They were burned, undoubtedly, by members of the Loyalist community.
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I think this is accepted by the police authorities in Northern Ireland. The burning of a car outside a prison officer's home is a signal to that officer saying: "We can burn your car and if you don't play ball with us or with our prisoners in the prison then we will get you! You may be in the car next time". That is clear intimidation of the prison officer. The IRA does not go out of its way to warn prison officers of what it may or may not do. The IRA does it. And it has killed 23 prison officers.
The widow of Bill McConnell has said in the past week that she was very close to her husband. Her husband, in the letter which he wrote predicting his own demise, said that his wife had always been very supportive of him. Mrs. McConnell asks this question. What does a man living with a wife to whom he was deeply attached, and who was caught up in the maelstrom and aftermath of this prison escape, do in such circumstances? Is he to be denied the solace of talking to his wife? I do not think you could apply the Official Secrets Act to any man in those circumstances. The whole implication of Mrs. McConnell, the widow, is that her husband was seconded during the course of the Hennessy investigations to accompany Sir James Hennessy and others around the Maze Prison, to conduct them and to tell men to answer questions and to put the case as he saw it of what had been happening and what had probably led up to the escape. His wife is convinced of that and there are many people in Northern Ireland, not only from one community, who are convinced also that many of the recommendations, much of the advice, given by Mr. McConnell to the Hennessy investigation were completely ignored, absolutely ignored. Certainly none of them is reflected in this report—none. I think it is totally understandable and very human that Mrs. McConnell knowing the evidence which her husband gave to the Hennessy investigation, should feel very bitter indeed; because her husband has gone and he will not come back. And many of his colleagues are living in danger of murder at the present moment.
I only say this in relation to this report. I believe that any defects that there were in the training of the prison staff cannot be laid at the doors of the Prison Officers' Association in Northern Ireland. I believe it was the bounden duty of the Home Office and those who were in control of prisons and who had experience of prisons in other parts of the United Kingdom since 1972 to have been giving of their expertise and of their innermost knowledge of what was needed in such a prison. And perhaps it may be that that expertise was not even available in this part of the United Kingdom.
As I have already said, the Maze was a unique prison. In the United Kingdom you do not have that type of experience either because you do not have that type of prison. The few terrorists that you have here would not in any way give you any greater experience than that which they have in Northern Ireland. But if that is so, then the blame should have been accepted; we have all made mistakes. We did not have all the experience necessary. But it should not have been done in such an unfair way as to point the finger of guilt on the prison officers who were serving in Northern Ireland.
I want to say, with all the seriousness that I can command, that there are recommendations in this

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Hennessy Report: some of them have been implemented and some have not. At the present moment, contrary to what is contained in the Hennessy Report, segregation is a fact of life in the Maze cellular. The Loyalist paramilitaries are in control of their section of the prison while the IRA and the Provisional IRA are in control of their section of the prison.
I know that the Northern Ireland Office a few weeks ago tried to integrate these prisoners. They got some Loyalists and some Republicans and tried to put them together. They tried to implement one of the recommendations in the Hennessy Report but such a riot broke out among the prisoners that it was called off. It was tried again and called off for a second time. This tells us that if the prisoners riot and insist on having their own paramilitary command in the prison, they can get away with it because at the present moment in the Maze Prison, in the Republican section and in the Loyalist section, you have OCs, commanders and adjutants. They are in effect running that prison as it is at the moment. In what position does that put the members of the prison staff? The members of the prison staff know that it is wrong—
Lord Donaldson of Kingsbridge: My Lords, we all know that it is wrong.
Lord Fitt:—but there are members of the prison staff who live in the same districts as the families of the Loyalist prisoners and there are members of the prison staff who are well known to the Republican inmates of the Maze. There is a paragraph in Hennessy which says that the Government will give all the support that is necessary to prison staff who may feel that they are in danger. All I can say is that, since the publication of the Hennessy Report, that help and support has been sadly lacking. In fact, it has been noted by its nonexistence. So if the Government want to have an effective prison service in Northern Ireland they will have to give all the support that is necessary to a sincere and dedicated prison staff: otherwise we are going to have a continuation of the so-called military running of the prison.
