Sitting of 17 October 1984

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Lincoln.

Europe: Spheres of Influence
Lord Chelwood: 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 have noted President Reagan's view that the 1945 Yalta agreement does not suggest consent for the division of Europe into spheres of influence and by implication that the 1975 Helsinki Accord does not alter this, and whether this is also the view of Her Majesty's Government and of our partners in the European Community.
The Parliamentary Under-Secretary of State for the Armed Forces (Lord Trefgarne): My Lords, we have never endorsed the division of Europe. We have sought peacefully and in a long-term perspective to build on the common traditions and history which are shared by the countries of Eastern and Western Europe; an aim which is wholly compatible with the political commitments recorded in the Yalta Protocols and the Helsinki Final Act. We are confident that none of our partners in the Ten would accept that either the Yalta Protocols or the Helsinki Final Act endorsed the division of Europe into spheres of influence.
Lord Chelwood: My Lords, I am indeed grateful for that reply. May I ask my noble friend whether he does not feel that the export of the Marxist-Leninist system to the formerly independent countries of East and Central Europe has had the dual effect, first, of denying them the self-determination to which they are entitled and which they were promised at Yalta; secondly, and equally important, of failing to give the Soviet Union the security on their western frontier which they naturally seek and to which they are entitled? Does this not really mean that the free, NATO countries should be rethinking their strategy in the hope that the day will come when the Soviet Union will realise that unless peace is based on carrying out their Yalta promises, there is very little prospect of it?
Lord Trefgarne: My Lords, I agree that there is some disappointment that the Soviet authorities have not carried out certain of their commitments with regard to the countries of Eastern Europe. Indeed, that has been the position of successive British Governments and has been made publicly known on many occasions. However, I do not think that that would be a reason for throwing the Yalta Protocol overboard; on the contrary, I think it means that we should try harder.
Lord Gladwyn: My Lords, while agreeing, of course, that there was no question at Yalta of dividing Europe into "spheres of influence", would the Government not agree that, even given that the conclusions of that conference were not actually binding on anybody, the existing frontiers in Eastern Europe were at least de facto recognised at Helsinki by the West, if not in any way legally?
Lord Trefgarne: My Lords, I believe that the position as described by the noble Lord is the correct one—but there have been a good few discussions since the Yalta Protocols at the end of the last war. The noble Lord is quite right to say that the Yalta Protocols were not a formal international agreement.
Lord Cledwyn of Penrhos: My Lords, should we not now he going beyond these particular points, interesting though they are? Is the Minister aware that we welcome the fact that the Foreign Secretary has invited Mr. Gromyko to this country and that he will be visiting Britain next year? Is he aware also that we welcome the initiatives taken by our Western allies in an effort to improve relations between East and West? While we now have to await the result of the American presidential election, will Her Majesty's Government continue to urge the present and future American administration to work towards détente?
Lord Trefgarne: No, my Lords, I do not think that American administration needs any urging from us to move in that direction, but they will of course enjoy any support that we can give.
Lord Saint Oswald: My Lords, in thanking my noble friend the Minister for his reply, may I ask him to carry a little further forward his response to my noble friend's original Question? Can he give an assurance that the view of Her Majesty's Government, in the knowledge of the appalling results of the Yalta agreement, is that no British Government could conceive of setting the seal of the British people to such an agreement in the future?
Lord Trefgarne: No, my Lords, I do not think that I could agree with my noble friend in that. Indeed, many of the aspirations which emerged from the Yalta Protocol were confirmed and underlined in the Helsinki Final Act of at least 20 years after the Yalta Protocol was arrived at. We are trying very hard to ensure that the Soviet Union live up to the undertakings they gave at Helsinki at that time—not least at the Madrid review conference of a couple of years ago.
Lord Kennet: My Lords, how do the Government feel about the renewed emphasis by the Kohl Government in Germany on the possibility of German re-unification as a long-term aim?
Lord Trefgarne: My Lords, our view is that real and permanent stability in Europe will be difficult to achieve so long as the German nation remains divided against its will.
Lord Chelwood: My Lords, so that it will be on the record—and I shall be very brief—may I ask my noble

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friend whether he is aware that on 17th August President Reagan committed his Government to pressing for full compliance with the Yalta agreement; and specifically its stipulation on free elections? Is it not a fact also that President Mitterrand has positively committed his Government to follow similar policies? Do both those positions reflect the position of Her Majesty's Government?
Lord Trefgarne: My Lords, as for the French position—particularly flowing from the Yalta Protocol—I believe it is true to say that President de Gaulle was not at that time involved in the Yalta Conference and always took a distinctive view, which has continued to be reflected in French policy. But President Mitterrand has emphasised the need to move carefully and with full preparation, in lowering barriers between Eastern and Western Europe.
As for President Reagan's remarks of some months ago, they were part of a long speech referring in particular to the Polish situation, and the Government are broadly in accord with what the president said.

Disabled People: Employment
2.43 p.m.
Lord Henderson of Brompton: 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 the Secretary of State for Employment expects to receive from the Manpower Services Commission their proposed Code of Practice on the Employment of Disabled People and their suggestions for making the existing quota legislation more effective in time for legislation to amend the Disabled Persons (Employment) Act 1944 to be introduced in the next Session of this Parliament.
The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie): My Lords, the draft code of practice has been received from the Manpower Services Commission and is being considered by my right honourable friend the Secretary of State for Employment. The working group which is considering suggestions for improving the operation of the quota scheme within the framework of existing legislation now aims to submit its report to the Manpower Services Commission in the New Year. My right honourable friend would expect to receive the MSC's advice shortly thereafter.
Lord Henderson of Brompton: My Lords, in thanking the noble Earl for that reply, may I first congratulate him most warmly on his elevation to the Cabinet. Also, if I may, I congratulate his noble friend Lord Young of Graffham on his elevation to this House and to the Cabinet from the Manpower Services Commission. This is a most notable autumn double for the House of Lords. Is the Minister aware that presently disabled people and employers, I believe, at all levels will very much welcome the progress that has been made on the drafting of this code of good practice? However, would the code not
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have an enhanced status if it had a statutory basis or backing, as recommended by the National Advisory Council? Secondly, although I note that there is still a working programme on the quota scheme, is it right or even respectable that the 1944 Act should remain unamended on the statute book when the Manpower Services Commission recommended, or reported, as long ago as 1981 that employers,
"are being expected to comply with an impracticable law"?
Should not an impracticable law be either amended or repealed?
The Earl of Gowrie: My Lords, on behalf of my noble friend Lord Young and myself, I am most grateful for the kind remarks of the noble Lord. It certainly would be very difficult, given the representation of disabled people within your Lordships' House and given the connection of my noble friend and myself with the MSC, for us to dodge any responsibilities where the disabled are concerned. I recognise that the noble Lord, Lord Henderson, would like to see the legislation amended. We believe it would be wrong to pre-empt any decisions until we have had the MSC's advice, but I should emphasise that the commission has been asked by my right honourable friend to look at ways of improving the effectiveness of the quota scheme within the existing legislative framework.
The noble Lord, Lord Henderson, asked a further supplementary question about the existing framework. It is difficult, of course, in that people who are disabled are now more reluctant to register than they used to be and that is probably at the heart of the problem. However, I will take account of what the noble Lord suggested and refer it back to the MSC.
Lord Renton: My Lords, may I too congratulate my noble friend most warmly in his promotion to the Cabinet and ask whether in further consideration of this matter he will bear in mind that the largest single group of disabled people are the mentally handicapped? As a result of voluntary effort many of them are already in employment. They make good and steady workers within their limitation and many more could be employed. Will he consider that perhaps the best way of securing that will be not by further legislation but by pursuing the good will of employers?
The Earl of Gowrie: My Lords, I again thank my noble friend for his remarks. He shows great wisdom in his supplementary question. The British are anxious to cope and help people who are less well off than the majority. I am sure that is the best way forward. As a result we have asked the MSC to look at ways of improving the position for the disabled, including the mentally disabled, within the existing legislative framework
Lord Dean of Beswick: My Lords, may I first of all join with the noble Lords, Lord Henderson and Lord Renton, in the best wishes that they have conveyed to the noble Earl on his promotion to Cabinet rank. There is no question but that after the disappointing employment figures that have recently been issued he will be ever more in the firing line. I also commend the

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noble Lord, Lord Henderson, for persisting in his questioning on this subject. I ask the Minister whether he will pay special regard to the point made so well by the noble Lord, Lord Henderson, about making some of the recommendations obligatory in the final analysis? It is the view of many noble Lords in this House—perhaps the majority—that to make provision on anything less than a mandatory basis may make the whole operation worthless.
The Earl of Gowrie: My Lords, again, I am grateful to the noble Lord for his kind personal remarks. I think that the measure of our sincerity and the measure of our anxiety about the position of the disabled cannot be adduced only by legislative provision. The best thing is to try to help disabled people improve their situation. I know, as the Minister who was once responsible, that the MSC had this very much in mind. I am glad to be able to tell the House that, at a time of very severe dfficulties in the employment scene, sheltered employment and other provisions for disabled people has kept pace. I have to confess that I am something of a sceptic about whether legislation is always the best way forward. I repeat that the MSC has been asked to look at ways of improving the situation within the present legislative position. However, if further legislation will really do the job we would not rule it out.
Lord Glenamara: My Lords, in the meantime does the noble Earl agree that the 1944 Act is not by any means impracticable for a vast number of firms, very many of which are not employing their quota of disabled persons? Cannot the Government through their various local and regional agencies do a great deal more to urge firms to comply with the quota requirements in the 1944 Act?
The Earl of Gowrie: My Lords, as I suggested in my earlier answer to a supplementary question, the real trouble with the 1944 Act is to some degree a problem of success. Disabled people have felt themselves more integrated with society at large than perhaps they did at that time. As a result they are more reluctant than they were then to treat themselves as a special or specially handicapped group. They simply require society to take some account of relatively minor difficulties. They want to be treated as ordinary people. That is one of the reasons why the quota Act of 1944 is somewhat unrealistic in that disabled people are not registering themselves under it.

Offshore Insurance Companies: Secret Profits
2.50 p.m.
Lord Bruce of Donington: 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 will explain the continued delay in bringing criminal actions against those insurers who have made secret profits in offshore insurance companies; and whether they will indicate what course of action they now propose to take.
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, before I answer this Question, perhaps I should say that I am a name at Lloyd's. I am advised that that does not involve a disclosable interest, but I had better say it just the same.
The decision whether or not to prosecute does not rest with the Government but with the Director of Public Prosecutions, who works under the superintendence of my right honourable and learned friend the Attorney-General in his capacity as Law Officer. In this matter they both act in a quasi-judicial capacity and with total independence from the Executive. But I know that my right honourabe and learned friend is taking a close personal interest in these matters.
Lord Bruce of Donington: My Lords, in thanking the noble and learned Lord for his reply, may I ask him whether he and the Government are aware that it is now well over two years since the irregularities at Lloyd's were first discovered, and they cover sums up to a figure of about £50 million, and that there is very great anxiety not only in the City of London but outside that it has taken rather a long time to determine proceedings in this matter? I accept the fact that the responsibility lies with the noble and learned Lord's right honourable and learned friend the Attorney-General, but may I ask him about a matter that concerns the competence of Parliament itself? Can he give the House an assurance that the Government have brought the staffing of the Office of the Director of Public Prosecutions and of the Fraud Squad, in so far as it relates to the engagement of people who are skilled in accountancy and investigative matters, up to the strength that is required to investigate matters of this complexity and to ensure that any criminals are brought to justice?
The Lord Chancellor: My Lords, perhaps I had better be a little cautious about the first part of the question. I was not aware that any staffing difficulties arose in connection with that matter, but if the noble Lord would like to put down a Question, I have no doubt that he will receive a full and accurate answer. As regards the middle part of the question, he will no doubt have seen the published correspondence between my right honourable and learned friend and a Member of Parliament; I think his name is Mr. Grist. In the course of that correspondence my right honourable and learned friend said:
"I can assure you that both the Director and I are anxious that large-scale fraud should not go undetected or unprosecuted. There is nothing more distressing for the reputation of British justice than the sophisticated white collar criminal who escapes prosecution for frauds involving huge amounts of money. Both the Director and I are anxious that those involved in cases such as these should be brought to book in the same way as any other criminal if the evidence is available."
Lord Jenkins of Putney: My Lords, is the noble and learned Lord aware that such delays give grounds for believing—or at any rate give the impression—that the Government are very anxious to enforce the law against the poor, but unconcerned to enforce it against the rich?
The Lord Chancellor: I really think, my Lords, that the noble Lord would have been wise to have had a word with the noble and learned Lord, Lord Elwyn-Jones, my predecessor, before he put that supplementary question. In the standard work on this subject by Professor Edwards it is clearly stated:
"Care, however, must be taken to distinguish between two separate aspects of the Attorney-General's and Solicitor-General's criminal law responsibilities, since failure to do so may unwittingly result in a weakening of the doctrine of independence. First, it is now well recognised that any practice savouring of political pressure, either by the Executive or Parliament, being brought to bear upon the Law Officers when engaged in reaching a decision in any particular case, is unconstitutional and is to be avoided at all costs."
I do not think that the noble Lord has wholly avoided that pitfall.
Lord Nugent of Guilford: My Lords, is my noble and learned friend aware that it would be very much in the interests of the great reputation of Lloyd's if these suspected wrongdoers could either be brought to book or their reputations cleared?
The Lord Chancellor: My Lords, it is not for me to speak on behalf of Lloyd's, but I think that the words of my right honourable and learned friend, which I quoted in answer to the noble Lord, Lord Bruce of Donington, would indicate that the view of my right honourable and learned friend is not far apart from that of my noble friend.

Spain: EC Accession Negotiations
2.56 p.m.
Lord Campbell of Croy: 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 far negotiations have reached on the accession of Spain to the European Economic Community and what date is now envisaged for that accession.
Lord Trefgarne: My Lords, the Community and Spain have reached the final stages of the accession negotiations, but some important and difficult issues remain to be resolved within the Community as well as with Spain. We shall be working for a speedy solution to these problems so that accession for Spain and for Portugal may take place as the Spaniards wish on 1st January 1986.
Lord Campbell of Croy: My Lords, I thank my noble friend for his reply. The negotiations are clearly taking longer than had been expected. Can my noble friend confirm today's reports that the Spanish Government have approached all the member countries of the Community expressing anxiety about progress in these negotiations? Will the British Government nonetheless aim for clear and definite agreements on the important outstanding issues, even if this means postponement of the date of accession? While we look forward to the entry into the Community of Spain and Portugal, to paper over differences by reaching an ambiguous settlement would only store up trouble for the future.
Lord Trefgarne: My Lords, as far as the views of the Spanish Prime Minister are concerned, we understand and share the Spanish Government's concern at the slow progress in the enlargment negotiations, and we shall continue to work for an early resolution of the outstanding issues. But on the second point put to me by my noble friend, we hope and believe that it will be possible to reach the sort of agreement which he wants, and which we want too, within the time scale to which I have referred.
Lord Cledwyn of Penrhos: My Lords, can the noble Lord tell the House what are what he described as the important and difficult issues which now stand in the way of accession? To what extent is the issue of Gibraltar one of those obstacles? Have Her Majesty's Government made the lifting of restrictions a condition of entry? Will he be good enough to be clear on that? Have Her Majesty's Government made an assessment of the budgetary implications to Great Britain of the entry of Spain and Portugal into the EEC?
Lord Trefgarne: My Lords, on the first point put to me by the noble Lord, I can say that negotiations are currently under way on industrial tariff transition, agriculture, fisheries, social affairs and institutions. Indeed, enlargement is expected to be the prime topic for discussion at the Foreign Affairs Council on 22nd and 23rd October in Luxembourg. We hope that the negotiations on these dossiers may be completed by the end of November, although there are some knotty points still to he resolved and we may not be able to achieve that.
As far as Gibraltar is concerned, the restriction on movement which exists between Spain and Gibraltar is incompatible with the obligations which Spain will assume as a member of the Community. Agreement has been reached between the Community and Spain that in the context of the external relations chapter the application of Community obligations in respect of external trade means, from accession, the elimination of all obstacles to trade between Spain and Gibraltar except as permitted by exceptions and derogations in accordance with Community law. We are confident that the European Community and Spain can also reach agreement in due course in the context of the social affairs chapter as it relates to the free movement of persons.
Lord Boyd-Carpenter: My Lords, can my noble friend make it equally clear that Spanish accession to the Community would involve the withdrawal of the restrictions in the use of Spanish air space by Gibraltar aircraft?
Lord Trefgarne: My Lords, that is really a different matter which does not fall within the competence of the European Community; but as my noble friend knows we have made our views on that point very clear to the Spaniards.
Lord Kilmarnock: My Lords, would the noble Lord not agree that although the two organisations do not fully overlap, the Spaniards' future attitude to NATO is likely to be very influenced by the success or failure of their application to join the EC? Would he not

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further agree that that is an additional reason for doing everything possible to iron out these differences?
Lord Trefgarne: My Lords, again our views on Spanish entry into the North Atlantic Treaty Organisation have been made very clear. Of course they did accede to the treaty organisation in 1982. We now hope that they will feel able in due course to enter fully into the alliance's integrated military structure. Nonetheless, there are still some restrictions which we regret. However, again I am not sure that that is a matter directly related to Spanish entry into the European Community.
Lord Broxbourne: My Lords, can my noble friend accept that the imminent addition of Spain and Portugal to the Community and the addition of any further members emphasises the necessity for clearing up the constitutional and practical matters arising from questions of the external competence of the EC? Would he say that the Government are diligent in this regard and will report to the House on the progress in respect thereof?
Lord Trefgarne: My Lords, my noble friend is right to say that these matters are continuing to be studied within the Community. Of course there are a number of difficulties which will flow from Spanish accession to the European Community. However, we are working to solve these difficulties, most particularly in the area of the budget.
Lord Gladwyn: My Lords, am I right in assuming that the difficulties now unfortunately regarding the early entry of Spain into the EC are largely attributable to fears of the effects of such entry on French and Italian agriculture and much less, I hope, to any inhibitions as regards entry on the part of Her Majesty's Government?
Lord Trefgarne: My Lords, it is certainly true that the French and the Italians have pointed to the problems that Spanish entry will generate for the EC with regard to the agricultural policy. That is one of the matters that will have to be resolved between now and accession.
Lord Cledwyn of Penrhos: My Lords, I am grateful to the noble Lord for the very full and helpful replies that he has given to these questions. Can he confirm in simple terms that on the day when Spain accedes to the European Community restrictions in relation to Gibraltar will be lifted? Is that the position?
Lord Trefgarne: My Lords, I cannot go further than the remarks I made just now. As the noble Lord may know, my right honourable friend the Foreign and Commonwealth Secretary met with the Spanish Foreign Secretary recently in New York. Further meetings are planned. I feel certain that the difficulties to which the noble Lord has pointed and the difficulties about which the governments have made their position clear can be resolved in time for the accession.
Lord Merrivale: My Lords, in pursuance of the answer he has given to the Leader of the Opposition,
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can my noble friend say what effect now these restrictions are having on the economy of Gibraltar? Are Her Majesty's Government prepared to provide further economic assistance should it be needed, in view of the fact that there could be delay in the accession of Spain beyond 1st January 1986?
Lord Trefgarne: My Lords, I hope and believe that the delay which my noble friend points to will not take place. My noble friend will know better than I the support we have given to the Gibraltarians in recent years following from the restrictions that were imposed by the Spaniards some time ago. The answer to these problems is to lift those restrictions, and that is the end to which we are working.
Lord Paget of Northampton: My Lords, will the noble Lord make it quite clear that nobody can join the Common Market without our consent? That is in the Treaty of Rome. Will he make it clear that our consent will not be given to any new member who does not join with us in agreeing to the right of the Gibraltarian people to choose their own destiny? We have betrayed too many of our imperial friends.
Lord Trefgarne: My Lords, the Government have made their position quite clear about the restrictions on the Gibraltar-Spanish border as regards Spanish entry to the European Community. However, I doubt whether these problems are best solved by one side hectoring the other about the difficulties. We seek to persuade them to resolve these problems. I think we have achieved that in the form of the Lisbon Agreement to which they agreed a couple of years ago and we are now working for the implementation of that.
Lord Harmar-Nicholls: My Lords, is my noble friend aware that despite his last answer, his answers to the questions that he has been asked over the past few minutes are rather like a replay of what we had when we were considering whether or not we would sign the Treaty of Rome? It appears that we present having agreement on lots of details but a great doubt about whether there is real agreement on fundamentals. One would hope that the lack of affinity that exists between the Ten is not going to be made worse by having an extension which would mean that the possibility of affinity is made even more remote.
Lord Trefgarne: My Lords, if I may say so, I think that my friend has it the wrong way round. The principle of Spanish and Portuguese accession to the European Community is something which we support very strongly indeed. What we are now seeking to do is to solve the practical difficulties that such enlargement presents. We are working towards that. We have already made considerable progress. I hope and believe that all the outstanding problems can be solved before Spanish accession on 1st January 1986.
Lord George-Brown: My Lords, as the Foreign Secretary who in the name of both Houses of Parliament and on behalf of the country actually laid the application by this country to join Europe, may I ask the Minister to make it clear to all noble Lords

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who keep raising individual, awkward questions that our aim is to be regarded as the capital, the most important nation in Europe?
Lord Gladwyn: In the world!
Lord George-Brown: My Lords, if we are in Europe we shall be in the world and there is no other continent we have ever been in but Europe. May I ask the Minister quite seriously to make it plain that we speak as Europeans? We would love to have the Spaniards and the Portuguese alongside us. We shall solve the economic problems as we go. But can we for once—the Prime Minister does not but can we for once—speak as what we have always been—Europeans—and recognise that the rest of Europe would prefer us rather than France, Germany or anyone else to lead them?
Lord Trefgarne: My Lords, I know of no evidence to support the suggestion that the French or the Germans want us out of the Community, as the noble Lord seems to be suggesting. However, I think the earlier part of the noble Lord's supplementary question underlined what I said just now. We very strongly support the principle of Spanish and Portuguese accession to the European Community. We are now working to solve some of the practical difficulties in the way of that accession. They would have joined before now had it not been for those difficulties. We hope and believe that those problems will be solved in due course and that the Spanish and Portuguese will enter the Community as planned on 1st January, 1986.
The Earl of Lauderdale: My Lords, can my noble friend clear up one point that was ambiguous, if I may say so, in earlier replies. He said that he hoped that all practical difficulties would be solved before Spain comes in. Are we to understand therefore that he hopes but is not yet certain that claims to sovereignty over Gibraltar by Spain will be dropped before Spain does come in?
Lord George-Brown: My Lords, no.
Lord Trefgarne: My Lords, the difficulties that the United Kingdom has had with Spain over the problems of Gibraltar are well known to everyone, including your Lordships. We must clearly solve the restrictions that have applied to the free transit of persons and goods between those two parts of the Community, as they will become I hope, before accession takes place. I hope and believe that the Spaniards will see the force of that.
Lord Wells-Pestell: My Lords, in the event of Spain entering the EC, shall we as a country have the right to apply for extradition proceedings against people who have left this country when they are wanted on criminal charges?
Lord Trefgarne: My Lords, that is, if I may say so, a different matter. I believe that there are some negotiations taking place on it at the present time.

London Transport Bill
Read a third time, and passed, and returned to the Commons with amendments.
Greater London Council (General Powers) Bill
Read a second time, and committed to an Unopposed Bill Committee.

Co-operative Development Agency and Industrial Development Bill
3.12 p.m.
Report received.
Clause 1 [Increase in limit on grants to Agency]:
Lord Graham of Edmontonmoved Amendment No. 1
Page 1, line 13, at end insert (".of which £1,500,000 shall be paid into a special bank account under the control of the Agency to be drawn at a rate of £200,000 per annum plus any other amount to compensate for inflation, such amount to be determined in consultation with the Secretary of State.").
The noble Lord said: My Lords, in moving this amendment. I should like to draw particular attention to page 1 of the Bill. It will be helpful in explaining the amendment if I also introduce to the House the words that it seeks to amend. We are discussing the continuation of the life of the Co-operative Development Agency. I think that the Minister would accept that there is general agreement in the House of its appreciation of Government decisions which have continued the life of the CDA beyond the period that was authorised prior to this Bill. In other words, we are grateful for the support that the Minister and his colleagues have given towards the continued activity of the CDA.
We are talking in this amendment about the funding of the CDA. Clause 1(2) states that:
"For the words from '£900,000 or such greater amount' to the end of the subsection there shall be substituted the words '£3,000,000'"
The amendment proposes that of that £3 million, £1·5 million
"shall be paid into a special bank account under the control of the Agency to be drawn at a rate of £200,000 per annum plus any other amount to compensate for inflation, such amount to be determined in consultation with the Secretary of State".
The Minister, who is in his place, will recall the agitation on this Bench in seeking to discover that it was the Government's true intent that the life of the CDA would run for the six-year period for which the funding had been made available. The Minister will note that there is no suggestion that the funds that would be made directly available to the CDA for spending on an annual basis would be more than the sum that the Minister has felt is proper, that is, £200,000. The prime difference which the Minister will have perceived is our suggestion that instead of the money being held by the Treasury and then released in tranches of £200,000, the whole of the money should

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be released to the CDA and then only authorised to be spent at the rate that the Government have felt proper. We consider that the CDA would be strengthened in its ability to convince people—organisations and individuals—that it has a life if the funding could be seen not merely to be available but in effect in its hands in that it authorised it to be spent. We believe that this amendment attempts to provide a formula that will guarantee the CDA the six years life that the Government have promised.
We shall come to later amendments dealing with our concern about the words of the Minister at a previous stage when he tried to illustrate to us the benign nature of the powers that the Government have taken to terminate the life of the CDA at any given time. I shall not say that this would be at the whim of the Government or the Minister. The Minister pointed out that the powers to terminate its life before six years had elapsed were hardly likely to be used and gave illustrations to show this. We shall come to that matter in a moment. Ministers in this House and in another place have been fairly generous in pointing out the purpose of the funding. I remind the Minister that he said at Committee stage that,
"the Bill provides for six years' financing and, as we have emphasied here and in the other place so very many times, that is the Government's intention".
The intention is to make the funds available for six years at the global rate and also at the annual rate which contains a little flexibility. Six times £200,000 is £1,200,000. A small reserve means that £300,000 can be drawn upon in special circumstances if necessary. The provision has been made. However, the Minister went on to say:
"Nevertheless it would he an imprudent Government which did not make provisions for unforseen circumstances. Therefore, it is prudent to have available the powers of dissolution, no matter how unlikely it is".
We shall come to later amendments concerned with the necessity for those powers. If we simply stick to the willingness of the Government to contemplate the availability of £1·5 million in additional sums of money, we are saying that it should be available to the CDA in the way I have described. We were alarmed to hear the Minister say at Committee stage that two unforseen circumstances had sprung to mind only that morning:
"The private sector may want to take over the agency, or the agency itself may want to change its format, or indeed its role. For example, it might want to go to the private sector. Who would we be to deny it that?—[Official Report, 30/7/84: col. 569].
It is the complete antithesis of the whole raison d'être and philosophy behind the creation of the Co-operative Development Agency even to contemplate the possibility that in some circumstances it could be privatised. We know that the Minister and his colleagues in Government are dab hands at selling public sector institutions that one would never have thought would be privatised. Yesterday, we were debating the privatising of the small arms factories and ordnance factories of our country. So this is not so surprising today as it might have been a month ago.
We know that the Government are capable of considering the possibility of changing the basis of hitherto accepted public or co-operative sector institutions so that they become private. We believe that that would be an alarming prospect indeed. We hope that
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the Government will confirm that this kind of illustration—the possibility that the CDA could very well go private in some way or another—was really just a figment of the Minister's imagination at the time and that there is no need for us to give any further thought to it because it was very hypothetical.
We believe that this tendency to make statements like that requires a safeguard to be introduced. That is the purpose of making available to the CDA, in the manner proposed by the amendment, the sums which the Government are willing to vote. At the same time, it would still provide the block that the money would be used only over the six-year period, would not be dissipated, would not be expended in the earlier years with nothing left at the end. In other words, what we are seeking to assure the outside world is that the Government mean what they say; that they envisage not merely a possibility but are working towards the reality that in six years' time the CDA will not merely be in existence but will have been encouraged and supported and expanded in the way that we are considering.
We regard this as a very modest amendment. Of course, we think that £200,000 will not be sufficient to fund the activities of the CDA, but to support that view we have other amendments concerning commercial activities. I would simply say that the Minister needs to look very carefully at what is happening to the size of the CDA. In October 1983–about 12 months ago—the CDA had 15 staff, and yet 12 months later we learn that it has only 12 staff. The Minister can say, quite fairly, that the 12 may very well be capable of doing the work of the 15. We are anxious to make sure that anyone who looks at the Government's serious intent to sustain the co-operative sector in this way—it is a very modest way—can get some reassurance by the acceptance of this amendment. I beg to move.
3.23 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, I recognise the concern re-expressed, if I may put it that way, by the noble Lord, Lord Graham of Edmonton. However, I am surprised that in his opening remarks he paid some tribute to the Government's continuation of support for the Co-operative Development Agency but then suggested that in some way that is suspect and has to be bolstered by a tranche of money being put in the bank.
As he knows, I always listen to him very carefully, but I have to say that in listening to his explanation I heard him say nothing to alter the fundamental unacceptable nature of this amendment. I have said before—at our Committee stage and at Second Reading—and I expect I shall say again, that one of the prime hopes of the Government is that the agency should improve its financial base to such an extent that eventually it becomes self-supporting. The noble Lord, Lord Graham, quoted me quite correctly; his quotation was accurate; mine was from memory but I am sure it was absolutely right. There is no difficulty in envisaging the sort of situation, perhaps in five, six or seven years from now, in which the agency might well develop. If it does improve the financial base I can well

