Sitting of 24 April 1985

Preamble
The House met at half-past Two o'clock
The Clerk at the Table informed the House of the unavoidable absence, through illness, of MR. SPEAKER from this day's sitting.
Whereupon MR. HAROLD WALKER, THE CHAIRMAN OF WAYS AND MEANS, proceeded to the Table and, after Prayers, took the Chair, as DEPUTY SPEAKER, pursuant to the Standing Order.

PRIVATE BUSINESS
ALEXANDRA PARK AND PALACE BILL Read the Third time, and passed.
GREATER MANCHESTER BILL [Lords] Read a Second time and committed.

Oral Answers to Questions
  FOREIGN AND COMMONWEALTH AFFAIRS

    South Africa
    Mr. Winnickasked the Secretary of State for Foreign and Commonwealth Affairs what representations he has made to the South African authorities over recent events in that country.
    The Secretary of State for Foreign and Commonwealth Affairs (Sir Geoffrey Howe): Following the tragic events at Uitenhage on 21 March, I issued a strong condemnation of the shootings. On my instructions, my hon. Friend the Minister of State, the Member for Shoreham (Mr. Luce), summoned the South African ambassador to express our shock and to call for the fullest possible investigation.
    Mr. Winnick: Does the Foreign Secretary deplore yesterday's detention of three senior members of the United Democratic Front and the continued harassment of those actively involved in opposing the regime? Does the right hon. and learned Gentleman agree that, despite the somewhat cosmetic changes recently announced by the regime, there has been no fundamental change in South Africa, and that the vast majority of people there are denied basic rights and liberties because of the colour of their skin?
    Sir Geoffrey HoweIt is too early to comment on the incident reported yesterday, but I confirm that we certainly expressed concern to the South African Government about the original arrest of UDF leaders and joined our partners in the Ten in underlining our concern. Our practice is not to intervene until the legal processes have been exhausted.
    It must be acknowledged that certain important changes have been announced this year, starting with President Botha's speech on 25 January and including the suspension
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    of forced removals, the extension of 99-year leasehold rights to blacks in the Cape area, confirmation that the Mixed Marriages and Immorality Acts will be repealed, and so on. None of them go far enough, but they appear to reflect changes in attitude which could be significant, but none of them diminish the strength with which we condemn apartheid as a system, along the lines suggested by the hon. Gentleman.
    Mr. George Gardiner: My right hon. and learned Friend's latter words will be very welcome to many Conservative Members. Does he agree that if the Government gave a little more encouragement and praise for the moves towards reform that are taking place in South Africa, they would be making a constructive contribution and would ease the process of change there?
    Sir Geoffrey Howe: When presenting their attitude towards events in South Africa, it is necessary for the Government to keep both halves of the subject in mind. It is necessary to condemn, as we do, actions that are plainly unjustified. But, as I have already said, it is also necessary to acknowledge and encourage steps that are being taken in the right direction. The key point is that we should continue to use all our influence and contacts in every way possible to maintain pressure for change of the kind desired in all parts of the House.
    Mr. Robert Hughes: Does the Foreign Secretary agree that the South African Government's decision to impose a so-called multi-party Government on Namibia shows that the progress of resolution 435 has come to a halt and that there has been an end to the Crocker initiative? Does it not also throw into great doubt South Africa's acceptance of that resolution? Will he arrange to have this matter raised as soon as possible at the United Nations Security Council?
    Sir Geoffrey Howe: With other members of the Contact Group, we have already made representations to the South African Government about the steps taken in Namibia and underlined the importance that we attach to the implementation of resolution 435. We shall continue to support the American-led negotiations to achieve that.
    Mr. Anderson: We are glad that the Government were represented by our consul in Durban at the opening stages of the treason trial. Will the Foreign Secretary ensure that we continue to monitor that trial when it resumes in mid-May? Will the right hon. and learned Gentleman consider whether we should follow the example of the Irish Government and help to pay the legal costs of those UDF defendants? Will the right hon. and learned Gentleman consider also helping the families who are being crippled financially by this legal repression?
    Sir Geoffrey Howe: I am afraid that I cannot follow the hon. Gentleman down the road that was opened up by the second half of his question. Many British subjects face trial in different countries in different circumstances, and successive Governments have not found it either possible or proper to pay their legal costs. We could not, therefore, extend our representative generosity along those lines. It is important that we should continue to monitor the trial carefully. We have already made it plain that we shall be sending an observer.

    British Citizens (Hostages)
    Mr. Holtasked the Secretary of State for Foreign and Commonwealth Affairs how many British citizens are currently held hostage by overseas Governments; and where they are held.
    The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Tim Renton): Although a number of British citizens are detained abroad under conditions with which we are not satisfied, none of these can be formally described as hostages.
    Mr. Holt: We need to clarify the fine dividing line between what is a hostage and what is not. Under what conditions would it become unacceptable for a British citizen to be incarcerated overseas? What action would the Government take in those circumstances?
    Mr. Renton: In general terms, a hostage is one against whom charges have not been laid by the overseas Government. The Government aim to render British citizens full consular assistance if they are detained overseas. That is one of the prime duties of our consular department. We raise complaints with the relevant authorities, including complaints about illegal detention, although we must work within the laws of the country concerned. In exceptional cases, and if it is in the interest of the persons held, we take the matter up at a high level with the appropriate Government.
    Mr. Ron Brown: What about the case of King and Maxwell, the accused Scots held in Libya? Surely they need help badly. Is the hon. Gentleman aware that one way not to help them is to suggest that Libyan property should be seized in this country, particularly in London? That will undermine the efforts of those who are trying to secure the early release of the men.
    Mr. Renton: As I understand it, those two gentlemen have stood trial, been convicted and are serving their sentences. Unfortunately, there are, as of yesterday, 1,070 British subjects abroad who are detained for one reason or another. It is the Government's duty, while respecting the laws of the country concerned, to provide as much consular protection as possible to all those people.

    European Community (Dooge Report)
    Mr. Gouldasked the Secretary of State for Foreign and Commonwealth Affairs whether, in the light of the Dooge report, the European Economic Community intends to adopt a common position in international bodies.
    The Minister of State, Foreign and Commonwealth Office (Mr. Malcolm Rifkind): The Dooge committee has recommended that the Ten should adopt common positions in the United Nations and other multilateral bodies. This proposal, with the others made by the committee, will be discussed at the Milan European Council in June. We hope that this discussion will lead to decisions which will enable the Ten to act and vote more unitedly in international organisations.
    Mr. Gould: Will the Minister assure the House that the reservations he expressed on matters such as the weakening of the veto, the enlargement of European Assembly powers, and other steps towards political union will be firmly maintained?
    Mr. Rifkind: I assure the hon. Gentleman that it was precisely for that reason that I entered those reservations in the report, as did representatives of certain other countries.
    Mr. Stanbrook: Is it not thoroughly undesirable that Britain should be left isolated along with a minority of members of the European Community while the majority wish to make progress in this way? If more nationalistic states such as France can go along with these developments, why can they get away with it and we cannot?
    Mr. Rifkind: The United Kingdom was not isolated in the Dooge committee. The Greek representative entered a total of 15 reservations, the Danish representative entered a total of 10 reservations, Britain and Germany both entered three reservations, and a number of other countries entered one each. On the vast majority of issues, we were able to support either the unanimous or the majority view of the committee.
    Mr. Deakins: Why does the Department continue to pay lip-service to the idea of European political union when the Minister and his Department must know that that would be completely unacceptable to the British people?
    Mr. Rifkind: I am not certain what the hon. Gentleman means by the phrase "European political union". It is not a phrase that has normally been used in the Community. We have said that we are prepared to see greater European unity on a range of issues, but I emphasise that what is sometimes described as the federal concept does not have the support of the vast majority of Community Governments, including the United Kingdom Government.
    Mr. Budgen: If the United Kingdom entered so many reservations, will my hon. Friend explain what the Government did support?
    Mr. Rifkind: If my hon. Friend had been listening to me with his customary attention, he would have heard that I made quite the opposite point. I said that while certain of our colleagues entered 15 and 10 reservations respectively, the United Kingdom and Germany entered only three reservations, in a report which covered a wide range of issues. We were able to support the unanimous or majority views on a range of questions, such as the internal market, political co-operation, security matters, and the need for more effective forms of decision making in the Community, while reserving the right of the national veto.
    Mr. Heffer: Is it not a good thing that most of the nations of the EEC take decisions which are based upon their own national interests? Is it not clear that it would be absolutely disastrous if all the EEC countries took the same sycophantic attitude towards the United States of America and President Reagan as the Prime Minister does?
    Mr. Rifkind: The hon. Gentleman has put to me a somewhat extraordinary jumble of ideas. He is correct in saying that individual countries have national interests which they are concerned to protect. Her Majesty's Government formulate foreign policy based on what we believe to be in the best interests of the United Kingdom.
    Mr. Johnston: The hon. Gentleman must know that he is deceiving the House by going on about the number of

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    reservations that Her Majesty's Government have made. Surely the significant point is the nature of the reservations. Will the hon. Gentleman agree that the unwillingness of Her Majesty's Government, in conjunction with the Greeks and the Danes, to see an improvement in the decision making procedures of the Community is a bad thing?
    Mr. Rifkind: I suspect that the hon. Gentleman has not read the report in question. If he had, he would have noticed that in that part which deals with decision making the United Kingdom did not enter a reservation. Two options were put forward in the main body of the report, one of which was supported by representatives of a number of Community countries. The other option was supported by other representatives. There was no footnote reservation or qualification of the kind that the hon. Gentleman suggests.
    Mr. George Robertson: The Minister may have entered reservations on the question of majority voting, but he has conceded in his reservations the principle of more frequent use of majority voting on major EEC matters. Will the Minister be frank and tell us precisely to which areas the veto will not still apply? In which areas will the Government stand up for Britain?
    Mr. Rifkind: As the hon. Gentleman will be well aware, the vast majority of areas permit voting under the treaty, but it has become increasingly customary for the Presidency not to ask for a vote on them in the Council. We have argued that that is undesirable. There are many areas of progress on which, if votes were taken, the United Kingdom would happily be with the majority, seeking certain changes—for example, on the completion of the internal market. That is an obvious example to which Britain has attached great importance. We have no objection to increased use of majority voting as long as there is reserved to each national Government the right, as an ultimate defence of its national interest, to apply a veto as provided for in the Luxembourg compromise.

    Spain
    Sir John Farrasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the implications of the membership of the European Economic Community of Spain for Britain's ties with Gibraltar.
    Sir Geoffrey Howe: The United Kingdom's ties with Gibraltar are not affected by Spain's membership of the European Community. We remain committed to honour the wishes of the people of Gibraltar as set out in the preamble to the Gibraltar Constitution Order 1969.
    Sir John Farr: Will my right hon. and learned Friend assure the House that the signature by Spain of the treaty of accession to the EEC will in no way be allowed to prejudice or weaken the close, historic and unique link which the peoples of Gibraltar and Britain enjoy at this moment?
    Sir Geoffrey Howe: The position is exactly as I stated in my original answer. The constitutional position of Gibraltar remains as set out in the preamble to the constitution order, which rehearses the well known assurances. We shall fully respect the freely and democratically expressed wishes of the people of Gibraltar.
    Mr. Skinner: One of the questions that some people are asking about Gibraltar is put simply this: "Do you think that the Tory Government will treat Gibraltar in the same way as the Falklands, or will they treat Gibraltar in the same way as Hong Kong, which they gave away?" It is an intriguing question. I should like the Foreign Secretary to tell us precisely how the Government will treat Gibraltar.
    Sir Geoffrey Howe: That question is founded on a huge lack of comprehension. The British Government will treat Gibraltar as they should treat Gibraltar. The three cases are entirely distinct from each other, historically, geographically, politically and in every other sense. The position of Gibraltar is governed by the constitutional provision to which I referred, by the existence of our title under the treaty of Utrecht and by the entire difference in attitude of the Spanish Government to the people of that country. I hope that the hon. Gentleman will be glad to hear that, as a result of the agreement that was put into force in February this year, there has already been a massive increase in the movements of people across the frontier. Almost 500,000 people have entered Gibraltar since 5 February. That represents a powerful foundation for growth of economic co-operation and prosperity in Gibraltar.
    Mr. Andrew MacKay: In the light of Spain's accession to the Community, will my right hon. and learned Friend take this opportunity to let the House know what progress is being made to organise a new extradition treaty with Spain?
    Sir Geoffrey Howe: That does not arise directly out of this question, but the position is that negotiations on the new extradition treaty, to which I know the House attaches importance, are far advanced. We hope to bring them to a conclusion before too long.
    Mr. George Robertson: Have the Spanish Government made any proposals to the British Government about the issue of sovereignty and, if so, when might the British Government's response be made public?
    Sir Geoffrey Howe: As I think I told my hon. Friend the Member for Banff and Buchan (Mr. McQuarrie) on 20 March, the Spanish Government have delivered proposals concerning the future status of Gibraltar. I have told the Spanish Foreign Minister that those proposals will be studied against the background of the undertaking to which I have referred. The details of the proposals must remain confidential at this stage, and it is too early yet to decide at what point that position will change.

    European Community (Reform)
    Mr. Teddy Taylorasked the Secretary of State for Foreign and Commonwealth Affairs if he is satisfied with the progress to date in achieving reforms in the European Economic Community; and if he will make a statement.
    Sir Geoffrey Howe: Considerable progress has been made. The Council has agreed the arrangements for implementing the budgetary reforms negotiated at Fontainebleau. A start has been made on the reform of the common agricultural policy. The European Council has agreed that action should be taken to reduce the burden of regulation on business and has set a target date for the

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    completion of the common market in goods and services. A number of practical proposals for improving the functioning of the Community institutions are now under discussion.
    Mr. Taylor: Does my right hon. and learned Friend agree that, despite all those wonderful pledges and assurances, the plain fact is that the Common Market is now spending over £20 million a day on dumping and destroying food surpluses, and is vastly overspending its agreed budget? Does my right hon. and learned Friend further agree that the only way to secure reforms is to control the supply of money to the Common Market? Therefore, would it not be crazy for the Government to ask the House, at a time when we are cutting back on essential services at home, to give an extra 25 per cent. in real terms to the Common Market?
    Sir Geoffrey Howe: I cannot accept my hon. Friend's approach to the matter. Of course, it is important to maintain the pressure that we have successfully maintained for the establishment of effective budget disciipline in the Community. That is why we welcome the establishment of that discipline. It will also be important to bear that in mind when we introduce the own-resources decision. We have made it plain that we will not introduce that until all the components about which we have been concerned are in place.
    Mr. Johnston: How did the Foreign Secretary respond to the views put to him yesterday by the delegation from the European Parliament? Has his attention been drawn to early-day motion 630? If so, will he comment on it?
    Sir Geoffrey Howe: Yesterday I met the delegation from the Western European Union. I shall be meeting the European Parliament this afternoon and will be discussing the Spinelli report with it.
    Mr. Kenneth Carlisle: As my right hon. and learned Friend said, it is very important that rapid progress should be made towards a common market in goods and services. Will he tell us what progress is being made?
    Sir Geoffrey Howe: At the request of the Council at its last meeting, the Commission is drawing up a full programme, which will be published during the summer for the achievement of the internal market by a date that has been fixed in 1992. That is over and above the steps that have already been taken for the harmonisation of standards over a whole range of goods. Our objective is to take harmonisation much further and to complete the internal market by 1992.
    Mr. Deakins: Why have the Government just agreed to an extra £240 million contribution this year to the Community budget? When is Parliament likely to be consulted, if at all, about such an outrageous decision?
    Sir Geoffrey Howe: We have made it quite clear that, as happened last year, Parliament will be consulted. The agreement states clearly that our contribution is dependent upon the completion of our national parliamentary procedures. There is no question of asking Parliament to approve the agreement until our abatement has been guaranteed — that is, until the provision for our abatement has-been adopted. The amount agreed has been substantially reduced from the Commission's original request. As a direct result of the Fontainebleau
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    mechanism, the net cost of the United Kingdom contribution will be less than our contribution to the intergovernmental agreement last year.
    Mr. Forth: Will my right hon. and learned Friend resist the temptation to do a European deal on the European Parliament's draft treaty of union and trade away what it suggests with anything else? Will he also look closely at the terms of reference of the suggested conference that is to deal with that treaty. It is to discuss only the treaty. Any other solutions to European Community problems will be unable to be considered.
    Sir Geoffrey Howe: The Community will consider these matters in the light of the recommendations of the Dooge committee, which will be considered again at the Council meeting to be held in Milan in June. No decision has yet been taken as to whether a conference would be appropriate. Our view is that we are most likely to achieve decisions by taking them at Council. level. However, we shall discuss whether a conference is necessary.
    Mr. Foulkes: How can the Foreign Secretary say that budgetary control has been achieved when yesterday's agreement on the £240 million was the third such agreement on similar amounts to have been reached within the last 12 months, either by loans or by advances which can be reimbursed? How can he say that there has been a reform of the budget when more money is to be spent upon the open-ended commitment to agriculture and less upon regional and social policies which would help Britain? As he knows, I received a reply a few days ago from his hon. Friend the Minister of State, Foreign and Commonwealth Office, in which I was told that of the 50 poorest regions in Europe, 21 of them are in the United Kingdom. Should he not be fighting for money for those areas?
    Sir Geoffrey Howe: The hon. Gentleman does not seem to appreciate that powerful arrangements have been set in place which come into force upon the adoption of the own-resources decision for the achievement of budgetary discipline within the Community. Throughout the consideration given both to last year's budget and to this year's, including yesterday's consideration, all those measures have been taken closely into account.

    Central America
    Mr. McTaggartasked the Secretary of State for Foreign and Commonwealth Affairs what recent discussions he has had with his American counterpart concerning United States involvement in Central America.
    Sir Geoffrey Howe: I discussed the problems of Central America most recently with the American Secretary of State Mr. Shultz on 21 February.
    Mr. McTaggart: As the United States Congress has made clear its desire not to pursue a military solution to the situation in Nicaragua, will the Foreign Secretary and his EEC colleagues urge President Reagan to abandon support for the Contras, to sign the protocol to the Contadora treaty and seek genuinely to help the Contadora countries in finding a peaceful solution to the problems of Central America?
    Sir Geoffrey Howe: The hon. Gentleman rightly reminds the House of the sustained commitment of European Community countries to the Contadora process. The United States has repeatedly stated that it wishes to

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    see political reform in Central America through peaceful means, and we support that objective. The United States reiterated its support for the Contadora process at the recent session of the General Assembly.
    Mr. Andrew MacKay: Were not the recent highly successful elections in San Salvador a further endorsement of the American policy of encouraging democracy and moderate politicians in Central America?
    Sir Geoffrey Howe: I entirely agree. The recent elections in El Salvador were a clear demonstration of the consolidation of democracy in that country. The Salvadorean Government will continue to have our support in their efforts to place that democratic process on a stable foundation.
    Mr. Meadowcroft: Does not the continuing desire of the United States President to interfere in Central America tend to undermine the stability of all electoral processes in the area, so that countries, such as Costa Rica, which have continually presented a democratic front will eventually be undermined unless a united effort is made to counteract the efforts of the Contras to be based in all parts of Central America?
    Sir Geoffrey Howe: It is worth remembering that we share with the United States Administration the common objective of a settlement in Central America on the basis of the Contadora principles. As I have said more than once in the House, there is a need for restraint on all sides in the present situation, and not least a need for Nicaragua to end the substantial build-up of arms, troops and military advisers and to stop supporting attempts to destabilise neighbouring Governments.
    Mr. Healey: As both the Pope and the President of Colombia have stated that President Reagan has misrepresented their views on Nicaragua, and as President Reagan has been compelled to drop his proposals for military aid to the Contras and had his revised proposals rejected by the House of Representatives and passed by only a small majority in the Senate, will the British Government now support the forces of common sense in that area and drop their poodle-like devotion to a policy which the American President himself has already abandoned?
    Sir Geoffrey Howe: I have not heard myself expressing poodle-like devotion to any policy, today or on any other occasion. I have made it plain that we support the common objective of a peaceful settlement in Central America on the basis of the Contadora principles, and we shall continue to support steps directed to that end.

    Mutual and Balanced Force Reductions
    Mr. Tom Clarkeasked the Secretary of State for Foreign and Commonwealth Affairs what proposals he is considering for an initiative in the Vienna talks on mutual and balanced force reductions.
    The Minister of State, Foreign and Commonwealth Office (Mr. Richard Luce): With our NATO allies, we are currently studying carefully the Eastern proposal of 14 February, which repackages elements of the East's 1983 proposals. This followed the negative response of the East to the Western initiative of April 1984, which offered a real opportunity to resolve the long-standing dispute over the size of Eastern forces.
    Mr. Clarke: Is it not deplorable that the talks have gone on for 12 years without any real achievement? Does not the accession of Mr. Gorbachev provide an opportunity to accept the Russian offer to withdraw 20,000 troops from Europe if America will withdraw 13,000?
    Mr. Luce: I agree that it is very sad that no progress has been made in 12 years in these very important talks. Our objective is to work for a reduction in conventional forces on both sides on a mutually balanced basis, but we cannot yet reach agreement about the size of the forces on each side. It is our firm belief that the Eastern side underestimates the size of its forces by more than 200,000 men. Until we can reach agreement on data and the actual numbers on each side, it is very difficult to make progress, let alone to solve the problem of verification?
    Mr. Viggers: Does my hon. Friend agree that in all arms control negotiations sweeping declarations of intent are of little value unless they are accompanied by offers on verification and inspection?
    Mr. Luce: I agree entirely that the true test of progress is not great declarations but agreement on the nuts and bolts, which in this case includes verification. We have not yet been able to persuade the other side to make good progress on that aspect. Until that is achieved, it is not possible to reach an agreement which has the trust of both sides.
    Mr. Heffer: Have not the Government reacted disgracefully, as has President Reagan, to the statement by Mr. Gorbachev, just after his election to the leadership of the Soviet party and Government, that the Soviet Union was prepared to suggest that there should be a freeze on nuclear weapons? Without any question, or even study of the matter, the Prime Minister and President Reagan have immediately rushed in and said that it is not practicable. How can there be any serious discussion of force reductions if our Government and the Americans take that stupid attitude?
    Mr. Luce: I must disagree with the hon. Gentleman. The true test whether both sides have good intent and are sincere in their desire to make progress in arms negotiations is whether they make progress in the confidential surroundings of Geneva, not what they say in public declarations and public sparring. That is the only way in which to make progress. In this case, as far as 1NF is concerned, a freeze would ossify an imbalance of six to one in favour of the Soviet Union and remove the incentive to make progress on overall arms levels, which is what we want.
    Mr. Heathcoat-Amory: Does my hon. Friend agree that, as a fully participating country, Britain has leverage at the talks? Will my hon. Friend use that opportunity to impress on the Soviet Union the fact that there is no conceivable defensive reason for its overwhelming conventional superiority in Europe? Will he also impress upon the Soviet Union that a breakthrough at the talks would not only ease tension in Europe but, in turn, help towards progress at the Geneva talks on arms reduction?
    Mr. Luce: That is an important point. We have a number of opportunities to talk to the Soviet leaders. We shall continue to use those opportunities to put across such points. If the Soviet Union genuinely wishes to make progress towards mutually balanced conventional forces, we must reach a proper agreement on data.
    Mr. George Robertson: Does the Minister agree that what is required for a genuine arms control agreement is a bit of imagination and some political will, which seem to have been singularly absent from the MBFR talks over the past 12 years? With a new Soviet leadership and new offers on the table implying a reduction of more than 50 per cent. in Soviet troops than American troops in the European theatre, should not all forces in the West grasp the opportunity to try to break the logjam that threatens us all?
    Mr. Luce: Sadly, the talks have indeed lasted for 12 years. No progress was made even during the long period of the Labour Government. There is no lack of will on our part. We are trying very hard. What we are aiming for is a balance of forces on both sides and a reduction to 900,000. I believe that that was the objective of the Labour Government. That objective makes sense, but we need a response from the other side on questions of data and verification.

    Poland
    Mr. Portilloasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on his visit to Poland.
    Sir Geoffrey Howe: I visited Poland from 11 to 13 April. I had a full official programme, and met a wide cross-section of Polish society.
    My official talks covered various aspects of East-West and bilateral relations.
    I was powerfully reminded during this visit of the interests and traditions which the British and Polish peoples have in common. I made plain in all my contacts the importance that we still attach to those freedoms for which we fought together with the Poles during the second world war.
    Mr. Portillo: I congratulate my right hon. and learned Friend on his visit to eastern Europe. Can he tell us whether he met representatives of Solidarity, and, if so, what the outcome of discussions with them was?
    Sir Geoffrey Howe: I am grateful to my hon. Friend for his opening remark. I had contacts with some members of Solidarity, in order to hear their views about the situation in Poland. I regretted the fact that that led to a boycott of the reception at which I met the Solidarity members. It was helpful to me to learn their views.
    Mr. J. Enoch Powell: How would the Foreign Secretary like it if the Foreign Minister of a Warsaw pact country on an official visit to the United Kingdom comported himself as the right hon. and learned Gentleman did in Poland? Will the Foreign Secretary always bear in mind the wisdom of the adage, "Do as you would be done by."?
    Sir Geoffrey Howe: I bear that very much in mind. The pattern is that in most countries one is able to see a wide range of people, members of the Opposition and of other parties and to visit almost any part of the country. I have not seen any inhibitions put on the programme of many visitors to this country, including Mr. Gorbachev. He was free to range in many parts of London. He did not take the opportunity to visit the cemetery that he had in mind, but he took the opportunity to go to Downing street. No comparable inhibitions were put on his programme.
    Sir Peter Blaker: Does my right hon. and learned Friend agree that it is relevant to the question asked by the right hon. Member for South Down (Mr. Powell) that Poland is a signatory to the 1975 Helsinki agreement—as is every other country in Europe — under which countries undertake to have respect for human rights? Does my right hon. and learned Friend accept that that agreement also says that the observance of human rights is an important factor in the preservation of peace? When my right hon. and learned Friend visits eastern European countries and the Soviet Union, will he continue to make that point, especially in the Soviet Union, which purports to be a great peace-loving nation?
    Sir Geoffrey Howe: I am grateful to my right hon. Friend. In all my visits I drew specific and firm attention to the importance of the Helsinki agreement, exactly as he described, and I shall continue to do so.
    Mr. Maclennan: Did the Foreign Secretary feel that sufficient progress, or intention to make progress, existed in regard to human rights to enable there to be any strengthening of the bilateral economic relations between Britain and Poland?
    Sir Geoffrey Howe: I made it plain to my Polish hosts that their stance on and progress with human rights was bound to be a factor which would affect the rest of our relations. I also discussed economic relations. There are economic factors at work as well. We hope that they will shortly sign an agreement to reschedule their 1982 to 1984 debt. We shall continue to play a constructive role in those negotiations, but the matters cannot be separated from each other.
    Mr. Anderson: We warmly welcome the effective concern for human rights shown by the Foreign Secretary by his visit to the cemetery and his meeting with members of Solidarity. May we now express the hope that the same verve, imagination and force will be shown by the right hon. and learned Gentleman in respect of other parts of the world, such as Central America, Southern Africa and Indonesia, which the Prime Minister visited at the same time?
    Sir Geoffrey Howe: We apply the same energy to our visits in all parts of the world, Indonesia included. Questions about which the House is anxious were raised by my right hon. Friend the Prime Minister as well as by me.

    Middle East Wars (Casualties)
    Mr. Allen McKayasked the Secretary of State for Foreign and Commonwealth Affairs what information he has about the number of fatal and non-fatal casualties since the beginning of 1984 in the Iran-Iraq war, the Lebanese civil war and the Arab-Israeli conflict.
    Mr. Luce: Since the beginning of 1984 there has been much tragic loss of life resulting from the Iran-Iraq conflict, the Arab-Israeli dispute, Lebanese intercommunal violence and the Israeli occupation of south Lebanon. No authoritative casualty figures are available to us. With our partners in the European Community, we have consistently called for an end to the violence, and we stand ready to support all constructive moves towards negotiated solutions of the problems of the region.
    Mr. McKay: Does the Minister agree that, in view of reports from all types of media, of the three areas of

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    conflict in the middle east, the most dangerous is the Iran-Iraq war, followed by the internal strife in Lebanon and the Arab-Israeli conflict?
    Mr. Luce: I do not think that it makes a great deal of sense to apportion an order of priority. In terms of casualties, the Iran-Iraq conflict is having devastating consequences for both sides. Our priority is to work as hard as we can with other parties, principally through the United Nations and the work of the Secretary-General, for a diplomatic solution. The hon. Gentleman should not underestimate the gravity of the other problems.
    Mr. Walters: As the casualties, human suffering and threat to world peace will continue in all of those areas until progress towards a settlement is reached, will my hon. Friend comment on progress towards a peace settlement of the Arab-Israeli dispute? Does he think that the recent visit of Mr. Murphy has advanced the possibility of a major American initiative in the near future?
    Mr. Luce: As my hon. Friend knows, we very much welcome the agreement of 11 February between King Hussein and Mr. Arafat, which we felt was a basis on which progress could be made. My right hon. Friend the Prime Minister has had two important discussions with President Reagan. We have kept in very close touch with the United States, and we welcome the President's statement that there will now be renewed efforts on his part to see whether progress can be made on this problem. To that end, we are very glad that Mr. Murphy is undertaking his tour of the middle east.
    Mr. Faulds: Unless I misheard the hon. Gentleman, am I right in thinking that he made reference to the Israeli occupation of Lebanon, but failed to make reference to the thousands of casualties caused by the Israeli invasion of Lebanon?
    Mr. Luce: No. I have already mentioned south Lebanon, and, as the hon. Gentleman knows, the Government strongly condemned the Israeli invasion. We are extremely critical of the iron fist policies of Israel at the present time. However, we welcome the fact that the Israeli Government have decided, in phases two and three, to withdraw within their own international borders, and we hope that they will do so as soon as possible.
    Mr. Soames: What further steps can my hon. Friend take to represent the revulsion felt by many people in this country at the contemptible and grotesque behaviour of the Israeli forces in Lebanon?
    Mr. Luce: I have already said — and said in the House in recent weeks—that we certainly condemn the iron fist policies, as they are called, of the Israeli Government. This cycle of violence, retaliation followed by counter-retaliation, serves no one's interests, least of all those of the people of the Lebanon. What conceivable interests of Israel can this serve? We look forward to the early and orderly withdrawal of the Israelis.
    Mr. Campbell-Savours: Has not one of the casualties of the Arab-Israeli conflict been the fate of the 4,000 Jewish community in Syria? Will the Minister make representations to the Syrian Government on their behalf?
    Mr. Luce: I can tell the hon. Gentleman that the Syrian Government are well aware of this Government 's views on aspects of human rights in Syria, and they will continue to be made so aware.

    Pakistan
    Mr. Ron Brownasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on Britain's current relations with Pakistan.
    Mr. Renton: We maintain good relations with Pakistan.
    Mr. Brown: Following the statement on Poland a short time ago, is it not obscene that the British Government have a close relationship with the Zia regime, which not only murders and tortures political opponents and trade unionists, but turns a blind eye to the exports of heroin to this country?
    Mr. Renton: I find it quite extraordinary that the hon. Gentleman, who has twice visited Afghanistan at the invitation of the Karmal regime, should speak in such terms about Pakistan, where there are now 3 million refugees who have fled from Afghanistan and who are being looked after as well as they possibly can be by the Pakistan Government. We regularly make known to the Pakistan Government our views and concern about violations of human rights. I visited the United Nations Fund for Drug Abuse Control Centre in Peshawar in January, and I have spoken to Pakistani and United Nations officials there about their attempts to substitute the crops from which opium and then heroin come. I remind the hon. Gentleman that elections have now been held in Pakistan—admittedly under martial law, admittedly on a non-party basis—and that six Ministers lost their seats in those elections. That, for the Opposition, should be quite a good test of progress towards democracy.
    Viscount Cranborne: My hon. Friend has already referred to the results of the elections in Pakistan. Will he encourage the hon. Member for Edinburgh, Leith (Mr. Brown) to encourage his hon. Friends to follow President Zia's example in Afghanistan, and in particular will he tell the House how important it is for the stability of Pakistan to continue in order that the oppression of the Afghan people by the Soviets may be resisted by the will of the people themselves in refugee Pakistan?
    Mr. Renton: I very much endorse what my hon. Friend has just said. It would be very good indeed if the Karmal regime in Kabul would look across the mountains south into Pakistan and take some of the tentative steps towards the restoration of democracy which are now being undertaken by President Zia.
    Mr. Meadowcroft: What further representations has the Minister made to Pakistan about opium production and export from Pakistan following the revelations in The Sunday Times a few weeks ago, which appear to be well documented?
    Mr. Renton: I thank the hon. Gentleman for that question. It is only fair to say, and I am sure the hon. Gentleman will accept, that the responsible officials in those parts of the Pakistan Administration have, I understand, written to The Sunday Times rebutting many of the details in those articles. The growth of poppies in Pakistan is properly a matter of concern to both sides of this House, and we should all use our efforts to ensure that the crop substitution programme is successful. In fact, the Pakistanis are taking a good lead in trying to achieve that end.

    Czechoslovakia
    Mr. Wattsasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on his visit to Czechoslovakia
    Sir Geoffrey Howe: I visited Czechoslovakia from 10 to 11 April. During the visit I met the President and Prime Minister and had talks with the Foreign Minister. I also called on Cardinal Tomasek, and met a wide cross-section of Czechoslovak society. The main theme of the official talks was East-West relations. I underlined the West's sincere wish to reduce levels of weapons through genuinely balanced and verifiable agreements. I stressed our concern for human rights throughout Europe. I also discussed bilateral relations, including trade
    Mr. Watts: I welcome what my right hon. and learned Friend has said about his visit. Does he agree that one of the best ways of increasing our beneficial influence in the countries of eastern Europe and improving our relations with them is by extending our contacts through the expansion of trade? Will he comment further on the prospects for increasing trade between the United Kingdom and Czechoslovakia?
    Sir Geoffrey Howe: I agree with my hon. Friend that trade can play a significant part in improving contacts in other ways. It was for that reason that I discussed the levels of bilateral trade with Czechoslovak Ministers. We agreed that there was scope for a large increase in trade. I have already passed details of my talks to my right hon. Friend the Minister for Trade, who will be visiting Czechoslovakia in May
    Mr. Mason: In his talks on human rights with the Czechoslovak regime, did the right hon. and learned Gentleman enlist their aid in his efforts to apply pressure on the Soviet Union to release more Soviet Jews to Israel?
    Sir Geoffrey Howe: I did not seek to enlist the aid of the Governments in eastern Europe on that very important issue, which we continue to press with the Soviet Union
    Mr. Peter Bruinvels: I congratulate my right hon. and learned Friend on his successful tour to Czechoslovakia. Will he expand on his discussions with Cardinal Tomasek? Did he have any other meetings with leaders of the very oppressed Church?
    Sir Geoffrey Howe: I met other representatives of the Church briefly and informally, but with Cardinal Tomasek I was able to have quite a full discussion of the problems of the Church, to which my hon. Friend has drawn attention—for example, the appointment of bishops, the admission of candidates for religious qualification and freedom of assembly. He regarded the meeting as important. I raised some of the matters with the President of the Czechoslovak Government
    Mr. Winnick: If, as I believe, it was right to speak of human rights in Czechoslovakia, is not it equally right to speak of human rights in other countries which the right hon. and learned Gentleman visits—for example, Latin America and Pakistan? Is the right hon. and learned Gentleman aware that many people in Britain, certainly in the Labour movement, remain deeply concerned about the way in which a number of people in Czechoslovakia—certainly those associated with the regime in 1968—
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    continue to be persecuted and harassed by the Czech authorities? The Czech Government should recognise the deep feeling which exists in Britain over this matter.
    Sir Geoffrey Howe: I am glad to have the hon. Gentleman's endorsement of the fact that concern in this country about respect for human rights in Czechoslovakia is widespread. It was on that basis that I raised the questions that I did. I agree that it is important to be ready to do so, as appropriate, in the many cases where that is necessary.

    Central America
    Mr. Tony Lloydasked the Secretary of State for Foreign and Commonwealth Affairs what recent progress has been made towards stability in Central America by the Contadora countries; and what support has been given by the EEC in this respect.
    Mr. Renton: We are encouraged by the resumption of Contadora talks on 11 and 12 April in Panama. We and our European Community partners continue to give firm and consistent support to the efforts of the Contadora group. We gave practical expression to this support at the meeting of European and regional Foreign Ministers at San Jose in September, attended by my right hon. and learned Friend. It has been agreed that a further ministerial meeting will be held in due course.
    Mr. Lloyd: Earlier, the Foreign Secretary objected to being described by my right hon. Friend the Member for Leeds, East (Mr. Healey) as an American poodle. Yet is he not just like the dog that did not bark, in that we heard him say earlier today that the American Government were seeking peaceful solutions in Central America when clearly, far from that, they are seeking a warlike solution in Nicaragua? Is it not time that the British Government placed it clearly on the record that we condemn American adventurism in that region?
    Mr. Renton: The hon. Member is totally misguided in his supplementary question. The American Government have stated time and again that they are seeking a solution by peaceful means to the problems of Central America. Indeed, no country would benefit more from a solution by peaceful means in Central America than the United States. After all, the problem is very much at its back door.
    I remind the hon. Member, in regard to the earlier part of his question, that our approach in that region is very much one of partnership with our European Community partners. We have together sought a joint approach. That was the attitude at San Jose last year. The same message lies behind the approach of offering European Community aid to the region.
    Mr. Tom Clarke: Does not yesterday's decision by the House of Representatives encourage the Government to think again about their whole aid approach to the Contadora countries? Is it not despicable that Nicaragua's aid should be held back, that in Costa Rica aid is 40 times more and in Honduras 100 times more? Surely that is totally unacceptable
    Mr. Renton: I do not think that it is for us at this stage to comment on or get involved in the process of voting that is still going on in Congress. The Senate voted in favour of the $14 million requested by President Reagan; the

    873
    House of Representatives voted against. As I understand it, there are to be further votes, and the whole matter is still up for debate in Congress.
    Viscount Cranborne: Can my hon. Friend tell the House whether Cuba interferes in Central America?
    Mr. Renton: Yes. Of course, the answer is that Cuba does interfere in Central America. That is one of the things that greatly worries the United States and should worry us as well
    Mr. Healey: Does the Minister agree that President Reagan's policy on Central America, thank God, is collapsing in all directions, that the Contadora countries have rejected his attempt to give military aid to the Contras and that Mexico, Venezuela, Colombia and Panama are all now attempting to achieve a non-military solution to the problem? Does he further agree that the British Government should identify themselves with all those forces inside the American Congress and in the Contadora countries which reject the President's approach to the problem? Finally, does he agree that the British Government should stop licking the President's boots, because there is no reason to do so?
    Mr. Renton: The right hon. Gentleman seems to be obsessed by the metaphor about licking boots. I assure him that no one on this side of the House is licking boots. As he will know, by happenstance he and I were in Washington at the same time earlier this week. Doubtless
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    we read the same editions of the Washington Post, and went to see Members of Congress on the same day, although perhaps different members. He will know, too, that opinion in Washington is very divided, just as it is, for example, in some of the Latin American countries. After all, the President of Colombia has expressed two different opinions about the American offer. I think it only right that we should allow time for the Americans to reach their decision as to how they spend their money in this very important area.
    Mr. Heffer: How can the hon. Gentleman, speaking on behalf of the Government, say in all honesty that the United States wants a peaceful solution when in recent days President Reagan has said on television—I am sure that many hon. Members saw the programme—that the Contras were like the French Resistance? First, there can be no such parallel, and, secondly, that can hardly be described as any idea of a peaceful solution
    Mr. Renton: The hon. Gentleman appears totally to forget the effect of the presence of Cuba in countries such as Nicaragua and the fact that there have been Marxist-Leninist infiltrations into Central America and a spread of arms and violence in Nicaragua. That is what the United States is worried about, just as the hon. Gentleman would be if this country were in the same geographical position to Central America as the United States. That is why this issue gives the Americans such deep concern, although, of course, they want to achieve a solution by peaceful means

European Community Questions
3.30 pm
Mr. Eric Deakins: On a point of order, Mr. Deputy Speaker. I wish to draw your attention, in case it has escaped your notice, to the fact that this is the first occasion of the use of the new experimental system under which the 20-minute slot traditionally allocated to European Community questions has been absorbed into the overall hour for Foreign and Commonwealth Office questions
I make no complaint about the fact that on this occasion only three European Community questions were reached, instead of the normal seven, eight, or nine which would have been reached under the previous system, but I wish to inform you that this change, which was announced by the Leader of the House just before Easter, on a Friday, in a written parliamentary answer — it having been agreed between the usual channels—does not reflect the feelings of a large number of Opposition Members. I cannot speak for Conservative Members
The Leader of the House should take note of the fact that at the end of the experimental period we shall expect to be consulted not merely by our own usual channels but by him, perhaps in a debate on the subject, so that we can make our views absolutely clear. It is wrong that the new questions system should apply to an organisation such as the European Community, which, unlike South Africa, the countries of central America or the countries of eastern Europe, has the power to tax and legislate for the British people. We should have a separate slot to enable us to question Ministers on those matters.
Mr. Eric Forth (Mid-Worcestershire): Further to that point of order, Mr. Deputy Speaker. Can you advise the House of the length of the experimental period for EEC questions? As we are about to enter a crucial period of major decisions being taken on the EEC, it would be regrettable if hon. Members were denied the opportunity to ask questions on Common Market matters because such questions are now subject to the usual ballot rather than to the certainty of the previous system. Can you say for how long the experiment is likely to run?
Several Hon.Members rose—
Mr. Deputy Speaker (Mr. Harold Walker): One at a time, please. Mr. Teddy Taylor.
Mr. Teddy Taylor: Further to that point of order, Mr. Deputy Speaker. May I ask you to advise me and other hon. Members who feel outraged at this decision, announced in a written answer, what rights we have as Back Benchers to seek to bring about a change in the situation? For example, are we able to put a motion before the House? What can we do to stop what has been unilaterally imposed, against the wishes of Back Benchers?
Mr. Dennis Skinner: Further to that point of order, Mr. Deputy Speaker. I appreciate that the responsibility for this change in the system cannot be put on your shoulders, but do you agree that it would be a good idea for you to examine the matter in view of the fact, as my hon. Friend the Member for Walthamstow (Mr. Deakins) said, that few questions relating to the Common Market were asked today under the new system? It is fair to assume that had we been allowed the 20 minutes which
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used to be available for EEC questions there would have been a call for a Division on the £240 million which the Government have agreed to pay, as part of the £1.2 billion settlement, to bale out the Common Market. There were few questions on the EEC, and therefore, incredibly, on the day after we heard the news about the increase, we did not have an opportunity to raise the matter
I hope, Mr. Deputy Speaker, that you will take this matter back to Mr. Speaker, so that we can return to the old system and have a real good crash-in against the Common Market in order to reflect the views of the majority of the members of the Parliamentary Labour party, and eventually get out from underneath the gigantic mess into which the Tories, the SDP and the Liberals dragged us a few years ago
Mr. Tony Marlow: Further to that point of order, Mr. Speaker. The House has surrendered its sovereignty over trade policy. The House has surrendered its sovereignty over agriculture policy. The House is increasingly surrendering its sovereignty over the taxation of our people. Are we also to surrender the right to debate and discuss this issue? How was this decision arrived at, and what can we do about it?
Mr. Nicholas Budgen: Further to that point of order, Mr. Deputy Speaker. Has not the House been unfair to the Government about this? I am sure that the Government wish to explain their attitude, and it would be unthinkable for them—
Mr. Deputy Speaker: Order. I thought that the hon. Gentleman was raising a point of order
Mr. Budgen: My point of order is that the Government, and particularly the Foreign Secretary, should be allowed an opportunity to explain—
Mr. Deputy Speaker: Order. That is not a point of order. I am prepared to accept points of order, but not speeches. We cannot debate this matter now
Sir Peter Blaker: Further to that point of order, Mr. Deputy Speaker. Is it not a fact that the change in the way that questions are asked on Foreign Office days was made after wide consultation—
Mr. Teddy Taylor: Utter rubbish. Who was consulted?
Sir Peter Blaker: —and after widespread demand? How is it that so many hon. Members are complaining about the new situation when they could perfectly well have put in questions to be answered today if "they had wanted to?
Mr. Denis Healey: May I, Mr. Deputy Speaker, perform my usual role as a pourer of oil on troubled waters? I wish first, to mitigate any embarrassment which you personally, may feel, by saying that I understand that this was agreed between the usual channels. Secondly, we would have had twice as many questions on the European Community if all those who had put down questions had bothered to turn up for Question time today. Thirdly, I ask for an assurance from the Government that they will, as I have requested, make a statement tomorrow on the budgetary decisions of the European Council. I understand that the Minister concerned was rather too tired to make that statement today
Several Hon. Members rose—
Mr. Deputy Speaker: Order. It may be helpful if I say something now. First, the House will recognise that these matters are not for me but for the usual channels and for the House to decide. I deliberately allowed points of order to be freely expressed, because the House will notice that the Leader of the House is with us. I thought it right that he should have the opportunity to hear the House's response to what I understand is the first time that this experiment has been tried. I was aware that this was an experiment, so when we came to EEC questions I allowed a little more latitude than I might otherwise have done.
However, these matters are for the usual channels. I understand that the experiment was introduced after consultation and in the light of representations that had been made. I hope that the House will now leave the matter, in the knowledge that the Leader of the House has heard a fairly wide cross-section of views. Therefore, I hope that we can proceed to other business
Mr. Russell Johnston: Further to that point of order, Mr. Deputy Speaker. While it is advantageous that the Leader of the House is present, it is you who protects the minorities' interests. We in the Liberal party, who are in favour of the Community, are also in favour of retaining the Community section for questions
Mr. Anthony Beaumont-Dark: On a point of order, Mr. Deputy Speaker. You represent our interests. To say that the usual channels represent Back Benchers is the most ludicrous thing of all. The usual channels represent only the interests of the Front Benches on either side of the House. We Back Benchers, who are the great downtrodden majority, are asking you to accept that if there are Question Times for Scotland, Wales and Northern Ireland, which, in God's name, cost us all enough, we should have a chance to ask specific questions on the Common Market, given what that costs us. We appeal to you, and not to the usual channels
Mr. Andrew Faulds: On a point of order, Mr. Deputy Speaker. The House will be aware that
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there was an adverse proportion of voices opposed to these new arrangements. It is essential that it should be made clear that a large number of us eagerly support the new arrangements. They mean that there is more time for real foreign affairs questions. If the complaint is that there is not an opportunity, with these new arrangements, to make representations about the taxing capacity of the Community, should not those questions be transferred and taken out of Treasury time rather than Foreign Office time?
Sir John Farr (Harborourgh): Further to that point of order, Mr. Deputy Speaker. Several of us have been following this issue for some time. In the past few years there have been occasions when up to 80 questions have been tabled to the Secretary of State for Foreign and Commonwealth Affairs, all relating to the rest of the world. Of them, about 10 or 12 have been reached. However, in a period of 20 minutes, eight or 10 questions addressed to the Foreign Secretary may all be answered, all relating to the EEC. On several occasions I have called the attention of the House to that anomaly. It puts one part of the world—the EEC—in a privileged position, to which it is not entitled
As my right hon. Friend the Leader of the House is present and is listening carefully to this short exchange, I hope he will realise that many of us think that the experiment should be regarded as a permanent change for the better
Several Hon. Members rose—
Mr. Deputy Speaker: Order. We cannot debate this matter now. It is turning into a debate on an issue for which I have no responsibility. It is not for Mr. Speaker to determine what time should be allocated to which Departments when answering questions. That is a matter for the Leader of the House and the usual channels. The Leader of the House has been present throughout the exchanges, has heard what has been said, and will doubtless take it into account. We must now move on to the next business

Schoolchildren (Absence from School)
3.42 pm
Mr. David Amess: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 10, for the purpose of discussing a specific and important matter that should have urgent attention, namely,
"the encouragement of young people to go on strike in our schools tomorrow."
All hon. Members accept and understand the legal obligations on children to attend school. Indeed, all parents accept them, too. Local education authorities provide the means for the education of our children. However, it has come to my attention that adults are encouraging schoolchildren to play truant from school tomorrow. Several Young Socialists recently attended my constituency surgery in Basildon and proudly told me that they had been distributing leaflets and posters in my constituency about the strike tomorrow. When I told them that I suspected that this strike was one of the few which the Labour party would not be supporting and that I suspected it would be the Militant Tendency Members who would support it, they said that it was nice to know that there were at least a few decent Members of Parliament left.
I have received many anxious telephone calls from parents, who are greatly worried about the situation. I seek to move the Adjournment of the House in a spirit of helpfulness. I wish to help the Labour party. I believe that if we—
Mr. Deputy Speaker (Mr. Harold Walker): Order. The hon. Gentleman cannot move the Adjournment of the House in that spirit. He must have regard to the Standing Order, which requires him to tell the House why it is a specific and important matter that should have urgent consideration
Mr. Amess: If an Adjournment debate were held on the subject, it would give the Leader of the Opposition and the Labour Front Bench an opportunity to state clearly where the Labour party stands. The county council election is to take place on Thursday 2 May, and many people wish to decide for whom they will vote on the crucial matter of education.
I believe that all hon. Members and parents would welcome a debate on this subject, and I hope, Mr. Deputy Speaker, that you will allow it to take place
Mr. Deputy Speaker: The hon. Member for Basildon (Mr Amess) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely
"the encouragement of young people to go on strike in our schools tomorrow."
I listened with care to what the hon. Gentleman said, but I regret that I do not consider that the matter that he has raised is appropriate for discussion under Standing Order No. 10 and I cannot, therefore, submit his application to the House

Avon
3.45 pm
Mr. Robin Corbett: I beg to move,
That leave be given to bring in a Bill to make further provision for local government services in Avon.
I move this motion on behalf of my right hon. Friend the Member for Bristol, South (Mr. Cocks), whose parliamentary duties make it impossible for him to do so
It is a pleasure to move this motion because I did national service in the RAF in what is now part of the county of Avon, and because the area has strong and historic links with Birmingham and the west midlands through their shared background in manufacturing industry. Both areas have benefited from the genius of Isambard Brunel, the pioneering engineer of whom we have such sore need today.
The Bill seeks to bring the Government to book for the damage that they have inflicted on the county of Avon. This destructive Government's general policies on local government are bad enough alongside their belief that the faceless men and women in Whitehall know better than elected local councillors, but the Government's rate support grant policies have also hit Avon hard. Since 1980 no less than £81 million has been stolen in RSG from Avon by the Government. That is bad enough in terms of services which matter vitally to many families, including the lowest paid and the poorer families among the 930,000 people of Avon. But that is not all. In 1975–76, 36p in every pound of council spending was met by local ratepayers, with the other 64p coming more fairly from central taxes. Ten years on, in 1985–86, ratepayers have to pay 72p in every pound, central taxes only 28p. The Government have stolen local money to spend more nationally. The burden has been deliberately switched from taxpayer to Avon ratepayer under an unfair system which the Prime Minister promised to abolish and has not. The blame for the burden of rates rests four-square with this Government
In 1974, Avon county was conjured up by the then Tory Government out of Bristol and parts of Somerset and Gloucestershire. It had no administrative centre on which to build and its creation had more to do with expected political advantage than anything else. The new area was expected to repair years of Tory neglect in the rural areas to bring services up to those earlier achieved in Bristol. To a large extent Bristol was expected to pick up most of the bill.
Labour-led since 1981, Avon has done much to try to improve services, with declining support from the Government and, indeed, financial harassment. With assistance from bodies such as the Avon Co-operative Development Agency and the Avon Enterprise Board, new hi-tech industry has been attracted into the county from the nearest end of silicon valley around Swindon. Now, 98 out of every 100 children entitled to three years of infant education are getting it. That is no mere statistic, because education missed before the age of five, or, for that matter, at any other time, is education lost for good. Sixteen new nursery classes have been opened by the county council and the pupil-teacher ratio has been reduced in both primary and secondary schools to give better attention to pupils' needs
There are 1,000 more elderly and handicapped people who now have home helps and extra places in residential

881
homes. Small workshops have been built and financial help has been given from the £2 million economic development fund to help to create and expand jobs and business. Bus services have been improved and fares kept down—so much so that there are more passengers
All this energy under the leadership of Councillor Andy Pott contrasts with the record and threat of the Conservatives. All that they want are cuts, poorer services and higher charges — the same old dismal recipe by direction of "Her Mistress's Voice"
The Liberals are as bad. As late as June of last year they wanted a 2p in the pound cut across the hoard, irrespective of what that would do to schoolchildren, the elderly and the handicapped
The Bill requires the Secretary of State to report on the damage done to Avon through successive cuts in rate support grant and to propose ways in which this can be reversed, in order better to meet the known needs of the people of Avon
I pray in aid as well the report by the Comptroller and Auditor General, which includes extracts from the report of the Audit Commission for Local Authorities in England and Wales, published yesterday, when it makes the point:
"Some authorities are receiving less grant than their circumstances might warrant; and, by the same token, some are receiving more. The difference for a large city could easily amount to +£15 million in grant every year."
The report continues with a message for the Government:
"Local authorities' expenditure targets different from the GRE (revised) should be abolished as soon as practically possible, thus removing some of the perverse incentives in the present system."
It then adds, and this is the justification for the Bill:
"Local market forces (i.e. the local electorate) should eventually determine the level of local expenditure—provided that local accountability can be suitably strengthened"
3.51 pm
Mr. Jack Aspinwall rose—
Mr. Deputy Speaker (Mr. Harold Walker): Does the hon. Member wish to oppose the motion?
Mr. Aspinwall: Yes, Mr. Deputy Speaker
I seek to oppose the Bill because, once again, the House has been faced with nothing more than a publicity stunt. It is all part of a scheme to try to enhance the chances of Labour in the county council elections on 2 May
Avon has been targeted because Labour can see that it will lose its overall majority, which is just two. In a sense this attention is welcome, because it shows a great respect for the view that Avon county council will again become Conservative on 2 May
There has been a long-running campaign, of which the Bill is part, and the other day it even included a visit from the Leader of the Opposition, the right hon. Member for Islwyn (Mr. Kinnock). It was ironical that when he was delivering meals on wheels the first recipient was a Conservative voter. I understand that today we have a visit from the Opposition Front Bench spokesman on education. I wonder whether that attention will still be given after 2 May
The use of propaganda has become widespread in Avon. We have a fine example of an unbiased free newspaper, "Avon Report", delivered to every home, full of photographs of Labour members, at a gross cost of £210,000 to the ratepayers, while that excellent local
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paper, the Western Daily Press, is banned from local branches of libraries. Even the county's logo is copied on Labour party literature. Arrangements are being made to open long-standing projects during the three weeks in the run-up to the election, for propaganda purposes
How can the Bill be introduced when the Labour leaders of Avon county council know full well that since 1981 the rates have increased by 71 per cent., the second highest of the shire counties in the country? During the same period earnings have risen by 30 per cent. and prices by 25 per cent
There have been many fine examples of senseless overspending, such as a welfare rights campaign costing £200,000, a Sheffield-based local government campaign unit, £5,000, and CND, £900. Those are just a few examples
Unemployment is a serious worry, particularly for young people, and many prospective employers have been frightened away — with a consequent loss of job prospects—by high rate charges and uncertainty. The Bristol chamber of commerce, representing many employers in Avon, has said that ratepayers face either a significant rate rise in 1986–87 or a sudden unplanned cut in services. That information came from recent rate consultation meetings with Avon county council
Much of the problem has arisen because of the administration's policy, regardless of the means of the ratepayers to foot the bill. The county plans to spend £349 million in 1985–86. That cost has been reduced by the so-called financing adjustments, but it is still £10 million over the Government target. That overspending attracts a grant penalty of £28 million, payable to central Government. Many of the financing adjustments cannot be repeated next year, and similar overspending would entail a much increased penalty
The rate increase for 1985–86 of 6·5 per cent. is acceptable. Members of the Bristol Chamber of Commerce warned that in 1986–87 the rise in rates could be at a level not known in recent years if there was no change in policy. Such high rates would mean less money for industry and commerce to spend on investment and jobs. That is the view of a responsible, non-political body —the Bristol chamber of commerce—and many others.
Avon citizens are entitled to good services and a well-run and caring administration at a price that can be afforded. That will be achieved when, again, we have a Conservative administration in the county of Avon. Therefore, I ask the House to reject the motion
Question put, pursuant to Standing Order No. 15 (Motions for leave to bring in Bills and Nomination of Select Committees at commencement of public business):—
The House divided: Ayes 95, Noes 166.

Division No. 194]

[3·55 pm

AYES

Ashdown, Paddy

Clark, Dr David (S Shields)

Atkinson, N. (Tottenham)

Clarke, Thomas

Bagier, Gordon A. T.

Cocks, Rt Hon M. (Bristol S.)

Beith, A. J.

Concannon, Rt Hon J. D.

Benn, Tony

Cook, Frank (Stockton North)

Blair, Anthony

Corbett, Robin

Boothroyd, Miss Betty

Corbyn, Jeremy

Bray, Dr Jeremy

Cowans, Harry

Brown, Ron (E'burgh, Leith)

Craigen, J. M.

Bruce, Malcolm

Cunningham, Dr John

Campbell-Savours, Dale

Dixon, Donald

Canavan, Dennis

Dormand, Jack

883

Dubs, Alfred

Mitchell, Austin (G't Grimsby)

Eadie, Alex

Morris, Rt Hon A. (W'shawe)

Eastham, Ken

Nellist, David

Evans, John (St. Helens N)

O'Neill,Martin

Ewing, Harry

Owen, Rt Hon Dr David

Forrester, John

Park, George

Foulkes, George

Patchett, Terry

Fraser, J. (Norwood)

Pavitt, Laurie

Freud, Clement

Penhaligon, David

Godman, Dr Norman

Pike, Peter

Gould, Bryan

Powell, Raymond (Ogmore)

Hamilton, James (M'well N)

Radice, Giles

Hamilton, W. W. (Central Fife)

Richardson, Ms Jo

Harman, Ms Harriet

Roberts, Ernest (Hackney N)

Hattersley, Rt Hon Roy

Robertson, George

Heffer, Eric S.

Rooker, J. W.

Hogg, N. (C'nauld & Kilsyth)

Sedgemore, Brian

Hoyle, Douglas

Sheerman, Batty

Hughes, Roy (Newport East)

Sheldon, Rt Hon R.

Johnston, Russell

Skinner, Dennis

Kaufman, Rt Hon Gerald

Smith, Rt Hon J. (M'kl'ds E)

Kennedy, Charles

Soley, Clive

Kinnock, Rt Hon Neil

Spearing, Nigel

Kirkwood, Archy

Steel, Rt Hon David

Lambie, David

Strang, Gavin

Lamond, James

Thompson, J. (Wansbeck)

Lloyd, Tony (Stretford)

Tinn, James

Loyden, Edward

Torney, Tom

McDonald, Dr Oonagh

Wainwright, R

McKay, Allen (Penistone)

Wallace, James

McKelvey, William

Welsh, Michael

McNamara, Kevin

Winnick, David

Madden, Max

Wrigglesworth, lan

Marshall, David (Shettleston)

Mason, Rt Hon Roy

Tellers for the Ayes:

Maynard, Miss Joan

Mr. Frank Haynes and

Meadowcroft, Michael

Mr. John McWilliam.

Mikardo, Ian

NOES

Adley, Robert

Carlisle, Rt Hon M. (W'ton S)

Alison, Rt Hon Michael

Cash, William

Amess, David

Chope, Christopher

Arnold, Tom

Clarke, Rt Hon K. (Rushcliffe)

Ashby, David

Cockeram, Eric

Baker, Nicholas (N Dorset)

Conway, Derek

Baldry, Tony

Coombs, Simon

Beaumont-Dark, Anthony

Cope, John

Best, Keith

Currie, Mrs Edwina

Biffen, Rt Hon John

Dickens, Geoffrey

Blackburn, John

Douglas-Hamilton, Lord J.

Blaker, Rt Hon Sir Peter

du Cann, Rt Hon Sir Edward

Boscawen, Hon Robert

Durant, Tony

Bottomley, Mrs Virginia

Edwards, Rt Hon N. (P'broke)

Boyson, Dr Rhodes

Eggar, Tim

Brandon-Bravo, Martin

Evennett, David

Brooke, Hon Peter

Fallon, Michael

Brown, M. (Brigg & Cl'thpes)

Farr, Sir John

Browne, John

Favell, Anthony

Bruinvels, Peter

Fenner, Mrs Peggy

Buchanan-Smith, Rt Hon A.

Fletcher, Alexander

Budgen, Nick

Fookes, Miss Janet

Butcher, John

Forsyth, Michael (Stirling)

Carlisle, Kenneth (Lincoln)

Forth, Eric

884

Fox, Marcus

Needham, Richard

Fraser, Peter (Angus East)

Nelson, Anthony

Fry, Peter

Neubert, Michael

Galley, Roy

Nicholls, Patrick

Garel-Jones, Tristan

Nicholson, J.

Goodlad, Alastair

Norris, Steven

Gorst, John

Ottaway, Richard

Gow, Ian

Page, Sir John (Harrow W)

Gower, Sir Raymond

Page, Richard (Herts SW)

Greenway, Harry

Parris, Matthew

Grylls, Michael

Pawsey, James

Hamilton, Hon A. (Epsom)

Pollock, Alexander

Hargreaves, Kenneth

Portillo, Michael

Harris, David

Powell, Rt Hon J. E. (S Down)

Haselhurst, Alan

Powley, John

Hayhoe, Barney

Price, Sir David

Heddle, John

Rees, Rt Hon Peter (Dover)

Higgins, Rt Hon Terence L.

Renton, Tim

Hind, Kenneth

Rifkind, Malcolm

Hirst, Michael

Roberts, Wyn (Conwy)

Holt, Richard

Rost, Peter

Howarth, Alan (Stratf'd-on-A)

Ryder, Richard

Howell, Ralph (N Norfolk)

Sackville, Hon Thomas

Hunt, David (Wirral)

Shaw, Sir Michael (Scarb')

Hunt, John (Ravensbourne)

Silvester, Fred

Hurd, Rt Hon Douglas

Skeet, T. H. H.