I want to say this in conclusion, and it has already been referred to by my noble friend Lord Underhill. The prisoners in that prison do not regard themselves as prisoners but as prisoners of war, as having fought for either a United Ireland or a United Ulster. But it is not how they perceive themselves to be that should matter; it is how the community, particularly in Ireland but also throughout the United Kingdom, see them to be. A bank robber does not regard himself as a thief but as someone engaged in bringing about a fairer distribution of wealth. It is not how they see themselves to be, but it is how the community see them.
Even within the weeks that have elapsed since the publication of this report there has been the killing of five people in Belfast or elsewhere in Northern Ireland—over the last ten days: brutal murders and slayings are going on. I believe that people who commit such heinous crimes should be treated as the criminals they are. I also believe that the prison officers should be given every support in dealing with such men, who are the dregs of humanity.
10 p.m.
Lord Donaldson of Kingsbridge: My Lords, the last sentence of the speech of my noble friend Lord Fitt is one with which nobody in this Chamber (few as we are) would entirely disagree. There are other sentences about which I am less certain. I was afraid that this debate would do more harm than good, and in my opinion it has. It is fair to say that my noble friend Lord Fitt interests us, and we all have the greatest affection for him, but what does his story about Mr. McConnell and his wife mean? To me, it means nothing. I do not understand why Mr. McConnell was shot by the IRA, which I am sure he was. But if he was shot by the IRA. I cannot see what, from the point of view of the Protestant side, is wrong with that. The whole thing is absolutely mysterious.
Mr. McConnell was murdered in the ordinary way that the IRA murder people who they think are dangerous because he had been round talking intimately in the areas of the prison and, in my opinion, had found out things which the IRA did not want repeated. I may be quite wrong; but my noble friend has not suggested anything else, and I just do not understand the significance of that. Clearly, it is a mystery. Nobody can understand why the IRA should have shot McConnell, but it is one of the normal tragedies which we have the whole time in Northern Ireland. I cannot get the sort of innuendo which I think was behind what my noble friend was saying, but I do not understand it.
It is no good saying that prison officers are being attacked. I am probably more in favour of the governors and prison officers of the prisons in Northern Ireland than anybody in this House. I knew them all personally eight years ago. I admired them enormously, visited them frequently and talked to them often. I think they are as good a lot as you will ever get anywhere. But the facts are that in this escape a number of derelictions of duty of rather a small kind occurred, and if they had not the escape could have been stopped about half-way through. The least anybody can do is to say: "Well, in these circumstances, however good these people are, and whatever appalling conditions they live under"—and they certainly do—"we must take disciplinary action against somebody who does not do what he is supposed to do and who, instead of opening the back doors of the van, waves it through and says 'OK'. We cannot accept this sort of thing".
So it is very hard to suggest that this report is anti-prison officer. I do not think it is in the least anti-prison officer. It exposes a certain number of weaknesses, of which most of us would probably have been equally guilty. Having gone on, day after day, searching for the same thing, you become careless. But this sort of thing is not an attack on the prison officers. It is an ordinary disciplinary action against people who failed in the way that most of us would have failed. I always thought that this would be a damaging debate, and I think it has been. I shall do what I can to raise it slightly above the sort of mutual criticisms of everybody that have been going on.
It seems to me that when your enemy has a resounding success it is much better to say as little about it as you can, which is one of the reasons why I thought it was the greatest pity to have this debate.