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see it going that way. If it becomes self-supporting it will not need the governmental intervention, the governmental funding to meet demands.
The amendment is unacceptable because it weakens the public accountability for the grant that is payable to the agency. It is the Government's practice to pay grants only on evidence of need. I am sure all noble Lords will agree that that is a sound and sensible way of managing public funds. We have to ensure that taxpayers' money is not wasted and that it is paid out only when needed. The more the Government can improve their practice in this respect the smaller the burden on the taxpayer will be and the less pressure there will be on public sector borrowing requirements.
The amendment effectively will require the whole of the Government's support to the CDA of £1·5 million, spread over the six years, to be paid in this financial year. The noble Lord explained how he sees it going to the agency over the six-year period. But of course the total public expenditure consequence would be right now and I can see no reason to add this additional public expenditure pressure. In terms of the national account as a whole, £1·5 million may not be large. Indeed, the noble Lord made a small criticism of the amount of money being advanced and of the £200,000 per annum. We could always argue over that amount. Perhaps one might say that it could never really be enough.
If the expenditure is incurred this year it would either be a charge to the public sector borrowing requirement or else my right honourable friend the Secretary of State for Trade and Industry would have to accommodate that piece of expenditure, probably by cuts elsewhere in other activities where we aim to support industry and enterprise in the country.
There is a second reason for my finding the amendment unacceptable. This is because it would remove the Secretary of State's direct control in respect of assessing the needs of the agency, which are to be met by the annual £200,000 draw-down. It would also remove control over the amount that may be added to that £200,000 to compensate for such issues as inflation—the £300,000 reserve amount to which the noble Lord referred. The amendment requires the agency to consult with the Secretary of State on the latter but there is no compulsion at all for the CDA to abide by the Secretary of State's wishes. I am sure noble Lords agree that this is not an acceptable position.
In regard to the annual draw-down, there is not even a requirement in the amendment to consult the Secretary of State on the use of these funds; and, as I explained earlier, it is the Government's policy that the grant payments should be against need. Under Section 4(2) of the 1978 Act it is the Secretary of State's responsibility to exercise control over payment of the grant. If we accepted the amendment it would remove that control; and, again, I do not think that that is in keeping with the best principles of management of the taxpayers' money. It would also negate the Secretary of State's direct responsibility under that Act for the funding.
With that explanation, I hope that the noble Lord opposite will see that in what I have said there is no
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diminution in the support which the Government aim to give to the agency. In rejecting the amendment there is no wish to circumscribe the activities of the agency over the next six years. In essence, it is a matter of good housekeeping and prudent money management. In the light of that I would invite the noble Lord, Lord Graham, to withdraw his amendment.
Lord Graham of Edmonton: My Lords, I am grateful to the Minister for his careful explanation. I point out that it was not exactly a "try on". We recognised that there was an unusual feature about the proposal. However, in view of the fact that the Minister appoints all of the members of the CDA, we believe that he shares our very high regard for the performance and stature of the two principal officers—Ralph Woolf the chairman, and George Jones the chief executive—and all other members. We have supreme confidence not only that they are responsible, but also that they would want to take fully into account anything that the Government said.
The Minister is quite right: he who controls the purse strings can virtually dictate how it is done. If the money were handed over and for some reason which the Minister could not define the Minister wanted to say to them, "Don't spend or use the money in this way", it is possible for the Minister to be thwarted. However, we have confidence in the people who have been placed in those positions by the Minister. Some of them have come directly from the co-operative sector, while others have not, but all are imbued with a desire to see the success of the CDA.
When we come to later amendments we shall be interested to know whether the Minister is prepared to translate the oft repeated phrase that we want to see the CDA becoming more self-supporting and eventually entirely self-supporting. We believe that that can be achieved by supporting some of our amendments, which are designed to provide for other money-raising and money-making activities by the body. If we simply have the type of restrictions and the type of observations which the Minister made during the Committee stage, which inhibit the ability of the CDA to do precisely that which the Minister wants, we shall look upon the situation with dismay.
We take a different view from the Minister. We think that the sum of money involved— about £250,000 every year—is absolute chicken feed. Not for a moment am I saying that any penny from the public purse should be given away easily. But in the context in which the CDA is able to influence, and successfully to prove that it has influenced, the creation of societies by advice, guidance and restrictions, is able to make sure that people can work together and is able to provide work at a cost which is infinitely smaller than the public purse might otherwise have to bear, we are honestly saying that the continuation for six years of expenditure of £250,000 a year is absolute chicken feed. However, the Minister has had to say what he has said. We acknowledge that this was a method of trying to demonstrate that we did not promise six years life. The money was there for six years life and was in the hands of people who we believe would be responsible as regards its use. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

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Clause 2 [Extension of functions and control of Agency]:
Lord Graham of Edmontonmoved Amendment No. 2:
Page 2, line 23, after ("(2)") insert ("shall be omitted and there shall be substituted the words "The Agency shall have the power to carry out commercial activities and charge for its services only in pursuit of its functions as defined by section 2 and devote the surplus generated to any of those functions as it sees fit.".").
The noble Lord said: My Lords, I beg to move Amendment No. 2 which deals directly with the final point that I made on the earlier amendment; namely, to what extent are the Government prepared to write into the Bill the commercial activities which the Minister has said— unless he has some other means of finance—are the only means whereby the present monies can be augmented?
The effect of the amendment is to allow the CDA to engage in commercial activities and to charge for its services, but only in pursuit of its purposes as defined by Section 2 of the 1978 Act. At this stage let me point out that the current Bill is amending the 1978 Act and so whenever sections of the Act are referred to we are referring to sections of the 1978 Act, as amended by the current Bill. We want to have a situation whereby the CDA would be free to devote the surplus generated to those purposes—that is, those purposes which are defined—as it sees fit. In other words, we want to encourage the CDA to raise additional funds. There are a number of ways in which that could be done.
As I am sure the Minister is aware, this is a less ambitious version of the amendment which we tabled in Committee. I hope that the Minister will accept that this is a genuine attempt to find a middle way in which to carry forward our joint aspirations to provide these opportunities.
In Committee the Government refused, on a technicality, to accept our amendment relating to commercial activity. On 30th July at col. 557 the Minister said:
"the amendment will allow the agency to carry out any commercial activity whatever. I am advised that the power to carry out commercial activities would almost certainly be regarded by the courts as being limited to activities within the functions set out in Section 2 of the 1978 Act".
If in fact the words of the amendment which talk in terms of "any" commercial activity are suspect, then I would say that this amendment is trying to define the type of activities; that is, those which are authorised by Section 2 of the 1978 Act.
Naturally, we wish to see the CDA have the funds to pursue the wider powers which are provided for in this Bill, because in another place, especially in Committee, there was great disparity between the words contained in the Bill and the actual reality of how the CDA was going to measure up to what the Bill said it was capable of doing in the future. We think that the Government have been somewhat tardy in providing the powers to raise the money in that particular way.
When we talk about commercial activities we must remember that the funding of the CDA is the crucial issue in this debate. The Government, quite rightly, have limited the CDA's commercial activities to those within its objectives. In fact the noble Lord said at col. 561 on 30th July:
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"I do not think that I said that the agency would engage with the local authorities. I do not think that the Section 137 point arises".
Perhaps the Government can elucidate precisely what they mean by providing opportunities to engage in other activities. When we on this side—my noble friend Lady Nicol and the noble Lord, Lord Oram, also made contributions—alluded to the possibility of services being provided by the CDA to local authorities, the Minister said:
"I do not think that I said that the agency would engage with the local authorities".
Let me tell the House the current situation. In the four years 1980, 1981, 1982 and 1983 80 per cent. of the additional income that the CDA has raised has come from the local authorities. In those four years local authority projects brought in £43,000 out of a total of £53,582. So the relationship between the CDA and the local authorities is very real indeed. We want to see it expanded; but we think that at the last stage of the Bill the Minister spoke somewhat tardily about the local authorities being recipients. The Minister might recall that I was making the point that in view of the restrictions by the Government as regards Section 137, under which many of the CDA enterprise organisations get their fundings, there was difficulty and some of the sources could very well begin to dry up. The Minister must be much more specific in telling us how he sees coming forward the additional money which will either augment the £200,000 a year or replace it. When we raised this particular point about commercial activity we asked from where was the money to come and how much the Minister had in mind. On 30th July at col. 558 the Minister said:
"I could not say what the amount would be, and I do not think anyone could, because hitherto the agency has not had that opportunity".
The Minister has the responsibility, not least to the officers of the CDA, to tell the House what kind of activities there will be and how much he thinks they are likely to earn if this amendment is not written into the Bill.
The third important provision in Clause 2 is to remove the block on the agency undertaking commercial activity and forming partnerships. The underlying objective here is to encourage the agency to widen the range of functions which it is empowered to undertake. By being free to carry out commercial activity it can charge what the market will bear for its services. Of course, we were astounded when the Minister said on 30th July at column 558:
"I do not even know whether it has made an evaluation"
of the amount the CDA can earn. We think that that is a staggering admission. The Government want the CDA to become self-supporting but have made no attempt to evaluate either the kind of activities or the amounts that can be raised. I think that the Minister should certainly make some comments on that.
If the Minister is not prepared to accept this side of the House as an authority on the need of the CDA to raise money, perhaps I may quote in aid what George Jones, the Director of the CDA, said in an interview in the journal of the Co-operative Party called Platform in March 1984. He said:
"We have the potential to get the means but it will take a couple of years to build; it will not come quickly. I want to build up the resources, in particular finance, but I realise that this cannot be done overnight.

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"Training will provide a major opportunity for us and I am pursuing this via the Local Authority Associations, associations of professional teachers, and the Manpower Services Commission Training Executive. Secondments and EEC grants could bring at least £150,000 a year. Extra money could come in from various kinds of commercial activities."
I do not wish to weary the House. I believe that the case for the amendment has been made in a reasonable form. We want the Government to be helpful and less inflexible in the wording of the Bill. If they want to provide the CDA with the means to raise money, they must recognise that that kind of provision needs to be much more specific in the Bill.
The Minister will perhaps be able to indicate some of the ways in which the CDA should carry out its responsibilities. One of its responsibilities is to be a source to provide ideas for training, for creating schemes and for transforming novices running co-operative enterprises into competent and professional workmen, whether it is as technicians, general managers, secretaries and the like. All that needs money. Therefore, we want an assurance from the Government (which can be given simply by the Government accepting this amendment) that the CDA can get on with the job which we believe the Minister wants it to do. I beg to move the amendment.
3.43 p.m.
Lord Taylor of Gryfe: My Lords, I have a certain amount of sympathy with this amendment, largely because I am a great supporter of the idea of the Co-operative Development Agency which is promoted in the Bill. Indeed, one of the misfortunes of the co-operative organisations of this country is that they have become affiliated to one political party when the co-operative idea is a much broader idea and cannot be contained within the limits of one political organisation. So the Alliance has, and I hope others on the Conservative Benches will have, a certain amount of sympathy with the amendment proposed by the noble Lord, Lord Graham of Edmonton.
I very much welcome the fact that, even in today's climate of free market economies, private enterprise and privatisation, the Government have seen fit to give a guarantee of continued existence to the Co-operative Development Agency, although in fact the extent of that support and that promotion is hardly consistent with the great need for the extension of the co-operative sector within our total economy. I do not propose to make a Second Reading speech, but today I find that many people think that large organisations tend to dominate our economic life. There is a reaction against that and there is a feeling among communities that they would like to run their own activities in such a way that they feel intimately concerned with the running of their own businesses.
The Government's desire to stimulate small businesses should not be confined simply to individual initiative and individual effort. There is a desire for co-operatives to come together in small units in order to encourage a sense of responsibility and community among people who are doing this. Therefore, I believe that the idea suggested by the noble Lord, Lord Graham—the extension of the provisions of the Bill such as he is promoting— is desirable because it
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provides a stimulus for the people in the Co-operative Development Agency so that they are not regarded simply as a Civil Service department going to the Treasury every year for another release of £200,000. There should be a stimulus to them to enlarge their operations not only in an advisory capacity but even to engage in some business. Therefore, I hope that the idea of an incentive to these people who work in the CDA, which is provided for in the amendment, will stimulate the CDA and encourage a broader acceptance of the co-operative idea in our economic life.
Lord Grimond: My Lords, I rise very briefly to support what has already been said by the mover of this amendment and by my noble friend Lord Taylor of Gryfe. I also rise to ask a question which arises out of the debate we had on this matter in Committee. I left that debate not entirely clear as to what, in the Government's view, the co-operative agency could do. Perhaps I may ask the Minister to look at columns 561 and 562 of the Committee stage debate. At the bottom of column 561 the noble Lord, Lord Lucas of Chilworth, said:
"Yes, [it can engage in commercial activities] but not any commercial activities".
At the top of the next column the noble Lord, Lord Lucas, said:
"I think that I have described them as those that flow from the functions, as distinct from, for example, operating a ferry-boat".
From that I understand the Government's view to be that the agency could charge—I think that this is common ground—for advice, for consultancy, and for suchlike, but that it could not enter into any partnership, it could not encourage one of its members to join the board of a co-operative. Is that so? Is that really a valid distinction?
If the Government expect the agency to be self-supporting at the end of six years, as apparently they do, is it really right that the agency should be entirely shut out from these commercial activities? I quite appreciate that there may be some limit on the agency, but I should have thought that it was not beyond the bounds of possibility for the Government to have devised a limit so that the Bill need not be quite as restrictive as it now is. The noble Lord, Lord Graham, has already pointed out that this amendment is narrower than the one moved in Committee. Therefore, I think we may ask whether it does not satisfy the Government's criterion. This seems to be quite a different matter from any direction as to what the agency should do with the profits. That is a separate matter and I am not talking about that.
I ask the Government to look again at the question of the powers of the agency to engage in commercial activities, bearing in mind their own hope that it will be self-sufficient. Now that there is a certain restriction upon the original amendment as moved in Committee — and possibly the Government may have a better amendment than that in the name of the noble Lord, Lord Graham—I hope that at any rate they may see their way to coming at least some way to meet us.
Lord Lucas of Chilworth: My Lords, let me say at the outset that I do not think there is really any very great difference between the Government's intentions

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and the views expressed by noble Lords opposite. Perhaps I may dispose of one very small point made by the noble Lord, Lord Taylor of Gryfe. I may have misunderstood him and, if I did, I am sure that he will accept an apology in advance, but I was surprised that he introduced into his remarks the notion that there was some party political alignment or influence at work with regard to the Co-operative Development Agency.
Lord Taylor of Gryfe: My Lords, I was referring to the fact that the Co-ops in the United Kingdom, unlike the Co-ops in any other part of the world, have a direct political affiliation which inhibits the general appeal which I hope will be reflected in support for the Bill in this House.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord for making that clear. I need not pursue that at all. I recognise exactly the concern that the noble Lord, Lord Graham, and others have expressed in support of the amendment. But I think that all noble Lords who have spoken harbour some doubts about the effect of the Bill and its ability to empower the agency to carry out this commercial activity which we all so want, and of course to apply its profit from such commercial activity towards any of its functions. I believe that this concern is groundless. I cannot emphasise enough that once this Bill before us is enacted it will clearly empower the agency to act in a commercial manner if it so wishes, but only in the course of carrying out its prime functions.
It would be as well if I explained that at some length. Section 2 of the 1978 Act sets out the functions. In that Act, Section 3 empowers the agency to do anything which will facilitate or assist the discharge of its functions, or is incidental to them, subject to certain limitations. One of the limitations is a ban on commercial activities. That limitation is set out in Section 3(2) of the 1978 Act.
The Bill before us this afternoon removes Section 3(2) from the 1978 Act. The prohibition on commercial activities will therefore be removed. The agency, once this Bill is enacted, will then be free, if it wishes, to engage in commercial activities, but in pursuit of discharging its overall functions. This is the fundamental point—and this is the point that the noble Lord, Lord Graham of Edmonton, asked me to underline: were there any limitations, and, if so, what were they, on the commercial activities? The limitation is that the commercial activity has to be associated with the prime functions as set down in the original Act. That is probably quite clear. It is in keeping with the Government's policy to encourage the agency to become as self-sufficient as possible.
This takes me to the point raised about additional monies—the earning ability. The noble Lord, Lord Graham, chided me a little for not being able to produce a list of suggestions as to where some of these monies might be earned. In a way it is perhaps not my function to tell the agency in which direction they should look. That is exactly the function of the agency. The noble Lord, Lord Graham, has paid tribute—and I endorse his tribute—to the honorary officers and the other officers of the CDA. The last thing they want is for Ministers to come barging round and saying, "I
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want you to go into this, that or the other activity". It is for them to determine how those facilities which they have at their disposal, within the budget limitations, can be exploited. It is for their commercial judgment to determine how they are going to proceed.
We have talked about training, about training consultancies, about marketing and about other services. So supportive are we of the agency that my honourable friend the Secretary of State for Trade and Industry recently appointed a new board. It included the previous chairman, Mr. Ralph Woolf, and a number of colleagues, and they are joined by Mr. Fotheringham of North Eastern Farmers Limited and Professor Tony Eccles of the London Business School, and we expect that that board, bringing with it a wealth of experience both of co-operatives and of other business activities, will be able to give some further impetus to that aspect of the agency's responsibilities. Having said that, noble Lords may ask me why, if we are in so much agreement, I will not recommend to your Lordships acceptance of the amendment, which I might just as well say here and now I am not going to recommend to your Lordships. The reason is that I am advised that, from a legal viewpoint, it is regarded as undesirable to highlight one among a number of implied powers contained in a piece of legislation. The agency can carry out a number of activities such as commissioning publications, holding seminars, and so on, and perhaps one or two of the others I have just mentioned, in pursuit of its functions, and, with the deletion of Section 3(2) of the 1978 Act, this will include undertaking commercial activities.
Further to amend the 1978 Act as proposed by this amendment would make specific mention of the agency's ability to undertake commercial activity when that facility is already implicit in Section 3(1). It may well have the effect of casting doubt on the extent of the other powers contained in Section 3(1). I think noble Lords across the House would agree that we need, within the limits defined in the 1978 Act and to the extent that those limits are amended by this Bill, to leave the agency free.
Finally, the amendment before us refers to the surplus generated by commercial activities. Again there is no difference between us in substance. The agency will be free under the 1978 Act, as amended by this Bill, to use any surplus. That really takes care of the point made by the noble Lord, Lord Grimond, with regard to the profitability of undertaking these other activities. Of course they are unlikely to undertake any of these other activities unless there is a profit or suplus. They can use this surplus as they see fit, always of course in pursuit of the primary functions. Again there is no need to specify this in a further amendment.
I said at the outset that I did not think that there was really anything between us, and that it was perhaps a question of the manner in which we were reading the opportunities open to the agency under the Bill. The amendment is unnecessary. If we accepted it it would have a somewhat subversive effect of implying further limitations, in areas we have not yet identified, on the CDA's powers. With the foregoing, I would invite the noble Lord opposite to withdraw this amendment.
Lord Graham of Edmonton: My Lords, I am grateful to the Minister. I have often said that if the Minister says something does no harm, there is no reason why we should not accept it. I listened to what the Minister said. When I read the Official Report tomorrow I shall find that in fact he has accepted this amendment in various ways in the earlier part of what he has said. He said that that was why there was no need to write in the amendment. In effect we shall find in the Official Report that he says that all this amendment seeks to do the Bill is capable of doing.
What we are saying here is that the agency shall have the power to carry out commercial activities. That will be done by the Bill we now have. It can carry out commercial activities. We also say it shall have the power to "charge for its services". Clearly if it is commercial it is going to charge for its services. The Minister said to us earlier in his speech that any commercial activities the agency can carry on must be in accordance with the functions as outlined. There is a list of them. We have had a useful debate and when those who have great concern in these matters read the debate they will be satisfied that, although the words of the amendment are not written into the Bill, the spirit of the amendment, in the light of what the Minister has said, is perfectly capable of being carried out.
I am grateful to the Minister and I withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 [Power to dissolve Agency]:
4 p.m.
Lord Graham of Edmontonmoved Amendment No. 3.
Page 3, line 1, leave out ("The Secretary of State") and insert ("If it appears to the Secretary of State that no functions, as defined by section 2, remain to be discharged by the Agency he")
The noble Lord said: My Lords, Amendment No. 3 seeks to ensure that the CDA cannot be wound up unless its functions have been fulfilled. We come to the point that I made on an earlier amendment. I accept completely that it is not in the mind of the Minister that the life of the CDA shall be fewer than six years. We can see at least six years' life ahead. We were repelled by the power that was taken in the Bill to enable the Minister or his colleagues to wind up the CDA in certain circumstances. The Minister will know that this matter was vigorously debated at all stages in another place and was raised by my noble friends Lady Nicol and Lord Oram and others when it was debated in this place.
At the Committee stage in replying to our concern the noble Lord far from assuaged our fears in this matter. I am afraid that when we read what he said that made our fears even worse. We asked him to give us some precedents upon which the form of words which have been inserted in this Bill had been inserted in other Bills—bearing in mind that we were seeking assurances that the words did not mean a great deal and the likelihood of their being used to wind up bodies was remote indeed. In order to reassure us that is not likely to happen, when it is written into the Bill the Minister listed the following in col. 573 of Hansard of 30th July: the National Water Council, Section 3 of
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the Water Act 1983; the National Ports Council, part III of the Transport Act; National Film Finance Corporation, Schedule 1, paragraph 8 of the National Film Finance Corporation Act; and the British Film Fund Agency.
We and others outside were expected to rest on the assurance that those were the kind of bodies into whose statutory provisions the right to wind up had been written, but which were not likely to have any effect. We do not know whether it was intentional, but the National Ports Council was wound up on 1st October, 1981. The National Water Council was wound up on 1st January, 1984. The British Film Fund Agency is to be wound up in 1985: the Government announced that in July this year. The National Film Finance Corporation is also to be wound up during 1985. If we are considering the precedents for the significance of these words the Minister must understand that we cannot have any assurance at all that what happened to those bodies is not only capable of happening but is likely to happen to the Co-operative Development Agency.
In our amendment we are asking the Minister to accept that the winding up shall only take place if it is seen that no function, as defined by Section 2 of the 1978 Act, remains undischarged by the agency. In other words, as long as there is work to be done and as long as some of the money is left which the Government have provided for the agency, then it should continue to exist. We believe that that is a reasonable way of assuring the men and women who have their livelihood at stake—I stress that. We feel that this would be a modest move by the Minister, and he has yet to make his first modest move in these matters, to satisfy people outside that we still have some powers in this House and that the Minister is capable of recognising very late in the day after the Bill has gone through another place that we are capable of coming up with improvements in the Bill. We are suggesting that this amendment will not take away the powers of the Minister to wind up and we also accept an assurance that where there is work to be done the body shall continue. I beg to move the amendment standing in my name.
Lord Lucas of Chilworth: My Lords, the noble Lord, Lord Graham, would credit me with being less naïve than to accept all he has carefully dressed up in the requote of what I said on earlier occasions. He knows very well that this amendment will totally prevent the Secretary of State or his appointed Minister from using any winding up power.
If one examines Section 2 of the earlier Act, that defines the functions of the agency and those functions are pretty widespread. In so far as individuals continue to get together to form co-operatives, those functions will in a sense remain to be discharged. Advice will be needed, training will need reviewing and co-operative practices will have to be studied.
The Government would not dispute that these needs might well remain but we are concerned with a potential situation—it is only potential—in which there is no purpose in continuing with the CDA. The noble Lord opposite will, no doubt, say, "Tell me one". I cannot tell him one, because I cannot see one