Jopling, Rt Hon Michael

Smith, Tim (Beaconsfield)

Joseph, Rt Hon Sir Keith

Soames, Hon Nicholas

Kellett-Bowman, Mrs Elaine

Speller, Tony

Kershaw, Sir Anthony

Spence, John

Key, Robert

Stanbrook, Ivor

King, Roger (B'ham N'field)

Stevens, Lewis (Nuneaton)

King, Rt Hon Tom

Stewart, Allan (Eastwood)

Knowles, Michael

Stewart, Andrew (Sherwood)

Knox, David

Stewart, Ian (N Hertf'dshire)

Lamont, Norman

Stradling Thomas, J.

Lang, Ian

Taylor, Teddy (S'end E)

Latham, Michael

Tebbit, Rt Hon Norman

Lawler, Geoffrey

Thomas, Rt Hon Peter

Lee, John (Pendle)

Thompson, Donald (Calder V)

Lennox-Boyd, Hon Mark

Thorne, Neil (Ilford S)

Lewis, Sir Kenneth (Stamf'd)

Thornton, Malcolm

Lightbown, David

Townend, John (Bridlington)

Lilley, Peter

Tracey, Richard

Lloyd, Ian (Havant)

Viggers, Peter

Lloyd, Peter, (Fareham)

Waddington, David

McCurley, Mrs Anna

Wakeham, Rt Hon John

MacGregor, John

Waldegrave, Hon William

MacKay, Andrew (Berkshire)

Walden, George

MacKay, John (Argyll & Bute)

Walker, Bill (T'side N)

Madel, David

Walters, Dennis

Major, John

Wardle, C. (Bexhill)

Malone, Gerald

Watts, John

Maples, John

Whitfield, John

Marlow, Antony

Wood, Timothy

Mather, Carol

Yeo, Tim

Mellor, David

Young, Sir George (Acton)

Mills, lain (Meriden)

Mills, Sir Peter (West Devon)

Tellers for the Noes:

Montgomery, Sir Fergus

Mr. Jack Aspinwall and

Neale, Gerrard

Mr. Rob Hayward.

Question accordingly negatived

Financial Services
Motion made, and Question proposed, That this House do now adjourn. (Mr. Neubert 1
4.6 pm
The Secretary of State for Trade and Industry (Mr. Norman Tebbit): This is the second opportunity that the House will have had in nine months to debate matters concerning the financial services industry, the protection of investors and the City of London. Last July the House debated the Gower report. Today, we have before us the Government's White Paper
It is remarkable how both the financial markets and perceptions of the requirements of investor protection have been changing since Professor Gower started his work. The scene is still changing, but our objectives remain the same: first, to enable the financial services industry to provide services to industry and commerce, private investors and the Government in the most efficient and economic way; secondly, to stimulate and encourage innovation; thirdly, to inspire confidence in issuers and investors by ensuring that the financial services sector is, and is seen to be, a clean place in which to do business; fourthly, to ensure that the system of investor protection is flexible enough not to cramp structural and other changes in the industry and not to be overrun by events. The White Paper which I published in late January is aimed at those objectives. The legislation which I hope to bring forward in the next Session will be designed to create a regulatory system powerful enough to deliver the objectives, but flexible enough to remain effective during further periods of rapid change
It is change which has characterised the City in recent times, especially since July 1983. It was then that my right hon. Friend the Member for Hertsmere (Mr. Parkinson), then Secretary of State for Trade and Industry, told the House that the Stock Exchange had put forward proposals which were an adequate basis for legislation to stop the case brought by the Director General of Fair Trading against the exchange in the Restrictive Practices Court
Of course, the ill-informed and the prejudiced described that as a sell-out and claimed that it would leave the status quo unchanged. Indeed, some of the well-informed and unprejudiced also questioned my right hon. Friend's judgment. They were of course wrong. Change has gone on apace since then. Many stockbroking or stockjobbing firms have formed links with banks or other institutions outside the exchange
Stock Exchange members are now considering constitutional changes which could lead to corporate membership. New trading systems for both equities and gilts are planned for 1986, in time for the end-year deadline set by the Government for the abolition of minimum dealing commissions
The shape of the City is changing, in response both to the growing internationalisation of markets, to new developments in information technology and to the need for fresh sources of capital to exploit those opportunities. There is no lack of urgency in the City. Indeed, the emergence of firms willing to trade in listed securities outside the Stock Exchange emphasises the need for swift completion of the reforms
I believe that the changes in the City are serving to enhance the status of the United Kingdom as one of the primary financial centres of the world. The flexibility and
886
expertise of practitioners providing a wide range of financial services have long been and will continue to be among the principal factors in our favour. The removal of restrictions such as exchange control has given the markets a liberal environment in which competitiveness between businesses and between our market and those abroad is enhanced
The White Paper proposes a new regulatory structure to maintain and improve that spirit of competition, ensuring that it will meet the needs of those dealing in the market and thus consolidate the United Kingdom's international standing. As I have said, subject to the parliamentary timetable, I plan to present in the next Session legislation to implement the White Paper proposals
The general reaction to the White Paper proposals has been favourable. The basic approach of self-regulation within a statutory framework has received widespread support, as indeed have the main elements in our proposals. We have also received many constructive and helpful comments and suggestions
The drafting of the legislation is proceeding on schedule, but many details remain to be worked out, so in many cases further comments, from whatever standpoint, can still be taken into account. Indeed, this debate comes in time for the House to make its views known
Before I go on to consider the White Paper proposals, I should again pay tribute to the work of Professor Gower, who has been responsible for so much of the change in thinking that has taken place in recent years. His report and the many discussions and consultations leading up to it have made an invaluable contribution to the thinking on this subject. Indeed, as I have said they have profoundly changed the thinking and played a key role in developing a new regulatory structure able to command the support and respect of both the financial community and investors
Much of the interest in the White Paper has centred on the institutional framework that it proposes. I decided not to uproot the system which has served so well in the past but to build on it, to strengthen it, to repair its faults, to bring it up to date and to provide for future developments. Let there be no doubt, however, about the extent of the changes which the White Paper proposes
The powers to regulate are to be granted by Parliament to the Secretary of State for Trade and Industry, and only at his discretion will those powers be delegated to bodies meeting the criteria of the legislation and his approval. Those powers will be granted to the bodies only so long as they are properly used, and the Secretary of State will retain the power to withdraw the powers from a body or bodies and grant them to another, or indeed to wield those powers himself
It would be an unwise Secretary of State who took such action except in circumstances which, I believe, are so unlikely as to be almost beyond reasonable speculation, but I do not believe that Parliament would be prepared to grant the necessary powers "freehold" to the new authorities
Mr. Anthony Beaumont-Dark: I understand that, although the Secretary of State will retain power to alter things, he will need the agreement of the Bank of England to appoint the chairman. It would certainly be unwise not to consult, but: constitutionally it would be a great weakness to give any outside body the power to overrule the Secretary of State,

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and thus the House. In my view, although it is clearly right to discuss the matter with the Bank of England, handing over a power of veto is a constitutional outrage to which the House should not agree. The power should stay here and not be handed over to anyone else
Mr. Tebbit: I hope that my hon. Friend will not be unduly outraged. I believe that there is a place for the influence of the Governor of the Bank of England and for the influence of the Secretary of State. As my hon. Friend knows, in the area in which the Department has been the traditional regulator—the area to be covered by the marketing of investments board—the Secretary of State will appoint all the members. In the area which has traditionally been governed to some extent by the Bank of England as well as by the Secretary of State, there is a joint approach embodied in our proposals for the appointment of members of the securities and investments board. I think that it is overstating the case to refer to that as a constitutional outrage. In my view, it is a practical way of handling the problem of dual oversight of some markets.
Mr. Anthony Nelson: My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) is not alone. There is great concern that the proposals for the SIB, as opposed to the MIB, effectively give a power of veto to the Governor of the Bank of England because in this case his agreement is required, whereas for the MIB only consultation is required, as with other sections of the industry. Many of us are concerned about the steady encroachment of the Bank of England in this area. We trust the judgment of my right hon. Friend the Secretary of State in the appointment of the chairman of the SIB, and we do not want the role of the Bank of England to be extended in that way
Mr. Tebbit: I am grateful to my hon. Friend for the kind way in which he has suggested that he trusts my judgment, perhaps even more than that of the Governor of the Bank of England, in this respect, and no doubt I shall remain Secretary of State for a long time—but not for ever. At some time, a Secretary of State whose views are not so understanding of the City may have these powers. Many people in the City feel that it is a nice balance to have the influence of both the Bank of England and the Secretary of State in this respect
Mr. John Smith: As the right hon. Gentleman has referred to a future Secretary of State, perhaps he will allow me to intervene. He has suggested that the purpose of the Bank of England veto, which is understandably criticised by his hon. Friends, is to guard against what a Labour Secretary of State might do. Will he explain why the Secretary of State in a Government accountable to Parliament should permit an appointment suggested by him to be vetoed by an official of the state? It is a monstrous proposition, given that the right hon. Gentleman, for all his faults, is accountable to the House, whereas the Governor of the Bank of England is not
Mr. Tebbit: I am prepared to take criticism on this from my hon. Friends, but I am certainly not prepared to take it from a man who served under a Prime Minister whose motto was, "Find out what the trade unions want and give it to them." If any Government allowed the
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proposals of Parliament to be vetoed by outside bodies, it was the Government in which the right hon. and learned Gentleman served.
I am trying to deal with a perfectly practical problem, to find the best way to set up a self-regulatory agency under the statutory powers to be delegated to it. There is a strong body of opinion in the City to the effect that it is no bad thing to have the influence of professional City opinion alongside that of politicians, of whatever party, in this matter.
Mr. John Smith: The City will have a veto
Mr. Tebbit: The right hon. and learned Gentleman constantly calls it a veto, but we consult and then reach a conclusion. The Secretary of State also has a profound influence over the appointment of the board members, who are in the majority. It is a nicely balanced arrangement. The right hon. and learned Member for Monklands, East (Mr. Smith) is trying to make bricks without much straw
Mr. Nicholas Budgen: Does my right hon. Friend agree that the criticism of my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beamont-Dark) might be more forceful but for the nationalisation of the Bank of England? The Governor is now, as the right hon. Member for Monklands, East (Mr. Smith) said, not an independent figure. He may wish to appear independent, but he is a servant of the state, and to that extent subordinate to the Government
Mr. Tebbit: Chancellors have in the past occasionally suggested that the Governor was too independent. My hon. Friend's point is interesting, but this is not a matter of great constitutional propriety. My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) may feel that it is, but his colleagues in the City may not share his view about the practicality of these matters
Mr. Beaumont-Dark: This is an important issue. My right hon. Friend says that some of my friends in the City may not share my view. I speak as an elected Member of this House. In the end, those who are elected to this House are answerable to the House, not to the City. Cannot my right hon. Friend see the difference between being in the City and being elected to this House? My right hon. Friend keeps using the word "consultation". If the Bill were to stipulate that we must consult the Governor of the Bank of England, that would be right. If it refers to agreement, there is a veto. For the House to agree to a veto is a constitutional outrage
Mr. Tebbit: My hon. Friend has already made that point. I am aware of the difference between being a Member of this House — or, more particularly, a Minister—and being in the City. For a start, we earn much less
We are trying to design a practical system of regulation which has the confidence of investors and practitioners in the City. That is why I say that my hon. Friend might consider consulting those who are to operate the scheme in the City, and those who use the services of the City. He will find that the general mood is one of support for my proposal, rather than one of outrage at what I do not believe is a constitutional issue
Mr. Alan Williams: Can the Secretary of State tell us how many other instances there are in which the appointee of one Minister exercises a veto over the appointment rights of another Minister?
Mr. Tebbit: I cannot. I am not especially concerned about that matter. I am concerned with constructing a practical system that will work. No doubt we shall be able to dredge through the records and eventually find a precedent— [Interruption.] The right hon. Gentleman should not be so contemptuous of officials of the Department. He should have more respect for them
There is a long tradition — overwhelmingly an honourable tradition—of self-regulation in the City, but markets are changing at a remarkable pace. New products, new services and new traders are coming into the markets and some wide gaps are showing between the regulated areas as well as weaknesses within them. The Government have concluded that regulatory coverage should be extended to cover all investment business. To that end, both investment and investment business will be defined in the legislation
As the House knows, it is proposed to delegate power to the two new proposed bodies, the securities and investments board and the marketing of investments board. It will be for those bodies to draw up rules for the authorisation of investment business and the conduct of business. These rules will have to give effect to the principles described in the White Paper; safeguards against conflicts of interest, compensation proposals, protection of clients' assets and disclosure, and so on. Clearly, I shall have to be convinced that the rules are adequate and will be effectively enforced before I delegate powers
Practitioner-based regulation will not be a soft option. Since the bodies will involve both practitioners and users of financial services as well as market regulators, the identification and response to rule-breaking or new forms of misconduct can be rapid and flexible. They will be up with or ahead of the play in a way which an undelegated system could not hope to be
The task of the boards will not be easy, so I am particularly pleased that Sir Kenneth Berrill and Mr. Mark Weinberg have agreed to take charge of the preparations to set them up, and that Mr. Martin Jacomb has agreed to act as Sir Kenneth's deputy chairman. I am sure that the House will agree with me that the willingness of men of such calibre to serve is a good omen indeed, and reflects well on the system of finding such men
Mr. Tim Eggar rose—
Mr. Tebbit: The composition of Mr. Weinberg's committee has already been announced and it has met. It has put it to me that its work would be assisted by the appointment of a person with knowledge of building societies. I have accepted that advice and hope to make an appointment shortly. The names of Sir Kenneth's other colleagues will be announced quite soon.
There has been criticism of the White Paper's proposal of two boards rather than one. It has been suggested that one board would be a tidier arrangement. The background to the proposal lies in the advice received from the Governor of the Bank of England and a group of insurance and unit trust representatives. It is not a point on which my mind has finally been made up. Sir Kenneth and Mr.
890
Weinberg and their colleagues will have views. The House will have views. I shall certainly not insist on there being two boards, if no advantage is seen in this arrangement
There is ample work to be done by the two organising committees in preparing for the implementation of the new system
Mr. Tim Smith: Sir Kenneth Berrill is reported to have said, on his appointment, that he did not see himself as a policeman. Given that one of the underlying principles of the White Paper is crime prevention, surely that is precisely what he ought to be.
Mr. Tebbit: My hon. Friend may have misunderstood Sir Kenneth's point. What he meant was that his job as a regulator will not so much be to track down crime as to prevent crime and to make sure that the City is a clean place in which to operate. Sir Kenneth lays great stress on that aspect of his work
Before leaving the question of structure, I should say that I am mildly surprised that there should be any doubt about how the costs of regulation should be met. It will fall to the beneficiaries — those who use the financial markets
I want now to consider the objectives of the new regulatory framework as a whole and how the Government's proposals will achieve these objectives in relation to each of the main groups of interests involved — investors, those seeking to raise finance and practitioners
First, I should like to say a word about the small investor. Believing in the benefits of wider share ownership, the Government have acted to encourage the spread of share ownership through the halving of stamp duty, the abolition of investment income surcharge and within the privatisation programme. Although large investors and professional institutions have access to the expertise needed to assess the merits of investment proposals and advice, the small investor needs more help and protection and will benefit from the Government's proposals
As I have said, there will be a new and comprehensive definition of what constitutes investment and investment business and it will be an offence to carry on such business without authorisation. The investor dealing with an authorised business will know that that business is regarded as being "fit and proper" to undertake investment activities and is subject to rules designed to ensure the proper conduct of those activities. There will be rules requiring disclosure of the information an investor needs to make up his mind about an investment, and the definition of investment business will include the giving of investment advice
Advisers will be under a duty of skill and care, requiring them to take account of the circumstances of each client and to disclose their interests in any investments which they might recommend. Many small investors depend on professional advice, and these provisions will help to ensure that it should be unbiased and relevant to their financial needs and interests
The principles governing the conduct of business rules will ensure that the boards make rules requiring investment businesses to segregate funds belonging to their clients and to have adequate compensation arrangements in the event of loss arising from fraud, negligence or failure to comply with the requirements for the protection of clients' assets.

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Some of the comments that we have received on the White Paper suggest that our proposals on these points go too far and will be unduly costly. We shall consider these comments, but it remains our objective that there should be full segregation and full compensation for private investors in the circumstances which I have described
Of course, many small investors prefer to invest in "collective" forms of investment, such as unit trusts or life assurance policies, which offer a wide spread of holdings and the benefit of professional management. We propose to avoid over-regulation of unit trusts so as to enhance the range of schemes available, while maintaining essential safeguards. The legislation will also extend the mainstream investor protection system to cover life assurance policies for the first time
Standards for the selling of life assurance have much improved and the profession's status has been raised—for example, through the establishment of the Insurance Brokers Registration Council—but the proposals in the White Paper go further
Sir John Page(Harrow, West): The Insurance Brokers (Registration) Act 1977, which is known more intimately nationally and internationally as the Page Act, will be amended, and I wonder whether, when my right hon. Friend amends it, he will think of extending it to cover a wider range of insurance intermediaries
Mr. Tebbit: I note what my hon. Friend says. I pay tribute to his part in that legislation. If I can, I shall endeavour to take a page out of his book. I suppose that that is the right expression. I propose that, unless intermediaries are tied to an insurance company which takes full responsibility for them, those who sell life assurance will in future need authorisation and be subject to conduct of business rules about, for example, avoidance of conflict of interest and the protection of clients' funds, which will ensure protection similar to that available to those who buy unit trust and other securities
The White Paper, and the Bill that will follow it, are about the protection of investors and investments. In such a measure it would not be right to cover non-investment aspects of insurance. That different area of activity might or might not need attention in due course, but this is not the right vehicle for any changes
All of the measures that I have described will be of considerable benefit to the small investor and will, I believe, help to encourage more people to invest directly or indirectly in shares and similar investments
Mr. Alan Howarth: While discussing the interests of small investors, will the Government apply to themselves the same standards as they propose to apply to others when offering investment vehicles? My right hon. Friend might recall a poster which depicted the beatific scene of a clergyman radiating confidence in the financial aftermath of buying national savings certificates. Does my right hon. Friend agree that inflation is the worst fraud that can be perpetrated on the public? Will he deplore that and bear such considerations in mind?
Mr. Tebbit: I have frequently described inflation as the most unjust form of taxation that has yet been devised.
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I stand by that view. I do not know who the beatific clergyman in that advertisement was, but perhaps we could sponsor a contest for who to put in the next one
However well regulated the system, and however adequate the disclosure of relevant facts, there will always be people who make bad decisions or who take a risk that goes wrong. The responsibility on the individual for his own decisions on how he invests will in no way be diminished, nor should it be
The larger individual investor and the professional investor will also benefit from the investor protection measures which I have outlined. The professional investor is, however, in a better position to assess risks for himself, so we propose to continue to allow certain circulars and other offers of investment to be sent to professional investors, even though they may not be sent to other investors, and to allow certain information requirements to be dispensed with in their case
We also propose to widen the definition of eligible professionals to include those dealing extensively in futures, and we propose to allow authorised business to pass information about less orthodox investments to clients who, although not professionals, are sufficiently expert to understand the risks involved
There has been some criticism of this proposal, but I believe that it is a desirable recognition of the differing needs of different groups of investors and the need to avoid over-regulation and nannying of those well able to take care of themselves
Those who talk about the financial markets often seem to forget the needs of those who want to raise capital. They too will benefit by the removal of restrictions and the promotion of competition, which will ensure a wide choice of methods of raising capital in the cheapest possible way
The White Paper proposes changes in the law on prospectuses to standardise rules governing civil and criminal liabilities for omissions and mis-statements in offer documents and to bring the content of all offer documents within a single set of provisions. The law on this subject is now out of date and complex. Clearer provisions will help companies wanting to raise finance as well as investors trying to understand offer documents
We do not intend to impose unnecessary requirements on companies. Indeed, smaller companies will be able to take advantage of the proposal that offers of securities in a company made to fewer than 40 people will no longer be regarded as offers to the public and will not be subject to the full prospectus requirements. This should facilitate the raising of capital for small companies. The choice of 40 as the permitted number of recipients of such offers is of course somewhat arbitrary, and I would welcome views on the matter
I have already said something about practitioners. Our aim is to strike a reasonable balance between investor protection and over-regulation which would be likely to stifle new developments and increase the costs. It has been argued that the cost of regulation will make the United Kingdom a less competitive place in which to do business, but if investors believe that their interests will not be adequately protected they will take their business elsewhere. Over-regulation would also be damaging and we are determined to avoid it, but a clean well-regulated market will attract more business to the United Kingdom
The growth of financial conglomerates and the growing amount of international business raise new problems for regulators. Many of the new financial conglomerates will

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undertake a much wider range of activities than those covered by the financial services White Paper, but reform is going on apace
The White Paper and the subsequent legislation are but one aspect of the modernisation of the laws and regulatory arrangements in this area. Company law has, at long last, been consolidated, although I fear that it will not be many years before another companies Act comes along
The Government are drawing up legislation on building societies. A review of banking legislation is currently under way. A consultative document on personal pensions has been published. When all these exercises have been completed, we shall have a modern legislative framework
On the enforcement side, the new fraud investigation group has been set up to facilitate the investigation and prosecution of major fraud, and Lord Roskill's committee is considering the conduct of criminal proceedings arising from fraud. Whatever regulatory framework we design, however, financial conglomerates, by their very nature, will be subject to more than one regulatory regime in respect of their different activities
Our regulators will have to work closely together to avoid unnecessary duplication of requirements and to ensure that there are no gaps in the regulatory system, and that the overall financial and technical resources of a business are adequate for the whole range of its activities. Naturally, we shall also continue to develop close relationships with those concerned with investment supervision overseas both to facilitate co-operation against international fraud and to encourage the opening up of overseas markets to British firms
My hon. Friend the Parliamentary Under-Secretary of State with responsibility for corporate affairs has recently returned from visits to other European capitals and to the United States for some talks on these subjects, and he will no doubt say something about them later in this debate if he has the good fortune to catch your eye, Mr. Deputy Speaker
During my own recent visit to Japan I stressed the importance which we attach to the liberalisation of Japanese financial markets. Some results are beginning to be seen. The granting of branch licences to United Kingdom firms to deal in securities has begun, and I hope that more liberalisation will be forthcoming. I also emphasised the potential benefits to Japanese investors and those seeking capital of using the City of London's unmatched expertise in investment management and financial advice
Over recent months the Government have received plenty of advice of these matters of investor protection and market reform. Much though not all of that advice has been well considered and well informed. However, even within that category there have been widely differing views
In principle, we have rejected both the nostalgic extreme views on self-regulation and the demands for bureaucratic state or neo-state regulation. On that matter the Government's position is absolutely firm. Equally, we believe that the pattern of self-regulation under delegated powers set out in the White Paper forms a coherent response to the needs of the City and its customers
There are, of course, details on which my mind is not finally set, and I have referred to some of these in my speech. I would welcome the views of the House particularly, and of others outside. There is no supreme
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single everlasting right answer to many of the problems that we face in regulating these markets. It is in that spirit that I commend the White Paper to the House
4.43 pm
Mr. John Smith: I am grateful for the way in which the Secretary of State ended his speech, which seemed to indicate a disposition on the part of the Government to listen to observations that will be made during the debate. As the Secretary of State indicated, this is not the first opportunity that the House has had to discuss part one of Professor Gower's report "Review of Investor Protection". If there were a conclusion to be drawn from the debate of 16 July 1984, I think it would be that the message of the House was that a minimalist solution to the problems of the City was not enough, and something more would have to be done. I think that it would be fair to say that this is not a minimalist solution
I shall criticise some of the Government's proposals. They are criticisms designed to elicit a response from the Government rather than being merely of a denunciatory character
I think that there could be unanimity on a number of matters. First, I think that it was widely perceived by the House and by many other commentators that the existing law and its means of securing investor protection have become very deficient in the market place as it has developed. I am thinking particularly of technological innovation, the increasing internationalisation of markets and the number of events that have not brought credit to the City or to financial institutions
It is a matter of concern for us all, and not only those who practise in the financial markets, that there have been major scandals. There is a widely perceived view that a number of people have been able to get away with things which, in a properly organised system, they ought not to have been able to. That is alarming both to the public and to those who practise in the City, and it is bad for the City' s international reputation. In so far as these measures go some way to remedy that problem, we of course welcome them
There is another reason why that change is necessary. It is that other changes will take place in the organisation of the City, most of which emanate from a decision of the present Secretary of State's predecessor to do a deal with the Stock Exchange in return for the Stock Exchange not being referred to the Restrictive Practices Court. I am not sure whether the changes that were found acceptable by the previous Secretary of State will have either the effects that are proposed or the advantages that are sometimes canvassed for them. However, they are going ahead. In a sense, they have been anticipated almost before the event. One suspects that changes have been made in anticipation of them which might be even greater than those that might be made as a result of them. But, whatever happens, whether for good or for ill, a new situation will obtain quite different from that which has obtained in much of the recent past. In that circumstance, this seems a desirable time for us to review the way in which the law is framed and enforced
We have had a valuable report by Professor Gower. I was glad that the Secretary of State paid a handsome tribute to him. If I may say so by way of minor criticism, I thought that the White Paper did less than justice to Professor Gower's contribution by saying that the Government were greatly indebted to him. I am glad that

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the Secretary of State took the opportunity to express it today in more handsome terms. We owe a great debt to Professor Gower not only for proposing an intelligent way in which the law should be framed — and I draw a distinction between the law and the way in which it will be enforced—but, as I think the Secretary of State said, almost for changing the nature and tenor of the debate that has taken place among those who have considered the matter since the report. We have the White Paper, and we shall of course be moving to legislation
The Opposition's judgment is that the proposed framework of the law is broadly correct. It is largely what was in the Gower report. The notion of having a fit and proper test for all those who wish to practise in the financial markets, and the notion that these should be licensed by the state before being permitted to do so, is one that we endorse
So far as I can see, although this is a matter at which we require to look carefully when the legislation is presented to the House, the rules for the conduct of businesses seem to have a good deal of sense in them, particularly those parts dealing with the principles which should be applied, the way in which conflicts of interest should be managed and the importance of compensation for the victims of any malfeasance or fraud by those who practise in the financial markets
At this stage, I raise one point of detail on the question of compensation. In dealing with compensation, at page 21 the White Paper states, I think properly, that the aim should be for the private investor to receive full compensation. That is, of course, a feature of quite a lot of professional obligations. For example, a solicitor undertakes to pay in full for any client of a solicitor who is the victim of defalcation in respect of an individual solicitor. The White Paper states in paragraph 7.12:
"As far as negligence is concerned, professional indemnity insurance could be made a requirement."
That "could" should be changed to "should". I can think of no reason why it should be left in the air or why there should be no obligation on those who practise to take out insurance against professional negligence. It would round off a system of protection for the investor. I hope that the Secretary of State will give sympathetic consideration to that proposal
Mr. Tebbit: I entirely take the right hon. and learned Gentleman's point and the manner in which he made it. The key sentence in paragraph 7.12 is:
"The aim should be for the private investor to receive full compensation."
The manner in which that is achieved will be the subject of a great deal of discussion, but I do not think that either of us has any differences about the aim
Mr. Smith: I am grateful to the Secretary of State for that intervention. I quoted that because I consider it to be the key sentence. However, I am puzzled about why the qualification was inserted in the sentence which immediately follows. Having announced the aim to give full compensation, it would seem sensible to adopt the most intelligent way of doing so. So far as I can see, no other options are canvassed in the White Paper
Mr. Tebbit: If the right hon. and learned Gentleman reads the report carefully, he will see the comment upon the manner in which we might approach compensation for
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what is essentially a breach of propriety. The latter part of paragraph 7.12 deals with professional negligence as opposed to improprieties
Mr. Smith: I hope that we shall not get bogged down on this point, because I did not intend to say a great deal about it. The Secretary of State has taken my point, and I am grateful for the way in which he has responded. Ultimately, if there is a difference of opinion, we shall wait to see what the House decides
Paragraph 7.21 refers to the possibility that because of technological advance we shall shortly move to the transfer and ownership of shares without physical documentation. I readily accept that that is within the range of technology, and I would be grateful if the Under-Secretary, when replying, could give some information on how this will be accomplished. The law will have to grapple with new technology, and I should welcome a glimpse of how the Government propose to deal with it in the forthcoming legislation. I am sure that many hon. Members will offer advice on how simple that will be, but I would prefer to wait until we see what the Government propose
The Government may have placed too much emphasise on the notion that if competition is permitted and encouraged, that somehow has a regulatory effect. That does not necessarily follow. A distinction must be made between efficiency in the market place and protection for the investor. It may or may not be true that competition leads to greater efficiency, but it is disputable that it inevitably leads to greater protection. Indeed, cut-throat competition might stimulate abuse of the market place and, by its very existence, might require even greater protection by way of regulation. It is not good enough to take refuge in some theological position and to argue that releasing market forces somehow leads to greater protection for the investor
We have more doubts about the regulatory system. That brings me immediately to whether or not there should be a self-standing commission. When Professor Gower looked at this he came to a fairly balanced view, and his report sets out the argument for and against. On reading the report, my impression is that Professor Gower was, if anything, inclined towards a self-standing commission, although he said that there were arguments on both sides. My own party made representations to him which he took into account
In principle, there are three possible ways of approaching the matter. The first is that the Department itself should regulate. I am strongly against that. I do not think that the Department of Trade and Industry is likely to acquire a sufficient expertise or range of talents—I mean no disparagement because the Department has other work to do—to regulate the City effectively or to keep up to date with those who are operating on the edge of good practice. I am not sure whether that is the sort of thing which we should ask a Government Department to do
Another view, which I am glad to say is receding in its attractiveness, is that this can be left to the professions and the practitioners —that we can rely on self-regulation and that the City will look after itself. Recent experience indicates that that cannot be relied upon. It would not be relied upon given the new circumstances in which the market will operate, given that it is becoming increasingly

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international and given that technology makes the speed of decision such that it is extremely difficult to keep pace with what is happening
There is much merit in the self-standing commission approach. The Government have landed themselves somewhere between self-regulation and the self-standing commission. It can hardly be said that what they propose is self-regulation. I do not make that allegation, because the statutory framework is much more onerous on those who practise in the City than old-fashioned notions of self-regulation. However, I am puzzled as to why the Government held back from going as far as a self-standing commission. It could be that they want to propitiate opinion in the City, which has so far been hostile to it
Mr. Tim Smith rose—
Mr. Smith: I am just developing my argument, and I hope that the hon. Gentleman will contain himself for a moment
The opposition to a self-standing commission seems to relate almost entirely to the experience of the American system. It is felt that on the whole the Securities and Exchange Commission has been unsympathetic to people from this country who have come into contact with it
It is said that it is an excessively legalistic and bureaucratic apparatus. There are reasons why that is so. The United States is a very complicated, legal world with a federal system and the laws of individual states. According to one's view, the United States is either a lawyer's paradise or a client's nightmare. It is certainly one of the most litigious countries in the world. The conflict between federal jurisdiction and the jurisdiction of the states is so easily exploited that the way in which to deal with it is very different from what would be necessary in this country. In addition, the size of the market is much greater, and what is suitable for a smaller market is not necessarily suitable for a larger one. As I have already said, the legalistic and litigious nature of United States society encourages such tendencies in an organisation which is set up to control the market place
That need not happen here, and a self-standing commission in the United Kingdom need not apply the same deficiencies as those which occur in the United States
In a speech in February this year, the chairman of the Stock Exchange almost anticipated a move towards an independent commission. In the president's lecture to the Insurance Institute of London, he said:
"If the structure"—
that is, the structure in the White Paper—
"does not work, there will be no alternative but to set up a statutory commission"
That is simple reality, because one cannot go back to the previous self-regulation or to the Department. He continued:
"Under this government the Department of Trade will have neither the political backing nor the resources to enable it to undertake the responsibility itself'.
I would add, "under any Government." He went on:
"A statutory commission is likely anyway to be our ultimate destination, but to set one up in the immediate future would be a worse situation. It would introduce immediately"—
we should note the word "immediately"—
"into regulation a legalistic dimension which could do harm to Britain's competitiveness, and it would be unhappily devised without any of the evolutionary experience which the present proposals offer"
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Those sentences were carefully constructed, and seem to indicate a disposition on the part of Sir Nicholas Goodison, if no one else, to accept almost the inevitability of moving to a self-standing commission. They almost argue that it would be better to approach it by this careful route rather than to take it at one go. On the merits of having a self-standing commission, there is not exactly stout opposition from the chairman of the Stock Exchange
That may be how things will develop and through that route we may end up with a self-standing commission. It might be better for us to move to that now. The city could swallow that just as well as it has swallowed recent changes. In the hybrid solution proposed by the Government of self-regulation within a statutory framework there is a danger that the simplicity and clarity that are necessary for any effective system will be lost
A complicated system is proposed. The Secretary of State will get power from Parliament. He will then delegate that as he chooses, but he has announced that he will delegate it almost entirely to two separate bodies, the Securities and Investments Board and the Marketing of Investments Board. Under the SIB there will be other regulatory bodies. For example, the Stock Exchange will have regulatory capacities. In addition, there will be a tribunal to which those who have been denied a licence to practise can appeal. If a person appeals against a refusal of a licence by the Stock Exchange he will have to appeal also to the SIB before he can appeal to the tribunal because he cannot go straight from the Stock Exchange to the tribunal. We are already getting into considerable complications without going into the argument about whether there should be one board or two
It would be much simpler and clearer to all involved, and certainly to the ordinary public, if we moved immediately towards a self-standing commission. I argue that on the basis that it is inevitable anyway, and that we might as well get there now and set it up properly so that it may last for a fairly long period. In the present circumstances, that seems to me not so much a revolutionary proposal as almost simple common sense
Mr. Tim Smith: Of course, the proposed system is complicated and it may not work, but if there is the will to make it work it will for two reasons be infinitely preferable to what the right hon. and learned Gentleman proposes. First, it will have considerable flexibility, which his self-standing commission would not have, and, secondly, it would build on existing foundations
Mr. Smith: I am not persuaded, with respect to the hon. Gentleman's point of view, that there would be arty greater flexibility under either model. It depends on the view taken by those who have to administer the law. The law will be the same whether we have a self-standing commission or these bodies. The crucial matter will be the view taken by those responsible, whether they are in the commission or in the hybrid bodies. On the whole, having considered the arguments over a period, I think that the arguments against a self-standing commission have become less compelling as time has gone by. I judge that they are being put forward with less passion now. It is almost as if the markets are coming round to an acceptance of that point of view
On the question of two boards, I was glad to note that the Secretary of State did not nail his colours too firmly to the mast. Opinion is moving very heavily in favour of

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the common sense conclusion that there is little point in having two boards when one could do the job perfectly well. Indeed, it becomes ridiculous when one understands that the majority of people will have to register under both the SIB and the MIB because the merging of different functions is such that, according to the White Paper, there will have to be provision for the exchange of information between the two boards. Therefore, a person may give information to one board or the other and they will be busy exchanging the information
I can imagine what the Secretary of State would say if this were a Labour proposal. If the Labour party had made such a proposal we would have had to accept mocking sarcasm about such a Socialist solution — setting up boards, not even statutory boards, that were obliged by law to exchange information. I can well imagine the sort of speech that the Secretary of State might have made. When he goes home tonight perhaps he should reflect on what he might have been saying if I were the Secretary of State making these proposals. He might find that the most compelling argument of all that he has listened to in the long period since the Gower report came out
In regard to enforcement, however we devise the law and however brilliant it seems, if it is not enforced it is not worth having. In the proposals which the Secretary of State makes new sanctions are produced. I welcome some of them. The revocation of authorisation is a very important and obvious one. I worry a little about it because it is a nuclear weapon. Will it not be a sanction that those responsible would be reluctant to operate?
I am not so sure about some of the civil remedies that are proposed. We will have to examine them in detail because they are not articulated all that clearly in the White Paper. I am not complaining about that because one cannot include all the detail in a White Paper but we shall need to consider these with some care
The background to all this is a worry amongst the public that fraud in the City is not pursued or prosecuted properly by the authorities of the state. That point has been put to me with some force by people in the legal profession and by people who operate in the City, and I take it seriously. If an official of the Post Office steals money from a letter, he is likely to be visited with the full wrath of the law, to be prosecuted, to go to gaol and to lose his job. Of course, there is nothing wrong with that. But if a person deals in fraud on a much larger scale and runs off with £200 million to £300 million, the chances of him being brought to book are much less
I am afraid that that is true and is perceived to be true. The reason is that those who deal in larger fraud have more resources and skill in avoiding the reach of the law. They are able to have much more elaborate and expensive defences. Worst of all, they are able sometimes either to avoid the jurisdiction easily or to create such apprehension in the minds of those pursuing them that they come to the conclusion that it is not worth continuing the pursuit. That is thoroughly bad. The Government, as a matter of urgency, should take on board the whole matter
It is not just a simple question of having a jury. In some cases that is a side issue and we are in danger of going up a cul-de-sac in considering it. The question is whether the country is prepared to put the necessary resources behind investigating authorities and prosecuting authorities to
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ensure that major fraud is prosecuted with the same rigour and diligence as minor fraud. That is a slightly different issue, but it needs to be tackled by the Government
Mr. Tebbit: The right hon. and learned Gentleman is, of course, right in saying that large-scale financial fraud is a most difficult crime to bring home and to secure a conviction on, not least because so often it is internaional in its nature and there is a reluctance of witnesses who are outside our national jurisdiction to attend court. There are problems here which are probably much more those of the law than they are of resources, although certainly we have managed to increase the resources and reorganise them recently in a way that I hope will make them more effective
Mr. Smith: The Secretary of State is referring to the fraud investigation group which was established recently. I think that may be a useful exercise in co-ordination, but he will forgive me if I am slightly sceptical about Governments saying that they will co-ordinate their activities. I have been involved in so-called co-ordinating activities so often in the past that I am sceptical that coordination always achieves its objective. The immediate reaction in Whitehall to any interdepartmental problem is to propose greater co-ordination. We shall be persuaded that something is being done when there are major prosecutions and when major criminals are brought to book instead of laughing at this country from the havens to which they have escaped. They have brought the sense of fairness in British society into scepticism
I was about to move on to the international dimension that the Secretary of State mentioned. Professor Gower drew our attention to the international dimension when he referred on page 176 of the report to the new phenomenon of international white collar crime. He argued for much greater international co-ordination. I wonder if we have done enough about that. I do not think that enough is said in the White Paper about the offshore problem. It needs greater attention by the Government
There may be ways of doing something about it. Why cannot those who beam their activity to the British market from abroad, from Amsterdam or wherever, be penalised in relation to their other activities in Britain? If we could find some way of doing that it would be extremely useful
I do not have an easy answer to what is a complicated problem. My impression is that not enough attention has been given to it. It is clear that there are problems of international law and national jurisdiction. We should pay more attention to the problem and see if there is a way, for example, to tackle people who have activities in this country and who indulge in activities from offshore havens, one being connected with the other. We should not enable them to have a free run in Britain, as it were, while cocking a snook at our laws from a haven elsewhere
Mr. Tebbit: I am anxious not to interrupt the right hon. and learned Gentleman too much; I do not want to make this a debate between him and me. If persons were operating in that way, both outside the United Kingdom and had an operation here, that might lead the boards to the conclusion that they were not fit and proper persons
Mr. Smith: It is helpful to have that remark on the record. If the Secretary of State thinks that it would be important to bring into consideration the question of authorisation, or the withdrawal of it, if unpalatable

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activities from an offshore haven had an impact on United Kingdom activities, that is a useful idea. That is not quite said in the White Paper. It would be a view for the regulating authorities to take, and no doubt they are able to take a step for a hint. I hope that that was what the right hon. Gentleman was giving
Other activities are encompassed in the quite wide definition of what is marketed in the financial world. For example, franchising is developing greatly in this country. It might be argued that that is outwith the scope of the measure—that we are not dealing with investment when we are dealing with franchising—but I suggest that it is getting near the line when people are dealing with a product and are almost licensed to distribute it. I raise that as a minor point which might be considered; perhaps some protection should be given in that respect
The Opposition are not slow to criticise the City when it needs to be criticised. We have often said that it is inadequate in dealing with the problem of financing British industry. I am glad to say that that view is no longer held exclusively by those on these Benches. Indeed, members of the Government sometimes express it. In a recent eloquent speech, the Secretary of State for Wales berated the City for the inadequate way in which it approached industrial investment in Britain. [Interruption.] I hear some muttering from Conservative Members. I think they are showing that they do not take the Secretary of State for Wales seriously. I am sure that my hon. Friends who represent. Welsh constituencies will bear that in mind
I note that the Secretary of State for Trade and Industry has been careful to keep a straight face; I can see his face, whereas his hon. Friends behind him cannot. He has been careful not to betray the confidence of a colleague. I was under the impression that when a Cabinet Minister made a serious and important speech, a speech obviously considered carefully in advance, he spoke on behalf of the whole Government and not just for himself.
Mr. Tebbit: How can the right hon. and learned Gentleman say that?
Mr. Smith:I believe that the Secretary of State is telling me from a sedentary position that I should not operate on that assumption. Where, then, is collective responsibility?
Mr. Tebbit:I was wondering how the right hon. and learned Gentleman of all people, having served in a Labour Government, could say that with a straight face
Mr. Smith: I gave way to the Secretary of State because I thought it only fair to enable him to announce once again the doctrine of collective responsibility. I noticed with care that he avoided that opportunity. But, then, having regard to his colleagues, he was probably wise to do so
Mr. Eggar: Is it fair for us on these Benches to assume that the right hon. and learned Gentleman accepts collective responsibility for the recent remarks made, and reports put out, by his hon. Friend the Member for Oldham, West (Mr. Meacher)?
Mr. Smith:I have been in the House long enough not to rise to the most obvious lures, especially from Conservative Members. I should be delighted to answer such questions if I thought that I could do so without breaching the rules of the House. I need only comment that
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the doctrine of collective responsibility is noticed in its absence rather than in its fulfilment by some members of the Government
While there are serious deficiencies in the way in which the City serves British industry, it is important—there will be unanimity about this — for us to have an efficient, internationally competitive and fair-dealing system of financial markets in this country. It is in the national interest and in the interest of the prosperity of our trade and industry that it be maintained, particularly as the City of London is now under intense foreign competition
I end on that note. An approach to this matter that guarantees fair dealing in the City is also the best way in which we can advance its efficiency and competitiveness. It is not just a method of protecting investors. It is a way of offering a guarantee to those who deal with it—both in this country and from abroad—that they can expect honest and fair dealing in Britain. We shall have differences of approach, but if we keep that principle in mind we shall achieve something good for the nation at the end of this whole process
5.16 pm
Sir Edward du Cann: I agreed with much of what the right hon. and learned Member for Monklands, East (Mr. Smith) said, in particular his concluding words. He made an admirable speech and the whole House appreciated its constructive nature. He was right to say that we should now be considering updating the law
I am only one of many who take part in debates of this kind, inside and outside the House, and who give a warm welcome to the general principles of the White Paper. It is timely and well done. My right hon. Friend said he thought that it had had a unanimously successful press. I had not noticed that. I thought it did not have as good a press as it deserved. It is an excellent and constructive piece of work, and any criticisms of mine are more in the nature of anxieties about the detail rather than the direction in which my right hon. Friend intends to move, which I strongly support
I have an interest to declare. I have been involved for many years in the unit trust, insurance and banking industries in Britain. I am the chairman of a unit trust management company. I was one of the sponsors of the Insurance Brokers (Registration) Act 1977, which was introduced by my hon. Friend the Member for Harrow, West (Sir J.Page) and which has been most successful. I am also a vice-president of the British Insurance Brokers Association
I have therefore been a practitioner in these spheres for many years. Indeed, I have been involved not only in practice but in regulation, both as a Minister and as a member of various bodies. I speak from that standpoint
That lifetime's experience leads me to say that the White Paper provides a desirable and practical framework for protecting the interests of the investor, and it should help to ensure the healthy development of this fast-growing financial services sector of the economy. It is not only fast-growing. As the Secretary of State and the right hon. and learned Member for Monklands, East said, it is fast changing, too. I am not sure that I approve of all the changes that I see
Generalism is all very well, but the City of London has grown and prospered and has brought great strength and wealth to the nation because of its concentration largely on specialist skills. Anything that mitigates its

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effectiveness would be a pity. The financial services industry has been a great employer. It employs 1 million people. It has provided a great service to our fellow citizens at all levels. In other words, it is a great national asset. It has an important social and economic purpose, not least because of its £4 billion a year overseas earnings
My right hon. Friend is therefore right to say, as he writes in the White Paper, that his first purpose as a responsible Minister must be to provide the public, the nation, with protection against deceivers, both the deliberate ones to whom the right hon. and learned Member for Monklands, East referred—I agree with him that the methods of international protection against deceit need to be sharpened because they are pitifully weak—and those who are careless. My right hon. Friend is right also when he says that disclosure has to be the norm, so that a man who is undertaking an investment knows exactly what he will obtain. At the same time, my right hon. Friend says—again I believe that he is right—that caveat emptor must remain the rule. The House has no business protecting people from their own folly or greed
In choosing self-regulation as the means for achieving these objectives, the Government are giving this sector of our economy the opportunity to devise a detailed scheme to achieve a high standard of conduct by practitioners, an adequate level of competence within the industry and a proper protection for the consumer, and that too is right. There have been precedents at various levels for doing this. For instance, there has been the gentle discipline of the Association of Unit Trust Managers, of which I was one of the founders. That has been very effective. Now, with legislation, Lloyds is doing a powerful job in ensuring that the best practices are conducted there. This applies also to other aspects of the broking industry
The House will remember that, through the Insurance Brokers (Registration) Act 1977, all intermediaries who chose to call themselves insurance brokers have, since December 1981, been regulated, and are required to observe a code of conduct that ensures their independence and requires that the interests of the client are always their first consideration. They have to meet tests on financial solvency. They are required to take out their own indemnity insurance to allow for compensation to the client if they are negligent in conducting his business. Here then is a system by which, under a general code of law, the consumer has been well protected and the industry is well self-regulated
It is all very well establishing the idea of self-regulation, but in the end this depends on those who are doing the work of regulation. Everything is people. In insurance broking, we have been enormously lucky to find excellent people to do this work. I cannot pay a high enough tribute—some hon. Member should—to Mr. Francis Perkins, who was the chairman of the committee that brought together the four associations in broking and turned them into one. His successors, Mr. Findlay and now the excellent present man, Mr. Alexander, are also devoted people. They, and others, not least the chairmen of the registration councils and the like, and all their supporters, have done some marvellous work. My right hon. Friend will have to exercise all his ingenuity and
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persuasive powers to make certain that their example is followed in other respects. It is important to get the right people if self-regulation is to be made to work
Self-regulation in the intermediaries sector anticipated my right hon. Friend's White Paper by a number of years, but it is effective only for those who have volunteered to use the title "insurance broker". Someone who wants to call himself an insurance consultant or an insurance adviser can practise as an insurance adviser without any control. This, contrary to the principles laid down by my right hon. Friend's admirable White Paper, has impeded the raising of standards. There is no doubt about that—this is a matter of fact. The fact that there is a cost of registration as an insurance broker has penalised those who wish to practise professionally and ensure proper protection for the insurance buying client
We should be foolish to perpetuate that situation. My view, which I think is the view of the profession as well, is that one major shortcoming in the White Paper is the failure to provide for proper regulation of all insurance intermediaries. Life assurance policies, as long-term investments, will be covered by the proposed legislation and those who market them by the new self-regulatory system. However, non-life insurance policies —household and contents insurance, motor car policies, travel insurance and so on—are omitted altogether. As I understand it—this was confirmed by my right hon. Friend—it is because they are not commonly regarded as an investment. I do not accept or agree with that view. This is a serious omission, and I hope that my right hon. Friend will be willing to think again
The private individual can suffer catastrophic loss just as much from inadequate or incompetent advice, or even from fraud, on his home insurance, for instance, as on a life policy. The White Paper could make this more likely, as those insurance advisers who fail to achieve the necessary standards to become authorised to market life policies will be able to switch their attention to the other general sector of insurance. Furthermore, the ability to opt out will inhibit the general raising of standards
I go so far as to say that, if we do not include all intermediaries in the way that I suggest, much of the work that we have tried to do in the British Insurance Brokers Association may be valueless. What is the point of bothering to be a member of that institution and meeting its high standards and conforming with the requirements of the registration council and the rest if somebody can go down the road and do what the devil he likes?
Unless the Government bring in control of intermediaries offering advice on general insurance, we shall be losing a great opportunity. The present deficiency will not only be perpetuated but even accentuated by the new system for regulation of life assurance. It is the function of the insurance broker that needs to be controlled, not just the title of insurance broker
In an intervention, my hon. Friend the Member for Harrow, West referred to the part of the White Paper that says that the Government propose amendments to the Insurance Brokers (Registration) Act to fit the Insurance Brokers Registration Council for its new role in the self-regulatory structure. They should extend those amendments to provide for a proper regulation of anyone wishing to offer independent advice on insurance. If anyone is unable or unwilling to comply with the requisite

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standards, he could continue to trade as agent of an insurance company, provided that it is willing to take responsibility for his actions
I am sure that my right hon. Friend the Secretary of State and my hon. Friend the Under-Secretary, who is to wind up, will have seen that there is early-day motion 460 on the Order Paper, entitled "Protection for Policy Holders". It proposes the changes that I have outlined. Without any canvassing for signatures, it has attracted signatures from some 67 hon. Members from both sides of the House. That goes to show not only that what I have attempted to talk about is a matter of wide concern in the House, but that the remedy for it has wide agreement also
I move on to the White Paper as it affects life insurance. It asserts that the law and the regulatory system must be fair and not create artificial distinctions between services competing in the same markets. I am sure that that is the right policy. Unfortunately, it fails to achieve that objective in one major sector. It exempts what are known as tied agents from the duty to disclose their remuneration to potential clients. In so doing, it does not serve the consumer interest and it runs the risk of diminishing the sources of impartial advice available to the public
We have heard a lot about Gower this afternoon. In his report on investor protection, Professor Gower recommended that the regulation of commission payments should apply to all intermediaries, whether independent or tied. That was his plain recommendation. I am aware that this is the view of many responsible companies, including almost all leading assurance companies in the market
The White Paper requires only that the independent intermediary should be so regulated. But the tied agent working for an insurance company owes his first duty to the insurer and not to the purchaser of the policy. He receives commission from that company and other financial support such as office rents, phone bills and other indirect payments. Thus the White Paper's proposals create an artificial distinction and do not meet the White Paper's principle that there should be "equivalence of treatment" between services competing in the same market
I do not think that that distinction is right. It means that the purchaser will know how much he is paying for independent advice, but not how much the tied agent is receiving. The consequence could be a diminution in the independent broker market and thereby an undesirable restriction on the comsumer's access to independent advice. That would be a pity, and it would be wrong to put the man who offers independent advice at a competitive disadvantage. Therefore, I hope that my hon. Friend the Minister will be able to say that this matter will receive further consideration. If there is to be any requirement to disclose commission and other payments, it should be fairly and universally applied. That is the best way to avoid market distortion and an unnecessary and undesirable commissions war
There is another aspect of the White Paper where "equivalence" appears not to have been observed. The White Paper proposes that certain professions, such as accountants and solicitors, should be exempt from the regulations, provided that investment business is not a "significant" part of their activities and provided that their professional bodies have standards that offer equivalent safeguards to the investor. Great care will have to be exercised over what is to be regarded as "significant", since this could be a loophole through which large
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professional practices, which handle much more business than small insurance brokerages, could slip with, again, a potential distortion of market forces. If one group of people is obliged to disclose, everyone should be obliged to do so. That is my plain view.
Mr. Tebbit: Perhaps I can reassure my right hon. Friend on that point. Disclosure would be among the requirements that I would expect in the professions' codes governing these matters.
Sir Edward du Cann: I am very pleased to hear that, and congratulate my right hon. Friend on having thought through the logic of this matter
I have three other general points to make. First, we have already had some discussion about whether we should have one or two boards. The right hon. and learned Member for Monklands, East had something to say about that. I can see the reasons that probably prompted my right hon. Friend the Secretary of State to start with the idea of two boards. In theory, marketing is probably a different aspect from the management of investments, but in practice it would be very inconvenient to have two boards. However, if my right hon. Friend thinks it right to start like that, perhaps I can invite him to have in mind the bringing together of those boards into a single board at the earliest possible moment. On the other hand, if he reconsiders the matter, he may come to the conclusion that one board now would be better than two
Second, I know how difficult this is, but I urge my right hon. Friend the Secretary of State to beware of overregulation. It is easy to believe that one has to regulate, and that one has to dot every "i" and cross every "t". But free markets—which is what the White Paper is all about—require maximum freedom. I hope that my right hon. Friend will go for the minimum rather than the maximum amount of regulation. Third, we have had some jokes about my right hon. Friend's successors in office in a hundred years' time, but I hope that he and his successors will bear in mind the great need for flexibility in the systems that we establish. As my right hon. Friend rightly said, the scene is changing. The right hon. and learned Member for Monklands, East said exactly the same thing, and it is true
My lifetime's experience in the financial and other worlds tells me that the accepted wisdom of today is generally wrong. We need to provide for innovation, as my right hon. Friend the Secretary of State has suggested. If anyone had planned the City as it is today, he would probably not have given money markets the latitude that they have had or the possibility of success. One cannot plan exactly what will happen
Perhaps I can share a memory with the House. When I, with my colleagues, started the modern unit trust industry in this country in 1957, and introduced the equity-linked life assurance concept, the City establishment bitterly attacked us. The chief actuary of a celebrated and significant life assurance company even wrote an article in Policy Holder magazine saying that what we were doing was dishonest. That was the sort of disdainful attitude that was displayed
If we had had to go to a conservative City group and say, "This is what we propose to do," we would have been turned down out of hand. Whoever is responsible for supervision—it may well be right to have a practitioner-based supervision—we should ensure that it is not just a

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cosy City affair and that we get in independent people I am not just talking about the statutory woman, black man or trade unionist. Let us get in people of imagination. Things are changing quickly. Let us lay down guidelines by all means, but let us give those who will pioneer new ideas a proper opportunity
I congratulate my right hon. Friend the Secretary of State warmly on what he is doing. The catalogue of events about which he spoke, together with the White Paper and ancillary things which the Government are proposing, are all intended to make financial services more generally available to the British public and to make them a continuing source of wealth and employment in our society I wish success to those associated with my right hon. Friend in what he is trying to do. Of course, it is a large job and it is being attempted in a short space of time. What happens and what is decided will have far-reaching consequences for a major and highly successful industry, which we hope will continue to be successful
Consequently, it is all the more important to ensure that we get things right—although it is easy enough to say that—and that the general principles that my right hon. Friend the Secretary of State has enunciated, which doubtless have universal support, are implemented fairly and in the widest possible interests of the industry and the public. All those who heard my right hon. Friend's speech will have greatly appreciated his readiness to listen to suggestions and ideas. I hope that those that I have been able to offer the House will be of help
5.36 pm
Mr. Doug Hoyle: I listened to the Secretary of State's speech, and he seemed to be trying to be at his least offensive to the City and to be kind and humane I wish that on occasion he would show such sentiments to other people. He appeared to be saying that we must get away with the least regulation possible. I agree that a little regulation is better than none, but the right hon. Gentleman will not be too surprised to find that we do not quite agree with all that he said, and that we want to go much further
Perhaps I could suggest that the right hon. Member for Taunton (Sir E. du Cann) looks at early-day motion 460. We all agree that life insurance is important, but there is also car insurance, household insurance, insurance covering legal liabilities, and so on. All of them are equally important. Those who purchase those policies should also be protected. It is important that things should be taken more widely than at present. Indeed, I agree with the sentiments that have already been expressed on that point
People have had their fingers burnt over offshore companies. More should be done to protect investors. We all know about the collapse of Signal Insurance. The problem is caused by advice being given to people who are looking for a good return on their money, and sometimes an excessive return. Those who give that advice should be responsible for it, and some action should be taken against them
I agree with everything said by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) I do not believe that the City should be allowed to regulate itself. There should be statutory regulation along the lines of the United States Securities and
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Exchange Commission. The individuals on the committee to organise the Marketing of Investments Board have been praised, but there is only one consumer representative on that committee. If we follow that pattern in setting up boards, we are asking burglars to police themselves. I believe that consumer interests should be represented more strongly
I have no firm views on whether there should be one or two boards. We must consider what voluntary regulation involves. Recently, the voluntary licensing of life assurance salesmen has suffered some setbacks. Attempts have been made to examine the voluntary regulation of commission payments to independent intermediaries since the collapse in 1982 of the Life Offices Association agreement. The key task is to consider whether the regulation of investments should be carried out by the Marketing of Investments Board separate from the Securities and Investments Board
I understand the argument in favour of just one board, because there would be less bureaucracy. Opinion is divided—the insurance industry wants two boards and the City wants one. The City does not want a supervisory body to be set up over which it has no control, and that may be the reason for its reluctance to support the setting up of two boards. Separate boards would mean that City institutions would have to obey board rules when they are allowed to sell portable pensions. I believe that the Secretary of State favours the formation of one board. The Department asked for advice, but the organising committee did not include one assurance company chairman who recommended setting up two boards
Much has been said about Professor Gower's report. I echo the point made by my right hon. and learned Friend the Member for Monklands, East, that the Government have taken a timid approach to Professor Gower's recommendations. We must never forget that Gower aimed to protect the investors. A self-regulating body will not be successful. Such a body would be successful only if those involved in it were determined to make it a success
The Government's mind may be concentrated by the knowledge that there is increasing demand for regulation. Without self-regulation, there will have to be statutory regulation. The confidence of all investors—large and small — must be gained, because they are equally important. Investors must be protected. I am extremely critical of the way in which the organising committee for the Marketing of Investments Board has been set up
A complaints procedure should be established, providing opportunities to individuals to make good any losses without undertaking lengthy legal proceedings. A complaints board should initiate action on behalf of individuals and pay compensation to them. That presupposes investigation by the board to establish a claim's validity
My right hon. and learned Friend the Member for Monklands, East said that compensation should be available and referred to paragraph 7.12 of the White Paper. We must consider the type of compensation that will be available — whether there should be a funded compensation scheme, or insurance. I am in favour of funded compensation along the lines of the levy that was charged under the Policyholders Protection Act 1975. The drawback to an insurance compensation system is that insurers would be unwilling to pay out unless a court decided in favour of compensation