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Chapter 2 makes it clear that the operation was most carefully and efficiently carried out. But it could never have come off without the guns and the absolute knowledge of everyone on both sides that they would be used without hesitation, as indeed they were. Officer James Ferris was killed, four prison officers were stabbed, two were shot and 13 were kicked and beaten. The only rather unattractive feature of the report is the fact that when the senior officer at the gate lodge called upon the group of staff outside the main gate to give chase only three responded. As I say, that is a rather unattractive feature, but by that time I should think that all of us would have been suffering from pretty severe shock. Therefore I can excuse it. On the other side, the report commends eight officers, including Officer Ferris, for courageous behaviour. And the report is right to do so. The crucial factor in the escape was the guns. Without the guns the escape would certainly have failed. The report deals very' thoroughly with this problem in Chapter 4. The only good which is likely to come out of this discussion will be the assurance, which I am now asking the noble Lord for, that the recommendations in Chapter 4—paragraphs 4.07 to 4.09 and paragraphs 4.22 to 4.34, the paragraphs dealing with the delivery of goods and lorries to the prison—have already been introduced. Having read the report, it seems to me to be clear that the most likely way the guns got into the prison was with goods.
This reminds me to turn to a slightly lighter side of this distressing story. I do not know how many noble Lords have read a splendid book, written some years ago, entitled My Six Convicts. It contains the story of a lorry loaded with steel planks which went into an American prison every day and which came out of that prison every day. A little space close to the driver was reserved for a delightful lady who came in every day with the planks and who went out every day with the planks unnoticed, until one dreadful day the load shifted and she was killed, much to the distress of the six convicts. It simply shows that, with the collusion of the driver and the loaders, a great deal can be done when loading.
My own interpretation of what happened is that this is probably where it went wrong. The essential feature must be the guns. My own view is that there were faults of, on the whole, a venal kind by certain prison officers in the course of the escape, which must, in the end, be laid at the door of the governor, who should know the strength of his men. He is the captain of the ship. I believe it is right that he should have taken the can. He is a man who has given yeoman service to the country for, I believe, 34 years, in the most difficult and harassing conditions, and I hope very much that he can be re-employed in a suitable way. But when the captain of a ship has a disaster it is right, I believe, that he should be the man to resign. I do not believe that this applies to the First Lord of the Admiralty, as suggested by my noble friend Lord Brookeborough.
The report makes it clear—which to me is rather a nasty side—that this practice was encouraged by what appeared to be the development of better relations between officers and prisoners in H-block. The report concludes that this was deliberately brought about on orders from the leaders to become more docile so as to put the minds of the officers at ease and make them
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less careful. It is very hard to get over this problem because, wherever men are unwillingly detained for a long time an equilibrium has to be achieved between guard and guarded, who have to live together, day in, day out, and who, after all, are human beings. In ordinary prisons this balance is very valuable and can lead to much help for the prisoners and some satisfaction for the prison officers. In terrorist prisons it is, as we see, very dangerous. This makes the prison officers' work in the Maze much more disagreeable apart from being much more dangerous than over here, and we must make allowances which I think every noble Lord who has spoken has, in fact. made. I am perfectly clear that the job they are trying to do is very nearly impossible. I am also perfectly clear that there will always be slip-ups in the future one way or another.
The one thing which is really important is that this should not involve the arrival of guns within the prison. Without guns nothing irremediable happens. When I was in charge of the prisons some years ago—this was not the new H-blocks but the compounds—the IRA broke down the wire fence outside their compound one day. They broke out and set fire to everything that they could see and rushed round the prison. But the prison officers were extremely well led (having been collected from their beds all over the place), and they formed themselves into a line, took up what they could get hold of, charged the prisoners and swept them back into the compound. As a result, nobody escaped.
This is the kind of reaction you get from the prison officers on an occasion where they have not got a man pointing a gun at their heads saying, "If you do it, I will shoot", and he knows perfectly well that he will. There is nobody who does not accept that point of view. If somebody say to you, "Do this, or I will shoot", you have to make a quick calculation—will he, or will he not? If you say, "He will" you do it. This is the position these men were in.
I think—as most noble Lords who spoke today realise—that it is worth remembering that the conditions are absolutely different from conditions in any other prison: not only here, but I should think anywhere. I do not know about certain revolutionary areas where there may be similar circumstances; but here they are absolutely special. There will be other attempts but none will succeed without firearms, and I think the? Secretary of State must take personal interest, with the security officers under the governor, to make absolutely sure that all the loopholes recorded in chapter 4 are closed. This is the important part of the whole report in my opinion. Each time will be different but none, in my opinion will be as serious as this unless firearms are involved.