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at present. I would have to guess or produce some hypothetical situation. That might be the best way of describing why we feel it is essential to keep a winding up power in the Bill.
Perhaps one might envisage a situation where the funds authorised in this Bill—the £200,000 per annum plus a small amount—have been fully taken up, yet the agency has been unable to develop other funding from other sources to support its activities. The Government might then in certain circumstances consider it inappropriate to ask Parliament to provide yet more public money to fund the CDA. It would be unsatisfactory for the agency to continue in existence without any means of carrying out its activities. In such circumstances the Secretary of State may then want to wind up the CDA.
As I have said, this amendment prevents the Secretary of State from using those powers. The noble Lord, Lord Graham, quoted a number of the points which I made on a number of the Bills in which this winding up power had been used. I gave some precedents at that time. I explained then that provision for winding up had been included in these Acts, but the circumstances in which such powers were introduced had varied. In some cases there was a clear intention to use these powers. The Government made no secret of their intention eventually to dissolve the bodies concerned. For example, this was the case with the Transport Act 1981, which provided for the dissolution of the National Ports Council. The Water Act 1983 provided for the dissolution of the National Water Council. The noble Lord, Lord Graham, mentioned the National Film Finance Corporation, which is to be wound up at the end of next year. This is not money voted by Parliament. It is an income determined by statute but raised through the cinema-going public through the levy. When that ceases, the functions of that body cease and it will have to be wound up.
The situation with the CDA, I suggest to your Lordships, is somewhat different. The Government's intentions have been made abundantly and repeatedly clear. We are making provisions for funding to extend over six years. Nobody is disputing it. The noble Lord opposite does not dispute it. We are extending the range of activities that the CDA can undertake and we are encouraging the agency to develop a sound financial base independent of central Government support.
Surely, my Lords, these are the actions of a Government committed to supporting and strengthening the CDA role. As a result of this Bill, they get this amount of money for six years. As I have suggested on an earlier amendment, part of the board has been reappointed and new members have been appointed particularly to strengthen it to fulfil the current functions and the aims which we see this Bill as enabling them to carry out. I think that this demonstrates a commitment to the CDA. We would not do that if we had an intention in a year or so to wind up the CDA; but it is absolutely prudent that we have the ability so to do in the event of particular circumstances arising.
I can give only one (I admit, very poor) hypothetical situation that might arise where wind-up is necessary.
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But, in any event, the Bill now requires the Secretary of State to consult the co-operative movement before exercising the wind-up powers. That provision, as I reminded your Lordships at Committee stage, was specifically added to the Bill in another place. It was in recognition of the arguments then advanced by the Opposition. I refute the necessity for the removal of this provision. I am reluctant to accuse the noble Lord opposite of being mischievous— perhaps "naughty" might be a better word to use. He must accept our clear intention but he must also allow us to have this reserve power. I cannot see any situation in which we would want to use it but it would be a sad thing if the necessity arose and we were not able to do that.
Lord Graham of Edmonton: My Lords, I am grateful to the Minister for his concluding remark that he cannot see any circumstances in which this power would need to be used. Earlier in his speech he sought to give us an instance in which it might be used. It was very interesting. He asked us to suppose that the CDA, in pursuit of its functions, had spent its £200,000—that year's tranche—and had other work to do that it was unable to fund. In those circumstances—and I think the Official Record will show that the Minister said this—the view could be taken that it was unable to carry out its functions and would therefore be a candidate for being wound up. Frankly, if the CDA is doing its job so effectively that it is fully committing and using satisfactorily all of its money and is so successful that there are other projects that it would like to fund but cannot, then those cannot be grounds upon which the use of the words "to wind up" could possibly apply.
Yet, with respect to the Minister—and, of course, we can all make mistakes—I believe that that was the illustration of a situation where, he said, this power could be used. It is those kinds of phrases, careless or otherwise, that the Minister is using, that are giving grounds for concern outside this place. However, we must take them alongside the other words used by the Minister—words which I repeat—that he cannot see any circumstances over the six-year period where this power is likely to be used.
I accept what the Minister has said, that some of my earlier illustrations related to bodies where it was quite clear that the intention was that they were going to be wound up. But this Government have a record of seeking to bring to an end the life of bodies whether or not they are carrying out their functions. Other bodies are being wound up and legislation taken. We are still concerned about the ease of mind that ought to exist, particularly among the professions—and I do not just mean the professions in the CDA but the hundreds of others employed by local enterprise agencies and boards which get sustenance from the central CDA. I think that they will read the words of the Minister with even more care than they might otherwise have read them. There are other stages in this Bill at which we may very well return to this matter. I am grateful to the Minister for trying to be helpful to us. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Speaker (Lord Aberdare): My Lords, I have to point out that in Amendment No. 4 the words

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"of the 1978 Act" should appear after the words "under Section 4".
4.16 p.m.
Lord Graham of Edmontonmoved Amendment No. 4:
Page 3, line 13, leave out ("Any sums") and insert ("The residue from any grants made under Section 4 of the 1978 Act.").
The noble Lord said: My Lords, this was noted after the initial drafting and I am grateful to the Minister and his advisers for recognising that this is a technicality which was taken on board. In the extremely remote possibility that one of the amendments might be carried, it would be even more significant than it is academic at this particular time. What we are concerned with here are the two amendments Nos. 4 and 6. Amendment No. 5 comes in between. Perhaps they might have been taken together but we understand that we are now discussing No. 4 and with it Amendment No. 6.
Amendment No. 6: Page 3, line 18, at end insert (", except that funds received by the Agency other than under Section 4 of the 1978 Act, as amended, shall be used to meet the liabilities entered into with respect to those funds, and any residue from those funds shall be applied to purposes corresponding to the functions defined by section 2 of the 1978 Act, as amended.").
Lord Lucas of Chilworth: My Lords, as I understood it, with the agreement of the noble Lords opposite, we are taking No. 4 and No. 6 together but No. 5 is not to be moved.
Lord Graham of Edmonton: My Lords, it has not been moved but it will be moved separately later. We are taking Amendments Nos. 4 and 6 at this stage and then there will be a brief reference to No. 5 in order to be technically clear and correct.
The effect of Amendments Nos. 4 and 6 is to ensure that the residue from the Government's grants goes into the Consolidated Fund but that the private funds will be used only to meet corresponding liabilities. The alternative amendment (No. 6) that we have tabled lays down what should happen to the surplus from those funds. Quite properly, the Minister has drawn attention to the willingness of the Government in the event of considering a dissolution to have consultations with the co-operative movement—that is, the bank, insurance and all the other bodies. In Committee, in discussing the disposal of the funds of the CDA in the event of it being wound up, the Minister in our view did not deal adequately with the question of private funds.
At the end of the day, whatever the reason for which the Government decide they are going to use the trigger which is contained in the Bill to wind up, there will be assets. They will be primarily, perhaps, financial but could be otherwise and they will not all arise wholly as a result of Government funding. There will be other monies, not governmental monies, that in the event of dissolution would be applied by the Secretary of State to purposes corresponding to the agency's functions.
We believe that it is important to be clear about this, because our interpretaton of the wording of the Bill suggests that in the first instance these funds could be
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used to meet the general liabilities of the CDA if those are not adequately covered by Government funds. We believe that this interpretation will inhibit the provision of private funds. In other words, we are in the business over the next few years of having the CDA supported. Of course, the bedrock is the Government grant but we are trying to get other monies. What we are concerned about—not that we are envisaging wind—up, but we have to be practical—is what will happen to the funds in the event of a wind-up. What we are trying to do in this amendment is to have clearer wording which will provide the assurance that private funds will be used only to meet corresponding liabilities and that there is no danger whatever of any private funds being used to meet general liabilities or being paid into the Consolidated Fund.
The noble Lord the Minister said earlier that verbal assurances that this would be taken care of ought to be enough. I repeat that we are not chary of either the integrity or the intentions of the Minister; but Ministers come and Ministers go—I have heard no news, by the way—and also Governments come and Governments go: the complexion of the same Government may change. We are anxious at this stage, without burdening the parliamentary process with amendments and so on, to get this matter as right as we can.
As politicians we are prepared to accept the Minister's assurance, but as non-politicians we suggest that charitable funds, co-operative organisations and even private companies may very well, on advice from their financial advisers, feel that money given to the CDA is money well invested. We are suggesting that the Minister ought to look very closely at Amendments Nos. 4 and 6. I beg to move.
Lord Lucas of Chilworth: My Lords, I am again grateful to the noble Lord, Lord Graham of Edmonton, for having explained so clearly the purpose of these amendments. I am also grateful to him for agreeing to take Nos. 4 and 6 together. It appears from what he has said that the basic design is to separate the agency's funds in the event of a winding up so that the moneys obtained by the agency, other than grants from the Secretary of State, could only be used to meet liabilities entered into with respect to the moneys or for purposes corresponding with the functions of the agency. I think this is probably a point introduced here to cover that which we discussed in Committee.
I can understand the aim behind these amendments but I have to say that we really cannot accept them. The amendments assume that a simple separation can be effected in the agency's accounts between grants made by the Secretary of State and other funds received by the agency. The distinction between the two may be clear at the time they are paid into the agency's account, from whatever source, but if after a period of time it came to determining how much of the balance could be attributed to the grants made by the Secretary of State or to other resources matters could then become extremely complicated.
It is, of course, quite possible to instruct the agency to keep formal separate accounts so that the distinction could be made, but I would put it to noble Lords opposite—and the noble Lord, Lord Graham, reminded us that staffing was at the level of 15 a few

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months ago and is now at 12—that the detailed accounting procedures that would be necessary in those circumstances would place a very significant burden on the agency. There would have to be detailed decisions on every single item of expenditure, charges and appropriation made against different revenue sources. I think, really, that for an agency with this relatively modest grant of a quarter of a million per annum, plus any other funding which they are able to obtain, this would place an unnecessary burden upon them.
Of course, I can sympathise with the notion that funds from the private sector should be used to meet liabilities or commitments related to the receipt of those funds or, if there is no remaining liability, then the residue should be used for co-operative activities. But this does not necessarily apply to some of the other funds. Where moneys received by the agency are derived from the taxpayer—and I think noble Lords will want to know that grants by the Secretary of State may by no means be the only source of public sector support because I have mentioned at earlier stages sources which include the European Community—there is no reason why in appropriate cases such funds should not be paid into the Consolidated Fund.
Even so, I do not think that life is really that simple. Some commitments may be related to private sector contributions but may also in part be the justification for some of the Secretary of State's grant. For example, the grant might be used in part to develop and fund a course. If private sector funds were available and used to extend that course, one could easily see difficulties if there had to be a precise allocation of costs. Really, such arguments would be endless.
What worries me is the obsession which the noble Lord, Lord Graham, has, together with some of his noble friends, regarding the possibility of a winding up and with all the detail that might be involved. I cannot really underline sufficiently heavily our belief that that fear is unfounded. I will not repeat it but will just draw noble Lords' attention to the fact that twice already this afternoon I have set out the areas in which we have given support in fact to deny the thought of a winding up.
The Government, as I have said, cannot totally ignore that winding up might be necessary at some stage, but, having included general powers on winding up, it is really unnecessary to go further. To legislate in order to have a precise allocation of residual funds if the improbable event of wind-up occurred would create an administrative burden, if not a nightmare, out of all proportion to the problem which the amendment seeks to solve.
I stated during the Committee stage that as the Bill is drafted it gives the Secretary of State discretion in deciding how to apply moneys arising from a winding up of the agency and I now use this opportunity to assure your Lordships that, in exercising his discretion, the Secretary of State would have regard to the source of any residual agency funds, in so far as it may be identified, and of course to outstanding liabilities or commitments relating to received funds.
The Secretary of State would properly be expected to dispose of such funds in the most equitable manner; and in so far as any residues after meeting liabilities
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could be identified as deriving from non-grant or non-public sector sourcing, then the Secretary of State would undoubtedly seek to ensure that those funds were used for co-operative activities. That, I think, is really quite important. The Secretary of State, as I say, would undoubtedly seek to ensure that these private funds—the funds that are left unused that could properly be identified—were used for co-operative activities. He would want to avoid placing such residual funds in the Consolidated Fund.
There is one other point associated here, and that is that once a winding up was complete, if liabilities remained then these would have to be met by the Secretary of State out of moneys provided by Parliament, so there cannot be any question of reserves being made to meet some untoward happening. The agency have the right and the proper power to use the funds in pursuance of their functions, and there cannot be any setting aside of funds from one source or another.
I believe that the existing provisions are sufficient to meet the proper concern that prompted these amendments. I would leave them by saying that the co-operative movement really must see the underlying good faith in the Government's promise of six years' funding and of there being a small reserve in addition to the annual amounts, and indeed in the appointment of a new board and the other support that the agency is going to get.
Lord Howie of Troon: My Lords, I am greatly impressed by the arguments raised by the Minister, except in the early part of his speech. I am concerned not with what he said about winding-up, which is a particular matter, but with what he said earlier on when he was speaking in more general terms about the co-operation idea, which used to be a very sound idea and an idea which was spread about throughout our industrial and professional activities a good deal more widely than it now is.
What surprised me a little in the very sensible reply of the Minister was his remark early on that co-operatives might not be too precise in their financial dealings. Perhaps I misunderstood him, and I am not sure about that. My understanding about the co-operative movement, extending over very many years, is that is has been very meticulous at all times in its financial dealings and in the way in which it has dealt with the winding-up of organisations and so on. If the Minister would look back at the early part of his speech, he might think that, perhaps, he was a little less generous to the idea of co-operation than he might have been and, having considered this hinted lack of generosity, might he not look more favourably at my noble friends' amendments?
Lord Graham of Edmonton: My Lords, I am grateful to the Minister for taking the opportunity time after time, when we raise the spectre of winding-up, to point out that he has no intention of winding-up, except in exceptional circumstances that he cannot envisage. The more often we raise it and the more he says it, the more satisfied ought to be the people outside. But we cannot get him to say it unless we raise it, and, having raised it, he keeps on saying it. I certainly accept that the spirit of what he has said is fully understood, and I shall not pursue the matter.

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I accept some of the practical problems in separating completely. At the same time, I think the Minister acknowledges that those who are responsible for raising funds for the CDA are, in effect, canvassing their integrity and an assurance of the life of the CDA. People will say, "We will give you the money", "We will invest", "We will loan" or whatever it is, and will then ask the question, "In the unlikely event of winding-up, what will happen to our money?" There will have to be a fencing of words. Commitments must clearly be met and discussed.
The Minister also alluded to the need to consult the co-operative movement. I am bound to say that so far that consultation has not been very fruitful, because the co-operative movement, once removed, was consulted about whether it wanted Clause 3, which covers the right to dissolve, in the Bill at all. The co-operative movement, through its representatives in another place, and my noble friend Lady Nicol and myself, who have a strong identity with the co-operative movement, were consulted about that. We expressed our view that we did not want it, but it did not mean a great deal.
The Minister should also take on board the disparate nature of the co-operative movement. The noble Lord, Lord Taylor of Gryfe, sought, in my view gratuitously, to introduce the political nature of the co-operative movement. I have to tell him—though really I do not need to—that the co-operative movement is made up of very many independent retail co-operative societies. It is a consumer movement. Once a year in our consumer movement in Enfield, 65,000 members are asked at a meeting whether they want to be affiliated, not to the Labour Party but to the Co-operative Society. There are only four or five individual co-operative societies which are directly affiliated to the Labour Party, but these are democratically taking decisions in a disparate way.
The problem we have, which is partly our fault, is that when we talk about the co-operative movement we are unable to find one voice or one forum, so that any Government—this and the previous one—are able to say, "We are speaking to the co-operative movement". We have to get our own house in order in that way. But certainly the Minister has satisfied me as to his intentions and, in those circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 5 and 6 not moved.]
Clause 4 [Designation of assisted areas]:
4.36 p.m.
Lord Lucas of Chilworthmoved Amendment No. 7:
Page 4, line 6, leave out ("Nothing in the substitution effected by this section") and insert ("This section has effect subject to any provision of the commencement order under section 7(1)(b) below with respect to any description of financial assistance dependent on the designation of areas under the said section 1 and, without prejudice to the generality of the foregoing words, nothing in the substitution effected by this section").
The noble Lord said: My Lords, Clause 4 of the Bill removes the power to designate assisted areas by reference to employment office areas. That is the main
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basis on which the present map is drawn. This is because travel to work areas, which are customarily used for assisted area purposes, are no longer built up of employment office areas. A consequence of this change is that the present map, which is based on employment office areas, cannot be preserved for any purposes after the appointed day, except in the cases of regional development grants, where the present map can be preserved by means of Clause 7 of the Bill for transitional purposes, and of orders under the Derelict Land Act, which are expressly preserved by Clause 4.
However, an offer of regional selective assistance under Section 7 of the Industrial Development Act 1982 must reflect the status of the area in which the project is to be carried out on the day on which the offer is made. If an application is made when the area is an intermediate area and negotiations are based on the level of assistance available in that area, but during the course of negotiations the area is downgraded, the changed status of the area would make it unlawful for the Government to proceed with an offer. Should such a situation arise, the companies concerned would surely believe that the Government had broken faith with them.
Consequently, in order to avoid industry having to negotiate in a vacuum and the uncertainty which this would cause, the Government have decided that it is desirable, for the purposes of Section 7, to preserve the existing map for a period of four months following announcement of the changes to enable offers to be made in respect of applications received prior to the announcement. This amendment enables the present map to be preserved in this way. I am sure noble Lords will agree that this is a desirable and sensible addition to the regional development grant transitional provisions which are proposed in the White Paper and which I must emphasise are not affected by this amendment. My Lords, I beg to move.
Lord Bruce of Donington: My Lords, the House will be grateful to the noble Lord for having extended the scope of this enabling part of the Bill. When I saw the amendment down in the name of the noble Lord, I thought he was going to use the occasion as an opportunity to reveal what are the Government's plans. We have repeatedly said, throughout the debates that have taken place on Part II of this Bill, that it is purely an enabling Bill and that, aside from giving an indication as to the type of criteria that will be applied by the Government in the administration of regional aid, it provides no clue whatsoever as to what are the Government's plans.
All we have been debating is an enabling Bill. Nearly three months have elapsed since the Committee stage of this Bill was concluded in your Lordships' House. One would have thought that during that time, and making all due allowance for the vacations to which even Ministers are entitled, their departments would now have produced a revised map—whether it was based upon travel to work areas, or whatever it was based upon. One would have thought that the Government would also be prepared to tell the country—because the country is interested in this matter—how much Government funding there was going to be once this change has taken place, taking

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into account or not taking into account, as the case may be, the aid that will be received from the European Development Fund.
We heard nothing at all. All the Government have done is present us with an enabling Bill, in respect of which any amendment in order to clarify it has been received with the cry from the Government that it is a wrecking amendment. There is nothing to wreck. At the moment, the Government have taken powers within certain limitations set out in Schedule 1 to do exactly as they please.
We shall be debating regional affairs again on the occasion of the Third Reading of this Bill, which will take place next week. Also, somewhat oddly, we shall immediately thereafter be debating a weighty and detailed report on the Regional Development Fund from your Lordships' Select Committee on this subject. Therefore, I will not detain the House more on this point, except to say that while the noble Lord or his department has been waiting to make up their minds about what they are going to tell the public about the future of regional development aid, events have not stood still. Going through all the regions and the points I was able to put to your Lordships about regional unemployment in the course of the debate last year, they have all—with only two exceptions—become worse.
Indeed, in the case of the West Midlands, matters have become significantly worse, and the West Midlands is not even an assisted area. The present position is that even on the basis of the noble Lord's new category of some 325 travel-to-work areas designated at the moment, and which are published in the Department of Employment's gazette, no fewer that 140 of these have unemployment at a level above the average. Some 46 of the travel-to-work areas have unemployment running at rates of about 17 per cent. Of those, some 20 travel-to-work regions have above 20 per cent. unemployment.
These are the continuing developments. These are factors now being experienced by people. Does not the noble Lord think that he might well have used the occasion of the moving of this amendment to give the House some information as to just what the Government propose to do? If he cannot do that this afternoon, will he give an undertaking that by the time of Third Reading we shall know more about what this wretched little enabling Bill is all about?
Lord Lucas of Chilworth: My Lords, if I did not know the noble Lord, Lord Bruce of Donington, better, I might easily be prevailed upon to give the undertaking for which he asks; but he does not expect me to do that and I think that his was a rhetorical question. In his opening remarks that Friday afternoon in the early summer when we had the Second Reading of this Bill, he asked me why it was necessary to have this Bill, why there was undue haste, and why the matter was being debated on a Friday. I told him that it was because this Bill provides for the detail of the new scheme to be set by order. I explained that it was necessary to get this enabling legislation through so that funding for the agency could continue. In fact, it is only because officials in my department
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and in the Treasury have come to some short-term accommodation that the system has been able to continue.
I explained at Second Reading that we had embarked upon enabling legislation so that we could consult on the detail and without delaying the implementation of the results of that consultation. Both Houses will have the opportunity to debate those orders. I suggest to the noble Lord that I might well be prevailed upon at that time to provide some of the answers for which he has asked me this afternoon. I beg to move the amendment.
On Question, amendment agreed to.
Schedule 1 [New regional development grants]:
4.46 p.m.
Lord Grimondmoved Amendment No. 8:
Page 8, line 2, after ("plant") insert (", Coastal Vessels operating to or from a development area,").
The noble Lord said: My Lords, I am well aware that this amendment is defective. It is probably defective in itself in that it ought to specify more clearly the type of vessel to which it applies; and it would certainly be ineffective without further amendments to the Bill. But I move this amendment partly to give the Government an opportunity to explain in public a very interesting letter which the noble Lord, Lord Lucas of Chilworth, has written to me and for which I am very grateful, and partly as a probing amendment.
At Committee stage, I put down a probing amendment to discover whether the word "plant" included vessels, and the noble Lord, Lord Lucas of Chilworth, replied:
"yes to the question contained in his first amendment, plant includes vessels"—[Official Report, 30/7/84; col. 599]
During my short and rather inglorious career at the Bar, I learnt that if a judge agreed with you, it was a very dangerous thing to go on arguing with him. So I accepted at once the quite clear assurance from the noble Lord, Lord Lucas, that the word "plant" included vessels. Then, as I said, he was kind enough to write to me. His letter makes it clear that his explanation was quite accurate. I was a little surprised that it was accurate because none of the dictionaries I have been able to study says that plant includes vessels. I was also given to understand that for the purposes of regional grants, vessels have been held to be ineligible. But there we are—a Minister of the Crown assures me that plant does include vessels, and what is the Oxford Shorter Dictionary or indeed common sense in the light of that? As we know, like Alice in Wonderland, the Government can make words mean whatever they like.
The noble Lord, Lord Lucas of Chilworth, went on to state in his letter that while plant included vessels, it only included those vessels operating in a development area. Clearly, the only vessels which are likely to operate in a development area are barges, and it was not barges that I had in mind. What I had in mind were coastal vessels; such vessels as operate out of the smaller ports of this country. I hoped that they might be eligible for grant. Let me make it clear also that I

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was not referring to fishing vessels. The noble Lord was kind enough to refer to them but I know quite well that they receive grants under different Acts.
It is apparent that in practice vessels will not be eligible for grants under the Act. I would have thought there was a case for including at least smaller coastal vessels. First, some parts of Great Britain are islands and they are as dependent upon coastal vessels as other parts of the country are dependent upon lorries. I do not see why a vessel trading between Orkney and Shetland, say, should be excluded. I believe that I am right in saying that a lorry would be eligible in a development area.
Secondly, it seems to me very important to do something for our Merchant Navy. There is very great concern about the steady decline of the Merchant Navy, and here is a small opportunity, perhaps very small, for giving it some assistance. Thirdly, in many parts of the country it is important to encourage trade with the smaller ports. Again, in development areas this is a matter of some importance. They give some employment and I should have thought there is a case for including them in the Bill. Therefore, I still maintain that plant should include vessels in an effective way and that not only barges but also small seagoing vessels should be included.
However, if the Government reject that, which I should regret, I hope that the Minister will now repeat what he wrote in his letter to me because, unwittingly perhaps, I may have given the impression to several people that, according to his statement in Committee, grants would, in fact, be available for vessels, and I am anxious not to mislead people who might have been induced by remarks of mine to think that vessels came within the scope of the Bill. I beg to move.
Lord Lucas of Chilworth: My Lords, I am most grateful to the noble Lord, Lord Grimond, for his introduction of the amendment. Certainly I made it clear in Committee that the term "plant" includes vessels. Therefore, any vessels, including coastal vessels, can be eligible for grant if the other requirements of the scheme can be satisfied. That, perhaps, is the stumbling block. It is the other requirements which will determine whether or not a grant is payable.
The Bill is aimed at promoting economic activity in the development areas and for this reason new Section 3 of Schedule 1 requires that assets or jobs to be provided by a project must be situated, used or carried out in development areas. Development areas are, as I said earlier, designated mainly by reference to travel-to-work areas which themselves will comprise the local authority wards. These wards, which will form the basis of the assisted area map do not, except in exceptional circumstances, extend beyond the low-water mark. Therefore, since coastal vessels cannot be situated or used in the development areas, they may well not qualify on that ground.
Secondly, for the amendment to be effective—and the noble Lord, Lord Grimond, has implied that he accepts there is an element of non-effectiveness in it—in practice it would be necessary to make the transportation of goods ("haulage" is the loose term) whether by barge, air, lorry or rail, a qualifying activity
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under the new scheme. The noble Lord will know—and perhaps I may remind noble Lords—that haulage does not at present qualify for regional development grant.
As to the future, since to qualify under the new scheme the activity will need to meet the criteria laid down in paragraph 32 of the White Paper, in particular to have a genuine choice of location, it is unlikely, as I see it at this time, that it will qualify. For example, the location of a lorry firm or haulage company is dictated primarily by the source of the product they are hauling, and not vice versa. One would not normally build a factory at "X" because there was a haulage company there, but one might very well locate a haulage company because there was a factory on a site which may be in a development area.
Thirdly, the amendment says "to or from", and that is a little wide. I do not think anyone would think that automatic regional aid should be available merely because a vessel operates to or from a development area.
I sympathise with the noble Lord, Lord Grimond. He made the amendment a platform on which to make an appeal for the coastal vessel industry, in which I know he has a genuine interest. I have no quarrel with him for doing that. Perhaps I may say to the noble Lord that the activities to which he has drawn our attention are already eligible for regional support under Section 7 of the 1982 Act. Grants are available from the European Community towards the construction and modernisation of fishing vessels. Also, my department will provide assistance by way of loan guarantee for the construction or the alteration of other, and different types of, coastal vessels.
Finally, the noble Lord might like to know that my right honourable friend the Secretary of State for Transport is currently considering whether to extend the freight facilities grant scheme to include freight transported by ship between ports in the United Kingdom.
Having stated the real difficulties that I foresee and the other assistance which is available in the area with which this amendment concerns itself, I invite the noble Lord to withdraw it. However, before I sit down, perhaps I may say that I think that in my remarks I have satisfied the noble Lord in his request that I repeat what I wrote in my letter of 12th September. I think that in substance I have done so, but if he feels I have not I am sure he will tell me and I shall repeat the appropriate paragraph from the letter for the record.
Lord Grimond: My Lords, I am most grateful to the noble Lord, Lord Lucas of Chilworth. He has indeed repeated what he wrote in his letter to me. I am sorry that the Government do not feel able to extend this Bill. I recognise there would be some extension.
I am again grateful for what he has said about the possibility of aid to shipping in other ways. However, may I say to your Lordships that the plight of merchant shipping in Britain is extremely serious. This may not be the Bill in which to deal with the situation, but it will have to be dealt with sooner or later, and I regret that some small advance cannot be made now.

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In view of what the noble Lord, Lord Lucas, has said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas of Chilworthmoved Amendment No. 9:
Page 9, leave out line 21 and insert ("the date when expenditure was first defrayed on the provision of any asset comprised in the project;").
The noble Lord said: My Lords, for your Lordships' convenience and with your Lordships' permission, perhaps I may deal with Amendments Nos. 9 and 10 together.
Amendment No. 10: Page 9, line 25 leave out from ("earlier") to end of line 26 and insert ("the date when expenditure was first defrayed on the provision of any asset comprised in the project.")
Both amendments are designed to clarify the references in new Section 3 dealing with defrayed expenditure. New Section 3(3) in Schedule 1 to the Bill is concerned with the qualifying date of a project; that is, the date on which the project has to satisfy the conditions of eligibility for grant. This date is important in that the rates of grant and the assisted area map in force on the qualifying date will be those which apply to the project for its duration, irrespective of any subsequent changes in rates of grant or the map. The only exception to this is where the qualifying date falls in the period which an order changing the scheme or the map has been published but not yet come into force. The effect is that, in contrast to the present scheme, companies will be able to rely on continued regional development grant availability throughout the life-time of an approved project.
The aim in drafting the Bill was to make the qualifying date either the earliest ascertainable date when action was taken under the project or, if earlier, the date of receipt of the application for approval in respect of it. Our experience is that the earliest ascertainable date is the date when the first asset is provided or the date when expenditure is first defrayed, and RDG is payable under the present scheme either when an asset is provided or the money is spent. In Section 3(3) of Schedule 1 the Bill refers to the defrayal, or, as I prefer to call it, the spending of monies on the first asset, but it is not necessarily the case that the first asset provided will be the one on which money was first spent. In cases where buildings or equipment have a long lead-time, and a deposit is paid at the time of the order, money will be defrayed long before the asset is provided, and some other asset may be the first actually provided. These amendments seek to rectify this defect in the Bill, so that in the context of the definition of the qualifying date the first defrayal of expenditure is related to any asset provided, and not just the first. I beg to move Amendment No. 9.
Lord Bruce of Donington: My Lords, we on this side of the House are pleased to support the amendments in clarification that have been put forward by the noble Lord. In the course of his explanation of the clause, he mentioned yet again the map. I wonder whether I may once again prevail on him to say just when we are to see the map or the proposed map. That will enable some flesh to be put on the quivering skeleton of this Bill.
Lord Lucas of Chilworth: My Lords, I cannot resist the temptation to respond to such a simple question. I hope that the noble Lord will not press me too far when I say that the answer is, later this year.
On Question, amendment agreed to.
Lord Lucas of Chilworthmoved Amendment No. 10:
[Printed above.]
The noble Lord said: My Lords, I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworthmoved Amendment No. 11:
Page 9, line 44, leave out ("affected by it") and insert ("or in any part of Northern Ireland")
The noble Lord said: My Lords, during our discussions on Second Reading of this Bill I made it clear that one of the principal objectives was to reduce significantly the amount of grant payable in respect of projects which did little more than shuffle jobs from one part of the country to another—particularly those projects which shed labour in one place and created fewer jobs somewhere else. For this reason new paragraph 3(5) in Schedule 1 to the Bill enables the Secretary of State to make allowance for the employment effects of a project on employment in other assisted areas.
Noble Lords will be aware that this Bill does not extend to Northern Ireland, where separate legislation applies. However, it is possible that a project may relocate from Northern Ireland with adverse employment consequences for that Province. As the Bill is presently drafted, no allowance can be made for these adverse consequences. Such a project, if approved, would have to be treated more advantageously than relocation projects from assisted areas in Great Britain. Clearly this is anomalous and the purpose of this amendment is to remove that anomaly. I beg to move.
On Question, amendment agreed to.