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Changes are taking place rapidly, and a periodic review is therefore needed. I welcome the move towards statutory authorisation of the investment business. I believe that a uniform approach should be taken to the authorisation and regulation of all financial services, taking the "best practice" as a guide. A rationalisation of the plethora of self-regulatory organisations is required, so that companies need deal with only one organisation. That would be more efficient
This White Paper is only the first step, albeit a step in the right direction. The setting up of a statutory board would be an even better step. I do not believe that the City would have many objections to setting up a statutory board. Stronger medicine is needed, as can be seen from the City's record in the recent past. The Government should have taken more radical action. I welcome the move to protect investors, although it does not go far enough. Sooner, rather than later, we shall all recognise that statutory regulation is required
5.50 pm
Mr. Michael Grylls: I think that the House has been at its best this afternoon, in stark contrast to the horrors of yesterday afternoon. This afternoon the House has been looking, in a relatively nonpartisan way, at the problems of the City and how the City can best be regulated. That must be to the advantage of all of us
I should like, first, to say a word to those of my hon. Friends who have criticised the role of the Governor of the Bank of England and the fact that he is to have a veto over appointments. It is, in a sense, a novel idea. I should like to put one reflection into the balance against that criticism. When other regulations and burdens were imposed on business over the past 30 or 40 years, if the interested parties themselves had been consulted to a greater extent at the time when the regulations were dreamt up by Parliament, perhaps some of the regulations would have proved to be less burdensome to business as a whole
There is the debating point that the Governor is responsible to the Chancellor of the Exchequer. There is also the possibility that we shall achieve a slightly better and more realistic approach to the regulation of the City by bringing the Governor into the process of consultation
On 29 January, when my right hon. Friend the Secretary of State for Trade and Industry made his announcement concerning the White Paper, my hon. Friend the Member for Horsham (Mr. Hordern)—who, unfortunately, is not able to be here this afternoon—was the first to point out that the need of the City to have the investor protected as much as possible was paramount, and that the City's reputation completely depended on that. From the debate so far—and I am sure that it is true generally—the House of Commons appears to agree with that view. I strongly agree with it. Against that very important need, we should also balance what my right hon. Friend said in his statement. He emphasised that it is very important to have a framework capable of
"accommodating rather than stifling innovation". — [Official Report, 29 January 1985; Vol. 72, c. 157.]
My right hon. Friend the Member for Taunton (Sir E. du Cann) reminded the House of his experience over many decades and reflected on the time when he was dealing with and innovating the unit trust business. He said that that innovation could easily have been stifled at that time. Therefore, my right hon. Friend the Member for Taunton
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this afternoon reflected what the Secretary of State said on 29 January—that it is crucial that the framework should allow innovation to take place if the City is to maintain its position in the world. I should prefer to use the word "regain", because we should not delude ourselves. Some parts of the City, like some parts of British industry, have slipped behind the rest of the world and fallen behind other financial centres. Therefore, it is crucial to be able to innovate
The hon. Member for Warrington, North (Mr. Hoyle) said that he wanted to see a tighter regulatory framework, and that may be necessary in the future, but not many of us can look round that corner at the moment. I hope the hon. Gentleman will agree that it is important that the regulations should not grow so much that they stifle the sort of innovation that the City needs
About three weeks ago the Government published a report called "The Burdens on Industry". In that report it was stated that anyone starting a business and wishing to avoid all the possible pitfalls, and wishing to avoid tripping over various laws and regulations, would need to read 270,000 words—a task that would take 24 hours. There is a lesson to be learnt from that. We must not allow the regulatory process in the City to grow to such an extent that that sort of thing could happen
In proposing the legislation, my right hon. Friend has walked a tightrope between over-regulation and under-regulation. As far as we can see at present, he has probably got it about right. It is impossible to be sure, as he would be the first to say; indeed, he implied in his speech that he would listen to comments. If it proves necessary to tighten the scheme in the future, that will have to be done
The rules and regulations should be clear, so that they can be understood by everyone. If that happens, we are much more likely to have a flexible and competitive climate in which we can encourage.new firms to come into the City
In recent weeks a great deal has been written about mergers in the City, with giant firms, merchant banks arid stockbroking firms being created. But surely we need a regulatory system to allow for new entrants with new ideas. We should allow new firms to innovate, thus ensuring that the City keeps up with other financial institutions throughout the world
When my right hon. Friend the Secretary of State said that he hoped that arrangements in the City for the new system would enable the raising of finance to be done more efficiently for the smaller business, that was music to my ears. I have in mind the larger private business and the smaller private company. At present, such businesses are not all that well accommodated by the City in the raising of finance. Perhaps new entrants can make a contribution in that respect
If we have the regulatory system right, as I believe we have, there will be freer competition; there will be competition that protects the investor. As I said at the beginning of my speech, that is crucial. Above all, we should be hopeful—as I am—that the proposals in the White Paper will allow the City not only to innovate but to grow and to regain its position as the most important financial centre in the world. If we have got it right, that can happen. As I believe that we have got it right, I hope very much that it will happen
5.58 pm
Mr. Ian Wrigglesworth: When the right hon. Member for Taunton (Sir E. du Cann) looked back into his own history and mentioned the establishment of unit trusts, he reminded many of us who have worked in the City, or have had contact with financial institutions, how much things have moved over the past 20 years—and nowhere more than in the great debate that has been going on for many years about the supervision of the City. There have been great debates within different parties about how that should best be carried out
I am very pleased that we have moved as far as we have in the White Paper and have at last the sort of framework of supervision that some of us have wanted to see for many years. It has always been difficult to get a consensus on what that supervision should be. Although they may not be perfect yet, the proposals in the White Paper mark a welcome step forward
I agree with other hon. Members who have spoken—and with a good deal of opinion in the City—that the major flaw in the present proposals is that there are to be two bodies. The most important change that the Government should make is to bring them together into one body. There is an overwhelming case for having a statutory body in the long term. That does not horrify me in the way that it horrifies some people. However, on the other hand, it is important to carry the City along with the proposals. The marrying together of a statutory framework and umbrella with self-regulation is a good way to do that
Therefore, my colleagues and I will support the thrust of the Government's proposals. The idea of a statutory commission is not as horrific to me as it is to some people
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Alex Fletcher): As no one else is likely to do so, will the hon. Gentleman tell us why a statutory commission is such a great thing?
Mr. Wrigglesworth: If the Minister looks at the experience in many other places, in many international financial markets in the world, places as free, open and entrepreneurial as Hong Kong, and as far afield as Canada, Australia and many other countries, he will find that statutory commissions have been operating successfully for many years. Financial markets and institutions throughout the world fully understand the operation of statutory bodies supervising markets. Therefore, I do not think that the international financial world found that proposition as horrific as some people in this country did
People in the City have moved forward tremendously. As I said, I welcome that. I do not want to press the idea of a statutory commission, because I believe that what the Government are proposing constitutes a combination of statutory framework and self-regulation. I believe that it is best to suck it and see with this one and hope that it succeeds, but, if it is necessary, we should move further in the direction of a statutory body if the proposal does not work
Mr. Nelson: I should like the hon. Gentleman to clarify what he is saying, because I am sure that I am very much in support of it. I understand the hon. Gentleman to be in favour of one body instead of two. There will be one body — whether one calls it a board, a commission or an authority is just nomenclature. At the end of 1986 the legislation should come into effect. If, in a securities Bill
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next Session, the board is given various powers over the self-regulatory authorities underneath it, it will be the equivalent of a securities commission. There should be no disagreement on that. Why is the hon. Gentleman saying, "Let's suck it and see."? If he is in favour of one board, he should have the courage of his convictions and argue the case
Mr. Wrigglesworth: I do not believe that if the Government brought together the two bodies that would constitute the sort of statutory body that exists in other parts of the world or the sort of statutory body that other people have envisaged or proposed. It would certainly be a single body, but it would not have the powers that the Secretary of State is retaining unto himself. However, I hope that that will make it unnecessary to go down the road of giving it the complete independence and statutory authority that such a securities and exchange commission has in other countries
Mr. Bryan Gould: I, too, am following with great interest what the hon. Gentleman is saying. I agree with him that the key question is what statutory powers—whether delegated or otherwise does not matter —that single body will have. I wonder what powers the hon. Gentleman thinks that the body contemplated in the White Paper would lack in comparison with the statutory commission that he has advocated
Mr. Wrigglesworth: As I said, it may well be found that if, when the body starts operating, it does not have sufficient powers under the present proposals—which the two boards have—satisfactorily to supervise the self-regulatory bodies and different sectors of the City, it will have to be given statutory powers
We need to look at the provisions that will be in the Bill. We need to judge the strength of those powers when they are laid out in the Bill. I do not see the need to go fully down that road at present. I want to see what the Government put in the Bill. All I know is that there is an overwhelming case for not having two separate bodies. I hope that combining them will provide a satisfactory arrangement
I should like to refer to the operation of the boards as proposed, and reflect some of the criticisms that others have made. The new arrangements will have to contend with substantial changes that are taking place in the City. I hope that they will not be inhibited. In previous debates on this matter, I have welcomed the changes that are coming. They have been criticised — wrongly — by Conservative Members. I am glad that the changes are taking place, because they will help to make the City a more competitive environment. It was beginning to slip back. The markets in New York and other parts of the world were growing, but London was dropping back in some spheres. The increased competition in the City, particularly on the Stock Exchange, is wholly welcome. I hope that it will not be inhibited by the new arrangements that are being introduced in the White Paper
One particlar change will take place after the so-called big bang in 1986 that I find rather worrying. I am not sure whether it will be adequately covered by the proposals in the White Paper. It is the problem of the so-called Chinese wall within financial institutions and the conflict of interests that will inevitably be perceived by investors and customers in large financial conglomerates. I do not have the perfect answer to the problem. Various provisions can

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be made, with funds being kept separate in separate accounts and so on. Various proposals have been made, but I am not sure that when the investors see the new conglomerates operating and when the new system comes into force they will be satisfied that they are operating in the best interests of the investors and not of the institutions themselves
As I said, I do not have an instant solution to that problem, but I see it coming down the track. When the system starts operating, it will cause great anxiety. All that I say to City institutions is that they will have to be aware of the suspicions that will be engendered when the proposal comes into operation. They will have to bend over backwards to reassure their customers and the public that that conflict of interest does not work to the disadvantage of the customers whom the institutions are supposed to serve
I should like to refer to the role of the Bank of England. I agree with the comments made earlier about the proposed role for the Governor. I do not accept the reply that the Secretary of State gave to criticisms of the role of the Governor. For too long, the Bank of England has been in the curious position of being both spokesman and friend of the City, and supervisor of the City. It should be one or the other; it cannot be both. I do not like it having a supervisory role. Its predominant job is to act as a central bank, and it should get on with it. The responsibility for supervising the banking system has been put on to its shoulders. I suppose that it is now too late to remove that from its orbit. However, I believe that the Bank of England should not have the role that is envisaged in the White Paper. I hope that the Government will make that change before they introduce their Bill
I also agree that there should be more independent members on the bodies. If the supervisory system is to obtain the confidence of the public, there will need to be a much stronger element of independent people on the boards—respected people who are not seen to have an interest in the City
I am not sure why the test of competence has been omitted from the White Paper. I hope that the City institutions will wish to ensure that companies, partnerships and bodies are truly professional and that before they are able to operate they pass the test of competence. I hope that this will be one of the responsibilities of those who work the system
I hope that the White Paper's proposals will be given a fair wind and that the Government will note that an increasing body of opinion believes that the two boards should be merged. I strongly support that principle. I hope that the Secretary of State will respond to the comments and criticisms and that the new system will help the City to be increasingly successful and more competitive so that it can serve well both its customers and the interests of the country. The City is undoubtedly of great benefit to this country. The new supervisory system will, I hope, benefit both the City and investors and the whole of this country by making the City a more respected and successful financial centre
6.11 pm
Mr. Tim Smith: I thought that the exchanges during the speech of the hon. Member for Stockton, South (Mr. Wrigglesworth) vividly illustrated the consensus on this subject. During the last 12 or 18 months the differences between the two sides of the House
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seem to have narrowed. When the hon. Member for Stockton, South was asked by the hon. Member for Dagenham (Mr. Gould) what powers he wanted to be given to the Securities and Investments Board that it would not already have, all he said was that we should have to wait and see
If the two bodies were to be merged, there would effectively be an independent commission, so we seem to have arrived at a consensus. I welcome that. It underlines the value of the way in which the Government have sought to develop policy. We have been looking at this question for about four years and it is valuable that we have spent this amount of time upon it. It would have been impossible to legislate earlier because of the new Stock Exchange arrangements. The consensus will mean that there is a much better chance of the proposals working in practice
It is important to remember the kind of financial scandal that the White Paper is intended to combat. People are still prepared to cut out a small coupon from a Sunday newspaper and send off a cheque for £1,000 to an organisation about which they know nothing, except for the details given in the coupon. To me that is incredible, but so long as the practice continues there will need to be very strict regulation. People are still being ripped off. Only yesterday I received a letter from a constituent who told me:
"In August 1982 my financial advisers put the balance of my savings (at that time nearly £17,000) into a very high-risk fund on the Commodity Futures market, without properly consulting me or—even when I asked about it—giving me information on the security of the fund. (I had originally asked only about pensions and then Eurobonds, which had been highly recommended and in which that money was placed at my request). In the end I lost £6,000 and consulted my solicitor and then Counsel. They said that the company had been guilty of professional negligence and deception on four counts (and there were similarities to the LHW Futures scandal, now in the hands of the Fraud Squad.) However it was not worth taking the matter to Court and the company state that further correspondence is `too expensive' for them!"
That is still going on and the White Paper is trying to combat it
The White Paper envisages the right balance between statutory control and self-regulation. It seeks to secure the best of both worlds—the protection that the statute will provide and the flexibility of self-regulation to which I referred earlier when I intervened during the speech of the right hon. and learned Member for Monklands, East (Mr. Smith)
Confidence and flexibility are two of the stated objectives of the White Paper, as are efficiency and competitiveness. I support all four of those objectives. I support also the principles which will underlie the new system. However, the most important principle of all is that of equivalence of treatment, to which reference has already been made. It will be very important that all those who operate in this area should be treated on as equal a basis as is practicable and possible. I would add one more principle to the six that are listed in the White Paper—disclosure of information. It is very important that the maximum amount of information should be disclosed to potential investors so that they have the maximum amount of information upon which to base investment decisions
It is right that the definition of an investment should be wide, although it must at the same time be specific. I regret that I have to disagree with my right hon. Friend the Member for Taunton, (Sir E. du Cann) about nor-life insurance. I do not believe that motor insurance can be

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described as an investment. An amount of money is paid for a 12-month period, after which none of it is left. One is simply taking out insurance cover for a restricted period
As for the institutional structure, it is agreed that there should be one body rather than two. This will provide three advantages. Under the existing arrangements there is the problem of either an overlap or a gap between the two bodies. Secondly, two bodies are bound to involve additional cost. Thirdly, as was mentioned by the Opposition Front Bench spokesman, exchange of information will be necessary if there are two bodies. For those reasons, I believe that there should be one body rather than two
I am glad to note the recognition by the Government in the White Paper of the important contribution to self-regulation which has already been made by a number of organisations. I referred to that fact in my intervention. A great deal of pioneering work has been done, in particular by the National Association of Security Dealers and Investment Managers, to which I am the political adviser
During the last few months and years NASDIM has introduced a fit and proper test of membership. It has strict separate client account rules, adequate financial resources rules, compulsory professional indemnity insurance cover, annual renewal of membership, random checks on member firms and a proper complaints and disciplinary procedure, with the right of appeal to an outside tribunal. NASDIM is also in the process of introducing a compensation fund. Therefore, it already meets many of the criteria set out in the White Paper and should fit well into the future framework that is envisaged by the White Paper
Chapter 6 deals with the fit and proper test. I support the White Paper statement that the test will be applied to all investment businesses. However, it will not apparently be applied to individuals within those businesses. We need to think about what that means. It contrasts with the existing law. Section 15(4) of the Prevention of Fraud (Investments) Act 1958 requires a recognised body to be able to furnish the Department of Trade and Industry with a list of the persons who are for the time being authorised by a member to deal in securities on his behalf. Surely, therefore, the White Paper proposals ought to include a requirement in law that individuals authorised to handle investment business on behalf of registered businesses should be adequately recorded and monitored. I may have misunderstood the import of paragraph 6·3, but I am inclined to think that it does not go far enough
Chapter 7 deals with the rules for the conduct of business. In some respects it is not tough enough. First, on compensation, I agree with what was said by the right hon. and learned Member for Monklands, East. Paragraph 7.12 refers to professional indemnity insurance and says that it could be made a requirement. I believe that it should be made a requirement. That point was made by the Consumers Association in its submission
On the disclosure of terms of investment business, paragraph 7.15 says that
"An investment business should disclose the full terms of business dealing to actual and prospective customers"
I support that statement. However, paragraphs 10.10 and 10.11 propose one of two routes for the disclosure of commissions to prospective investors. Either specific details of the amount and nature of the commission to be
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paid should be given or there should be an undertaking that it is within the limits prescribed by a voluntary agreement within the industry. I do not think that that is good enough. I assume that all those within the voluntary agreement will charge the maximum. If not, they will presumably inform investors of it as an advantage. I believe that specific details should be provided in every case. In Stock Exchange transactions, every contract note shows all the associated costs in detail. I see no reason to depart from that. Indeed, I believe that the principle of equivalence of treatment would not be met if that were not so
The White Paper sets out a framework for investment protection and describes the parameters of the legislation. Naturally, it does not go into great detail, so some questions of detail remain unanswered. It may not be the easiest thing to contrive, but it would be most helpful if the Government could publish draft clauses or a draft Bill before the legislation is introduced in November or December. I realise that the constraints of the timetable may make that difficult. The Government have had difficulties with the Insolvency Bill because, although the White Paper set out the principles, there was no opportunity to comment on the details until the Bill appeared. In this case it is almost more important to get things right because the success of the legislation will depend so much on the goodwill and co-operation of those being asked to operate it
Mr. Gould: I very much agree with that suggestion. The hon. Gentleman will be aware that Professor Gower intended to publish a part 2 to his report which would have taken the form of a draft Bill. Does the hon. Gentleman agree that it is a pity that Professor Gower was dissuaded from taking that course?
Mr. Smith: Frankly, I had forgotten about part 2, having given up asking parliamentary questions about when it was to be published. I shall be interested to hear from my hon. Friend the Minister whether and when it is to be published. He may well reply, of course, that that draft Bill would have been based on the Gower report and that we have moved on since then. In any event, it would be helpful to have draft clauses or a draft Bill because I believe that the proposals will work well only if the financial services industry is kept fully informed
Sir Edward du Cann: My hon. Friend might also consider the alternative or additional possibility of using the procedure now established in the House for legislation to be submitted at an early stage to a Special Standing Committee for detailed and careful examination, during which people in the industry could give evidence and have it considered far away from the usual party battles
Mr. Smith: That is a most constructive suggestion. I believe that proposals of this kind, on which there is a consensus, are especially well suited to the Special Standing Committee procedure. That would be a useful additional process. I am anxious that there should be the maximum scope for consultation before the legislation is published. I hope that my hon. Friend the Minister will be able to respond to that
6.23 pm
Mr. Paddy Ashdown: welcome the atmosphere of harmony and consensus which has

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characterised the debate so far—perhaps yesterday's dreadful scenes had a cathartic effect—and I do not intend to disturb it
The Secretary of State seemed to have most difficulty with questions about the appointment of the chairman of the Securities and Investments Board. He said that the Bill aimed to establish confidence both within the industry and among the consumers. I believe that the legislation must also secure the confidence of the British people, no doubt expressed through this House, in one of our greatest institutions which has brought us great advantage in terms of its invisible earnings and its standing in the world. The right hon. Member for Taunton (Sir E. du Cann) said that the people on the boards are everything, and he is absolutely right. They must be people in whom we can repose our confidence. The Secretary of State said that one of the advantages of legislation along the lines set out in the White Paper would be to give a sense of accountability, through himself and through Parliament, to the regulation of affairs on the Stock Exchange. In many ways that is the important principle in relation to the appointment of the SIB chairman
The present proposals will give the Governor of the Bank of England a veto. I can find no other word. The Secretary of State is known for fairly pungent and plain speaking, but if it is not a veto, I do not know what it is. If the Governor of the Bank of England puts in a caveat, and adheres to it, he will be able to prevent an appointment, whatever the wishes of the Secretary of State. In the final analysis, an objection from the Governor of the Bank of England will have a determining effect. If that is not a veto, I do not know what is
The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark, who is also known for pungent speaking, referred to this veto as a constitutional outrage. That may be overstating the case a little, but it is certainly a matter of constitutional concern that the Secretary of State should be giving a veto of that nature to a public servant. The Secretary of State ended by saying that he wanted the House to give its views and that those views would be taken fully into account. I hope that he will recognise the strength of feeling on this in all parts of the House, not least on the Conservative Back Benches, and perhaps think again
According to the Secretary of State, the White Paper has two aims—to make the Stock Exchange a clean place in which to do business, as he put it, and to fit the City out for the future. The first may be easier to achieve than the second, although it is no less important. Whether the White Paper should be supported will depend on the conclusions that we reach about those two aims
Members in all parts of the House have recognised that the Stock Exchange is going through profound changes, due to technological developments, the forces liberated in recent years with the restructuring of various organs of the Stock Exchange and because the whole business has become more intensely international in character. In those circumstances, as the Secretary of State has said, some flexibility is needed. We have no crystal ball to tell us exactly how this will turn out, but if I criticise this aspect of the White Paper it is on the ground that too much flexibility may not be the best option. International operators need to have a clear idea of the general framework through which they are to make their
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investments and the rules within which they must operate. Too much flexibility could lead to a sense of chaos or continual change
On the proposals for the two boards, I suspect from what the Secretary of State has said that we are pushing at a half-open door. The proposed boards will be hybrid in nature, complicated and bureaucratic and, some believe, in many ways unworkable. Damage may well result if the Secretary of State sticks to the present proposals
Mr. Tebbit: The hon. Member should not confuse flexibility with clarity. The flexibility which I seek is that of legislating for a system capable of changing to meet future demands which we cannot at the moment foresee. However, I agree with the hon. Gentleman that the regulations should be clear, and of course they should not constantly change
Mr. Ashdown: I hear what the right hon. Gentleman says. In my view, there is a lack of clarity in the White Paper about what the Secretary of State perceives to be the ultimate destination. As the Gower report made plain, the right hon. Gentleman had three options. He could. have allowed the situation to be totally self-regulatory. We all welcome the fact that he decided not to pursue that option. No doubt he acted in the light both of his own views and of the debate in the House last year in which the opinion was widely expressed that a totally self-regulatory system would be inadequate. The second option was that of a balance between self-regulation and a statutory framework. That is the option which the right hon. Gentleman has chosen, and which Professor Gower predicted in his report would be adopted. The third option—and here I see a lack of clarity—was that of an independent commission. That was the option preferred by many people
We do not know exactly where we are going. The Secretary of State says that it may be a question of two boards, or of one. The Minister says that there is not much difference between a single board and an independent commission. That view is broadly shared. Which of the two solutions is it to be? Is it not important for the Secretary of State to give to the House, the industry, the Stock Exchange and the international investors a clearer idea of his view of the ultimate destination?
I welcome the move from self-regulation to what one might perhaps call a halfway house. No doubt the Secretary of State has been tempted—as we all might be in his position—by the advantages of a gradualist, evolutionary approach, of flexibility, and of the need to build on the present characteristics and nature of the industry. However, the conficence of the industry, especially internationally, would be greatly reinforced, both now and when the scheme is given legislative form, if we had a clearer idea from the Secretary of State of the ultimate destination. From that point of view, it would have been better to take a larger and more courageous step and to say exactly what we want. Would one board really be equivalent to an independent commission? I do not know. It is important that we should have a clearer idea
The right hon. Member for Taunton referred to insurance. Like others, I welcome the safeguards and protection for the purchasers of life insurance. However, I share the right hon. Gentleman's view that we must recognise that people can be damaged to a significant

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extent by non-life insurance too I know that my hon. Friend the Member for Stockton, South (Mr. Wrigglesworth), like me, agrees with the right hon. Gentleman that there is a need to broaden the ambit of the protections so that they will cover others too
Mr. Gould: I agree with the hon. Gentleman that this is a very difficult line to draw. However, his point applies to almost any business transaction. People can be damaged by any foolish purchase. Where would the hon. Gentleman draw the line?
Mr. Ashdown: That is a fair point, but the insurance industry stands alone. It is clearly defined. It would not be difficult, or excessively regulatory, to treat it as a whole. The point made by the hon. Member for Dagenham (Mr. Gould) about damage is valid, but it seems to me that we are taking only half a step when we could take a whole one. We are separating off a portion of the industry and providing safeguards only for those within it
The White Paper must be judged by the two criteria set by the Secretary of State himself. First, will it ensure that the City is clean, and, secondly, will it fit the City for the future? There is some doubt whether these proposals will do the first of those jobs. An article in The Times on 30 January 1985 resorted to hyperbole uncharacteristic of that paper, saying:
"It is impossible to avoid the conclusion that if legislation is enacted on the basis of the White Paper, financial vermin will still be allowed to scamper unhampered through the sewers"
I would not necessarily associate myself with that phraseology, but there is concern that the regulations suggested in the White Paper may well not be strong enough
Will the proposals fit the City for the future? The White Paper is a transitional one rather than one which delineates the ultimate destination. It would be improved by a larger amount of what the Secretary of State has himself referred to—clarity. I welcome its general direction, as did my hon. Friend the Member for Stockton, South. The document contains useful proposals, but perhaps it does not do enough or go far enough
The Secretary of State had an opportunity to create the framework for the future of the Stock Exchange. Unhappily, in my view, he has not wholly done so. He has made a beginning, but the framework is skimpy. Additions will have to be made to it. Others more knowledgeable than I have made the same prediction. The proposals in the White Paper, if they are enacted, will be deficient, although the general direction is welcome. The White Paper, to that extent, represents a lost opportunity
The Secretary of State says that he will be flexible in taking account of the views of the House. I hope that he will be. The White Paper is more a signpost for the future than a clear delineation of a destination. We hope that in framing the legislation the right hon. Gentleman will take into account the opinions that have been expressed, and that the legislation will provide an effective structure for the future rather than a general direction
6.38 pm
Mr. Anthony Nelson: I join others in welcoming the consensus in the House on this important White Paper, and the opportunity that we have been given to lay down some guidelines before the legislation is introduced next Session
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The White Paper marks an important step towards improving investor protection. New markets and new technology bring benefits, but they also bring problems. There is no doubt that the emergence of new markets, such as the unlisted securities market and the financial futures market, have provided new opportunities both within the City and outside it. Easier access to those markets provides new investment opportunities for many people, and information technology enhances the opportunities presented to many people who take advantage of those markets. Many advantages also arise from the increasing competitiveness in the marketing techniques that many financial companies, and many markets themselves, have operated in recent years
However, those welcome factors have one undesirable consequence. Investors have become more vulnerable. The scandalous fraud cases such as have been referred to by my hon. Friend the Member for Beaconsfield (Mr. Smith) have tainted the reputations not just of individual firms but also of long-established markets. Public and international confidence in the City as a free and fair market is in danger of being undermined unless an effective regulatory system is introduced and the law brought up to date
I also pay tribute to Professor Gower, who has stimulated public debate and made recommendations. In his carefully judged interim and final reports, he tried sensitively to bring the Government forward in what they were prepared to accept and propose I think that I can say on behalf of many hon. Members, and without immodesty, that the House has also played its part in the process and encouraged them to be prepared to do what they might not have been prepared to do a few years ago. Gower and hon. Members have played their part. I hope that my right hon. Friend and his predecessors accept that
There is an urgent need for a new framework of protection. Rapid changes in the City make that desirable with the arrival of financial conglomerates and because scandals, failures and uncovered positions are more prevalent in bear markets. Although I have faith that the resurgence of our economy will continue indefinitely, when it comes to investing my own money, I am prepared to bet that, sooner or later, there will be a bear market I know from experience that, in bear markets, uncovered situations and unscrupulous operators are found out and Joe Public suffers a substantial loss. It is the business of the House to try to protect the public from that eventuality. That is why I emphasise that the matter is urgent
The White Paper admits that there will be no legislation before the next parliamentary Session. Such legislation will not be enacted before July next year and it will probably not come into effect until January 1987, unless the bodies are operating beforehand on a non-statutory basis I am pleased to see my right hon. Friend the Secretary of State nodding and thereby seeming to agree that he wants to put the proposals into effect as soon as possible. Many of us would like there to be a regulatory framework sooner rather than later
We must frame laws and a regulatory system, but not just in response to identifiable problems that have arisen. Some fraud cases have already been referred to today. We should provide a durable and flexible regime—those adjectives are not incompatible. Much of the legislation that governs sectors of the financial market has been passed in response to crises or problems and have not proved durable or appropriate. The Banking Act 1979 was

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rightly passed in response to problems in the banking sector in the early 1970s, but it is now too restrictive and does not allow sufficient competition. It does not allow successful banking companies to build up their status within the classifications of banking set out in that Act
Conversely, the Lloyd's Act 1982 was passed slightly before there was a major scandal on the insurance markets. That scandal showed that legislation was necessary. The House should therefore have confidence in its ability to discuss these issues. It should have confidence in its judgment and status and not leave these matters to the City on the assumption that it always knows best. The initial Lloyd's Bill was resented and objected to because it was thought that it would destroy Lloyd's as we had known it. Amendments were made about divestment and conflict of interest, and they were hotly resented by Lloyd's. Nevertheless, the House passed them and, in the light of events, those changes proved absolutely right. We have since heard some objections from Lloyd's about the Act, but the House was quite right to pass such legislation. However, times change and we should not introduce legislation just to redress the problems of the past. We should try to make it endure
Mr. Jeremy Hanley: I thoroughly agree with my hon. Friend. I wonder whether he is aware that the very first Companies Act was introduced in 1696 and dealt with the abuses of stockbroking
Mr. Nelson: My hon. Friend has provided an interesting and persuasive anecdote, but he will know that there have been many Companies Acts since then
The Prevention of Fraud (Investments) Act 1958 was passed when markets were much simpler and more stable. In the 1950s, when we had nil or relatively low levels of inflation and therefore much lower levels of interest, there was a much clearer and simpler distinction between an equity and a bond. An equity was regarded as a risk investment whereas a bond was regarded as a fixed investment with an assured maturity and an assured rate of interest. Whether the interest was paid or the bond was redeemed depended substantially on the view of the quality of the person issuing it. Irrespective of whether it was a gilt-edged security or a corporate bond, there was a much simpler division between debt liabilities and equity liabilities. That division has been broken down, largely because of higher levels of inflation and the increasing volatility of exchange rates
Bond or debt issues are now regarded as much the same as a security or equity issue. One has to make many of the same judgments about a bond or fixed interest issue as about an equity issue. That judgment has to be about currency movements, inflation rates and comparative inflation rates. The fact that a range of debt instruments are now being marketed here and in the United States, where there is a secondary market in mortgages, shows how we have moved on since the 1950s
Against that background, the White Paper rightly makes the case for proper investor protection, while trying to maintain the vitality of the United Kingdom as the world's principal financial market. We should not forget that it generates some £7 billion of foreign earnings, about 2 million jobs and about 7 per cent. of our national income. It should be the House's responsibility to ensure that that prosperity is maintained and the protection of investors improved
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The Government have done much to promote the City's international competitiveness already. We have removed exchange controls, dividend controls and price controls and there has been a significant reduction in stamp duty and an extension of private ownership through the privatisation programme. By no means least, the welcome changes announced by my right hon. Friend the Chancellor on capital gains tax on the futures markets will be influential in promoting the resurgence of those markets
One of the problems of the futures markets is that, since their setting up, and in particular since the setting up of the London international financial futures exchange, there has been a lack of liquidity in the market and a lack of the speculator who performs an essential and indispensable role in the futures market. A substantial reason was the tax restraints on operations in that market which, as I understand it, have now been removed by the Chancellor's statement and will be incorporated in the Finance Bill. I hope that this change will bring about a substantial increase in the turnover, the opportunities and the attraction of the London financial futures markets of all sorts in years to come
I believe that it is essential for the House to recognise the significant role that the speculator plays in providing liquidity to these markets, and the importance of the futures markets to the City of London and our financial system generally. Some have regarded these new arrivals as rather garnish and esoteric, but in my view there will come a time, especially if volatile international economic situations prevail, when corporate treasurers will be judged culpable if they have not considered defraying their liabilities through use of the futures markets. I believe that it is viable, essential and responsible for industrial and financial companies to consider using those markets
Mr. Gould: I agree that there has been a shortage of liquidity in these markets. Would the hon. Gentleman accept that a natural limit may be reached at some point to the amount of money available for speculating in the markets, and that the more financial futures markets proliferate in London and elsewhere, perhaps the closer we will get to that limit?
Mr. Nelson: No, I would not agree with the hon. Gentleman, although I understand the point that he is trying to make. I believe that the London futures markets are ideally placed not only to grow in their own right in the organic way that I have suggested in trying to attract new business from corporate and other clients, but also to take substantial amounts of business from other international markets. If one considers the enormous growth of the Chicago mercantile exchange and, more recently, the establishment of the financial futures market in Singapore, one observes that in the American and Pacific basins there is already an enormous use of these markets
We in this country are well placed to make specialist markets. One example is the Baltic exchange and the other is the gold market where the world price is established every day. We are ideally placed internationally to take advantage of business that arrives on the financial futures exchanges. One of the most used aspects of the futures markets in the United States is the stock index market, which enables managers of investment portfolios to defray risks of adverse movements in the portfolios under their

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control by hedging their risks on the stock index futures market. That has been widely used, and is very attractive and profitable in Chicago. That is exactly the sort of thing that we should be doing already in this country. We are well placed to do it now, and the sooner we can bring this about, the better. I believe that the removal of tax restraints on this aspect of business will allow great prospects for the development of these markets
One of the principal aspects of the debate is whether we should have one board or two in control of the self-regulatory authorities and broadly in overall control of the financial markets in the City. As I have said in the House on previous occasions, in my judgment the arguments for two boards, or indeed more, are shallow and unsustainable. The White Paper admits that no new framework can be legislated for before 1987. In the meantime, two bodies will be developed—the Securities and Investment Board and the Marketing of Investments Board—to the stage where authority can be delegated to them. This may have been implicit in the appointment of the Martin Jacombe and Marshall Field groups, but no argument, other than saying that the bodies will be "function-based", as the White Paper asserts, is adduced in favour of two boards rather than one board
There is, I believe, a suspicion that the underlying reason behind continuing to promulgate the case for two boards is a paranoia about creating any body that could be comparable to, or turned into, an American-style Securities and Exchange Commission. I believe that the reasons for this that were put forward by the right hon. and learned Member for Monklands, East are most unlikely to be valid
In this country, the system of self-regulation is quite different—particularly, for example, in takeovers—and there should and could be no reasonable fear that, were we to establish one body, it would take on the nature of a securities and exchange commission
I believe that there are strong arguments for one board as opposed to two as proposed in the White Paper. First, as the White Paper admits, financial conglomerates encompass marketing and investment business. It would be anomalous and unnecessarily confusing to have two boards. Secondly, the Government recognise that there will be overlapping regulatory responsibilities. Indeed, the White Paper states in paragraph 3·2:
"If the law and the regulatory system are to be clear and fair there must so far as this is possible be equivalence of treatment between products and services competing in the same market."
Such an assertion in my judgment is quite inconsistent with the later admission that there would be overlapping regulatory responsiblities and that anomalies would inevitably arise
Thirdly, and by no means least important, there shall be all-party support for the setting up of the board. This is important not only to avoid future uncertainty over the structure and, therefore, the authority of the regulatory system, but also to ensure that the new board gets off to a good start, that it enjoys some certainty about its future continuation and that it has the confidence of all political parties in the House
One is led to the view again, perhaps for clever political and tactical reasons, that the Government have wanted to be seen to be dragged into the position where they agree to having one board rather than asserting it from the
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beginning. In the gentlest and most constructive way, I have to say to my right hon. and hon. Friends that the House made this view clear a long time ago. It should have been obvious from the views expressed on both sides of the House at that time that that was what the House would wear and that was the inevitable course of events. The Government should have recognised that this is going to be the political reality and that we are not going to wear a different system in law. Therefore, it should have been encompassed in the White Paper
The only reason that I can see for not doing that is either the paranoia to which I have referred—that we are terrified of a Securities and Exchange Commission; or that it might be a Trojan horse which, perish the thought, some future Government of a different complexion might turn into a much more powerful controlling body. But that might happen anyway. One cannot stop those eventualities. Surely it is better to judge on the basis of fact now, consensus and what is desirable, have the courage of one's convictions and state what is right. If the whole House has agreed with and asked for it, why should the Government be seen to be resisting that advice?
Therefore, I express some concern that the Government in producing the White Paper have not responded as fully as I think they should have done to the views that the House expressed. The writing was clearly on the wall in the earlier debate. Why are we now presented with a White Paper that proposes two bodies when it is clear that the House is not going to wear them and that there will eventually be one body? As many hon. Members have said, many parts of the City are themselves reconciled not only to one body, but to the possibility of that one body eventually having substantially greater supervisory powers
I believe that there are narrow conceptual differences between offering and providing an investment service. What is the difference, let us say, between a merchant bank which offers its services generally to people who want to have their investments managed and place their investments with that merchant bank, which promptly puts the investments into a house equity investment fund that is exactly the same as a unit trust—that happens widely in the City—and another situation in which a unit trust actively markets its units to the public? Both are exactly the same, yet under the proposals one would come under the ambit of the Securities and Investments Board and the other under the Marketing of Investments Board. That would be anomalous and undesirable
I too share the reservations about the White Paper's proposals for the Secretary of State to appoint the chairman of the Securities and Investments Board with the agreement of the Governor of the Bank of England—effectively it would be his veto—while the board members would be appointed by the Governor, presumably with the agreement of the Secretary of State. Interestingly enough, and conversely in the case of the MIB, the chairman and members would be appointed by the Secretary of State, not specifically with the agreement of the Governor of the Bank of England but generally with that of the financial sectors involved
Mr. Budgen: Is not this likely to be a very similar sort of agreement to that which is required when bishops are appointed, where the appointment is by the Crown but with the appearance of agreement by other bodies? The Governor is now the servant of the state. He is a high civil

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servant and no longer an independent functionary. It is impossible to envisage that he would refuse his agreement in any formal way
Mr. Nelson: With great respect, I am not sure whether my hon. Friend advances his case by drawing on that precedent. While the Governor may be more tied than he has been in the past, it is evident to many people who have tried to follow these matters that in recent years, for the reasons I gave earlier, just as the prudential role of the Bank of England in terms of covering the fiduciary issue and the monetary aspects of banking control has extended substantially into the equity sector, so the remit of the Governor and the Bank of England has extended in an unlegislated and unenvisaged way into the scrutiny and control of the investment markets
I am suspicious of the role of the Bank of England in these matters. I have the greatest confidence, as I hope all hon. Members have, in the present Governor and his very able deputy, Mr. Walker. But that is not the point. We are not making judgments about the ability of individuals—we are talking about the long-term future and the proper role of scrutiny. In my judgment, there is a basic distinction between looking after the banking and prudential requirements of the City of London and making much more judgmental decisions about investment markets, fit and proper rules, and the sort of organisations which should be involved in investment, insurance and so on. The Bank of England has a wholly proper responsibility in fiduciary matters under the Banking Act, but not in the investments sphere, which is much more judgmental, where the public is far more exposed, where political aspects come much more into play, and where this House, through the Secretary of State, has a responsibility to make the appointments to these relevant boards
Mr. Tim Smith: Is not all this a fuss about nothing, and is not my hon. Friend to some extent belittling the role of the Bank of England? There are few enough people capable of taking an independent and informed view of these matters. My hon. Friend mentioned several individuals presently associated with the Bank of England. Surely they have made an important and constructive contribution to the measures that we are debating
Mr. Nelson: I agree with my hon. Friend. I do not wish for a moment to underestimate or decry the great ability, experience and contribution which members of the Bank of England have brought to prudential supervision of the banking and investment sectors. However, the new investment and futures markets, and the new international aspects of those markets, are of quite a different order. As well as deserving separate supervision, they require different criteria in supervision from those which apply to the banking sector
There have recently been problems in the United States with the Government bond market. I understand that those problems arose because of inadequacies in the supervisory system in assessing the capital adequacy of the companies involved in the secondary gilt markets. This is relevant because the White Paper makes certain recommendations about the gilt markets. If the same body looks at the capital adequacy requirements of the banks and the capital adequacy of a range of investment institutions which may deal in these bonds, there is a danger that the simple application of rules which may be relevant and prudential
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to the banking sector will be wholly deficient for the range of international, small and varied groups which deal in the investment sector. For this and other reasons, a differentiation is required between the financial, prudential responsibility of the Bank of England and investment and equity interests which should be supervised separately under a board or boards, as the White Paper proposes
The White Paper identifies a number of duties for all investment businesses which could protect investors more adequately, such as fair dealing, fit and proper rules and disclosure. The abuses which arise from conflicts of interest within investment businesses have been commented upon and are worthy of some deliberation by this House. In my judgment, no reliance can be placed on the so-called Chinese walls—the practice of trying to keep private one part of a business from another part, of that business
When one looks at the agglomeration of financial businesses over recent years — particularly the acquisition of stock broking and stock jobbing firms by merchant banks and investment companies—one sees that the opportunities for breaching these Chinese wails are infinitely greater than in the past. Anyone with experience of working in merchant banks or the financial sector will, to say the least, know that there is great opportunity for breaching so-called Chinese walls where underwriting is involved. For example, a major company could accept to underwrite a new shares issue on an acquisition, but subsequently all the clients of the Investment division could find that the next day their portfolios are stuffed with the shares of that company, supposedly for the very best of reasons, although coincidentally that investment judgment is made on the very same day as an underwriting issue is made. That happens all the time
As the White Paper recognises, very little reliance should, and can, be placed on Chinese walls. There is all the more need for independent scrutiny, fair dealing and a complaints procedure which is open to investors
There should be a stronger duty on all involved in the investment markets to disclose their activities. However, disclosure should not extend necessarily to naming clients in all the markets. It is important to recognise that in some markets—for example, the metal markets—confidentiality is important. Where major countries are dealing on those markets, the disclosure of identity could prove a major inhibition
There will be some problems in implementing the segregation of funds as proposed in the White Paper, especially in markets which require margin payments. The principle is sound. The White Paper also refers to compensation proposals and says that one or more of three possibilities should be considered to provide compensation to investors. One is the funded compensation scheme; the second is the transferred liability scheme; and the third is insurance. Unlike the right hon. and learned Member for Monklands, East (Mr. Smith), I am much more circumspect about the funded compensation scheme. I do not think that the examples of travel agencies or insurance have necessarily been happy or proper ones. I would place much greater reliance on statutory insurance responsibilities and requirements on operating companies and also on transferred liability schemes whereby the liabilities of individual companies could be assumed forcibly by their holding companies if they were found liable it any action that was brought

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There is a need for much tougher penalties in regard to fraud than the White Paper proposes, particularly for individuals and not just companies. The threat of revocation of authorisation to carry on a business is not in itself a sufficient deterrent to some unscrupulous operators, and it should not be seen as the ultimate deterrent. We have to identify and hammer the individuals involved
I very much support the establishment and work of the fraud investigation group, which has heavy and difficult responsibilities. I hope that Lord Roskill will come up with a more effective procedure in criminal cases of this kind. The Opposition parties should approach the recommendations of the Roskill committee with an open mind. The House has a common responsibility to find a more effective way of dealing with outrageous cases of fraud which up to now have proved exceedingly difficult to prosecute. Even when they have been prosecuted, they have involved an inordinate amount of time and public money. We should consider with an open mind any new procedures. Although the White Paper proposes certain fundamental changes in jury or other systems which Opposition Members and some of my hon. Friends find unpalatable, we have a serious responsibility, given the prevalence of substantial and harmful fraud cases in recent years, to consider radical reforms
A small but significant proposal in the White Paper is the establishment of open-ended investment trusts. The corollary would be a geared unit trust—that is to say, a unit trust which can borrow money. There is a need for the public to be notified clearly what sort of fund they are investing in; they need to know when the risks are commensurately higher
In regard to pensions, the House recognises that there is a need to safeguard the more than £100 billion that is invested in occupational pension schemes. Changes in trust law may be needed. The changes proposed in the Social Security Bill for accounting on the disposal of assets are welcome
As to whether the pension management business of insurance companies should be treated as insurance, as it is at present, or as investments, I believe, as did Professor Gower, that logically it should be the latter. If it is not possible to bring it within that ambit, the proposal in the White Paper that it be brought within the ambit of the board should suffice
My hon. Friend may be able to tell us when he is winding up whether there is a need to qualify the rules on issues and takeovers in statute law. I understand that this may be necessary under an EEC directive. The City Panel on Takeovers and Mergers has done a good job. If my hon. Friend is considering statutory changes, particularly to section 209 of the Companies Act 1948 on the compulsory acquisition of minority interests, I hope he will bear uppermost in his mind the need to protect minority interests and also the need to ensure that some of the worst practices of so-called golden parachutes — whereby directors of companies that are being taken over carve out for themselves enormous redundancy or service contract payments—are stopped once and for all. Such practices bring the City into disrepute and add further to lack of confidence
With those comments, which I hope my hon. Friend will regard as being specifically constructive rather than
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critical, I join others in giving the White Paper a broad welcome. I wish my hon. Friend a great deal of luck, which he will need in framing legislation to satisfy the desires of the House
7.15 pm
Mr. Richard Ottaway: My hon. Friend the Member for Chichester (Mr. Nelson) has shown how skills and experience acquired outside the House can be used for its benefit. The main thrust of the White Paper that we are debating today is that rigorous self-regulation with a full range of powers will provide a fresh climate for the operation of financial services in the United Kingdom. By and large, this is a correct approach and, indeed, the only viable approach, and I am happy to support it
Despite this approach to the problem, the White Paper acknowledges that things can go wrong and properly devotes a chapter to enforcement. It faces up in a somewhat limited way to the question of enforcing the new structure upon those who seek to exploit it by way of fraud. As the hon. Member for Yeovil (Mr. Ashdown) put it in The Times, they are like vermin scamping through a sewer
Responsibility for the pursuit and prosecution of those suspected of criminal offences under the legislation is to be given to the Department of Trade and Industry and the prosecution authorities, which we are left to assume will be the Department of the Director of Public Prosecutions. I should like to wish them well. My only criticism—a constructive criticism—of the White Paper is that it has not faced up to the restrictions and limitations, particularly of an international nature, under which those agencies will have to operate. The Secretary of State, in an intervention in the speech of the right hon. and learned Member for Monklands, East (Mr. Smith), said that it was a matter of the law rather than resources, but I think that it is both
The major commercial frauds of the '70s and '80s have shown up alarming deficiencies in our criminal codes which were drawn up before the explosion of modern technology, particularly in communications, and which have been found to be woefully inadequate to bring offenders to trial and to ensure that justice is done and is seen to be done
The White Paper says in paragraph 3.2:
"Prevention is better than cure."
The difficulty in this country is that in combating the international criminal there is little preventive work of the kind that we see in other areas of crime. The reason is that the crimes are sophisticated and international. There needs to be a high degree of expertise in combating the commercial fraudster and, not surprisingly, it is not always available at local police force level
The most welcome development in this country, in response to pressure for a more aggressive attitude in combating commercial frauds, was the creation by the Government of the fraud investigation group to concentrate more on the large fraud cases. The combination of experts from the Department of Trade and Industry and the Department of the Director of Public Prosecutions should sharpen some of the weaker aspects of prosecution policy, but several limitations remain
Although it is not admitted officially, it is a policy of the DPP not to bring actions against criminals where the person engaged in fraud is a foreign national and where his victims are also foreign nationals. Furthermore, the criminal may also escape the risk of prosecution in the

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country where his victims live because that country may not have jurisdiction to deal with a crime committed in this country
It has also been reported that the police do not intervene when money involved in an overseas fraud is in a United Kingdom bank. In an unofficial response the DPP did not deny such suggestions but pointed out the difficulty of getting witnesses to come from abroad and the cost of doing so. In one case the DPP paid a witness to attend a fraud trial in this country. It put him up in the best hotel at great expense, only to find that the witness withdrew his allegations against the criminal. It transpired that the criminal had returned the money of which he had defrauded the witness and the witness, being satisfied, flew back to Germany. It is obvious, therefore, that having trials with overseas witnesses will cost a lot of money. Governments must be prepared to increase their budgets for prosecutions if it is their wish to make progress in this matter
Notwithstanding the introduction of the fraud investigation group, the great fear on the limitation of prosecution policy is that not only will the lack of prosecutions attract criminals to Britain, especially to London and the City of London, but that their uninterrupted operations will eventually damage the probity of British financial institutions
Some police officers believe that those engaged in international fraud are already aware of the situation and are preparing to capitalise on it. Anyone would be free to come to the United Kingdom, buy a company for a minimal sum, issue innumerable cheques and commit any other type of financial crime as long as no British residents suffered any loss. There is great fear that this country has already become a haven for such criminals
What justification is there for this country to spend more money prosecuting other nations' criminals? The financial services in this country make a substantial contribution to the economy, contributing more than £4 billion a year to the balance of payments and employing a million people. Accordingly, I believe that the price for receiving such a tremendous benefit to the economy is that these areas of operations, particularly in the marine world, must be more thoroughly policed and that some of the resources derived from them should be put back into the policing of them
Hon. Members may have read recently in the press that the notorious fraud which evolved around the sale of cargo of the Salem N and its subsequent scuttling recently came to a head when some of the perpetrators of the fraud were prosecuted in the United States. As one of the intended victims was a United Kingdom company, it is clear that the United States is prepared to prosecute perpetrators of fraud in this country, and we should adopt a similar attitude to other countries' criminals
Many steps can be taken to help the prosecuting agencies in this country. There are loopholes in our law of jurisdiction. If two people operating in this country conspire to commit a fraud which takes effect wholly overseas, they have committed no offence over which the United Kingdom courts have jurisdiction. I am pleased to say that this point is now being investigated by the Law Commission
Furthermore, if the country in which the crime was carried out has no extradition agreement with this country, the perpetrators of the fraud can cheerfully carry on with their business in Britain without fear of extradition or
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prosecution. However, our poor image in the extradition world is now being reviewed in the recently issued Home Office Green Paper on the subject of extradition
On an international level, there are positive moves afoot, primarily by the United Nations committee for trade and development, which is considering sponsoring international conventions for jurisdiction and extradition to cope with the epidemic of marine fraud which is prevalent
Only by true international co-operation will the international criminal be foiled. Sadly, there is no true international police network which can get to grips with combating the international criminal. There is, however, a glimmer of hope. Interpol, despite its glamorous image, has been little more than a communications link between national police forces. It was prevented from being anything other than that by French law, which prohibited the keeping of records. This law has recently been relaxed and it is now open to Interpol to develop an international rogues' gallery. I understand that it is proposed to instal a computer to handle such information. This is a substantial step forward in creating a greater degree of international co-operation in this sphere
I hope that Government Departments, and particularly the Department of Trade and Industry, will make a positive thrust in all these initiatives to protect the investor. It is not enough to say, "If the victim or perpetrator of a fraud is a foreigner, it is not our responsibility". We operate in a truly international climate and there must be a much greater effort if we are to comply with the sentence in paragraph 1.2 of the White Paper, which says:
"All should know that they are doing business within a system which is properly regulated, where fraudulent or dishonest conduct is prohibited"
It adds that people should know that this is
"a clean place in which to do business."
We still have some way to go before we can, with honesty, proclaim that. We are one of the, if not the, leading financial centres of the world and we must put our house in order
7.24 pm
Mr. John Whitfield: When the House first debated this subject, on 22 November 1983 on the Second Reading of the Restrictive Trade Practices (S tock Exchange) Bill, many hon. Members, some of whom are taking part in today's debate, expressed grave reservations about the substantial changes that were taking place in the City
The financial revolution had already started, even at that time. The development of financial supermarkets was already going on, and the technical divisions between the services which had traditionally been provided in the City by separate bodies were being broken down. The new technology had been with us for a long time and had established a completely different world in the transaction of international business
New markets and services were being set up I shall refer to only two. The unlisted securities market was already successful, although it was not a particularly regulated market. There has since been established the international financial futures exchange, which provides an essential service to traders, enabling them to hedge against fluctuating interest and exchange rates
With those changes came the need for improved regulation. The introduction of dual capacity, or even

931
treble or quadruple capacity, was creating a completely new situation, and never was there a time when improved regulation was more needed in the City
Such regulation, in its purest form, just about worked when single brokers, single jobbers and single fund managers dealt with one another. If one broke the rules, more often than not the others would take action. Each had his own axe to grind, and if somebody else tried to blunt it the law of the jungle would usually provide the remedy; and there is nothing wrong with the law of the jungle in that type of situation. It works well. But how could such a system of regulation work if the broker was also the jobber, the fund manager and the bank? Clearly, it could not. Something new was required
Until this week, the small broking houses alone appeared to have been complaining about what was happening, while their better-heeled big brothers had been signing up with the new financial conglomerates beneficial conditional sell-out contracts. This week, Barclays De Zoete Wedd, in embryo—because that firm does not yet exist—declared its hand, not because it was concerned about the future of the minnows but because, perhaps we should say, it was honest enough to declare that, in its view, the conflicts of interest with which the White Paper was concerned simply could not be avoided
The Chinese walls, whatever they were, have already started to fall down. Indeed, I wonder whether they ever existed. Whatever they were, anything less like the great wall of China would be difficult to imagine. When the insurance market at Lloyd's has, for its own protection and that of its reputation, moved towards single capacity, and when the Prime Minister has said that she is implacably opposed to dual capacity in the legal profession—that is, between solicitors and barristers—if the financial services industry wishes to move irrevocably in the opposite direction, as it clearly does, it is indeed time for improved regulation
My right hon. Friend the Secretary of State is on record as saying that that is best done by allowing market forces to operate responsibly, without unnecessary restraints and in a way which promotes efficient and competitive business. A prerequisite, he said, for an internationally competitive industry was a clear, regulatory framework within which practitioners could deal with confidence and — the most important point — which safeguarded the interests of investors
My right hon. Friend said on Second Reading of the Restrictive Trade Practices (Stock Exchange) Bill:
"It is essential that if single capacity goes it is replaced by other protections, and probably the maximum openness and transparency … in dealings would essentially be among them". — [Official Report, 22 November 1983; Vol. 491, c. 190.]
Having read the White Paper, and having heard my right hon. Friend, we must tonight consider whether provision is being made for maximum openness and transparency in dealings. The White Paper is good on general principles, but the detailed rules are still to be settled because they are to be drawn up by the two new regulatory boards
There are four main parts of the White Paper to which I particularly wish to draw the attention of the House. The first and most important is the duty on any investment business to disclose in advance any material interests. We
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have yet to settle what a material interest is, as a material interest to Merrill Lynch might not be one to the owner of 800 shares in British Telecom
Secondly, the investment business must subordinate its own interests to that of its client. Thirdly, there must always be an adequate and reasonable basis for the making of investment recommendations. Fourthly, the failure by omission or mistake will be made the subject of criminal and civil liability and lead to the withdrawal of the right to trade. That latter point is important. The right hon. and learned Member for Monklands, East (Mr. Smith) described it as a draconian remedy, but it is one which the bodies concerned must be prepared to exercise, because if they are not the measure will become weaker than it would otherwise be
Can we be sure, in the new world of financial conglomerates in which we shall have to live, that those close to the market are best able to ensure high standards of business conduct? I hope that they can, but we must not assume that they will. I note that the big investment businesses will have the right to appeal to an independent tribunal on disciplinary issues. I urge that a similar right be granted to those of their aggrieved clients who are not satisfied with the decision of the regulators
I welcome the terms of reference of the Roskill committee which is examining whether trial by jury and the rule of evidence are appropriate for dealing with complex financial fraud cases. This has already been alluded to by my hon. Friend the Member for Nottingham, North (Mr. Ottaway). In cases of financially complex fraud, I wonder whether the traditional concept of the man who is charged being presumed to be innocent until he is proved guilty is appropriate. This is a fundamental matter, but the Roskill committee might consider it. In such cases, the defendants are usually well-heeled individuals, and it would not be a terrible thing if the onus of proof were shifted more on to their shoulders than it is
Criticisms of the White Paper are coming thick and fast, and I am concerned about them. The chartered accountancy bodies in England, Wales, Northern Ireland and Scotland have recently said that they are worried about there being too much regulation. They have said that there must be a clearer definition of an investment business than there is now. Many firms of accountants are forming themselves into mini-financial conglomerates, and I wonder what their true motives are for questioning that aspect of the matter. I think that I can suspect what they are
The British Insurance Brokers Association is concerned about the disclosure of commission. It is saying not that that should not happen, but that it will mislead the client as to the quality of the policies that it is selling. I should not have thought that this was an insurmountable problem. Surely it is not beyond the wit of the efficient salesmen whom the insurance brokers employ to explain to their clients what they are selling, while not detracting from that by admitting that there is a good commission in it for them at the same time. As a solicitor, I have never been faced with this problem, and my profession has always had the rule that if we receive a commission or another benefit from somebody as a result of recommending business of some sort to a client, we have to account to the client for it as part of our financial arrangements with him
The arguments of Barclays De Zoete Wedd have to be tackled head-on. It has argued that the proposals are unworkable. It is clearly suggesting that the projected rules

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should he diluted so that the rule that a company should act in the best interest of a client is qualified in some way. As a solicitor, I find that extraordinary. Should people be relieved of the responsibility to act in their client's best interest, which is what Barclays De Zoete Wedd seem to be suggesting? Should they be relieved of the responsibility to disclose to clients what commission and other benefits they may obtain from a principal in broking? Should they seek to pretend that they are not really carrying on investment businesses when that is what they are doing?
Whatever the views of my right hon. Friend the Secretary of State about lawyers—and I know that he has some views, which he has expressed from time to time—I know that, as an honest man, he will accept that the legal profession has something to offer. Lawyers recognise a conflict of interest when they see it. It is clear enough. The concept of the conflict of interest has to be grappled with, and the financial services industry must be made to recognise it and accept that it is something with which it will have to deal. Therefore, I urge my right hon. Friend the Secretary of State to resist the lobbying of the special interest groups which want him to water down the commendable principles set out in his White Paper and to ensure that those principles are clearly reflected in the detailed regulations when they come into force
I am concerned about the small specialist broker. He suffers many disadvantages compared with the financial conglomerates which are springing up all over the place, but he can provide the personal services which clients have come to expect. He has few difficulties with conflicts of interest, because he operates in a simple world and can see them clearly. If the conglomerates anticipate problems for themselves, perhaps this will enable the small man to compete more easily with them, and this would be no bad thing
I know that my right hon. Friend the Secretary of State is in favour of competition. The maintenance of competition is another reason for the imposition of effective regulations on the financial services industry. Financial supermarkets must be made to conform and to conduct their affairs properly, as decent professional people have done for hundreds of years. Whatever changes have already taken place, and are still to take place, they must not and cannot relieve these institutions of their basic social responsibility
7.38 pm
Mr. Nicholas Baker: I was interested by the speech of my hon. Friend the Member for Dewsbury (Mr. Whitfield)
Normally, I find consensuses of the kind that we are seeing tonight deeply worrying because they usually mean that something is wrong. It may have arisen on this occasion because only one Labour Back-Bench Member has spoken so far
Mr. Budgen: Do not encourage them
Mr. Baker: I shall not do that
I wish to apply to the White Paper one particular test that has not yet been applied — whether it assists to promote the development of the share-owning democracy. This process started in the 1950s, when many people of relatively small means became excited about the buying of shares, and became investors. The process came to a
934
halt under the advances of high inflation, but it is now slowly on the move again, thanks to lower inflation and tax incentives introduced by the Government. The British Telecom share issue will have an effect as well. A system of practitioner-based regulation within a statutory framework is capable of assisting the process
However, the rules must be clear and comprehensive and must be enforced firmly. I caution hon. Members against a system that is infested with lawyers because it will be too expensive and will definitely operate against the interests of the small investor. That is one reason why criminal penalties are necessary, and why self-regulation by self-regulatory bodies is also required
We have discussed at length the two regulatory bodies proposed in the White Paper. I dissent from what seems to be the general view about that. After all, the two boards mentioned have different functions. Although they may be in the same building and although there may be some minor overlapping in their administration, I can see an advantage to the consumer in having boards or regulatory bodies that are closer to the affairs that they are supervising. In the balancing act that has to be performed between self-regulation and a central statutory control, I come down in favour of self-regulation and of more rather than fewer bodies. I was singularly unimpressed by the case put for having one body. The case adds up to it being tidier to have one body and easier for the public because they will know who to write to. Both of those things may be true but that is not a sufficient reason
In practical and political terms, one such body is more likely to lead to an SEC. I was sorry that my hon. Friend the Member for Chichester (Mr. Nelson), who spoke with great experience, did not make it clear whether he was in favour of an SEC or of just one central regulatory body. There is a difference. If anyone wants to see what power an SEC operates, he should look at the system in the United States. An enormous corpus of rules, a massive amount of paperwork and a huge bureaucracy are involved. The work for lawyers is phenomenal. As part of that, there is the supervision of the courts, which is very expensive and heavyweight. If it can be avoided, and if proper protection can be achieved for the investor, it is in the investor's interest that that should be done
I understand from my right hon. Friend the Secretary of State that the Government have given us an assurance that they do not intend to go down the SEC road. I hope that that is so. But I also caution hon. Members against thinking that malpractices will not occur
Mr. Ashdown: Perhaps I can press the hon. Gentleman further on that point. Like him, I gained the impression that the Secretary of State said that the Government did not wish to go down the SEC road. Yet even the Minister, when he questioned my hon. Friend the Member for Stockton, South (Mr. Wrigglesworth), seemed to think that a single board—which the Secretary of State has said that he would consider and might even grant—was the same thing. Is there not a good deal of confusion? On the one hand, it is said that a single board is the same thing as an SEC and, on the other, it is said that we do not want an SEC. Should not the confusion be cleared up?
Mr. Baker: There may, indeed, be some confusion. Some of those who support the idea of one board think that they are supporting a self-regulatory board, while others

935
think that they are really supporting an SEC now, or in a few months time. I hope that my hon. Friend the Minister will clear up that point, because it needs to be clarified
Malpractices will occur in any system. I was interested in what my hon. Friend the Member for Chichester said about the Lloyd's Bill, which I promoted. I shudder to think of the sort of Lloyd's Bill that we would have produced if we had been working in the hysteria of all the scandals that took place after the Bill had come into force. Nevertheless, I believe that the framework introduced by that Bill was sufficient to give people in Lloyd's the equipment with which to deal with the skeletons that have come out of the cupboard
The system set out in the White Paper promotes a share-owning democracy, and so I give it a reserved welcome. I practise as solicitor, and therefore should declare that I have an interest in that my firm practises in this general area. The principle of a professional closed shop is essential to investor protection. We rightly do not like closed shops, but that principle is necessary in order to protect investors who do not know the ramifications of the investment that they are dealing with
Investors can be protected by drawing a ring around a group of trades and requiring qualifications, in return for which those professionals are granted the privilege of earning their living within that ring. I agree with my right hon. Friend the Member for Taunton (Sir E. du Cann) that the quality of the people involved is critical. I believe that the Stock Exchange is still an example of such a ring. When looking at the reforms that have taken place in the Stock Exchange, it is important that we do what we can to preserve the central market as an essential ingredient in investor protection. There is a danger of fragmenting that central market if the liquidity of the market is not maintained, especially in the run up to October 1986, when the Stock Exchange changes come into force
I have some brief points to make on the White Paper, and I hope that my hon. Friend the Minister will deal with some of them. First, will my hon. Friend give us some idea of the costs involved in the regulatory bodies? Secondly, I should like some clarification of the nature of the two boards or the one board, which he might be tempted to substitute if he listens to many of my hon. Friends. Will the board or boards be licensing or regulatory bodies? I hope that they will be licensing bodies. However, the White Paper is not very clear on that point
Thirdly, page 10 implies that newspapers that talk about tips for shares will not require authorisation when they recommend share transactions. Although I am a great admirer of the press and yield to no one in that, I see no reason why it should be excluded. Perhaps my hon. Friend the Minister will consider altering that. Fourthly, there is a reference to information technology. My hon. Friend the Member for Nottingham, North (Mr. Ottaway) has already made an important speech about fraud. As information technology grows, so the types of fraud and the opportunities for fraud will increase. We do not have any idea of the widespread nature of fraud in the computer world as there is a lot of hushing up for reasons that concern, in particular, the banks and other institutions affected by them
Finally, I should be interested to know how the City Panel on Takeovers and Mergers, which is a most effective body and perfectly capable of dispensing swift and
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informal justice, will relate to the boards set out in the White Paper. The City wants to be established as the financial centre of the world, and I see it as the nucleus of the development of the share-owning democracy that we all want to see
7.49 pm
Mr. Alan Howarth: I declare an interest in this subject as an adviser to a merchant bank
Like other hon. Members, I support the approach in the White Paper. The document aims sensibly at a balance between statutory and self-regulation. If I make some observations on possible difficulties, it will be very much against a background of warm support for the White Paper's overall principle
The Government are right to build on the success of self-regulation. It is right, too, that hon. Members should record their praise of the City's record in self-regulation. Of course there have been abuses—the City contains the same mixture of human frailty and virtue as is to be found in any other group of people in any other walk of life. Abuses are deplorable, but it is fair to observe that the City has a successful record in self-regulation. This is ultimately because practitioners in the City understand that it is in their best interests for the City to have a good reputation and to be regarded as a clean place in which to do business
I believe that the majority of the scandals that have come to light in recent years have been in areas where the Department of Trade and Industry was responsible for policing— scandals with respect to Eurobond dealing, commodity trading and licensed deposit takers, all of which have taken place where self-regulation has been undeveloped in the City. The charge that the Department has too often been reluctant and slow to investigate suspicious circumstances may not be without foundation
The White Paper acknowledges that there is a great deal to be said for self-regulation. Practitioners who belong to the culture understand the markets in a way that hon. Members or civil servants in a Whitehall Department cannot possibly do. In paragraph 5.2 the White Paper observes:
"iv practitioners are best equipped to stop breaches of the rules and take swift and effective enforcement action"
That has already been demonstrated to be right
I should like to put in a good word for Chinese walls. I am not sure whether that has been done so far in this debate. It is critical that we should protect investors from abuses arising from conflicts of interest. We must recognise that the developments that are taking place in the City, especially the emergence of new types of financial conglomerates, increase the ways in which conflicts of interest occur. The wording of paragraph 7.4—
"The Government are not convinced that total reliance can be placed on Chinese Walls because they restrict flows of information and not the conflicts of interest themselves"—
seems, however, to betray some unrealism. That statement implies that conflicts of interest can be reduced. I believe that we have to choose—we must either accept that we shall have financial businesses which are diversified and, therefore, carry with them potential conflicts of interest, or say that, for the sake of achieving a system in which the possibility of chicanery is substantially reduced, we shall not have such diversified financial institutions
If we say the latter, we are going along with the policies set out in the NEC document produced some time ago by