I am not interested in attributing blame. No one blamed me when the Maze was set on fire; but then no prisoners escaped due to the gallantry of the prison officers. It is easy enough to question morale, but it is hard to keep it up under the constant and very nasty pressures on prison officers and their families: and yet, to their credit, they do keep it up even though 23 of them have given their lives.
The reality of imprisoning 700 or 800 terrorists all with long sentences—many with life sentences—killers to a man, is, in fact, insoluble. There is no way of

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achieving 100 per cent, security. The nearest would be the Mountbatten scheme referred to at the end of the conclusions of the report, which I have always favoured, but it is too late to do that in Northern Ireland now. I suppose we could try to alter Maghaberry, which is a new prison not yet finished. Curiously enough, we thought of the H-blocks as a pretty impregnable prison system and a very well designed one. I saw the plans, I saw the designs I saw the building, I went round it when it was finished and I left office before it was occupied. Nothing but a gun would have got anybody out of that. That, once again is the main problem.
The lesson is that we have an impossible task which we have to carry out somehow. The prison officers and governors have the most difficult and disagreeable task of any of our front line troops, but they carry on magnificently in spite of murder and intimidation and in spite of constant criticism and harassment. Some individual failures made the escapes possible. There will always be individual failures, but let us never cease to thank and admire the prison governors and their staff for cheerfully performing their essential and almost impossible job of steadily and cheerfully keeping the lid on.
10.15 p.m.
Lord Elton: My Lords, I stand at this Dispatch Box only because of the illness of my noble friend Lord Mansfield. I know your Lordships will sympathise with my noble friend, and will join me in wishing him a speedy recovery and an early return to his ministerial duties, when your Lordships will get better answers than this evening by reason of his greater expertise. May I dispel one possible misapprehension which might arise from my standing here. Although the Home Office inspectorate does inspect prisons in Northern Ireland, its reports go to the Secretary of State for Northern Ireland. The Northern Ireland prison service is no part of the responsibilities of the Home Office; and that has a bearing on one or two of the questions I was asked during the debate.
September 25th last has been aptly described as the blackest day in the troubled history of the Northern Ireland prison service. Nobody can underestimate the gravity of the events of that day. The 38 terrorists who escaped from Her Majesty's Prison Maze were all hardened terrorists, and 19 of them are still at large. I can assure noble Lords that Her Majesty's Government are taking all possible steps to ensure that they are recaptured.
Before I deal with the points raised I should like to remind the House of what Maze Prison is like. Sir James Hennessy pointed out that it is a prison without parallel in the United Kingdom. It is unique in both size and continuity and tenacity of its protests and disturbances. As his report says:
"It consists almost entirely of prisoners convicted of offences connected with terrorist activities, united in their determination to be treated as political prisoners, resisting prison discipline, even if it means starving themselves to death, and retaining their paramilitary structure and allegiances even when inside. Bent on escape and ready to murder to achieve their ends… they are able to manipulate staff and enlist the support of paramilitary organisations in the process of intimidation."
My noble friend Lord Brookeborough gave an account of some of its history; and your Lordships
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should bear in mind that the number of prisoners in Northern Ireland has dramatically increased, as the noble Lord, Lord Underhill, said, without precedent, from 600 in the 1960s to 2.500 now. Of those 2,500, 420 are serving life sentences. Some 40 per cent, out of the total would be described in England as category A, the most dangerous group of prisoners of all. A significant number of those are in HM Prison Maze.
The report on the security arrangements at Maze which Sir James Hennessy has presented is a comprehensive and critical document. It highlights weaknesses at what should be one of the most secure prisons in the United Kingdom: weaknesses in physical security; weaknesses in security procedures; weaknesses in management, both at the prison and in the Prison Department of the Northern Ireland Office; weaknesses in training and discipline; and failures by individuals who were negligent or who did not carry out their duty.