Distribution, Servicing and Pricing of Motor Vehicles: ECC Report
5.3 p.m.
Lord Brimelowrose to move, That this House takes note of the report of the European Communities Committee on the Distribution, Servicing and Pricing of Motor Vehicles (27th Report 1983–84, H.L. 302).
The noble Lord said: My Lords, I beg leave to move the Motion standing in my name on the Order Paper.
The subject of this debate is a proposed Commission regulation. If it comes into effect it will, subject to certain safeguards, apply Article 85(3) of the Treaty of Rome to certain categories of agreement which regulate the distribution and servicing of motor vehicles within the European Community. These agreements have side effects, two of which are of particular importance to the Commission. One is the partitioning of the Common Market in motor vehicles; the other is the maintenance of price differentials.

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The Commission has published three successive drafts of the proposed regulation, the third only a week ago today. Examining and reporting on these drafts has been rather like shooting at clay pigeons. No sooner have you fired at one target than another is projected into your sights. The Commission published its first draft on 24th June 1983. The Select Committee on the European Communities agreed that Sub-Committee B should examine it. Sub-Committee B having completed its hearings of oral evidence, and having drafted a report for submission to the Select Committee, found on 2nd July 1984 that it was confronted with a second draft. Ten of the organisations which submitted written evidence on the first draft hastened to submit written evidence on the second. Sub-Committee B revised its report and submitted it to the Select Committee. It was approved and sent to the printers. The report before your Lordships is therefore addressed to the second draft. But on 11th October the Department of Trade and Industry received from the Commission a third draft. My duty is to present the Select Committee's report addressed to the second draft, but in my remarks I shall draw attention to amendments incorporated in the third.
To go chasing after successive drafts is not an entirely satisfactory way of conducting the Select Committee's business, but in relation to Commission regulations, the terms of which lie within the sole discretion of the Commission once it has carried out the appropriate consultations, the alternative of waiting until it is too late to bring about change is even less satisfactory. As it is, the Commission's third draft is in several respects an improvement on its initial approach. The changes which have been made show the advantage of all interested parties making their views known at the earliest possible moment.
I turn from this story of the drafts to the substance of the Commission's proposals. The agreements which regulate the distribution and servicing of motor vehicles are widely known as selective distribution agreements. I shall use that term. In so far as these agreements prevent, restrict or distort competition, they contravene Articles 85(1) of the Treaty of Rome. Under Article 85(2) they are prohibited and void, but to declare all these agreements prohibited and void would be nonsense.
The system of selective distribution agreements was established in all countries not under Communist rule long before the European Community was established. For the sale and servicing of motor vehicles this system has served the industry well; and it can be argued that on balance it has also been beneficial to the buyers and users of motor vehicles. That case was well made by Mr. Dix, director general of the Motor Agents' Association in his reply to Question No. 93 on page 75 of the minutes of evidence. But within the European Community the system has been found capable of serving an additional purpose.
By impeding trade across national frontiers it has made possible the preservation of price differentials between member states. For the manufacturers, faced as they are with low demand, excessive capacity, fierce competition and many of them making losses, it has been advantageous to have some markets in which it
1016
is still possible to make a profit; but for the United Kingdom, where during the past seven years or so motor vehicle prices have been higher than the Community average, that aspect of the system has been disadvantageous. In this country high prices have been accompanied by high production costs. Production has been transferred abroad; domestic production has fallen; imports have increased; our balance of payments has suffered, and the individual car buyer has not been able to enjoy the benefits which should have flowed for him from the establishment of the Common Market. So far as motor vehicles are concerned, the Common Market simply does not exist.
The story is set out in a paper by the Specialist Adviser to Sub-Committee B which is reproduced as Annex III to the report at page xlii (Roman 42). It makes disturbing reading. For the Commission of the European Community, charged as it is by the Treaty of Rome with the enforcement of rules of competition appropriate to a common market, the way the system has been operating in recent years is a standing reproach.
The trouble has been that that part of the Commission which is charged with the enforcement of the Community's rules of competition has not been staffed on a scale commensurate with its obligations. If an agreement which restricts competition, and which therefore ought to be prohibited, is redeemed by certain saving graces, for example if it improves the production or distribution of goods, or if it promotes technical or economic progress while allowing consumers a fair share of the resulting benefit—that is a very important proviso—then the Commission, acting under Article 85(3) of the Treaty, may declare the provisions of Article 85(1) to be inapplicable, but always subject to the conditions that the restrictions of competition shall be kept to the minimum and that the effect will not be the elimination of competition in respect of a substantial part of the products in question.
Parties to agreements which appear to contravene the provisions of Article 85(1) and which are therefore apparently prohibited and void under Article 85(2) may notify these agreements to the Commission for individual scrutiny in the hope that by virtue of Article 85(3) they may be exempted from the rules of competition.
Very large numbers of such agreements—by no means confined to the motor industry —have been notified to the Commission. There have been so many that the limited staff of the Commission have not been able to consider them individually or to decide whether they do or do not qualify for exemption. By now there is a huge backlog of notifications on which no decision has been taken. The parties to these agreements are operating in a legal limbo. That is satisfactory to no one.
In an attempt to reduce the backlog, the Commission decided some twenty years ago to seek authorisation from the Council of Ministers to grant "block exemption" from the provisions of Article 85(1) to whole categories of agreements. In relation to exclusive agreements to which only two undertakings are parties, the Council of Ministers granted that authorisation. It is embodied in Council Regulation

1017
No. 19 of 1965. Using a somewhat broad and therefore challengeable interpretation of that regulation, the Commission now proposes, subject to a number of restrictive safeguards, to make a Commission regulation granting a "block exemption" from the rules of competition to the "selective distribution agreements" in the motor vehicle industry.
The Department of Trade and Industry, in its written evidence to Sub-Committee B, stated—I am quoting from paragraph 5 of the Memorandum reproduced at page 185 of the Minutes of Evidence—that,
"Her Majesty's Government believes that block exemption regulations are generally desirable because they can remove large groups of agreements from the state of uncertainty in which they have existed for many years and are otherwise likley to remain. Furthermore, the Department considers this particular class of agreements to be an appropriate one for exemption in this way".
In paragraph 19 of the same Memorandum the department concludes that,
"the Commission is right to propose block exemption for motor vehicle distribution agreements, and right to attach conditions to that exemption".
The Select Committee's report concurs. The motor vehicle manufacturers would welcome the "block exemption" of their "selective distribution agreements", but they dislike the safeguards which the Commission has proposed. The report regards the safeguards as essential.
The need for safeguards is particularly great in relation to private buyers of cars in the United Kingdom. To some extent United Kingdom buyers of fleets of cars and of commercial vehicles have been safeguarded by the intensity of competition. The individual private car buyer has not been so protected and the pre-tax price of the car he buys has, in recent years, been well above the community average.
Given the complexity of the market in motor vehicles, any index of pre-tax prices is open to criticism; but I think that the figures in paragraph 19 of the report, on page xi, give a fair general impression. The discrepancy between pre-tax prices in the United Kingdom and elsewhere in the Community was at its height in 1981. The differential has since been reduced, partly by the depreciation of sterling and partly by the increase in this country of discounts and trade-in prices. But a price differential persists and it could be perpetuated by the system of selective distribution agreements to which the Commission is now proposing to give block exemption from the rules of competition. Hence the importance of adequate safeguards.
In paragraph 18 of its report the Select Committee points out that although "selective distribution agreements" have made it possible to maintain price differentials, they have not been the prime cause of such differentials. The list of causes has included: differences in the cost of production; changes in exchange rates between the member states of the Community; differing rates of inflation when they have not been offset by compensating adjustments of exchange rates; differing rates of taxation on motor vehicles in that very high rates of taxation can depress pre-tax prices; differing governmental price controls; different gross margins for dealers; the manufacturers'
1018
policy of charging what the market will bear, and, finally, as regards the United Kingdom and the Republic of Ireland, the facts that we are islands and that we drive on the left. This has made it easy to isolate us as high-cost markets.
Personally, I find persuasive a contention in paragraph 8 of the written evidence of the Society of Motor Manufacturers and Traders (page 2 of the Minutes of Evidence) that,
"a common market in cars cannot be created for so long as differences exist in national Governments' fiscal and economic policies, nor for so long as exchange rates fluctuate between EEC member states".
The implications of that contention go far beyond the limits of today's debate. But even if the establishment of a true common market in motor vehicles cannot at present be envisaged (and the three drafts of the Commission's regulation all tacitly accept this) that does not mean that the exploitation of the United Kingdom market on the scale practised in the past seven years should be allowed to continue.
The question is to what extent the third draft of the Commission's regulation promises to limit the compartmentalisation of the motor vehicle market within the Community and the price differentials which that compartmentalisation has helped to maintain. The Commission's approach tackles these two problems separately. Its attempt to limit the compartmentalisation of the market is based on the principle of availability. The evidence is full of references to the principle of full line availability. The Commission does not use that expression. And if the term "full line availability" is interpreted to mean that any purchaser anywhere in the Community should be able to purchase locally at the local price any car made by any manufacturer, it goes far beyond what the Commission has in view. So the report abstains from using the term "full line availabililty".
On the question of availability, the third draft is less obscure and ambiguous than its two predecessors. Under Article 5 2(d) it will be a condition for the grant of the block exemption that the supplier shall supply to the dealer for the execution of a contract of sale between the dealer and a final customer in the Common Market—anywhere in the Common Market, that is—any passenger vehicle that corresponds to a model in the sales programme that forms part of the contract between the supplier and the dealer and that is also marketed by the manufacturer, or with his consent, in the member state where the vehicle is to be registered.
The definition in the third draft of a model that corresponds to a model in the dealer's programme is that it shall be a passenger vehicle manufactured or assembled in volume by the manufacturer and that it should be identical in form, driveline, chassis and type of engine with a passenger vehicle in the dealer's sales programme. Since Sub-Committee B has not met since the third draft was received, I can only express a personal view on the revised provisions. My view is that they amount to much less than full line availability and that they do go some way towards meeting objections by the manufacturers to the supply to personal importers of models not normally sold in the country of the proposed purchase but that they do none the less make quite broad provision in favour of

1019
individuals who would like to make a personal import of a car across one of the internal frontiers of the Community.
In the past, such individuals have been frustrated by every hindrance that ingenuity could devise. Once the Commission's regulation has come into effect, willingness to supply personal importers with vehicles that fall within the defined range will be a condition for entitlement to the block exemption. If this requirement is respected, the effect should be to facilitate personal imports into the United Kingdom from other Community countries where car prices are lower. But the making of a personal import will remain a laborious and time-consuming undertaking. Only a very small minority of individuals have hitherto been prepared to go to the trouble involved. Personal imports of cars into the United Kingdom constitute so small a part of total sales that even a substantial percentage increase could hardly be regarded as disruptive. Those individuals who are prepared to make the effort should find that things have been made somewhat easier for them.
If the requirement not to frustrate personal imports is not met, then under the third draft Articles 6 3 and 10(1)2 come into play. The effect of those articles, which reinforce one another, would be to make possible, by the withholding or the withdrawal of the block exemption, not merely personal imports but also imports on a commercial scale by traders outside the distribution network which had lost its block exemption. If such imports, which are referred to in the report as parallel imports, were to attain substantial proportions, the present partitioning of the Common Market would be underlined as regards the make of the vehicles affected. The Commission has not made explicit the assumptions underlying these two articles. They appear to be, first, that parallel traders would, in fact, be able to obtain supplies on a scale large enough to constitute a serious deterrent to those who might be tempted to flout the requirement not to frustrate personal imports; and, secondly, that if this deterrent failed, the reality of parallel imports would prove effective as a measure directed against the partitioning of the Market. Whether these assumptions are valid, only experience will show. The evidence of the manufacturers of the first two drafts indicates that they are worried and that they would find any such provison unacceptable.
The second prong of the Commission's approach is directed against price differentials. Here, there is an important difference between the third draft and its two predecessors. Under the first draft, when a price differential exceeded 12 per cent. for a period exceeding six months, intervention by the Commission would have been mandatory. This provision was much criticised. In particular, the manufacturers pointed out that differentials in excess of 12 per cent. could arise from causes quite outside their control such as changes in exchange rates and that it would be wrong to penalise them for market distortions which they themselves had not caused. The second draft made intervention by the Commission optional. If the Commission was satisfied that a persistent differential in excess of 12 per cent. did not arise from an abuse of the block exemption, it could abstain from intervention. The third draft has
1020
eliminated all reference to a 12 per cent. price differential as a possible trigger point. The new provision leaves everything to the judgment of the Commission. Article 10(1)3 empowers the Commission to withdraw the benefit of the block exemption,
"where contract goods are sold at excessively high prices, or where, over a considerable period, prices or conditions of supply for contract goods are applied which differ substantially as between member States and such high prices or substantial differences are chiefly due to obligations exempted by this regulation".
That is to say, if the parties to a selective distribution agreement abuse their block exemption to impose special conditions of supply or unduly high prices in a given country, they may lose their block exemption, and parallel imports on a commercial scale become possible. The Department of Trade and Industry, the Office of Fair Trading and the Consumers' Association all thought that the proposals contained in the first two drafts of the Commission's regulation might reasonably be expected to operate to the advantage of consumers in the United Kingdom without disrupting the market in motor vehicles.
The opinion expressed in the Select Committee's report is qualified. The manufacturers would not welcome a marked increase in personal imports by individuals, and both the manufacturers and the franchise dealers dislike intensely the prospect of a flood of parallel imports following the withdrawal of a block exemption. The view expressed in the report is that the availability provision will not work well and personal imports will not be greatly facilitated unless franchise dealers are prepared to supply cars to personal importers despite their awareness that most manufacturers would not welcome any substantial development of this trade.
The sense of the proposed regulation is that a supplier who penalises a dealer for compliance with the regulation on this point may himself lose his block exemption. But a supplier could obscure the issue by claiming that a dealer who had been supplying cars to personal importers was inefficient or otherwise unsuitable to continue acting as his representative. The Motor Agents' Association welcomes those parts of the proposed regulation which will protect the dealer against the supplier. The Ford Motor Company complains that the proposed regulation would undermine a manufacturer's control over his dealers. The third draft has not removed the need for further discussions between the Commission, the manufacturers and the dealers on how these conflicting considerations can best be reconciled. One thing is clear: if dealers are not adequately safeguarded, the regulation may be frustrated.
A different consideration applies to the safeguarding of the independent traders known as factors, who supply components and spare parts to service and repair workshops and to the retail outlets which meet the needs of the do-it-yourself trade. For the factors, the successive drafts of the regulation are less satisfactory than the regime at present existing in this country. Under Statutory Instrument 1146 of 1982, manufacturers and importers in this country are required to exclude from their franchise agreements any clause having the effect of requiring franchisees to buy parts exclusively from them and to cease enforcing

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any such clauses in current franchise agreements. They may, however, insist that parts supplied or approved by the manufacturer be used by franchisees in warranty work or in work done on vehicles which have been recalled.
The report regards the Commission's drafts as weighted too heavily in favour of the suppliers of vehicles and it expresses a preference for the present United Kingdom practice. Sub-Committee B noted with satisfaction that the Department of Trade and Industry is pressing for this. In general, the interests of the manufacturers, the dealers, the factors and the consumers are so diverse that, after listening to their evidence, Sub-Committee B was left with the impression that there is no common ground. It seems unlikely that any Commission regulation will command willing and general assent. The most that can be expected is a variously discontented acquiescence, accompanied by complaints and probably by litigation in the European Court.
Because of the likelihood of litigation, the report regards it as essential that the Commission should be quite sure of the firmness of the legal foundations on which the proposed regulation will rest. These foundations have already been challenged. The dislike of the manufacturers for the safeguards which the Commission wishes to attach to the proposed block exemption is intense—so much so that their two organisations in Brussels have drawn up a joint paper, reproduced on pages 15 to 50 of the Minutes of Evidence, which argues that the whole approach of the Commission is ultra vires. The Department of Trade and Industry, in paragraph 23 of its memorandum, on page 189, expresses the opinion that there may be some strength in that contention. It goes on to say:
"The solution lies in the Commission seeking fresh enabling legislation from the Council which clearly allows the exemption of selective distribution agreements for motor vehicles."
With that the report is in complete agreement.
The report expresses one major misgiving. Will that part of the Commission which will be charged with the implementation of the proposed regulation be adequately staffed? Just as shortage of staff made it impossible for the Commission to make all the individual decisions which it should have made under Article 85(3), so could any future shortage of staff make it impossible for the Commission adequately to investigate complaints, to maintain the surveillance which the regulation will require, and to take action when action is needed. When it does take action, its actions may be challenged in the European Court. The burden on the Commission could be heavy. If the Commission is unable, for lack of staff, to enforce the safeguards, they could become a dead letter. If that were to happen, the ability of the manufacturers and their franchised distributors to restrict competition might be enhanced by the block exemption, which in such circumstances could do more harm than good.
The succession of drafts placed quite a heavy burden on those who gave evidence, on our specialist adviser and on the clerk. I should like to thank them all most warmly. I should also like to thank your Lordships for listening so patiently to an exposition of a complicated and still evolving subject. Having thanked your Lordships, I beg to move.
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Moved, That this House takes note of the Report of the European Communities Committee on the Distribution, Servicing and Pricing of Motor Vehicles (27th Report 1983–84, H.L. 302).— (Lord Brimelow.)
5.38 p.m.
Lord Mottistone: My Lords, I feel privileged to follow the opening speaker in this debate. I should like to congratulate the Select Committee and Sub-Committee B, particularly as I am a member of another sub-committee, on what I think is a very balanced and fair report. It is bad luck that the third version of the document they were commenting upon came out only last week. I should also like to congratulate the noble Lord, Lord Brimelow, on explaining so clearly the very complicated situation. I was very sorry that he had to explain it even more lengthily than he might have done, because he had the problem of explaining the third draft of the document which most of your Lordships would not have had a chance to see. It seems to me that he did this very well indeed.
I must tell your Lordships that I have been advised on what I have to say by the Consumers' Association, and so noble Lords can guess that that is where my remarks will mainly be directed. That association gave excellent, balanced oral evidence to the subcommittee, as reported on pages 167 to 184 of the report, as well as balanced written evidence.
The basic problem seems to me to be exemplified by the table in paragraph 19 of the report, to which the noble Lord, Lord Brimelow, made reference. Looking at it quite dispassionately, it must be wrong that in a common market of which Britain has been a member for 10 years the price differentials for any mass market product should be so great. It just does not make sense in a common market. To me, it would not make sense even if we were not in the Common Market. It seems quite at variance with all that the Common Market stands for. If there were evidence of notably greater quality in equivalent products or in after-sales service on the part of British manufacturers and dealers, one could understand it, but all the evidence, such as it refers to that type of matter, seems to be to the contrary.
It seems to me that the problem stems mainly from the fact that British car manufacture was, at any rate initially, excessively uncompetitive and had to be protected. Furthermore, notwithstanding substantial improvements in recent years, which are to be welcomed, British car manufacturing still seems to be uncompetitive even in the European market. If it were not, we would not get a table like the table which appears in paragraph 19. I suggest that The Times leader of yesterday—Tuesday—pointed these facts out very well and made rather sad reading.
To take an example out of the report, if I read it aright, Annex III of the report, which is highly critical of many of the multinational car manufacturing practices, tells us in paragraph 18 that:
"300,000 'avoidable' 'tied imports' plus the foreign content in the 150,000 'British' cars … could have cost us 64,000 jobs".
The annex also tells us in paragraph 8 that the multinationals moved away from Britain in the 1970s because of low productivity and bad labour relations. Paragraph 11 tells us that this led to the "tied

1023
importing" which in its turn was the cause of the loss of 64,000 jobs—or at least it could have been, because I remind your Lordships that this is all an example.
I find therefore that it is tragic to read in The Times leader of yesterday, to which I have already referred, that Vauxhall workers are continuing a strike against the offer of a 7·5 per cent. pay rise and that Jaguars have had a 21 per cent. wage offer rejected. Indeed, in today's issue of The Times there are further figures of that nature relating to other companies. I suggest that with inflation running at less than 5 per cent. this reaction to a recently acquired improved share of the market by these manufacturers does not seem to be the way either towards becoming more competitive in the European market or towards convincing the multinationals that Britain is a good place in which to manufacture. The probable result will be more tied importing and less British jobs as well as putting off the day when the British car purchaser can expect fairer prices. It is sad.
Before I leave the The Times leader I should like to quote its concluding sentence which says:
"Only when the British industry can succeed in a free market will it earn the new image it covets".
To that one might add, "And only then will the British car owner get a fair deal within the Common Market". Most of the people who are in this House and most of the people who work at all levels in the manufacturing industry are car owners and so they are doing themselves a disservice by not enabling the customer to pay a fair price.
I turn to the Community aspects of this problem. As I mentioned earlier, I have sat on another subcommittee for many years and I have perhaps, a feeling for some of the Community aspects. In dealing with those matters for nearly 10 years I have come strongly to the conclusion that change is always necessary, but that abrupt change is highly undesirable both because it makes agreement between member states more difficult, and even more importantly because it has a disastrous effect upon the persons and organisations in the community most affected. However, if it can be achieved, gradual change with a forecast timetable is infinitely preferable.
As your Lordships will know, for over five years or more your Select Committee has been recommending such a gradual change approach with a forecast timetable for modernising the common agricultural policy. That approach, though reflected in due course in some of the Commission's recommendations, has consistently met with resistance from the Council of Agricultural Ministers until this year when they made an abrupt change in relation to milk with the result of concentrated fury from farmers in all member states of the Community. I make that point as an example of how not to make the change.
However, as I am talking about agriculture it is perhaps worth drawing to your Lordships' attention the fact that what is happening to cars, as exemplified in the report that we have under discussion, is also happening to farm machinery. I refer your Lordships to the Observer of Sunday 23rd September when a British farmer—actually, he seems to have been a Scotsman—went to Belgium to buy a combine
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harvester. To cut it short, he would have saved £29,000 if he had succeeded in buying a New Holland combine in Belgium, the price back in England being £80,000. The article goes on to describe very much what the report we are debating says in relation to motor-cars. So the problem is wider.
I hope that my noble friend on the Front Bench—and as I am mentioning him for the first time let me congratulate him on his Ministerial position which it is a joy for me to see—will give thought to the fact that what we are talking about is not just motorcars, because the situation apparently applies to agricultural machinery as well, and I do not know what else. Having made that point and against that background, I should like to suggest that we may go a little further than clearly the Select Committee or the sub-committee thought was reasonable, or indeed further than the Department of Trade and Industry went.
In my view the change so far as it goes is all right. However, the Commission's object should be not only to go in the right direction with regard to the right to investigate car price differentials—albeit under the new terms which we have not seen in print but which are introduced by the third draft. which state that it is at their choice rather than with a 12 per cent. limit written in—but more importantly, there should be safeguards to protect the consumer. I should like to see them go further than that. But I note that in Article 14 of the new draft it says that it is to remain in force for 10 years, whereas its predecessor, to which reference was made in paragraph 85 of the report, had a life of 15 years. I believe this to be a good move in the right direction because it will give the Commission a chance to take the whole matter a step further, it is hoped by the end of that 10 year period.
In addition to the regulation I suggest that it would be most desirable for the Commission to add a timetable of further change with a view to phasing out all exemptions from Article 85(1), whether block or individual, in under the 10 year period. I truly believe—and this is where experience in the agricultural world is a help—that only by those type of means, by a phased change which forces people to pay attention but which does not alarm them by suddenly happening when they are not expecting it, can the British car manufacturers and their workforces be given the incentive to become truly competitive and the British consumers be fairly treated within the Common Market.
5.50 p.m.
Lord Young of Dartington: My Lords, I should like to join with the noble Lord, Lord Mottistone, in thanking the noble Lord, Lord Brimelow, for his introduction of the debate this evening. I should also like to congratulate the Select Committee on its excellent report. The report was well summed up in the headline for the press release that was issued when the report was published at the end of July. It said:
"UK car buyers should have a better deal".
As the noble Lord, Lord Mottistone, said, it is surely shocking that car prices should be so much higher in the United Kingdom, with British prices some 30 per cent. or so higher than those in Belgium, to take just