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the Labour party, entitled "The Financial Institutions". We would be waving good-bye not only to the new types of so-called financial supermarkets which are emerging, but to the long-established merchant banks which for many years have combined under the same roof businesses dealing in corporate finance and in investment management and which have maintained stout and effective Chinese walls within their premises
The task must be to ensure that the conflicts of interest, which could be removed only at the price of losing the benefit to investors and our national economy of having diversified financial institutions in the City, are clearly recognised, that appropriate standards of conduct are defined and observed and that effective sanctions are established. We must have Chinese walls, and we must ensure that they are high, strong and impermeable. The City has a great deal of experience in operating with Chinese walls. We should not disparage what has been achieved
The chief executives of our financial institutions recognise that one of their most important responsibilities involves preserving the effectiveness of Chinese walls. No doubt, chief executives will increasingly be served by compliance officers, following the American pattern. That may be a good development. Those chief executives should also be supported in the execution of this key responsibility of external monitoring by the regulatory system which we are debating
The wrong way, however, for the regulations to proceed in this is put forward in paragraph 7.5. iii of the White Paper, which refers to:
"a duty to disclose"
and says:
"This would, for example, require an investment business to disclose in advance any material interest which it had in a proposed transacton, the capacity in which it would act, the fees which it would charge, the remuneration which it might receive from other parties interested in the transaction and any connection which it might have with other parties interested in the transaction."
Such disclosures would break the existing Chinese walls and be completely impractical, because the market will not wait while such a rigmarole is carried out. It is better to have a Chinese wall and to make it work. We must remember that it is in the interests of the financial services to have a reputation for probity. That is the best guarantee
I should like to refer to the structure which is adumbrated in the White Paper. Like other hon. Members, I hope that the idea of having two boards will be dropped. I suspect the the White Paper proposes two boards because the Government were responding to the City's lead last year. It is now fairly clear that the City realises that it made a mistake
There are points of difference between the securities and investments side and the marketing of prepackaged investment vehicles. The concerns in common to both sides far outweigh, however, those points of difference. If there are two bodies, there will be problems of demarcation, duplication of staff and information bases and gaps of coverage and problems of reconciliation. The White Paper proposes that authorised unit trusts should be approved by both the SIB and the MIB. It is conceivable that those two bodies might operate differing criteria and standards so that it would not be possible completely to reconcile their dual requirements. I believe that it is sensible to bring the two boards together
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There will be problems in attracting sufficient high quality staff who understand the markets. The problem with secondments is that firms are commonly unwilling to send their best people on secondment; the problem with having permanent staff is that those staff will not be so closely in touch with markets as practitioners. Those people will be, not poachers, but people who have turned into gamekeepers
Hon. Members have referred to the problems involved in securing effective lay and consumer representation. No doubt it will be possible to persuade senior business men to serve on these bodies as representatives of consumers. But it is far more difficult to see how the small investor can be represented. How can that be achieved in an effective way?
Much thought must be given to the substructure of self-regulatory organisations subordinated to the SIB. This is a matter for the SIB to work out. If, as I am sure we should, we are to establish the SIB, it is only right that it should have the time to work out those problems. I simply draw attention to some of the problems with which I think Sir Kenneth Ben-ill and his colleagues will have to grapple
To those hon. Members who say that the policy of the White Paper leans too far towards self-regulation, I would observe that the White Paper leaves a very large role remaining for the Department of Trade and Industry and for other state bodies. The Department, for example, is to keep a check, via the Office of Fair Trading, on rule changes. Indeed, I wonder whether what is set out in the White Paper in that respect may not be fairly cumbrous. The Department is to check the practices of other countries and to make sure that we are in line with them in appropriate ways. The Secretary of State himself will lay down very specific conditions under which unit trusts are to operate, as described in paragraph 9.7
There is to be a regulatory web which will consist not only of the Department of Trade and Industry but of the Office of Fair Trading, EEC institutions, the tribunal, the SIB and perhaps the MIB, self-regulatory organisations, other bodies associated with other legislation, and the courts
I do not criticise the complexity of the structure, because I can see the case for incorporating each of the bits in the jigsaw. I would only say that here is a lot of supervision, many points of reference, and many sources of monitoring. Here is plenty of scope for institutional and bureaucratic rivalry, and here will undoubtedly arise not insignificant compliance costs. While I do not criticise, I certainly would not agree if anybody suggested that this is a laissez faire regime; it is not
We should consider, while we are debating the White Paper, what sorts of firms and organisations will be subject to its provisions. The White Paper rightly states the importance of the principle of equivalence of treatment. Paragraph 3. 2.vi states:
"If the law and the regulatory system are to be clear and fair there must be so far as this is possible equivalence of treatment between products and services competing in the same market. The law should not create artificial distinctions."
I agree with that. However, the White Paper then goes on to exclude — unless I have misread it — some very important categories of investment management from the general approach set out in the White Paper
Among the categories excluded are self-managed investment trust companies, self-managed occupational

939
pension schemes—chapter 11, on pensions, seems to be quite the weakest in the White Paper — and the investment management activities of companies engaged in long-term insurance business. Those are important anomalies, because those are institutions which loom large in the market, and they should not escape the net. Those who are employed in investment activities within such entities are no different from and are as much subject to the frailties of mankind and exposed to the same temptations in their dealings with the markets as those who will fall within the scope of the legislation as it is proposed
I believe that there should not be pockets of exemption or privilege. The people concerned should be brought fairly within the ambit of the SIB's authority, and the practical way for such entities to proceed may be to form subsidiary investment management companies which themselves would be fully subject to the SIB
With regard to enforcement and sanctions, the White Paper states that the boards will be enabled to make rules with the force of law and to ensure that businesses comply with them. Stress is laid on how the boards are expected to monitor and enforce observance, and on the point that enforcement should be vigorous, but the only sanction specifically referred to in the White Paper is the refusal or withdrawal of authorisation
I suggest that there needs to be a middle range of sanctions; indeed, the White Paper says that. In paragraph 15.1 it talks of the boards having power to impose sanctions up to and including the revocation of authorisation, and there is reference to civil penalties for breach of the rules of the board. But the question of the middle range of sanctions—of penalties less draconian than the revocation of authorisation—is not explored or elaborated
There may be legal and constitutional problems in empowering a body such as the SIB to impose fines. Possibly that difficulty could be met by making authorisation by the SIB subject to a contractual commitment by the firm authorised to accept a range of possible penalties. However it is to be achieved, it is important in practice that it should be addressed
The tribunal is cursorily introduced in paragraph 5.11, yet it is obviously a very important part of the whole structure. It is described, indeed, as a "final determinant". Its powers are said to be analogous to those of the courts. But the status, the nature and the role of the tribunal are not discussed in that one short paragraph, and I hope that my hon. Friend, in winding up the debate, will be prepared to enlarge a little on what part the tribunal should play
Still in the field of enforcement and sanctions, I should like to mention the takeover panel. The White Paper invites the comments of the City. It seems to me that the takeover panel should be praised for the success that it has had in its history in exercising what has been a moral rather than a legal authority. At the same time, we should note that it is operating in a fast-changing world. That is why we have the White Paper. The code is now under almost continuous review, and the approach of the takeover panel is becoming increasingly legalistic. We should also note the modern tendency of aggressive advisers and principals involved in take-overs to hit first and take rather lightly the panel's reprimands
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There are obvious difficulties in doing so, but I wonder whether we should now incorporate the takeover panel in the new regulatory structure, backed by statute, while seeking to preserve its flexibility and the speed of response which has been a good part of the reason for its success
It is right to provide this opportunity for self-regulation. The City knows that if it fails to take the opportunity now being held out to it, a heavier handed approach by the Government will be inevitable. The City has its chance, and I believe that it will take it. We should also do well to recognise that there will be no bouquets for anyone on the political side. The absence of abuse and scandal will create no sensation, but if we can maintain the absence of abuse and scandal, and create a framework of circumstances in which financial services in the City can continue to prosper and enhance their reputation and their contribution to our national well-being, that will be sufficient reward
8.8 pm
Mr. Nicholas Budgen: I want to make a single, wide and perhaps political point, as opposed to dealing with important points of detail
I have a couple of interests to declare. I am a provincial barrister, so I am a parasite on the back of provincial solicitors I am also married to a solicitor who intermittently practises as a conveyancer. I say that because I want to look for a moment or two at the large financial conglomerates that will be created after the big bang
My right hon. Friend the Secretary of State for Trade and Industry said that there had been many changes and that we had come a long way. Indeed, we have come a long way
On 27 July 1983, when my right hon. Friend the Member for Hertsmere (Mr. Parkinson) announced the agreement in principle between himself and Sir Nicholas Goodison, he said that he intended to safeguard the position of investors by the separation of the functions of brokers and jobbers, and he said that the Stock Exchange would continue the rules prescribing the separation of capacity of brokers and jobbers. Yes, we have come a very long way, and I want to say a few words about protecting the small investor, and particularly the provincial investor
It is now quite obvious that there is a consensus trying to put forward the argument that the problems of conflicts of interest are exaggerated and can be overcome. On the one hand, there is the ministerial argument, the loyal, necessary ministerial argument, explaining that, While the Government were previously a firm supporter of the separation of capacity, they now believe that, by various rules, it will be possible to overcome the conflicts of interest. On the other hand, within the City, whereas before 27 July 1983 everybody explained that, from the point of view of the investor, the stockbroker was more a professional than an entrepreneur, and certainly more a professional than a bureaucrat, now it will be possible to achieve the advantages of all three worlds without the investor being troubled in any way
It has to be said that the advocates of that new view had substantial inducements to persuade their audiences. There is hardly a person connected with the City who is not in some way involved in the changing status of the stock market. The big institutions are purchasers of parts of stockbroking firms, and they are purchasers at very substantial capital sums. The big stockbroking firms are

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all sellers and, again, they are sellers at very substantial sums. I have no doubt that if I had a million quid perilously near to going into my back pocket, I would become, if not a more persuasive advocate, at least a very persistent one. Indeed, they are very persistent. They keep arguing that those conflicts of interest can be overcome by a system of Chinese walls. They may be right—I do not know. As I said, I am putting forward this argument from the point of view of wishing to safeguard the position of the small provincial investor on the Stock Exchange
My hon. Friend the Member for Chichester (Mr. Nelson) knows a good deal about the details of the way in which the markets are organised. He rather doubts whether Chinese walls will work. My right hon. Friend the Member for Taunton (Sir E. du Cann) spoke rather guardedly about the advantages of specialisation, which I took to mean that he was also saying that he rather doubted whether Chinese walls would work. My hon. Friend the Member for Dewsbury (Mr. Whitfield) is firm in his view that Chinese walls will not work. He is supported by the report in yesterday's edition of The Times, in the section devoted to finance and industry, in which we find that the proposed firm of Barclays de Zoete Wedd, which is a splendid amalgamation of a clearing bank, a stockbroker and a stock jobber, says that the proposals for Chinese walls are unworkable. As The Times said, the firm is busy getting in there to make sure that the rules are changed so that it can get the advantages of either weaker or lower Chinese walls
I do not know whether all this is going to work out, but plainly the Government must be taking a bit of a risk. After all, they authorised the initial move — the deal that pulled the crucial few bricks out of the dam on 27 July 1983. The Government are desperately trying to reassure everybody that that initial move, which was refused by previous Secretaries of State, is wise. Let us hope that the risk comes off. There will be great reorganisations in the City. Perhaps the new rules will work. Perhaps the new rules for some form of self-regulation within a statutory framework will work. Let us hope that they do
Those institutions will have severe problems. Let us take for a moment this tripartite body Barclays de Zoete Wedd. Everybody knows the nature of the clearing banks. They are largely bureaucratic organisations. On the whole, they lend money and carry out their services according to bureaucratic rules that are handed down through the regional offices to the branches. There is nothing wrong with that, but they are neither entrepreneurial nor professional bodies. Anyone who deals with them knows that he is not dealing with the same sort of animal as the stockbroker who may have been advising his family for two or three generations, and who knows a good deal about his background and the risks that he wants to take
In the same way, de Zoete and Wedd are quite different organisations. Even more different will be those organisations that are now dominated by foreign money, with different attitudes towards business and different national attitudes towards the handling of money. Those institutions will take a bit of time to settle down. Let us hope that the Government are right in saying that there will not be major scandals or problems. However, it is a risk
There is an institution in our society that provides some independent advice to the Widow Twankey — the perhaps ignorant provincial investor. That person giving the advice is, on the whole, the much maligned provincial solicitor. That person used to have a theoretically
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indefensible conveyancing cartel. Understandably, that was attacked by the Government. They have been successful in that attack. It was not primarily the Government who broke the solicitor's conveyancing cartel. What happened was that there was an over-supply of solicitors, because it is relatively cheap to educate a solicitor. As a result, the cartel was breaking anyway. It has now broken. I am informed that in the past two years conveyancing costs have fallen by 30 per cent
How could this factor of independence — the provincial solicitor—have his position further eroded? It could be severely eroded if banks and building societies were able to undertake conveyancing not only on behalf of themselves but on behalf of their clients, the customers. I do not wish to offend the manager of Barclays bank in Wolverhampton, but I shall use him as an example for the sake of argument. The manager of Barclays bank in Wolverhampton could be organising the mortgage and conveyancing for both the purchaser and the seller of the house. For instance, Lloyds bank in the Midlands also has its own estate agency, the Black Horse estate agency. There would be an inevitable and serious conflict of interest because, when solicitors do the conveyancing, they warn people about the legal problems, but they also act as an independent source of financial advice. If the work of solicitors, particularly provincial solicitors, is taken over by about 15 of those mega-institutions, an important source of independent advice will go. That is most important to the small investor
If the mega-institutions rip off some of the other institutional investors, they will not rip them off more than about twice. The institutional investors have plenty of ways to check the quality of the advice and service that they receive but the small provincial investor does not. I invite my right hon. Friend the Secretary of State for Trade and Industry to read what I thought was a very good leader in last Monday's edition of the Financial Times. It dealt very well with this point
When these mega-institutions have settled down. it is possible that different arguments will act upon my right hon. Friend's mind. Everybody knows that there was a dispute in the Cabinet about the conveyancing done by solicitors when the matter last came before the House. It is well known that my right hon. Friend the Secretary of State for Trade and Industry was on the side, as he saw it, of radical reform and more competition. He may wish to advance that case again. However, these very new institutions, with their untried system of regulation, ought to be allowed to settle down
Although it may not be the most efficient system in the world, this independent professional advice is much valued by the small investor. The 7,500 principally provincial firms of solicitors act as a wonderful counterbalance to these large and untried mega-organisations. If we make the mistake of undermining the centres of independence represented by this large number of solicitors, I believe that we shall reap a terrible harvest if the City becomes infected with serious fraud. By the decision that they announced on 27 July 1983, the Tory Administration started all these changes and did not anticipate all that would happen. It would be very much in the Tory tradition to go slow on this issue and to make sure that we get it right before we put in train yet further changes
8.21 pm
Mr. Stuart Holland: I apologise to the House for the fact that I shall be unable to be present throughout the debate, although I understand that my position is shared by some hon. Members
There are possibly two good recommendations in the White Paper. I would not put it higher than that. Paragraph 10.9 says:
"an insurance broker entitled to commission from an insurance company for a particular policy should disclose that payment".
Paragraph 10.11 says:
"it should be made clear to the purchaser in every case that the agent is not holding himself out as offering impartial advice"
when he is representing a company. Such provisions are useful
However, I share the views of the hon. Member for Wolverhampton, South-West (Mr. Budgen) who drew to the attention of the House the difficulties and problems posed by financial conglomerates in whose hands there has been a vast concentration of financial power during the past 150 years. I believe that at the time when Ricardo was a Member of Parliament there were 350 independent retail banks. There are now four major banks which account for about 85 per cent. of all business. The attention of the House has been drawn to the difficulties and conflicts of interest which would arise if they were to handle conveyancing for both buyers and sellers in individual transactions
I believe that the White Paper is inadequate. The Secretary of State could have done better if he had acted in association with his right hon. Friend the Chancellor of the Exchequer. If we address ourselves to the wider implications of a framework for investor protection, it will involve a securities and exchange commission. I note that a claim is made in paragraph 5.2 on page 13 of the White Paper that:
"The main advantages of a system of self-regulation within a statutory framework are as follows:

i. it offers the best possibility of combining adequate investor protection with a competitive and innovative market."
The American market is hardly regarded as uncompetitive or as one which is not innovative. Risk capital in the United States is more readily available than it is in this country. That is not only because of the dynamism of the large internal market; it relates also to the financial institutions in the United States. Those institutions are subject to a Securities and Exchange Commission which has far more specific powers than the Government's proposals. They amount not only to a statutory framework but to the equivalent of what we call statutory powers. I believe that my hon. Friend will be dealing with this issue, upon which he has my support
On the concentration of financial power, it is not simply a matter of what is happening between big and small financial institutions. The recent figures from UNCTAD show that 200 service companies — these are mainly financial service companies—account for one third of the world's gross domestic product. We are referring to financial institutions which are literally global in reach, just as the London stock market, the London insurance market and Lloyd's are global in reach. We should be operating not only within a framework of national or Community legislation but within a wider international framework within which the basic issues can be addressed and where savings — whether they be unit trusts or pensions—can be translated into investment, rather than simply providing a framework whereby money is made
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from more money on the speculative assumption that the growth of output and productivity in the world economy or in the British economy will ensure that those investments are safely based
When these matters come back in the form of specific legislative proposals, I believe that it should be possible for there to be not only protection in the case of pension funds for individuals but a protection that is wider than the bland reference to caveat emptor or to the buyer protecting himself or herself. The Government should make it possible for local authorities or for trade unions to invest either the whole or a proportion of their pension funds in this country so as to create jobs here.One has to consider the spreading of risk. It would not be a sound financial investment for employees to invest only in their own companies, even if those companies enjoyed the stability of Imperial Chemical Industries or the General Electric Company. At metropolitan authority level it is not only wise but a very sound investment in one's own future to ensure that a proportion of the savings from one's earnings are invested in the regeneration of industry in some of our inner city areas. The Government have not dealt with this issue. I lament the fact that the Government's provisions make it extremely difficult for local authorities to ensure the investment of pension funds in their own enterprise boards or in the promotion of industrial activities which could regenerate inner city areas
I support the remarks of the right hon. Member for Taunton (Sir E. du Cann) who regretted that household insurance is not dealt with in the White Paper. There have been reports of major commercial insurance companies red-lining inner city areas where burglary and theft rates are higher than the national average. That is a matter of grave concern. Giant financial conglomerates, as the hon. Member for Wolverhampton, South-West described them, can spread their risks across the country as a whole. If there is any justification for the domination of the market by companies such as Commercial Union, Royal Exchange, and so on, it should be that by spreading the risks they also spread the cost to themselves rather than imposing higher rates on people living in inner city areas. Many people in areas such as mine simply cannot meet the ever-increasing rates for reinsurance
Some leading insurance companies are also delaying payment of claims in inner city areas for considerable periods. I have been told that a person putting his foot through a garage roof in Surrey can expect to receive a cheque probably within 48 hours and certainly within a week without any inspector calling whereas claims from residents in inner city areas are subjected to evaluations, re-evaluations, delays and procrastination. Caveat emptor may be very well, but the buyer is in a very unequal situation vis-a-vis the major insurance companies. Buyers cannot bargain with the companies about the terms on which the service is to be provided—I understand that one leading company has simply decided to reduce if not fail to renew certain types of inner city insurance—but the companies are bargaining about the terms and the times within which the service will be provided
Finally, on pension funds and investment, I urge the Government to bear in mind the effect of the liberalisation of exchange controls, to which they so casually and even flippantly refer at the beginning of the documnent as "a boon". Paragraph 2.6 states:

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"The Government have taken action to improve the climate for enterprise. Price controls have been ended. Controls over dividends, foreign exchange transactions and lending on hire purchase have been dismantled."
In fact, since the controls on foreign exchange were ended £50 billion has left this country for investment abroad in the industrial modernisation of our competitors. That is some 10 times the amount of investment in British manufacturing industry in the same period. The White Paper is sub-titled
"A new framework for investor protection."
But the the ultimate framework for investor protection is a framework which protects our own investments by investing our own funds in our own industry and economy. If the Government do not address themselves to that, and if they cannot ensure that the financial institutions are really accountable to people in this country, they will pay more than a financial penalty when they come to the polls
8.33 pm
Mr. Jeremy Hanley: I congratulate my right hon. Friend the Secretary of State and his colleagues and also Professor Gower not just on the White Paper but on the excellent work behind it. The debate has been calm without any of the heat or games of musical chairs that occurred yesterday. Too often, the heat generated fails to serve the nation as we claim to serve it. Today's debate, however, has been almost as calm as some people regard company law. Some even regard it as boring. I disagree with that view, but I have to declare an interest as a company lawyer. The debate has also been a far cry from what Professor Clive Schmitthoff described as the panic-stricken Parliament which, early in the history of company law, repealed the South Sea Bubble legislation
The White Paper brings up to date our recognition of the sophistication of the modern city, its institutions and its new products as well as an appreciation of the dangers for the unwary or inexperienced investor. The Government have a duty in this area. They have done more perhaps than any other Government in history to promote individual investment, bringing millions of people into share ownership. Those holding investments for the first time may wonder what it is all about. One thinks of the people who perhaps fell prey to some of the clauses in the British Telecom prospectus because they did not read it carefully enough. Having offered people that temptation to invest, the Government must now lead and guide them in the ways of investment and of the City. There is nothing frightening about the City or the world of investment except ignorance. In that respect the White Paper does a great service, especially to new shareholders
In today's world there is a greater interest in the world of investment and financial matters. Television programmes have never been better. The "Money Programme" has reached new highs of late because more people watch and criticise programmes of that kind and the television companies want to reach a wider audience. The Times Portfolio, too, has brought many people into daily contact with the Stock Exchange share list. Not having won a penny so far, I wonder about its usefulness in my area and I certainly have no interest to declare in that respect.
The White Paper hits the nail right on the head when it states:
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"Regulation cannot eliminate risk. Profits and risk run together. Investment … entails taking deliberately considered risks"
but that we need
"to reduce the scope for losses resulting from fraud, or from Ihe concealment of risk."
In that context, I welcome the requirement for increased publicity in many areas, especially in relation to the independence of advice, and particularly with regard to commissions. The hon. Member for Vauxhall (Mr. Holland) is absolutely right. We need to know about the independence of advice to assess whether it is tainted by the prospect of commission. It does not matter if an adviser receives a commission, so long as it is both disclosed in percentage terms and quantified in amount. That is a strong and very welcome provision in the White Paper
Professor Gower, in his excellent and most readable book on modern company law, reminds us that publicity is the most potent safeguard against fraud. For the benefit of my colleagues in the alliance, I should point out that I believe that that observation was originally made by Gladstone. Nevertheless, it rings well in Professor Gower's book. Publicity is indeed the most potent safeguard against fraud. That is why the phrase "open and above board" means so much, especially for those who trust in self-regulation
The main question, however, must be whether the White Paper has got it right. As a chartered accountant specialising in company law, I am often accused of wanting ever more company law. I am indeed a member of a small and passionate band of people who believe that a copy of the new consolidated Companies Act should be placed in every hotel bedroom, if only to encourage sleep. That is one of my little quirks. I believe that there is a need for guidance, not for too much legislation. Too much legislation leads to eradication of legislation through boredom and ignorance. If there is too much law people ignore it, and if it is too difficult and costly to ensure that the law is enforced people turn away from it
The White Paper provides for a statutory framework within which professional self-regulatory bodies wall work. I believe that that is the right balance. It keeps the law to a minimum. I mentioned earlier that Parliament's first venture into company law was in 1696, against the abuses of stockbroking. That law was brought in because it was desperately needed. Law has been created as it has been required and not always in panic, as in the case of the South Sea Bubble. The process can go too far, but I believe that the White Paper creates the balance and the trust that is needed in self-regulatory bodies. I believe that that trust is well placed. I should declare an interest as a member of three self-regulatory bodies. All three happen to be exempted by these provisions. I am grateful to my right hon. Friend for that
Self-regulation has stood the test of time. However, coupled with the trust that self-regulation has to command, there must be a rigorous enforcement of the regulations and a powerful and public back-up by the Government in the form of actions for personal compensation or even criminal behaviour
There must be no quiet, gentlemanly deals when the regulations are breached. There must be full public exposure of those who break the responsibilities of trust which they have undertaken, and who lower the standing

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of their colleagues and damage the public's faith in them. The exempted bodies, too, if they breach the trust that we put in them, should be accountable
Law is needed to give guidance to those seeking to invest, those who actually invest and those who seek to live off the proceeds of investment. Some people want more and tighter legislation. Some believe that the Stock Exchange is no more than a glorified betting shop, with better clothes and better accents. They are wrong, because they do not understand the benefits that derive from betting shops. Without on-course and off-course betting we would not have the bloodstock industry which is one of our great export earners. Without the Stock Exchange, there would be no encouragement for the private investment that is vital for a healthy economy
Mr. Beaumont-Dark: It is late at night, and my hon. Friend may be tired, if not somewhat temperamental. However, is he suggesting that the Stock Exchange is no more than a glorified betting shop? If so, as a chartered accountant, he should go back to his textbooks
Mr. Hanley: It may be late, but I do not feel temperamental. Perhaps my hon. Friend is tired and that is why he did not quite hear what I said. I said that some people feel that there is little difference between the two institutions. I denied that suggestion vehemently. Without a healthy Stock Exchange, and healthy brokers and jobbers working within it, there would be a tremendous failure of private investment. We need private investment. We need a healthy and well-regulated Stock Exchange. I believe that the White Paper will create it
I welcome many parts of the White Paper. I welcome the freeing of unit trust restrictions, separate clients' accounts for money and the disclosure of commissions. I do not share the fears about the two bodies, the Securities and Investments Board and the Marketing of Investments Board, which some hon. Members have expressed. In his excellent speech, my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) outlined the problems of the two bodies. I believe, however, that setting up those two bodies will be the best way to get the regulatory process off the ground. The White Paper clearly allows for the two bodies to become one if the demand and the need are there. That admirable flexibility is a trait of the White Paper
I have a few regrets. I am sorry that cold calling has not been banned. I believe that a cooling-off period is the best way of dealing with cold calling in matters such as hire purchase credit transactions, where the person at home can assess the value and the cost of the product, and the total liability. It is difficult to assess long-term undated investment contracts and I therefore think that cold calling in that sphere should be banned
Unsolicited telephone dealings should also be banned. These are not mentioned in the White Paper. Telephone calls by those seeking to sell financial services are an intrusion in private life from which more and more people are suffering. At best, the practice is an annoyance; at worst, it is a personal threat
I also regret the lack of wider lay representation within the regulatory framework. I regret the lack of an independent body to deal with complaints by investors. There should be, perhaps, an independent ombudsman or observer to deal with the many complaints that are bound
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to arise over the years. Many complaints from members of the public will not be the result of misdealing. The losses will be the result, not of deliberate fraud, but merely of the pitfalls of investment. The news that the investor has simply had bad luck might be better received if it came from an independent adviser rather than from someone directly involved in the investment business. There is no guaranteed profit in investment
Despite those few regrets, I welcome the White Paper and the legislation that will flow from it. The legislation will be modest, but its importance will be great
8.46 pm
Mr. Charles Wardle: I should declare a somewhat tenuous past interest. Many years ago I was a junior employee in the corporate finance department of a major merchant bank. Years later, I emerged as one of its smaller customers. The latter experience was considerably more enjoyable
I welcome the White Paper as an imaginative and constructive initiative that will serve the City well if it aspires to continue as one of the world's foremost financial centres
Like other hon. Members, I wish to talk about Chinese walls. Earlier in this Parliament, when my right hon. Friend was able to tell us that the council of the Stock Exchange had come to terms with the desire of the Director General of Fair Trading for fundamental reforms in the operation of the stock market, it was inevitable that the pace of change in the City would quicken. Minimum commissions would have to go, and dual capacity would become a fact of life; the number of mergers that crossed specialist City lines would increase and the foreign finance houses would rethink their strategy for the London market. There have already been many signs that the City is on the move
Against that background, it was essential that there should be a thorough review of the changing structure of financial services and of the need to protect the private investor, the investment institution and the corporate trust market. In a state of rapid change, the City needs to demonstrate that a practical and effective regulation exists that has the confidence of its own practitioners, domestic and foreign, of all its customers and, of course, of Parliament
The White Paper does much to point the way to an appropriate system of regulation. The Government's welcome intention to introduce legislation fits in well with the many other steps that they have taken since 1979 to improve the climate of enterprise and competition in this country. The White Paper has special credibility because it recognises the growing use of new technology in the City and the emergence of new market mechanisms such as the unlisted securities market and futures trading
The day of the financial conglomerate, or financial supermarket, has arrived, bringing with it dual capacity. We must strike a careful balance between the dangers of over-regulation and those of leaving every investor vulnerable to market abuses
One area of the White Paper requires further amplification. The White Paper touches only fleetingly on the core of one of the City's principal bases—merchant banking. I am thinking especially of the inter-relationship between the huge sums quoted in invested securities and the advice given by merchant banks to corporate customers whose securities are at least in part the object of that huge

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investment — in other words, Chinese walls. It is surprising that there is no attempt in the White Paper to highlight the modus operandi of the merchant banks. I do not think that the merchant banks are mentioned at all. The leading merchant banks, especially the acceptance houses, run billions of pounds worth of investors' money under their own management in the form of pension funds, unit trusts and private accounts. They also provide corporate financial advice, and many of them have active banking departments putting together commercial credits. They therefore fish with three or more lines in the same pond
The new conglomerates will have even more lines in the pond. Some people in the City ask what would be the reaction of an investment institution — say a pension fund—if it was approached by the department of such a conglomerate which makes the price in, for example, ICI, and is persuaded by that department to take a line of 1 million shares, only to hear the next day that the same conglomerate's corporate finance section is announcing a rights issue for ICI. We shall see what happens—it is bound to happen sooner or later
It is said that some 50 investment managers in the City now run 65 per cent. of all of the funds under management, and many of them are attached to major merchant banks. No doubt they are expert and responsible, but we cannot escape the fact that, Chinese walls or not, they come under the same parent company umbrella as the City's leading corporate finance practitioners. Although not every merchant bank with a large investment department is necessarily prominent in corporate finance, the converse is true. No merchant bank which takes a leading role in corporate finance does so without its own large investment department, and the placing power that such a department brings. For all the arm's-length arrangements which merchant banks might honourably devise, the influence that they can exert as lead underwriters is in direct proportion to their unquestioned ability to take a large piece of the underwriting in any market exercise. That is not necessarily a bad thing as we need the investment muscle of the large City underwritings — the recent example of British Telecom springs to mind
Bearing in mind the fact that the price of a share on an offer for sale, or the price at which a rights issue is pitched, or the exit price of a share in a takeover offer—which is of real interest to every investor in those shares, small or large — is fixed by the corporate finance advisers in merchant banks which, very likely, have large equity positions of their own in the company concerned, it cannot be right to set aside the possible conflict of interest
The White Paper acknowledges that problem implicitly in paragraph 7.4, and it is right that the subject has been given greater emphasis in today's debate. The White Paper also refers to the regularising of offer documents. I understand that, at the moment, there is no requirement on a merchant bank adviser to state in the notes to an offer document what number of shares that bank's investment department holds in the company which is the subject of that offer document, unless it holds more than 15 per cent. Nor is there any requirement, when fixing a merchant bank's fee for a corporate finance transaction, to throw any light on the bank's equity interest, directly or indirectly, in that client company
I know that corporate finance fees are subject to their own magic formula. I suspect that it is simply a matter of what the market will bear. It boils down to the ability of that merchant bank to get an underwriting under way. That
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comes back to its placing power and therefore to its investment department. So much for Chinese walls. It should be remembered that all those fees are of at least indirect interest to every shareholder in the company concerned. My fear is that, unless forthcoming legislation probes more deeply into the potential conflict of interest between corporate finance advice and investment management in the same organisation, there will inevitably be circumstances in which the ordinary investor is given a raw deal by what amounts to the City's own brand of collectivism. That will lead to demands for an end to self-regulation, and the end of imposition of an SEC-style operation. That would be a retrograde step
I should like to direct a question to my hon. Friend the Minister concerning paragraph 13.9 of the White Paper, which is about section 209 of the Companies Act 1948. The White Paper says:
"The objective is to ensure that the 90 per cent. majority whose assent to a take-over enables the minority's shares to be acquired is genuinely independent of the bidder"
As a principle, that makes a great deal of sense, but I should like to give an example. If a company acquires up to 14·9 per cent. of another company in the stock market and, acting in concert with other parties, builds up a stake of 29·9 per cent. and sits on it, when it bids for the offeree company, it will be bidding only for the outstanding 70·1 per cent. of that company as it has effectively previously taken the other 30 per cent. out of the trading arena for some time. If the proposed change means that the company must then bid for the 90 per cent. of the remaining 70 per cent.—another 63 per cent.—that will bring the acquired total to 93 per cent. of the company before section 209 can come into play
If that is the right interpretation, my right hon. Friend is making an excellent proposal. However, I draw his attention to the subsequent interests of minority shareholders if they should wish to draw attention to affairs in the company by requisitioning an extraordinary general meeting. I understand that the Companies Act now requires that an extraordinary general meeting can be called only if 10 per cent. of the shareholders want it. If, as a result of changes in section 209, there will he an outstanding balance or minority of just 7 per cent. of the shareholders, does my hon. Friend think it right that they also should have the right to requisition an extraordinary general meeting if they want to highlight various aspects of the company's operations?
I hope that my hon. Friend the Minister has borne with me during that rather convoluted question. I look forward to his answer. Like other hon. Members, I hope that he will think more carefully about Chinese walls
8.55 pm
Mr. Anthony Beaumont-Dark: I feel humble and grateful for being allowed, as the only stockbroker to have been in the House throughout this long day, to say a word on this financial paper which so affects the Stock Exchange. I am sure that it is proper that those who have discussed the matter first shall be the last to be considered
Changes are obviously necessary and we are living in a time of change. Lloyd's has been changed, as have estate agents, building societies and banks. Even solicitors are being asked to change. Needless to say, the sole group with a great interest and which affects the country and has not been asked to change is banisters. They are not being

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asked to change their habits, which are so expensive and which afflict and affect the country, because the House, and that other House along the corridor, is bulging with barristers. Perhaps they will be harried into a new world in due course, along with stockbrokers, solicitors and accountants. The sooner they are, the better, because it is there that the change is most needed if those people who seek justice are not first to court financial ruin in protecting their reputations or their businesses
With the Government hurrying along because of promises rashly given about the future of the City and modern technology and communications now at the speed of light in a worldwide sense, it is right that the City of London, which in my view has always accepted change in the sense that it has usually led that change—and it is still the centre with the greatest name for integrity and inventiveness—is willing to join in the changes of the world. If the City of London does not compete, it will undoubtedly die, and, happily, it is in no mood for that
We should be aware of some of the implications of the White Paper which the City as a whole and certainly I think has much to commend it. It is not a matter of the City being worried that commission rates will be changed. It is of course right in today's world that people should be able to challenge and to deal with a broker or an agent of their choice so that they can negotiate commission. I hope that when a Bill is presented there will be discussions with the Stock Exchange and the City in general of what is best for the people. This means the small investor. The big investors throughout history, like all big men, whether they be barons or landlords, have always been able to take care of themselves. When people like David Hopkinson of M & G, one of the greatest originators of the unit trust industry, and Cholmeley Messer of Save and Prosper—two great companies that have stood astride the growth of the unit trust business and for its small investors—say that they doubt whether any of the proposed changes, including the reconstitution of the Stock Exchange, are in the interests of the private investor, at our peril do we ignore the warning
It is not just self-interest. If to be self-interested is to be at fault, the House would be ever silent and in darkness, for all hon. Members are in Parliament to comment upon one interest or another. The great interest that all hon. Members are here to debate is that of the people at large
One matter that worries the Stock Exchange and the City is that the Government, in their anxiety to rush into the new world, are showing a complete lack of willingness to support the Stock Exchange against the fragmentation of the central market. They have refused, I think regrettably, to make sure that, when the change-over takes place, it happens in an orderly manner. I believe that it will be disastrous to the future stability of the market if the Secretary of State for Trade and Industry continues to stand on one side and does not allow an orderly transition to ensure a true stability in the market
I believe that we are now entering a period of a framework that is made for the thundering herds of finance. It is not made for the small flocks. It is made for the great conglomerates and those who in my view will become a kind of supermarket of the financial world
In the debate in January, I commented that, although one welcomes change, the worst outcome is that power might be concentrated in the end in a few great hands. We
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have now built up in the country a system of four great banks. As we are now proceeding, I believe that we are likely to end up with four great constitutions which will stand astride the financial world, and that people will be able to deal only through their grace and favour
We are now entering a period of dual capacity. It cannot be right for a man to be able to act as an agent and a principal, because when times become difficult I do not see how integrity will survive that
We can talk of Chinese walls, Hadrian's wall or any other walls. That can be done when markets rise, because everyone makes profits and everyone is happy, just like a children's party where everyone gets a prize. But markets will fall again. The whole basis of life is an ebb and flow of prosperity and division. When they fall 100 or 150 points, what price then our Chinese walls? They will be looked upon as walls of glass, because people are willing to believe only what is in their own best interests. If it applies to politicians, why not to those with their own financial interests?
I prophesy that dual capacity will cause more trouble and heartaches, and that my betters who have paid ridiculously fancy prices for City firms and stockbrokers, when we have nothing to sell but our expertise and reputation, will find that they have paid too much for too little and that it will take them too long to recoup their losses
Those who have sold will have to justify the prices which people have paid. That is how integrity will be endangered. How will the small investor be protected under such a system? The big man will be fine, because his feet will be firmly planted on the ground. But if the investment world is to mean anything, it should mean something for the small and average investor
If a dual capacity firm is suddenly willing to sell shares, then, as with a man who protests his honesty, one should quickly hide the silver. Instead of a willingness to sell something, why not keep it to pass on to their clients? That can only lead to mistrust
Many people believe that dual capacity is a great danger to the integrity of the City. They should wait until the next bad market and see how things stand then. It is all very well to be asked to keep to rules, but such rules should be made not of string but of steel wire. If the City is to retain its integrity, it must prove that such integrity is soundly based, as it has been up to now
The passing of stock from one internal pocket to another must be unacceptable unless deals are declared there and then, from whom they are sold and for whom they are purchased. It is not that the City of London fears changes in commission, rather that one must be able to prove one's integrity. At present, one man is a dealer or agent and another is a principal. Now that all these conglomerates will come in, we must be much more careful that the rules are more solid and visible
It now seems that the Government securities market will be part of this blancmange which we shall try to pin to a wall. In America, four firms have gone to the wall trying to give the so-called Government a so-called better deal. They thought that they had gone bust for $58 million, and were therefore bought in. In fact, the sum turned out to be $540 million, and they are still counting. Small movements of money make vast differences in profits. Hon. Members should think on that
In the end, hon. Members are responsible to the people who elected them. When we start to create precedents it

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is like an earthquake causing cracks into which men can disappear. If we create the precedent of giving an outside body, however quasi-governmental it may be, the right to disagree with the House about an appointment, we will make a great mistake
This is not personal. The present Governor of the Bank of England and I are friends and, I hope, will remain friends. I am concerned about the principle. Principals know no friends bar those that they represent. However much good may be in the proposed legislation, there should be a provision in it about consultation. There should not be a provision whereby the House gives to an outside body the right to say that unless it agrees the Government may not appoint
Parliament is paramount. No man who is not elected should have the right to say nay to the House. Let us stick by that. Whatever else may be wrong with the proposals—and there is much right in them—what cannot be right is to surrender one ounce of power. Once Parliament makes one exception to the rule, another Parliament may say that, because the pass has already been sold, it can be done again and again. Outside bodies may consult as much as they wish but in the end only Parliament can consent
9.11 pm
Mr. Bryan Gould: The debate has revealed a perhaps surprising degree of consensus about the White Paper. Although, as I hope to demonstrate, that does not preclude significant differences of emphasis and perhaps different conclusions, it is possible to give a guarded welcome to the White Paper, and I add my voice to those who have already done so. I believe that that is possible because both the Government and the City have moved substantially over the last year or two towards the position which I and my hon. Friends, and some other hon. Members, have held for some time
The starting point for the debate, as I think was recognised by the hon. Member for Beaconsfield (Mr. Smith), was the concern about the level of fraud in the City. That concern prompted the invitation to Professor Gower to write his report. The concern was directed not only at the level of City fraud but at the consequences that it had on investor confidence in the City. It also raised major question marks over the satisfactory nature or otherwise of the supervision that was exercised in the City. We have seen one institution after another damaged. Lloyd's was one example. Perhaps the most recent example was the Bank of England as a result of the Johnson Matthey affair
The Government may be in the process of grappling with these problems. Certainly they are trying to ensure that frauds are brought to the light of day and that the transgressors are properly dealt with and brought to court, but so far the record has been extremely discouraging. The Roskill committee may produce remedies for the admitted difficulties of bringing complicated matters to court for jury trial. The fraud investigation group may be more successful in obtaining evidence of fraud. I think that the Government Front Bench is at one with me—certainly replies to me suggest this—but in the meantime grave damage is still being done to the reputation of the City through the consistent failure to bring to court those who have clearly committed criminal offences of substantial dimensions
I hope that I shall be forgiven for making the political point that many on the Labour Benches will contrast that
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ineffectiveness with the zeal—the excessive zeal, one could say—with which the Oxford police rounded up some of the most defenceless and vulnerable people in society to prosecute them for trivial social security frauds
Given that we recognise the need for dealing with City fraud, we support both the Gower report and the White Paper in their attempt to provide a statutory framework for all those carrying out investment business
Another major factor underlies what is happening in the City and should illuminate what is in the White Paper, and on this point I offer a more robust voice than has been heard so far today. Ever since Professor Gower was asked to write his report, a frantic degree of change has set in in the City. That degree of change can, for convenience sake, be said to have begun when the Secretary of State's predecessor did his deal with the chairman of the Stock Exchange
I think that I have the support of the hon. Member for Wolverhampton, South-West (Mr. Budgen) in saying that that deal, when it was done, was seen as a means of buying time, of preserving the status quo, so that the institutions, in particular the Stock Exchange, could phase in what by then were recognised as inevitable changes. Nobody quite foresaw the speed with which the changes would suddenly materialise once it became clear that the keystone in the arch, the minimum commission, would be removed at a foreseeable and specific date.
Mr. Beaumont-Dark: Hear, hear.
Mr. Gould: I gather that the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) is also claiming prescience in this matter. As soon as that change was foreseen, it became clear that single capacity would go, that the rules against outside purchasers would go and that an immense rush for change would take place
We are speaking, not of something in prospect, but of events which have taken place and are occurring now. I obtained from the Stock Exchange today a list of over 50 major members who have been subject to purchase from outside the Stock Exchange. Thus, it has already happened on a major scale, with outside purchasers buying jobbers or purchasers and, in some cases, both
That impetus to change has been reinforced by the tremendous new activity of foreign institutions in the City of London. That, in turn, was produced by the removal of exchange controls in 1979. Whatever its merits or demerits, that factor alone has created a wide open capital market in London, and that is now just one part—one time-zoned part, as it were—of an international market
In addition, we have had the technological changes to which hon. Members have referred. They have meant that, through electronic communications, information can be transmitted in seconds around the world. The result has been a huge change, which has not necessarily yet been grasped, even by those who are most directly affected by it
We now have the prospect—positions have already been taken up in anticipation of what is to come—and even the certainty that the City of London will never be the same again. It will be dominated by huge international financial conglomerates which will do everything. As I say, they have already bought jobbers and brokers, they are themselves in the business of offering investment management and advice and they offer the whole range of financial services. As the hon. Member for Bexhill and

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Battle (Mr. Wardle) made clear, the possibilities for conflicts of interest within those conglomerates are immense, and I shall return to that point
In addition to that element of change, as hon. Members have pointed out, all sorts of new business is being developed at a rapid pace in the City
The hon. Member for Chichester (Mr. Nelson) paid particular attention to the futures markets. Even this week, the Baltic Exchange introduced a new futures market in international freight futures. There are prospects of futures markets in diamonds, ecu's and all sorts of things. In addition, there are new developments which are less welcome. Some attention is being paid to what are called boiler-room operations, operating out of centres such as Amsterdam, where hyped over-the-counter deals are being offered to British investors who, unless they are extremely careful, will be taken for a ride. There is little in the White Paper to suggest that we have got to grips with that problem, although it is a different one
The nature of bodies such as the Stock Exchange will change fundamentally, both internally —I look forward with some interest to the outcome of the substantial battle to be resolved on 4 June — and in relation to other institutions and other operators in the market. That is because some major operators, if one is to take at face value what the Stock Exchange says, will be excluded —the major Japanese institutions, for example. Others will choose to be outside the Stock Exchange. We have already seen Robert Fleming making a market in electric shares and the Stock Exchange looking to the Department of Trade and Industry for some support in that matter
Mr. Beaumont-Dark: The Department told it to get lost
Mr. Gould: That shows that we are in a new ball game. If that is true of the Stock Exchange, how much more true is it of other potentially self-regulating organisations which are not as well-established as the Stock Exchange; for example, the National Association of Security Dealers and Investment Managers? I say that not to denigrate NASDIM but simply as a matter of fact. If the Stock Exchange is to be rocked to its foundations in this way, how will NASDIM and self-regulatory organisations yet to be established fare in the face of the massive changes?
I do not believe that the Government, the White Paper, or even some elements in the City, have grasped the scale, the pace or the unpredictability of the change that is taking place. The old safeguards have gone. There is no point in looking back, as I suspect the hon. Member for Stratfordon-Avon (Mr. Howarth) was tempted to do, to the old clubby atmosphere, the old institutional safeguards and the old self-regulation, which passed, to the satisfaction of some, as adequate protection
In a vast open international market, dominated by major institutions, all of which are competing fiercely with one another, with no loyalty to any interest other than their commercial interest, that old system is far less appropriate. In those circumstances, as the hon. Member for Selly Oak pointed out, the small private investor will simply be squeezed out
To some extent, the City has not recognised that this new situation will change the whole nature of the business which the City institutions will be doing. In the past, the City offered expertise in a particular sector, different bits
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of information, continuing relations with clients, bits of gossip put out here and there; in other words, the ability to provide personalised, specialised advice to particular people in particular circumstances. That is no longer to be what the City should offer. If that is what it does offer, it will be swept away. What will now be at a premium in the City is speed, efficiency, the power of the institution, price competitiveness and the comprehensiveness of the services. All these are quite different from anything that the City has so far contemplated or seen itself as offering to its clients
In those circumstances, the investor will no longer rely on his knowledge of the person with whom he is dealing, the relationship that he has built up or the assurances that he is given. What he needs above all, if he and his interests are to be protected and if his confidence is to be maintained, is to be able to identify legally enforceable rules, and the institutions and mechanisms that enforce those rules. That, therefore, requires the maximum amount of disclosure and transparency and the greatest possible separation of interests
We are talking about increased competition, but, as my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said, that is not to be regarded as an alternative to regulation. To some degree, the Governor of the Bank of England has featured in this debate, and he recently suggested that he saw competition as meeting the tasks which regulation might fulfil. I simply do not accept that. In the new situation which I have attempted to describe there is an even greater need for regulation
In that highly competitive situation, the small investor in particular will need such protection. Self-denying ordinances, in-house guidelines and Chinese walls will not be enough. I have often asked about the origin of the term "Chinese wall". I have never been given a satisfactory answer, but it conjures up a picture of one of those self-standing partitions or silkscreens through which one cannot see but can hear everything. I rather doubt that that is adequate
I have an example which illustrates what we may be faced with and how the City does not yet grasp what will be required of it. I tabled some questions concerning the allegation that members of the team at Kleinwort, Benson who handled the BT share issue had themselves dealt in those shares. I was eventually given an answer in which it was conceded that that had, indeed, happened. The Minister's explanation was that those involved were in a different position from civil servants. Some of the financial journalists said that, because of the limitation on the number of shares to be allotted, the most that any individual could make was a few hundred pounds, but that was an inadequate response
We are concerned with a matter of principle and with a prime example of the sort of conflict of interest that will bedevil the City in future unless adequate steps are taken. I cannot accept the argument that a few hundred pounds is only a small amount and does not really matter. In future, Kleinwort, Benson, for example, may not be operating within those constraints when dealing with another share issue, and there may well be the real possibility of substantial sums of money being made. But that is not the real point. The point is that we have a City institution offering financial advice and expertise to a major client for a fee, while at the same time dealing in

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the market. That sort of thing gives rise to great unease and to justified scepticism about the extent to which self-regulation in the City will do the job required of it
There is now a clear and pressing requirement for the utmost simplicity, clarity and directness. The White Paper has simply missed an opportunity. It is remarkable that it has gone as far as it has done. Assuming that there will be one board rather than two, I suspect that the White Paper sets up what ultimately looks like a statutory commission. In some ways it is a rather clever device for propitiating the City. Perhaps I am not doing the Secretary of State any favours by blowing his cover, but I think that that is what he is up to. Ultimately, even the cosmetics which may be involved get in the way of that overwhelming requirement for the maximum simplicity, directness and clarity
To judge from the proposals in the White Paper, it is clear that to some degree we are offered, as my right hon. and learned Friend the Member for Monklands, East said, a hybrid structure and a muddled compromise. Almost every hon. Member who has spoken, and almost every institution in the City, has condemned the proposal for two boards. With one or two exceptions, people agree about dropping that idea in favour of one board, but even then we are left with a remarkably complex structure
I should like to reinforce some of the telling points made by the hon. Member for Stratford-on-Avon. Let us consider the situation of an insurance company which also manages pension funds. It may well be required to obtain authorisation from the Securities and Investments Board or the Marketing of Investments Board. It will be under the supervision of the insurance division of the Department of Trade and Industry. It will have to be authorised in some respects by the self-regulatory organisation—whatever it will be—which will regulate that part of the industry. The company may wish to obtain direct authorisation from the one or two boards which will then exist. On top of that, there will be the appeal tribunal, the Office of Fair Trading, the EEC and all the other institutions and rule-making bodies to which the hon. Member for Stratford-onAvon referred. That is far too muddled, complicated and messy. It is certainly not what is required in the maelstrom of change with which we shall be confronted
We entirely agree with the point made by the hon. Member for Selly Oak about the veto power of the Governor of the Bank of England. The hon. Gentleman referred to powers of appointment, especially in relation to the MIB. This illustrates yet another objection to the Bank of England's involvement in this matter. As some hon. Members have said, the Bank of England is hardly appropriate as a supervisor in any capacity. It is a major client of the City. It is already involved as an interested party. The Bank of England can hardly be expected to exercise major supervisory functions
Hon. Members have referred to the number of lay or independent members of the board. I hope that the Secretary of State will read the debate and note that we hope that investors and consumers — not just professional practitioners — will be represented on the SIB. Appointments to that board have not yet been announced
I believe that Professor Gower would wish to highlight another weakness in the structure proposed in the White Paper. The delegated powers which will be exercised by the boards will not, in turn, be available to the SROs. The control exercised over individual firms and practitioners
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will be extremely diffuse and indirect. That is an aspect which we shall want to examine carefully when the legislation comes forward
When we see the detail of the legislation, we shall consider its scope, including the types of investments that will be covered. A rather curious recommendation in the White Paper would allow unrestricted unit trusts to be sold in certain circumstances to clients on a "know-your-customer" basis. That is an extremely dangerous provision, because of the element of subjectivity involved. Much will depend on the detail of what is meant by "operating as a business". That is of considerable interest to the trustees of pension funds and to accountants, as I am sure the hon. Member for Richmond and Barnes (Mr Hanley) would confirm
How tight will the disclosure rules be? We already know that major problems arise from within the Stock Exchange. Reference has been made to Barclays de Zoete Wedd and Barclays' objections to the Stock Exchange's suggestions. This morning I telephoned Barclays and asked whether I could see a copy of its paper. To my surprise, I was told that, although the paper was widely reported in the newspapers, it was confidential and I could not see it. That hardly augurs well for the type of disclosure that one will expect from City institutions
There are disputes about which insurance brokers should be required to disclose information about their commissions and what information should be disclosed. We shall need to see the details, but I alert the House to the fact that we start by supporting the right hon. Member for Taunton (Sir E. du Cann) in looking to equivalence of treatment. Strong arguments against that would need to be made before we would wish to displace that principle
Aspects of the City often cause us great concern. The Opposition are often suspicious — this suspicion goes wider than this side of the House—that too often City institutions are more concerned with churning money rather than ensuring that that money is put in places where it will serve the national interest
We in the Labour party are also extremely concerned that the internationalisation of the City will make it much more difficult to look to the City as an instrument which will serve the policy of a national Government. [Interruption.] Yes, of a Socialist Government, by all means. A Socialist Government—elected, as it will be, after the next election—will be a national Government
We also believe that the City, as an influence on macroeconomic policy, often exercises a malign influence. It is not the City's fault. Its preponderance as an element in policy making gives it an unfortunate influence on the direction of that policy
The Opposition want to see a City which prospers, which is efficient, and which is effective. If there is business to be done—and clearly there is a growing volume of business—let it be done in London. That is our position. We wish to see the City, in its own interests, functioning as effectively as it can. Therefore, in the interests of the investor—that is, of investor protection—and of the City itself, it is vital that we get an adequate structure in place. We believe that that requires us, in the end, to look very clearly and firmly at a statutory commission
I believe that the Secretary of State will regret that he did not take the opportunity of going directly for what I think everybody concedes is the ultimate answer to the problem. It is inevitable that there will be City scandals

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over the next couple of years. Even on purely political grounds, I think that the Secretary of State will rue the fact that he failed to take the opportunity. Given that it is inevitable that we shall move to a statutory commission, it means that it will be left to the next Labour Government to put it in place
9.36 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Alex Fletcher): I am grateful to the hon. Member for Dagenham (Mr. Gould) for the guarded welcome that he has given the White Paper. I am not sure whether he takes a radical or a conservative view of the changes that are taking place in the City. I listened carefully to the hon. Gentleman. He was a bit happy on the one hand and a bit unhappy on the other, but it was cautious support for the White Paper. I shall deal later with his suggestion that he has blown our cover on the question of Securities and Exchange Commissions
The right hon. and learned Member for Monklands, East (Mr. Smith), in his reply to my right hon. Friend the Secretary of State for Trade and Industry, said that he found unanimity on a number of matters and agreed with the framework of law that the White Paper is proposing. We welcome that. He mentioned particularly the fit and proper test, the question of licensing or authorisation of firms trading in financial services, the conduct of business rules, compensation for investors, and matters of that kind
The right hon. and learned Gentleman and my right hon. Friend set the debate off on the right tone. It is clearly a matter of importance to the country and the economy as a whole, and I am glad that the House, in debating the White Paper, has taken the matter seriously and not in a particularly partisan way
I was asked about the dematerialisation of shares—getting rid of the physical documentation. The White Paper, when it refers to this, talks about new technology developed by the Stock Exchange, code-named BETA. I could not say precisely what the letters stand for, but it has to do with the electronic transfer of stocks and shares. It will require changes in company law and in the Stock Transfer Act 1963. It will certainly provide a more efficient method that will suit many—if not most—people dealing in securities
The right hon. and learned Gentleman referred to an important point in terms of investor protection, using the expression "beaming in" of advertisements or invitations from other countries into the United Kingdom. He will recollect from the White Paper that it will be an offence to advertise in this country, in any shape or form in any publication produced in this country or any radio broadcast in this country, financial services that are not authorised —in other words, that do not come under the investor protection provisions that the White Paper outlines
The right hon. and learned Gentleman was the first to ask, "Why not have a commission?" Contrary to his remarks, I should like to say that the decision against the commission was based not on United States experience, but on our desire to build on our own strengths and the strengths of the existing institutions in this country. The United Kingdom generally has a good reputation on self-regulation, as my right hon. Friend the Secretary of State said, but the present system is not comprehensive. There
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are gaps. Some financial products are not included at the moment — for example, futures contracts. Hence the proposal for a new system, based on our own experience — but it will be comprehensive. The United States' experience is quite different, as is their constitution, their need for federal agencies to cover the whole of the United States, their legal system and, indeed, their experience of self-regulation and investor protection
We are delighted to have the support of my right hon. Friend the Member for Taunton (Sir E. du Cann) for the White Paper. He was concerned about weaknesses in dealing with international fraud. That is a serious problem. It requires more and better international co-operation than at present. When my right hon. Friend the Secretary of State and I travel abroad and discuss these matters, we are conscious that Governments and agencies in other countries are seeking better co-operation with ourselves and trying to make sure that information about those who escape to other jurisdictions or those who think they can get insider information in California and phone a broker in Switzerland, who might place the order in London, can be passed from one jurisdiction to another
Coming back to domestic matters, my right hon. Friend the Member for Taunton made a plea on behalf of the insurance brokers, I think in part for the protection of the word "broker", which is part of the Insurance Brokers Registration Council legislation. He also made a strong plea for the inclusion of non-life insurance to which my right hon. Friend the Secretary of State responded. We are concerned with this area but non-life insurance is not defined as an investment in the White Paper. In so far as irregularities with regard to non-life insurance may arise now and in the future, I suggest to my right hon. Friend that that market is not entirely in the hands of intermediaries. At the end of the day the insurance companies themselves underwrite the business. They control or have the capacity to control the market. They can lay down, in a form of self-regulation, and in cooperation with the IBRC and the British Insurance Brokers Association, rules of conduct copying as much of the White Paper as they please, but doing so on a voluntary, self-regulatory basis, remembering that the companies themselves do the underwriting
If any broker in this country were to break rules that were agreed on a comprehensive basis by IBRC and by the companies, they would refuse to do business with him. That would bring him, if not exactly into line with the proposals in the White Paper, close to what we are trying to achieve for investments. Perhaps my right hon. Friend and others in the insurance business will consider such an approach
Sir Edward du Cann: I am grateful to my hon. Friend for responding at such length to that point. The matter gives many people in the profession great anxiety. Will my hon. Friend be good enough to listen to further argument on it in due course? There is plenty of time before the Bill is drafted
Mr. Fletcher: I am happy to say that not only will my right hon. Friend the Secretary of State and I listen to argument but that the Marketing of Investments Board organising committee will. It is considering such matters and has as one of its members the chairman of BIBA, Mr. Alexander, who is very experienced in all those matters
My right hon. Friend referred to tied agents. We are aware of the difficulties. We do not wish to be unfair as

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between tied agents and independent intermediaries on disclosure, but if there appears to be unfairness we shall consider the matter. For accountants, lawyers and others there will be a different kind of authorisation, but they will not be exempt from disclosure
The hon. Member for Stockton, South (Mr. Wrigglesworth) wants a statutory commission but, despite my request. he was reluctant to press the case. I find that people want to "sloganise" about a statutory commission but nobody will say why there should be such a commission. It seemed to me that the hon. Member was talking about the commission in just the same way as he might talk about the alliance. Nobody presses its case and it remains two separate bodies
Mr. Tebbit: We shall have better liaison
Mr. Fletcher: My hon. Friend the Member for Beaconsfield (Mr. Smith) also referred to the existence of two bodies. The Marketing of Investments Board and the Securities and Investments Board, whatever marriage may take place in the future, will live together in the same premises and will share a common staff and common services. The chairman of the one will be a member of the other in order to ensure that there is a considerable degree of integration
My hon. Friend also asked whether a draft Bill could be considered in a Special Standing Committee. The difficulty is the constraint upon time, but there has at least been consultation on the Gower report and the White Paper. This debate forms another method of consultation. During the preparation of the Bill we shall be more than willing to listen to ideas and suggestions. I wish that such a Bill could be discussed before it comes before the House, but one has to be realistic about the constraints upon time, in particular when we are dealing with such a large and significant Bill
The hon. Member for Yeovil (Mr. Ashdown) suggested that the Government were uncertain about whether there should be self-regulation or a commission. Perhaps I should explain how the Government arrived at the proposed structure. I know that it will be of particular interest to my very alert Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark). The hon. Member for Dagenham might also be interested in this, in view of the fact that he thought he had blown our cover
As to how the structure came into existence, in response to a request from my right hon. Friend the Secretary of State for Trade and Industry the financial sector considered the matter and expressed willingness to adopt self-regulation. However, it, like the Government, realised that self-regulation must be comprehensive, that it must cover the whole market from one end of the country to the other. For it to be made compulsory for traders statutory backing is required
These boards are private sector bodies. Those proposing the Securities and Investments Board, though not the Marketing of Investments Board, asked the Governor of the Bank of England to appoint its members. This, as a private sector body with its own constitution, it was perfectly entitled to do. However, when it came to giving statutory backing to these private sector bodies, my right hon. Friend naturally and correctly said that a number of accountability matters must be considered before giving statutory backing. He did not believe it to be right to delegate statutory powers to a private sector body over
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which he had no powers of appointment. Therefore, rather than that the Governor should intervene in the actions of my right hon. Friend, the reverse is the case. My right hon. Friend is intervening by using his parliamentary powers to appoint the members of the board of a private sector body. Therefore, it is not the Governor who is referred to in the White Paper but the Secretary of State
Mr. Ashdown: The Minister should clear up the point whether a single board, if it should come into existence, will be a de facto commission. When he was questioned by the hon. Member for Stockton, South (Mr. Wrigglesworth) about his position, he seemed to suggest that he took the view, which was supported by many of his own Back Benchers, that that was the case. He cannot argue against the commission and then agree that it might de facto come about by means of a single board
Mr. Fletcher: I went into that explanation because it was being suggested that I somehow supported the idea of a commission, which I certainly do not. I was pressing the hon. Member for Stockton, South to make the case for a commission, but he either could not or would not do so. That aspect of the debate, however, will doubtless continue
My hon. Friend the Member for Chichester (Mr. Nelson), in an excellent speech, rightly stressed the importance of futures markets. He will know that the new self-regulatory Association of Futures Brokers and Dealers is preparing to operate in that area
My hon. Friend the Member for Chichester and others mentioned the takeover panel. We are anxious to take advice on that. The panel is working extremely well and we have asked it to consider how it envisages its future, whether it can best work on its present self-regulating basis or whether in some respects it should come into the statutory framework that is being designed. It is a very delicate question and we are most anxious to get it right
My hon. Friend the Member for Chichester also, I believe, referred to golden parachutes. That aspect is covered in paragraphs 13.9 and 13.10 of the White Paper
My hon. Friend the Member for Dewsbury (Mr. Whitfield) was concerned about specialist brokers. I believe that there is a future for small, specialist firms and that many people, not least private investors, will still wish to deal with the local firms or individuals they know best. As for the larger firms, I assure my hon. Friend that no matter how big the dealers or the markets they will have to conform with the legislation
My hon. Friend the Member for Dorset, North (Mr. Baker) asked about the cost of the board. The answer to that is that we do not know. The organising committees are working this out. The boards will certainly not be cheap, because they have a very important job to do. but as the market will also be paying for them I am sure that they will keep their costs reasonable
My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) opened up the debate on Chinese walls in some detail. Happily, he began in a very constructive way by supporting the idea. He believes that they can and do work, whereas my hon Friend the Member for Bexhill and Battle (Mr. Wardle) is more sceptical. My hon Friend the Member for Bexhill and Battle asked a long question about the Companies Act to which I should like to reply in writing to ensure that I get it exactly right
My hon Friend the Member for Wolverhampton, South-West (Mr. Budgen) rounded up that part of the debate

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about Chinese walls by making it clear that he was against them, which did not surprise me in the least. He also took the opportunity to defend the solicitors' monopoly and solicitors' rights in a number of ways. If any lobby is represented really well by my hon. Friend, it is the legal lobby, as we are all very much aware
We are not saying that there will be no serious problems or malpractices, whatever system of self-regulation is adopted, but we believe that the boards will protect the investors, especially private investors, by means of compensation and that they will be able to move quickly — more quickly in our view than a commission — in clamping down on fraud and malpractice
I was grateful to my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) for his expert support for the proposals in the White Paper
My hon. Friend the Member for Selly Oak was kind enough to say that the White Paper had been well received. I am not surprised, however, that some people in the City and elsewhere—I refer not to my hon. Friend but to those to whom he referred—are not entirely enthusiastic about it. It would be an odd document if no one even uttered any words of caution about how the legislation may work
My hon. Friend the Member for Selly Oak said that the Government were rushing the City into a new world. We have given the City three years in which to prepare for the changes that are taking place. The City and the chairman of the Stock Exchange assure us that they expect to be able to meet that programme of change and, indeed, to beat it by at least two or three months. That being so, my hon. Friend may have been somewhat too conservative about the ability of his own profession to meet these requirements
Mr. Beaumont-Dark: It is always comforting to hear Ministers talking in that way. However, the City is not encouraged if, when it asks for help in making sure that everything is orderly, the Government seem reluctant to stop the fragmentation that is doing so much damage. The Government love competition more than anything else—so do we all—but does not my hon. Friend agree that the fragmentation will be damaging?
Mr. Fletcher: It could be, but I do not believe that it will be. I accept my hon. Friend's point. What matters is that, until the new legislation is in place, the Stock Exchange should provide the main safeguards for the investors. Clearly, we would expect that the vast bulk of
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securities trading will continue to be done through the Stock Exchange. There is a small amount of off-market trading. That must not threaten the orderliness of change and the safeguards for investors
Mr. Beaumont-Dark: It does
Mr. Fletcher: At the moment it does not threaten the changes that are taking place
Mr. Gould: Will the hon. Gentleman give way?
Mr. Fletcher: My hon. Friend asked me a question. We do not answer hypothetical questions, but we do not think that what he fears will happen
The hon. Member for Dagenham expressed the view that the small private investor was being squeezed out. He misses the main achievement of our policies
Competition is a spur to change. Competition under a comprehensive system of investor protection is in the interests of the small private investor. It provides the proper investment climate. We are moving away from the time when only a tiny proportion of the population had the opportunity to buy or sell shares or to come into contact with stockbrokers. Already a number of large retail organisations, as well as banks and other institutions, are preparing to provide financial services from one end of the country to the other so that people will be able to buy shares and financial services in a way not envisaged a short time ago. We welcome this development as an aspect of wider share ownership and a way of making people more aware of how wealth is created, where jobs come from and what makes the economy tick
It is because of the deregulation or revolution —whatever one chooses to call it—that is currently taking place in financial services that we think the financial services industry itself will benefit, that investors will benefit, and that the United Kingdom will take its true place beside New York and Tokyo as one of the premier financial and investment centres of the world
Mr. Tim Sainsbury: I beg to ask leave to withdraw the motion
Motion, by leave, withdrawn.