It also draws attention to the careful planning of a small group of prisoners and to the outside help they received, particularly through the smuggling in of five guns. The noble Lord, Lord Donaldson of Kingsbridge, was absolutely right in focussing attention on that critical factor. The report shows the ruthlessness of the prisoners, who stabbed one officer to death and seriously injured five others. It is, however, as the noble Lord, Lord Donaldson, aptly said, in no way an anti-prison officer report.
Perhaps I should at this point comment on the allegations that there has been too much interference in the running of prisons. The Secretary of State is responsible for policy decisions on prison administration, for the prison rules which set out the framework within which governors operate and for prison resources. He is responsible for all that to Parliament. He is accountable to Parliament on all prison matters. Governors are responsible for the execution of policies, the implementation of prison rules and local management generally. In their work governors have a measure of discretion, but it is essential that there be close and continuing dialogue between those responsible for manning the establishments and those responsible for the wider policy and resource questions. To suggest that the involvement of Ministers and their officials is political interference is to suggest that governors and prison staff—who are, let us be clear, also public servants—should be independent of Government. Such a position would not be acceptable.
It has also been suggested that the changes in regime introduced in 1981 were in some way the result of a bargain or negotiations with the Provisional IRA. I was glad to notice that the noble Lord. Lord Underhill, distanced himself from that suggestion but none the less said that it was current elsewhere. I welcome this debate if only for one reason. It enables me categorically to deny that any such bargain was entered into or any such negotiations held. Why then, your Lordships may ask, were the announcements of these changes made so soon after the end of the second hunger strike? The answer is simple. Had they been made during the strike, the conclusion would have been inescapable that they were in some way bound up in it and that they did result from some sort of negotiation. There was, I repeat, no negotiation.

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The visits to which my noble friend Lord Brookeborough referred in this context to the prisoner McIlwee and to McFarlane—these and other visits to hunger strikers were approved by Minsters in the hope that the hunger strikers might be persuaded of the futility of their action and the hunger strike be ended without loss of life. Such visits were not for the purpose of negotiation. I think that had my right honourable friend decided to deny those visits and the possibility of saving life in order to avoid the possibility of a charge such as that which has been made this evening, that would in fact have been inhumane and a wrong decision.
It would be regrettable indeed if the staff of the Maze and other prisons in Northern Ireland were to be left under an impression that there was negotiation. I should tell noble Lords that both my right honourable friend the Secretary of State for Northern Ireland and my noble friend who was at that time a Minister of State in Northern Ireland met representatives of the Prison Officers' Association for Northern Ireland, with officials of the Northern Ireland Office, to explain matters to them, and no fewer than five detailed public statements were made about the ending of the hunger strike and the changes in the regime that eventually took place. Copies of all these statements were sent in quantity to the prisons in Northern Ireland so that the staff should be fully informed of them before the prisoners were aware of their contents or of the impending changes.
Let me repeat what is said at paragaph 9.26 of the Hennessy Report:
"We must conclude that none of the changes which were introduced need have affected the security of the prison in any significant way or in a way which made the escape of 25 September easier to accomplish".
Indeed, the report goes further and makes it quite clear that if the rules laid down for the running of HMP Maze had been strictly observed, the escape could not have taken place.
The report also makes clear that in terms of financial and staff resources, the prison service has been reasonably well treated. Furthermore, it makes clear that whatever the criticisms made of the prison department, the governor at the Maze never found himself without advice on any important operational matter. However, the report goes on to expose the flaws in the system, and provides 73 recommendations, the implementation of which should considerably improve the security of HMP Maze Cellular and provide safeguards against any future escape attempt.
Her Majesty's Government have accepted all the 73 recommendations, and already a great deal of work has been done, and continues to be done, to take these forward. I can tell the noble Lord, Lord Underhill, that so far 32 of the recommendations have been fully implemented, and a special team has been set up in the Northern Ireland Office to ensure that those remaining are implemented as quickly and as effectively as possible. This team will also examine how the lessons learned from the Maze escape can be applied to the other prisons in Northern Ireland.