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one example of a country—shocking because it shows how little we have a common market even now. It is shocking because British consumers are certainly not the most affluent in Europe and are, in effect, subsidising the car industry not just of Europe but of the world. The manufacturers, in an unholy agreement, between them have partitioned markets in Europe, and through the control that they have exercised over their franchised dealers they have rigged the market—they have rigged the prices in different markets in a way that is quite contrary to the letter and the spirit of the treaty.
The noble Lord, Lord Mottistone, mentioned the Consumers' Association and I shall also lean on that body, of which I have the honour to be the president. It has been in the forefront of the campaign for reform on this particular issue since 1981, when it made a comparative survey of car prices in different European countries which brought to general attention the extent to which there were divergences in prices between different countries. At that time the association published an action kit which showed consumers how to handle personal imports and not get into too many difficulties with regulations and so forth. Since that time some 60,000 copies of this action kit have been distributed.
However, after that the car manufacturers—as I would think, true to form—have tried to prevent competition from working and have put obstacles in the way of ordinary consumers exercising their rights. So the Consumers' Association complained to the EEC and encouraged the Commission to take legal action against Ford, and that legal action is still being pursued. But obviously a voluntary body like the Consumers' Association cannot possibly go it alone. It can act as an alerting body, and I certainly greatly welcome the report that we are discussing this evening.
If the Commission, in the spirit of this report, acts on the new draft regulation—with the backing, I hope, of the British Government after they have digested the Select Committee's report—it will undoubtedly be a big advance. But, like many others, I am perturbed at the Commission's proposal to grant a block exemption from the competition provisions of the treaty. Why should the motor trade be treated differently from others?
One of the main arguments about which I want to say just a few words is that manufacturers are able to ensure that high standards are maintained in after-sales servicing because they have franchised dealers who get their chief profit from selling cars but who are required to look after their customers afterwards. In the third draft of the regulation some of these arguments are rehearsed. For instance, it says that:
"Motor vehicle manufacturers co-operate with the selected dealers and repairers, who may also carry out servicing, in order to provide specialized servicing for the product. On grounds of capacity and efficiency alone, such a form of co-operation cannot be extended to an unlimited number of dealers and repairers".
It goes on in effect to support the existing system. But I would maintain that the facts do not support this argument at all.
Reverting to the Consumers' Association, over the years it has carried out survey after survey into garage servicing, all of which show how lamentable is the deal that consumers get from garages. On the whole, it has
1026
been shown that franchised garages are no more reliable than non-franchised garages. The French consumers' organisation carried out an inquiry which showed that franchised dealers in that country were more expensive and less reliable than the independents. In the light of this kind of evidence it is surely the independents who need fostering in this and other countries, and unfortunately the Commission's proposal will not do this unless as I hope (but probably in vain) garage servicing at least is excluded from the proposal.
In any event, franchised garages do nothing much for people who buy second-hand and for many new buyers as well who carry out their own repairs. In order to help them, five years ago I opened a purpose-built DIY garage in Milton Keynes which provides fully equipped bays where DIY owners can deal with their own repairs under the best conditions. The five-year trial has been successful and, with the co-operation of Total Oil, in a few weeks' time we are opening a second, larger DIY garage in Lambeth at a cost of some £½ million. I believe that this is an example of the type of competition that is needed in the motor trade—competition specially needed by franchised dealers.
I hope that the time will come when the motorist can buy a car from Sainsbury's or any other supermarket—or indeed from anyone else—and also get it serviced wherever he likes, or do the servicing himself in specially equipped garages for that purpose. Competition really could be helpful to consumers, especially in this field; and although I am extremely glad that the Commission and now the Select Committee have gone a long way to accepting the case as it could work out in practice, I am sorry that both of them have not gone even further than at present they are prepared to go.
5.58 p.m.
Lord Harris of High Cross: My Lords, I am glad to follow the noble Lord, Lord Young of Dartington, whom I have long admired as the founder of the Consumers' Association, from which I have derived much illumination and encouragement, not least on the matter before us today. I also join others in congratulating the noble Lord, Lord Brimelow, on an outstanding report which I thought made complex legal and administrative questions accessible even to a layman such as myself.
On the morrow of the memorial service to Lord Vaizey, I hope that I may simply say how much we shall mourn his loss and miss his contribution to our debates. I believe that we could have expected a typically robust speech from him on a day such as this on the failure of the Common Market in the matter now before us.
The report is concerned with the arrangements for the sale of cars in the EEC, and the first point that emerges is the paradox that we do not have a common market for motor vehicles but what is variously called a partitioned or fragmented market. It seems to me perfectly clear as a general proposition that where free trade would operate so that the prices of identical products could differ significantly only by the amount of local taxes and transport costs, basic car prices in

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Britain in recent years have been as much as 10, 20 and even 30 per cent. higher—that is, between £1,000 and £2,000 more—than the same model on the Continent.
Instead of the consumer enjoying the benefits of buying in the cheapest market, British motorists have paid in total many hundreds of millions of pounds a year—the IFS estimated more than one billion pounds in 1980—more than the Belgian, German, or French motorists would pay for an equivalent supply of motor-cars. Apologists have said that these higher prices in Britain are good for high-cost British Leyland, but they are also beneficial to those who import foreign cars—which account for more than half of the domestic market—with a consequent additional cost to our balance of payments.
Any sane man coming to these mysteries for the first time could be forgiven for wondering how such large disparities could have persisted through 1980, 1981, into 1982. It might have been thought that there was a splendid opportunity for alert individuals, or enterprising tradesmen, to take a single ticket to the continent and come back with his cheap car. We find that any such effort has been systematically made difficult, where it has not been entirely frustrated, by restrictive practices which were the central concern of this Select Committee: principally the familiar distribution system which confines car retailing to selected dealers appointed by the manufacturers.
I thought that the noble Lord, Lord Brimelow, was altogether too mild in this matter. As a student of Adam Smith I am never surprised by the tricks and devices developed by producer interests including, I may say, trade unions, to fend off the uncomfortable rigours of competition. Not for the first time I shall remind your Lordships of the timeless warning from The Wealth of Nations as follows:
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices".
It was precisely to prevent such natural lapses that the Treaty of Rome included Article 85 outlawing:
"all agreements … which have as their object or effect the prevention, restriction or distortion of competition within the Common Market".
Although, as we have heard, a later section provides for exemption where an agreement improves production or distribution so long as there are substantial benefits to the consumer.
The manufacturers and dealers claim—and some of them evidently believe—that their "selective distribution and servicing agreements" are in the public interest, not least because they are supposed to provide motorists with a guarantee of after-sales service, repairs, and spare parts. Against these large claims, as the noble Lord, Lord Young, has advertised, the Consumers' Association has deployed, it seems to me, irresistible evidence from extensive surveys and researches to show that franchised garages are no more reliable, though they are always more expensive, than the independents. Equally sceptical on this matter were the Monopolies and Mergers Commission which reported in 1982 against cars being sold as part of what it called:
"a package, including the provision of parts and service."
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Rather than outlaw these exlusive dealerships as being in conflict with the Treaty of Rome, the European Commission, under strong pressure from the producers, has struck the compromise explained by the noble Lord, Lord Brimelow. These restrictions, as we have heard, are to be given block exemption from Article 85 subject to the two intended safeguards for the consumer. The first proviso under the earlier draft gave the Commission the power to review the exemption if recommended pre-tax price differentials exceeded 12 per cent. over six months. I personally regret very strongly that this condition has now been watered down to the criterion of a substantial differential in prices.
The second safeguard is that manufacturers and dealers are not to obstruct an individual from shopping around for his chosen model in the country where it is cheapest. Again the Consumers' Association has reported on the delays, surcharges and other obstacles that continental producers have put in the way of British customers seeking to exercise their present right to import a car for their own use. As I read those reports I was struck that the vigour and ingenuity with which these restrictions are imposed by continental suppliers would do credit to those trade union officials who work overtime defending their disreputable Chinese practices.
We have yet to see how effective the Commission's watered down safeguards will prove to be in preventing British motorists from being taken for an expensive ride in this matter by both British and foreign producers. I must admit that I am not very hopeful. The doubt we have heard is whether the Commission has the resources to monitor the outcome of its regulation without more staff. I must say that rather than contemplate a still larger Eureaucracy, I would follow the Financial Times in contemplating an outright ban on exclusive dealerships.
Indeed, the case for a much more rigorous assault on the manufacturers and dealers has been strengthened by the latest concession to the restrictionists' lobby. But if we may assume that the amended draft regulation has the firm and resolute backing of the Government, I would reluctantly support its early implementation. At the same time I would urge the Consumers' Association and similar watchdogs to maintain their vigilance to keep the European Commission up to scratch by standing ready to implement its safeguards against the continued exploitation of the British motorist.
6.7 p.m.
Viscount Rochdale: My Lords, as I think I am the first member of the sub-committee to follow the noble Lord, Lord Brimelow, I should like to say how grateful I am sure all the members of the sub-committee were to him for the skilful way in which he steered us through an extremely complicated and difficult inquiry. I should also like to join with other noble Lords who have spoken in thanking him for the way in which he has introduced our report.
I have been privileged to be a member of quite a few inquiries undertaken by Sub-Committee B, but I cannot recall any inquiry where it seemed to be so much the case that we were trying to reconcile the

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irreconcilable. That to my mind was the measure of our problem. Here in the report that we are discussing we have first of all the manufacturers; we have the dealers and distributors; we have the factors; and we have the consumers. But in addition we have the interests of the country as a whole, where anyone examining the situation can hardly fail to see that wherever the cause, wherever the responsibility, may lie—and I am not personally casting any bricks in that context—the relatively high pre-tax cost of cars in the United Kingdom compared with that in other member states makes for a high cost market in cars to the extent even of affecting adversely our balance of payments. That is well brought out in paragraph 19 of our report.
Listening to the oral evidence we heard and reading the written evidence as well, I came to feel that if one were to take each of those separate interests in isolation it would not be too difficult to argue for any of their cases in a way which one would hope would be convincing, and which I believe would be convincing to myself. The manufacturers, in a highly competitive world field in which they operate with tremendous inroads from overseas, notably from Japan, must naturally do their utmost by every means at their disposal whether by investment, improved productivity, or their selective distribution service agreements, to safeguard their share of the markets concerned. Indeed, I believe that they would be failing in their duty, whether to their customers—I am talking particularly in the longer term—their employees, their shareholders or the national economy if they did not do so. Yet the fact remains that selective distribution agreements can hardly be said to be in accord with the competition rules of the Treaty of Rome. We know perfectly well that they are not.
Turning then to the dealers and distributors, if they are to fulfil their selective distribution agreement contracts, which can involve them in considerable investment in specialist equipment and stocks of spare parts, they will argue that they reasonably need their measure of local protection if they are to pay their way and provide the standard of service which is provided for in their contracts and reasonably to be expected by customers. I shall not say whether that standard of service is always received by customers—we have heard noble Lords pointing out today that it is not—yet that is their obligation under their contracts.
The factors, who independently manufacture spare parts, can reasonably demand at least what the competition rules of the Treaty of Rome provide: the opportunity to compete with the car manufacturers' own spare parts, which is clearly often to the advantage of car users, and I believe may at times be of important technological advance.
Then there are the consumers, the public who buy the cars whether as individuals or in fleets as firms. They can reasonably expect to be as free to be able to buy the car of their choice as favourably as anywhere in the Common Market or, as has been emphasised today, the so-called Common Market—which is not a common market at all—without it being partitioned and without the wide differentials that exist today. This is where the shoe rubs and where the whole subject can be of such importance to so many car purchasers in the United Kingdom. Yet it is a far more
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complex question than many such buyers would believe. It is a very difficult question and much more complex than might appear on the surface.
I realise that in trying to put the point of view of the different interests I have no doubt grossly oversimplified the various interests, but I have tried to present what to each individual interest could well seem to be sound arguments, but arguments which, taken together, provide in my view a really impossible conundrum for the Commission to deal with. Indeed, it is a situation certainly contrary to the Treaty of Rome and therefore, unless something is done, fraught with uncertainty and actual risk for those who are concerned.
To meet this situation, as the report points out, the Commission has been quite unequipped to deal promptly, adequately or indeed often at all with the spate of applications for exemption of individual selective agreements. Hence the ever-growing backlog which has also been referred to. As paragraph 24 of the report says, only two applications within the motor industry, neither involving the United Kingdom industry, have been dealt with by the Commission—only two. Considering the hundreds that must exist, that surely speaks for itself and highlights the need for some action.
The Commission's answer, as we know perfectly well, is by way of the block exemption under Article 85, but this implies conditions under which the block exemption would be granted. This is where all the arguments and disagreements start. To have expected the first draft regulation for such a complex and inscrutable issue to provide straight away for a generally acceptable solution would have been crying for the moon. The second draft, as has been mentioned, which appeared in the middle of our inquiry, is an improvement, but a great deal more thought and discussion is called for. The third draft, which the committee did not have time to consider, looks in some ways better, but there again I am sure it raises considerable doubts.
If the Commission is to proceed, how will it do so? In my view, it will be a case of balancing precision in drafting, on the one hand—precision aimed at reducing uncertainty which can be so inhibiting to investment and productive development—with flexibility, on the other hand. My own inclination is to err towards greater flexibility. Of course, there will have to be appropriate guidelines and safeguards. That in turn can only mean a greater degree of discretion being allowed to rest with the Commission. This is something which always engenders considerable apprehension as to how the Commission will use that discretion. It is perhaps one of the conditions that we have to accept in return for other advantages. I have a feeling that the more rigid the drafting, the more onerous it might prove in individual cases.
That seems to bring us back to where we started. Unless under any new regulation references to the Commission of unsatisfactory situations or procedures can be dealt with promptly and with necessary knowledge and relevant expertise, there will be still no confidence or sense of certainty. There will still be the damaging uncertainty and ambiguity to which the report refers. That, in the longer term, will prove as

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damaging to the customers as to the manufacturing industry itself.
Paragraph 86 at the end of the report seems to me to sum up the position. The noble Lord, Lord Brimelow, referred to it. Either the Commission must be given adequate resources to exercise its discretion or the block exemption may do more harm than good—perhaps I could go just a word further on my own; and I know this is impossible but it is worth mentioning—unless the block exemption were unconditional. To go one step further still, could it possibly be that with additional resources given to the Commission now to deal individually with the present backlog the status quo would actually be preferable to any regulation embodying a block exemption, at any rate for a further few years? I know I may be told in making that suggestion that it would be politically quite impractical but I feel it is worth mentioning and having on the record. It may be too naive but I certainly hope, if there is to be a new regulation, that it be regarded as an interim measure and that it is kept as short as possible. The third draft mentions June 1995. My Lords, I think that that is too long.
6.20 p.m.
Lord Rhodes: My Lords, this House owes a debt of gratitude to the noble Lord, Lord Brimelow. He has had two very difficult subjects to chair in Sub-Committee B and his masterly explanation this afternoon again is putting the House in his debt. I want to ask one or two practical questions similar to those I have asked before on such occasions as this. First, how many copies of this report have been printed; where have they gone; and has there been any reaction from Brussels to the report? Because if we cannot expect a reaction from Brussels we shall soon be in the position of the petition procedure in the House of Commons where a Member of Parliament gets thousands of signatures in his constituency and brings piles of petitions down to the House of Commons and, after a brief statement, the custodians stuff them all into the great green bag behind the Speaker's chair. Honour is satisfied and nobody ever sees or hears anything of them any more. This is an occasion when we have to consider what value there is in a report of this sort.
Recently a fine was imposed on British Leyland and it highlighted one of the many ways in which car makers attempt to keep prices in the British market substantially higher than those in continental countries. The ruses that are employed such as surcharges, ridiculous delivery dates and refusals to meet specifications really stem from the basic exclusive dealer network at present in operation. It is fair to say at this juncture that British Leyland are appealing against that fine.
We heard it repeatedly said in evidence that prices in Belgium can be as much as one-third cheaper. Instances have been quoted to show that last year a British Leyland motor-car bought in Brussels could save a British purchaser as much as £1,000 after paying car duty, VAT and the ferry charge. This yields a handsome profit, even after paying for the conversion to right-hand drive. So we welcome the move that the EEC Commission has made towards a
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partial solution to the problem and we on the Committee are glad to note that it has the support of Her Majesty's Government—perhaps in principle rather than in fact; but we are pleased that it is recognised.
The first draft regulation largely provided the basis for this report. In the original draft regulation, dated 24th June 1983, the Commission suggested that when the price difference was greater than 12 per cent., a 12 per cent. block exemption would be allowed on the grounds either of variability of exchange rates or to keep up what is known as an after sales network. This aroused tremendous interest, naturally. In July this year, another draft appeared just as this report was going to press. It was a modified version of the 1983 report. I have heard it referred to as a watered-down version. Then again, only last week another draft regulation appeared, leaving out entirely any mention of a 12 per cent. block exemption. So where do we stand? Can the Minister tell us? We should like to know. We in this country are very high-cost manufacturers of motor-cars and this explains the attitude of British Leyland, who know that a cut in British prices will mean operating at a loss; so that it makes sense for British Leyland to discourage re-imports.
May I underline what I said about our being high-cost producers of motor-cars? Since the war I have been several times to Japan and the Far East. The first time I went was just after the war and one of the things that I was taken to see was the burnt-out shell—destroyed by incendiary bombs by the American Air Force—of a vehicle factory. In its twisted ironwork, children, old men and women were rubbing pieces of metal with the only abrasive they had available—a pumice stone—to start vehicles going again. There was not a single vehicle being made in that year. The next time I went was in 1958; and 200,000 cars were being made in Japan. I went again in 1962. and it was 500,000. I went again in 1972; it was 5 million. I did not go to Japan when I visited China in 1982. If I had, I should have got to know what I learnt since: that the number of cars they make in a year now is 8 million.
Our industry is like a pygmy to a giant. And where these computers and aerodynamics have done either their best or worst, according to how one thinks about it, one sees the similarity between the millions of motor-cars that we see on the roads today. There is hardly a pin to choose between them. It is part of the uniformity and the conformity which is settling down in the modern world. I have talked about the interest in what is going on. It is not confined to British Leyland alone. Every other car manufacturing country in the world is interested. But it is not in the interests of either the consumer in Britain or the country as a whole to continue this practice.
It may be said in the course of this debate that, having in mind the drift down of sterling, the massive discounts of between 10 per cent. and 15 per cent. which have made a nonsense of list prices, these recommendations by the Committee are no longer necessary. However, I can assure the House that they are necessary and I call in aid a report of the European Bureau of Consumer Unions, which found on investigation in July this year that car prices, net of tax,

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in Britain were about 30 per cent. higher than in Belgium and 20 per cent. higher than in Germany, where per capita incomes are much higher than they are here.
It also engaged the attention of a motor industry team at the university of East Anglia, who did a computer projection on what it would mean to the motor car trade in 1986. They found that harmonisation of prices could turn an expected profit by BL of £213 million into a lost of £123 million. Ford of Europe would go from a profit of £395 million to a £236 million loss, and so on throughout the large scale manufacturing firms of the world.
It also engaged the attention of the Institute of Fiscal Studies. They show that in 1981 the total loss to consumers was £1·3 billion, or 0·6 per cent. of national income. The market rigging to Ford was worth £455 million, £300 million to BL and £113 million to Vauxhall. That was in one year alone.
A modest estimate shows that the cost in foreign exchange was £650 million—a much larger sum than the possible loss that British Leyland could sustain if prices were aligned. So is it surprising that when considering figures of this magnitude there is a reluctance to grasp the nettle? But if all the talk of a Common Market, market force and efficiency through competition means anything at all, this nettle must be grasped. The British national interest is obvious. About 60 per cent. of cars sold here are made abroad, so artificially high prices swell the profits of foreign multinationals.
Motor manufacturers' profits or losses must not be the only criteria in assessing the benefits of competition in the EEC car market. Lower prices for cars would increase the real income of most households in this country, and the consequential increase in spending power would in turn mean more consumption and so lead on to more output and more jobs. It is obvious.
High prices have attracted importers to the British bonanza. Surely, whatever the exact size of British Leyland's loss, it is the height of folly to subsidise the company by rigging the whole of the British car market, and incidentally helping British Leyland's competitors more than British Leyland. What is happening is that practically every car the Japanese make and distribute in this country—one of the most lucrative markets in the world—is an extra subsidy to the Japanese so that they can modernise their factories and bring them up to the scale which—there is no doubt about it whatever—is needed in a competitive market of this sort. This should be known and recognised—and something should be done about it.
Would it not make more sense to pay the subsidy to British Leyland out of taxation and thus enable the British consumer to get his car at a fair price? This is what we have to consider and this is what we shall have to do sooner or later. As matters stand at the moment, we can excpect more and more cars to be imported. Our car industry is not big enough to cope with these great giants any more. There will have to be a subsidy for motor-cars. Why not make it a direct subsidy? This is my solution to it. There is no question but that it is one that should be adopted.
I have said enough. I have sat under the
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chairmanship of the noble Lord, Lord Brimelow. I have done my best to absorb all the intricacies of this problem. But I think that what I have said points the way to something that needs doing and I hope that when replying the Minister will not just give us a "hack" reply from the Ministry; I hope he will really try to answer some of the points that have been raised this afternoon, in the hope that more and more British cars can be sold to more and more British people cheaper than they have been before.
6.36 p.m.
Lord Bethell: My Lords, I should like to join with all those noble Lords who have congratulated the noble Lord, Lord Brimelow, on his excellent report. I should like to join with those who say that if there is any fault in this document, it is that it does not go far enough; it is not vigorous enough in its criticism of the present system of motor-car pricing, because what, after all, is the situation that we are expected to approve and live with? A British automobile manufacturing industry, which is already the sick man of British manufacturing, is kept alive as if on a life-support machine, by a system which suits both sides—both the British manufacturers and the manufacturers on the continent and in Japan.
Prices are kept artificially high—25 per cent. to 30 per cent. higher than in other West European countries. The result is that the British balance of payments suffers to the tune of many hundreds of millions of pounds a year and the British manufacturers are enabled to keep going—just—very gently, in the face of often outrageous wage claims from their workforces and in the face of unwillingness or inability to modernise and use the equipment which is used by our German and Japanese competitors. They survive, and the rotten tooth is plugged instead of being drawn.
The person who pays for this, as usual, is the poor British citizen taxpayer. He pays for it twice or three times over. He pays for it in the subsidy of about £1,000 million a year which is paid to British Leyland; he pays for it by paying over the odds when he buys an automobile. This perpetuates the British weak automobile industry and makes it likely that the nettle will not be grasped. It provides a short-term solution, an opium to relieve the pain of Britain's automobile industry, and not a cure, because, let us face it, what we have been asked to examine is a cartel, like any other cartel. It is no different from the solicitors' monopoly of conveyancing, which happily has now been broken, the claim by the Milk Marketing Board to dominate, control and monopolise the distribution of milk in the face of competition from supermarkets, or, of course, the claim of the national airlines to dominate the airline market. All this, I submit, is not only pernicious and contrary to the national interest, but also illegal. I wish that there was more that could be done about it.
As a member of the European Parliament, I have here a batch of complaints of how car manufacturers have behaved towards attempts to buy automobiles on the continent on an individual basis. As the previous speaker pointed out, all sorts of subterfuges and tricks are used by British and continental manufacturers to prevent these purchases being made. There is a

1035
notorious letter sent by the sales manager of British Leyland in Brussels, which explains to British Leyland representatives there that they must put off a British purchaser, particularly a British purchaser who wants a right-hand drive vehicle. They must tell him that he will have to wait a year, that he will have to pay a surcharge, that he will have to make a deposit a year before he gets his car. Representatives are told that they may hint to the British purchaser that the car, once bought, may not be eligible for taxing in the United Kingdom because of type approval defects. All this is not only wrong; it is, I believe, also contrary to the law of Europe and of England.
I only wish that there were ways of testing this matter before the courts. British consumers have their political representatives. We have the Consumers' Association, which has done superb work in this field and which has provided kits enabling many people to import cars on an individual basis. But what British consumers do not have, unfortunately, is the money that would enable them to pay the very high cost of English justice. If only we had a Ralph Nader who could afford to take these matters to court and test whether or not the law is being observed, because I do not believe that these restrictive practices, these monopolistic devices, are in accordance either with Article 85 of the treaty, which has been mentioned, or with Article 86, which prohibits any undertaking from achieving and exploiting a dominant section of the market.
Unfortuntely, though, it would probably cost a six figure sum to take this matter through the courts, given that the automobile manufacturers would no doubt mobilise every single lawyer they could find to take it to the highest court in the land to protect their own vested interest. I therefore hope that my noble friend on the Front Bench will look very carefully at what is proposed and will think very carefully about the Commission's block exemption proposal. I can assure him that Members of the European Parliament will do the same and will supervise and try to control what the Commission are trying to do.
I agree with speakers who have said that, in any case, what is proposed by the Commission is too long. All right, my Lords; if we are to proceed slowly, let us go step by step, but a regulation such as that proposed, which would last 10 years, is far too long. A year or two at the most would be appropriate, and then we could take another step towards removing the privileged position of the distributors and the dealers who overcharge the British subject.
I share the doubts of those who wonder whether the Commission in Brussels will have either the physical resources or the will to act in the sense of the proposed regulation. I have seen them make so many promises over air fares in the past and then back away from their obligations, because they find it politically inexpedient or simply do not have the staff to do their duty. The Commission, I fear, may well become a spent force in this area, just as they have become over the cost of European air travel.
I would therefore invite my noble friend to look at this matter very carefully. I hope that he will be able to promise some sort of action in the first instance that
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will make it impossible for British manufacturers and dealers to block personal imports of automobiles from the continent and from the Republic of Ireland, because I understand that they have now started leaning on Irish distributors who, of course, can sell right-hand drive vehicles more easily than continental vehicles. This must be put a stop to and the little secret memoranda sent round by British manufacturers must be dealt with and revealed for the pernicious documents that they are.
As it is, the British citizen has been having the worst of both worlds with regard to the purchase of motor-cars. I very much hope that this Government, who stand for the consumer and believe in the protection of the consumer and the rights of the consumer, who believe in the long-term interest of the British automobile industry, who do not believe in short-term solutions, and who believe in planning for the future will seize this opportunity and grasp the nettle.
6.47 p.m.
Lord Dean of Beswick: My Lords, may I commence by expressing my congratulations to my noble friend Lord Brimelow, and to the members of his committee on the very full and comprehensive report which they have submitted on this very delicate subject. Having said that, I think I part company with every preceding speaker, because I have to say from the start that I am totally opposed to the EEC becoming involved in this type of matter in this country. Various speakers have said—and it is, of course, true—that we have had a first draft report, a second draft report, and only this week a third draft report. Not being a member of this very distinguished committee, I have to say that my knowledge of the individual components and mass of detail in that report is not as great as that of other noble Lords, but I wonder whether this will be followed by a fourth draft, a fifth draft, and a sixth draft. I do not really know. I have made extensive inquiries as to what the changes really mean. All that comes back to me is that, in principle, the changes mean very little, that we are almost back to where we started, but that we will give the Commission the right to adjudicate without using percentages and they will be the referee on all occasions.
It is a sad fact that when your Lordships debate issues affecting any facet of our industry, or any part of our economy, certain noble Lords cannot resist the temptation instinctively to load some of the blame for what has happened onto the trade unions. If the noble Lord, Lord Mottistone, had spotted an article in the Sunday Times at the weekend, he would know that the so-called 20 per cent. increase which certain car workers have at this point rejected is in real terms no such figure. I have always believed that it is very dangerous for politicians and other trade unionists to start pontificating on an industrial offer when they themselves are not involved. The person who wrote the article in the Sunday Times (and nobody could accuse that paper of being a passionate defender of the trade unions) stated that 20 per cent.—most of it—was in fact consolidation of wages that were already being received in bonus payments. I put it to the noble Lord, Lord Mottistone, that he might like to think in terms of what the car industry could be doing if it was receiving subsidies at the same rate as the farming