INSURANCE (FEES) BILL
Not amended (in the Standing Committee), considered; reported, without amendment.
Motion made, and Question, That the Bill be now read the Third time, put forthwith pursuant to Standing Order No. 58 (Third Reading) and agreed to.
Bill accordingly read the Third time, and passed.

South Trafford District Hospital
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Sainsbury.]
9.59 pm
Sir Fergus Montgomery: In all the years that I have served in this House, this is the most convenient time at which I have had an Adjournment debate. My previous Adjournment debates have taken place in the middle of the night and I have had to apologise to the Minister who replied for keeping him out of bed
I have a sad story to tell about a hospital and a series of broken promises and delays. This is not the first Adjournment debate that I have had on the subject. I made the case for the south Trafford district hospital on 30 June 1980. My hon. Friend the Member for Ealing, Acton (Sir G. Young) was then the Minister responsible. He said that a decision on the new hospital would be reached with all possible speed
One year later, almost to the day, just to keep the Ministry on its toes and to remind it of the happy occasion, I went to see my hon. Friend the Member for Reading, East (Sir G. Vaughan), who was then a Minister in the Department of Health and Social Security. He agreed to consider proposals for the new hospital which he was about to receive. In October 1981, the scheme was accepted by the Department and the regional health authority. Approval in principle was sent to the Department in July 1982 and a deadline of December 1982 was set for a response. In November, the Department replied that further work was required on the document and the regional health authority agreed to purchase the site. However, the Department and the Treasury could not agree without any firm scheme being included in the capital programme
In April 1983, at the formal review of capital schemes, the regional health authority could not guarantee a place in the programme and its previous acceptance of a start in 1987–88 was not confirmed. In October 1983 we seemed to get some cheering news. We were told that the hospital had provisionally been put in the programme for the 1988 financial year and that the Treasury had approved the purchase of the site. Many of my constituents believed that at last the new hospital, which had been promised for so long, would come into being. There was an element of mystery at that stage because the regional health authority did not act as the regional team of officers appeared to have doubts about whether the new hospital would ever materialise. That was when outline regional strategy was being prepared by the regional health authority and alternative schemes, which would be less expensive in capital terms, were being considered. At the beginning of 1984, the regional officers began to suggest that the new hospital should be reappraised. That appraisal used only capital costs as the basis for considering alternative options and what became known as the Wythenshawe option was first put forward
In September 1984 we were told that the appraisal showed that, on the criterion of capital costs, a development at Wythenshawe was cheaper than building a new hospital in south Trafford. The Trafford health authority felt that other considerations should be taken into account, such as accessibility, convenience for patients and many other non-financial criteria. It also thought that the capital costs of proceeding with the Wythenshawe
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development had been disguised to show the proposal in a more advantageous light. It is clear that Trafford health authority was not exactly jumping with joy
In November 1984 the regional health authority agreed to reconsider the scheme and promised a full option appraisal by February 198.5. As a result, it was discovered that there was little cost difference between the two main options, the new hospital in south Trafford and the Wythenshawe option, when all the non-financial benefits, capital and revenue costs were fully taken into account. Despite this, the regional health authority accepted that the appraisal was marginally in favour of the Wythenshawe option, and decided that it should proceed
I believe that the views of the population of south Trafford do not seem to have been taken much into account by the regional health authority. We have been waiting for years for a new district hospital that would provide, among other things, services for the elderly and for mental illness, services which are desperately needed in the south Trafford area
Trafford community health council has over the years supported the plans for a new hospital. It has tackled successive Secretaries of State in seeking a decision on the new hospital because it knew that the new hospital was central to the strategy for the area. Despite all the exhortations to come to a speedy conclusion, little progress has been made
As I have mentioned, the regional health authority decided on a full option appraisal. These options went to the community health council on 14 January with a request for comments by the end of January, in other words, in just over two weeks. I was told that a medical staff member who attended a recent public meeting in Sale, a man who is a consultant with the Sale and Brooklands hospital, announced publicly that consultants were asked for their opinions on 19 February, six days before the regional health authority took the decision. I feel that the regional health authority could well ask itself whether its record on consultation was satisfactory
Prior to the meeting of the regional health authority, Trafford community health council presented a resolution asking it to defer a final decision until it had had an opportunity to discuss the situation with the chairman and members of the regional health authority. This request was rejected on the ground that further delay was considered inadvisable. Considering the delays that have stretched over the years, I should have thought that a request for a delay of a few weeks was not asking too much. A project that has dragged on for years could not be deferred for a short time in order to hear and assess the views of the residents of south Trafford
Because of the concern of the local people, the community health council decided that it would hold a public meeting on 20 March. I am told that the meeting was well attended. It is unfortunate that nobody from the regional health authority was present to put the authority's point of view. If somebody attends and puts forward a point of view, even though many people in the audience may not necessarily agree with it, at least the point of view will be heard
In fairness, I think that there may have been sortie misunderstanding. I am told that the chairman of the community health council and a deputation are to meet the chairman of the regional health authority on Friday 26 April to put their view and that of the local residents to him

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As a result of the public meeting, the community health council is anxious to have some answers to what it regards as vital questions. First, it wants to know whether the proposals will meet the needs of the people in south Trafford. The community health council has done a great deal of homework. I am told that inpatient activity under the revised intentions shows an increased work load of approximately 15 per cent. While the provision of additional ward accommodation is covered under capital proposals, it is not clear whether support facilities — catering, pathology, radiology, physiotherapy and so on —would be capable of coping with the additional work load without extra capital input. The proposals presume no extra capital requirement
There is a further complication because of the situation that has developed in the south Manchester health authority which has, I think the American expression would be, an overspend situation. There is a great deal of publicity in our local newspapers about the cutting of services in the South Manchester health authoriy area. Two decisions—one local, the other regional—have coincided. The vital question is whether the capital intended for south Trafford will merely be absorbed
There is also the question of acceptability to the people of south Trafford. This is tremendously important. They must be consulted on things which are of great importance to them, such as hospital provision. In all fairness, I do not think that the appraisal took account of acceptability to the general public because of
"the difficulties of obtaining any firm founded statement of views in the time available"
The people of my area certainly know the answer now. Public opinion, the community health council and the Trafford borough council have all come out strongly in favour of a new district hospital. The Wythenshawe option has very few friends in my constituency
Do these proposals meet the needs of south Trafford? It seems that the proposals for mental illness provision have again been referred back to the joint working group. This is of enormous concern to the community health council, not only on the grounds of service provision but also because it could affect the basis of the financial considerations of the appraisal
That brings me to the $64,000 question in respect of which I hope my hon. Friend the Under-Secretary can give some illumination. The people of my constituency desperately want to know whether the Wythenshawe option has been definitely decided. If that is the case, is there any appeal? There is a desperate need to know exactly what has happened over hospital provision in the south Trafford area
Linked with this are the futures of certain small hospitals in the area, over which there are question marks, particularly the sale of Brooklands war memorial hospital. That hospital was built by public subscription and has a tremendous record of service to the people of the area. There are strong local feelings about it. In fact, I have received more letters on keeping the Brooklands war memorial hospital open than on any other hospital in the area. Many people have spoken with enormous sincerity about the tremendous care that their relatives received in that hospital. They feel that if it were to close, it would be an extremely black day for the area
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I hope that my hon. Friend the Minister will be able to say that no final decision has been reached and that the voices of the local people will be heard before a decision is finally made
10.12 pm
The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Patten):I can begin by reassuring my hon. Friend the Member for Altrincham and Sale (Sir F. Montgomery) that no final decision has been taken, certainly none which has been formally notified to myself and my right hon. and learned Friend the Minister for Health
My hon. Friend and his constituents must of course have their say, and that must be listened to. Just as it is critically important that hospital closures are looked at properly and closure decisions taken only when they are of benefit to patients, so, too, with the approval of new hospital building programmes. Heaven knows they are expensive enough and take long enough to complete. Once begun, we are locked in for a considerable time. We in the centre are determined that decisions shall not be taken until the voice of everyone has been fully and reasonably heard and every conceivable option looked at
Once a new integrated district authority hospital has been built, and once the first foundation stone is laid, the die is inexorably cast in terms of service development, not just for 10 or 20 years, but for probably half a century, so long is the lead time, so massive the capital investment and so substantial the impact on the pattern of patient services in the area. I fully recognise that this is a momentous decision for the people in my hon. Friend's area
No one could have been more assiduous than my hon. Friend over the years in bringing the needs of south Trafford to the attention of successive Ministers of Health. I heard what my hon. Friend had to say about an Adjournement debate with the then Minister, my hon. Friend the Member for Ealing, Acton (Sir G. Young). He and I between us have dealt with an adequate number of Adjournment debates on this and similar issues over the last three or four years. I am only sorry that the decision which my hon. Friend the Member for Altrincham and Sale wanted on a previous occasion is still in the air
It is very difficult for my right hon. and learned Friend and me in the Elephant and Castle, as the men in Whitehall, the faceless people who are not known in Trafford and who do not know Trafford, to take decisions about major capital building programmes in the region. Those decisions have to be taken locally, within a regional framework, by people who understand the local community, who know what makes the north-west tick and who understand the needs of the people. While we have a legitimate and proper interest—if we did not show that the Public Accounts Committee would be after us very quickly—we could not logically be expected to decide exactly where new hospitals are to go. If we took upon ourselves that unlikely role, I am sure that my hon. Friend the Member for Altrincham and Sale and others of my hon. Friends would want to know why on earth the men from Whitehall were making decisions when they did not understand local conditions
There is a slight problem in that my hon. Friend rightly brings the issue to the high court of Parliament, where matters are finally decided, and to the Department of Health and Social Security, where the actual decisions are taken, but we cannot, except in a residual way, act as more

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than a benevolent long-stop until such a row breaks out that no local decision can be taken because the people in the region cannot agree. In the end, hospitals have to go somewhere. In the end, the location pleases some constituents because they have a hospital in their immediate area, and it does not please other constituents because they do not have a hospital in their area. There is no way in which we can put a large integrated district general hospital every five or 10 miles across the land. We could not afford to do so and, indeed, we do not need so many. Those are the difficulties in which we find ourselves when we listen to the proper appeal that is made on behalf of the constituents of my hon. Friend
I told the House at the outset that no proposals by the North Western regional health authority had yet been submitted to Ministers for consideration. The matter is still in the formative stages locally, though Trafford district health authority has shown a clear preference among the options open to it for dealing with the health problems in the south of the district. My hon. Friend will be aware of that. However, that preference is subject to certain conditions which have been referred to the regional health authority for investigation
The members of the regional health authority and the district health authority will be keenly interested in what my hon. Friend has said this evening. They will read what is reported in the local newspapers and, perhaps more importantly, in the pages of Hansard. As a demonstration of their determination to take a balanced view, Sir John Page, the admirable chairman of the regional health authority, whom we are pleased to see fully back to health after his recent illness, has offered to receive a local delegation. My right hon. and learned Friend the Minister for Health has also been approached by my hon. Friend the Member for Altrincham and Sale on the issue and I understand that he will hold a meeting with representatives of Trafford community health council in the near future to discuss the issue further
It does not need me to tell the House, and particularly my hon. Friend, about the nature of Trafford. It is a well populated area with a major general hospital in the north of the district and with the southern part of the district cut off by the river Mersey, which makes communications between north and south difficult. The local community in the south are served by a number of small hospitals for minor acute and geriatric services, and by Wythenshawe hospital in south Manchester for major services. Therefore, the task facing the district health authority is to rationalise services in the south of the district and to make them more cohesive
Changes in the NHS—rationalisation, and, from time to time, the closure of old buildings, some of them worn out and inappropriate for modern clinical uses—do not mean cuts. They simply mean that things are changing. Throughout the country the NHS is changing, with the biggest building programme that the service has seen since 1948, with more than £1 billion worth of major hospital schemes being designed, planned and built
The Government are striving hard, with hard-earned taxpayers' money, to make up the damaging and slashing cuts on the NHS that occurred between 1976 and 1979, when the IMF sent in its men to bail out the British Government. Cuts made over three or four years in the NHS represent a huge chunk out of the building
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programme. We are just catching up. We are running hard to make up the lost ground of those disastrous years of the last Labour Administration
That is the national picture. The picture in Trafford is also far from gloomy. The local newspapers, if they care to report this debate and anything that I say, might note that at present Trafford residents have more money spent per person on their health services than the people of any other district in the north-western region. The residents of Trafford find it easier to obtain inpatient hospital beds than do most others in the region, including many living in teaching hospital districts, and Trafford does not have a teaching hospital
We are trying in the north-west to do what we can for the Trafford district, while moving historically deprived districts such as Blackpool and Bolton, both of which I have visited in the last year, closer to the level of quality and service that Trafford enjoys. This year we are spending an extra £8 million on the health service in the north-west. That is a cash growth of about 11 per cent., and the North-Western regional health authority's capital allocation is again this year the second highest in the country
While, therefore, my hon. Friend is rightly pressing us for action and decisions, and while his constituents wish to have the hospital provision that he has represented to us, both wishes must be set against the considerable success story that can be told about the NHS in the Trafford district, just as it can be told of other districts—Watford, Abingdon, Oxford and any other randomly chosen constituencies to which one might refer
A challenge faces the planners in Trafford and in the region. How can the excellent local health service which Trafford already enjoys be enhanced in a way that releases resources to improve the lot of deprived districts as well? They must ask themselves whether it is right to ignore the fact that patients seem to prefer to go to Wythenshawe hospital. I shall give way to my hon. Friend if he feels that I do not have that right. I do not know the area and I have reported the position as I am advised
Sir Fergus Montgomery: It is not the reaction that I have been getting. Wythenshawe is not the easiest place to get to from south Trafford. It is easy if one has a car, but many people do not. Nor is there the best of bus services on that route. The Wythenshawe option has been extremely unpopular in the area
Mr. Patten: I stand corrected by my hon. Friend arid I am glad that he intervened to make that point
There are two options. One is the Wythenshawe option, and the other is to build a new hospital in south Trafford. The Wythenshawe option involves further developing that hospital to provide district hospital services for south Trafford. Over the past 15 years, Wythenshawe hospital has been developed as one of the three teaching hospitals associated with the University of Manchester
My hon. Friend said that the Wythenshawe option was meeting with considerable local opposition, and I hear and believe what he says. On the other hand, I have been advised that some local people regard this as not much more than a stop-gap measure, even if it should go ahead. It is preferred by the district health authority, subject to satisfactory arrangements being made for the mentally ill patients in south Trafford. It has said that, should the Wythenshawe option be adopted, management should be

971
transferred from south Manchester, with its unfortunate cash problems, to the Trafford health authority, and the regional health authority has to consider all these points when it looks long and hard at these problems
It is difficult for us to decide from the centre. My hon. Friend the Member for Altrincham and Sale can see that it is difficult for me and for my right hon. and learned Friend the Minister for Health, before we have concrete proposals before us, to attempt to adjudicate on problems which have to be sorted out locally. I emphasise that representations can still be made to Sir John Page, the chairman of the regional health authority, about the totality of services to the people of south Trafford. Those representations should still be being made, and I was pleased to hear from my hon. Friend that in only two days' time one further meeting is to take place between local representatives and the regional chairman
This debate has been valuable because I have been able to learn more about the problems of the district. I listened carefully to the points that my hon. Friend made. I and my right hon. and learned Friend will be able to consider these options when they are put to us if they are put to us in the form in which my hon. Friend has suggested that they will be
972
If my hon. Friend and his colleagues and constituents of all and no political parties, the community health council, the borough and everybody else feel that consultation has not been carried out as well as it should have been, I take that seriously. In running a modern health service, the people whom we are trying to satisfy are not politicians, Ministers, trade unionists or the people who work in the NHS, but the people who consume the products of the NHS—the patients. My hon. Friend's constituents are the consumers of the products that we are labouring hard to improve
If my hon. Friend feels on reflection after tonight and the meeting on Friday that there has been something seriously wrong with the consultation process, I happily give him the undertaking that I shall discuss the reopening of the consultation process with the regional chairman so that everybody feels that their views have been taken into account
We also need a decision soon. This has been the subject of meetings and Adjournment debates, with more meetings to come. We need a proper decision, taken against the background of full and proper consultation, as soon as possible. I shall be giving that message firmly to the regional health authority.
Question put and agreed to.
Adjourned accordingly at twenty-eight minutes past Ten o'clock.

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  School Leavers
  Young People (Pay)
  Young People (Pay)
  Benefit System (Equipment)
  Benefit System (Equipment)
NORTHERN IRELAND
  Terrorism
  Terrorism
  Disabled People (Assistance)
  Disabled People (Assistance)
SOCIAL SERVICES
  Privatisation Schemes
  Privatisation Schemes
  NHS (Ancillary Workers)
  NHS (Ancillary Workers)
  Fazakerley Resettlement Unit
  Fazakerley Resettlement Unit
  Drinking Water (Nitrate)
  Drinking Water (Nitrate)
  Social Services Staff (West Midlands)
  Social Services Staff (West Midlands)
  Children in Care
  Children in Care
  Cervical Cancer
  Cervical Cancer
  Flu Vaccine
  Flu Vaccine
  Prescriptions
  Prescriptions
  National Insurance Contributions
  National Insurance Contributions
  Disabled People (Assistance)
  Disabled People (Assistance)
  Prestwich Hospital (Long-stay Patients)
  Prestwich Hospital (Long-stay Patients)
  Limited List Prescribing
  Limited List Prescribing
  Supplementary Benefit
  Supplementary Benefit
  Bradford Area Health Authority
  Bradford Area Health Authority

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

Animal Welfare Codes
Baroness Elliot of Harwood: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what plans there are to implement the new proposals from the Farm Animal Welfare Council to tighten up the existing animal welfare codes.
The Earl of Swinton: My Lords, the Farm Animal Welfare Council is consulting interests about possible recommendations for new regulations based on the welfare codes. The council has not, however, submitted recommendations to Ministers. When it does, the Government will of course consider them carefully and consult. Any new regulations then proposed would be laid before Parliament for debate.
Baroness Elliot of Harwood: My Lords, I thank my noble friend for that reply. May I ask him whether the other members of the EC are also concerned, and whether they have in Europe the same kind of regulations as we have for our animal welfare?
The Earl of Swinton: My Lords, they are not bound by the same regulations as we have although, obviously, to a greater or lesser extent they have their own. The Government's view is that an important factor which must guide Government thinking is the need to avoid placing producers in this country at a competitive disadvantage in relation to other producers in the EC.
Lord Houghton of Sowerby: My Lords, is the noble Earl aware that welfare codes relating to calves kept in intensive rearing conditions have been seriously undermined by the failure to get a conviction in the recent Storrington case, where a religious order have a large veal calf unit and have admitted persistent disregard of the conditions of the welfare code?
The Earl of Swinton: No, my Lords; I was not aware of that.
Baroness Elliot of Harwood: My Lords, since these regulations require a considerable amount of capital expenditure by the farmers, will Government grant be available under the capital grants scheme?
The Earl of Swinton: My Lords, no. There will be no question of compensation to meet any new legal requirements. However, the Government, by allowing sufficient time to producers to adapt to new standards, would ensure that any further welfare legislation did not impose unreasonable costs on the industry.
Lord Somers: My Lords, does the noble Earl not agree that codes as we have them at the moment are of little use since those who observe them are probably those who would have observed them in any case, and those who do not pay little or no attention to them?
The Earl of Swinton: No, my Lords. I hope that all the farming community will take notice of these codes and will be guided by them. After all, they are issued to them all.
Lord John-Mackie: My Lords, does the noble Earl not agree that stockmanship is the key factor and that any number of codes will not replace good stockmanship?
The Earl of Swinton: My Lords, I would agree very much with that. I think that stockmanship is all-important.
Lord Houghton of Sowerby: My Lords, will the noble Earl take steps to repair his unawareness of the case which I cited?
The Earl of Swinton: My Lords, since the noble Lord has mentioned it, I am now, of course, aware of it.

Military Installations: Ground Defence Areas
2.40 p.m.
Lord Jenkins of Putney: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what arrangements they are making for persons living in areas such as Greenham Common, Molesworth and Alconbury in time of emergency and how many households would be included in the US. defence zones and whether these would extend, as has been reported, three miles beyond existing perimeter fences.
The Parliamentary Under-Secretary of State, Home Office (Lord Glenarthur): My Lords, civil defence in these areas is a matter for the appropriate local authority within the framework of Home Office guidance. There are no United States defence zones as such, but all vital installations have individual ground defence areas planned for their protection against enemy sabotage in wartime.
Lord Jenkins of Putney: My Lords, is the noble Lord not aware that the Americans have said that they have the intention of commandeering areas three miles beyond their existing perimeters in the event of an emergency occurring? In these circumstances, are not those living in the area entitled to know precisely what the intentions are so that they can make their own plans accordingly?
Lord Glenarthur: My Lords, I think that the noble Lord is thinking of ground defence areas. Each base or

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vital installation to be defended has an individual ground defence area plan, according to the tactical needs of the base and its site.
Lord Renton: My Lords, perhaps I may disclose that I live within a mile of the perimeter of Alconbury and within 10 miles of the perimeter of Molesworth, both of which are in my former constituency, and that we have a relaxed and co-operative attitude to the steps envisaged by the authorities with regard to these aerodromes.
Lord Glenarthur: My Lords, I am greatly encouraged by my noble friend's comments.
Lord Hatch of Lusby: My Lords, despite the supplementary question which has just been asked, is the noble Lord aware that I have in my hand a copy of a letter to me from a lady living within three miles of Alconbury who has written to the Ministry of Defence asking what will happen to her home and her family in the event of emergency, and has received no reply? Can the noble Lord not tell us clearly whether it is intended that in the event of an emergency, in the event of war, the United States Air Force will be entitled to extend their installations three miles around the present perimeter?
Lord Glenarthur: My Lords, as I said in my earlier answer to the noble Lord, Lord Jenkins, it depends upon the tactical needs of the base and its site. If the noble Lord cares to give me a copy of the letter, I shall study it.
The Earl of Kimberley: My Lords, does my noble friend not agree that it would be much better if matters like this were kept classified so that, in the event of hostilities, we would know what we were doing and the Soviet Union would not?
Lord Glenarthur: My Lords, I am sure that my noble friend is quite right.
Viscount St. Davids: My Lords, would not the noble Lord agree that the people living close to these bases are already suffering a very considerable emergency by the thousands of unwanted visitors who do not always treat them as well as they might be treated? Can something be done to protect them, and would not a perimeter diameter of three miles be a very splendid limit, if that were so?
Lord Glenarthur: My Lords, that may well be so; but the noble Lord's Question relates to "in time of emergency".
Lord Kennet: My Lords, in spite of the counter-argument suggested by the noble Earl, Lord Kimberley, which the House understands, would the noble Lord not think it a good plan to give the House some idea of what a ground defence area is, and what it would actually mean being in a ground defence area in the event of war or of a crisis looking like war?
Lord Glenarthur: My Lords, in wartime it is clearly neither sensible nor practicable to defend military
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bases solely within the perimeter of the base. The ground defence area is simply the area associated with the tactical defence concept for defending a vital installation.
Lord Jenkins of Putney: My Lords, if your Lordships will bear with me, there is one point that I should like to make which arises directly from one of the noble Lord's answers. It is this. It has been said that this whole subject ought to be classified. Unfortunately, it is not classified in the United States of America, with the consequence that the occupying or visiting forces know a great deal more about the situation than the people living in the area, some of whom are not as relaxed in the matter as the noble Lord, Lord Renton—
Noble Lords: Question!
Lord Jenkins of Putney: In these circumstances, would the noble Lord have his office negotiate with the visiting forces' people here, so that one can have a unity of information or disinformation, and everyone will know what is going on and we shall not have a situation in which the visiting forces know a great deal more about the future intentions than the people living in the area?
Lord Glenarthur: My Lords, I have always thought—including during my period in the military—that security in these areas was important. I certainly do not detract from that now.
Lord Campbell of Alloway: My Lords, I would ask my noble friend whether the intervention of the noble Lord, Lord Jenkins of Putney, for the second time is not contrary to the spirit of what we had agreed in these matters?
The Lord President of the Council (Viscount Whitelaw): My Lords, I must make these judgments. I decided at the time that I would be generous to the noble Lord—I cannot quite think why, but I was.

Albania: Diplomatic Relations
2.45 p.m.
Lord Davies of Leek: 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 steps have now been taken to establish diplomatic relations with Albania.
The Parliamentary Under-Secretary of State for the Armed Forces (Lord Trefgarne): My Lords, in 1980 we formally notified the Albanian Government that we were ready to re-establish diplomatic relations without preconditions. Regrettably, the Albanians have not accepted this offer which, as we have made clear, remains open.
Lord Davies of Leek: My Lords, I am grateful to the noble Lord because the Answer indicates some progress. Nevertheless, would he not agree that the

1119
entire problem of Albania has been obfuscated by the arrogant policy of our Foreign Office? It was not Albania which laid out those mines that destroyed the ships in the Corfu Channel in 1946. Now it seems to me that a diplomatic approach might be indicated, which would be worthwhile for the future and might bring us to some complaisant understanding, since Albania is the only European country that does not have diplomatic representation from Britain.
Lord Trefgarne: My Lords, it is a matter of regret that we have been unable to establish diplomatic relations with Albania. But, as I have explained, the objections come from the Albanian side and not from Her Majesty's Government. The Albanian Government have made it clear that they are not prepared to enter into relations with the United Kingdom until the quantity of gold (currently in the control of the Tripartite Commission for the Restitution of Monetary Gold) to which they have laid claim, is delivered to them.
Lord Campbell of Croy: My Lords, is my noble friend aware that the Corfu Channel case went to the International Court of Justice at The Hague, and there Albania was found to be responsible for those mines, whoever had laid them for the Albanian Government? I should mention also that the noble and learned Lord, Lord Wilberforce, was one of the counsel who represented Britain in that successful case. Is my noble friend aware also that the late Enver Hoxha did not make it at all easy for British Governments to improve relations during a period of over 40 years? Has my noble friend seen any sign recently of a change in the attitude of Albania under the new regime?
Lord Trefgarne: My Lords, I am afraid we have not yet seen any sign of a change of policy by the Albanian Government; but this is early days and perhaps we shall in the future. We hope so. My noble friend is quite right to point out that the International Court at The Hague found in our favour in regard to the Corfu Channel incident.
Lord Cledwyn of Penrhos: My Lords, has there been any contact between Her Majesty's Government and the Albanian Government since the death of Mr. Enver Hoxha? Secondly, is the question of the gold now negotiable, and could he say what is its present value?
Lord Trefgarne: My Lords, I am not aware of any contact between the British Government and the Albanian Government since the death of Mr. Hoxha. He was not in fact President; the President of Albania at that time was the man who has now succeeded to the leadership of the party in Albania. That was the post that Mr. Hoxha held up to the time of his death.
Lord Cledwyn of Penrhos: My Lords, would the noble Lord be good enough to answer my question about the gold? The gold has been the bar to diplomatic relations for very many years, as he knows. Can he now answer my question and say whether, in the view of Her Majesty's Government, the gold is now negotiable? Also, can he give us the value of the gold at the present time?
Lord Trefgarne: My Lords, I am afraid that I do not have the current value available to give to the noble Lord; but it is quite a substantial sum. As for the gold being negotiable, I should make it clear that the United Kingdom is not a totally free agent in this matter because we are of course only one member of the tripartite commission which controls the gold. The other members are the French and the United States. Before anything can happen to it, we have to have the agreement of all three of those parties.
Lord Cledwyn of Penrhos: My Lords, are the Government proposing to call a meeting of the tripartite commission?
Lord Trefgarne: My Lords, there are, I believe, meetings of the commission from time to time, but there are a number of difficult problems to be resolved.
Lord Avebury: My Lords, is the Minister aware that a Minister has given it to me in writing that the French and the Americans have both renounced their claim on this gold? Therefore, would the Government explore the notion that we should withhold only that amount of the gold which would be necessary to satisfy the claim which was awarded to us by the International Court?
Lord Trefgarne: My Lords, I am not aware that the other governments have disclaimed any ownership of the gold or any claim to it. But then, of course, I cannot speak for either the French Government or the United States Government.
Lord Paget of Northampton: My Lords, might it not be desirable to postpone this statement until after Albania has had her next revolution?

World Trading System
2.51 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 what action they propose to take in the light of the 15 specific recommendations on the world trading system set out in the Leutwiler Committee's report Trade Policies for a Better Future, published on 27th March.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, the report was commissioned by the Director-General of GATT and it will be for him to consider how the recommendations should be presented to GATT contracting parties. The United Kingdom looks forward to addressing the points raised in the report in the context of a new GATT round.
Lord Bruce of Donington: My Lords, while thanking the noble Lord for his reply, may I ask him whether, when giving consideration to the matters raised in this most important report, the Government will take note

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of one of its recommendations: that agriculture shall be treated in future on the same basis as industry and should not be afforded special protection by the various states concerned and no longer treated as a sacred cow? Will they also bear in mind that one of the leading conclusions arrived at by this report is that the distortions caused to ordinary competitive prices based on cost, by large movements of capital across the world on a speculative basis, distort the whole operation of the free trade system as it is evisaged?
Lord Lucas of Chilworth: My Lords, equal weight will be given by Her Majesty's Government to the 15 recommendations contained in the report at a due and appropriate time, and certainly in consultation with our partners.
Lord Bruce of Donington: But, my Lords, can the noble Lord be a little more forthcoming than that? In view of the urgent matters raised in this report, when is "due time"? How long will it be before Her Majesty's Government are able to announce to either House of Parliament, or to both Houses, or to the world at large, exactly what is their own positive attitude?
Lord Lucas of Chilworth: My Lords, as I said in my first Answer, the United Kingdom looks forward to addressing the points raised in the report in the context of a new GATT round. The noble Lord will know that at the beginning of this month OECD Ministers meeting in Paris agreed that a new round should begin as soon as possible. Negotiations to that end are now in hand.

Business: Short Debates
Lord Denham: My Lords, it may be for the convenience of the House if at this point I say a word about the arrangements for this afternoon's short debates standing in the names of the noble Baroness, Lady Fisher of Rednal, and of my noble friend Lord Reay. It is customary in short debates that the mover is allowed approximately 15 minutes and that the Minister should rise to reply not less than 20 minutes before the scheduled end of the debate. In the case of the short debate in the name of the noble Baroness, Lady Fisher of Rednal, this means that all other speeches should be limited to a maximum of 10 minutes, and in the case of that in the name of my noble friend to 14 minutes. If any noble Lord should speak at greater length, it would be at the expense of subsequent speakers in that particular debate.

Housing Investment and the Homeless
2.54 p.m.
Baroness Fisher of Rednal Baroness Fisher of Rednal rose to call attention to the case for investment in public housing and the severe difficulties facing the homeless and badly housed; and to move for Papers.
The noble Baroness said: My Lords, the intention of the debate standing in my name on the Order Paper is to draw attention to the wretched housing conditions
1122
endured by a great number of people who live in unfit and overcrowded circumstances or who are living in bed and breakfast accommodation, some of it described as squalid boarding houses and tiny bed-sits. If noble Lords wonder why I should be intending to draw this problem to the attention of your Lordships, I have experience as chairman of the Housing Committee on Birmingham City Council, where I was fully aware of the appalling conditions in the inner city of Birmingham. Also, the ward that I represented on that council, and the seat that I held when I was a Member of the other place, included what is called a deprived area. All I would say in describing that ward and that constituency is that it included the Birmingham gas works. That gives some idea of the conditions that are always found on the wrong side of the track.
But it is not only my own personal observations that have to be drawn to the attention of the House this afternoon. Only last week, the noble and learned Lord, Lord Scarman, for whom we in this House all have great respect, was speaking at the launching of the British Campaign for the United Nations International Year of Shelter for the Homeless. He said:
"Britain faces the prospect of a new generation of slums by the end of the century, unless something is done about the country's growing housing crisis."
He went on to say:
"We in the United Kingdom are facing three major potential areas of crisis: a new generation of young people looking for homes, a rapid deterioration of housing stock and a low level of rebuilding, improvement and new building."
Earlier in the year, we had His Royal Highness the Duke of Edinburgh chairing a conference on the interim report of the National Federation of Housing Associations and he spoke of,
"the serious difficulties facing the many people who would like a home to rent rather than to buy."
On the other hand, he said:
"Renting from the local authority or a housing association has become much more difficult as a result of the decline in investment in this sector in recent years."
The Royal Institute of British Architects has recently launched a campaign on decaying Britain, and only this morning, without any prompting from me, I received a letter from the National Council of Building Material Producers, who stated that survey after survey has shown there is a vast backlog of work in the public sector that is an urgent and growing one, but is falling further and further behind.
The Chartered Institute of Public Finance and Accounting revealed in its recent homelessness statistics that there were 3.26 households claiming homelessness in 1983–84 per 1,000 of the population, and that the net cost to those authorities that are having to bear the burden of trying to do something to keep homeless people off the streets was in excess of £27 million.
I hope that the noble Lord the Minister who is to reply from the Government Benches will not give the same reply that we had on 15th April at Question Time, when at col. 438 of Hansard the noble Lord, Lord Skelmersdale, said:
"regarding local authority housing it is, as I say, a matter of priorities for the local authority concerned."
I shall try to give the lie to that assertion. Local

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authorities thought that a very promising feature of local finance appeared to be the net accrued funds from the sale of council houses and land.
They felt that money raised in this way seemed the obvious remedy to alleviate the housing shortage and make substantial inroads into repairs. How bitterly disappointed they were when it became known that the Government intended to reduce capital receipts and reduce the proportion that they can spend. First, they were able to spend 60 per cent. of the capital receipts. This year they are being allowed to spend only 40 per cent. and next year only 20 per cent. The amount of good things that the local authorities thought they were going to achieve with those capital receipts is diminishing very quickly.
Let us look at the average amount spent in London and the London area on bed and breakfast accommodation. The figures given to me show that it costs approximately £5,000 a year for each family. What answer can anybody give to a local authority which has money in the bank from capital receipts which it cannot use and yet it has to spend millions of pounds per year on providing homeless families with accommodation which in many cases is completely unsuitable? Can the Government describe this as cost effective?
It would be helpful if the Minister could clarify also certain key issues in relation to the recently announced city action teams. For short, I think that the Government are calling them CATs. I am not going to say "miaow". Last week Government spokesmen gave more information regarding CATs. They said that the aim was to increase value for money and to achieve better targeting. I have never understood such phrases from the Government. They seem to me to become so monotonous because one never sees or hears the end results of how much money is going in, how much they have saved and, because of their better targeting, what better results they get. But we were led to understand from the press reports—we have been assured on this—that no money has been taken from other funds to fund CATs. No other programme is going to suffer.
Would it be impertinent of me to ask from where the Government have found this extra money? Will the partnership and programme authorities, which are endeavouring despite a lack of resources to tackle the problems of deprivation in the cities, have their funding continued? Will the priority estates projects which are operating in inner city areas continue? Is the placing of what the Government call extra resources under CATs to inner city areas merely a propaganda exercise or is real money going to go into the areas?
The Government are cutting capital expenditure, as I have outlined, in addition to making severe reductions in housing investment programmes. Perhaps I may give a quotation. It is not private but comes from the public council meetings of the Birmingham City Council whose report says:
"The House Conditions Survey 1981 clearly demonstrated the enormity of the problems facing the City. In general, the survey showed that house conditions in Birmingham were far worse than the situation nationally".
As a result of those conditions, Birmingham's investment programme allocation this year is just a
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little over £62 million. This is a reduction of 7 per cent. on the previous year. How local authorities are supposed to be able to invest more when they experience such serious cuts is beyond me.
The housing waiting list in Birmingham at present is more than 16,000, which represents an increase of 25 per cent. on last year. The council has normally throughout the whole of the year more than 7,000 homeless families. The withdrawal of large sums of money in grant penalties does not help local authorities, either. I shall give one example and this will be my only other example. If we are to tackle homelessness, we have to look at it in terms of the amount of money that local authorities spend. The local authority in Birmingham have gone 2 per cent. over Government expenditure targets. This means that they are suffering a penalty of over £18 million less to spend. Perhaps I may use that figure to show how iniquitously the Government's grant penalties operate. If they had a 2 per cent. overspend last year, the penalty would have been only £7.71 million; but because of the increasing penalties which the Government keep on placing on local authorities, the penalty this year is £18.80 million.
Housing finance for building and for rehabilitation is a mess. The system of annual allocations makes it impossible for local authorities and housing associations to plan their programmes properly, and for the building industry to respond as effectively as possible. I urge the Government to make a commitment to funding extending beyond a single year. The mortgage cost coupled with finding a deposit effectively rules out many people in the housing purchase world. The fact is that the poorly-housed or the homeless are for the most part those on low incomes. Waiting lists of local authorities show quite clearly that there is a proven demand for public housing, either that provided by the local authority or by housing associations. The Building Employers' Confederation say that they have the capacity to satisfy that demand.
I had hoped to hear in the House this afternoon from an employer of a large building firm speaking as a specialist on how building employers would offer their aid to the Government in trying to overcome the serious problem in public housing. I would earnestly ask the Government to consider allocating further public funding for new building and rehabilitation work. The problem of finding decent homes for many people who have no homes or who are living in unfit conditions could be solved quite easily because there is massive unemployment in the construction industry. The money which is spent on dole payments for those persons and the loss of national insurance contributions and taxation means that some of that money is wasted money. It could be spent on employment and there would be a return to the Treasury kitty in the form of the tax that they would pay and national insurance contributions.
In conclusion, I would draw your Lordships' attention to a statement made by the Prime Minister recently. She said that the matrimonial home is the strongest thing in a free society. I would not disagree with that statement. I hope that this debate will show to the Government that we wish to improve the effective method of increasing family stability because

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clearly social benefits are attached to housing the homeless and the badly housed which go beyond building and repairing the accommodation needed.
My Lords, I beg to move for Papers.
3.10 p.m.
The Lord Bishop of Coventry: My Lords, I am grateful to the noble Baroness for initiating and introducing this debate on so important a subject, and I am obliged to the noble and learned Lord, Lord Scarman, for providing a text for the contribution I wish to make to it. He was speaking as he took up his presidency of the International Year of Shelter for the Homeless Trust. He said:
"Adequate shelter is a necessity and should be seen as the right of all. This is one of the great causes of our times, for the provision of decent homes is the first step to overcoming so many of the other problems of the world's, and the United Kingdom's, disadvantaged".
It will be our shame if we lend our weight to United Nations Year in 1987 without proving our determination to tackle much more thoroughly and imaginatively—and, yes, I dare say sacrificially—the challenge of the homeless and the ill-housed in our midst.
Because we probably very seldom penetrate areas of urban dereliction or stand among the desperate queues of applicants in local authority housing departments, we are usually only made aware of the need for greater investment in public housing when we grumble over our rates demand, or hear yet another speech in the other places stressing the inability of government to countenance further public expenditure, or perhaps when we walk along the Embankment under Hungerford Bridge and see with our own eyes one small, pathetic symptom of a problem which I fear is rapidly worsening.
All of us have our favourite causes which we wish to espouse and which we believe ought to be exempt from economic constraints. Mine is usually education; other Members of this House could rise to speak with equal passion, no doubt, on behalf of the Health Service, the environment, overseas aid, the unemployed, or many vital public services. But if the noble and learned Lord, Lord Scarman, is right in describing the provision of decent homes as,
"the first step to overcoming so many of the other problems"—
and he has every right to make such a judgment out of his lifetime's engagement with some of the worst consequences of those problems—then we should be wise enough to unite in this cause, whatever other priorities we espouse.
I will not weary the House with statistics. Indeed, the statistics of homelessness are difficult to evaluate, as the Department of the Environment survey in the early 1980s recognised. The only certain conclusion to be drawn from them is that homelessness is still increasing and that it should be stemmed at all costs. Often, legislation which is intended to bring about this result has been nullified by unforeseen circumstances. For example, the new board and lodging regulations which come into force at the end of this month are forecast by the Campaign for the Homeless and Rootless to result in an army of 50,000 young people constantly on the move from one unsatisfactory residence to another.
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Homelessness, like poverty, has been with us for a very long time. We should have learned by now that short-term expedients can exacerbate the problem—and above all, that politically-motivated palliatives or penalties cause more long-term damage in housing than in any other field. Much of the present misery of the ill-housed is the harvest of earlier housing policy defects. For example, the latest estimate of the Association of Metropolitan Authorities is that £9 billion is needed to rehabilitate local authority inter-war housing stock and an equal sum to repair the defects of post-war building systems. These are figures which, in our present economic climate, will induce a state of paralysis among Chancellors and Governments, and so we are always in danger of passing on the problem while more and more potentially good homes are declared unfit and still thousands more house only those unfortunate citizens who dare not complain about the damp, the stench and the rats.
The House will not expect me in this debate to enter the controversy surrounding the Government's home ownership initiatives. Indeed, if all our citizens could own and maintain their homes there would be no need for politicians—and some might say that there would be no need, either, for bishops, for the Kingdom of God would surely have come! The right-to-buy legislation has achieved some increase in home ownership, and local authorities and housing associations have wrestled with the complexities of selling off part of their properties. They did so in the full expectation that the capital receipts would be available for ploughing back into the dwindling rented sector. By what reasoning, then, are they confined to spending only 20 per cent. of such receipts?
This brings me to my final point: the morale of the voluntary housing movement, dubbed by a former Minister of Housing and Local Government, Sir Keith Joseph, as, "the third area in housing". Most Members of this House will, like myself, have personal knowledge of the work of housing associations. In every part of the country and wherever there is a housing problem, however intractable, these associations, with their voluntary managers and expert staffs, will be found at work. Their motives are to combat precisely the conditions which this Motion deplores. Their record in making the fullest use of limited financial resources is an example to many public corporations. They have proved adaptable to the largest scale of housing development and to the smallest local and specialised enterprise. They have enlisted the support, encouragement and often the involvement of many Members of this House.
Is there any more suitable and less controversial way of meeting the difficulties facing the homeless and the ill-housed than substantially to increase the funding of housing associations? Faced by increasing demand and decreasing resources in real terms, the morale of both voluntary and professional workers is declining. We shall be unlikely to recruit another army of enthusiasts if we allow the present staff to dwindle to a demoralised remnant.
The Churches have played a significant role in increasing and sustaining the voluntary housing movement, and I can therefore make this m) final point with some relevance and certainly with

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conviction. I appeal for an increase of investment in housing associations so that homelessness can be banished from our midst and we can rid our society of this reproach. If we were to invest more money in housing associations, whose membership is so well and widely placed to influence public opinion, I am sure they would accept the additional responsibility and respond with enthusiasm.
3.18 p.m.
Lord Ezra: My Lords, I am very pleased to be following the noble Baroness, Lady Fisher of Rednal, and the right reverend Prelate the Bishop of Coventry in this important debate. They have spoken tellingly of the social problems created by homelessness and inadequate housing in our midst—in the midst, we should remind ourselves, of a country which is among the most affluent in the world. We are in the affluent group of countries and yet we have these problems in our midst.
I should like to speak about the economic aspects of this problem dealt with particularly in the first words of the Motion. I should declare an interest as I am involved industrially with a number of firms in the building industry. Seeing the problem from that point of view, I should like to emphasise to your Lordships that it is very remiss of us not to be taking much greater care of the assets we possess than we do at present. There are many aspects of what is known as the infrastructure which call for a substantially increased investment merely to keep them up to suitable standards. Among these, the quality of housing calls out for serious action. To let that asset progressively decline over the years seems to me to be nothing short of neglecting our basic interests.
There are a number of bodies such as the National Economic Development Organisation which reported on this subject in January of this year. The Confederation of Building Employers, the National Council of Building Material Producers and a number of others have looked at this problem in great depth. They have come to the conclusion that we are running the risk of letting this asset essential both economically and socially, progressively run down.
Perhaps I may quote from a report of the Confederation of Building Employers when they were writing recently about the question of new houisng. I think it is worth repeating because this is from a professional body. They said:
"Construction of new housing is lagging far behind the need. The private sector faces serious difficulties in making up the whole of the shortfall caused by public sector cutbacks and unless something is done now the problem will only get worse".
It is not only that the new starts are falling to historically low levels; in the public sector, for example, the forecast is of no more than 30,000 houses being started in the current year and next year, which is as low as records show, but it is also that the quality of the remaining houses is deteriorating. The longer that deterioration is allowed to continue, all the more shall we have a problem when finally we cannot avoid dealing with it.
Furthermore, in the meantime a large number of people will be condemned to live in indifferent and inadequate housing, if they get houses at all. So
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although in theory we have more houses than are needed, when you take account of the fact that 20 per cent. of the houses are conservatively estimated as requiring major repair and renovation, if you allow for that, then in fact we are living in a society which has totally inadequate housing.
If I may conclude my short intervention, it is to say that I believe in this issue of housing there is not only a major social problem to be faced, but also a very major economic problem. I believe when you have a combination of economic necessity and social need, serious action is urgently called for.
3.23 p.m.
Lord Soper: My Lords, in approaching even in a short debate a problem of such enormous import I propose, if I may, to set it within the categories of numbers and thereafter before I sit down to try to say something about the moral and the spiritual setting as well. I will quote from the statement given by Shelter in Crisis in Housing; and here I suppose I ought to declare an interest. For many years I was the chairman of that admirable association. It says:
"Eighty thousand households a year are accepted by the local authorities as homeless. About the same number are turned away; many more single homeless people, couples without children, are not even counted, let alone helped. Over 1 million households live in homes officially classified as unfit for human habitation; 2 million households share with others because they have no home of their own; 1 million households are overcrowded; 4 million households live in homes which are substandard or in need of major repairs, and over 1¼ million people are on council waiting lists".
To add to that sorry catalogue, as has already been said, the situation is not improving; it is getting worse.
What is to be done depends in very large measure on the instruments by which this problem can be faced. According to such evidence as has come my way, there is an overwhelming argument for the infusion of large amounts of public money into one area of homelessness in particular. It is either the absence of or unsuitability of such accommodation as is desperately needed and cannot at this time be satisfied within the framework of existing legislation and provision.
Therefore, I make the first and what seems to me to be the most important claim: that what is required is a vast increase in the available accommodation at a suitable price and rent for those who are prohibited from finding anywhere to lay their heads today or are living in circumstances which are so totally unsuitable—and over a period of more than 60 years I have some knowledge of these matters—as to be an intolerable moral situation.
What can be done? I suggest there are certain specific ways in which the priority of provision in accommodation can be fertilised and undertaken. As this noble House will know, the Social Security Advisory Committee has been concerned to provide evidence and plans for a problem which perhaps is the most acute and difficult of all that faces us in this situation: the board and lodging which so often has to take place in the very unfortunate bed and breakfast hotel accommodation, so-called. I believe it is necessary for the Government to find the money whereby local authorities can purchase private property, which has been prohibited since 1979 by the Government; or at least where they are condemned to

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this thoroughly unsatisfactory situation of putting their homeless into bed and breakfast accommodation, they should be able to allow the local authorities to use that money for the building or rehabilitation of premises within their area.
Furthermore, I venture to say that this problem is exacerbated by the proposals of the present Government and makes for homelessness and rootlessness among youngsters, as was said by the right reverend prelate the Bishop of Coventry: not only those under 18 years of age who do not qualify, but also those under 26. Of course, there are various clauses whereby some can be helped in their present situation, but by and large, and I quote again from the Social Security Advisory Committee, here is a situation which cannot be regarded as less than tragic:
"One result will be the risk of creating a class of rootless young people unable to obtain permanent accommodation in one place because of the strictures on the time at which their supplementary allowance will be available, unable to find a job and obliged by benefit rules to move around constantly".
That rootlessness is a major and peculiar danger, especially for those who are young. I have some knowledge of voluntary associations and will not spend the time underlining what the right reverend Prelate has already said. I believe that the voluntary associations have the capacity to do what, at this moment, is so desperately needed by way of the rehabilitation by service agencies of so much of the accommodation as is particularly occupied by old people who cannot improve sanitary conditions which are thoroughly undesirable.
Before I sit down, I venture to say something about the other dimension of this problem. It is my experience that if one thinks of the welfare state—and to me it is the most Christian thing that has happened in my lifetime—as providing, not on a basis of qualification but on a basis of need, food, clothing and shelter, my impression is that, in one sense at least lack of shelter is a more dangerous situation than even the poverty of the lack of food. I have known, and it has cheered my heart to find it so although it has not encouraged me to think of it as desirable, the way in which families have been held together in their poverty and have sacrificed for the common good such as is available to them. The psychological effect of homelessness is to deny to young people the vocabulary of their ideals or their beliefs. If, for instance, you take out of the vocabulary of the Christian faith those words which apply to home, to family table, to hearth fire, to brother, to sister, to family relationships, what would be left? Does it surprise your Lordships that in so many respects the secular generation of young people today is one which has been deprived, particularly in the field of homelessness, of the very categories of understanding whereby otherwise they might be inclined to adopt a less cynical, more optimistic and, indeed, a more reasonable way of thinking?
I believe that the welfare state is in danger of being eroded by those who fail to appreciate its absolute priority in terms of any civilised society today. Here we have an opportunity—and I hope that we shall not miss it or underrate it—to do what is required from the moral basis. If we are prepared, on the basis of necessity, to spend trillions of pounds upon arms
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resources because it is necessary for our wellbeing, I believe that it is much more necessary that we should be prepared to spend a vast sum of money which is much in excess of that which even our most optimistic opportunities of analysis have hitherto given either to the Government or to the Opposition. By so doing we shall be creating the wealth of a society in which ultimately the moral principles will prevail. I am therefore grateful for this debate, and I hope that it will result in an appreciation of the moral absolutism of providing for those who are homeless and without proper nourishment and care, because they belong to the family of God and should be recognised and aided.
3.33 p.m.
Lord Kilmarnock: My Lords, I want to pursue a single issue, that of the DHSS resettlement units, which I raised in my Starred Question on 19th March in your Lordships' House and which I think comes within the general terms of the Motion put down by the noble Baroness, to whom we are all extremely grateful.
These units are the most basic accommodation of all for the single homeless. There are 23 of them throughout the country; they were originally run by the National Assistance Board and then by the Supplementary Benefits Commission; and the Social Security Act 1980 confirmed the responsibility of the DHSS. These units provide, in all, some 2,000 beds for men and women, about 1,600 of which are in use on any one night. If you go to one you are, of course, really down and out. In 1981, 51 per cent. of the residents had drink problems; 56 per cent. were considered unemployable; 49 per cent. had behavioural problems or characteristics which would make it difficult to place them elsewhere; and 30 per cent. had a record of mental illness.
We may wish that these things did not happen and did not exist in our society today, but it is a fact. Most of us can attest with our own eyes that living rough and begging are on the increase. My noble friend Lord Avebury, in a Question put by my noble friend Lord Grimond on 16th April, spoke of the crying scandal of those sleeping rough under Charing Cross arches and along the Embankment Gardens. We all know it happens. We can see it all round us. I shall not, in a short debate, go into the possible underlying social and economic reasons, but I will venture the assertion that in a civilised society these people are always offered some shelter and some help. It was so in the middle ages when the monastic institutions were the main agencies of welfare; it was to some extent so under the Elizabethan Poor Law, which persisted, until 1834; and it is still so today—but only just, because the Government want to phase out the current statutory provision and turn it over to voluntary bodies.
Before I pursue that, I want to conjure up a picture of a resettlement unit in the minds of your Lordships. I recently visited one at Crown Quay Lodge in Sittingbourne, Kent. I believe that the buildings originally belonged to the Territorial Army. They are sound and functional, and somewhat better than the barracks in which I started my army training, but with no frills. The staff are convinced of the importance of the job that they do and are skilled at it. There is a shift system which makes it possible to admit people round

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the clock, 24 hours a day. Some of the residents were in their 50s and 60s, and others notably younger. They were not all gentlemen of the road. It is a myth that these refuges serve only vagabonds who enjoy a life on the open road. They are used by the probation service and by local authorities who cannot make an immediate offer of housing, and they are often the only immediate refuge on the breaking up of a home.
The best features of Crown Quay Lodge are its dedicated staff, a high standard of cleanliness, the three hot meals a day, the discipline and the possibility of graduating to a single room. Last but not least, there is also the close relationship with local charities willing and able to attempt resettlement on a less transient basis. Crown Quay Lodge is a typical unit. Some are brighter and others are older and gloomier. Ideally, some should be closed and replaced. But they are the only 24-hours-a-day front line refuges in the country which will take someone in who has no money in his pocket and is desperate. Also, they act as supplementary benefit centres for their residents.
This brings me back to the Government's proposals and whether these are desirable or feasible. An immediate £2 million is to be saved by the closure of the rehabilitation centres, and these are basically retraining workshops which are attached to most of these units. The units themselves are then to be subjected to a rolling programme of closures accompanied by the distribution of the funds released in grant to voluntary bodies under Schedule 5 to the Supplementary Benefits Act 1976 (as amended by the Social Security Act 1980). Two questions arise here. First, how much money is to be released? The total revenue cost of the units in 1983–84 was just over £12 million. It has been said that £8 million of maintenance work will be saved by the closures. On 19th March, in another place, at col. 457, Mr. Whitney said:
"the approximate annual amount saved from the closure of reestablishment centres which will be made available to provide better resettlement facilities is £2 million."
That is £2 million per annum, if I understand it correctly. But if the full closure programme is implemented, surely that should release the current 12 million, excluding capital costs.
In his Answer to me, coincidentally on the same day, 19th March, at col. 404, the noble Lord, Lord Glenarthur, said:
"So far as charges are concerned, I can tell him that all the financial provisions which are made for DHSS units will be made available to the voluntary ones in the future, if they come about".
That does not quite square with Mr. Whitney's answer, although I am sure there is no intention to mislead, and I hope that the noble Lord, Lord Skelmersdale, will be able to clear up the matter at the end of the debate and tell us whether all the savings which are envisaged are to be ploughed back into the new scheme. If this is simply a cost-cutting exercise, we ought to be told that now.
The next thing is the role envisaged for the voluntary bodies. CHAR, the Campaign for the Single Homeless, which I think was referred to by the right reverend Prelate, has a rather curious position on this. It agrees with the Government that resettlement units
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should be closed and replaced on the following grounds:
"It is inappropriate for the DHSS or anyone else to run housing, income support, health and social services for homeless people that are separate, institutional, low standard and centralised".
CHAR says quite categorically:
"Voluntary organisations have a poor record in running emergency accommodation but have managed shared housing very successfully. CHAR believes that emergency accommodation can and should be provided by local authorities and must not be seen as a function of the voluntary sector".
It dots the "i"s and crosses the "t"s a little later on when it says:
"The experience of voluntary organisations running night shelters, crash-pads etc. is that they cannot properly meet the needs of homeless people, nor guarantee to secure housing for any but the smallest proportion of users".
That rejection of the role the Government seek to thrust upon them by one of the principal charities concerned is, I think, partly due to the belief that these unfortunate people have a right to homes of their own and that the Government should change their housing policy. But that does not help us very much with the immediate problem in hand which the charities want to put on the lap of local authority housing and social services departments. That is their prescription.
That might be the right solution, but there is a major snag. There is no conceivable likelihood of local authorities being able or willing to take over those responsibilities under the present regime of rate capping, grant penalties and so forth. Nor am I at all convinced that an adequate case has been made out against a nationally run and funded network of refuges for the down and out. What is certain is that the proposal to close the existing network has not been thought through. In my view, there are few grounds for confidence that a satisfactory alternative will emerge.
I understand that a consultation process has been set in motion and that comments should be sent to Mr. Paul Blakey at the DHSS, Room 427, New Court, Carey Street. That is welcome and I should like to respond to that invitation on behalf of the SDP. But before sensible suggestions can be made it is vital that the Government should tell us how much money they are proposing to make available and what assistance, if any, they will give to local authorities if they are to carry the main burden, which is what will presumably happen. Obviously voluntary bodies will help but it is quite clear to me that they can play only an ancillary role. Do the Government accept that—that is, after all, what the voluntary bodies have said—and will they pay serious attention to the results of the consultative process? Finally, can the noble Lord say what sort of legislation will be brought forward to implement the Government's plans?
3.43 p.m.
Viscount Buckmaster: My Lords, like most of your Lordships in the Chamber this afternoon I warmly welcome the debate that we are having on the problems of the homeless and the badly housed. I shall deal with one area only, and that is the problems affecting the ethnic minorities; and I shall confine my remarks to the City of London.
Perhaps I may remind your Lordships that there are in this country altogether something like 2½ million people who are of ethnic minority. In London alone the figure is about 1·1 million and they represent no