Perhaps I should outline some of the action that has already been taken in the Maze and at headquarters. The noble Lord, Lord Donaldson, will be glad to know
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that interim remedial work to improve the security of the tally lodge, the main gate and the armoury has been completed. An extensive programme of work is in hand to improve the security of the communications room in each H block. Reviews of the closed circuit television surveillance system and of the siting of alarm buttons have been undertaken, and an appropriate installation programme will commence shortly.
Various other physical modifications have been, or shortly will be, made to a number of the internal gates, to the visits complex, and to the vehicle search area. Planning work to construct a new purpose-built main gate complex has already begun. The governor has issued a number of orders which enforce the procedures for the searching of goods, prisoners, visitors, and staff and which warn staff against the danger of manipulation and conditioning by prisoners. Other procedural changes have been made, and changes in the visits system are under consideration.
A full-scale review of the management structure and system in the prison is under way, and an additional governor-grade post has been introduced. The governor at the time of the escape resigned when the report was published and a new governor took up post immediately. Several staff were redeployed as recommended by Sir James in his report. An investigation team under a governor from headquarters is currently conducting inquiries into the actions of individual staff on the day of the escape, and despite a refusal of co-opertion by the Prison Officers' Asociation, these inquiries are continuing. When they are complete, any appropriate disciplinary action will be taken. The initial training programme for prison officers has been extended and consideration is being given to developing a locally-based training programme. I think that I shall return in a moment to the question of training.
In addition, an internal management review of the structure and staffing of the Prison Department of the Northern Ireland Office is proceeding and that department has already been strengthened by the allocation of additional staff.
I shall, if I may, try to pick my way through a few of the points which were raised in profusion during the debate. The order in which I shall respond may appear to cofrespend not to any order of either logic or what your Lordships have said, but to the state that my papers had reached at the moment when the noble Lord, Lord Donaldson, sat down—which was a moment too soon for me.
My noble friend Lord Brookborough made a suggestion about a decoration for one of the members of the staff, and of course I shall draw that to my right honourable friend's attention. I think that my noble friend seems to be under a misapprehsion about what my right honourable friend the Secretary of State for Northern Ireland said after the escape. He said that if Sir James Hennessy found that policy decisions had contributed to the escape, then he would resign. That was a proper thing to say, and Sir James Hennessy properly found that political decisions did not so contribute, and therefore there was no question of my right honourable friend being in a position even to have to refuse to resign.

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The noble Lord, Lord Underhill, was concerned about the minutes of meetings. He mentioned them twice in his speech. On the first occasion he said that there were minutes of meetings agreed between the governor and the Prisoner Officers' Association, which were were given to Sir James Hennessy. On the second occasion the noble Lord referred to the minutes also being sent to the Northern Ireland Office. The views of prison officers are always welcome and often extremely helpful. We know that the governor regularly meets representatives from the POA to discuss all aspects of work at their establishments. But it is ultimately the governor who must recommend what should be done to improve security in the prisons. Here, Hennessy makes the point that,
"The Governor told us that he had never been refused any reasonable request for capital expenditure, nor were we able to identify any request for expenditue on security grounds which had not been met".
Hennessy also points out:
"In terms of manpower and other resources the Northern Ireland Prison Service has been reasonably well treated".
We know that Sir James had the opportunity to gather information from a number of sources and we have no reason to believe that the views expressed by prison staff were not taken fully into account in the writing of his report. But the decision as to what was relevant and the decision as to which were the recommendations that he ought to embody in his report and those which were of less merit must rest with the writer of the report and not with those who did not take part in drafting it.
The noble Lords, Lord Underhill and Lord Fitt, showed an interest in the question of the training of staff. This is a matter of great interest to anyone concerned with the prison service, as I am in another embodiment. There are principal officers in each establishment in Northern Ireland responsible for training. They oversee the work of new entrants to the service and, where staff are available, run short courses on specific subjects. They also nominate and monitor attendance at courses at the prison service college and at the Home Office training establishments. This is another way in which the expertise of the Home Office is available to the service. We accept that the induction course for new recruits is shorter in the Province than in England and Wales. But it was lengthened by a week recently and arrangements had already been made for it to be increased by a further week during 1984. We are satisfied that the course covers all necessary subjects; but in view of the recommendations of the report, the length of the new recruits' course is being re-examined. A very large number of courses are held, including development courses for staff in post, courses for newly promoted staff and courses covering specialist duties. There are also seminars on specific subjects, and in addition governors and specialist staff attend Home Office courses. Nonetheless, as I say, the length of the new recruits' course is under consideration.