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industry, which he was espousing as the acme of a wonderful business. We all know that there is no farmer in this country who would be successful if it were not for the tremendous subsidies paid by this Government.
I listened with some disbelief to the proposal made by the noble Lord, Lord Young, whom I suspect almost wanted the repair and maintenance of cars to become a do-it-yourself industry. As a trained engineer, though not a motor-car engineer, I can think of nothing more dangerous and misguided. I remind the noble Lord that two or three years ago (and this is not a joke but a fact) there were two Asian gentlemen in London who decided to build a do-it-yourself extension to their house. Next to their own house they dug a hole for the foundations so big that the house on the other side fell into it. I recount that only as an extreme example; but the motor-car of today is a lethal weapon if not properly looked after. Its maintenance is specialist work and is best left to the people who understand vehicles and who are trained to maintain them.
I was somewhat concerned to find myself in almost total disagreement with my old personal friend and colleague Lord Rhodes. He concluded his comments by complaining about the Japanese and the millions of cars they produce, and stating that we are not in the big league, that we produce only 500,000 cars a year. But in my opinion, the very measures which are proposed would make certain of an even larger Japanese incursion, with a bigger adverse effect on our balance of payments. I believe it would wipe out our motor-car industry overnight. Those of us who are engineers and who have observed what has happened have been absolutely appalled over the years at what the Japanese have been able to do—and not only in the motor-car industry—and how they have been able to get away scot-free. I still believe that the British suffer from one malaise that nobody else has; they still play cricket as it ought to be played.
Why do I say that I believe these proposals are totally misguided? I believe that they would devastate our car industry, which has probably bottomed out and which, despite what some people say, is becoming more of a success story. It has started to come off the floor. There is no doubt that the worst company to be hit if these proposals were to be put into effect would be our home-based British Leyland. Anybody who has observed the British car industry will know that British Leyland has just started to produce a range of cars which looks like being good and being a winner. I suspect that if the measures contained in the EEC proposals were to be implemented, then we might as well say goodbye to British Leyland.
However, I should not he prepared to defend some trade union practices in the car industry in the past. They were indefensible, when there was a captive market. I would not defend those practices at all but, as a trade unionist, I can say that many of them have learnt the lesson. The industry has started to work and in my opinion it ought to be given a chance to carry on with its successful recovery.
I must make it clear that opposition to these proposals is not confined to this country. There is deep concern felt in most of the car-producing countries in the EEC. So far as I am aware, there is almost total
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opposition to the proposals among trade unionists in the EEC. As recently as August, Terry Duffy, president of the Amalgamated Union of Engineering Workers—who nobody could accuse of being a militant and irresponsible trade union leader—talked in terms of convening the whole trade union movement employed in car production in Europe to oppose the proposals as they stand. I hope that if he does so, he is eminently successful.
Two noble Lords who have spoken declared an interest, in that they were speaking on behalf of the consumer. I make no secret of the fact that I sought some information from the SMMT. That organisation, in order to satisfy themselves as to the consequences of any action which the EEC may take in respect of the car industry, commissioned a report by Professor McKay, a former lecturer in economics at Aberdeen University and now a consultant of high repute. The report produced by Professor McKay is completely independent and has in no way been subjected to any influence or pressure from the Society of Motor Manufacturers and Traders.
The report gives certain details concerning the motor-car industry in this country. It shows that the number employed directly on motor vehicle manufacture is 175,000 and that backward linkage to the components industry provides an additional 250,000 jobs. Also, the multiplied effect, by the spending of vehicle industry income, generates employment for another 360,000 people. The additional employment generated by export sales totals approximately 260,000. Professor McKay reports that, in total, the motor vehicle industry is responsible for creating and maintaining more than 1 million jobs. Figures which have since been given to me by another source show that in the past 10 years the work force in the motor car industry in the general sense has been almost halved.
Another point that particularly worries me concerns the suggestion that the manufacture, distribution and supply of spare parts in this industruy could be liberalised and made more open. I suggest that this could lead to the undesirable situation whereby substandard parts could be manufactured and passed off as the real thing. Let it not be said that that does not happen now in independent garages, because it does. Anybody who wants evidence has only to examine the work done by some private garages; it is rather like having a watch repaired, where one very often pays for something that has not been done.
I believe it is accepted that in the western industrialised countries one of the major barometers of success is the state and condition of the country's vehicle industry. That industry is accepted as a barometer of the well being and prosperity of a country. I believe the same test can be applied in Great Britain. The Government are telling us that in industry generally the recession has bottomed out; and the car industry, with its own work force, and that of the related feeder industries, is probably the biggest single employer, with more than I million people involved. It is a very big slice of the cake which represents our industrial and economic base.
The point I want to put to your Lordships—and it is one that frightens me more than any other—is that only a week ago we were notified that unemployment

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had increased yet again, by another 176,000. If these proposals are brought in now, we would see a substantial reduction in employment levels in the motor-car industry in this country, with all the social consequences that that would bring about. There is no question but that at present certain things are happening that are keeping unemployment out of the headlines, but I must say to your Lordships that it is going on and on. In my maiden speech I warned that people would not sit back indefinitely and accept that the only future for themselves and their children was a visit to the dole queue. The situation is building up like waters against a dam that is cracking. We have a Secretary of State responsible for employment who is not pushing his little finger into the dyke to stop the flow of water, but is running around putting plasters all over the cracks in the concrete before the dam bursts. I say to noble Lords and to Members in another place that if these proposals are brought forward in the near future, or the not too distant future, they will make a substantial contribution to an increase in the unemployment figures which I and many of my colleagues are certainly not prepared to accept.
I notice that the noble Lord, Lord Bethell, spoke about high wages and restrictive practices in trade unions as though they were still going on, and he referred to the law of Europe. I still stand for Great Britain, and if I am to be judged by any law, I want it to be British, not European, law. If the noble Lord is even hinting that the restrictive practices which were applied in the motor industry some 10 or 15 years ago are still in being, I can only say to the noble Lord that he has not examined the situation and that he does not know what he is talking about. In the emerging car factories of this country which have been modernised with substantial Government help the performance is starting to move and is very close to the best of their competitors. It is ill-advised to speak as though we are looking backwards a decade.
Lord Bethell: My Lords, I am grateful to the noble Lord for giving way. I want to check whether he is aware that the law of Europe, whether he likes it or not, is part of English law.
Lord Dean of Beswick: My Lords, it may be so in that respect, but I said I had a preference. What I am pointing out is this. Is it the wish of the noble Lord, Lord Bethell, that we should hand over our future. lock, stock and barrel, to Europe for it to determine all our future policies on everything? There was today a Question on Spain and Portugal coming into Europe and on whether or not we should support that. Bearing in mind the additional cost that it would inflict on us yet again, I should be totally opposed to that, too. I may possibly be the only speaker, apart from the main Opposition speaker, who will speak against this Motion, but I hope that if and when these proposals come forward, Members in another place and noble Lords will for a change, in European terms, think of Britain first and vote them down with an adamant "no".
7.3 p.m.
Lord Rodney: My Lords, I also express my appreciation to the noble Lord, Lord Brimelow, for
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the expert way he chaired Sub- Committee B and for the very concise way he summed up the report.
My concern, initially, is that possibly a great number of your Lordships have not had the time, or dare I say the inclination, to delve into this report by Sub-Committee B. If that is so it is sad, because the report covers matters which concern nearly everyone in this country and not only those who are already directly connected with the motor industry. As we have heard. the committee received a large volume of evidence both written and verbal, from many different organisations all of which had vested interests in the outcome of the European Community's decision to grant a block exemption to the selective distribution agreements which operate between motor vehicle manufacturers and their dealers and which, in effect, are exclusive selling contracts.
There have been some arguments that with the reliability of the present-day motor-car and the long periods now prescribed between services these exclusive agreements are no longer necessary and, in fact, operate against the interests of the consumer. The manufacturers contend that in order to ensure efficient distribution of their products, and effective after-sales service, including the availability of spare parts, and to satisfy purchasers' claims during the warranty period, these exclusive agreements are absolutely necessary. I have to say that, on balance, having been in the motor-car industry myself, I must concur with that. However, in saying that, I do feel that, as many other noble Lords have said, we need considerable safeguards incorporated into these agreements.
It is also said that some of these accredited dealers give very poor service and that in some cases they are not very much better than the ordinary garage. But if the manufacturers' control over their dealers' servicing is reduced or eliminated surely this servicing will get even worse. If they are not able to insist on their dealers having factory-trained mechanics we shall have a very serious situation in regard to obtaining good servicing for our motor-cars. I am in no way seeking to make the point that servicing by accredited dealers is perfect; but, if any of your Lordships have seen the amount of literature and control that, for example, the Ford Motor Company puts out to their dealers, you will know that the company spends a considerable amount of time and effort in endeavouring to ensure good servicing, although it can perhaps be argued that it is still not as good as it should be.
My personal experience, therefore, is that these exclusive agreements between manufacturer and dealer are, on balance, of benefit to the motor vehicle industry as a whole and are also in the interests of the consumer. Happily, the European Commission is of the same opinion and is proposing to allow these selective distribution agreements within the terms of the block exemption, with certain safeguards.
It has been argued, however, and with some truth, that these agreements in certain aspects have been restrictive and against the interests of the consumer. The two main areas of complaint are in the maintenance of price differentials between one EC country and another and in the difficulties experienced by buyers wishing to purchase a vehicle in one country for import into another. On the first point the

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manufacturers argue that the price differentials are not of their making but are attributable to inflation, exchange rates, local taxes and governmental price controls.
Many of your Lordships may have received through the post this morning a brochure from the SMMT putting forward just these arguments. Certainly there is some truth in them, but it is noticeable that for some time prices in the United Kingdom have been higher than in most other European countries, although certainly in recent years these differentials have been diminishing somewhat. However, the differences are still there. In spite of what manufacturers say, our market is easier to manipulate than any other. We have right-hand drive cars, different from any other European country. Price levels are based very much on those of our largest indigenous manufacturer, the Ford Motor Company. Dealers have higher margins than in most other European countries.
The counter argument that is put forward is that whatever the recommended prices, competition is so keen in the United Kingdom that dealers give large discounts. One is tempted to ask: if it is possible to give such large discounts, why not reduce the prices in the first place? Another interesting point is that 40 per cent. of cars sold in this country are company cars, and it is the fleet owners for the most part who get these large discounts.
There is no doubt that in the past manufacturers have discouraged personal imports—that is to say, the purchase of a car in one country for importation into another. The other type of business of this sort is what is known as parallel imports, which is where an unauthorised dealer takes advantage of a price differential to import a number of cars for resale in his own home market. In my opinion that type of business can only undermine the whole position of accredited dealers who are committed to considerable capital outlays. These cowboy organisations with virtually no overheads are just looking for a quick profit and have no intention of looking after their customers' interests after the sale. I believe that the Commission should do everything that it can to safeguard the interests of the individual who wants to undertake a personal import and should do everything within its power to discourage parallel imports which will benefit only the quick-turn trader.
It is apparent that the introduction of the block exemption for these selective distribution agreements is essential if for no other reason than that the Commission cannot handle the volume of work involved in scrutinising each individual agreement—and all these are just hanging in limbo—but it is essential that sufficient safeguards are written into the regulations to protect the customers' interests without stifling the industry. The concern is that any such regulations cannot cater for all eventualities and must incorporate a number of discretionary powers which if they are to be effective must be exercised; and these in turn will involve the Commission in a considerable workload which may equally be beyond its present capacity to handle. Thus we may virtually be back to square one. This is clearly a problem for the Commission; but none the less discretionary powers which are not exercised may defeat the whole design to protect consumer interests.
7.12 p.m.
Lord Kearton: My Lords, it was a privilege to sit on Sub-Committee B, under the chairmanship of the noble Lord, Lord Brimelow, to deal with the distribution, servicing and pricing of motor vehicles. In my view, Lord Brimelow got to the heart of the matter, and I warmly endorse the report, its summary and conclusions.
The sub-committee found that the selective distribution system had over a long period been of considerable benefit to the consumer. These benefits had outweighed the competitive disadvantages, but the situation has changed. There was evidence that in recent years the system had been used to price cars in the United Kingdom market well above the levels appertaining in other Common Market countries; and it appeared that manufacturers had taken active steps to protect those differentials.
It had been argued that high prices in the United Kingdom were necessary to ensure the survival of what was then British Leyland. There was undoubtedly benefit to British Leyland, but the chief beneficiaries were the importers, with adverse consequences to the balance of payments. Billions of pounds were lost across foreign exchanges. A representative of the Office of Fair Trading said in evidence (at page 210 of the report, answering question No. 628 put by the chairman) that if the motor industry in the United Kingdom still needed to be subsidised,
"then subsidising it by levying a tax on every consumer who buys a car—whether it is British-made or not—is about the least economic and most wasteful way of subsidising the UK industry that can be devised".
The "tax" referred to is of course the importer's over-pricing and not a Government receipt. It is true that the discrepancy between United Kingdom and continental prices is now less than it was due to the falling value of the pound, but that situation could change, and the car buyer needs assurance that the situation of the early 1980s will not occur again.
The Commission's proposed regulation recognises that the exclusive motor vehicle distribution arrangements are not in line with the competition articles of the treaty establishing the Common Market. The block exemption rests on escape clauses in which the benefits of exemption are fairly shared between manufacturer and customer. The Commission in its various drafts starts from the position that the benefits of exclusive dealing are virtually self-evident. It does not attempt to argue a detailed case. But with the greatly increased reliability, the longer and longer service intervals for modern cars, the improved rust-proofing, and so much else, the arguments for exclusivity are, to my mind, a good deal less compelling than they were.
The modern car is a robust work-horse and not a delicate creation of fragility and uncertain temperament. Developments in the next few years should make a car more reliable still. I doubt whether there will be any case for an extension of the system beyond 1995—which is the Commission's present proposal—and even 1995, as has already been said, seems too far ahead.
The Commission attempts to be fair and just in its proposed regulation—fair and just to manufacturers,

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dealers and the final customer. In the evidence to the sub-committee the interests of manufacturers and dealers were vigorously expressed. They were presented to the sub-committee with eloquence and force and with a high degree of professionalism. The interests of the consumer were less tightly drawn together, but the evidence of the Consumers' Association cast doubt on many of the trade assertions. It highlighted the defects and temptations of a captive distribution system. The association has been constructive to a degree in helping the determined customer to escape the rigours of a tightly controlled United Kingdom market, and its activities stand out as a beacon of common sense and cool realism.
As has been said, a third draft of the proposed regulation has very recently come to hand. It is less precise than the second draft in some important particulars. The intentions of this third draft are, like those of the first two, excellent, but the trigger points for disapproving action by the Commission are made much less precise, and obstructive action against the interests of the consumer has to be deliberate, continuous and systematic to attract sanctions.
Nevertheless, in spite of all one's misgivings and natural scepticism, the Commission deserves praise for its attempts to remedy what has been a wrong adversely affecting the interests of the United Kingdom customer for the motor-car. The sub-committee's thorough ventilation of the working of the pricing system in recent years to the disadvantage of the British consumer is a healthy development. The system should be more open to scrutiny and checking than formerly. If it continues to be necessary to find ways to help the indigenous British car industry to be fully competitive in price as well as in looks, performance and reliability—areas where such strides have been made in recent years—the measures should be specific to the home manufacturer. That will take ingenuity; but such ingenuity would not be beyond the competence of our Common Market partners, and nor should it be beyond ours.
As everyone knows, the country has moved into a net deficit in its overall balance of payments. The deficit on the motor-car is well over £2 billion. The progressive re-establishment of a domestic car industry which is vigorous, dynamic and up to the best world standards—a domestic industry which takes a far bigger share of the home market and which achieves a good export performance—must be one of our highest national priorities.
But I repeat that we must find ways of doing this which do not in the interim make the United Kingdom market the golden apple for overseas manufacturers. I feel we must call for a specific national objective: the restoration of the British car industry to, at the very least, its size of 10 years ago. This is something where manufacturers, unions and government must work constructively and realistically together. I hope the Minister in replying to the debate will re-affirm the Government's determination to see a larger domestic car and vehicle industry.
7.21 p.m.
Lord Bruce of Donington: My Lords, we on this side of the House would like to join in the tributes that have
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been paid to my noble friend Lord Brimelow for the very comprehensive way in which he introduced this very important report. For myself, I should like to pay tribute, as I am sure would many of your Lordships, to the committee itself and its members, who devoted such time and interest to, to use one of the words used by a noble Lord, "trying to reconcile the irre-concileables".
I have a slight interest to declare in the matter. I am a motor-car owner and have been for the last 45 years. I would not wish in any way to claim any particular credit or polish any particular halo but I am bound to tell your Lordships that during this period I have consistently owned and driven cars of entirely British manufacture. I do not claim any particular credit for that. I can quite understand and indeed would defend the right of any consumer—which, by the way, does not comprise the at least 17 million members of the population who are living on the breadline—to take advantage of the best competitive circumstances he can in the United Kingdom and, if he wishes, buy a Toyota, a Honda or a Datsun as distinct from an Austin Princess, a Rover or any one of the BL cars. I do not resent that in the slightest.
What does, however, stick in my craw a little is when a terrific hoo-ha is made about a very, very small proportion of the population who, although they have complete freedom in the United Kingdom to buy whichever car they like that is imported into the United Kingdom, wish to add to that competitive privilege the right to buy a British car in a foreign market and bring it back. This is undoubtedly their right. However I find it a little difficult to understand that a positive hoo-ha should be made about the fact that they find it difficult to do this.
It is true enough that we are consumers. A limited number of our population are consumers of motorcars and a very large proportion of the population own them, although quite a sizeable proportion do not. However we are not only car owners and/or drivers, we are British citizens with rather larger responsibilities towards our society as a whole. In our role as British citizens we not only have to consider our position as possible buyers of cars, we have to consider ourselves also as tax-paying members of society. The amount of tax that we pay depends upon the state of employment in the country and upon a whole series of factors, so we have to balance one position against the other. Therefore I am not greatly impressed by the fact that those who wish to contort themselves by going overseas to buy a British car that they could buy in this country—although they have rights to buy other cars at competitive prices—are made a matter of national interest. I do not intend to waste much time with it.
However, what I am concerned about is of course the establishment of competitive conditions within the United Kingdom itself. It occurs to me that there is a proper way of doing that. If, for example, within the United Kingdom it is considered that the Restrictive Trade Practices Act has been infringed, or the rules or laws governing fair trading are being infringed, then of course the remedies lie with the Restrictive Trade Practices Act and the Office of Fair Trading. The advantage of that, to which I shall return presently, is that it makes it possible that those who are accused of breaking competition rules, or of unfair trading, or of

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restrictive practices, are brought under British law with British rights of defence and with the objective use of British courts. This regulation will fortify the position of the European Commission in administering the law, which, as the noble Lord, Lord Bethell—who appears to be no longer with us—reminded us, was the law of the United Kingdom.
I want, if I may, to examine the principle that there should be a universal, competitive law promoting competition in the European Community as a whole within the provisions of Article 85(1), (2) and (3), etc., of the treaty at a time when there are widely divergent conditions within each of the countries concerned. Were the European Community subject to one universal law, were the conditions throughout Europe subject to what would then be overall state legislation, the question would be different. But the fact of the matter is that before any endeavour can be made really and justly to enforce Article 85(1) of the treaty, the Commission's task and that of the members of the Council of Ministers is surely first to establish that the conditions in each of the countries are such as to make fair competition a feasible possiblity.
We already know quite well that part of the divergence of price as between ourselves and the Continent has been due to fluctuations in the exchange rate. The noble Lord, Lord Mottistone, was kind enough to quote from The Times, so perhaps I can reinforce his quotation by one of my own which he did not see fit to quote. Said the same Times leader:
"Despite relatively low wages and improved efficiency, British costs are rarely competitive with those of continental plants let alone Japan. And whilst the relative strength of the pound against continental currencies may in part be blamed, this was a necessary consequence of Britain's North Sea oil finds".
In other words, part of the disparate exchange rate between ourselves and Europe relates to the fact that, so far as Europe is concerned, we are a petro-currency. There are other differences, too. There are differences that have been brought out in the report itself. There are conflicting taxation policies in all the states concerned. In some, there are even government price controls. The size of the domestic market has a profound effect upon unit costs bearing in mind the volumes that are involved. And, of course, there are varying model specifications. As the noble Lord, Lord Rodney, pointed out, there are dealers' discounting practices that vary from country to country.
Were it possible to stabilise those conditions, it might be feasible to impose a fair competition policy within the Community. But even if it was possible, we are engaged in the ordinary practical intercourse of commerce. We have to face harsh realities. Who is going to enforce? Who, indeed, is enforcing now? It is, of course, Directorate 4B of the Commission that is concerned with enforcement. It is a law unto itself. It can reach its own decisions. It conducts its own investigations in circumstances which make an examination of the European sub-committee's report on the Commission's powers of investigation and inspection and the way in which the Commission's representatives actually behave in this country (which has, I believe, been put down by the noble and learned Lord, Lord Scarman, for early discussion), a very important consideration.
In fact, the powers of the Commission under
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Regulation 17 and under the overall umbrella of Article 85 of the treaty are in my view exercised without due responsibility, capriciously, unfairly and oppressively. I do not feel it wise that your Lordships should give approval to any regulation under the administration of Directorate 4B until Directorate 4B has been considerably purged and improved and its whole activities subject to public scrutiny not only in Europe as a whole but more particularly in the United Kingdom. I say this with good reason.
Your Lordships will have observed in the Financial Times of 12th October an FT commercial law report on the case of Hasselblad GB and the Commission. I have taken the trouble of investigating the circumstances of that particular case which shows that the Directorate 4B investigators who came over here behaved partially, came without notice, sought out and obtained evidence that supported their case, virtually ignored evidence to the contrary and imposed a fine on a small British company greater than its entire capital resources—some £99,000 for alleged breach involving the sale of perhaps 30 or 40 Hasselblad cameras.
On the case going to the European Court, the court, which conducted its proceedings very shortly, reduced the fine to some £45,000. At the same time, the same Commission, for what was an almost identical breach, let off Fordwerke, a colossal multinational functioning in Europe, with an admonition on an undertaking not to repeat the offence. These are things to which we have to pay attention. The noble Lord, Lord Bethell, said that we were subject to European law. Let us examine this proposed regulation. Indeed, it has been touched upon before. The noble Lord, Lord Brimelow, was kind enough to report it. I take Article 10(1):
"The Commission may withdraw the benefit of the application of this Regulation.".
This is the regulation which grants the derogation in respect to certain block agreements. Listen to this! I appeal to those of your Lordships who have even some rudimentary knowledge of the law: that includes a large number of your Lordships. Listen to this wording:
"where contract goods are sold at excessively high prices"—
Mark that! Who is to determine excessively high prices? Can you imagine a phrase of that kind finding a place anywhere on the British statute book for interpretation by lawyers? This is loose thinking. It gives discretion to a Commission that has neither the intellectual quality nor the moral force to be capable of interpreting words of this kind save as a matter of caprice. It goes on.
"or, where over a considerable period"—
Who is going to determine what is a considerable period? A British judge, or a member of the Commission, with a right of appeal only to the European Court. Such words as these, put into a document which, on the say-so of the noble Lord, Lord Bethell, has the force of law in this country, have no business to be agreed to by your Lordships' House, or indeed another place. The regulation continues:
"prices or conditions of supply for contract goods or for corresponding goods are applied which differ substantially"—
who is to define "differ substantially"? Where do you find words like that in a legally binding statute or even

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at common law in the United Kingdom? It continues:
"as between Member States, and such high prices or substantial differences"—
High prices and substantial differences! That is a flexibility of interpretation to be given to a body, the Commission, which is charged not only with the drafting of this but also with its interpretation and its enforcement. It is investigator, judge and jury combined. Are these powers that we ought to give to the Commission of the European Economic Communities?
I would submit that regulations of this kind serve no useful purpose. It is far better that this Government or any succeeding government completely wash their hands of it. A number of observations have been made this evening, and have been calculated to be made, against British Leyland, however veiled the illusions may have been. I have been a member of your Lordships' House for nigh on 10 years. One of the first documents I had the opportunity of reading was the Ryder Committee report on the state of British Leyland. In order to save it from complete collapse, it was taken over by the Government. I was appalled. And if any Members of your Lordships' House still wish to go on knocking British Leyland, I suggest that they refresh their minds and read the Ryder report again. It is one of the most damning pieces of evidence of managerial and proprietorial neglect of an industry, which everyone since has been trying to take out on its workforce.
My hope is that many of your Lordships who have not had the opportunity of reading this report will do so. I hope the Government have studied it. It contains a number of lessons for us. Certainly it means that we have to be forever vigilant to keep the right of competition within our country. It means also that although we should not indulge our motor industry, either manufacturing or distributing, we should not cosset it and we should not tolerate inefficiencies within it. There is one thing that most certainly we should not do. In our whole attitude and in our position taken up in the Council of Ministers we should not allow the European Commission, and particularly Directorate-General 4, any say in the future of the motor-car industry.
7.41 p.m.
Lord Lucas of Chilworth: My Lords, the noble Lord, Lord Bruce of Donington, opened his remarks this evening by saying that he had a declaration to make. It might be fair if I took a leaf out of that notebook and said that perhaps I should remind your Lordships that for many years I was engaged in the motor industry. It is some years since I was practising in the industry but it is only fair to remind your Lordships of that fact.
I join with other noble Lords in thanking the noble Lord, Lord Brimelow, for bringing this report to the attention of your Lordships and for having chaired that very important committee dealing with an extraordinarily complex and difficult subject area. Not surprisingly, the debate has ranged very widely. It has ranged from the United Kingdom servicing of motor cars through used car purchasing and selling to new car buying and how it is looked after, and to its guarantees;
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agricultural machinery has also been mentioned. In the time that I have available I will do my very best to put to your Lordships the Government's views on these matters.
Every noble Lord who has spoken has accentuated the fact that the issue of car prices and the block exemption is not only complex and controversial but also has a very emotive content. In the years when I was in the industry it always surprised me that motor-cars can evoke such emotion not only in the breasts but also in the purses and the pockets of those who seek to own them. A car is a very important thing to own. But there it is; that is what it does. It is very valuable, therefore, to have such a thorough analysis of the Commission's proposals and of the many views that have been expressed and so adequately put together by your Lordships' committee.
Like the committee, the Government have been presented with a number of views. There has been an extraordinarily difficult task in trying to balance the various interests that are affected by the Commission's proposal to exempt the agreements between manufacturers and their franchise dealers. Naturally we are concerned about car prices. In the last five years or so, the prices of cars in the United Kingdom, if we ignore tax, have been higher than those in other member states.
There is argument about the cause of the price differences. I do not want to spend too much time on that because a number of noble Lords have advanced various reasons for it. However, I think I should say that the Government recognise that the selective distribution scheme is not the reason why price differentials have arisen in the first place. In a market which was completely free of restrictive agreements or Government controls, where perhaps market forces operated totally unhindered, one would not expect such differentials once they had arisen, to be able to persist. Their persistence in the case of motor cars is due in part to the operation of the selective distribution system. Nevertheless, that system brings benefit to consumers. My noble friend Lord Rodney acknowledged this in his speech, from his own personal experience.
I suggest to your Lordships that it is very important at this stage of the industry that there is close co-operation between a manufacturer and his dealers to enable an appropriate level of after-sales service to be available. That is all I would want to say about that relationship with regard to servicing. The noble Lord, Lord Young of Dartington, suggested that car servicing should be excluded from the block exemption. It would be fair if I explained that the exemption will not prevent independent garages from carrying out servicing—I think the noble Lord knows that—but it will certainly enable manufacturers to ensure that those garages which sell their motor cars, their products, are also equipped with spare parts, trained staff and suitable equipment to be able to carry out servicing and repair. If that is not happening now, the manufacturers need to pay proper regard to it. Perhaps some of the criticisms that have been made in that area, while not being misplaced, are just a little exaggerated.
Equally I do not think that we should exaggerate the problems of price differences. I noted very carefully

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how the noble Lord, Lord Rhodes, spoke on this matter. Since prices reached their peak some two or three years ago, they have approximately halved, partly due to exchange rates and partly from competition in the market place—both the European market place and our own domestic market. The pressure that has been brought about by parallel imports, which I confess the Government made easier when they negotiated a code of practice with the industry for the provision of type approval information, had some effect.
I think it was the noble Lord, Lord Kearton—if it was another noble Lord perhaps he will forgive me—who drew attention to the numbers of parallel imports that were part of the whole of the United Kingdom market. There were between 1·4 million and 1·7 million or 1·8 million new registrations in this current year, and parallel imports of some 30,000 to 50,000 cannot make too heavy a dent in either the manufacturers' or the dealers' network, although I accept that there is a marked effect in certain areas, particularly where the parallel imports are landed speculatively.
Competition in the domestic market is keen when one takes account of the special offers. Some noble Lords have called them discounts. I would suggest that perhaps that is a wrong description; I would call them special offers because there is nothing so stable as some of the offers that are currently about. Those offers include finance charges and special insurance arrangements. The value element of those two services has to be taken into account, at least when one is making a first purchase, even if it is not so important in a repeat purchase, One has to remember that the real price differences are very often a good deal less than the simple comparison of listed prices whether they appear in magazines, newspapers or in some of what one might call the official listings.
Furthermore, if one excludes the smaller countries, where prices are kept artificially low by government action, and Belgium, where there are price controls, the comparison is somewhat different. I wish to pause at this point because a number of noble Lords referred to a 30 per cent. differential at least between United Kingdom and Belgium prices. The real reason for that is that the Belgian Government exercise strict controls on prices, and prices are kept artificially low by those controls. So such a comparison is not reasonable or fair to make. One has to have a rather more balanced view of the situation. I should also mention that in Denmark there is a heavy tax at around 200 per cent. on motor-cars. If one takes that into account the comparison is somewhat different.
Effective prices—what I used to call the showroom asking price or the windscreen price—in the United Kingdom are by and large very much closer to those in Germany and Italy. There is little doubt that some of the credit for this must go to the United Kingdom manufacturers who have made considerable progress in reducing the costs of building cars. The information is available to your Lordships, and with the motor show opening in about a week or so there will be plenty of publicity.
Lord Dean of Beswick: My Lords, I understand that some of it is open now.
Lord Lucas of Chilworth: My Lords, I understand that it will be open to the public on Saturday. There will be plenty of publicity about the number of cars per worker, productivity, and so on. Nevertheless, may I remind your Lordships that car production in the United Kingdom across all the United Kingdom manufacturers increased considerably by something approaching 18 per cent. last year and was at its highest level since 1977. Those motor-cars designed and built in this country and those designed elsewhere and built in this country have received a far wider and greater acceptance than for many years. Given this improving performance, it would be a very serious matter if the block exemption were to impose rigid price controls which created difficulties for British manufacturers.
I am most grateful to my noble friend Lord Mottistone for the very kind personal remarks that he made. But perhaps he will forgive me if I say that I thought that his remarks about the car industry generally were perhaps a little too sweeping. I felt that he was a little unkind. My noble friend and the noble Lord, Lord Dean of Beswick, had something of a short exchange with regard to wages and profitability. There are two matters that I should like to raise in that connection. I understand what the noble Lord, Lord Dean of Beswick, said. Of course the trade unions have learned a number of lessons as indeed have the employers, and all to the good—and thank goodness for that. However, it really is a sad reflection to find that companies such as Jaguar, which has been brought from almost the brink of disaster to huge success in a very few years, Vauxhall Motors, which has come back into profit in only four years, and British Leyland, which has come back into profit after only a year or two, should experience wage demands which vastly exceed, for example, inflation. There may be demands for a share of the profitability, and of course there should be a share, but it should be a reasonable share; the losses still have to be paid for. I am tempted to remind those who demand excessive wages, as they have been reminded many times previously, that excessive wages to one person are another man's job. One swallow does not make a summer. Profitability in British Leyland will be a very tenuous thing to hold on to over the next year or two in this fiercely competitive market.
The Government are very much aware of the fears expressed by manufacturers about the consequences of the block exemption. We have taken their representations quite seriously. But we have had to weigh them against the benefits the regulation offers for the consumer and the economy generally. It is not our aim to undermine the United Kingdom motor industry. The noble Lord, Lord Kearton, asked me if I could give an assurance of our intention. I willingly and confidently give him the assurance which he seeks, as I do to the noble Lord, Lord Dean of Beswick, who said that if we take on board this regulation, then goodbye to BL. No; it is the Government's aim to have an efficient home-based industry, which is competitive and one which can hold its own internationally. It has done so in the past and it will do so in the future. It is an extraordinarily resilient industry and I have very great faith in it.