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less than 18 per cent.—that is to say, almost a fifth—of the entire population. Whether we like that situation or not—and it may well be that some in your Lordships' House feel that there are too many of the ethnic minorities in Britain—they are here to stay and they have formed an integral part of our society. Indeed, so closely interwoven are they into the fabric of our society that the overall effect is something like that of a Highland tartan, and of course I do not mean any disrespect to the many noble Lords from Scotland. Let us call it a Highland kilt composed of many colours—brown, black, yellow, grey and so on. If one sends a Highland kilt to the laundry—I have never done it but many of your Lordships doubtless have—the whole of it has to be washed. We cannot say that we will wash only the white parts, the brown parts, the yellow parts or whatever it might be. The kilt has to be dealt with as an entity. I would submit to your Lordships that that is how we ought to consider the problem of our ethnic minorities.
Sad to say, there is discrimination in the spheres of housing and employment. That is despite the closely woven texture of our ethnic kilt and, much more important, despite the provisions of the Race Relations Act of 1976. I shall of course deal only with housing. In 1982 the Policy Studies Institute produced a very interesting report in which it concluded that 35 per cent. of the Asians in London were overcrowded and 16 per cent. of the Indian community, compared with only 3 per cent. of the white population. That is surely a very telling statistic.
More recently there was a report by the Commission for Racial Equality on the allocation of public housing in the borough of Hackney. That was published in 1984 and the conclusions that it reached are even more disturbing. Perhaps I may say at this stage that the London borough of Hackney has one of the highest proportions of ethnic minorities. The proportion is no less than 28 per cent. In Brent it is as high as 33.5 per cent—a third.
The report on conditions in Hackney reached three main conclusions: first, that black families on the council's waiting list were three times less likely to be offered a house, rather than a flat or maisonette, than white families in similar circumstances; secondly, that white families were over eight times more likely to be offered a new property than black families; and thirdly, that black families, on the other hand, were three times more likely to be offered pre-war property.
That report, as I said, related only to the London borough of Hackney. It seems that those findings could probably have been paralleled in other boroughs. When I spoke at the Second Reading of the Local Government Bill in your Lordships' House recently I pointed out that only one-third of the 32 London boroughs are now showing any real concern for their ethnic minorities. There is the very interesting case of the London borough of Ealing which has 25 per cent. ethnic minorities. That, believe it or not, is one of the least caring of all the boroughs.
Apart from the attitude of boroughs, another very important aspect is of course the attitude of many landladies. I think most of us would agree—indeed, I have seen it myself because I am in touch with many
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of those ethnic minorities—that all too often when a Pakistani, shall we say, or a West Indian comes to ask whether there is a room to rent he is given a flat-out, no, however much accommodation may be available. We do not know the full extent of this discrimination, but quite clearly it defies statistical analysis. It is very difficult to legislate against.
I come now to the specific problems of refugees, all of whom, of course, come within the broad category of ethnic minorities. Here I might refer to the very stimulating debate we had when the Supplementary Benefits Requirements and Resources (Miscellaneous Provisions) Regulations 1985 were debated in your Lordships' House on Maundy Thursday, 4th April. There was at that time an overwhelming feeling that these regulations were totally unjust.
I see that some noble Lords who spoke with me on that occasion will be speaking again today.
I will not repeat what I said then but I must just make two points very briefly. One is that if these regulations go ahead as they are drafted at the moment two internationally recognised hostels run by the British Refugee Council will have to close because the rents they charge are above the new figure stipulated. Secondly—and this point was raised briefly by the right reverend Prelate the Bishop of Coventry—there is a provision that people under 26 should move on and seek different accommodation every few weeks. That is quite deplorable, particularly in the context of refugees who, above all, need the stability and continuity provided by stable accommodation.
My final point is that as I see it—and I may be wrong here—there is something clearly wrong with the system of making rent payments. I have been in touch with several refugees and they have been left in some cases for six or eight weeks without a single payment. They go along to the DHSS office; they are told, "Well, this is in hand; we will deal with it tomorrow; we will send you a form". The problem is not dealt with tomorrow; no form is sent. I served for many years in the third world. I was conscious of the most appalling bureaucratic delays and inefficiency, and I would almost say that some of these bureaucratic bungles in London seem to equal the worst I have experienced in the third world.
I think we can all agree that the problem of the homeless is a sore thumb which sticks out all over London. In my view, the sorest parts of this very sore thumb are the problems suffered by the ethnic minorities.
3.55 p.m.
Lord Stallard: My Lords, I too should like to congratulate my noble friend Lady Fisher on providing this opportunity to discuss what I consider to be one of the most serious domestic problems facing our nation—namely, the increasing numbers of the homeless people of all ages, single or married. It is always a pleasure—a daunting pleasure no doubt—to follow the noble Viscount, Lord Buckmaster, who never fails to stir certainly my conscience with his contributions. I have heard him on a number of occasions in similar debates. I am grateful too to my noble friend Lord Soper, for filling in, from his vast experience in this field, some of the vital statistics that

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give us some idea of the size of the problem to which this Motion refers.
There have recently been a number of reports and surveys on different aspects of the homeless situation. Noble Lords may have read an article in the Guardian of 15th April last under the heading "£15 billion backlog on Council Maintenance". That is a telling figure referring to a report published by the Government auditor, the Audit Commission, which notes that local authority capital spending has fallen by more than 40 per cent. since the oil crisis in 1973. The report goes on to say that this £15 billion backlog is growing by £1 billion per year and that renovation will soon become prohibitively expensive. They go on to calculate that local authority spending is likely to decline from £75·5 billion last year to something like £3 billion in the year 1990. I could not believe the figures. If they had not come from the auditor—for whom I have the greatest respect from past experience—I would not have believed that such a reduction was possible, from £75·5 billion last year to £3 billion in 1990. The report mentions the waste that occurs because of the delays to projects, pressure to spend before the year's end, failure to plan ahead, and abrupt curbs in programmes.
I know that many members who have local authority experience will recognise the problems that were outlined in that report, particularly (in my own case) that aspect of spending before the year's end. It is something that always irked me when I was a member of a local authority and a member of a health authority: this rush to spend money before the year end seems an obscene way of dealing with our capital spending provisions. It is no accident, nor is it a coincidence, that all over London now you will see a spurt of road building or road mending activity—albeit very necessary—to spend the money that is left before the end of the year. That is a disgraceful waste of planning so far as the homeless and other priorities are concerned.
I was pleased to see that the Secretary of State has welcomed the report of the Audit Commission as part of his review. He did not say that he accepted it, but he certainly welcomed it as part of the review that he is having into local government capital spending. I should like to ask the noble Lord who is to reply when that review will be completed, and if he can assure us that the result will be debated in this House.
The Times on 19th April—and this has already been referred to by my noble friend the Baroness who opened the debate—reported an announcement by the Royal Institute of British Architects of its campaign called "Decaying Britain". The report quotes Mr. Michael Manser, the President of the RIBA, accusing,
"the Government of creating 'a revenue time bomb in neglecting essential repair and maintenance work on houses, schools, hospitals and other public buildings' …
"If current policies are pursued"—
he said—
"they will irrevocably damage the built environment upon which every enterprise in this nation depends … We will become a dilapidated second-rate annexe to Europe and, worse, we will be divided between those who are adequately housed and those who are not, those who work in adequate, efficient premises and those who do not, and those who lead civilised and fruitful lives and those who do not".
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Those sentiments have been expressed by many, many noble members on both sides of this Chamber in recent debates, and are now being expressed by professional experts. The Government must listen to those kinds of opinion.
As has been mentioned, in voluntary organisations like CHAR, like SHELTER, like SHAC (with whom I have had close associations over a number of years) and many other dedicated organisations, have been pointing out the effects on the ground where these things matter: the effect in the street and in the homes, or the lack of homes, of the truths enunciated in these recent reports. We all know the causes, the causes of homelessness are well known.
The redevelopment of properties into self-contained units for long lease letting has meant the disappearance of many guest houses, lodging houses and digs. The updating of antiquated hostels—like the Rowton Houses—has meant a shortfall of thousands of places for the single homeless. One Rowton House alone being refurbished has meant a loss of between 500 and 600 bed spaces for the single homeless in London. That is a colossal loss in one particular hostel. That is multiplied many, many times certainly throughout London and more times throughout the country. It is a tremendous problem. The impending closure of large mental hospitals, for instance Friern Barnet, will create appalling difficulties for boroughs within those catchment areas. The borough of Camden, which I know best, is one of them.
There are the housing difficulties for single women, for whom there has never been enough provision. There are the ex-psychiatric patients I have mentioned. There is the problem that has emerged of the battered women. There are the ex-offenders who have been mentioned. There are children leaving care. These have all added to the figures. What a few years ago was forecast as a 4,000 or 5,000 shortfall in bed spaces has been overtaken long ago. The figure will be three or four times that amount if we now add all the other factors. There are the pressures of family stress, of marital breakdown, the increase in unemployment and the movement towards cities like London by young people and older people seeking jobs.
If we consider the cuts in local government and housing association revenue expenditure and resources, to say nothing of rate capping, then we have an idea of the colossal size of the problem that is facing the homeless, more than anybody, and the impossible problem that is facing the voluntary organisations which are trying to deal with it. When I was a Member in another place, with the assistance of many other Members, including notably my noble friend Lord Dean of Beswick and another Member, Jim Marshall of Leicester, I tried to introduce private legislation to do something about these problems. We tried to firm up the legislation and to introduce new legislation. To be fair, we had some support and understanding from the Ministers who were then in charge and minor improvements were made. However, there has been a hardening, a toughening up, since that period. The situation has now become worse then even we anticipated in those days.
Yet another report, the report of the Institute of Environmental Health Officers, has taken up this plea,

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this demand for more legislation for firmer legislation and for more resources to be made available for the purpose of trying to resolve this problem of the homeless. There is the impossible dilemma, which I have mentioned, facing the voluntary organisations, particularly those involved with special needs housing. By "special needs" I mean the needs of those to whom I have referred, such as the ex-psychiatric patients, the ex-offenders, the battered women and so on. There are many. They are faced with problems, especially in relation to the possible abolition of the GLC and the inadequate provision that is being made in the event of that authority disappearing. The possibility of the revenue it was able to supply and the resources it was able to give to those organisations also disappearing is something that is extremely worrying.
Already we have not just proposals but almost firm bookings for what are called tent cities. I read about the possibility of a tent city being set up in my own area, on Hampstead Heath. If these voluntary organisations disappear and there are no resources, there will be so many thousands of homeless people wandering the streets that there will not be enough cardboard boxes to accommodate them. These cardboard boxes were mentioned by the right reverend Prelate in his speech. We know about the cardboard box problem in Chad. There will certainly not be enough cardboard boxes available. There is also talk about the setting-up of tent cities. I am sure that none of us can live with that kind of solution in 1985.
It has been mentioned that 1987 is the International Year of Shelter for the Homeless. It has also been mentioned in the speech made by the noble and learned Lord, Lord Scarman, who has been here for most of this debate, and who is the president of the council for that year in this country. At the introductory conference he warned that the United Kingdom may soon be facing the prospect of a new generation of slums. There are some, like me, who think we are already in that generation. It is not a question of "soon"; we have already arrived there, and we must do something about it. In view of this, and all the other reports which have been issued and to which the Minister has access, I should like to ask him what plans the Government have to combat homelessness, certainly in the international year for the homeless, and beyond.
4.4 p.m.
Lord Grimond: My Lords, I am very grateful to the noble Baroness for introducing this extremely important subject. I also find it a great pleasure to follow the noble Lord, Lord Stallard, with many of whose remarks I very much agree. I agree particularly with his remarks about the effect of local government finance, the need for repairing the housing already in existence, and also the effect of closing hostels and such like, which I think was also referred to by my noble friend Lord Kilmarnock.
So far, every speaker has emphasised the hardships caused by inadequate housing and homelessness. I do not intend to go over that again. My noble friend Lord Ezra pointed out that here we are, one of the richest countries in the world, and yet we are unable to house our population. The first question I want to ask is why
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this is so. It is not that we have not spent a great deal of money on housing, because we have; we have spent enormous sums of money on housing. Yet we face this situation.
First, I suggest that much of that money has been mis-spent, that our policies towards housing have led to inflexibility. We would have been wiser, where possible (though I agree it would not have met all cases), to subsidise the person who needed help in finding a house rather than the house itself. Such a person could then have taken that subsidy with him and tried to get a house where he wanted one. Secondly, we have to face this extraordinary situation of these hundreds of thousands of unoccupied flats and houses. In answer to a recent Question of mine, I think the noble Lord the Minister said there were something like 30,000 such houses and flats in London alone. I believe there are equivalent numbers in Scotland. I should like to ask him if he has any overall figure for the whole of Britain.
It is true that some surplus housing is inevitable because people move. However, I should not have thought it needed to be on this scale. It seems to me to have arisen partly from sheer bad planning and bad architecture. For instance, a good many of those tower blocks and many other kinds of housing were so badly designed and badly built that now people will not live in them. Secondly, much of the housing is in the wrong place. The population has been moving very fast and we now find that some places are over-housed while others are totally inadequately provided for.
Further, we are very guilty in not attending to repairs and improvements. This point was mentioned by the noble Lord, Lord Stallard. This throw-away society seems to have had a disastrous effect on housing. Instead of keeping up and repairing old houses, we allow them to fall into disrepair and then build new houses which in many cases turn out to be extremely badly built. Let us avoid the mistakes that have already been made. Let us avoid the type of architecture and planning which has led to this situation of there being vast quantities of unoccupied houses. What is to happen to these houses? I suggest they should be sold off. They have no tenants to be sold to, but they should be sold off to anyone who will take them off the hands of local authorities. The proceeds should then be used for either assisting people to find houses or for building new houses.
I reiterate what I said in my supplementary question a few days ago: that I believe that local authorities should be allowed to use at least a great proportion of the proceeds from the sales of houses in providing new houses for letting. I also suggest that the Government look at some of the suggestions made in the Economist on 6th April, particularly in regard to housing co-operatives and housing associations, which have already been mentioned by the right reverend Prelate. I believe that they should be much more used in this country and much more encouraged than they are at present.
I now come to the restrictions on letting. There is no doubt that the Rent Acts now are a considerable bar to flexibility in housing. They result in a great many buildings being under-used. To my mind, the present danger is not so much that exorbitant rents will be charged. After all, rent-tribunals exist to stop that.

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However, what is happening is that people whose families have grown up and gone away will not let rooms in their houses because they are frightened that once they take people in they will never get rid of them. Also, I have met tenants who are suffering harassment from landlords, not to get a higher rent out of them but to drive them out altogether because what they want to do is to then put the house on the market and dispose of it. These are the difficulties today. Therefore, I think that we should look again on the matter of the Rent Acts and look at the effects which they may be having on the use of our housing stock.
I emphasise again that it is not so much that we lack housing stock but that it is in the wrong place and very badly repaired and maintained, as are many of the neighbourhoods. In visiting many cities, I am deeply depressed not only by the housing but also by the surroundings and the fact that people who really need housing have not the means to find it or to pay the rent. If the Government are maintaining the attitude that housing is not really their primary responsibility, that it is the responsibility of local authorities and that all they have to do is to give guidance, then I beg them to give guidance along the lines that I have suggested, especially as they have emphasised this matter of empty housing. The Government should give guidance to local authorities on how they should dispose of this quantity of useless buildings and what they can do with the proceeds.
4.10 p.m.
Lord Dean of Beswick: My Lords, may I first express appreciation, like other noble Lords, to my noble friend Lady Fisher for introducing this debate on housing and the homeless. This is in natural accord with her longstanding interest in the topic. As my noble friend has herself stated, she was a former chairman—a distinguished one—of Birmingham housing committee. Our political careers appear to have progressed somewhat in tandem. During the same period, I was chairman of the housing committee of another large city having, like Birmingham, severe housing problems. That was Manchester. It is for these reasons that I speak today.
The debate enables me to express, together with other noble Lords, my concern regarding the deteriorating situation in housing. Gone are the halcyon days of building more than 300,000 houses a year under either Conservative or Labour Governments. The house-building programme under the present Government is pitiful by comparison. This is mainly due to the Government's progressive reduction of financial limits imposed on local authorities in their housing investment programmes.
The only success that the Government seem continually to claim, although we have not heard much about it lately, is the enforced sale of council houses—a somewhat shallow claim now, I believe, when one considers that the capital receipts raised by such sales, referred to by my noble friend Lady Fisher, are being denied to local authorities on an increasing scale. One recalls that the main plank on which the present Government were supposed to have introduced and implemented the sale of council
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houses was to raise money for replenishing stock and building new council houses to replace those that had been sold. However, the money is continually being reduced and almost withheld.
The continued withdrawal and reduction of financial targets to local authorities by the Government has wrecked any possibility of housing authorities formulating their forward-looking programmes. This is at a time when local authorities are having to grapple with corrective treatment or the demolition of housing accommodation built by the use of industrial systems sponsored and supported by successive Governments of both major parties. This matter has already been mentioned during the debate. I know that the Association of Municipal Authorities has quantified the sum required to deal with this problem as a minimum of £10 billion. This comes on top of some of the other pressures that we are discussing in the debate.
May I now refer to an article in The Times on Monday this week headed "Housing in crisis" which stated (and by leave I quote):
"Under pressure from both the public and private sectors, the Government is to undertake a comprehensive survey of the housing stock to assess how to maintain and improve the country's dwellings, which, in spite of considerable effort, is no nearer to solution than a decade ago".
In fact, figures show that the situation has deteriorated seriously over the last decade. The article goes on:
"The survey, to be carried out through local authorities, should be completed in time to influence next year's public spending plans, and will almost certainly corroborate evidence collected by bodies, including the Association of Metropolitan Authorities, the Building Employers' Confederation and the National Home Improvement Council, which shows the stock to be in a parlous, and in some cases still deteriorating condition".
May I make a personal plea to the Minister and ask that he accepts the situation and that he will give serious consideration to any submission made to him by the Institute of Maintenance and Building Management, whose members, talking in terms of the public sector, will have the major role in organising and carrying out any policies determined by the Minister. I do not believe that there is any need for such a survey. The evidence has already been collated by a number of well-established and non-political bodies which have reported on the issue. They include the Policy Studies Institute and NEDO, to which reference has already been made, and the Audit Commission on Local Government mentioned by my noble friend Lord Stallard, which reported only just over a week ago. The RIBA has also expressed its views in similar terms.
Every known agency dealing with the public sector—non-political in absolutely the purest sense—is coming to the same finding, that the time for action is now and that it is urgent. Along with a number of colleagues who have been fighting this battle for a number of years, I am pleased also to discover the new allies that we appear to have attracted in the form of the support of His Royal Highness the Duke of Edinburgh and of the noble and learned Lord, Lord Scarman, who I am sorry to see has had to leave the Chamber. The support of such worthy people in our cause is gratefully received and very much appreciated. Though these people were showing their concern, I do not believe that there is any need to await

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the findings of any further bodies. Action must be taken now as a matter of extreme urgency. Any proposals put thereafter can be built into an ongoing policy or programme. I have so far tried to show the problem as highlighted by various responsible bodies. Let me now give some details and illustrations. It was, I think, the noble Lord, Lord Ezra, who referred to a report by the Building Employers Confederation. The confederation has issued some worthy, excellent and detailed reports on what has been happening. A statement that it issued on 12th February, headed "Serious housing shortage threat", stated:
"A disturbing shortfall of 100,000 new homes built in each of the past seven years is revealed in a report—'Spotlight on new housing'. It says that construction is lagging far behind any reasonable assessment of need. In 1984 only 198,000 houses were completed compared with an average of 304,000 per annum during the 1970s. Last year only 152,000 new private homes were started by builders—15,000 fewer than in 1983—while council house building in the public sector fell to a post-war record low"—
this was also referred to by the noble Lord, Lord Ezra—
"of only 38,000–9,000 less than in 1983 and 25 per cent. of the level of a decade ago".
That means that we are building one house now for four a decade ago. The report goes on:
"There have recently been massive cut backs in the public sector, yet the private sector faces serious difficulties in making up the shortfall due to shortages of land at prices that enable house builders to meet the demand for housing that people can afford. The private sector is also faced with the widening gap between incomes and house prices".
That is what the confederation says. It concludes:
"We need to build many more new homes to high standards at prices people can afford if we are to realise the Government's stated goal of making Britain one of the best housed nations in the world. The alternative is to continue the present policies of neglect and see an increasing number of people trapped in unfit, sub-standard and overcrowded accommodation which requires extensive renovation or demolition and replacement.
"That alternative will lead to a serious housing crisis by the end of the decade".
In the short time remaining I should like to say a few words as regards maintenance. Twenty per cent. of all our housing is deemed to be in need of basic improvement to the tune of £2,500 per property. Those of us concerned with housing all know that because of Government cutbacks there are tremendous cuts in the normal routine maintenance that local authorities like to undertake of necessity to rescue and retain their housing stock.
Finally, the Motion refers to homeless people. Today we are seeing an ever-increasing number of people registering on waiting lists for houses. We are seeing an ever-increasing number of people who are being registered as homeless under the existing laws. The agencies which I have mentioned on the professional side, the building side and the trade union side—such as the major union UCATT—are ready to respond to this call and to deal with the problem. There is only one component lacking and that is Government support and Government funding to deal with the problem. I urge the Government to reassess their policy without delay and to set these agencies and people at the task of correcting the deficiencies that we are now experiencing.
4.21 p.m.
Lord Graham of Edmonton: My Lords, I rise a little earlier than I think the timetable as originally scripted would have called upon me to do, but that is certainly no criticism of those who have spoken. I believe that every speaker has spoken with a full measure of seriousness, of knowledge and of experience. They have all demonstrated that they are highly critical of the attitudes, the performance and the philosophy of the Government.
The sad fact is that until the Minister rises there will not have been one speaker in what is admittedly a short debate who has come along to this House to defend or to support the Government's record in this matter. I of course join with everyone else who has spoken in warmly congratulating my noble friend Lady Fisher not only on her good luck, but also on the tone of her speech. My noble friend made a constructive speech, a speech which was designed to help the Minister and to remind the Minister, if indeed he needed to be reminded—and this is not an offensive phrase—of the true nature of the problems that many Members of this House come across every week. There was no one better than my noble friend Lady Fisher to bring to the House the depth of experience which she possesses. I would certainly say that not only on her behalf but on behalf of everyone on this side of the House.
People sometimes ask why we on this side of the House constantly bring back housing as the subject of debate time after time after time. I can tell the noble Minister that so far as we are concerned we return time after time to the subject of housing because we understand the true gravity of the impact on the lives of ordinary people of being adequately, poorly or well-housed. We know—and we are not exclusive in this regard—from our experience of serving as councillors and living in constituencies (because we are still in touch with local conditions) the wretched conditions, and we know the people and the families. They are not statistics; they are not simply part of a report. We know the devastating effect on relationships and the appalling consequences for families and, indeed, for the nation.
I begin my contribution to this debate by supporting the main indictment and charge which has been sustained by previous speakers against the Government. The Government have no programme for dealing with the nation's housing crisis. They have no resources and will make no resources available. They offer no hope to the millions who are in housing need. This is a hope-less Government.
I should like to remind the Minister of the state of the housing stock and the related housing needs if, indeed, he needs reminding—and I believe he does—time after time. The situation is as follows: 1,200,000 households are on waiting lists for council accommodation, of which 200,000 council tenants are in what is officially classified "overcrowded" accommodation; 200,000 are sharing accommodation; 190,000 are on waiting lists for sheltered housing; 17,000 are waiting for disabled units. According to the English House Condition Survey—and these statistics have already been alluded to but they are worth repeating—1,100,000 dwellings are unfit for human

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habitation; 390,000 are fit but lack basic amenities; 574,000 require repairs costing more than £7,000; and 2,500,000 require repairs costing between £2,300 and £7,000. Over 80,000 households will be accepted as homeless this year, many more will be refused help.
When we look at the slum clearance programme, we find that it is at an all time low level and at that level of clearance it is estimated that every existing house will have to last 900 years. We know the enormity of a problem of that nature.
Last week the Minister alluded twice to the number of houses managed by councils that were left empty. The noble Lord, Lord Grimond, also made reference quite properly to the better use of these properties. From the way in which the Minister talked about empty housing, one would think that councils were the biggest culprits in keeping houses empty. In fact, 2·3 per cent. of all public sector housing is empty. Indeed, that is a matter to which the Minister alluded. However, 4·2 per cent. of all private sector housing is empty and 6·9 per cent. of all Government-controlled properties are empty. Therefore, when the Minister is trying to find reasons for hitting councils over the head once again for keeping property empty, he ought to say why it is that three times as many properties owned by the Government are kept empty. It all has to do with the resources, the HIP allocation and a great many other matters as well.
The Government are wholly sovereign over the ability of councils to make any impact upon the dreadful catalogue which I have just read out. They do so through two prime agencies—the rate support grant and the housing investment programme. Let us spend just a little time looking at how the Government help to solve the housing problem through the rate support grant and the housing investment programme. We have just seen the devastating indictment of the Government's policies published this week by the Audit Commission, which points out that, globally, as a result of Government policies, ratepayers have been forced to pay £3 billion more over the past few years simply because the Government have denied the councils a fair and proper allocation of rate support grant.
In 1979–80 London as a whole received in rate support grant a sum of nearly £1,296 million and that was equivalent to 40 per cent. of its total expenditure of £3,229 million. If in 1984–85 London as a whole had received in rate support grant a sum equivalent to 40 per cent. of its total expenditure, it would have received £2,294 million. This would have been £918 million more than was actually received.
I live in the London Borough of Enfield, which I have had the pleasure to represent. The London Borough of Enfield received in rate support grant in 1979–80 the sum of £41 million, which was equivalent to 60 per cent. of its total expenditure. If in 1984–85 the London Borough of Enfield had received the same equivalent support of 60 per cent., it would have received £60 million. However, it received only £46 million. Therefore, the ratepayers of Enfield have paid £14 million more in rates simply because the Government have decided that they are going to save the money.
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As regards the HIP allocations, I should like to give some figures from the London area. I happen to have the honour to be president of the Association of London Authorities. May I simply take the authorities who are members of the ALA. In 1979–80 they put in a bid for £1,548 million and they got £1,000 million. They got, in effect, almost two-thirds of what they asked for. But in 1985–86 they put in a bid for £1,023 million and all they got was £333 million, one-third of what they asked for.
Authorities do not idly ask for money. They ask for it because they have programmes which the Government have told them to get on with. This Minister has said more than once that it is up to the authorities to decide how they are going to spend their money. They want to spend their money on improving housing, and they want to get rid of the homeless. They ask the Government for adequate sums of money, and that is the response. The London borough of Enfield received, in 1979–80, 95 per cent. of what it asked for, but in 1985–86 it made a bid for £18 million and it got £5 million, 30 per cent. of what it asked for. These are some of the realities that the Minister had better take on board when he is trying to pass the blame and the buck so far as local authorities are concerned.
This Government say that they have a solution to the housing problem—owner-occupation. Let me tell the Minister what the Housebuilders Federation has said about people becoming owner-occupiers:
"One million households on £6,000 or less have a maximum mortgage capacity of £17,500. Where the household contains one person, the maximum is between £12,500 and £15,000.
"The average cost of a new house is £33,000, and that of existing houses is £29,000, although these figures hide substantial regional variations. However, the average price of houses bought by first-time buyers is £21,000. This means that those on incomes of £5,000 or less face a gap of between £3,500 and £7,500, which needs to be made up by a saved deposit".
What conclusion does the Housebuilders Federation—certainly no friend of Members on this side, and possibly more allied to the Government—come to? It says that the,
"Government must therefore turn its attention to the provision of rented housing as for most people this is now the only form of housing which they can have".
Let us look at the advice that the Government are receiving from building societies. Let me quote from a reputable and successful building society, the Nationwide:
"An 'average' first-time buyer with a 25-year mortgage would have had to spend 24·1 per cent. of net income on repayments last quarter—up from 18·3 per cent. in the first quarter of 1984. With house prices rising faster than borrowers' average income, the recent increase in mortgage rates is particularly hard for buyers to afford.
"Previous owner occupiers taking out mortgages have also been hit by these trends, and were spending 22·6 per cent. of net income on repayments in the first quarter of this year, compared with 17·2 per cent. a year previously."
There are, of course, a great many aspects to the problems of housing and many of them have been touched upon. Let me simply remind the Minister of the trends over the period in capital and revenue spending. Housing revenue and capital expenditure have both been cut in absolute terms, and the housing programme as a whole has suffered a disproportionate cut as compared with the other areas of public expenditure. This of course is direct Government

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policy. The trends over the past 10 years are alarming. Ignoring inflation, for every £100 spent on public housing in 1974–75, £65 will be spent in 1984–85. Allowing for inflation, for every £100 spent on publiic housing in 1974–75, £21 will be spent in 1984–85.
After substantial consensus since the war, for more than 30 years, as an act of deliberate political policy by this Government, housing has been taken off the nation's agenda by Secretary of State Heseltine and by Housing Minister Stanley. Despite the most alarming and depressing reports from, among the others, the House of Commons Environment Committee and the 1981 English House Condition Survey, this Government have closed their eyes and their ears to all sounds of pain, of anger and of despair. In public housing we have seen a steady, heavy transfer of cost and charge from the public purse to the tenant. The most cynical aspect of this abandonment of the needy in housing to the tender mercies of what the present Housing Minister calls "the magic of the market place" is the furtive, secretive, clandestine way successive Tory Housing Ministers have sought to keep their disreputable deeds out of the arena of public debate.
Relations between this Government and local authorities are at an all-time low. Nowhere are they lower than in the field of housing. My noble friend Lady Fisher, from her lifetime involvement in seeking to improve the lot of working people, recognises that if a family has a decent home—not just a roof over its head, but a chance to grow—it can give to the nation far more than the nation need ever give to that family.
This Government think they have a housing policy by selling council houses. They are wrong. This Government think they have a housing policy by producing legislation which cripples the abilities of councils who want to solve their housing crisis and by interfering and bullying them into submission. They are wrong. This Government have betrayed the trust of millions in housing need who voted them into office. They have abdicated their responsibilities not only to the needy but to the nation. It will fall to the lot of the next Government, a Labour Government, to see that those who have been abandoned and betrayed get what they so desperately need—a Government who put better housing for all our people at the top of the nation's agenda.
4.37 p.m.
Lord Skelmersdale: My Lords, the subject of housing, with all its ramifications, has been one of recurring interest in your Lordships' House for many years. I therefore welcome this opportunity to debate these important issues again. I am grateful to the noble Baroness, Lady Fisher of Rednal, for putting down this Motion today. It will not surprise her to learn that I do not draw the same conclusions from her speech as she did. She says, "The problem can be solved quite easily" by (guess what) the same old, pale, tired solution of throwing money at the problem which resulted in throwing this country into the arms of the IMF.
In considering this subject, we must be aware of one very germane point which is so often ignored, particularly by the party opposite. I was interested to note that
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the right reverend Prelate the Bishop of Coventry was obviously aware of it from what he said. This is that the overwhelming choice of people today is to own their own homes. Not only is this what they want, but surveys have shown that over 90 per cent. of young people aged under 35 expect to achieve that aim within 10 years. We have responded, and will respond, to this need.
This is why home ownership is the cornerstone of the Government's housing policy, and the success of this policy is amply demonstrated by the undeniable fact that since this Government came to power the country has seen one of the most rapid rates of expansion in home ownership since the war. By the end of last year the number of owner-occupied dwellings in Great Britain had increased by 1.8 million since May 1979. Owner-occupation has now passed the 63 per cent. mark in England. There is no reason why it should not rise to 70 per cent. over the next decade. The Government's right to buy policy has played a major part in this. Since 1979 over 800.000 public sector dwellings have been sold in Great Britain, almost all to sitting tenants, and most under the right to buy.
Not only this. Through our low cost home ownership initiatives we have made home ownership a reality for thousands of people who would not otherwise have been able to buy. Over 70,000 homes have been sold under low cost home ownership schemes, including building and improving for sale, homesteading, shared ownership and building under licence. And over and above that, 70,000 homes and more than 5,000 acres have been sold by local authorities and new towns—sufficient land for over 45,000 homes.
I am sure that the House will agree that this is a considerable achievement. Indeed, the private sector is making an increasing contribution to meeting housing need. Expenditure in the private sector is now the most important measure of investment in housing. Out of 200,000 dwellings completed last year, over 150,000 were in the private sector, the highest figure since 1976; and the most recent House Builders' Federation State of Trade Inquiry, published this month, is optimistic about the future, reporting that house builders were planning to increase their level of starts over the next year.
The Government therefore expect more people to have their needs met in the private sector. That is not to say there is not a role for the public sector to provide homes for rent. Of course, there is. There will always be a need to cater for those who are unable, for one reason or another, to own their own homes or meet their need in the private-rented sector. But, as more and more people fulfil their wishes to buy their homes, this role will change over the years to come. Contrast our approach, my Lords, with the blinkered and ineffective thinking of the party opposite! As I understand the speeches that we have heard today, from the other side of the House, their only solution is a massive programme of council house building. Why build vast municipal estates that people do not want to live in? A good, well-run local authority is one which puts the needs of the people that it is elected to serve before any other constraints. It is one which, if it perceived the demand for housing for, for example,

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first-time purchasers, says to itself, "How can we provide good quality housing for these people at prices they can afford and at the same time meet some of our own housing needs at little cost to the council?" The local authority with some lands owned for housing has basically two choices: to build for rent or to provide housing for sale either itself or by bringing in a private developer. What happens? We see local authorities split along ideological lines. What a nonsense this is I am sure the noble Lord, Lord Grimond, would agree. I may be old fashioned but I believe in giving people what they want. Take housing out of politics! That is what I say.
Lord Graham of Edmonton: My Lords, I am grateful to the noble Lord for giving way. It seems a little while ago but I recall him saying words something like: Why should we build vast council estates to put into them people who do not want to live there? Quite frankly, that is nonsense. I should like the Minister to tell us of the evidence from the people who are homeless and who want to be rehoused but who do not want to live in vast council estates. If the Minister is arguing about architecture or the manner of building public housing in the 1990s as opposed to the 1950s, he will have me on his side. However, public housing has advanced. But surely what we are talking about are the hundreds of thousands of council properties which have been denied being brought up to a good state of repair simply because this Government have said, "You shall not spend your own money through capital receipts, and even if you wanted to do so, we are not going to allow it; and we will reduce your rate support grant as well".
Lord Skelmersdale: My Lords, perhaps the noble Lord, Lord Graham of Edmonton, will allow me to make my own speech in my way. I shall come to those points which he has made and I fully recognise that there have been improvements in design, in building by local authorities such as he has said, since the 1950s. But I still reckon that all is far from perfect. There is quite a lot more that could be done in the public-rented sector to give people what they want.
I believe firmly that if local authorities and the private sector work together, it is possible not only to make a significant impact on housing needs but also to provide people with the housing they want. For example, a local authority could sell a site to a builder on condition that he builds low-cost homes that are offered to people either in local authority accommodation or on the waiting list. That would not count as public expenditure. In fact it would be the reverse. The local authority would enjoy the receipts from the sale of the land. As the properties were sold to sitting council tenants or to those on the waiting list, the local authority would get the benefit, at no cost to itself, of the re-lets or it would benefit from the reduced pressure on the waiting list. That solution would bring about a better form of tenure because, as I have said, home ownership is what people want.
Anyone looking objectively at housing, as did the noble Lord, Lord Grimond, should feel that that is a legitimate and cost-effective approach to tackling housing problems. If it is measured only in terms of the level of public expenditure, then it does not show up. That is why the analysis on which some noble Lords
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opposite rest their case is unsound. What the Government are doing and will continue to do is to harness the energy and resources of the private sector to tackle the problem with which the House is rightly concerned.
Your Lordships may well think this is a long introduction to the Government's response to the Motion of the noble Baroness this evening. However, I thought it right to put the rationale of our housing policy to the House. So, the question that I now have to answer is the one put essentially by the noble Lord, Lord Ezra: have we made sufficient resources available for public sector housing? Contrary to the impression given by the party opposite, we have made very substantial sums available. The gross provision for public sector investment in housing for the present financial year is just over £3 billion. This has been referred to by many noble Lords, including the right reverend Prelate and the noble Lords, Lord Graham and Lord Soper. All have said that they did not reckon that this was enough. The housing corporations' programme for 1985–86 of £685 million is sufficient for new starts on about 17,000 rented dwellings and 5,000 low-cost home ownership dwellings. By any standards, it is a substantial programme of public expenditure to support investment made by housing associations. I am not talking about the total figures; I am talking about these particular figures.
It reflects the fact that this Government continue to attach great importance to the contribution that can be made by housing associations in meeting a wide range of housing needs. It is certainly true that we have taken some firm measures to reduce the risk of actual expenditure in 1985–86 exceeding that provision. That has been necessary because spending in the past two years has run well ahead of the planned level and of what the country can afford. Keeping the total public expenditure within the planned levels is essential for economic strategy. If public expenditure is allowed to rise significantly above those levels, the public sector will absorb too big a share of the available finance; there will be increased pressure on interest rates and growth of investment in the private sector will be impeded. Investment in economic recovery is proceeding apace and it is expected to gather further momentum in the year ahead. In the long run it will help no one if this recovery is interrupted.
Before I leave the subject of capital receipts, perhaps I might remind the noble Baroness, Lady Fisher of Rednal, that not all capital receipts are restricted to 20 per cent. There are some categories that remain at 100 per cent. and these reflect our particular policies. They are building for sale, building for sale under licence and acquisition of housing for resale; for example, under shared-ownership schemes. Even where the prescribed proportion has been reduced to 20 per cent. we are not depriving the authorities of the use of these receipts. What we are doing is spreading their use over a number of years to reduce the economic impact. The housing needs of the homeless have been the subject of recent discussion in your Lordships' House and they were graphically described in the horrifying words of the noble Lord, Lord Soper. Again, I have no doubt that he is right in what he says; but, again, I do not agree with his conclusion; and I shall explain why.

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I have explained the Government's policy on the homeless in answer to questions from the noble Lord, Lord Grimond, and the noble Baroness, Lady Ewart-Biggs. The Housing (Homeless Persons) Act 1977 imposes a duty on local authorities to arrange accommodation for homeless people in specified priority need categories. For homeless people outside the priority need categories, the authorities have a duty to provide advice and appropriate assistance. The Government have asked authorities to interpret this duty as generously as resources permit. In England, in the first half of 1984, 9 per cent. of those for whom authorities arranged accommodation for the homeless were outside the priority categories.
I can assure the House and the noble Viscount, Lord Buckmaster, that the Government are fully aware of the difficult problems being faced by some local authorities, particularly in London. I can tell him that we take particular account of those problems when making the housing investment programme allocation. Ten per cent. of the generalised needs index, which is the formula used to distribute the HIP resources, is made up by a special homelessness indicator. The department takes account of particular problems faced by individual authorities through the local discretionary element of the distribution.
We are helping in a number of other ways. For example, the Government's hostel initiative has resulted in a major expansion in the provision by housing associations of small, modern hostels, often providing care and support. It is estimated that some 11,000 places have been approved since May 1979. This has been a valuable way of improving provision for the single homeless, including those outside the priority need categories of the Act. Under the housing association grant arrangements, associations providing accommodation in hostels, other forms of shared housing and self-contained dwellings for rent are supported by the Department of the Environment with capital and also, when necessary, revenue finance. The noble Lord, Lord Kilmarnock, spoke of yet another Government initiative which I believe he thought rather questionable. As I understand it, the DHSS has decided that it should no longer run the particular hostels that he was talking about, and therefore the money can be reallocated. I shall of course check on that assertion and write to him, if I may, in any event.
Noble Lords have highlighted the plight of those living in bed and breakfast accommodation. I am sure there is no disagreement between us about this. Using bed and breakfast must be a last resort. It is expensive and unsuitable, in the long term, for single people, let alone families. I cannot imagine that any Member of your Lordships' House would wish to live in this way, but the answer is not to embark on a major council house building programme, although some new build will undoubtedly be required. However, there are other options.
As public sector resources are limited we must make the fullest use of all existing accommodation, including empty dwellings, whether public or private. The Government have taken a number of measures in order to help. The department's recent empty dwellings report demonstrated that there is a good deal
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of scope for making better use of local authority stock by improving management practices, both to speed up changes of tenancy and renovation schemes and to turn round run-down and unpopular estates. We shall shortly be issuing a circular to local authorities setting out ways in which better management can reduce the number of empty dwellings. There is also scope for more short-life schemes for both public and private sector tenants, to provide temporary accommodation. To help to develop this, the Government have decided to restore eligibility for housing association grant to local authority-owned short-life dwellings.
A number of noble Lords have argued that the Government need to do more to improve the condition of the nation's housing stock. We recognise that in the public sector some authorities are facing difficult problems of disrepair in their own stock. We gave greater weight to public sector disrepair in the distribution of housing investment programme resources for this year, but better information about the condition of the local authority stock is needed. As a first step towards obtaining more systematic information, the Government launched a special inquiry into the repair and improvement requirements of their stock on 11th April. This will give a much better estimate of the scale of the problem at the national level. The Government are also helping by providing technical advice. The Building Research Establishment has carried out research into defects in a number of types of housing and is currently investigating large panel systems.
We have also given a high priority in recent years to the improvement and repair of private sector housing. The noble Lord, Lord Dean, mentioned this. Spending on home improvement grants was over £900 million in 1983–84 and is estimated to have been nearly £750 million in 1984–85. I was interested to learn that these figures compare with £90 million spent in 1978–79. The Government have been carrying out a review of private sector housing improvement policy, and we expect to publish the reports in the form of a consultative document very shortly. This document will be given a wide distribution. The Government are keen to receive comments on the proposals before these are finalised and the necessary legislation is brought forward.
By all the rules I ought to be perorating about now, but I think perhaps your Lordships will allow me a few more minutes. The noble Lord, Lord Graham, asked me, very fairly: what about the private sector? He also made various allegations. We in this Government are convinced that one of the major reasons for the decline of the private rented sector is the Rent Acts. That is why we have recently put in hand a Ministerial review of the working of the Rent Acts. I have already told the House about this on a number of occasions: it is being undertaken by my honourable friend the Minister for Housing. I expect the conclusions to be made available soon.
The other thing I ought to say is that the noble Lord, Lord Graham, has good "forgettery". The party opposite was much more successful in cutting resources than this Government. In four years from 1974–75 to 1978–79 investment in public sector housing fell by 45 per cent. In the five years of this Government it has fallen by only 26 per cent.—and we

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have also increased the number of families who are housed in the conditions that they want.
We have had an interesting and thought-provoking debate today. I appreciate that there are many questions—for example, the new city action teams, which were asked for by the noble Baroness, Lady Fisher—that I have not been able to reply to. Nor have I been able to reply to a number of detailed points on what might be called mental and physical health. I hope that I might be allowed to write to those noble Lords who have mentioned such points.
Nobody, least of all this Government, underestimates the serious nature of some of the problems that we face. But my message is this. We must not be deceived into thinking that a vast increase in public sector investment is the answer. We have a duty to provide the sort of housing that people want; we have a duty to maintain the economic recovery—and that means keeping firm control over public expenditure. The way forward is to harness the energies and resources of both public and private sectors to provide the right mix of housing at a price the country can afford. And, my Lords, the other way forward is to make sure that we get value for money for every penny spent, as the noble Lord, Lord Grimond, has so cogently pointed out this afternoon.
4.59 p.m.
Baroness Fisher of Rednal: My Lords, the noble Lord, Lord Skelmersdale, said that he would not be saying things I would agree with. I am sure he does not expect me to agree with most of what he has just said. What I was trying to point out clearly was that we on this side of the House are just as concerned to get value for money as are the Government; hence, why spend millions of pounds every year on giving to homeless people bed and breakfast accommodation when they could be provided with housing? Is that value for money? Why waste money? You have got no asset at the end of the year except somebody's chewed-up breakfast. It seems to me elementary; I do not think one needs to be a student of economics to regard that as being cost-effective.
When the noble Lord was giving his reply, to be quite truthful I thought to start with that this was Lord Graham's debate. I think I got a mention a couple of times, and the noble Lord has said he is going to write to me. I listened to hear how many times he mentioned homelessness and the badly housed. I do not think that he mentioned the badly housed once. I shall read Hansard carefully tomorrow, but I think that homelessness was mentioned only four times.
This debate has been to call attention to the need for investment to overcome the difficulties facing the homeless and the badly housed. Later this evening we shall have an Unstarred Question on whether there are any further plans to save more of our cultural heritage. Noble Lords who have spoken in this debate have been trying to preserve the people and their homes, which we think is the national heritage—not the cultural heritage.
In conclusion, may I say thank you to all those who have joined in the debate and who made some excellent points. I am grateful for all the support that I have had this afternoon. I would say this to the
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Minister. The noble and learned Lord, Lord Scarman, who was here for the greater part of the debate, is chairing the International Year of the Homeless in 1987. I should like to feel that after this debate the Government will not turn their back on that Year of the Homeless. If they do, they will be turning their back on those who are ill-housed, the mentally handicapped, the battered wives, the ex-prisoners, the psychiatric patients and the ethnic minorities. If the Government do not do something to play their part in the International Year of the Homeless—and the plans have to be laid now—they will be turning their back on all those people. My Lords, I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

Social Security Bill
Brought from the Commons; read a first time, and to be printed.

Chemical Weapons
5.2 p.m.
Lord Reay Lord Reay rose to call attention to the threat posed by chemical weapons, and the case either for a balanced and verifiable ban on such weapons or for the possession by NATO of a credible chemical deterrent; and to move for Papers.
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. History indicates that chemical weapons are used only when the user does not fear retaliation by the enemy. So early in the First World War they were used on a large scale against Russian troops; between the wars they were used in Abyssinia; they have recently been used in Iraq, apparently in Afghanistan and possibly in South-East Asia. Their use petered out in the First World War as both sides became prepared to wage chemical warfare, though not before severe casualties had been caused.
In the Second World War both the allies and the Germans, when at different stages tempted or urged by certain of their leadership to use chemical weapons, were always deterred by the fear of retaliation. There can be little doubt that, if NATO policy were to possess a strong battlefield capability in chemical weapons, this would act as a powerful deterrent against the use of chemicals in an enemy attack. It would also equalise the disadvantages of fighting in an environment in which the use of chemicals has occurred or is expected.
At the moment, it is certainly assumed that the Warsaw Pact armies would use chemicals in the event of an attack. All NATO troops have protective clothing and decontamination equipment, and noble Lords who have attended NATO exercises will have seen what a serious impediment to fighting capacity the need to wear and use this equipment constitutes. An incomparable advantage lies with the side—if there is only one side—who is free to choose when to use chemical weapons. Only the aggressor knows which chemical weapon has been used and, therefore, what its effect will be and how it can be neutralised. The

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chemical agent can be persistent to deny an area to the enemy, or non-persistent to kill the defenders and allow in the aggressor.
It can be used to trap enemy troops in pockets when they can be annihilated by other means. It has great potential for early use against tactical nuclear weapon launching sites, airfields, seaports and other installations. It can be used to any depth against military or civilian targets. It can be used against ships at sea. A modern attack on Western Europe would, in all probability, be a blitzkrieg, in which the aim would be to reach the Atlantic before the war could escalate to the strategic nuclear level and in which the use of chemical weapons, perhaps even on a vast scale, could play an essential role in achieving the degree of speed, surprise and shock that would be required.
It is not contested that the readiness to use chemical weapons forms an integral part of Soviet military doctrine and organisation. There are 100,000 Soviet chemical troops, whose task is decontamination, guidance of combat troops and so forth—not the use of chemical weapons themselves. Estimates of the amount of chemical agents stored in Eastern Europe vary considerably; indeed, they must be impossible to estimate with any certainty. Her Majesty's Government say that they exceed 300,000 tonnes, although other estimates run much higher. The wishful thinkers, of course, put them lower. But at least it is known that the Soviet Union has never ceased to continue manufacturing and modernising chemical weapons and their delivery systems.
Former Senator John Tower, now one of the heads of the negotiating team in the Geneva arms control talks, then chairman of the Senate Committee for the Armed Forces, writing in 1982 in the Washington Quarterly, said that United States intelligence indicated that approximately one-third of the Soviet shells, rockets, warheads and bombs stored in Eastern Europe carried a chemical payload. He acknowledged that other estimates put this as high as 50 per cent. He also quoted an unclassified United States intelligence report that the Soviet Union had 106 chemical plants in operation, of which one-half were either producing or were capable of producing the latest war gas.
Against the arsenal of chemical weapons, stored and distributed ready for offensive first use, which the Soviet and Warsaw Pact armies must be assumed to have; in the light of their known military interests, doctrines, capabilities and character, and of their ceaseless activity to pursue the extension of their power on all fronts at the same time—against this might what do the NATO allies have at their disposal?
No NATO country, apart from the United States, has stocks of chemical weapons. Britain destroyed hers in the 1950s and dismantled her only production plant, after long disuse, in 1977. The United States has some 35,000 tonnes of chemical warfare agents, all manufactured prior to 1969 when manufacture ceased, and of which only about 10 per cent. is stored in Germany. Much of the remainder is held in bulk in the United States; that is to say, not yet incorporated into ammunition. What ammunition there is is unsuitable for modern delivery systems. The ammunition is largely in 105 mm shells, yet former Senator, John Tower, wrote in 1982 that there were
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then only eight 105 mm howitzers left in Germany. All the chemicals are dangerous to transport, unlike modern binary chemicals which are relatively harmless until fired, and therefore a better deterrent. It is reckoned that within five years or so the entire United States stockpile will be unserviceable. It can therefore safely be concluded that fear of chemical retaliation would not in the present circumstances be a factor that would weigh heavily in Soviet calculations in the event of war.
This Motion suggests that NATO needs either a credible chemical deterrent, which it manifestly does not have at present, or a verifiable and comprehensive ban on chemical weapons. The Government have been urgently pursuing the latter in the context of the special ad hoc committee of the multilateral disarmament conference which has now been sitting for 15 years in Geneva. The Minister of State at the Foreign Office, Mr. Richard Luce, wrote an article for The Times in June last year which was headed: "Weapons that must be outlawed now." He concluded with these words:
"The disarmament conference must now make an energetic and sustained effort to resolve the outstanding problems. If it does so, we will be in sight of our goal to banish chemical weapons from the face of the earth."
Recently Her Majesty's Government tabled new proposals at the conference. No doubt the noble Lord, Lord Trefgarne, will be telling us about those.
But how realistic is it to hope for a comprehensive and verifiable ban? Scepticism is surely understandable. In the first place there is the problem of verification. We have already seen how little idea the West has of today's Soviet chemical stocks, distributed as they will be in shells, warheads and bombs which are indistinguishable from those with an explosive payload. How could we be sure that all stocks would have been traced and destroyed, and those destroyed not replaced? We saw how in Iraq, out of nowhere and as a by-product of pesticide production, chemical weapons were produced and used. How could 100 chemical factories in the Soviet Union be controlled, and what about those in client states of the Soviet Union? And what about factories on new sites?
The second obstacle to an agreed ban is one of Soviet incentive. For as long as the Soviet Union possesses the battlefield, advantages it currently enjoys, surely its interest is to do everything in its power to prevent NATO establishing an adequate retaliatory capability; and what better means could there be of doing so than to keep on talking, all the while giving the illusion of progress although never allowing apparent progress to reach its conclusion in a treaty that would amount to an act of unilateral disarmament by the Soviet Union—and as Andropov once said, the Soviet Union is not such a naive people as to disarm unilaterally.
Thirdly, even if a verifiable ban was agreed, what would the West do in the event of a treaty violation by the Soviet Union? The answer should be that the West would then chemically re-arm itself. But recent history of Soviet arms control treaty violations suggests that, rather than do that, the West would get bogged down in a dispute with the Soviet Union over whether or not a violation had taken place. Moreover, it would be

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difficult for the West to re-arm having previously announced triumphantly the end for all time of chemical warfare. Would it not therefore be better to proceed now to modernise our chemical capacity?
The answer, I suggest, is that it would, and that this is what indeed would now be happening if the American President was getting his way with Congress. But Congress, perhaps not feeling the urgency of meeting a threat which seems unlikely to touch the American continent, has not been ready to vote the necessary funds. Moreover, the United States is discouraged by European scruples. The right to use chemical weapons even in retaliation has been renounced by Denmark, Norway, Germany and Italy. Norway and Denmark go so far as to prohibit the storage on their soil of chemical weapons. Even this country has no stocks, no plans to manufacture, and knows that there could be a political storm were it to change its policy.
No wonder that John Tower, in the article I have quoted, complained that the European allies had not demonstrated a realistic attitude toward chemical preparedness, that they relied on the credibility of the American chemical deterrent to prevent the outbreak of chemical warfare in Europe, and that they were unwilling to face the domestic political heat that would be involved in maintaining their own chemical deterrent or in deploying any significant part of the American retaliatory stockpile on their soil. It was above all to give an opportunity for another European voice to be heard, of those who are unhappy about the present situation and who do not want Europe in this field as in others to jeopardise her own future by turning away her face from reality, as well as to give an opportunity to the Government to state their policy, that I put down this Motion. I beg to move for Papers.
5.16 p.m.
Lord Rea: My Lords, I am most grateful to the noble Lord, Lord Reay, my namesake, with, it appears, more differences with me than just the "y", for providing us with this useful opportunity to debate this very important topic. But as with the Motion of the noble Lord, Lord Home of the Hirsel, yesterday, I find myself rather disturbed by the form of words he has used. Is he not saying in fact: "Ban these weapons or else"? This is surely a rather subtle form of blackmail, suggesting that if the USSR or the USA does not comply with the requirements of the other in the negotiations for banning these weapons, we should give up hope of an agreement and initiate or join in another and particularly nasty extension of the arms race. I can hear some people saying, "The Russians listen only to arguments backed by strength"; but to me the concept of "arm to disarm" is fallacious and has never worked to my knowledge. I should be grateful if any noble Lord could give me an example from history of where it has worked. But let us consider what might happen if NATO were to deploy these weapons.
It is of course possible to argue, as the noble Lord, Lord Reay, did, that deployment would make it less likely that they would be used against us. He might have cited the example of the 1939–45 war when neither side used the stocks of weapons they held, for
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fear of retaliation. He did point this out. Against that I would argue that as Europe is most likely to be the theatre of the next war, the USSR or the USA, who might initiate the use of these weapons, might feel that their homelands were relatively safe from attack. Nazi Germany, on the other hand, was in a very exposed position of retaliation. In a war in which nuclear weapons were used it would not be a very big step to compound the horror by using chemical and bacteriological weapons. If, on the other hand, they were used in a conventional war, the sense of outrage and shock by the victim might lead it to use nuclear weapons. In other words, we are talking about substances which are not only very unpleasant in themselves and can ricochet on the user, but which might trigger off something worse.
In a conventional or a nuclear war stocks of these weapons could be hit by a bombardment, releasing their contents on the surrounding population. But even in peacetime I am uneasy about the existence of stockpiles of these weapons. Terrorists are ingenious and desperate. They could either steal or otherwise obtain stocks with which to hijack whole cities or countries, or they could master the technology of their manufacture. Already proliferation and use of these weapons has occurred, as the noble Lord, Lord Reay, has pointed out.
If we begin to regard chemical weaponry as a normal part of our military armamentarium, the next step would be the development of biological warfare, with the use of bacteria or viruses, or worse, genetic engineering, to decimate adversaries—a veritable Pandora's Box of future horrors.
But all this is jumping the gun—if noble Lords will excuse my use of a sporting rather than a military phrase. It is necessary to look at where the negotiations for the banning of chemical and biological warfare have reached so far and what further progress might be achieved. I am not so pessimistic as the noble Lord, Lord Reay. The United Kingdom has played a useful and honourable role in these negotiations to date and I feel that we can still act as an honest broker.
As far as I can ascertain, the progress of negotiations seems to be as follows: and here I am indebted to Dr. Sean Murphy, a lecturer at the Open University, for a résumé of the story:
"The 1925 Geneva Protocol did not outlaw the production of chemical weapons and nor did it define in any detail what the agents are. For example, are incendiaries, tear gases and defoliants to be considered as chemical weapons? The USA says not: witness their large-scale use in South-East Asia in the 1960s and 1970s.
"In 1968 talks between governments on chemical and biological disarmament began within the Geneva Conference of the Committee on Disarmament. A comprehensive biological weapons treaty was duly agreed in 1972 (the Biological and Toxin Weapons Convention). Agreement on a chemical weapons treaty has still to be reached. Western governments have always maintained that the sticking point is on verification".
That was a point well made by the noble Lord.
The résumé continues:
"The British government's view in January 1982"—
according to the Arms Control and Disarmament Research Unit of the Foreign and Commonwealth Office—
"was that: 'whereas Western States have offered to accept all kinds of verification measures necessary to ensure that parties to arms control agreements are not cheating, the Soviet Union has

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traditionally rejected them, and in particular has resisted any sort of on-site inspection arrangement'. However, in June 1982 at the UN Special Session on Disarmament, Foreign Minister Gromyko submitted a draft text for a convention outlawing the possession of technical weapons in which provision was made for on-site Inspection.
"Early in 1983 Britain took the lead and outlined a procedure for verification. Chemicals would be classed as having degrees of toxicity. Supertoxic chemicals would be heavily policed but less toxic agents (such as phosgene and cyanide which are used widely in the chemical industry) would not be.
"With the collapse in 1983 of all the major disarament talks between the USA and the USSR after the deployment of Cruise missiles in Europe and the shooting down of the Korean civil airliner, the only talks still continuing were those on a chemical treaty. Early in 1984 the Soviet Union again stated that a chemical treaty could be secured. USSR negotiators offered to permit permanent international inspection teams on Soviet territory to supervise the destruction of existing stocks. The USA said that this was insufficient. The British proposed a 'right to challenge' feature to verification but the USSR complained that there was not enough flexibility in the attitude of Western governments. Vice-President Bush was sent to Geneva with a draft treaty in April 1984.
"Under this proposal the USA and the USSR would be free to inspect each other's top-secret military facilities. This proposal is unacceptable to the Soviet Union. The Soviet chemical industry is State-controlled, whereas that in the USA is largely private and these companies can claim 'unreasonable search of private property' under the USA Constitution. However, the USA stance is seen as a negotiable position and not as a 'take-it-or-leave-it' treaty".
In conclusion, I believe that all this indicates there is room for more constructive work at the conference table. I am sure we can play a valuable role before any plans for deployment of these inhuman weapons are made.
5.24 p.m.
Earl Fortescue: My Lords, I too am grateful to my noble friend Lord Reay for initiating a debate on a subject which is little discussed and about which many people know so little that they do not realise its importance. Chemical weapons and nerve agents are arguably as awful as nuclear weapons. I offer no apology for repeating much of what I have said over the past three years, as I feel more strongly than ever on the subject.
A minute amount of nerve agent if inhaled or in contact with the skin will cause death after appalling suffering. The chemical can be formulated so that it persists on the ground for several days. Protective NBC clothing is very inhibiting to a fighting man and certainly is no substitute for a deterrent of a similar chemical capability. Incidentally, I have heard of no suggestion to provide the civilian population with NBC clothing. The civilian population of this and other NATO countries is just as vulnerable to a chemical attack as are the front line troops, the airfields or the rear echelons of the NATO forces.
I have previously expressed the view that NATO could be expected to hold on for a period if the Russians attacked using conventional weapons only. I have little hope of their ability to hold if Russia used chemicals in addition and if we had no capability to retaliate in kind. Short of surrender, our reply would have to be the use of theatre nuclear weapons, and where might that lead?
For three years the Government's answer to my plea for a chemical deterrent has been that they are hopeful of an agreement on chemical warfare at a
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disarmament conference and that a deterrent is therefore not necessary. I suggest that in an imperfect world treaties are only valid so long as it suits the top Russians. Much was made of this point in yesterday's debate in your Lordships' House.
I suggest three reasons why a worthwhile agreement is improbable. First, there is the matter of verification. One cannot see from a satellite what is being made in a chemical factory. Regular inspection of such factories would be essential—but can your Lordships envisage the Russians allowing an inspector into a chemical factory in Russia when he knocks on the door? Secondly, many industrial and agricultural chemicals are in any event lethal and not dissimilar to those intended for use in war. I am no chemist, but the opening or closing of a few valves might quickly change the end product.
Thirdly, and most importantly, why on earth should the Russians be prepared to surrender their 300,000 tonnes of military chemicals when we have none and the Americans have a much smaller stock of aged chemicals of doubtful value?
Very senior American and British officers—namely, General Rogers and General Sir Martin Farndale—have both publicly stated fairly recently that from the military point of view they would like to have "a chemical capability". It is therefore a political decision which denies us this deterrent. A decision in favour of a chemical deterrent will not win votes, but it would be a responsible decision. The party on whose Benches I sit prides itself on being responsible; sometimes it has to make unpopular decisions. It faced up to the decision to maintain our own nuclear deterrent, and it faced up to the decision to allow the Americans to base cruise missiles in this country.
When he comes to wind up, will my noble friend the Minister tell this House how much longer the Government are prepared to let the present negotiations drag on before they make the decision to provide a chemical deterrent, or better still, a joint decision with one or more of our ancient alies?
5.31 p.m.
Lord Mayhew: My Lords, there are a number of special reasons for being grateful to the noble Lord, Lord Reay, for introducing this subject. First of all, I agree with the noble Earl, Lord Fortescue, that this subject is far too little debated. It is extraordinary to contrast the amount of discussion and debate that there has been on nuclear weapons and nuclear disarmament compared with the equally apocalyptic concept of chemical warfare and the need for disarmament. We should also be grateful because there are a number of points of straight information which the Government can give us, and which we need. There are a number of grey areas in this sphere which need clearing up. I look forward to some specific answers to specific questions from the noble Lord when he winds up.
The only complaint that I have against the noble Lord who introduced the debate relates to the terms of this Motion:
"To call attention to the threat posed by chemical weapons, and the case either for a balanced and verifiable ban on such weapons or for the possession by NATO of a credible chemical deterrent".