My noble friend Lord Brookeborough—I come to him, as it were, by accident in the sequence of papers before me—made a number of allegations including allegations about my noble friend Lord Gowrie. I think that I should ask him to get the record straight.
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My noble friend visited the Maze on 17th September and 14th October 1981, and on 12th January, 1st February, 12th August and 31st December 1982. It really is not easy to argue on the one hand that there should be no ministerial interference in prisons and on the other that Ministers should be there more often than my noble friend was.
Viscount Brookeborough: My Lords, I think that my noble friend has slightly misunderstood. First of all, I apologise for doing an injustice to my noble friend. I have been given wrong information which I genuinely believed to be true. Secondly, I have not been arguing that it was wrong for the Secretary of State to be involved in political decisions. I have been totally in favour of it. But the impression that has got round and that has left the prison staff and Ulster believing that the prison staff were taking all the blame is that there was no political interference in the Maze. There has to be political interference in the running of the prison, and I entirely accept it. But what appears to have happened so far as the general public is concerned is that the Secretary of State has dissociated himself from those political decisions which were the scene from which the escape occurred.
Lord Elton: My Lords, I am glad that my noble friend accepts that it is for Ministers to formulate policy and for civil servants to execute it. Of course, there is an interface between them. I can readily assure my noble friend that there is no barrier set between the prison service on the one hand and Ministers on the other. Like the noble Lord, Lord Donaldson, I see great dangers in this debate. One thing that I would not wish to arise from it is the impression that these do not have the confidence of each other or to encourage a weakening of the confidence between them. I am grateful to my noble friend for that acknowledgement which has enabled us to set the matter right as to the attendance of my other noble friend at HMP Maze.
I turn now to some points raised by the noble Lord, Lord Fitt. The right of free association was not granted to prisoners. Association in the evening between adjacent wings of each block was permitted under controlled conditions. This had nothing to do with the escape, and it had been stopped more than a year before the escape. Perhaps I may remind your Lordships again about the distance between the Home Office and the Prison Service of Northern Ireland. As regards inspections, I would say that there is a connection between the Home Office and the Northern Ireland Prison Service, to which I actually referred in my opening sentences. Her Majesty's Inspector of Prisons for England and Wales carries out inspections in Northern Ireland. He has already inspected the young offenders' centre. He was diverted from a planned inspection at Magilligan to carry out the inquiry into the Maze escape. These inspections will continue.
The noble Lord, Lord Fitt, raised the question of what had been said after the ending of the first hunger strike. He feels that one of my right honourable or honourable friends may have said that it would be a good thing to get the Maze off the front page of the newspapers. They may well have said such a thing; I know not. But it does not follow from that, that it is necessary to generate a security problem. It is the aim

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of Government to maintain security and to reduce conflict between prisoners and prison staff, and the result of that, of course, will eventually be a retreat of the Maze from the front pages.
As Chapter 1 of the report explains, the present situation in which certain wings are wholly occupied by Republican prisoners, was brought about because of action taken by Loyalist prisoners in the summer and autumn of 1982. We have noted that the report concludes, first, that the fact that H-7 was occupied entirely by Republican prisoners facilitated the planning and execution of the escape; and, secondly, that prisoners in segregated blocks are generally better able to plan and execute subversive activities of all kinds, than others. That is a necessary conclusion.
These conclusions bear out the approach which the Government have consistently taken on the issue of segregation, and we shall naturally bear them in mind in future decisions about the distribution of inmates. However, if prisoners react by dirtying their cells, it is difficult for the authorities not to move those concerned elsewhere so that inmates not taking part in the action do not have to put up with unpleasant conditions which they themselves have played no part in creating.