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The manufacturers of motor vehicles are not the only part of the industry affected by this regulation. Their dealers too are parties to the selective distribution agreements and we need to consider their interests. They are also affected by price differences since at such times they stand to lose much business to parallel imports, to which I have briefly referred. I think that they would probably prefer there to be no price differentials. They might very well welcome exemption for their agreements under the competition rules. If they did so I do not think that they would want this to be on terms which put their special position as authorised dealers at risk, particularly whenever there were sudden changes in price differentials which were beyond their control. We can see no advantage—no advantage whatever—to the Commission in operating the regulation in such a way, since their purpose in putting it forward is to recognise the benefits of selective distribution, not to destroy the system.
The other important group which is affected by the proposed block exemption is the consumers. We have heard my noble friend Lord Mottistone speak for the Consumers' Association and we have also heard in particular from the noble Lord, Lord Young of Dartington, and the noble Lord, Lord Bethell, each supporting very much the claim of the consumer. In their evidence to your Lordships' Committee the Consumers' Association said that the Common Market exists for the benefit of consumers as well as manufacturers. The Government agree fundamentally with that view. We believe that it is fundamental to the treaty that consumers should be free to buy wherever in the Community they wish, just as manufacturers have the right to sell in the Community.
Finally, in enumerating the factors which the Government need to consider, there are the broader economic consequences. Time is against me, but I should like to remind your Lordships that the noble Lords, Lord Rhodes, Lord Harris of High Cross, Lord Kearton, and Lord Dean of Beswick, all spoke of these broader consequences: the effect on prices to the consumer, the benefits which would accrue if consumers were able to spend on other United Kingdom manufactured goods and services the money which they currently spend buying their cars, and the sheer fact that, as the Select Committee points out, high prices in the United Kingdom transfer very large amounts of profit to the foreign manufacturer who takes his profit away. That was really what the noble Lord, Lord Dean of Beswick, was saying when he said: "Think of Britain first". The noble Lord, Lord Bruce of Donington, underlined that point in his exciting and typically robust speech towards the end of our debate.
The Government have faced the same difficulty as your Lordships' committee in trying to draw a balance between the various interests to determine where the overall national interest lies. Therefore, noble Lords will not be surprised to hear that the Government have come to broadly the same conclusion as the committee. We support the principle of the regulation: that the selective distribution system should be exempted under the competition rules but only provide—and I underline this—that there are adequate safeguards to ensure that the Common Market is not partitioned and that consumers have the
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right to buy where they wish. The Government support a regulation broadly in the form now proposed. We believe that the time has come to redress the balance in favour of competition in particular.
The Government agree generally with the more detailed conclusions of your Lordships' committee; but perhaps I should say a few words about the safeguards which the committee considered and which have continued to generate such controversy: availability, the price clauses and the power to withdraw exemption.
First, I deal with the availability point. We have accepted the principle that consumers should be free to buy wherever they wish in the Common Market, but we need to recognise that there are special factors which make this difficult in the case of cars. One is the different national type approval requirements. Another factor is that we drive on the left—or perhaps we should say that they drive on the right. But because of these two particular differences the block exemption includes a requirement that a manufacturer must be willing to supply a dealer with a car to the specification of another member state. In this way the regulation makes a reality of the consumer's right to buy abroad. But it has been argued that this will mean that every dealer will have to stock every variation of every motor-car. Of course, patently that is impossible; it would run into hundreds. The manufacturer's obligation under the regulation is limited to supplying a car for which his dealer has a customer, and perhaps I should underline here that it must be a genuine customer and not a Green, Brown or Smith Esq., speculatively buying to satisfy a market.
Lord Bethell: My Lords, I beg my noble friend's pardon, but may I ask: why not?
Lord Lucas of Chilworth: My Lords, I am inclined to say in reply to my noble friend Lord Bethell: because there is honour among thieves. Why not? Seriously, it is because the obligation of a manufacturer to his dealer—and the Commission recognises the value of the dealer-manufacturer relationship—is to supply a motor-car to the order of a customer, and not some spurious, conjured-up customer who might become a customer. That is "why not?" in more serious terms. As I say, that is the manufacturer's obligation.
We have heard a lot about the 12 per cent. clause and about the regulation being a price control or price harmonisation measure. The noble Lord, Lord Brimelow, has related the history of this provision, and perhaps I should congratulate him on a very expert summary of that very long and complex report. The original version of the regulation had a clause which automatically affected an agreement's exemption whenever prices differed by more than 12 per cent. for a six-month period. The Government then had some doubts as to the workability of this. Since then the proposal has changed.
In the second version the 12 per cent. clause became a statement. The Government believed that this was an improvement and we thought it was probably quite a workable arrangement. Then of course we had a new development in a third version. The noble Lord, Lord Rhodes, said that he wanted to ask a number of pertinent questions and that he wanted some answers.

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One of his questions was: where do we now stand? The third version has been produced only in the past few days. We are still studying the full details and the full effects of it. But certainly one change is that the 12 per cent. clause has been deleted from the regulation. If this had the effect of preventing the Commission from investigating cases where they had grounds to suspect anti-competitive practices, the Government would be concerned. But the Commission will retain their general power to act when the circumstances warrant, and they propose to issue a statement when the regulation is published making clear that they will still regard 12 per cent. as a trigger point for carrying out an investigation. It seems therefore that this change will not result in any weakening of the safeguards.
The noble Lord, Lord Harris of High Cross, suggested that the third version watered down the safeguards. I think not. Rather, it will give the Commission the flexibility to act in cases where it is justified but not where price differences arise from some other cause, such as price controls in one member state. The noble Lord, Lord Brimelow, in speaking about this third version, asked about the position on spare parts. I am glad to be able to tell him—and indeed your Lordships—that the third draft makes it quite clear that the United Kingdom may continue with the stricter safeguards it has for independent suppliers of spare parts.
The Government are sensitive to the objections to bureaucratic Brussels price controls, but I cannot accept that the arrangements which I have just described amount to "price control from Brussels" or indeed "price harmonisation". These arrangements simply recognise that persistent large price differentials can be a sign that some anti-competitive practice may be interfering with the operation of the market, and that the circumstances ought to be investigated. The Commission will have the flexibility to make allowance for the effect of domestic government actions in other Community countries—for example, price controls, tax rates, and so on.
Nevertheless, the Commission's power to investigate and, if necessary, to withdraw the benefit of the block exemption from a particular agreement is necessary. We believe it to be so. However, I want to emphasise to your Lordships that it is not an arbitrary power; there can be no sudden loss of exemption overnight. Exemption can only be withdrawn after a proper investigation, and there are other safeguards there.
I have to turn quite briefly but no less importantly to the further safeguard in the regulation: those clauses relating to the contractual relationship between a dealer and his supplier. We agree with your Lordships' committee that it is necessary to ensure that a dealer feels secure under his contract if he is to take advantage of some of the freedoms that the regulation will allow him. Although this is intended as a safeguard for competition, it will also act as a safeguard for dealers. Thus, for the retail side of the industry the regulation will not only bring legal certainty to their dealership agreements, but it will give them new opportunities to compete and here they can of course compete on equal, even terms as the speculative parallel importer. The dealer can take on board that opportunity to compete with an added degree of security.
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I referred earlier to the third version of the regulation. The Government are studying this closely. The answer to my noble friend Lord Rochdale is that we are consulting quite fully with both manufacturers and dealers. A number of noble Lords have asked about the Commission having the staffing ability to deal with notified agreements and complaints. We probably share some part of the view expressed by the noble Lord, Lord Bruce of Donington. The Government have consistently urged the Commission to take effective action to speed up their procedures. The present position is not satisfactory, but I am not sure that the answer lies in more staff as present procedures for taking decisions are equally responsible for delays. We shall have to keep up the pressure for a solution to that problem because it certainly leads to extraordinary and damaging uncertainty.
I think that I have answered most of the questions that have arisen during the course of the debate. The noble Lord, Lord Bruce of Donington, drew attention to the necessity to get our differing financial and other policies onto a common plane before we started trying to get the price of motor-cars onto a more common plane. The convergence of member states' monetary and economic policies is an important objective of the treaty. We of course have to use our endeavours to ensure that that comes about in the fullness of time. But in the meantime the differences in these policies of member states still have some effect on all the intra-Community business.
The trade in other goods seems to run along more or less satisfactorily despite there being some imperfections. There is no intrinsic reason, in our view, why trade in cars should be different. Nevertheless, the Government will look at the block exemption regulation to ensure that it pays adequate regard to these different regimes or the existence of price controls.
Might I move quickly to another subject. It is an important subject. My noble friend Lord Mottistone asked me particularly about the agricultural machinery market. I cannot tell him very much about that. I would suggest that he addresses that question to my noble friend Lord Brabazon of Tara—and I am sure that my noble friend would like to join me in congratulating Lord Brabazon on coming on to our Front Bench. I think he could probably best deal with that in a Question in a week or two.
I thought that the noble Lord, Lord Bethell, spoke very unkindly of the weakness of the British motor industry. The noble Lord has completely ignored the greatly improved performance that has occurred in these last few years. There have been the spectacular rises to which we have referred. I do not think that what he said was totally fair. I am not going to be drawn, and I do not think he expects me to be drawn and follow him down the air route that he proposed. I know that that is dear to his heart, but I do not think I could follow him down there this evening. He spoke about the Government's subsidy to British Leyland. Neither the British Government nor the taxpayer has subsidised British Leyland for just over a year. They are on their own, and they knew it when they took their last tranche of money. They have made good, and I wish them great success.

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There are many rather smaller issues that have emerged. I think I have covered most of the major ones. If there are further issues on which I could be helpful in responding later, noble Lords may be assured that I shall do that. I should finally like to summarise the Government's view. In doing that I should like to refer to the statement in the Select Committee's report that the block exemption needs to strike,
"an even-handed balance between the interests of the manufacturers, the dealers, the factors and the consumers".
We believe that the Commission have gone a long way towards achieving this, and that the regulation will result in a greater degree of competition in the European Community market for motor-cars. We believe that this will bring benefits to consumers and to the United Kingdom economy, and it should do so without undermining the manufacturing industry or the dealers, or indeed the relationship that they have one with another.
Lord Bruce of Donington: My Lords, before the noble Lord sits down, he will recall that during the course of the observations I ventured to deliver to your Lordships I made some serious allegations against the Commission. The noble Lord, possibly quite properly, did not find it convenient to pass any comment on it. I should like his assurance that the Government will pursue the allegations that I repeat of partiality by the Commission in the interpretation of the regulations. Will the noble Lord give a further assurance that before any assent is given to the regulation at least British lawyers will have the opportunity of studying it to see whether it can be enforced, anyway?
Lord Lucas of Chilworth: My Lords, I did not comment. I took note. Indeed, all noble Lords in the House tonight would have taken note of what the noble Lord, Lord Bruce of Donington, said. I did not feel that I could add anything to the Motion before us in commenting upon that. Since the noble Lord asks me specifically, I certainly give him an undertaking and an assurance with regard to the first part of his twofold question, that we shall take note of what he said and to see what should, or could, be done.
I do not give him the assurance with regard to his second question because he knows that the Commission can work quite independently. They have the authority from the Council. Therefore, it is not a question of delaying acquiescence, or perhaps I should say acceptance, of the regulation pending scrutiny by British lawyers. If I gave an assurance it would be an empty assurance because it could not be implemented; but I do so willingly on the first point.
Lord Brimelow: My Lords, it is my duty and my pleasure to thank all those who have taken part in this debate. I am particularly grateful to the noble Lord the Minister for the care and courtesy with which he has answered so many points. It would be quite wrong for me to deal with individual points which have been put forward by individual speakers, but I should like to say that this draft regulation in its third form is not a charter for the "cowboy" parallel importer. I hope that it will make possible personal imports by those people
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who wish to make them. The scale is not likely to be disruptive, and the committee's report emphasised the need to avoid disruptions.
I agree with the Minister that the role of the distributors and the role of the factors are important, and I think that it is intended to give them the guarantees of which they may stand in need once the regulation comes into force. It was my duty as chairman of the commission to represent the tone of its deliberations and on the whole the committee sided with the consumer.
But I agree with everything the Minister said about the improved performance of the British industry and the need to build on it and enhance its success in the market in the future. I agreed with his general emphasis. I thank him greatly, and I thank everybody else. The Motion before the House is simply that we take note of the report that we have been debating.
On Question, Motion agreed to.

RAF New Basic Trainer: Evaluation of Tenders
8.19 p.m.
The Earl of Kimberleyrose to ask Her Majesty's Government what national interest criteria they are considering in their evaluation of tender submissions from the candidates for selection as the RAF's new basic trainer.
The noble Earl said: My Lords, for 70 years, with very few exceptions, the Royal Air Force has been trained on British designed and built aircraft. The use of British aircraft has not only given the Royal Air Force an unparalleled reputation for training pilots worldwide, but has also resulted in substantial export orders to countries who look to Great Britain and to the Royal Air Force for their training pattern and for their training aircraft.
For the first time in 70 years the Government have organised a competitive tender for the replacement of a Royal Air Force aircraft. This is the famous but ageing Jet Provost which has been in service with the Royal Air Force for some 25 years. This tender submission is now under evaluation by the Ministry of Defence, and I am led to believe that a decision is expected fairly soon.
On the final short list there were four contenders, but there are now effectively only three which could possibly go for this contract, since the Australian Government decided a few days ago to purchase for its new guided missile frigates the American Sikorsky Seahawk helicopter in preference to Westland's Lynx, thereby puncturing the plans of the Australian Aircraft Corporation and Westland for co-operation of what is still only a paper aeroplane, the Wamira.
That leaves three contenders, which are Brazil's Embraer Tucano, to be built in conjuction with Shorts: the Swiss Pilatus PC9, to be built in conjunction with British Aerospace, and, last but not least, the British-designed and the British-built Hunting Firecracker. Perhaps a point to make here is that of the two foreign contenders from Brazil and Switzerland it is interesting to note that neither of those countries is a member of NATO.

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All three contenders are very good aeroplanes and all three are in production. All three are equipped with the same engine, Pratt and Whitney's PT6 turbo-prop engine. We do not need to be concerned about the technical capabilities of turbo-prop training aircraft: all three contenders meet the RAF's specification in full. They are all very capable of carrying out the RAF's role as a basic training aircraft. We need not be concerned about cost. All the aircraft are competitively priced, although the British Hunting Firecracker appears to be the best value for money on existing life-cycle costings. Neither do we need to be concerned about industrial production and product support. The two foreign aircraft companies have found British aviation companies who will build or part-build their aircraft.
Our concern over the outcome of this tender is simply, which aircraft will demonstrate the most substantial benefits to Britain and to the British economy? It is my contention that only one of the three contenders can benefit the national interest in terms of jobs, export potential and technological expertise.
The Hunting Firecracker will be built by the Hunting Group of Companies, which is one of the leading defence contractors in this country. This group built the Jet Provost, currently in service, the Piston Provost and the Percival Prentice. Huntings have a record of 40 years of providing training aircraft for the Royal Air Force and for export markets and the product support for these activities. The foreign aircraft, the Tucano and the Pilatus PC9, are surrounded by hypothetical offset and counter-trade deals that are more complicated than an Agatha Christie novel. None of the offset deals is tangible and all are likely to be pie in the sky.
Have your Lordships ever known Switzerland do anything in the international market that did not benefit Switzerland? There are vague possibilities of the sale of Hawk aircraft to Switzerland, but the Swiss are also interested in the Italian Aeromachi MB 339 trainer which is equally as sophisticated as the Hawk and is a pure jet. As all your Lordships know, I am a great supporter of British Aerospace and it is true that it has recently sold the Rapier missile system to Switzerland, but this gives substantial production in Switzerland. It is not all made here. As regards the manufacturing plans for the PC9 which have not yet been declared, the last official statement that I heard was that it would be only a 50-50 work sharing agreement with the Swiss company. If this was so it would once again mean more Swiss jobs than British.
It also seems to me rather dangerous to buy a Swiss aircraft when the Swiss themselves have banned the sale of military aircarft from Switzerland. They get around it in a funny way which I shall not go into in great detail, but I should like to ask your Lordships whether this moral attitude will allow the sale of aircraft to the Royal Air Force and their support from Switzerland for 20 to 25 years, or shall we see once again double standards of morality?
And what a coup for the nearly bankrupt Brazil to supply training aircraft to the Royal Air Force. It would raise that country's prestige enormously in the international market place and it would give them
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considerable export potential which should, by rights, be British. What counter-trade could Brazil finance? We are one of her biggest creditors and why should we lend Brazil more money for the sole privilege to Britain of buying her trainee aeroplanes? I can only repeat my belief that neither of these foreign aircraft can offer Britain anything more substantial than vague talk about possible counter-trade in the future.
The British Hunting Firecracker will provide about 200 jobs in Bedfordshire, where fabrication will take place. The aircraft will provide some 300 jobs in the East Midlands, where the aircraft will be fitted out. A further 500 jobs will be provided by sub-contract support for the production programme for the Royal Air Force.
Unhampered by any foreign licence, a substantial export market is available to this British aircraft; a market open not only to Britain's traditional outlets but also to developing countries whose insurgency problems necessitate the purchase of a low-cost counter-insurgency and ground support aircraft. Exports for the Hunting Firecracker could bring billions—not just millions—of pounds to the British economy.
The Hunting Firecracker was designed and built with private money at no extra expense to the taxpayer to meet a specific requirement in the defence market. It has no British competitor and the aircraft would have no export market if it were rejected by its own air force. This would indeed be a hard penalty for following the industrial guidelines laid down by the Prime Minister and her Government.
I am not advocating that the choice of a new training aircraft for the Royal Air Force should be influenced by patriotism, but nor do I support the protectionist policies operated by other countries so often to Britain's disadvantage. The British Hunting Firecracker meets the Royal Air Force's specification in full and offers a British solution to a British requirement. I ask my noble friend the Minister for his assurance when he answers this Question that Her Majesty's Government will not lose this opportunity to safeguard our own aerospace design and technology.
8.29 p.m.
Lord Mulley: My Lords, I am sure that the whole House is indebted to the noble Earl for his initiative in raising this important matter and giving us the opportunity to discuss it here in the wider forum of public opinion before the Government come to a decision. This is entirely within the tradition that he has established in the great work he has done and is still doing for the House of Lords defence study group. I believe I speak for members of all parties and, indeed, of none, since I have already learnt the great importance for all of us and the great influence of the noble Lords who sit on the Cross-Benches in stimulating informed discussion on defence matters and in creating a body of considerable influence.
I might also mention the role played in the early days of this group by my noble friend Lord Shinwell, whose achievements we shall be celebrating in this House tomorrow. I recall in particular—and it may be of some passing interest to noble Lords—that I gave a

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party for him on his eightieth birthday, though with nothing like the splendour there will be tomorrow, since we just had drinks in my office, when I had only recently been appointed as Army Minister. The significant fact was that all the members who had served on the Army Council under Lord Shinwell when he was Secretary of State for War came from all parts of the Kingdom just to have a drink with him on his eightieth birthday, which, I thought, was a great tribute to his work in the defence field.
The question before us is very much wider than which aircraft should be chosen for the next basic trainer. First, I think it puts the spotlight on the method of so open competition that the Ministry of Defence has chosen. To put the matter crudely, it seems to me that they have exposed themselves (in colloquial language) to being on a good hiding to nothing, because whichever aircraft they choose it is liable to cause problems. If they pick any one of the three foreign, overseas aircraft, that will mean that there will be two dissatisfied customers as well as a political row over having let down British industry and British employment. It seems to me that the only sensible conclusion in order to avoid this dilemma is for them to choose the British contender. Then there would be no offence taken in the three other countries, since that is exactly what those countries have done, and will do, and what they would expect us to do. Everyone except us has a proper sense of looking after their own national interest. Those countries would be staggered to think that we would do otherwise. So there would be no offence at all. I submit that that is a consideration that the noble Lord the Minister might like to bear in mind in his deliberations.
But, of course, I would not suggest that that is the only reason for choosing the Hunting Firecracker aircraft. I understand—and the noble Earl has confirmed it—that all the contenders except the Australian one (which is as yet a product of what, when I was Aviation Minister, I used to call "brochure engineering") all those that have flown, are expected to meet the specification. I know that in the Royal Air Force there is a tendency for pilots and the top people in the Air Force to want all that they can get when an aircraft is up for decision—all that they can get by way of performance. It was put to me many years ago by an Air Marshal quite simply when he said, "We are allowed only so many of that particular type. Therefore, if we can persuade the Treasury to put up the money for some fancy features, some extra performance, then we think that that is one up to us". But he said, "If you give us a sum of money and say, 'Go out and spend that on aircraft' then, by golly, we should have more aircraft and it would be tailored down to exactly what the specification required".
I hope therefore that when this decision is made, this bad practice will not be repeated. Indeed, in fairness to the RAF, I think that today they have a rather wider view of the national defence interest than perhaps was the case when I was concerned with these matters 20 years ago. The former Minister responsible for production matters in the department very properly said that it was necessary that, as well as having the right specification, the aircraft should have the proper financial and production backing. Therefore, I should
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like to mention the organisation which has developed this formidable aircraft for a specific defence requirement and the new consortium which will build and support the Hunting Firecracker for the RAF. Designed by Desmond Norman, the man who designed and built the highly successful Islander aircraft, the Turbo-Firecracker was financed and developed by a private company, Specialist Flying Training Limited, who already use the aircraft to train foreign military students in this country. The pioneers of the venture have, I understand, invested very substantial sums of their own capital in support of their belief in a British aircraft. I find this an extremely welcome contrast to the experience that I had in the ministry from time to time, that no one was willing to produce a design for anything unless they were first given and were paid for a feasibility contract. I think that is exactly the kind of initiative that we should seek to encourage.
But, realising their inability to manufacture the aircraft in sufficient numbers for the Royal Air Force, Specialist Flying Training formed a new company, Hunting Firecracker Aircraft, in conjunction with Hunting Associated Industries and the merchant bankers Guinness Mahon. Of course, Huntings have always been in the aerospace field. The chairman of the group, Mr. Clive Hunting, is expected shortly to succeed the managing director of British Aerospace as the president of the Society of British Aerospace Companies. As the noble Earl, Lord Kimberley, has mentioned, not only did they build the Jet Provost and their predecessors, the Piston Provost and the Percival Prentice, but it is not generally known that they actually designed, as the Hunting 107, the aircraft which finally became the BAC 1-11.
Their associated companies are today, and have been for many years, fully involved in all manner of airfield operations. For example, one of many contracts that they have with the Ministry of Defence and the Government is the care of the RAF VIP flight at Northolt, which many noble Lords will have used, and the Queen's Flight at Heathrow, as well as other naval and Air Force contracts. Although the specification requires, naturally, an unsophisticated aircraft—one that is not going to be very difficult to manufacture—Huntings have available advanced technological capacity of the highest order. Indeed, the contract for the JP 233 is perhaps the most significant defence contract for many years and I had full confidence when Secretary of State in placing it with Huntings. The new company, including Huntings and the merchant bankers Guinness Mahon, must surely satisfy the most exacting criteria for technical and financial backing.
I believe that the aircraft, additionally, will have great export potential. The noble Earl has explained that there is no other contender in the EEC or NATO and that there is likely to be a demand for new training aircraft arising in these countries as well as in the third world countries, with little or no aircraft industries of their own. Believe me, my Lords, I have no doubt that we would not get any benefit, or very little benefit, from any export orders that the Swiss or the Brazilians might attain if we went along by choosing their model. The whole enterprise seems to me to be exactly the kind of development which I understand the present