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This was a very balanced and statesmanlike statement, but his speech was quite a different speech. His speech was the case for despairing of the disarmament discussions and for building up a large new chemical warfare capacity by NATO. I did not agree, and I do not think my noble friends would agree, with the balance and basic meaning of the speech of the noble Lord.
Yet I must say that there are a number of points of information which will need clearing up before we can reach quite definite conclusions. As I understand it—and the noble Lord, Lord Reay, did not suggest this—the question is not whether Britain should manufacture its own chemical weapons. I do not think anyone suggests that at this time. Certainly the Government have given fairly definite assurances that this is not their policy. I note that quite recently it was stated by the Government, "We have no plans to acquire chemical weapons". Perhaps the noble Lord the Minister will reaffirm this. Possibly he can reaffirm it in a more definite manner, because on the question of biological weapons the Government stated, "In no circumstances would we consider developing, possessing or using biological weapons", which goes a long way further. Perhaps the noble Lord the Minister can guide us on this point.
Perhaps the noble Lord can also guide us on the facts that there are no plans to store in this country new American chemical weapons. I do not think this was raised or recommended by the noble Lord who introduced the Motion. The Government can and should give us an assurance on this point.
The British reply to these American representations is very important. Recently, we have had a visit from a high-level commission sounding out European Governments as to how far they support or oppose the plans of President Reagan to increase the chemical warfare capacity of the United States. With Congress divided on this—on three occasions in the past Congress has turned down the President on it, and it is coming up for a fourth time quite shortly—there is no question at all that the reply of the British Government to the representations made will be extremely important. When the noble Lord the Minister winds up, will he tell us what the reply was of Her Majesty's Government to the United States visiting commission? We are entitled to know this. It is a matter of great importance.
It is argued, and it is true, that the Soviet Union has a sizeable chemical warfare capacity. How great again we do not know. The figure of 300,000 tonnes was mentioned by the noble Lord, I think, but we do not know. Making the point to the noble Lord and to the noble Earl, if it is so impossible to discover the details of chemical warfare capacity in Russia for verification purposes, how do we come to have this figure of 300,000 tonnes? Perhaps the Government could tell us what is Her Majesty's Government estimate of the Soviet capacity for chemical warfare.
I say this with regret as a supporter of NATO and the Atlantic Alliance, but we must recall that on major issues of arms control and disarmament and the military balance we have been badly misled by United States information in the past. I do not know how many speeches in favour of NATO I made in the
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1960s and the 1970s based on a totally false American intelligence report of the number of Soviet divisions in Eastern Europe. No-one denies now that this was grossly exaggerated. Similarly, we all know now—
Earl Fortescue: My Lords, will the noble Lord, Lord Mayhew, allow me to say that the figure of 300,000 tonnes was the figure given in last year's Defence White Paper.
Lord Mayhew: Yes, my Lords, and I am asking the Government to explain it. I believe there was one estimate of 700,000 tonnes and another of 300,000 tonnes, and a median figure was taken. Would the Government assure us that this is not the kind of basis upon which they have reached the figure of 300,000 tonnes? We were told about the use of poison gas by the Russians in Afghanistan and by the Vietnamese Government in South-East Asia. This had a considerable impact on public opinion. I was myself influenced by that. But I now think that was untrue. Those statements were put forward by the President himself, and were untrue. I ask the Government again: what is the view of the Government? Do the Vietnamese Government use chemical weapons? Are the Russians using them in Afghanistan?
We sent out a committee of British experts from Porton Down to look into these allegations. This expert committee has never reported. It was sent out two years ago. Why has it not reported? It did not take long to establish the use of chemical weapons in the Gulf. This is another question which the Government can and should answer. We hope it will be answered this afternoon. Why has the committee of experts which went to investigate these allegations not reported? When will it report?
Viscount Trenchard: My Lords, the noble Lord, Lord Mayhew, knows very well the difficulties of a Government in stating their sources and estimates. Does the noble Lord recall that since 1981, anyway, to my certain knowledge—having answered for the Government on this question—the estimates have been above 200,000 tonnes, of which a great deal is stored forward, and have now risen to 300,000 tonnes? I think the estimates have been completely consistent. The noble Lord knows as well as most people how carefully those Government estimates are prepared.
Lord Mayhew: My Lords, let us hope that the Minister will show us the basis on which the estimate is made: not the source, but the basis.
The second point made by the noble Lord was that this was only modernisation, and modernisation is needed. That, it is said, is what it is. But we need to look a little closer, first of all at the existing American stocks of chemical warfare weapons. I think it is agreed that they are holding about 30,000 tonnes of chemical weapons in Germany at this time. It is true that this is old, and that the most recent was made in 1969, as the noble Lord said. But that is not to say it is not an effective deterrent.
A high-level United States committee went into this matter in 1983. It went into the amount of it and into the condition of the stock, and it came to the conclusion that it is a credible deterrent. After all, if it is a credible deterrent, that is as much as is needed.

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There is no case for building up stocks of chemical weapons in the same way as has been done with nuclear weapons—far beyond the need for an effective deterrent. Therefore, is it not self-evident that these stocks will for many years continue to perform the function, which the noble Lord asked for, of an effective deterrent?
I recall the word "modernisation" often being used by the Soviet Union in connection with the SS.20s. "Oh", they said; "we are just modernising our intermediate range nuclear weapons". What they were doing was replacing obsolete intermediate range weapons with weapons of a vastly superior kind. It is the same case here. These new weapons are a major chemical change. They are a big escalation in the nature of chemical warfare. To dismiss it simply as modernisation is very misleading.
The noble Lord's final argument was that we needed to modernise our chemical warfare capacity as a motivation for the Russians to negotiate seriously. That may well be so, and I have often argued in favour of it. One of the major arguments against unilateralism is that one must give a motive to the other side to negotiate seriously. Yet the objections, the stumbling block, in these disarmaments negotiations comes from the Soviet resistance to intrusive inspection. No doubt it is often used as an excuse, but the fact is that in the whole range of disarmament and arms control discussions it is the intrusiveness of proposed inspection methods which stops the Russians from agreeing.
It may be that they are also not seriously negotiating because they think that our chemical warfare capacity is weak. That is not true, but that may be their reason. Frankly, I think it is more likely that it is the Russian paranoid dislike of people intruding into what they regard as secret. As the noble Earl said, they will never agree to people knocking on the door of their chemical factories. That is nothing to do with the so-called weakness of the NATO chemical warfare deterrent: it is, I agree, an old Russian habit of not liking foreigners and not liking them prying around. Therefore, we must take with a certain reserve the argument advanced by the noble Lord that we would be increasing Russia's willingness to make concessions by going ahead and increasing our chemical warfare capacity.
This is a very difficult subject and I am certainly not going to be dogmatic about it, but there are one or two aspects which seem clear to me. First, if there is to be a Western capacity for chemical warfare it ought to be a NATO capacity. It should be commanded by NATO and not by any individual NATO country. It is anomalous that there is no NATO chemical warfare capacity. It is a strictly national capacity for the United States. That is very strange, and it was stated by, I believe, Mr. Stanley in another place last month. I ask the Minister: what is the authority for the United States national stocks in Germany? It does not arise from the NATO treaty, and certainly not from the German Treaty. By what authority does the United States hold its stocks there?
I noticed that the legal right of the United States to hold stocks in Germany is being contested by the West
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Germans in the German courts. I should like the Government to explain the basis and the authority on which these stocks are held, because it should be a NATO capacity with political consultation within NATO about the use of chemical weapons. The use, or threatened use, of chemical weapons is a matter of catastrophic importance to all the European countries. Indeed, it is of more importance to the European countries than to the Americans. As the noble Earl pointed out, the United States is not so vulnerable as Europe to these horrible weapons. Therefore, why is there no political consultation before the use, or threatened use, of these weapons?
I notice from this morning's papers that SACEUR, General Rogers, is quite rightly demanding—and I entirely agree—that this should be a political decision to be taken after political consultation by NATO members and not by himself, as military commander, and not by the United States independent of its allies.
The next aspect that seems clear to me—and I have touched on this point already—is that if there is to be a NATO chemical warfare capacity it must be the minimum deterrent needed to deter. On no account must it be looked upon as a substitute for conventional weapons, and on no account must it be considered as a kind of small step of escalation between conventional weapons, on the one hand, and nuclear weapons, on the other. The use, or threatened use, of these weapons would have an immediate escalatory effect.
I very much agree with the noble Lord, Lord Rea, that it is far too early to despair of the discussions in Geneva. I swear that I am not being naïve about this. I think that the noble Earl will find that the Government will have a good answer to the arguments he produced about verification. It is precisely on those difficulties of verification about which he talked—the difficulties of ensuring that commercial stocks are not used for military purposes—that the British Government have done exceptionally well in putting forward proposals for verification which would cover the points made by the noble Earl. I congratulate the Government. They have done extremely well in these discussions and negotiations about chemical warfare.
Our representative, Mr. Luce, has shown remarkable patience and skill. He has won a well-deserved reputation among the neutrals, and, I believe, with the Russians, for his conduct at these negotiations. For heaven's sake do not let us prejudice the efforts we are making there. If Britain now takes a tough line—with great respect, the kind of line which the noble Lord, Lord Reay, took in his speech—we shall be prejudicing what is a constructive and still a possible proper way of handling the matter. Despite his speech, I am sure the noble Lord will agree with me that it would be much better to have a watertight, verifiable ban on the use, production and storage of chemical weapons. That is what he would like, and I beg him not to despair too soon.
5.48 p.m.
Viscount Mersey: My Lords, I should like to thank my noble friend Lord Reay for initiating this so far exceptionally interesting debate; and it was particularly interesting to hear the noble Lord, Lord Mayhew. In my book, at least, the facts of life about chemical

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warfare have already been well rehearsed by my noble friends Lord Reay and Lord Fortescue. The massive Soviet capability, however big it might be—I agree that estimates vary—against NATO's inability results in a missing link, as it were, in the flexible chain of response, and in turn results in the near certainty that any attack on Western Europe will be a chemical attack. That is a fact of life acknowledged by all ranks down from SACEUR through to every lance-corporal. It is the one example of unilateral disarmament practised by the West and it has not worked.
But my Government are on the horns of a dilemma. On the one hand, to put it crudely, there are no votes in chemicals; but on the other hand, protection against hostile chemical attack is expensive and inefficient.
My noble friend Lord Trefgarne knows better than I that, as my noble friend Lord Reay said, the efficiency of a fighting man wearing a NBC suit is reduced by half. He knows too that decontamination of military equipment by steam hose is a process too laborious to be undertaken at the height of battle. He would I think agree with a marine gunner who said to me, "If it came to the crunch, we'd fight dirty. There'd be no time to do anything else".
Yesterday some of us were on Salisbury Plain and another inefficient element of the NBC suit was rubbed into us with a vengeance. A company of Grenadiers was under gas attack and the company commander yelled out, "Who is that idiot in the Land-Rover? Get him for me, Sergeant Major". The so-called idiot was in fact that company commander's forward observation officer from the Gunners. It would have been even more awkward for the company commander had it turned out to be the brigadier.
Seriously, yet another disadvantage of the NBC suit and gas mask is that it is next to impossible to lead men from within it, as it were. A leader must be able to communicate and he must be identifiable. Both of those are very difficult from behind a gas mask. There is too the disadvantage of the short life of the NBC suit. After only a few hours, I understand, it is ineffective and has to be changed. Presumably troops would have to be pulled out of the front line and re-equipped, which is a considerable logistic complication.
I think that all that could be avoided if we had chemical weapons. As the noble Lord, Lord Rea, has already said, both sides had chemical weapons in the Second World War and neither side used them. He elaborated and said that perhaps things would be different in a third world war. I beg to differ on that point but perhaps not in this Chamber. Maybe afterwards I could have a word with him about that.
As I said, I see the Government's difficulty. I can imagine the sort of press that they would get if they were to manufacture blistering agents and nerve gas. It would indeed be unacceptable to the British public at the moment. But I believe that were the public totally aware of the chemical threat they might accept a chemical deterrent, and surely there will be a golden opportunity to make them so aware in the Civil Defence exercise, "Brave Defender", this autumn.
I understand that the scenario for that exercise is a non-nuclear attack in this country. Surely the attack will include chemicals. It would be unrealistic if it did
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not. No one could seriously imagine the Warsaw Pact attacking with high explosive only, since it has nothing to lose at the moment by adding chemicals to the attack. I admit that I am not entirely clear as to the scope of "Brave Defender", and I should be grateful to my noble friend if when he comes to sum up he could outline the scenario for it.
But I should have thought that in order for "Brave Defender" to put across the chemical facts of life to the public the exercise should be nationwide and not confined clandestinely to military training areas. If it was nationwide, the public would see all over the country, soldiers in gas masks, surely the public would then ask, as my noble friend Lord Fortescue said, "What about us? Where are our gas masks? Where are our children's gas masks?". I think that the public would notice another strange inconsistency which would be that the troops would be wearing gas masks but the police would not and nor would the ambulance-men and the firemen. How would the public react to that? Perhaps people might ring the Ministry of Defence which would in all honesty reply, I believe, "Certainly, this is the position that we are in and this is what we think will happen as the Warsaw Pact has chemical weapons and we do not".
I can offer a tentative solution to my noble friend Lord Trefgarne on what I call the grave chemical dilemma. It is to use "Brave Defender" as a public relations exercise—as it were, to shout up and down the country that chemical unilateral disarmament has not worked and that the only solution open to us now is to have our own chemical deterrent.
5.54 p.m.
Lord Gisborough: My Lords, I do not think that it is necessary to go into the Soviet capability because that is well enough known. I do not think that it is necessary either to go into the NATO lack because that is also well enough known. The question is: would chemical weapons be used in a war that we envisage? With training for chemical warfare by the Warsaw Pact, with the fact that it treats chemical warfare as conventional and with its stocks, the ranges at which it can deliver such weapons and the modernisation of its chemicals, there is no doubt in my mind that it would use such weapons as part of its enormous amount of offensive weaponry—far greater than it needs for its defence.
Nobody thinks that there will be a sudden attack on us tomorrow because no one wants war. We do not want it and nor do the Soviets. They want to achieve their objectives without war. But of course we come back to the political situation which we cannot foresee but when they might find themselves making a decision whether for a political reason that we also cannot foresee to go forward into Germany. If we do not believe that, we can disband NATO altogether. I believe that the chemical imbalance that exists would strongly influence them on any decision that they might make towards going forward. NATO could use only the nuclear response if it wanted to stop that attack, and that could so easily lead to escalation.
First, I believe that our lack of chemical deterrence increases the likelihood of a nuclear war. Obviously all politicians wish to do all that they can to stop wars and chemical war in particular, so we have for a long time

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been talking about an agreement. It is a nice thought to have an agreement that nobody uses chemicals. But personally I think that such an agreement, even if it were achieved, would be thoroughly dangerous. There is not the slightest doubt that if there was an agreement, both sides would make chemicals immediately during a war in case the other side broke its word, which it almost certainly would.
Anyhow, when has a weapon ever not been used because the other side has not had it or in consideration of the other side? One can look back to Hannibal who used elephants. He did not decide not to use them because the other side did not have them. In more modern times the United States used the nuclear weapon and was not debarred from that by feelings for Japan.
Lord Kennet: My Lords, the United States of course refrained from using nuclear weapons in consideration of the fact that the Vietnamese did not have any.
Lord Gisborough: My Lords, I accept that; and we did not use nuclear weapons in all the affrays in which we have been involved; but the situation was utterly different, surely.
I do not think that there is any incentive whatsoever for the USSR to come to a bargain on chemical weapons because it has such an advantage. That is why the talks have been going on at what has been described as a snail's pace. I do not think they will ever mature. It is of advantage to the USSR to keep those talks going and achieve absolutely nothing. The British influence in those talks is negligible because we do not have any chemicals to give away.
Even if agreement was achieved, the question would then be verification. Would that be possible? As has already been said, chemical weapons are easy to produce in normal chemical factories with very little difference in the existing processes. They are quick and cheap to produce from standard chemicals. They are easy to conceal once one has them. Chemical constituents can be put into almost any weapon, whether it is a bomb, a shell or a missile. I think that such an agreement would be totally impossible to verify. It would be impossible to verify whether the stocks had been destroyed or whether there was lack of capacity to manufacture. There is a suggestion of random inspections, and I think that the Russians are suggesting a four-week warning. The idea is so ludicrous that it just is not true. Of course, even if that were achieved there would be no control over other nations. We see how Iraq has quickly made her chemicals. If we do not want chemicals to be used, and if we want to deny the Soviets of their advantage, it is far better to possess our own chemicals, to notify the Soviet Union and thereby deter them.
The noble Lord Lord Rea asked: when did armaments achieve disarmament? Are we really after disarmament? Surely we are after peace, not disarmament. Any agreement on verification would give a false sense of security and would be worse than useless, whereas if we possessed the chemicals we would then reduce the Soviet advantage and the risk of attack. It is very much better to have the chemical option than the nuclear one.
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The reason why we cannot have chemicals of course is that the general public will not stand for it. We have this dread as a result of the first war where there was that terrible slaughter of all nations through gas; but we must remember that that was with static trenches and with either no protection or else very crude protection. Memories are so awful that there is a quite reasonable public abhorrence and therefore refusal to countenance our own making or holding of chemicals. I think the situation is now totally different. The chemicals obviously are far more lethal, but we now have mobility which we did not have then; we have protective clothing which we did not have then; we have pressurised tanks; we have dispersal. There would be very, very many less direct casualties from the use of these more lethal gases.
A severe handicap in the fighting of the conventional war would occur whereby our supply dumps would be compromised, our movements would be slowed down, and just the threat of gas would have a serious effect on the performance of our troops who would have to fight in their "Noddy suits". Meanwhile, the USSR troops—the Warsaw Pact troops—would not have to fight in their suits unless they were actually going to use chemicals. Of course, if we had our own threat, then they would have to fight in their rubber suits. Their own rubber suits being not nearly so good as ours, they would suffer stress very quickly and would not be able to carry on the battle.
Furthermore, if one compares the damage of the chemical option with that of the nuclear, there is obviously far less damage with the chemical one. There is a far greater death rate with the nuclear option. With the chemical option you can at least eventually go and rescue people, whereas with the nuclear one there is no rescue. Without chemicals there is a very serious danger of escalation to nuclear. I think that the chemical option is not nearly so bad as the nuclear option on the battlefield. When our own troops are gassed and we are unable to retaliate, the general public will then say it was anybody's fault but their own; they will blame the politicians. The general public have to face the facts now before it is too late.
6.5 p.m.
The Earl of Cork and Orrery: My Lords, I join wholeheartedly with the noble Lord, Lord Mayhew, in applauding the action of my noble friend Lord Reay in introducing a long-overdue debate on this enormously important subject, about which we have talked a great deal too little. It is also possible to talk rather too much, I suspect, and I will try not to do that—by which I mean that it is a mistake at this stage to get bogged down in details of technical minutiae about which I have the advantage of knowing practically nothing. I will confine myself to the broader sweeps of this matter and, goodness knows, they are broad enough.
My Lords, the Motion my noble friend has put down addresses itself to two alternative propositions: firstly, the verifiable treatment and agreement; and secondly, the credible chemical deterrent. This matter of the verifiable inspection and agreement has been referred to by almost every noble Lord who has spoken. It is one of the things that the Government go on about to an astonishing extent. I do not understand it. It is

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perfectly true that the Russians will always say "No" to anybody who comes in. I should, if I were a Russian myself and had people who wanted to inspect our factories, find it a great nuisance. Supposing suddenly the Russians were to change their minds. I understand that Mr. Gorbachev is a man with a sense of humour, to some extent. Supposing he were to see how amusing it would be to say "Yes, come and inspect our factories in which you think we might make chemical warfare agents. How many inspectors would you like to send?" My noble friend Lord Trefgarne might like to consider how many he would say in his answer. What would he say: three or four million?
Chemicals can be made in the bathroom almost, or in a potting shed at the bottom of the garden; they do not need vast factories as do tanks or aeroplanes. They can be made with the greatest simplicity over the whole of the Soviet Union, anywhere from Siberia to the Urals, from Moscow to Outer Mongolia. You can detect them in no other way than by going and looking at them. When you go and look at them what are you looking for? What do you find? The idea of inspecting any such thing is pure pie in the sky; it is absolute nonsense. I do not believe that the Government think it is on at all.
Unless the Government want to fall flat on their face, I hope they will not press the Soviet Government to the point of saying "Yes, come and have a look and see what you can do. Send us three or four million inspectors." Let us forget this nonsense about verifiable inspection; it simply is not on.
What then do we want instead? We want a credible chemical deterrent. There are all sorts of reasons for thinking this a good idea, but just one rather minor one which—perhaps needlessly but rather impishly—I should like to get out of the way. My noble friend Lord Mersey and one or two others have said something about the so-called "Noddy suit"—what the soldiers, sailors and airmen would have to wear. As my noble friend rightly says, this is the NBC suit which they have to wear, and it would be nice to get rid of it by not having to defend oneself against chemicals.
My Lords, NBC stands not for "no bloody chemicals" but for "'nuclear, biological, chemical" and if you do away with the "C" for "chemical", you still have to defend yourself against the nuclear and the biological attack. You continue to wear the suit as thought nothing had happened. There is no advantage in that.
On the general proposition of the chemical deterrent, I advance this point of view. Nobody else has said this and perhaps nobody will pay any attention to what I say, but I believe that the nuclear deterrent is the deterrent to all war, including chemical war. My noble friend Lord Fortescue has mentioned the possibility that if we had no chemical deterrent the chances of war escalating up to the nuclear stage would be increased. I believe that that is what he said. Yes, my Lords, we can all see that, and the Russians can see it too. The absence of a chemical deterrent on our side is itself an inhibiting factor against enemies using such a weapon: for the very reason that we have no deterrent against their use of chemical weapons, they know that our deterrent is that much more likely to turn out to be nuclear.
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Therefore, I do not think that we need a chemical deterrent. I think we have it against all wars. It is my personal belief that all war is out of the question anyway, for the simple reason that no nation, either deliberately or by accident, is ever going to go to war against another nation that has a nuclear capability.
6.9 p.m.
Lord Kennet: My Lords, I have nothing very new to say after the excellent speech by my noble friend Lord Mayhew. However, I want to discourse upon one or two of the same facts, and especially the same questions. In yesterday's debate we were reminded of the immortal words of the Bellman:
"What I tell you three times is true".
I have found another truth about this House: that what I ask you three times is more likely to be answered. I have a Question down in two or three weeks' time. I readily promise here and now to withdraw it if the Minister can answer it in this debate, as my noble friend Lord Mayhew has already asked him to. It concerns NATO control of chemical weapons in Germany.
General Rogers, of SACEUR, is quoted as saying, only a couple of months ago, the following words:
"NATO nations have not told me what role they want to play in the decision on using chemical weapons. Until they do, they receive only a copy of my request to the President and that is not right".
Indeed it is not right. That is the sitution described from the horse's mouth at the moment. We shall know no more about the use or threatened use of chemical weapons in war than seeing a copy of SACEUR's request to the President. That is our fault because we have not asked any more. It is indeed time for a debate. It is time to air the subject; it is time to air it in all its ramifications. Our worry rests wholly on the supposition that the Soviet Union had a very large stock of chemical weapons and they are very modern. We know what the American one is like. We know it is nearing the end of its life. We know its size. We know that it is not being replaced. We are now invited to base our policy on certain alleged facts. Before we do so, we must assess the degree of certainty which attaches to those facts. It would be a grave mistake for the Government, even in this House, to seek to persuade by the mere repetition of "three hundred thousand tonnes".
Three hundred thousand tonnes of what? How many substances, of what proportions, are there in the total stockpile? Three hundred thousand tonnes carried in what munitions? What proportion in shells? Shells of what range? Rockets of what type? Bombs carryable in what kind of aircraft and dispersed where? What may be deduced about operational plans from the dispersal pattern? How old are the alleged munitions? What is the rate of replacement of the older munitions on the Russian side? Without knowing something about these matters, we cannot responsibly take any decision about our right course.
There is another, even more important, fact. In respect of the answer to each of those questions, what degree of certainty attaches to it? This involves an examination of the source of our information. It involves an assessment of the probable reliability of the original source, whether it is an agent on the

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ground or whether it is the interception of signals traffic, satellite observation, or other forms of remote sensing. If that information comes to us through means which are not under our national control, it involves an assessment of the degree of reliability of the informant in the allied government who has given it to us. All these matters have to be assessed and a result has to come up at the end.
The present environment is not one in which we can automatically rely upon American estimates of Soviet armaments. That is not only because they differ widely according to which part of the American administration is tapped but also because there is a suspicion that those who have good reason to believe that the level is x are often sat upon by their superiors and ordered to say that it is 3x.
The Government can help us greatly about this. They obviously do not know everything but they know a great deal more than anyone else in this country. They should divulge to the people what they know, together with estimates of possible error, before taking any further steps.
I went, as did many other noble Lords, on the great exercise, Exercise Lionheart, last autumn. I saw our troops running about in those appalling suits which prevent them not only from fighting but virtually from breathing, walking or thinking. I fully agree with the many noble Lords who have said that it would be idiotic to allow the other side in a war, even a confined conventional one, to call the tune about when we had to put on those suits without our ever being able to call the tune about when they put them on. They do not have to use the chemical weapons to make us put them on; they have only to look as if they will. Of course they will choose the trickiest moments to do so, when our troops are carrying out the most difficult tasks in the hottest weather. It gives them an immense tactical advantage.
A situation in which they were guaranteed that permanent tactical advantage, would be a militarily disastrous one. However, we are not in it. The American stock is still there. All we know is that it is smaller (we do not know how much smaller) and older (we do not know how much older) than the Russian stock. We are told that it will peg out in five years but we have been told many things about different weapons systems pegging out in x years which we do not always believe. We need more facts about that too.
President Reagan has not met with the instant approval of his own legislature in his plans to counterweight the Soviet stocks. As my noble friend Lord Mayhew has reminded us, he has been turned down three years running. He is coming up for his fourth attempt, asking for 1.4 billion dollars. Other presidents before him have been turned down, as, for example, in 1974; the process goes back that far. The American Congress now remains to be peruaded that it will be right to build up the United States stocks. Later on, it may be persuaded. However, at this stage in the attempt to reach an agreement, the American Congress remains to be persuaded. How much more will the Parliaments of countries which are likely to be gassed in a war remain to be persuaded that every stone has been turned in the pursuit of an agreement!
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There has been a recent flurry of activity. It has been alleged that in the long run there are American plans to build chemical warheads to place on the cruise missiles which are under United States control in this country. Will the Government say something about that? It is not quite enough for them to say, "We know nothing of it", or, "It is a hypothetical question". If they were to hear anything of it, what would they say? If they were asked to do it, what would they say? Can they say now that they would say, "No"? If not, why not?
One can go too far with the hypothetical question business in this war and peace planning. It may sometimes get up and hit us afterwards. If we have been saying that everything is hypothetical, we may find that we are overidden or outmanoeuvred by someone against whom we wish we had gathered our friends beside us earlier on. This can be done with a little frankness. On 11th April there appeared a now famous report in New Scientist about the visit of the so-called "blue-ribbon" commission, which Lord Mayhew also mentioned, the Stoessel Commission. That was set up by the American Executive in order to prepare the way for their renewed attempt to obtain the money from Congress. Much Congressional opinion is that it is packed with the friends of chemical weapon modernisation. This commission came to London. The New Scientist report said that at a working lunch British officials gave them a green light for the parking on our soil of a new generation of American chemical weapons.
The visit was followed by a flurry of denials. The United States embassy said it was absolute rubbish. The Government said that it was not so but, in their usual measured manner, said it was a hypothetical question to ask what was so. The story is still going round. I hope that we can tease more definite words out of the noble Lord, Lord Trefgarne, this afternoon. It could only do good if we did.
I am not saying that the Government were wrong if they did give the green light. I just think we want to know. To use the immortal words, I think we should be told. Is it true, as has been alleged, that there is already a generic British commitment to holding—providing a parking place for—this new generation of binary weapons? Obviously, binary weapons are much better than the old sort. Anybody would want them, if we have to have the damned things at all.
Over the last two years, as many have said, the British Government have played a useful role. We have put down a whole succession of papers; the last only last week, going into every sort of detail about the constitution of the proposed international authority to supervise the banning of the production of nuclear weapons and the destruction of existing stocks with verification and all that. Everyone agrees to an agreement. The Russians agree to an agreement. All the countries agree to an agreement. But nothing happens. There is not even very much abusive propaganda about it. This is in marked distinction to the nuclear weapons reduction talks. The whole chemical weapons question is typical of the terminal convulsions of the nation state system, if you like. In some parts, you do not see the convulsions. It is a quiet

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area in the universal earthquakes besetting nation states facing a future of destruction or not.
It may not, in the long run, be very much more use putting forward beautiful detailed plans, launching model ships with every ventilator and every piece of rigging in place, if they do not come back again in some form. The Government, I believe, should tell us—this is what I should hope that we, my noble friend Lord Mayhew and myself, would do if we were in Government—what is their assessment of the fact that the Russians agree to an agreement, that we launch draft after draft and that we get nothing back. Are we pressing them too hard? Are the details simply alarming in their eyes? Or is the noble Lord, Lord Reay, right that they are playing it along in order to conserve their advantage as long as they can?
In conclusion, I should like to utter a plea to the Government—"Don't do it yet"—by which I mean, "Don't yet agree with the United States to park the weapons here if they build them. Don't agree to go along with the renovation of those stocks yet". It is wrong to answer deployment with deployment until you are perfectly sure that every channel of negotiation, secret, semi-secret, confidential, private, public, polite and abusive, has been tried and worn out. If anyone doubts the truth of that, I would say, "Remember the story of the installation of cruise missiles in this country." If the Government go to the British Parliament and people with a chemical weapons modernisation programme, even a NATO one, that is as ill-prepared as the one in respect of cruise missiles, they have only to consider the difference in public horror of chemical weapons and public horror of nuclear bases, of which we have experience, to realise how much greater are going to be the political difficulties.
6.23 p.m.
Lord Boston of Faversham: My Lords, I should like to join the noble Lord, Lord Kennet, and all other noble Lords who have so far taken part in the debate in saying that the noble Lord, Lord Reay, has performed a very valuable service in raising the matter tonight, not least because it is clearly a good moment to do so with the resumption of talks on chemical weapons in the 40-nation conference on disarmament in Geneva earlier this year and the further initiative taken only last month on 12th March by Her Majesty's Government when the Minister of State at the Foreign and Commonwealth Office, Mr. Richard Luce, tabled his new practical proposals on verification. I am afraid that I cannot promise to agree with all that the noble Lord, Lord Reay, said. That he has provided a timely and very useful occasion for this debate is beyond question.
I have earlier had opportunities to pay tribute to the Government for the stand that they have taken so far on chemical weapons. It is right to do that again straight away tonight. I agree very much with the noble Lord, Lord Mayhew, that far too much pessimism has been displayed from the other side of your Lordships' House tonight. In fact, it is rather sad that not a single noble Lord opposite has given support and encouragement to their Government in the approach that they are adopting to this matter. I do not know whether it will embarrass the Minister, the noble Lord,
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Lord Trefgarne, too much to appreciate how fully noble Lords on this side of the House have rallied to his aid in this situation. In fact, if he came to ponder for a moment, I am almost tempted to suggest that he has within his grasp tonight possibly a return to consensus politics on international affairs. Perhaps if that was to be the approach, even on just one single aspect of disarmament and foreign affairs, it would be no bad thing.
It is because there has been this display of too much pessimism on the other side that it is right in our view to emphasise what has been done by the Government in furthering the aim of attempting to get international agreement on banning chemical weapons. As stated already tonight—the noble Lord, Lord Reay himself, I think, mentioned it—the United Kingdom abandoned chemical weapons in the late 1950s and certainly by 1959. We have neither produced nor possessed any since. In taking that lead unilaterally and in destroying our stocks and deciding not to produce these weapons, we placed ourselves, as a country, I think it is right to say, in a strong position by occupying what has been called the high moral ground in this whole argument. As pointed out by noble Lords, including my noble friend Lord Rea, we were among the first to join as a nation in signing the 1925 Geneva Protocol to outlaw the use of chemical weapons.
More recently, since 1982 the Government have taken a whole series of steps aimed at eliminating chemical weapons. I shall come back to those steps in a moment. I want to mention at once, however, the step that the Government took just over two years ago in March 1983. It was a particularly significant new initiative in the Geneva talks when Mr. Douglas Hurd, then Minister of State for Foreign and Commonwealth Affairs, tabled proposals that included a working paper on practical verification procedures. Despite what has been said on verification tonight by noble Lords opposite, it cannot be denied, I think, that quite considerable progress has been made over recent years in that direction. Then, in April 1984, the United States presented at the conference a draft convention aimed at banning the development, production, stockpiling and use of chemical weapons. Last month, on the 12th, we had the Government's latest moves put forward by Mr. Luce. It is therefore the case that the Government have an excellent record in the stand that they have taken and the efforts that they have made to try to get agreement internationally.
I come at once to the nature of the threat. The noble Lord, Lord Reay, was right to stress the importance of this threat, as other noble Lords have done. The extent of the Soviet Union's possession of chemical weapons, the figure of over 300,000 tonnes of what was described in last year's Defence White Paper as nerve agent included in those weapons, has already been covered quite sufficiently. As the Defence White Paper also stated, the Russians are adding to their stockpile of chemical weapons. It is clear that this enormously outweighs the amount possessed by the United States. There have been estimates given tonight and estimates given elsewhere ranging between 30,000 and 50,000 tonnes. I agree with noble Lords who have made this point. It needs to be emphasised that these are ageing stocks and that the United States stopped manufacturing chemical weapons in 1969 when it

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brought in a self-imposed moratorium on production. I note, too, in passing that the Defence White Paper points out that the United States stocks are not declared to NATO. The noble Lord, Lord Kennet, made a very valid point when he questioned how these various stockpiles of chemical weapons, whether on the eastern side or on the western side, are made up.
Whatever may be the precise figures, it is clear that there is an overwhelming balance in favour of the Russians. It would be interesting to know whether there is any recent evidence—in particular since 10th March 1983 when the Government tabled their proposals—that the balance between East and West has deteriorated materially further.
As noble Lords have pointed out, it is not surprising that, whatever view one takes on chemical weapons and the need for an agreement on them, some voices have been raised urging the United States to bring its chemical weapons up to date and, indeed, urging our own country to arm itself with chemical weapons as well. I believe that the noble Earl, Lord Fortescue, and other noble Lords referred to the fact that the Supreme Allied Commander Europe, General Bernard Rogers, has been among those who have pressed for this; and so has our own commander of the 1st (British) Corps, Lieutenant-General Sir Martin Farndale. Moreover, as has been pointed out, attempts are also being made in the United States by President Reagan to get congressional approval of funds to be used for the production of binary weapons there. Therefore, it is true that there has been no lack of demand—and coming from commanders that is a perfectly understandable view for them to take.
However, I also think that it was perfectly understandable and right for the Secretary of State for Defence, Mr. Heseltine, to make the observation—which he made from a political point of view as opposed to a purely military one—when he visited Exercise Lionheart last year that there was a military preoccupation with the use of chemical weapons. He was also right to add that our view in the West is to pursue an arms dialogue at the earliest possible moment and that in the meantime we must ensure that our own troops are protected against the threat.
As regards that last point which was raised by the Secretary of State, I should like to make one comment because it has been raised in this debate tonight by a number of noble Lords. It is right that defensive measures must be taken and that the fullest possible protection must be given to our troops. However, as has been indicated—and the noble Viscount, Lord Mersey, mentioned this, as certainly did the noble Earl, Lord Fortescue, and other noble Lords as well—there are clear disadvantages about the NBC clothing which is being used. Therefore, it is clear that there is a potential threat. The question is: what should we do about it? It is here that I part company with the second solution put forward by the noble Lord, Lord Reay, to equip NATO with, in the noble Lord's words, "a credible chemical deterrent".
If we were to abandon our own present position and start equipping ourselves once again with chemical weapons—and I note what the noble Lord says about NATO having them; but I shall deal with ourselves
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first—that would be the start of a new arms race. I agree very much with the point made by my noble friend Lord Rea on that matter. There are few things which would be more likely to cause an immediate deterioriation in East/West relations, few steps which would be more likely to damage the prospects for international disarmament, and few things more likely specifically to arrest the progress—slow though it may be, but it is there nevertheless—towards an agreement to ban chemical weapons. Indeed, that is quite apart from the belief that a step like that would be morally indefensible as well.
Similar considerations apply to a NATO chemical deterrent, too. I take it that that would mean basing them here as well as on the Continent. As we know, there are none here at present for it has been confirmed that no American chemical weapons are here in this country. Therefore, for me the solution does not lie there and I hope that the Government will once again confirm that their view remains the same and that they do not intend to go back on their policy not to produce nor to possess chemical weapons.
Where, then, does the solution lie? Here I must say that I expected to find myself much more in agreement with the noble Lord, Lord Reay; that is to say, with the first arm of his Motion where he calls:
"for a balanced and verifiable ban on such weapons".
However, I was taken aback as much by his presentation of that arm of his Motion as was the noble Lord, Lord Mayhew, when he used the word "despairing" in relation to Lord Reay's approach to this problem. It is here that the Government have been commendably and particularly active. Since 1982 Britain has tabled five sets of proposals on aspects of verification, the most recent of which were those on 12th March last month, with new practicable proposals suggesting, in particular, how the monitoring arrangements envisaged in the earlier 1983 working paper should be applied in practice. I hope that the noble Lord the Minister will give us a report on the recent sessions of the conference and bring us up to date, for little has been heard since Mr. Luce's visit last month or, indeed, about the visit itself.
Last July this country tabled proposals to prevent chemicals made by the civil chemical industries from being diverted for illicit military purposes. Before that, in February 1984, there were Britain's particularly important proposals on inspections upon a challenge that the convention or treaty had not been complied with. However, I think that the most major set of British proposals were those tabled in March 1983, to which I have already referred and about which I should like to ask one or two questions. I am referring to the occasion when the then Minister of State, Mr. Douglas Hurd, presented his working paper called, Verification of Non-Production of Chemical Weapons. At this point, I should like to insert two somewhat more detailed questions. I hope that they will not be too detailed for the noble Earl, Lord Cork and Orrery, but these are matters as regards which one does sometimes have to get down to a bit of detail.
It was suggested in that working paper that members of the committee, or conference as it has come to be known, should supply information on the number of facilities within their own civil chemical industries for producing certain listed chemicals so that it could be

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shown that inspection of commercial facilities would not be too burdensome. I wonder whether the Minister can tell us how many and, if possible, which member nations have complied with that request. Incidentally, I note that Britain herself supplied that information about herself in an annex to the working paper at the very time it was tabled two years ago.
Again, it was suggested that the declaration of facilities for producing or storing such chemicals as hydrogen cyanide, for example, should present no problems. I wonder whether there has been any positive response to that idea. I am not asking the Minister for the names of countries but merely about the reaction to that proposal and whether or not it has been favourable. It would be useful to know, partly to get some flavour of the way in which the work is progressing—or not, as the case may be. Even if the Minister cannot answer these specific questions tonight, it would be useful to know whether or not the reception given to Britain's proposals has been generally favourable and positive.
However, before concluding, I should like to raise a much more significant and fundamental point referred to in that working paper and which has been touched upon by some noble Lords tonight. Right at the outset in the opening paragraph of that paper, it states that the discussions in the working group of the conference have shown that:
"it would not be practicable to devise verification procedures which would provide an absolute assurance that the convention is not being violated".
Then it goes on to say:
"On the other hand, a chemical weapons convention must provide for sufficient verification to deter the would-be violator and to provide a degree of assurance against violation by one party which is accepted as adequate by others".
That statement sets out a very important principle in calling for an adequate, but not absolutely perfect, system of verification. I should like to ask the Minister whether it still represents Government policy. I hope that it does. One of the great problems has been, as I think probably nearly all (if not all) noble Lords have acknowledged tonight, how to get an acceptable measure of verification without jeopardising the chances of success in the negotiations for a convention by insisting on something too close to perfection.
The point has been put very well by the Government's disarmament adviser in the Foreign and Commonwealth Office and former head of the British delegation to the Committee on Disarmament (this very conference itself), Mr. David Summerhayes, in an article in the Armament and Disarmament Information Unit Report for November/December 1983, based on a paper he presented at an international conference in Leiden in September 1983, when he said this:
"Having stressed the problem of complexity I want to suggest that in the final analysis a [chemical weapons] convention will only be achieved by taking account also of the opposing principle of simplicity. If there is too great an insistence on perfection and strictness, this will make progress impossible. Those who insist on absolute verification or the widest possible scope may in effect be blocking the way to agreement. The difficulty for the negotiators is in finding a satisfactory middle path, where such exists, and then persuading their governments to be reasonable".
I hope that that approach is the one which commends itself to the Government. I hope the
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Minister will say tonight that it does. And I hope that we can all look forward to speedier progress in the Geneva conference on disarmament and that there will soon be a successful end to the search for a chemical weapons convention.
6.42 p.m.
Lord Trefgarne: My Lords, your Lordships will be grateful to my noble friend Lord Reay for giving us an opportunity this evening to debate the appropriate response to the threat posed by the existence of chemical weapons in the world today. Let us be under no illusions. Chemical weapons can be weapons of mass destruction and constitute a particularly abhorrent method of waging war. But they exist, and we cannot ignore them. Ever since they were first conceived, nations have sought to find ways of eliminating the possibility of their use in armed conflict.
Although they did not prevent the use of chemical agents during the First World War, declaratory statements upon the non-use of asphyxiating gases, poison and poisoned weapons can be traced back to the international peace conferences of 1899 and 1907. It was the experience of the horrifying effects of these weapons, which caused tens of thousands of casualties on both sides, which prompted the international community to return to the search for measures to abolish them during the years following the Great War. The result was the Geneva Protocol which was signed in June 1925 and which has since been ratified by over 100 states.
The protocol built upon the earlier pre-war conventions, and sought to prohibit the use in warfare of asphyxiating, poison and other gases and of all analagous liquids, materials and devices, but it did not prohibit the development, production or stockpiling of such weapons. The major powers of the time built up substantial stocks and many signatories, when ratifying the protocol, entered reservations, the effects of which limit it to a prohibition upon first use of chemical weapons.
The Geneva Protocol, coupled with the fear of retaliation in kind, did play a part in deterring the use of chemicals during the Second World War. Almost exactly 60 years later, however, chemical weapons are still with us and continue to pose a potent threat not only to NATO but to all mankind.
I should now like to turn to the specific threat to the Western Alliance. The Soviet Union poses a major chemical threat to NATO. It produces and stockpiles a variety of types of chemical weapon, including blood, nerve and blister agents. Stocks of nerve agent alone are believed to be more than 300,000 tonnes. Soviet troops are well versed in the doctrine and tactics of chemical warfare, and Soviet forces have a variety of means for delivering a chemical attack at sea, on the ground and from the air.
It is very difficult to make accurate estimates, but the United Kingdom assessment is that the Soviet Union, as I have said, possesses a stockpile of some 300,000 tonnes of nerve agent alone. For reasons of security I hope that the noble Lord, Lord Mayhew, will understand that it is really not possible for me to explain how we arrive at this figure. That was a point raised as well by the noble Lord, Lord Kennet.
Lord Kennet: My Lords, will the noble Lord give us as much detail as he can? Is there any hope that he may be able to attach figures about the margin of error, or the degree of certainty, to that figure of 300,000 tonnes? How certain is it?
Lord Trefgarne: My Lords, it is as certain as I can make it, but I hope that the noble Lord will forgive me if I do not go into further detail. I am certain that the noble Lord, Lord Mayhew, with his experience in these matters, will understand the difficulty in which I find myself.
Lord Mayhew: My Lords, I accept entirely what the noble Lord says, and I am grateful to him. Is this a British intelligence assessment, or an American one?
Lord Trefgarne: My Lords, as I said just now, this is a United Kingdom assessment. There are some 90,000 or more specialist Soviet troops responsible for aspects of nuclear, biological and chemical warfare, and Soviet forces regularly train in a chemical environment using real and simulated agents. By contrast, of our allies, the United States possesses chemical weapons, but these are not declared to the Alliance. The United States has not engaged in production of chemical weapons since 1969 and, in consequence, it now has only a limited and ageing retaliatory capability.
So far as United Kingdom policy is concerned, as my right honourable friend the Prime Minister stated in another place on 10th January, we abandoned our chemical warfare capability in the late 1950s. There has been no change in Government policy since then, nor is any change now proposed.
Lord Kennet: My Lords, I wonder whether the noble Lord will bring out one point? He has been most courteous, and I shall not intervene again. The noble Lord told us that the United States stock is ageing, and that since 1969 they have not built any. Can he tell us anything at all about the age of the Soviet stock, or of any part of it? Can he tell us whether some is older than the rest and, if so, how much older, and that sort of thing?
Lord Trefgarne: My Lords, my impression is that the Soviet stocks are current and modern, but I do not think I can go into greater detail than that.
As I said, there has been no change in Government policy since then—that was the late 1950s—nor is any change now proposed. At the same time we do of course keep our defence policy under constant review in the light of the massive Soviet offensive capability, both in chemical warfare and all others.
There is a further dimension to the problem posed by chemical weapons which we cannot afford to ignore. That is one of proliferation. Chemical weapons are not difficult to make and are relatively inexpensive to acquire, certainly when compared to other methods of mass destruction. Developments in biochemistry make possible ever more deadly agents and, as more countries acquire sophisticated chemical industries, so the threat of proliferation will increase unless effective controls can be worked out.
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The problem is compounded still further by the fact that some recognised chemical warfare agents, or their essential precursors, are produced in substantial quantities for legitimate and important peaceful purposes. The use of chemical weapons in the Gulf conflict has shown the ease with which industrial chemicals can be misused. Following the United Nations report on the use of chemical weapons in the Gulf during last year, the United Kingdom, together with some of our allies, imposed controls upon the export of certain chemicals. Although this has not apparently prevented the continued use of chemical weapons in the region, it has restricted the availability of precursors.
Time is not on our side. More than 12 states are now believed to possess a chemical warfare capability compared with about six a decade or so ago. Most of these new chemical powers are in the third world, Over the last few years there have been disturbing reports of the use of chemical weapons in South East Asia and Afghanistan and the confirmed use of such weapons in the Gulf war has been widely condemned. Her Majesty's Government strongly condemn the use of chemical weapons whenever and wherever it has occurred. We will continue to do so, but, as more countries acquire this capability, so the likelihood of chemical warfare and the problems of containment will increase.
While I recognise that there are those who, like my noble friend, believe that the present situation may justify the acquisition by NATO of a retaliatory chemical capability, it is the view of Her Majesty's Government and of our NATO allies that the best answer is to work urgently for a comprehensive and verifiable world ban on the development, production, stockpiling and use of chemical weapons. I do not for one moment underestimate the difficulty of reaching agreement upon such a ban, but since the establishment in 1980 of an ad hoc committee on chemical weapons as part of the Conference on Disarmament in Geneva progress has been made, albeit more slowly than we should have wished.
The United Kingdom has played a leading role in these negotiations, and we shall continue to do so. Noble Lords have already recognised that. Since 1982, we have tabled a number of working papers upon various aspects of possible chemical weapons agreements, most of which have been generally well received by all delegations. The most recent of these papers, which was tabled in Geneva on 16th April, proposed institutional arrangements necessary to ensure the effective implementation of the chemical weapons convention. My honourable friend the Minister of State for Foreign and Commonwealth Affairs has addressed plenary sessions of the conference on a number of occasions. On 12th March he introduced further British proposals concerning arrangements to ensure that certain industrial chemicals are not diverted to covert military use.
Among the most difficult problems remaining to be resolved are key questions concerning verification. Confirmation, for example, that civil chemical products are not being diverted for illicit military purposes can only be provided by regular on-site inspection by international experts. There must also be arrangements for special "challenge" inspections in

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response to allegations that a party to the convention may not be complying with any of its provisions. We are not interested in any "quick fix" solution. Without adequate verification measures such as these as a guarantee of compliance, any ban would be meaningless.
Unfortunately, although the Soviet Union continues to express public support for a global ban on chemical weapons, and last year accepted for the first time the important principle of some form of on-site inspection of the destruction of declared stocks, agreement has not yet been reached on the more important issues of verification. Such counter-proposals as have been made by the Soviet Union—and these have been regrettably few and invariably unspecific—have been unacceptable to Western security interests. Nevertheless, given good will on all sides, none of these problems is insoluble and we continue to hope that the East will join us in showing the flexibility and determination necessary to bring the negotiations to a successful conclusion.
In view of the record of earlier attempts to prohibit the use of chemical weapons, why should a global ban now be any more successful? It is because on this occasion we are seeking to ban not only the use of such weapons but also their development, production and stockpiling, and to provide for rigorous verification arrangements to ensure compliance. None of the earlier conventions attempted to do this.
Lord Kennet: My Lords, I hesitate to intervene again, but how does that argument work? For 40 or 50 years we have been trying to do that. Why should it be a reason that, because we are now trying to do what we are failing to do, we are more likely to succeed than when we were trying to do what we did succeed in doing in the 1920s?
Lord Trefgarne: My Lords, I did not say that we were more likely to succeed. I claimed that the resulting convention would be more likely to be successful. Of course, we have an existing convention stemming from the 1925 Geneva Protocol which, as we have all seen, has not been particularly successful. It is that lack of success that we hope to correct.
Despite our commitments to a comprehensive and verifiable ban, we remain vigilant as far as the immediate threat is concerned. We place great importance upon the retention by NATO of an adequate defensive capability. Therefore, in parallel with our search for an arms-control solution, we keep defensive measures under careful review in the light of the massive Soviet chemical warfare capability. Substantial investment has been made over many years to provide our armed forces with defensive protection against chemical attack. Improvements are continually being made to keep abreast of developments in the threat, and new protective suits, respirators, prophylactic medicines, agent monitors and detectors are coming into service. Most current warships and armoured fighting vehicles have collective chemical protection arrangements, and our combat aircraft can operate in a chemical environment.
All three services train frequently in conditions which represent effects of a chemical attack. The most
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recent large-scale land and air exercise was Exercise Lionheart, which took place on the continent last September, when servicemen of British Forces, Germany, reinforced from the United Kingdom, practised operating under a constant but changing chemical threat. Indeed, a number of your Lordships, including the noble Lord, Lord Kennet, visited that exercise. Although an awareness of the threat, and individual and unit training to counter it, enable our armed forces to operate in a chemical environment, the wearing of protective equipment and the employment of other defensive measures, as many noble Lords have recognised, will degrade their effectiveness, whether or not chemical weapons are actually employed. This places NATO forces at a very distinct disadvantage compared with those of the Soviet Union, who need don their protective equipment only when passing through areas contaminated by their own attacks. Once again it is in our best interests to seek a total and verifiable ban, and thereby to remove even the threat of the use of chemical weapons.
May I now turn to some of the points that have been raised this evening. The noble Lord, Lord Boston, raised a number of points, and I am grateful to him for giving me notice of them. He asked first about the working party set up by my right honourable friend Mr. Hurd in March 1983. My honourable friend (as he then was) the Minister of State for Foreign and Commonwealth Affairs tabled a paper in Geneva on 8th March 1983 on the subject of verification of the non-production of chemical weapons. The proposals contained in the further document on the verification of non-production tabled earlier this year (to which I have already referred) developed the ideas set out in Mr. Hurd's paper, which were further developed in another paper tabled on 10th July 1984.
As for the changes in the balance of forces between the East and West since 1983, as I have said, the Warsaw Pact continues to threaten NATO with a massive chemical warfare capability; and I do not think that I can really add to the figures that I have already given earlier in answer to the noble Lord, Lord Kennet.
As for the response to the working party report, in an attempt to demonstrate that the scale of the inspection of commercial facilities would not be too burdensome, the paper proposed that parties to the negotiations in Geneva should provide information upon the number of establishments in the civil chemical industries which were producing a number of substances which were considered to be key precursors for super-toxic lethal chemicals. At the end of the 1984 negotiations session 11 countries had responded with this information, and when my honourable friend Mr. Luce addressed the Conference on Disarmament on 12th March this year he urged the other states to follow suit.
The noble Lord, Lord Boston, also asked about the degree of assurance provided by verification arrangements. The paper stated that the discussions in Geneva had shown that it would not be practicable to devise verification procedures which would provide an absolute assurance that the convention is not being violated. On the other hand, a chemical weapons convention must provide for sufficient verification to

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deter a would-be violator and to provide a degree of assurance against violation by one party which is accepted as adequate by the others. Indeed, my right honourable and learned friend the Foreign and Commonwealth Secretary, speaking to a conference in London in November last year, used these words:
"No system of verification can ensure 100 per cent. that the other side will live up to its obligations. What we need is agreements which ensure that if the other side does cheat or break the rules in a way that threatens Western security, we know this early enough to bring the offender to book and to take appropriate remedies".
The noble Lords, Lord Mayhew and Lord Kennet, asked particularly about exchanges between the United Kingdom and the President's Review Commission which visited the United Kingdom recently. I can tell both noble Lords that the United Kingdom expressed its concern about the chemical weapon threat from the Warsaw Pact. We also emphasised our view that the Alliance should continue as its first priority to work urgently in the current negotiations at Geneva for a total and verifiable ban on all aspects of chemical warfare. We noted that United States moves towards modernisation would underline to the Russians the benefits of reaching early agreement on a total ban. In addition, we underlined the need to uphold NATO's deterrent strategy of flexible response.
The noble Lord, Lord Kennet, also asked me about the basing of chemical weapons in the United Kingdom. I can tell him in the plainest terms that no such request has been received. My noble friend Lord Fortescue asked me about the question of protection for the public, and I believe he was thinking of people other than members of the armed forces. The Government have made it clear in another place that they are examining this question and that Parliament will be kept informed of progress. Indeed, my noble friend Lord Elton expressed the same sentiments when he answered a Question put by my noble friend Lord Mottistone on 18th March last. I would refer my noble friend to Hansard, column 326, on that day, where the Answer which my noble friend then gave is set out in full. The noble Lords, Lord Mayhew and Lord Kennet, also asked about the lack of NATO chemical weapon release procedures, particularly in the light of recent statements by General Rogers. There are no chemical weapons declared to NATO. Political control of the limited United States stocks is therefore naturally a matter for them.
The noble Lord, Lord Mayhew, also asked about the report, which he said has been kept quiet, or so he thought, about the consequences of trichothenes, as I think they are called, being used in South-East Asia. In that connection I would refer the noble Lord to an Answer which was given in another place on 27th February last (at column 206 of Hansard) by my honourable friend the Parliamentary Under-Secretary of State for Defence Procurement, Mr. John Lee. My honourable friend was replying to a Question from Mr. Cohen—
Lord Mayhew: My Lords, would the noble Lord say what the Answer was?
Lord Trefgarne: My Lords, I have the Answer in front of me. The Question in fact went slightly wider than the point which the noble Lord put to me, which is why I did not read out the Answer, since it dealt with other matters as well. I will quote, referring to the particular point which the noble Lord raised, from part of the Answer. It read:
"Investigations into the alleged use of mycotoxins in South East Asia are continuing but we are not yet in a position to state when their results might be made available."
My noble friend Lord Mersey asked about the scenario for the exercise Brave Defender, and whether it would be possible or desirable to include the simulated effects of chemical attack during the course of that exercise. Details for that exercise have not been finally worked out. Again, I answered a Question in some detail on the scenario for Brave Defender recently. Without wishing to go into the detail of that reply, I recall having to say at that time that most of the details were classified and therefore I fear that I am not able to help my noble friend very much this afternoon.
The noble Lord, Lord Mayhew, also asked about the authority for deployment of United States chemical weapons stocks in West Germany. I do not think that he will be surprised when I tell him that it is not really a matter for me: it is a matter for the Governments of the United States and the Federal Republic. I therefore fear that I cannot help him in respect of that question.
In summary, my Lords, Britain abandoned its chemical warfare capability in the late 1950s and that policy has not changed. Nor is any change proposed. We are only too well aware of the dangers of proliferation of chemical weapons and the threat posed to NATO by the massive Soviet chemical warfare capablility. We are not complacent. The Government are convinced, as are our allies, that the best way in which to deal with the problem is to press for a comprehensive and verifiable ban upon these weapons and we shall continue to do everything in our power to realise it.
We shall continue to play a leading part in the negotiations taking place in Geneva. If we are unable to achieve our objectives in Geneva, NATO would have to consider what steps might sensibly be taken to uphold the Alliance's proven strategy of defence through deterrence. I do not think, however, that it is either sensibly or appropriate to speculate here upon what might happen should the Geneva negotiations fail. The achievement of a ban upon chemical weapons remains our aim. It can be achieved; but it will require a proper sense of urgency and dedication from all concerned. There can be no doubt about our commitment. In the meantime, we shall keep our policy under review and continue to take measures to ensure that the necessary protective equipment and training is provided for our fighting men.
7.7 p.m.
Lord Reay: My Lords, I should like to thank all those who have taken part in this debate. I have been very gratified by the general recognition that this subject has not been debated sufficiently and that to debate it on this occasion was timely.

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The noble Lord, Lord Rea, whose opinions differ from mine more markedly than does his name, nevertheless understood the point of my argument that chemical weapons were less likely to be used against us and against the populations of Western Europe in the event of a conventional attack if NATO possessed a credible deterrent of its own and, incidentally, we would be less likely to move to a state of nuclear retaliation if there were a credible chemical deterrent, as my noble friend Lord Fortescue argued.
The noble Lord, Lord Mayhew, made a speech which I thought had certain complacent elements within it. He said that, in his view, chemical weapons had not been used in Afghanistan. There is quite a considerable amount of evidence in the recent United Nations Report on Afghanistan which if he reads it, may perhaps persuade him to change his mind on that matter. He quoted General Rogers, quite properly, with regard to the need for political control over the use of chemical weapons but, in the same report, General Rogers was also reported as having pointed to the urgency of the need to modernise the United States chemical deterrent. However, on that point, the noble Lord was not willing to follow General Rogers. He said that he was satisfied that the United States chemical deterrent was quite up to scratch. It is most unlikely to be so. There have been no chemical weapons manufactured in the United States for some 16 or 17 years now and the noble Lord knows perfectly well that there have been immense developments in delivery systems, and so on, during that time. His point of view that the chemical deterrent of the United States has remained adequate is simply not credible.
He made play with the fact that we do not know the exact figures of the Soviet chemical stockpile, which I must say will serve to do little more than encourage Soviet secrecy on the subject—not that the Soviets require much encouragement, of course. It seems to suggest that because we do not know, therefore we should do nothing. That is surely the attitude of the wishful thinker and it panders to the attitude of the wishful thinker.
The noble Lord, Lord Boston of Faversham, said that he was sad to see that so much pessimism had been expressed on this side of the House by my noble friends Lord Mersey, Lord Fortescue, Lord Cork and Orrery and Lord Gisborough, and he commiserated with my noble friend Lord Trefgarne on the fact that he was not getting sufficient support from noble Lords behind him. In response to that, all I can really do is to repeat the words that my noble friend Lord Trefgarne himself quick-wittedly used in yesterday's debate, when he was interrupted in the course of his speech by the noble Baroness, Lady Gaitskell. He said:
"My Lords, I can only say … that I have to take the world as I find it and not as I would wish it to be."—[Official Report, 23/4/85, col. 1032.]
My view is not that the Government should not try for a ban on chemical weapons, but that they should not put all their expectations on being able to reach one. In the latest paper which the British Government deposited in the disarmament conference on chemical weapons, their introductory statement is as follows:
"The United Kingdom is committed to the achievement of an effective chemical weapons convention which will provide satisfactory assurances of compliance."
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I do not see how you can be committed to the achievement of a convention when you can reach such a convention only if others agree to do so as well. It seems to me the danger in the Government's position that they put too much of their expectations on being able to reach an agreement.
Personally, I am not despairing, as the noble Lord, Lord Mayhew, said, but I am certainly sceptical about the possibility of reaching an agreement and my view is that there will not be an agreement unless NATO proceeds to acquire a credible chemical deterrent. I know that these weapons are awful and inhumane and I entirely agree with everything that the noble Lord, Lord Rea, feels so strongly about in their regard. I know also that to proceed to their manufacture would be a decision of great political difficulty. Nevertheless, I think that NATO should take it. My Lords, I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

Prohibition of Female Circumcision Bill
Brought from the Commons; read a first time, and to be printed.