There have always been paramilitary command structures in the Maze Prison. It is the duty of the prison staff to maintain control, and frustrate the efforts of paramilitarists trying to take over control. The danger to individual prison officers outside the prison and in it is well recognised; and while absolute protection cannot be guaranteed, every effort is made to help prison officers to protect themselves when outside the prison.
Those may not be very robust words of comfort to those who stand in peril from day to day—and I do have some familiarity with the Province. But noble Lords who have familiarity with the Province will realise that there is a limit to the number of people who can be individually protected. I hope that your Lordships will accept that Her Majesty's Government are taking urgent and effective action to implement Sir James Hennessy's recommendations as thoroughly and as efficiently as possible. Some of them, like the planning and building of a new purpose-built main gate complex or the introduction of a revised attendance system for prison officers, cannot be effected overnight. But all the recommendations will remain a top priority of the prison department, and I can assure noble Lords that my right honourable friend the Secretary of State and other Ministers are maintaining a close interest in progress and are receiving regular reports.
I cannot conclude without another word of my own about the work of the Northern Ireland Prison Service. Let our view of them not be entirely coloured by this dreadful event. They have an extraordinarily difficult job to do, and we must not ignore the impact of their work on their daily lives. Twenty-three members of the service have lost their lives. As your Lordships will be aware, the most recent member of the service to be murdered was gunned down early last week, when assistant governor McConnell was callously shot dead in front of his wife and child as he was saying goodbye to them on his way to work. May I add my own note of condolence at that tragic death. At his funeral the
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Secretary of State was represented by the head of the Prison Department. Nothing that I can say will bring him back; nothing that I can say will comfort his family. But he was a member of a gallant service, and I would not like the small failures which contributed to a great defeat of that service to tarnish your Lordships' opinion of it.
Many members of the service have been threatened and many of their families have been intimidated. I can assure your Lordships that everything practicable is done to counter that threat. No civilised society can tolerate the use of violence to achieve political change. That is recognised more clearly and, I think, more instinctively in these islands than it is in any part of the world. Terrorist violence therefore defeats its own end. That is why there is so much sick tragedy in the murders that have become the stock-in-trade of the IRA and other terrorist organisations concerned with Northern Ireland. Every coffin that they fill puts them further from what they say they want to achieve. The people of every community threatened by them can only benefit from those who are convicted being securely held to serve the sentences justly passed on them.
In spite of great difficulty, the vast majority of members of the prison service carry out their difficult task with thoroughness, determination and no small degree of courage, whether they are governors or prison officers. So I take this opportunity to repeat for the Government the tribute to them, and to assure them and noble Lords that Her Majesty's Government stand ready to give them every support in maintaining the highest standards of performance, which must be in the best interests of all the people of Northern Ireland.
House adjourned at seventeen minutes before eleven o'clock.

  POLICE CONSULTATIVE COMMITTEES: GUIDELINES
  POLICE CONSULTATIVE COMMITTEES: GUIDELINES
  THE HYSTER CORPORATION: GOVERNMENT ASSISTANCE
  THE HYSTER CORPORATION: GOVERNMENT ASSISTANCE
  ZANUSSI: GOVERNMENT ASSISTANCE
  ZANUSSI: GOVERNMENT ASSISTANCE
  RESEARCH AND UK ECONOMIC PERFORMANCE
  RESEARCH AND UK ECONOMIC PERFORMANCE
  HAYLE ESTUARY (CORNWALL) SSSI: DREDGING
  HAYLE ESTUARY (CORNWALL) SSSI: DREDGING
  CANTERBURY: GRANTS FOR ARCHAEOLOGICAL WORK
  CANTERBURY: GRANTS FOR ARCHAEOLOGICAL WORK
  DISABLED PEOPLE: GOVERNMENT ASSISTANCE
  DISABLED PEOPLE: GOVERNMENT ASSISTANCE
  CONTROL OF POLLUTION ACT 1974: AUTHORITIES' WASTE DISPOSAL PLANS
  CONTROL OF POLLUTION ACT 1974: AUTHORITIES' WASTE DISPOSAL PLANS