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Government and the Secretary of State want to encourage.
I ask in conclusion that noble Lords should contemplate the consequences of our choosing an alternative aircraft. I believe that they would go much wider than this particular contract. What would our rivals in aerospace and advanced technology make of our choice of a Swiss, Australian or Brazilian aircraft for the Royal Air Force? When the noble Earl, Lord Kinnoull, asked a Question before the recess I ventured to pose to the Under-Secretary of State, who I am glad to see here tonight, well after flying the three existing prototypes—though I believe they are not exactly to the specification of the competition—and who I am glad to see as alert as ever, the question: what would be the reception that I should have recieved had I announced that I was going to place an RAF contract with Switzerland or Brazil? I think that the noble Lord knows well enough the kind of response that such an announcement would have received from his right honourable and honourable friends in another place. I hope, indeed, that the Secretary of State, by going for the Hunting Firecracker, will save himself and the nation a great deal of embarrassment.
8.40 p.m.
Lord Winterbottom: My Lords, I am certain that the House is most grateful to the noble Earl, Lord Kimberley, for giving us the opportunity to discuss this issue. He and my noble friend Lord Mulley have put into the picture the basic arguments within the framework that we have to consider. May I add a little point from my past experience when I was Private Secretary to the Minister in the House of Lords in 1949? I apologise for keeping your Lordships at this unconscionably late hour and therefore I shall make only three points in relation to this debate. The first point is this. It is a British design that we are talking about. Anybody can make an aeroplane if they have a design for it; there are no problems there. After all, we are talking about a Brazilian designed aircraft and a Swiss designed aircraft. We know that a great many people throughout the world are designing aircraft.
What is important and what we have in this country is the power to design new high-technology products. That is why I want the design team who produced the Firecracker to be kept in being, because one of them at least has produced one of the most significant light aircraft of the present decade, the Britten Norman Islander. Therefore, one important point is not simply to give away to other countries the power to design new and significant aircraft. It is a significant aircraft, as my noble friend Lord Mulley has said, in that it is high technology in construction, but full of transferable technology in terms of production. So in fact it could be designed here and built abroad. The whole project has this idea in mind. We must keep the design team, alive and financed, in this country.
The second point is that the Pilatus aeroplane is probably a great deal more expensive than the Firecracker. It is 1,000 lb heavier. That may not seem significant to your Lordships but it probably means it is at least 20 or 30 per cent. more expensive than the Firecracker, simply because of the extra weight.
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This is a matter which obviously the Minister responsible (who has to decide on the three tenders that he received, I believe, on 1st October) will have to consider. It would be unfair to ask questions of the noble Lord who has to answer the debate tonight; but I should like him to bear in mind that the House would like to know the sorts of factors that would influence the Secretary of State in his decision whether to buy aircraft A, B or C. Certainly, Pilatus is the most expensive. I do not know how the Firecracker compares with the Brazilian offer, but at the end of the day this country will benefit more in terms of jobs and money if a British design is built here than if there is some offset agreement with companies in Brazil or Switzerland. They are going to work very hard to protect their own interests; let us protect our own.
For this reason I am not going to bully the noble Lord, Lord Trefgarne, who has to answer the debate tonight, but I shall tell him that we on this Bench are going to keep a close eye on the way in which the whole approach to this entirely new wave of aircraft develops. There is a new situation, as most noble Lords have said, in that there is open competition for a new aircraft required by the Royal Air Force. Nevertheless, I think that part of the British interest is that the design contract and the production contract should go to a wholly British company.
8.44 p.m.
The Earl of Cork and Orrery: My Lords, my noble friend's most timely Question has to do, according to the way in which it is drafted, with the criteria for choosing the Royal Air Force's new basic trainer. Criteria in the plural there may be, and considerations and takings into account and sub-criteria and wherefores and therefores and "this-having-been-saids" and all the rest of it; but I submit that it all boils down in the end to the single simple question: which of the candidates is best for the Royal Air Force? That, I insist, is the proper formulation of the question: which is best for the RAF? Not for the Brazilians or the Swiss or Short Brothers or British industry or local prosperity of one kind or another. It is simply: what is best for the Royal Air Force and therefore for the nation? If no clear-cut answer to that question immediately emerges, then, and only then, should we move on to other subsidiary considerations.
We have three aircraft to consider, and they all meet the RAF's specifications: I repeat "all". I am dismayed to find misrepresentations being made, and in particular of the Firecracker aeroplane project. I have been told that these misrepresentations emanate from Short Brothers and British Aerospace. I do not know whether that is true, and I do not repeat those accusations, which may well be unjust. But I say that the misrepresentations themselves most certainly are unjust, wherever they come from. Some of them I think I am in a position to rebut, and I do so with the approval of the company. For example, it has been said that Firecracker is not powerful enough. But the Royal Air Force should know what power they want, and Firecracker provides precisely what they have asked for. It has been alleged that the aircraft will not meet the fatigue life requirement. The manufacturer's statement of fatigue life is 12,000 hours. I think that is about 20 years, which is the Royal Air Force's require-

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ment. Huntings, it has been said, cannot build Firecracker. The noble Lord, Lord Mulley, has emphatically disposed of that, I think. It has been said that the ejection system is not proven and is foreign. It is indeed proven, and it has been proved very thoroughly, including in combat. It has never scored a failure and has saved many lives. It is American, certainly, but it is made by a company which is wholly-owned by Flight Refuelling Limited—a British company—and the system will be made in the United Kingdom. It has been suggested that there is no money behind the project. Indeed there is, and moreover the money is private money, thanks to Guinness Mahon—not taxpayers' money, as in the case of the other two aircraft.
These damaging criticisms, together with others, come perhaps from Short Brothers and British Aerospace but certainly from supporters of these two companies, both of which are largely or entirely publicly owned. Both these companies have worked for Britain and do so work. They have not been backward in raising the "buy British" cry. Are they now, as appears to be the case where their own interests are affected, and their supporters, set to decry the one wholly British competitor in this field? If that is so, I confess that I find it disgraceful.
Firecracker competes on equal terms for the contract. Why should it not succeed? As to offset or counter-trade deals, my noble friend Lord Kimberley has said most eloquently what he thinks of those, and I wholeheartedly agree with him. I shall leave technicalities to others, but I add this. Short Brothers quote 70 per cent. as the British content of the Tucano. What the corresponding figure for the British Aerospace aeroplane is I do not know; but the corresponding figure for the Hunting Firecracker is 80 per cent. and it will be made in Britain by British workmen. I learn from my Latin dictionary that Pilatus, which is a Swiss aeroplane, is a word meaning "made bald" or "stripped of hair". It may occur to some of my more frivolous friends that I therefore might well be a Pilatus man. My Lords, I am not; I am a Firecracker man.
8.50 p.m.
Baroness Airey of Abingdon: My Lords, we have heard this evening some very important arguments from noble Lords who have great experience in this field, but I should like to put it to your Lordships that, as my noble friend said just now, things boil down. I should like to say that this argument really boils down to two matters which I believe are of great importance to our country at the moment, and those are the defence of the country and employment in this country. So when we are are thinking about what should be chosen by the Secretary of State, I should like to remind your Lordships of those two very important matters.
Your Lordships have listened with great attention, as I have done, not only to the pros and cons of the Firecracker, which seems to be leading the field at the moment, but to all the other arguments as well, particularly from my noble friend who has just spoken. But I should like to emphasise the question of the British invented and British produced Hunting
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Firecracker. That is a very important matter, because we have debated in your Lordships' House the importance of Buy British, and I have myself felt so deeply, as I have said before in your Lordships' House, that we have a genius for invention but, alas!, for leaving the production to others. Therefore, where performance is equal—and this has been put forward with great vehemence this evening—we should surely also consider the question of employment in this country.
Choosing the British aircraft will mean much greater employment in two very important areas in this country; in fact, in Bedfordshire and in the East Midlands, which are two areas where there is very high unemployment at the moment. In addition, if this aircraft is chosen there will be a possibility of exports and of employment in areas of high unemployment where jobs are very much needed at the moment.
Anyone who has tried to sell anything abroad—I have just been to China and Japan and was very much involved in industry while I was there—knows that the first question one is asked when recommending something from this country is: Have you bought it yourself? When the answer is Yes, there is every possibility that you will then have very good sales with that first recommendation for a very good product. That is why I beg your Lordships this evening to put to the Secretary of State this most important matter, and as we have heard such recommendations of this aircraft they should be very strongly borne in mind.
While thinking of the British economy, I should like to quote from a speech which my right honourable friend the Prime Minister made at the flying display dinner in 1980, when she said:
"The importance of the aerospace industry to the British economy cannot be over-estimated. Indeed, if we had to produce an ideal example of an industry with high value-added export products, we need look no further than aerospace.".
I therefore lay before your Lordships the choice that we should set a precedent and support British inventiveness, British industry and British employment. Other countries sometimes support their own products with sacrifice, but let us support the Firecracker with advantage.
8.55 p.m.
Lord Taylor of Blackburn: My Lords, I rise to take part in this debate following the noble Baroness, Lady Airey, on more or less the same question. My interest in the debate is concerned with what effect this contract will have on the unemployment figures of this country, and with which of the manufacturers can give the most effective long-term job guarantees. It has always worried me in a joint venture situation that any effect on jobs is short-term. The technology comes from overseas, the investment is short-lived and the jobs are in support only of a short-term defence requirement. What we need is a downward trend in the unemployment figures and this can happen only with the creation of projects that have long-term benefits.
In this RAF trainer contract, long-term employment will only come to the manufacturer who can command the export market that RAF endorsement will bring. If a foreign aircraft is selected, these jobs will certainly go overseas. All the manufacturers

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in this contract can demonstrate some United Kingdom jobs in support of the RAF contract, but only Hunting Firecracker, as I see by reading all the information that I have been given and by looking at all the specifications that one is able to look at, can extend those jobs long-term to cover the substantial export market.
I query also the motives of the United Kingdom partners of the foreign aircraft in trying to obtain this contract. I have heard it said many times in this House, and by their representatives, that the Government should buy British, but when it suited their own production lines. The reputation of these companies and their directors has been built on services to the British aviation industry. Do we not now see a reversal of this role and of their attitudes? What hyprocrisy! You back British always or not at all.
To British Aerospace this contract represents about two days' work from their annual turnover. They announced recently an order book of £5 billion. Their factories are full of Airbuses and Hawks. Do they really need what is in effect a very minor contract? Shorts, too, have been announcing big contracts with the USA and for their civil aircraft, but despite the so-called job shortage in Northern Ireland they subcontract major components to the mainland. Is this really an example of unemployment, if the work cannot be completed by their own factory? It seems that they have too much work and that there is insufficient skilled labour in Northern Ireland to undertake another contract.
Following the Labour Whip, which I do, I should not be telling the noble Lord the Minister that the Hunting Firecracker represents the very guidelines for industry that his Government have advocated—private investment, private initiative, cost-effectiveness and job creation with export potential.
I believe that the other aerospace companies have tried to close ranks on private British enterprise by backing foreign aircraft. For the sake of our own country's jobs and the aerospace industry, we should not stand back and let foreigners dictate our defence procurement policies. Once again I say, back Britain—as has been said to us so often from so many places.
9 p.m.
Lord Mottistone: My Lords, I shall be brief; I, too, am a Firecracker man and have little to add to that which has been said by previous speakers, beginning with my noble friend Lord Kimberley and the noble Lord, Lord Mulley, who, in making different points, put the main arguments in favour of this aeroplane. As I see it, all four aircraft meet the basic requirements. One trusts that the RAF procurement executive will resist the temptation to produce unnecessary and unspecified sophistication, which would result in additional expense to the taxpayer. One trusts that the fact that the Swiss aircraft is said to exceed the requirements will not affect my noble friend's judgment—because it must be irrelevant, if it exceeds the requirements.
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A side point which makes me particularly interested in this aeroplane is that it is to be used not only as a basic trainer for the Royal Air Force but also for the Royal Navy, whose pilots are all to be trained in the same aeroplane—so I have a particular interest in its being the right aeroplane.
Above all, and as has been said, the aeroplane was designed by Britten-Norman—the same people who designed the Islander—in the Isle of Wight, which is where I come from and which, taking up a point made by the noble Lord, Lord Taylor of Blackburn, has higher unemployment than practically anywhere else; it currently runs at a level of about 15.5 per cent. in the winter. So if other factors are equal, it is important to take account of the point that, although the aeroplane will not be built in the Isle of Wight, because there are not the facilities, the effect of this design being chosen will be of benefit to Britten-Norman in the future in terms of any design that comes along and attracts employment to the island.
Perhaps I may quote a statement made by my honourable friend the Minister of State for Defence Procurement in another place on 2nd February:
"When it comes to a choice between British and foreign purchase, our policy is to buy British wherever it is good sense, economic and consistent with our international obligations to do so. We go overseas only when the advantages of cost, performance and timescale are judged to outweigh the longer-term benefits of procuring the British option".—[Official Report, Commons, 2/2/84; col. 433.]
That seems to me to be pretty fundamental and I hope that may noble friend will be able to endorse that that philosophy will be governing when the Government come to make their decision.
One other point is that, as has already been mentioned, my noble friend the Minister is unique in modern times in being able actually to fly these aircraft himself. I hope that he will be able to tell us that he has flown all the aircraft except the Australian design that is still on the drawing board—that would be rather difficult for him to fly. No doubt he will not be able to tell us what he thought of them, but it is useful to have a Minister who is not going to have the wool pulled over hs eyes by technicians or air staff, or by any others who might try to do so.
In conclusion, I desperately hope, for the sake of Britain in general and for the Isle of Wight in particular, that the Firecracker is chosen as the airplane to train naval pilots of the future.
9.4 p.m.
Lord Morris: My Lords, the conspicuous advantage of speaking last from the Back Benches—an advantage, I suggest, which accrues particularly to your Lordships—is that everything has been eloquently said already. Your Lordships might think that there is little left to say, and you would be quite right in so thinking. However, although my contribution will be short I do not believe that what I have to say is in any way lessened in its importance.
May I at the outset suggest that it must be extremely comforting to Her Majesty's Government to feel that they are in no way taken for granted; that there are no fewer than 10 Members of the Upper House who are firm in their encouragement and support for the decision which the Government must certainly take;

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namely, to support the classically successful private enterprise endeavour.
The fact that Her Majesty's Government should have offered for open international tender the opportunity to quote for a basic trainer for their own Royal Air Force is one that I welcome with open arms. As the noble Lord, Lord Mulley, so eloquently suggested, the ordinary man in the street—and indeed all our foreign competitors—would understandably feel that the British are mad. But are they? In the long run, nothing so concentrates the minds of designers, engineers and technical innovators as the stimulus of genuine comparison and competition between their like products. In the long term, the operation of this principle will be of immense benefit to our defence industry. Thus are our country's commercial skills enhanced.
However, the keyword is "open" to international tender. The moment any element of an offset deal is brought into consideration of the merits of a product in accordance with a strict specification, then the principle of open tender flies straight out of the window. This is for the simple reason that each tender individually will define its own rules vis-à-vis its competitors, because the balance of power will be totally changed. I suggest that that is axiomatic, but I am not suggesting that an offset deal on a nation-to-nation basis is inherently dishonest. Many people would certainly take that view. I am not suggesting that, because Government, poor things, have to take the overall picture and look to the vitally important issues of employment and the net financial benefit to the country as a whole.
However, I am certain that as a result of this debate and, indeed, I might add, of my own very limited political experience, I am encouraged and emboldened to support the thesis that Her Majesty's Government will gain not one iota of support, from this House at least, if they support the competitor of a wholly British endeavour on the ground of a "nudge-nudge, wink-wink" promise of possible future support of British industry in other sectors. Furthermore, one should never underestimate the export potential of an aircraft which has been selected by the Royal Air Force. Its reputation alone stimulates inquiries immediately —and this is important—from countries which do not have their own procurement and evaluation system; they therefore look to the Royal Air Force for a lead in aircraft selection and pilot training programmes.
In fact, it is worth quoting—and your Lordships must forgive me for so doing—my honourable friend the Minister of State with responsibility for defence procurement in a debate in the other place on the RAF, on 2nd February this year. He said:
"I want to say a little about the policies that guide our attitude toward procument. Our overriding task in defence procurement is to equip the armed forces by the means which give the best long-term value for the nation's money."—[Official Report,Commons, 2/2/84; col. 443.]
My noble friend Lord Cork and Orrery suggested that the test really ought to be what is best for the Royal Air Force. I think that that is absolutely right and proper. Once one solely considers the money considerations then the offset deals become attractive. However, I am certain that the Ministry of Defence
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will consider the Royal Air Force requirement in the strict terms of the specification, because if the specification is wrong the Minisitry of Defence, let us face it, has only itself to blame.
I need hardly point out to my noble friends—indeed, my noble friend Lady Airey of Abingdon said this—that the key to successful sales by a government, particularly to the Middle East, is endorsement by that government of the products that they wish to sell. I suggest that the United Kingdom has an opportunity to re-establish its trading position in this field in the Middle East in the face of very strong French and Brazilian competition. The Hunting Firecracker company itself is in an advanced state of negotiations to establish a facility in that region. This is vitally important because there is no doubt, when one bears in mind the Gulf Co-operative Council which is to meet shortly in Kuwait, that the procurement policies of the Gulf countries will ever-increasingly be inward-looking and any company which supports development in that particular area, with its own assembly or sub-manufacturer of defence items, will be considered extremely favourably.
I sincerely believe that it is most strongly to the credit of Hunting Firecracker that it has pushed off the advantage of a major foreign airframe manufacturer which has been trying commercially to get into bed with it, so to speak. It would be ironic if this foreign suitor, who, incidentally, sells the major competitor to the Hawk, should eventually link up with Firecracker because British Aerospace is determined to maintain its link with Pilatus. I have been much longer than I intended, and I ask your Lordships forgiveness at this late hour.
9.12 p.m.
Lord Graham of Edmonton: My Lords, the noble Earl has done us all a great service, and not least a great service to the Government, in taking the steps which have led to the debate that we have all enjoyed over the past hour or so. In doing so, he has demonstrated his grasp of the subject; sufficiently so to impress me and, I suspect, many who have been here tonight. Of course, he would say immediately that his task has not so much been to impress us but to try to bring some influence to bear on the decisions of the Government.
The Minister who is here tonight to reply to the debate has also demonstrated his grasp of what is not an easy subject. He has done so time and again at the Dispatch Box over the past few months when Questions have been asked. I know that he has had an exhausting time in these last few days. I have shared some of it with him. I suspect that that exhausting time has been somewhat out of the normal. I am very grateful indeed to him for being here tonight to reply to the debate.
I believe that an earlier speaker said that there were 10 contributions to the debate. I venture to suggest that the Minister can be in no doubt about the thrust, force and unanimity of the views expressed in the House tonight. Comment has been made that pressure and politicking have reared their ugly heads, but with a potential £1 billion contract with spin-offs at stake, we can expect politicking and pressure. I take no exception to them. Comment has also been made

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about the uniqueness of the tendering procedure. All who have been invited to tender are perfectly entitled to demonstrate to whomever will listen what they have to sell. What we have had is a display of their wares. I for one have no objection to that.
As has been said by more than one speaker, there are those who take their national duties—to buy within their nation and to support it—very seriously indeed. For instance, one of the countries with a direct interest in the contract is Switzerland. It has a perfectly proper interest. But this is what Swiss readers of an English version of the magazine Interavia were invited to consider recently. Under a headline,
"Firecracker—Looking for a home market",
the article said:
"It is typically British to set up a competition for a new basic trainer for the Royal Air Force in which manufacturers are invited to compete with an excellently home produced aircraft. Other potential customers must wonder what can be wrong with Firecracker".
It concluded:
"Final impressions:—A real aeroplane, superbly responsive. No ordinary aeroplane can match Firecracker. Firecracker should make tigers, not just aeroplane drivers like those spineless small jets".
That was said in a Swiss journal.
I am told that Firecracker is the only British designed and built turbo-prop military training aircraft currently flying and in production. We all know that the Royal Air Force has a reputation for excellence in its training, which has been enhanced by its use of British aircraft. Large export orders have resulted from RAF endorsement. I fear that this enormously beneficial spin-off could be destroyed if a foreign aircraft were selected. I understand that none of the other aircraft on the RAF list comes from a country which is a member of the EEC or of NATO. Reference has been made to the NATO aspect. I think that in the debate in this House we should also introduce the EEC aspect.
Among the complexities which are inevitably bound up in this matter are fears that there are countermoves, or offset arrangements, in the deal open to foreign governments in their purchasing role from Britain if their aircraft, or their nationally related aircraft, fails to secure this contract. For instance, I am told that British Aerospace has signed a fifty-fifty work-sharing agreement with Pilatus of Switzerland. British Aerospace wishes to sell Hawks to Switzerland to replace the Vampire jet, but British Aerospace admits that:
"there can be no guarantee of Swiss orders against a British order for the Pilatus aircraft, but there is no doubt that British Aerospace would gain considerable good will".
If there is no tangible offset for Britain except good will and responsibility for the final assembly for the RAF contract, what are the advantages of a Swiss aeroplane for Britain?
We have heard from my noble friend Lord Mulley—who has vast experience and one can recall his service in holding high office in this field—that the Hunting Firecracker comes from a stable with an impressive record in a wide field of aircraft creation and servicing. I stress that it must be of some importance that the Jet Provost was built by Hunting—and this is the trainer that has given
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excellent service and value for money, as have earlier trainers built by Hunting. Surely that is not a bad record or recommendation to purchase from the same stable.
Standing at the Dispatch Box, I have the privilege and duty to speak on behalf of the Labour Benches in this debate. At the end of the day the Government will have to come to conclusions based on as objective an assessment as can be made of the facts. Among the criteria they are bound to weigh carefully must be price, jobs and the nationality of the bidders. I accept that in all cases there are qualifications and that, whoever gains the contract, there will be disappointments and even anger and despair in certain quarters.
However, I believe that it is the duty of the British Minister, in a British Government, to discharge his responsibilities in this matter, bearing heavily in mind factors which other governments can afford to ignore. Only the British Government have a prime responsibility to respect British enterprise. Only a British Government have a prime responsibility to encourage British companies. Only a British Government have a responsibility to fight for and find jobs for British workers. Only a British Government have a prime responsibility to get value for money for the British Exchequer. On all of those counts there can be only one acceptable bid: that of the Hunting Firecracker. I trust that the Minister will reach the same conclusions.
9.21 p.m.
Lord Trefgarne: My Lords, your Lordships will be grateful to my noble friend for raising the matter of the Royal Air Force's requirement for a new basic trainer. Before explaining our approach to meeting this requirement I should first like to give some background. After gaining initial flying experience the Royal Air Force students undertake a period of training on the Jet Provost, and then specialise on a type of aircraft relevant to their anticipated future employment. Pilots destined for fast jet combat aircraft progress from the Jet Provost to the Hawk—another very successful aircraft with an increasing number of armed services overseas, the latest of which is the United States Navy.
In September of last year we circulated the Royal Air Force's Air Staff Target Number 412 to industry, together with a questionnaire seeking technical and cost information on available or projected trainer aircraft. We received information on 23 contenders from 17 companies in the United Kingdom and overseas, including the USA, Switzerland, France, Italy, West Germany, Brazil, Spain and Australia. A technical and budgetary analysis was made of this information which showed that the candidates could be divided into three broad groupings: low performance propeller; high performance propeller; and jet.
Taking account of through life as well as acquisition costs, our analysis showed that a high performance turbo prop aircraft, while meeting the requirement, promised the optimum balance between performance and cost. And, my Lords, may I remind you that we are seeking not merely a good training aircraft, but also a replacement that has to fit exactly into a well

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tried and honed training system. From these we selected a short list of four candidates which were judged to be capable of meeting the needs of the Royal Air Force. These were—the Australian Aircraft Consortium A20, the Firecracker NDN-1T, the Pilatus PC 9 and the Shorts-Embraer EMR 312 Tucano.
Since the announcement of the shortlist in March a detailed technical specification for the Jet Provost replacement has been drafted. This was issued, together with a formal invitation to tender, to the four principal companies and to the manufacturers in the United Kingdom with whom production agreements have been reached. The link-ups are interesting and show great potential for future collaboration between the companies. The Australian Aircraft Consortium have formed a joint company with Westlands—called AAC-Westland—for the manufacture of the A20 in the United Kingdom and NATO countries, and for reciprocal arrangements for the manufacture of Westland Helicopters in Australia. Firecracker Aircraft Limited have formed a company with Huntings—a well established name in the British aerospace industry—which will be known, as we have already heard, as Hunting Firecracker Aircraft Limited. Pilatus have reached agreement with British Aerospace on the manufacture of the PC 9 in the United Kingdom and, I understand, propose to market a complete training package of the PC 9 and the Hawk. Shorts have agreed with Embraer to manufacture the EMB 312 Tucano under licence in Northern Ireland, and are proposing to collaborate with Embraer on other civil aircraft projects.
The procurement of the basic trainer has received a great deal of interest in the aerospace industry both here and abroad. This sector of the market is very competitive—as evidenced by the 23 responses we received—and we have always intended to take full advantage of market forces and obtain maximum value for money. The international flavour of current aircraft is highlighted by the fact that all four aircraft on the short list use variants of an engine manufactured by Pratt and Whitney in Canada.
In parallel with the tendering process, we have undertaken a handling and engineering evaluation at the Aircraft and Armament Experimental Establishment at Boscombe Down of the three aircraft types that currently exist. The Australian A20 could not be included in this exercise since it has not yet flown. I should like to thank the three companies—Firecracker, Pilatus and Shorts—for making the aircraft available for this evaluation. The configuration of each aircraft was of course the one currently available, and there may be some changes in equipment and performance in the aircraft which the companies have offered in the tenders to meet the RAF's requirement.
My noble friend Lord Kinnoull asked a question on this matter in July and at the time I said I hoped to have an opportunity to fly the contenders. I am very pleased to be able to tell your Lordships that this I have now done.
Four tenders have been received from United Kingdom companies and it is with them that we are
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dealing and not their foreign partners in those cases where they have one. Indeed, it is to one of the four United Kingdom companies that we shall award the contract. We are now evaluating the proposals from the financial point of view and to see that they meet the performance specifications, fatigue requirements, and delivery programme specified by the Royal Air Force. The fatigue aspect is very important since we expect the aircraft will be in service, like the Jet Provosts, for some 20 or 25 years. Our financial analysis includes a comparison with the option to refurbish the Jet Provost, which is a possibility we have not wholly discarded. I hope that the technical and financial analysis of the tenders will be completed speedily to enable a final decision to be made around the turn of the year.
Our main purpose must be to obtain the right aircraft for the Royal Air Force—a sentiment echoed by more than one noble Lord this evening. The prime requirements will be for adequate performance, long fatigue life, low life cycle costs, and to meet the timescale for introduction and phasing into service with minimum disruption to the training programme. In addition to these criteria, there are a number of other aspects involved in determining which option offers MOD and the British taxpayer the best long-term value for money, including the employment opportunities and the industrial capability of the company to produce the aircraft on time and to support it in service. So far as jobs are concerned, we doubt whether there would be much to choose between the four contenders and the volume of work each would generate directly is also likely to be much the same. Overseas sales are another facet. The cachet of RAF approval must be a considerable bonus in the marketing of the successful aircraft overseas.
Perhaps, too, I may refer to one or two of the broader aspects which will also have to be taken into account. Some of your Lordships—in fact I think every single noble Lord tonight has done so—have urged that the Firecracker, as the only British designed aircraft on the short list, should be chosen because it is British and to support the enterprise and initiative shown by the company. I recognise the force of the argument. But Brazil has bought a variety of defence equipment from the United Kingdom and a purchase of Tucano would no doubt help future sales prospects there. It would also provide much needed jobs in Northern Ireland.
The Swiss have been equally good customers of our defence industries and should the PC 9 be selected for the Royal Air Force it would doubtless improve the chances of Hawk being selected as the new advanced trainer for the Swiss Air Force. There is also the prospect for the sale of Westland helicopters to the Royal Australian armed forces, which would include provision for substantial manufacture in Australia.
Clearly in dealing, even at second hand, with the contenders of overseas designs, wider foreign policy issues come into play, but in attempting to address them it must be borne in mind that we are running a fixed price competition with four British firms aimed at getting the right aircraft for the Royal Air Force at the lowest cost.

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As I have said, the tenders will take some time to evaluate in detail before a final decision is made. However, I can assure your Lordships that all the points of wider national consideration which I have mentioned and the very valuable points which have been raised this evening will be taken into account when we come to make the final decision. As I said before, our prime consideration is to obtain a cost-effective aircraft with good performance and a long fatigue life. I hope that it will be possible to make a decision around the turn of the year, and certainly I will advise your Lordships of the outcome.
House adjourned at half-past nine o'clock.

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