Cultural Heritage: Tax Concessions
7.13 p.m.
Lord Fanshawe of Richmond Lord Fanshawe of Richmond rose to ask Her Majesty's Government whether, in view of the protection which they provided for the contents of Kedleston, Nostell Priory and Weston Park, they have any further plans to save more of our cultural heritage by taking action to make the "in lieu" provisions more effective and attractive, thereby providing further encouragement to museums and galleries.
The noble Lord said: My Lords, I beg to ask the Question standing in my name on the Order Paper. I am particularly glad this evening that my noble friend Lord Teynham will be making his maiden speech and I look forward to hearing his words. He and I, as small boys aged 9 together, spent our time breaking up the heritage and I am rather glad that perhaps tonight we are both trying to save it.
I regret having missed the recent debate on 6th March as I was abroad at the time, but having now carefully read Hansard, I should like to restrict my remarks to one problem concerning our public museums and galleries; namely, the use made of the statutory provisions whereby works of art are accepted by the state in lieu of capital tax liabilities. However, before embarking on this subject, I want to join other noble Lords who took part in the debate on 6th March in congratulating the Government, and in particular my noble friend on the Front Bench, on that most enlightened subvention of £25 million to save Kedleston Hall, Nostell Priory and Weston Park. I wish the National Heritage Memorial Fund trustees every good fortune in a speedy resolution to all the remaining problems associated with and related to these three incomparable historic houses and their marvellous contents.
There has I think been some criticism that the Government failed to resort to saving these houses, at least in part, by means of the "in lieu" procedures. I am convinced, however, that in these instances the Government were right in providing a special cash grant. Having, I hope, given credit where credit is due, I must now voice my concern that the operation of the acceptance of works of art in lieu of capital transfer tax to benefit our public museums and galleries is in desperate need of reform. It appears to many that it is being emasculated in administrative practice.
Several years ago, Parliament wisely decided to alter a vital aspect of the long-standing system for funding the arts and the heritage by setting up the National Heritage Memorial Fund. This reform was welcomed by all political parties and the nation has benefited immeasurably. Sadly, however, acceptances in lieu of tax which are equally important, if not in some cases more important, for saving the heritage have not been significantly changed or re-examined in the light of present circumstances and brought up to date. I should like to ask my noble friend tonight: is the Treasury actively discouraging the use of this far-sighted measure?
Acceptances in lieu of capital taxes involve no expenditure whatever of public moneys, since public expenditure occurs only when cash leaves the public sector and enters into the private sector. A certain unpredictable amount of cash is of course forgone by the Exechequer every time works of art are accepted as payment in kind. There is, however, a finite and relatively small number of works of art which qualify for acceptance in lieu, and it is obviously impossible to know in advance how many and how valuable these may be in any one year, since deaths of owners, happily, cannot be foreseen. Thus in some years a very small loss of cash to the revenue may occur, but in other years a much larger amount would be involved owing to pure chance.
At the present time, the Government appear to be limited to an overall and quite unrealistic £2 million, the amount of tax forgone during one year through acceptances of works of art by all our public museums and galleries under the auspices of the Office of Arts and Libraries. This takes into account the fabric of pre-eminent historic houses and their surrounding land. Admittedly, the Government can justifiably claim that special cases can be dealt with separately—as recently occurred with Calke Abbey—but this is not, in truth, a practical or very satisfactory course to adopt in general.
What is my evidence? I am not alone in the comments that I am making this evening, because in our national newspapers during the past few weeks there have been a whole range of comments made. The Daily Telegraph on 3rd April under the heading, "Tate spends £1 m on painting Gowrie rejected" stated:
"The Tate has paid more than £1 million for Giorgio de Chirico's surrealist painting 'The Uncertainty of the Poet'."
It went on to say:
"The de Chirico was offered by the trustees in lieu of tax, but the painting, valued at £3 million, was refused by the Earl of Gowrie, Arts Minister.
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"A Tate spokesman said: 'When such a work is refused, it suggests that the acceptance in lieu scheme is not working properly. This is a book-keeping exercise, and no public expenditure is involved, and the financial transaction is a notional one'."
Lady Elton, who is a kinswoman of one of my noble friends who is a Minister in this House, wrote a very interesting letter to The Times on 10th April in which she said:
"Any ceiling on what can be accepted annually in lieu of CTT (capital transfer tax) adds a desperate hazard to those who are preparing to die responsibly by instructing their executors to offer works of art or pre-eminent collections in lieu.
Many of them are intending to benefit the National Trust by securing for it the goods, chattels and pictures which keep its houses alive, and enhance regional properties by the acquisition of collections inherently necessary to them.
Any one death, or two, could well exceed the new ceiling. Executors will be faced with two options, one of which is to sell on the open market, and the second, chillingly unpalatable, is to queue for the next two years, at six per cent. a year, waiting for a slot in a fiscal year of low mortality and high-mindedness."
I think that is fairly expressive and indicates the feeling held generally and not just by individuals like myself who are not experts in this field.
Recently four leading museum directors were reported in the Daily Telegraph also as saying,
"that the system whereby works of art and historic buildings can be offered in lieu of tax liability is 'no longer workable'."
My Lords, who were these eminent people? They were: Sir David Wilson, Director of the British Museum; Sir Roy Strong, Director of the Victoria and Albert Museum; Sir Michael Levy, Director of the National Gallery; and Professor Alan Bowness, Director of the Tate Gallery. They all say that,
"this procedure is endangering a scheme which has proved to be 'very much in the public interest'".
Your Lordships will see from what I have said already that these quotations indicate that owners, their agents, lawyers and accountants, would not even consider resorting to "acceptances in lieu" when the overall value of works of art to be accepted is so restricted. In addition, bureaucratic delays in the past have been interminable, with interest charges mounting daily. Although the works of art accepted are themselves exempted from all capital tax, the Treasury claws back 75 per cent. of the tax which would have been payable if they had not been exempted.
This practice leaves far too little incentive. The recent Select Committee in another place felt very strongly on this point and recommended a 25 per cent. deduction by the revenue. As I mentioned in my speech in the previous debate on 15th May last year, 50 per cent. may appear rather parsimonious when one recalls that the French authorities deduct nothing at all from tax debtors who satisfy their fiscal obligations by paying their tax in kind rather than cash.
I now want to stress another point which may perhaps have escaped Treasury notice. It is a psychological one. I understand that there are some owners who would prefer that their inheritance should not be sold, even to a museum, in order to provide cash for their tax debts. They would prefer non-commercialisation by way of "in lieu" if the system were properly administered. This is all too understandable when one considers how many people

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nowadays are forced to part with their family heirlooms.
The Goverment, however, are to be congratulated on their decision announced in answer to my question before Easter to transfer the administration of the "in lieu" system to that appropriate and knowledgeable body, the Museums and Galleries Commission. But commissioners by themselves cannot work miracles without Government understanding and help. I therefore ask my noble friend as a matter of urgency to look into how the commissioners can be enabled to fulfil their new duties effectively in order that as a result they can help our public institutions up and down the country.
Too many offers of important works of art in lieu have in the recent past been turned down by the Government despite their aesthetic importance. Thus radical reform of the operation of the system by the Government, advised by the Museums and Galleries Commission, is now of great importance. So will my noble friend tonight give me an assurance that he will take a new initiative in this complex matter? The so-called Getty factor ought not to be discounted, and the recent devaluation of sterling against the United States dollar, although there has been a slight recovery in the past 10 days, in which works of art are valued internationally, underlines the seriousness of the situation. I repeat, the expenditure of public moneys is not involved when a work of art is accepted in discharge of a tax liability. Therefore let us get our priorities right and make full use of "in lieu" in order to help retain the very essence of our cultural past.
Finally, since "acceptance in lieu" is of cardinal importance to both owners and museums alike, may I have the firm assurance of my noble friend the Minister that it is not the Government's intention to abolish these provisions? I hope that instead he will follow the ideas that I have set forward today and take steps to make them more attractive and effective.
On Channel 4 News at 7 o'clock on 17th April last my noble friend the Minister was interviewed by a Mr. Sissons, whose first question was:
"Why isn't the tax system—and I am thinking of the death duties provisions—used more effectively in this country to make it more attractive to build up the arts?"
My noble friend the Minister replied:
"I haven't yet succeeded in persuading the Treasury to change the acceptance in lieu. Roughly, you can take a work of art in settlement of tax bills without this being 'on vote' expenditure which is technical, but which creates problems for my museums and for my own budgets and that is certainly a failure, and the only thing to do with a failure is to keep on trying until you get it right."
In his most laudable battle with the Treasury my noble friend will I hope receive ammunition from this House tonight.
7.25 p.m.
Lord Teynham: My Lords, in rising to speak in this House for the first time, I would ask for your Lordships' patience. In return I shall do my best not to be controversial, but simply to support the case of my noble friend Lord Fanshawe of Richmond as strongly and as far as I am able to do this, without incurring the disapproval of either my noble friend the Minister or of anyone else.
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In considering the number of "in lieu" transactions that may have occurred already, or which are ever likely to occur at different times, care should of course be taken to notice the changing force and nature of the combination of various factors to which this particular provision always relates. There is the changing level of capital transfer tax in general, the specific percentage of douceur that applies to an exchange, and the calculation which the owner makes between net proceeds after tax, which might well result from a sale on the open market, compared with net proceeds after tax resulting from a deal with the Government. And there is clearly also the part which the changing role of capital gains tax plays in this calculation.
Furthermore, whatever may be the potential impact of taxation itself at a given time and however much this potential impact changes over the years, it might still not succeed in having any effect at all, provided that owners can always remain in good health. And although the latter is perhaps an example of Government doing one thing and the Almighty doing another, there is nothing particularly unusual in that. Both parties may still be on the best of terms with one another.
But just because the purpose of the "in lieu" provision is to help save works for the nation, and because it may have already contributed to a certain pattern of results, that does not have to mean that special status and importance should always be attached to it. Nor does it follow that just because the Government have lowered the ceiling in this tax year below £2 milllion, that at the same time they might not be in the process of using compensatory methods or of discovering better ways in general to protect our cultural heritage.
The question therefore that should perhaps be asked is this: if the Government are now considering for the future the best formula of methods and provisions to protect our cultural heritage, what are the particular benefits, if any, which the "in lieu" provision has to offer? First, there is the problem of works leaving the country. In a previous debate, and in order to allay fears that the country seemed rather hard up, my noble friend the Minister gave the reassurance that the Government were still definitely richer than the Getty collection. And from this reassurance it is good to know that if your Lordships' House and another place ever reach the open market, Her Majesty's Government will be the highest bidder! And although we do not want works to go out of the country in the first place, it is also realised increasingly how fortunate we are in the Getty fund and in other large foreign endowments, not only for the devotion and care which they bring to their collections but also for their interest in countries from whom they acquire, and for their potential willingness, if encouraged, to co-operate with and invest in different national ventures.
But clearly we should try to keep things here if we can. In this respect the "in lieu" provision has two particular advantages which are surely very hard to rival. It can shield the Government and the nation from the market, let alone the full force of the market, without being unfair to the owner. From his point of view, on the other hand, and secondly, it can give to the works in his possession a unique value provided he

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is able to have confidence in the provisions' continuation and extension by the Government. In fact, the greater his confidence is able to be, as a result of Government action, the less likely he is to sell—at least on the open market—in the intervals between successive ownerships.
Then there is the separate need to encourage museums and galleries. Here it is worth noting the distinction between purchases and bequests. From 1822 until 1922 the National Gallery acquired 2,863 works, of which only 701 were purchases and the balance were bequeathed. Apart from its financial merits, encouragement of museums and galleries through bequests has thus been a traditional practice. And although taxation arrangements introduced early this century have altered the scope of that 19th century practice, they still do not preclude related options.
The present examples of either private treaty sales or of acquisitions through the "in lieu" provision are not the same as ordinary purchases, nor the same as ordinary bequests—but at least they constitute a far more satisfactory route for the nation to provide museums and galleries than the alternative of purchases. Through them there is greater flexibility for the Government to assist a wide range of museums and galleries in the country rather than just the principal ones. On the latter point in particular, even without experiences such as that recently of the Chatsworth drawings, surely it would be best for the Government to consult a far wider range of institutions than are at present consulted in connection with private treaty sales or with "in lieu" acquisitions.
Other aspects which have to be balanced include whether certain incentives given to individuals or groups connected with the national heritage operate too much at the expense of the living arts; or thinking of the "in lieu" provision not so much as a measure to protect heritage but more as an opportunity for rich men to have a wider choice in how they pay tax, does it operate too much at the expense of other taxpayers?
Regarding the allegation that the living arts suffer, they would only do so if the cost of looking after our national heritage becomes more expensive. The essence of the case for the "in lieu" provision is that it can make that task cheaper. It should also be borne in mind that some of the finest British collections include modern works and those of living artists—as in the case of the collections of Roland Penrose, Douglas Cooper and the late Lord Clark.
The allegation that the choice given to rich men to pay tax in kind works against the interests of other taxpayers perhaps reflects confusion between the "in lieu" provision and capital transfer tax itself. If he were able to pay less capital transfer tax or less tax in general than anyone else, this certainly would be unfair. But while that is not the position it might be pointed out that, conversely, we could do well to adopt the system operating in France, where payment of succession taxes in kind is possible as a general option and where no percentage of the agreed value of the object surrendered to the state is withheld for the purpose of discharging the tax.
It is often tempting to attach too much importance to some legislative provision or other designed to help
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particular sectors of the economy or particular aspects of the national interest. But there are many good reasons for believing that the "in lieu" provisions should now be made more effective and attractive—as the Question put by my noble friend Lord Fanshawe implies. This can make the effort to save more of our cultural heritage cheaper and easier, without setting up unfairness or tax anomalies; and in benefiting a wide range of British museums and galleries it then also benefits their communities and towns.
7.34 p.m.
Lord Annan: My Lords, what a lucky man I am to be called now and to be able to be the first to congratulate the noble Lord, Lord Teynham, on his maiden speech. It was forceful, cogent and extremely well informed. It is perfectly clear that we are going to hear from him to great advantage many times in the future. My mind went back this evening to a notable occasion when the late Lord Vaizey analysed at some length and with extreme clarity the whole of the "in lieu" provision. The point he made then was that this provision had one great advantage; it meant that the Government or the Minister concerned did not have to ask for or spend Government money. All that happened was that revenue was reduced, and that process was one that nobody would observe—whereas if one had to go to Parliament and ask for more money, clearly it was (a), going to make the Minister unpopular and (b), perhaps even bring the Government into controversial waters.
The late Lord Vaizey, in his speech, seemed to think that Parliament had spoken with such force on this matter that the Treasury really had no role to play at all except to carry out the "in lieu" provisions; and therefore that any Minister who failed to accept an object in lieu was thwarting the will of Parliament and would very soon find himself stepping into a barge on the Thames in which he would be taken from the Houses of Parliament to the Tower of London and possibly there made to test the sharpness of the axe.
In fact, I do not believe that such an argument is sustainable and so I am certainly not going to suggest that the noble Earl should this evening be impeached. But it is a fact that Parliament's will is in a sense being thwarted and frustrated by the Treasury.
I am not intervening tonight simply to press the claims of the National Gallery, because it is more often the municipal museums which benefit from "in lieu" acquisitions than the national museums and galleries. Municipal galleries have very low purchasing grants and the "in lieu" system is their major source of acquiring paintings and objects.
There is another group of people on whose behalf I want to intervene. They are the would-be donors. There are a large number of public-spirited men and women—a larger number than I suspect many people realise—who want the nation to benefit by their foresight, or by their ancestors' foresight, by giving their possessions in lieu of tax. Certainly they enjoy an advantage; certainly they might not do so well if they sold at auction. But that is not what animates them. They cannot afford to give their treasures to a particular museum or gallery but they want a particular treasure to go to the museum they designate because

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they believe that that is the right place for it. They have always wanted that treasure to go to that particular museum. That has been their intention, their dream. They are not a calculating bunch of opportunists; they are in a modest way idealists; men and women of genuine benevolence.
It is these people who are becoming more and more disillusioned. Why have the provision for 'in lieu' and then restrict its application? Why restrict its application so much that it becomes farcical? Would it not be better to abolish the provision altogether? That would at least be less hypocritical.
Perhaps your Lordships will allow me to cite a specific case, and I have the permission of the person concerned to do so. The eminent collector and connoisseur Mr. Denis Mahon has a collection of paintings. Many of them are seventeeth century baroque paintings—a genre in which our country's collections are particularly weak. Mr. Mahon wishes to bequeath this collection of paintings to a number of institutions in our country. Every gallery has been selected with care; every painting is to go to the place which is most appropriate. In fact, Mr. Mahon's planning is a real labour of love and it is clear that he really enjoys it.
I know that the noble Earl has been in correspondence with Mr.Mahon over this matter. I have to say that Mr. Mahon is deeply troubled over the present situation and wonders whether he will be able to dispose of his paintings as he wishes. He will certainly be unable to do so if the sum allocated by the Treasury to the Office of Arts and Libraries for objets d'art remains at £1 million.
Mr. Mahon has made it very clear to me that he is not calling for any special privilege for himself. He most emphatically does not want special treatment. What he wants is that every bona fide and important potential donor should have the same opportunity as himself—no more, no less. I must ask the noble Earl, what hope can I hold out to him?
Our country has a record of not being very skilful or tactful in its handling of potential benefactors. Long before the Second World War, Mr. Chester Beatty approached the Government to ask if he could donate his collection to the nation in lieu of capital transfer tax. He was refused by the Treasury. He left England for Eire and his collection went to Dublin.
Then there was Mr. Gulbenkian. He, too, with his enormous admiration for the British people, hoped to negotiate a settlement for his collection. That, too, was refused, and the collection went to Portugal. So did his foundation because of difficulties unnecessarily created.
Then there was Mr. Getty. In that case, too, so it is said, there was a chance that his matchless fortune, or at any rate a large part of it, might have come to this country where he chose to live and where he died. However, the foundation was set up in California. I could cite other examples of such self-inflicted wounds.
My Lords, how much more sensible the French are in these matters. How much more flexible; how much more wordly wise and shrewd, and how much more their bureaucrats and ministers appreciate the gains to
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French culture of being liberal, wide-eyed but heavy lidded, of not straining at gnats and of being willing to swallow a camel—in short, of being splendidly cynical. How much better, as Uncle Toby said in Tristram Shandy, they order these matters in France.
The French authorities are perfectly willing to do deals. For instance, it is forbidden to export a work of art in France; that is to say, it is forbidden unless some clear countervailing benefit would accrue to the French nation were the work of art to be exported. And then suddenly, miraculously, it is found not to be forbidden to export that particular work of art. Unfair, my Lords? Devious, my Lords? Unscrupulous, shifty, downright immoral? Possibly, my Lords. But how expeditious and sensible.
Will the noble Earl ask the French authorities—informally, of course I do not mean for public repetition—how their system works in practice? And when he has done so, could he not appeal to the more Machiavellian side of his right honourable friend the Chancellor of the Exchequer?
It is the inflexibility of the Treasury which is our undoing. Gone are the days of Maynard Keynes's beneficent wartime influence in the Treasury where works of art were concerned. In those days, and thereafter in the 1950s, the Treasury was still guided by officials such as Sir Denis Proctor or Sir Edward Playfair, who had learned as undergraduates at Kings College, Cambridge, the value of the arts and bent the Treasury rules in their favour.
Having said that, my Lords, I am bound to admit that someone such as myself who has been a Vice-Chancellor must have some understanding of the Treasury mind and of the dilemma which faces the noble Earl. After our debate on the arts in March, the noble Earl, Lord Gowrie, said a bit wryly that the vegetables hurled at him during the debate rather outnumbered the bouquets. Indeed, my old friend, Lord Hutchinson of Lullington, hurled bag after bag of tomatoes at him. His speech combined the sarcasm of Carson with the wit of Birkett, and by common consent was the oratorical triumph of the evening. Since he came to my defence, I was naturally grateful to the noble Lord, Lord Hutchinson, for his support.
Last night, when I was at Cambridge, an enormous bag of tomatoes was pressed into my hand by the director of the Fitzwilliam Museum, consisting of examples of works of art offered in lieu which had been refused. But I shall not hurl them. The noble Earl, Lord Gowrie, cares as much for the arts as the director. Indeed, as I listened to the speech of the noble Lord, Lord Hutchinson, I reflected that, even if I possessed his forensic art, which I assuredly do not, I could not have made a speech like his. It was the speech of someone who has never had to run an organisation. Weak as the powers of a Vice-Chancellor are, any chief executive knows that one has to cut one's coat according to the length of cloth the Treasury has decreed.
There will be those who will say, as Lord Hutchinson did, that the arts more than anything else give meaning to life and therefore they must never be cut, only further reinforced. Others may say that whatever needs are identified in our society those needs must be met at once. That great-hearted man,

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the noble Lord, Lord Molloy, often gives me at Question Time the impression of saying just that, and, if he were Chancellor of the Exchequer, we should rejoice for a fortnight and be bankrupt within a month. So I asked myself, "If you are in earnest about 'in lieu', what suggestion can you make which does not echo the stale old plea 'give us more money'?"
My Lords, what I say now I am saying only for myself. In no way should I be taken as speaking on behalf of the Trustees of the National Gallery, still less of its director; I have not consulted any of them. But I wonder if the noble Earl has considered saying this to the directors of national museums and galleries who recently wrote to him on "in lieu". He might ask if they value "in lieu" acquisitions so highly that they would agree to the Office of Arts and Libraries withholding each year £1 million or so of the purchase grant of the major institutions such as the national museums and galleries, or the National Trust or the National Heritage Fund? That nest egg thus created would then be available to finance "in lieu" purchases. If no "in lieu" offers were forthcoming during the year, the Minister would return the million to the institutions concerned before the end of the financial year and they would be free to use it and carry it forward to the next year.
The purpose of this manoeuvre would be that it would give priority to "in lieu" purchases. The institutions would have less money each year to purchase on the open market, but the Government would have more money to reimburse the Inland Revenue for its reduction in income. Now, I do not like such a scheme. Nor, so I would guess, would the directors of the national museums and galleries. Anything which reduces the freedom of an institution to do what it will with its grant must be disliked by its director and trustees. What advantages, then, are there in such a scheme?
I suppose the main advantage is that it does something to protect the heritage. It gives encouragement instead of discouragement to those who wish to give treasures in lieu. It does not reduce the amount of purchase grant. All it does is to earmark part of it. But the disadvantage would be that the nest egg provided by one institution might be used to benefit another institution.
In suggesting that the Minister might consult galleries and museums on these lines I feel rather like a prep school boy currying favour with matron, but I hope that the noble Earl the Minister will accept that this is an honest suggestion of a way to test opinion if he is unable to give us better news tonight. But for my part, I hope he will stress to his colleagues in Cabinet the inestimably superior approach to these matters by the French. The French are superior to us because, unlike the British, they never apologise for their own culture. They are proud of it. They boast of it. When a Frenchman sees those stirring words on the Arc de Triomphe,
"A Toutes les Gloires de la France"
he does not remember just the French victories on the field of battle; he is brought up to remember France's triumphs in the arts.
7.50 p.m.
Lord Cottesloe: My Lords, I should like first to say with what pleasure and interest I listened to the quite admirable maiden speech of the noble Lord, Lord Teynham. It encouraged me to think that we may hope to hear him many times in the future.
I am very glad that my noble friend Lord Fanshawe has asked this Question. The subject is a matter of great concern to all those who are interested in our heritage of historic houses and the collections that they contain. The situation has changed so much and so unhappily in the past two years that rather drastic action is called for. We must first, of course, rejoice that the Government have found the special funds that are needed if the three splendid houses which are named in the Question are to be looked after for the nation and their superb contents saved from dispersal. Nostell Priory, in particular, with its unique contents of Thomas Chippendale's furnishings, would be quite irreplaceable.
However, there are many more houses and collections of irreplaceable importance that are at risk, and large emergency grants to save them cannot be relied upon. The whole system is in urgent need of a new look. The first line of defence, it is clear, must be the "in lieu" system of acceptance by the Treasury of real property and chattels in satisfaction of tax. This system is vitiated by the convention that any such acceptance is, by definition, national expenditure. In effect, the Treasury not only obtains property but is paid for it as well. The sooner that convention is done away with, the better. It limits the amount that can be accepted in any given period in a way that is very unfortunate.
As regards chattels—pictures, furniture and the like—the whole system of control over the export of works of art that was established in 1950 by the Waverley Committee, and which has worked well, on the whole, for a quarter of a century, has broken down, defeated by violent inflation. This system was designed on the basis, first, that it should be fair to owners and to the trade; and, secondly, that being a licensing system it could only be fully effective, as Lord Waverley himself put it, if it was applied to a limited number of objects of high importance—that the more the field widened the less effective and more irksome the control would become.
A factor that has tended to defeat that system has been the anomaly of VAT, which is applied to purchases for the home market but not to exports, and so gives an advantage to foreign buyers. Rectification of that anomaly is long overdue, and I hope that the Minister will tell the House that the Government will take that on board.
The criteria of national importance for the purposes of control, which served well for more than 20 years, now needs looking at again. There are age limits. Originally, nothing fell within this control that was less than 100 years old or had been in this country for less than 50 years. I believe that in recent years there has been some change in these parameters that has widened and weakened the control. But the main parameters of the control—the criteria of national importance—now need looking at again in the light of modern conditions.

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They were: first, is the object so closely bound up with our national history and life that its removal would be a misfortune? That is fair enough. Secondly, is it of outstanding aesthetic importance? Now that travel about the globe is so much easier and more rapid, we may be doubtful how far that criterion is still valid. Nowadays the location of an object of special beauty is surely less important than the context in which it can be seen and appreciated. Thirdly, is it of special importance, in itself or as part of a group, for purposes of study and research? That criterion is no doubt still valid, but it may well operate against the retention of an object in this country. For example, if there was the new discovery of an important collection of Boswell papers, the right place for that collection would not be the British Museum but Yale University, where the bulk of the Boswell papers are already and where anyone wishing to study them must go to do so.
For all those reasons, and not merely for the reason that there is now astronomical inflation in the arts markets of the world, I believe that there is an urgent need for a new look, for a new Waverley Committee to examine the whole field of the national heritage of works of art of all kinds and the extent to which, and the way in which, control over them should now operate. I hope that my noble friend on the Front Bench will tell the House that the Government will set up such a committee to examine the whole matter in the light of today's conditions.
7.57 p.m.
Lord Charteris of Amisfield: My Lords, I should like first to add my congratulations to those which have already been expressed to the noble Lord, Lord Teynham, for his excellent and enjoyable maiden speech. I hope we shall have many more speeches from him.
We should all be extremely grateful to the noble Lord, Lord Fanshawe, for having once again initiated a most interesting and constructive debate on Heritage matters by means of an Unstarred Question. However, I make one comment on the actual wording of the noble Lord's Question in case a misapprehension is created which I know he does not intend. He refers to:
"the protection which [Her Majesty's Government] provided for the contents of Kedleston, Nostell Priory and Weston Park".
In providing the £25 million for the National Heritage Memorial Fund the Government have, by an admirable act of statesmanship, put the fund in the position of being able to negotiate realistically to the end that those three notable country houses and their contents shall remain intact for the enjoyment of the people. "Protection", however, has not yet by any means been achieved. The way forward is by no means clear and certain. As the first Duke of Wellington said, therefore, "Don't holla till you're out of the wood". We are still very much in the wood, and it is full of briar patches.
Noble Lords who have already spoken have emphasised how serious is the position in respect of the paucity of the "acceptance in lieu" provisions. I hope I may be allowed to give some illustrations from the experience of the National Heritage Memorial Fund to show just how inadequate the £2 million set aside for 1985–86 is likely to prove. At 1984–85 prices the £2
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million would look after between one-third and one-quarter of one important oil painting by Turner. It would buy one painting by Wright of Derby, leaving £½ million over for two or three deuxième cru old master drawings; and it would amount to only one-quarter of what the National Heritage Memorial Fund had to fork out to save Belton and its contents.
The pity of it is that the AIL system has so far, at least I think up to a few months ago, done an excellent job for the defence of the heritage. Partly because of it, and in spite of stiff taxation, our country houses remain treasure houses in the real sense of the word.
That has been brought home to me recently in a compelling way. Because of the sad death recently of Lord Howard of Henderskelfe, I find myself chairman of the Committee of Honour for the "Treasure Houses of Britain Exhibition" which is to be mounted in the National Galleries of Art in Washington in November. I have recently been in Washington—as it were, a chairman in search of a role. It is possible that I have found a role, and I have certainly learned something of what will be the scope and magnificence of this exhibition. A great part of the National Galleries of Art will be filled with pictures, furniture, silver and sculpture of the highest quality, all of which will have come from houses still in private ownership or in the ownership of the National Trust or the National Trust for Scotland.
The creation of "the country house"—the gathering together and the creation of its contents and the life that was lived in it—is arguably Britain's greatest contribution to civilisation. This exhibition will be like the tip of an iceberg. It will give an indication—an indication certainly of enormous quality and distinction, but an indication only—of the treasures which will not be seen but which remain in private ownership in Britain.
The exhibition is not an antique dealers' fair. Still less is it a bargain basement sale. I hope that it will give a powerful boost to tourism in this country. I suspect, however, that it will also whet some appetites on both sides of the Atlantic. These country houses are valuable to Britain's economy because they draw tourists, and of course the drawing power that they have depends upon their being country houses and not museums. I must say here that I think that many of the French chateaux are rather museums.
I fear that the existence of our country houses will be threatened and the disintegration of some made certain if the wholly inadequate provision for AIL is not greatly improved. It is particularly unfortunate that the Treasury has elected to reduce the AIL provision in real terms just as the top has blown off the art market. At the very time when hard-pressed owners will be tempted to sell and rich foreigners will be spurred on to buy, the defences against our treasures leaving this country are being not strengthened but reduced.
Because of the shortage of acceptances-in-lieu money, increased demands for financial assistance with private treaty sales are already being made on the limited resoiurces of the National Heritage Memorial Fund and the local museums' purchase funds. What makes it particularly provoking is that funds allocated for AIL, whatever anyone may say, are awfully like

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Mickey Mouse money. I recognise that the Government cannot use an art acquired in lieu of tax to build roads, but surely the acquisition of works of art in that way generally adds to the nation's wealth; and the nation's wealth will certainly be depleted unless more satisfactory arrangements are made for acceptances in lieu of capital taxes.
The noble Earl the Minister for the Arts is an enlightened and cultivated man, and one who understands the true value of works of art to this country. I urge him, therefore, to recall his experiences in passage football at Eton when he was a boy and to use that boot on the foot which is in the Treasury to knock the thing about, either to get the AIL provision massively increased (which ought to be easy because of its Mickey Mouse characteristics) or so to reform the acceptance-in-lieu procedure that the notional reimbursement to Treasury by heritage departments of the value of works of art and property accepted is abolished. The value of the amount accepted could quite simply be controlled by setting a ceiling to it. I am quite certain that the Minister will have massive support in this House for the efforts which I am sure he is making to this end.
8.5 p.m.
Lord Saint Levan: My Lords, I should like to congratulate my noble friend Lord Teynham on his maiden speech. This is only the second time that I have addressed your Lordships and I intend to do so for only a short time.
I am the owner of an art collection on permanent loan to the National Trust and am in exactly the same position as the late Lord Saint Oswald and Nostell Priory. The problem is that not only do we have to pay considerable capital grants tax on works of art that will not get exemption because they are not pre-eminent enough, but also we are in a very difficult position because we have to negotiate over a long period of time. My father died over six years ago and I still do not have a clearance certificate from the capital taxes office and I cannot spend one single penny of my father's money.
I am also the president of the friends of a municipal art gallery in the South-West. How lucky we are in the South-West to have such marvellous works of art and such famous artists! But we have not yet had one single work of art given to us under the new provisions. I wonder whether the Minister will consider whether the pre-eminence rules could be slightly lessened so that municipal museums can acquire works of art rather more in the middle range.
It is terribly important for us in the South-West to get works of art to make up a collection which will be formed over a period of 20 or 30 years ahead. We want to buy works of art by artists who have perhaps not yet reached as high a price in the art market as they will in future. I therefore ask the Minister whether he will consider that. I am particularly pleased that the Plymouth Art Gallery has acquired a picture by Roger Hilton which is absolutely essential to any museum which wants to have a collection of contemporary art in the South-West.
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These considerable tax problems are making it impossible for us to do very much. There are also legal problems. So many works of art in historic houses are held on a strict settlement, perfectly properly. How can one be sure that future generations will be responsible, maintain them and spend the money on insurance? But there is no legal power so far as I know for the tenant for life of strict settlement works of art to give the works of art to a museum, an art gallery or even the National Trust. I wish that I could have the power to give to the National Trust some of the works of art that I now hold as a tenant for life on a strict settlement.
8.9 p.m.
The Earl of Perth: My Lords, I do not know whether it was plotted or good fortune on the part of the noble Lords, Lord Fanshawe and Lord Annan, that we have this debate at this moment. Yesterday we saw the report of the National Gallery. It seems to me that what we have learnt from that reinforces all that we have been talking about tonight.
The other day in this House the noble Lord, Lord Young, gave some statistics which I found quite remarkable. He told us that the number of people employed in libraries, museums and galleries in this country amounted to over 350,000. Employment in the tourist trade in this country amounts to over 1 million people. Of course, the two are interconnected. I would include in the interconnection the position of the great historic houses—as the noble Lord, Lord Charteris, mentioned—which are also open and helped on the contents of their works of art by various means. The point I am trying to make here is that we all want measures to increase employment. One of the things I have always been told is to build on a growth industry. Tourism, which takes in the broad spectrum of museums, galleries and historic houses, is a growth industry.
I suggest to the noble Minister that one of the arguments he can use in trying to do what all your Lordships have asked for today is to say this should help on the employment side. It may be said, "Very well, but the Government have already given very great help and consideration recently in the grant which the noble Lord, Lord Charteris, referred to and which is in the actual text of the Motion tonight". Very well; but it is slightly worrying. I understand it when the noble Lord, Lord Charteris, says that it is not yet in the bag. All right; in certain respects they are doing noble work, and it is surely the Minister who has helped there.
What is the point of giving on the one hand and spoiling the whole thing by taking it away on the other? Surely this is what is happening in the Treasury's restrictions about the "in lieu" provisions. No only has it done that but it has reduced the grants to various galleries throughout the country. I suppose it will be said that the Government hope in this way to persuade or to force—whatever is the right word to use—private sources to the rescue. In some respects they have been incredibly successful. I refer, of course, to that tremendous gift promised by the Sainsbury family for the National Gallery. All the same, I must press the Government to recognise that they cannot expect that

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to happen all the time; they really have a critical role to play at this moment.
Here we have the "in lieu" which had been sanctioned by Parliament, and yet we have heard from the noble Lord, Lord Annan, how there is a danger of going to the Tower because of the way it has been used. I understand that it is difficult for the Treasury to be totally open-handed, to give a blank cheque on this question of "in lieu". While it is true that cash does not necessarily pass, it is cash forgone; it is not cash needed but it is cash forgone. There must be some limit. Goodness; £2 million with prices as they are today—it is tragic that it should even be thought about! What happens? All the museums and galleries have to fight for it. That is not a very good thing for this limited source. I would say it is a nonsense.
Today I was talking with a noble Duke about this whole debate, and he ought to know about it. He preferred to use the words, "It is crazy." Whether it is a nonsense or whether it is crazy, it is very unwise; it is a great danger to the country's heritage. It has to be changed; it has to be changed for all the reasons that your Lordships have given. In particular, I had in mind what the noble Lord, Lord Annan, said about would-be donors. As the system is today we get museum directors up and down the country who establish special relationships with collectors or with those who have special works of art which they think might be suitable for their museum or gallery, and the collector wants to be able to help and the museum director ditto. What happens in practice? If this absurd level is insisted upon, that system breaks up and the relationship between potential donors and museums is upset. It is not only the potential donors; it is also others such as executors. The executors who know in general what might have been the wish of somebody, who want to offer the works, cannot do it. It is placing executors in a very awkward position.
Let us take the case of Ben Nicholson, that great British artist who died the other day. What had the executors to do? They know what they would like to do. They have tried very hard to get first in the queue this year, I gather. Whether they will succeed, I do not know. If they do not, are they not perhaps derelict of their duty in not offering it out to anybody who will buy? Is it really reasonable to place executors or those who want to do proper things in this sort of position? It puts them in a highly embarrassing and awkward position. I do not think that is fair and it certainly is not to the advantage of the country.
I have just given an example of an artist, but it is not only living artists; it is the sculptors, the writers of music and the authors. I believe it is true to say that in this country we do not have one manuscript of Evelyn Waugh. Maybe the last one of Vile Bodies may come to us. The review committee may want to stop it, and perhaps the country will come to our rescue in the sense of funds being available, but is not that a shocking thing? We really should be trying, whenever we can, to get the living artists of today who are going to die—as we all do—and make sure that some of their work is available through the "in lieu" process.
I understand, as I said before, that we cannot expect a blank cheque; but what are we to do? The Review
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Committee on the Export of Works of Art tells us every year in its report what has been accepted in lieu. Very interesting reading it makes. If you look at the report for 1979–80, there was approximately £2 million in cash; there is a long rigmarole which I do not quite understand. When one looks at the objects that were saved all over the country, not just for the national museums in London, one realises what a tremendously important concession—if that is the right word to use—or method of saving works this represents.
What are we to do? I suggest that there is a good deal of muddle at the present time on how this system operates. From all the noble Lords I have heard tonight—Lord Teynham who made that fine maiden speech, and others—one gets the feeling that perhaps we are in a bit of a muddle about it all. We ought to have a look at it to see how best it can operate. I thought a good deal about who should be asked to operate it. The national heritage fund? No. The Review Committee for the Export of Works of Art? Although it appears in its report, no. The museums and galleries? Possibly. But I think on balance the right thing is for a special body to be set up to operate and make an annual report to Parliament on what they are up to. My request to the noble Minister who is to reply is that he considers very carefully whether and how we should do this. After all, when one has heard the noble Lord, Lord Saint Levan, say that after six years they are still struggling on these issues, something is wrong.
I finish by saying that I hope that as a result of today's debate, and as the outcome of all the pressures that the Minister for the Arts has put and will put on his colleagues, he can get this so-called ceiling of £1 million or £2 million (I am not clear which it is) left out of it. It should be put on to a proper basis, with, if you like, a £5 million or £10 million figure, taking into account all that has happened in the way of rising prices in the last few years. I hope that doing this will help him to appreciate what I started off by saying: namely, that this is not a special class interest for which we are pleading; we are pleading for employment in the country.
8.21 p.m.
Baroness Airey of Abingdon: My Lords, I join other noble Lords in thanking my noble friend Lord Fanshawe for having introduced this debate at such an auspicious moment. Perhaps I may also, with other noble Lords, congratulate my noble friend Lord Teynham on his very excellent maiden speech.
There is an old music hall song which goes,
"Don't put your daughter on the stage, Mrs. Worthington"
but today, Mrs. Worthington, if it were the case of a young woman who was to inherit a beautiful old manor house, I would say this. Maybe her ancestors fought at Crécy, at Waterloo or at Calais. Maybe in the 18th century, with discerning taste, they bought beautiful treasures to fill their small but jewel-like house. Your daughter will be a slave. I suspect she will be a willing slave because she loves that beautiful house. However, with today's prices, she will have the great temptation to sell it up. What a change in her life and that of her children there would be if she should sell it up. But what a loss to the nation!

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Who will want to look at a house denuded of all its treasures and, eventually, of its original owners? This country is stiff with beautiful manor houses. The other day I discovered one by chance. I shall never forget the experience. I went up a long road, which could not really boast of being a drive because it was so rough. I had been asked by mutual friends to lunch there. When we went inside I found that we were to lunch in the kitchen in an extremely humble way, though I must admit the wine was very good.
Afterwards, my hosts, who were dedicated owners of this house, which belonged entirely to them, took me upstairs. My breath was absolutely taken away by the beautiful possessions. Then we went right up to what must have been the attics. There, there was the most wonderful collection of modern pictures. I think this comes a little in line with what my noble friend Lord Teynham said, that we must think of the future when we are thinking of the preservation of the arts.
The other day, I discovered this wonderful house. I should like to say to your Lordships that such houses really are the nation's capital; they are our investments. What is more, they make money in hard cash. The Treasure Houses of Britain exhibition, about which my noble friend Lord Charteris has spoken this evening, will give America a taste for the treats in store for the tourists who come to this country.
Stockbrokers sometimes advise their clients to invest in art. What better, with today's appreciation? I commend this to my noble friend the Minister. I beg him to speak to the Government on this matter and vastly increase what my other noble friend Lord Charteris has called the "Mickey Mouse" money used in lieu to enable the works of art to remain where they belong.
However, I speak this evening specifically for the smaller manor houses with less land and fewer resources. Their treasures should be accepted in lieu of the still penal taxes in return for access to the public. Thus they will be outposts of the museums and galleries, which are often short of space. I am sure that many of the curators of our great museums are suffering from this problem. In this way, the treasures will be owned by them but will be shown in their true setting.
I believe that the owners of these houses should be given every encouragement to stay on in their houses with continuity. I believe that visiting these "in lieu" aided houses will be of great benefit to the country. It will encourage tourists from abroad. There will also be the spin-off which has been referred to by other noble Lords this evening, of creating trade, and, most importantly, this will be a boon to employment. The nation will have a vast store of real property and worth. However, to achieve this, the owners should be allowed to feel that what they do is a benefit to everyone and we should applaud their courage in staying on.
8.26 p.m.
Lord Donaldson of Kingsbridge: My Lords, the noble Baroness has spoken so well on the smaller
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house problem, which is a very difficult one because it can run into money problems so very quickly. I shall not follow her because I do not know a great deal about that aspect. I wish to concentrate chiefly on the main topic which the noble Lord introduced, which is the chattels problem of the "in lieu" system. I am very glad that he has brought it up, because it is in a far worse state than I realised, being fairly remote from action at the moment. I have been very shocked by what I have discovered.
I was for three years Minister for the Arts—I am thankful to say not with the more terrible Treasury responsibilities which the present Minister has. When I was Minister, the system of protecting the heritage in the form of chattels worked jolly well. There were three stages. First of all, there was the "in lieu" system. I have not checked my figures, but I am pretty sure I am right in my recollection that it was understood with the Treasury that we in the Ministry of Arts would have a figure of £3 million (I think at one stage it was £3½ million) for chattels. I cannot remember what it was agreed that the environment should have, but it was something additional to that. Up to the stage of Mentmore, we never had to refuse anything. For the whole of the time I was there, there was never a refusal; there was never an excess of demand over the quota allowed.
When one looks back on 1979, 1978 and 1977 and thinks of £3 million, I do not know what that would be worth today. I have asked the Minister to have an answer to this, because I am not very good at calculations whereas he has people to help him. I hope we shall hear what the £1 million or £2 million at today's figure amounts to in relation to the figure we had then.
We have not had from this debate many solutions offered to this problem except the one we all want, which is a higher budget for the "in lieu". In my day, I had a very amenable Chief Secretary to the Treasury in the then right honourable gentleman Joel Barnett. Unlike the picture suggested by the noble Lord, Lord Fanshawe, of a Treasury unwilling to do this job, he was very willing and did everything that he could to help, within reason.
We never had a ceiling given to us. There was a budget figure. At any stage, this could have been discussed and would have been discussed. There was no question of doing what has unfortunately just been done, with someone saying that we have passed the limit and cannot go on with it. I do not know what has happened to make this wrong, except that the inflation of value has been so enormous that the whole problem is far less tractable. One would think, in an innocent way, that the way to overcome this would not be to reduce the limit but to increase it somewhat. That is, of course, the only solution that anyone has come up with during the whole debate.
It is perfectly clear that it is ridiculous to have a system of this kind which cannot do the job better than now. My remedy, as it always is, is to give them more. I know that this is not helpful to Government, but I am not trying to be helpful to Government. They have to sort themselves out. They are doing something very damaging indeed to the country which they are

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supposed to be governing. Do not let us pretend that they are not.
The second branch of protection was the Waverley system, to which the noble Lord, Lord Cottesloe, referred. That system, with one or two rows, also worked awfully well. On a number of occasions, preeminent articles were saved. On a number of others, the price could not be raised. It was, however, a perfectly fair and straightforward arrangement with which people in general were fairly content. The Annan solution—I am sorry that the noble Lord is not here—seems to me not at all the proposal to go for. If you want to increase something, it is never any good cutting. You have to face the fact that more money should be spent and that it was spent perfectly successfully 10 years ago. There should be no hesitation in saying that this must be done. If you take away the purchase grant, already cut in the case of the National Gallery, you are making things worse in order to make them better. That is very seldom effective.
The system has worked well until very recently. Of course, the explosion in prices has been getting worse all the time. It is clear that when you have a seven figure price for a picture, the sort of things that the Government are now talking about are in no way relevant. If the Government are not going to find money at a proper level, they should say so in clear terms. They will lose a lot of good will through it. I am sure that the noble Earl is fighting the battle as hard as he can. I give him credit for that. I am not here to defend him; he has to defend himself. This he has shown himself quite capable of doing. In our last debate there was powerful speech after powerful speech attacking the arts. In the newspapers one read of only one powerful speech: that of the noble Earl, saying aggressively and, with respect, wrongly, that everything in the garden was perfectly all right. One must not try for a single moment to defend the noble Earl. We want to urge him on. We want to use the prick of the gadfly, which was so effective with Zeus, or Jupiter, according to what I can recall of my classical education.
I want to talk, following some remarks of the noble Lord, Lord Annan, about the desirability of the "in lieu" system from the point of view of the donor. It seems to me desirable that works of art of pre-eminent quality should be acquired by our museums and galleries, or perhaps better still left in their stately homes and open to the public, when taxation and rising values make it impossible for the descendants of the man who collected them to keep them privately any longer. It is good that someone other than the Treasury should decide which to accept and where to allocate them. But there must be a budget figure in mind and the Minister may, on occasion, have to choose one or other of two offerings if he cannot afford both. I do not quarrel with that. I do not expect the Government to accept an open-ended demand. I expect them to accept a demand that makes sense in relation to the situation and to show flexibility in their top level; to pass things on to the following year when necessary, and that sort of thing. It is quite easy to do.
I do not think that we can expect to keep everything. Works of art have always changed hands and countries. They should not all be frozen in galleries. It is right and proper that there should be a trade in such
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things. It is a trade of considerable value to this country. The direct treaty system—the third of the matters I was talking about—is also working well. Noble Lords will know what it is. It is where a bargain is made with the Treasury over tax in return for selling direct to a national institution. That is a perfectly good procedure that works satisfactorily. It keeps the chattel away from public auction.
The late Lord Vaizey, as the noble Lord, Lord Annan, said, attacked the whole question of the reality of paying back the price of something you had got. He was, philosophically, perfectly right. It seems to me that once you are given an article in lieu of money owed and it is accepted, that is and must be the end of the matter. But it is also clear to me that you must have some system of control, particularly with the rise in prices. One can give a series of known pictures hanging on loan in galleries all over the country that one really could not afford to buy at all quickly under the "in lieu" system. In my view, Lord Vaizey was not entirely right. It is purely a question of bookkeeping and absolutely nothing else. It has no reality and no connection with reality at all; so I need not worry about it once we agree that there cannot be an open-ended commitment to buy everything all the time.
The really serious issue, as I believe the noble Earl will have to tell us, is that the difference between the figure that I had to work with, which operated perfectly well, and the figure with which he has to work, which is impossible in relation to the present amounts, is much too wide. Either this should be dropped, with the Government saying that they are beaten and they cannot manage it, or it should be done properly. The case for raising the limits seems absolutely unanswerable. When the nation acquires an asset, it acquires an asset. It is no good the Treasury going on as though it was increasing public spending incautiously. To swap inflationary cash for fast-rising eternal values may be frowned on by the Treasury. By ordinary citizens, it can be seen to be a very good investment indeed, although it is not possible to do too much at once. I hope, therefore, that the noble Earl will seize this opportunity to restore the confidence of the art world by doing something good for the arts and sound for the country.
8.39 p.m.
Lord Strabolgi: My Lords, I am sure that we are grateful to the noble Lord, Lord Fanshawe, for tabling this Unstarred Question. The House has had an extremely interesting and useful short debate. I should like first to congratulate the noble Lord, Lord Teynham, for his excellent and knowledgeable maiden speech. I hope that we shall hear from him on many future occasions.
I am sorry that the noble Lord, Lord Annan, is not at present in his place because I should like to endorse and support all that the noble Lord said about Mr. Denis Mahon's endeavours to allow his collection to pass into the public domain. I have had the privilege of knowing Mr. Mahon for a great many years and I know how public spirited he is about-these matters. I hope that the noble Earl will take seriously the points and suggestions that Mr. Denis Mahon has put to him.
I must also join with the noble Lord, Lord Fanshawe, in congratulating the Government on

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stepping in to ensure that the three historic houses—Nostell Priory, Kedleston, and Weston Park—were saved for the nation. But I must ask the noble Earl the Minister what will happen to the contents? The Chippendale furniture at Nostell is worth several million pounds. What is to happen to the historic contents of Kedleston? Will they all be accepted in lieu? If so, the £2 million ceiling will have to be increased for a start. Perhaps I may clarify the question of whether it is £1 million or £2 million as I understand it, and if I am wrong perhaps the noble Lord will correct me. I understand that £1 million was given to Environment and £1 million to OAL, but they are interchangeable. However, so far as the noble Earl's department is concerned of course it is only £1 million.
I must also ask what financial arrangements are being made to provide for the working future of the houses.
Lord Charteris of Amisfield: My Lords, I should like to speak for a few moments on those three properties. Nostell Priory already belongs to the National Trust and the only thing that is of interest there is its contents; that is, the Chippendale furniture about which the noble Lord has spoken. As regards Weston Park, both the contents and the house are involved, and the same applies to Kedleston. Certainly so far as concerns the National Heritage Memorial Fund, we look upon the contents as being as important, possibly more important, than the houses themselves.
Lord Strabolgi: My Lords, I am very grateful to the noble Lord, Lord Charteris, for endorsing to a certain extent what I said about the contents. I should also like to ask the noble Earl—if I may have his attention for a moment—what is being done to provide for the working future of these houses. All in all, do the Government think that the £25 million will be sufficient?
The "in lieu" ceiling is proving very restrictive and I think it right to say—as has been said in this debate—that works of art are being lost to the nation. There is the case of the Merton Van der Weyden, which the Walker Gallery at Liverpool badly wanted and which qualified for acceptance in lieu as being pre-eminent. As your Lordships are aware, it used to hang for many years in the National Gallery. Yet the painting had to be declined because of the "in lieu" ceiling. How does this failure fit in with the Government's plans to help Liverpool in the cultural field? To help the Walker to acquire an important Flemish painting at no cost to the state would surely have been complementary to the exciting scheme for a "Tate of the North"; but once again this has come to nothing because of Treasury rigidity and shortsightedness.
The Renoir painting "La Pensée" which was shown in the recent Hayward Exhibition which was sponsored by IBM and which was so popular—I think probably the most popular exhibition we have ever had since the Van Gogh exhibition just after the war—was accepted in lieu at around £650,000. This is a charming but middle-ranking Renoir and yet it cost all of that large amount. Therefore, the £2 million is
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not going to go very far as the noble Earl, Lord Perth, said. The National Museum of Wales is having to buy two fine Flemish 16th century portraits for about £200,000, which they could have had for nothing—for nothing, my Lords—if the museum had been allowed to accept them under the "in lieu" system as payment of transfer tax. Similarly, as has been said in this debate by the noble Lord, Lord Fanshawe, the Tate has had to pay over £1 million from its grant for the Penrose de Chirico which it could have had for nothing and would have had for nothing if it had been a French museum.
I do not understand why there has to be this compensatory payment to the Treasury for the theoretical loss of tax. Tax allowances or concessions are allowed for a whole host of other reasons. Why not on acceptance of a major work of art by the nation? I doubt if many of our most treasured works of art would have passed to the nation if previous governments had been as restrictive as this one.
I do not agree with the noble Lord, Lord Annan, on some of the more pejorative adjectives he used to describe the French character. However, I do agree that the French are much more realistic about this problem, and I admire the diamond-hard determination with which they act in the best interests of France. As the noble Lord, Lord Annan, has said, in France the dation scheme allows works of art to be accepted by the nation in lieu of tax without any compensation from the arts budget. There is no limit to the works of art being offered under this system and the French patrimoine has been greatly enriched in consequence.
Here, as the noble Earl, Lord Perth, has said, all is rather a muddle. I note that administration of the "in lieu" scheme has now been passed by OAL to the Museums and Galleries Commission, although offers of heritage property in lieu of tax will continue to be made initially to the Capital Taxes Office. I am sure that this is a most useful decision although I do not think it really makes much difference who administers the scheme—although it probably saves the noble Earl and his department a certain amount of trouble—while the "in lieu" ceiling remains at this ludicrously low figure.
There are other matters to which I hope the Minister will direct his attention as a member of the Cabinet and as the Treasury spokesman in this House. At present, when an export licence is postponed or when there are sometimes lengthy negotiations with the Treasury, interest charges on the notional amount of CTT continue to accrue and these can be very heavy. Would it not be fairer if these were waived? Why should an owner who is trying to pass over his property to the state, be charged interest while the Treasury makes up its mind?
The other matter is the question of VAT charged on the buyer's premium at auction sales which can be heavy at times. At present—this is extraordinary but I understand it is fact—local authority museums are zero-rated but the national museums for some inexplicable reason, are not zero-rated for VAT. Foreign buyers, of coursee, to encourage them, are zero-rated. Therefore, our national collections are at a distinct disadvantage. It would be much fairer if our national

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museums were brought into line. I hope that the noble Earl is going to take this plea seriously, and that as the Arts Minister he is going to try to persuade his Cabinet colleague, the Chancellor of the Exchequer, to do something about this absurd anomaly. It would be a small, but minor concession and I cannot believe that the whole of our financial and social fabric would collapse if it were made.
Last week saw the sale of the Northampton Mantegna for over £8 million, a world record price for a painting. As we all know, the Mantegna was bought by the Getty Museum at Malibu, although it could have been sold to one of several other buyers as I understand that there was keen under-bidding. Although the painting cannot conceivably be regarded as part of our historic heritage, the National Gallery of Scotland is understandably keen to have it. May I ask the Minister what is the position about the Mantegna? If we are incapable of retaining it here, then the Mantegna will have to go to California where I am sure it will be well looked after and deeply appreciated as I was very glad to hear the noble Lord, Lord Teynham, say.
In fairness to Getty, there have of course been two recent occasions when the museum has not bid for a work of art which had a heritage interest in this country. These were the Pissarro painting of Sydenham in the National Gallery and the Joseph Wright painting, also in the National Gallery, of Mr. and Mrs. Coltman. After discussions with the NG in both cases the Getty decided not to bid.
Lord Annan: My Lords, may I intervene? Did I hear the noble Lord say that it was the National Gallery which was interested in purchasing the Mantegna? That is not so.
Lord Strabolgi: No, my Lords, I certainly would not have said that, I said the National Gallery of Scotland. I am sorry if the noble Lord did not understand me, but this is what I said. However, it is fair to say that the case of the Mantegna and the recent sale of top Old Master drawings from Chatsworth highlight the problem of the retention of important works of art in this country.
Here, I was in what the noble Lord, Lord Cottesloe, said, and also the noble Lord, Lord Donaldson, about the question of the Waverley criteria. It is now over 30 years since the Waverley committee's first report. The criteria have stood the test of time on the whole, although I think that the moment has surely come for the whole system to be reviewed. What we need, I suggest, is a fresh independent inquiry with recommendations on how to save the nation's heritage in the light of present circumstances.
Waverley reported long before the days of CTT. It was quite a different system then. May I ask the noble Earl the Minister in conclusion whether he will consider setting up a new committee to inquire into the problem of retaining Britain's works of art that remain in private hands and how best these can be kept in this country, because I think the time is now opportune for this?
8.52 p.m.
The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie): My Lords, I should like to start by echoing other Members of your Lordships' House in congratulating my noble friend Lord Teynham on a remarkable maiden speech in what I earnestly hope will turn out to be a remarkable and historic debate. I looked up my noble friend in Dod and I saw that he spent some part of his distinguished career as agent to the Hatherop Estate in Gloucestershire. It so happens that part of that estate is a well-known girls' school. It also so happens that my first paid employment was as a junior master, or usher, in this well-known girls' school. I think of it most fondly, and I am glad to have had that somewhat tenuous connection with my noble friend.
On this serious and fascinating issue he did everything that a "maiden" should do. He was not directly controversial, he was extremely witty, and for my part I thought that nearly everything he said was simply right. I hope that my noble friend will address us often, and not least on subjects in my area of responsibility and interest. I can promise my noble friend that it is not part of the intention of Her Majesty's Government to "flog off" the House of Lords. He appeared to be rather anxious about that. Indeed, we have spent rather a considerable amount of money in repairing its ceiling. Unlike perhaps noble Lords opposite, it is also not our intention, if humanly possible, to drive many of the Members of this House into tax exile.
I should also like to congratulate my noble friend Lord Fanshawe for turning the spotlight on this very real issue and real anxiety about the resources which are needed to protect our heritage, and as to whether they are adequate. I was impressed, if I may respectfully say so to him, with the cogency of his case and its presentation. I do not pretend, any more than he does—or the many other noble Lords who spoke with considerable understanding of some of the real difficulties involved—that the problem is an easy one or that it is likely to vanish. But I am grateful for the considered praise which he and other speakers have given to the Government for their action to try to help the National Heritage Memorial Fund save Kedleston, Nostell Priory and Weston Park.
Even The Times newspaper which, to its credit, has campaigned vigorously on this issue—as indeed has its principal rival the Daily Telegraph—has admitted that we are on the right track in taking this step, and that it is an earnest of our good intentions for the future as well as a record to be proud of in the present. To find £25 million for the National Heritage Memorial Fund while public spending generally is under considerable restraint is a significant signal that the Government will not stand by when the contents, fabric and surroundings of great houses of the finest architectural and historic quality are at stake. We are well aware, as my noble friend Lord Young himself showed he is aware, of the immense economic importance of the heritage, as well of course of the living arts, to employment and the economy of this country.
Where Nostell Priory is concerned, the house is already in the possession of the National Trust.

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Chippendale is surely our foremost artist-craftsman, and here I wholly agree with my noble friend Lord Cottesloe. I hope that the National Heritage Memorial Fund will be successful in its efforts there as well. Having said this, I am not going to holler, as the noble Lord, Lord Charteris, put it, until he is out of the briar patch. I hope he will not take it amiss from me if I say that the Government have enormous confidence in the noble Lord, and I find it hard to imagine a situation where they were not prepared to take his advice.
Nevertheless, as the noble Lord, Lord Donaldson, with his practical experience, recognised, resources are limited and public expenditure cannot simply be stretched to meet whatever situation should arise. We do not print money. It is in this context that I shall examine the ideas put forward tonight for making the acceptance "in lieu" provisions more effective. I assure the House and my noble friend Lord Fanshawe, who also has been admirably persistent in putting this case, that I shall try to look positively and constructively at the ideas.
Acceptance in lieu is of course only one part of a complex of arrangements to assist the heritage. There are also the capital transfer tax concessions which are intended to encourage owners to retain works of art rather than put them on the market, and that might be something to give cheer to my noble friend Lady Airey. There are the attractive arrangements for private treaty sales to public museums which also benefit from tax concessions. There are the export control mechanisms.
The noble Lord, Lord Strabolgi, asked me about the Mantegna. There is a procedure of export control whereby the export reviewing committee makes recommendations to the Minister. It has not yet done so. I find it hard to imagine that it will not, but naturally to some degree I am in purdah until I am formally requested under the system as it operates. We have as well the direct help which the Government give to institutions through purchase grants and through the National Heritage Memorial Fund.
We must not talk ourselves into a state of panic. Taken together, these provisions have had a very considerable impact on the heritage and a very considerable impact in recent years. Anxieties are of course evident, and they have been evident in this debate, due to the recent startling changes in inernational prices. My brief says, "startling changes" but I have to say, as a former art dealer, that I have been predicting them for about 10 years. They simply happened a little later than I myself expected.
Even in the face of these changes, the recent record is still real and considerable. If we look again at recent achievements by all the means that I have outlined and we take the package as a whole, and if also we remember that good news is always less news than bad news, the list is remarkable and it is an indication of the Government's and the nation's commitment.
There was the £8 million for Calke Abbey, the £25 million that we have mentioned that has been given to the National Heritage Memorial Fund with a view to saving Kedleston, Nostell Priority's contents and Weston Park. There was the private treaty purchase by the Tate of the great de Chirico surrealist
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painting—and, while I understand the Tate Gallery's complaint about the "in lieu" aspect (as will, I think, become apparent), it must be said in fairness that the gallery did obtain that great picture at well below market price. There was the private treaty purchase by the National Gallery of the Jacopo Bassano from Weston Park and the Joseph Wright of Derby. Both these great paintings were mentioned in the debate.
There was the purchase for £1·8 million (after the export stop proceeded in the orthodox and usual way) by the Manchester City Art Gallery of the Sienese Crucifixion, thought to be by Duccio; there was the Hogarth acquired by the National Portrait Gallery for about £300,000; there were the Turner bird studies acquired by Leeds City Art Gallery for £200,000—a really excellent competitive price, if I may say so; and the acceptance in lieu at £1·75 million of the Godman collection of Islamic pottery for the British Museum. Then there was the painting mentioned in his speech by the noble Lord, Lord Strabolgi, Renoir's La Pensée, which was purchased for £600,000 for the Barber Institute in Birmingham.
These are all recent cases and they and many others were generously helped by the National Heritage Memorial Fund, to which I pay tribute. I pay tribute too, to the work of the noble Lord, Lord Charteris, and my noble friend Lady Airey, who sit on the Fund. I think that they are an indication that the arrangements for the heritage—while we must be ever-anxious and vigilant in attending to them—are working well. May I say to the noble Lord, Lord Donaldson, that the list I have just given is, frankly, not my idea of doing damage to the country. Indeed, if it is damage, let there be rather more of it; and if I am damaging in this respect, may I turn into a positive vandal. But, that said, I agreed with a great deal of the rest of what the noble Lord, Lord Donaldson, said.
Turning to AIL—acceptance in lieu—there has been no decrease in the Government's commitment to it. Indeed, an amount for acceptance in lieu of £2 million between these two departments—and they work very closely together—has been allocated. What has occurred is a substantial and worrying increase in the number of items on offer and in the value of items on offer. That international inflation, if you like, is not the fault of the Government. It is this which, coupled with the high and special cost of Calke Abbey, has caused us to turn some items away and to indicate that we shall be more highly selective in the coming year. Given the richness and variety of the national stock of major works of art, I believe that it is perfectly reasonable and logical for us to be selective.
However, that said, I accept that there is very strong feeling in this House and elsewhere that we should move away from the present arrangements which, I have to say, I have myself found unsatisfactory for a long time, not least because of the conversations I have had with Mr. Denis Mahon and others—and he was particularly mentioned tonight. I am also aware of our election manifesto commitment to examine ways of using the tax system to encourage further growth in private support of the arts and the heritage. It is not unfair to point out that some improvements in the tax system as it affects the arts have already been made by this Government; notably the reduction in the covenanting period, the reduction in levels of taxation

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generally and for capital transfer tax in particular, and the arrangements for index linking capital gains.
But I do now undertake to see whether further improvements are possible and I am therefore very glad to be able to tell my noble friend and the House—and just occasionally, therefore, it may be of advantage to have a toe in the Treasury water—that we shall be looking again at the arrangements whereby part of the cost of acceptance in lieu is met from Votes.

Alexandra Park and Palace Bill
Brought from the Commons; read a first time, and referred to the Examiners.
House adjourned at six minutes past nine o'clock.

  ORDNANCE SURVEY: REVIEW OF ACCOUNTS
  ORDNANCE SURVEY: REVIEW OF ACCOUNTS