Sitting of 11 June 1986

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Oral Answers to Questions
  FOREIGN AND COMMONWEALTH AFFAIRS

    Nepal
    Mr. David Atkinsonasked the Secretary of State for Foreign and Commonwealth Affairs if he has had any recent discussions with the Nepalese Government about matters raised during his visit to Nepal in February; and if he will make a statement.
    The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Tim Eggar): My right hon. and learned Friend has had no recent discussions with the Nepalese Government.
    Mr. Atkinson: Does my hon. Friend share my dismay over the fact that since our right hon. and learned Friend met his Nepalese counterpart in Nepal in February there have been further reports of the persecution of Christians, including the most humiliating and inhuman treatment of two Catholic nuns? In view of this, will my hon. Friend now warn the Nepalese Government that it cannot be long before public opinion in this country, and in the United States in particular, will be pressing to end all aid to Nepal until such time as the persecution of Christian citizens comes to an end?
    Mr. Eggar: We are aware of reports of the incident to which my hon. Friend refers and we are seeking further details. As he is aware, we share his concern about the reports of ill-treatment of Christians in Nepal. My right hon. and learned Friend mentioned our concern to the Nepalese Government during this visit in February.
    Mr. Alton: Given that those nuns and priests were dragged through the streets, beaten, and, in the case of the nuns, stripped naked by Nepalese policemen, does the Minister agree that it is about time that Her Majesty's Government stopped turning a blind eye and took up with the Nepalese Government this grave issue of the violation of human rights?
    Mr. Eggar: As I have already said to my hon. Friend the Member for Bournemouth, East (Mr. Atkinson), we are seeking further details of the incident to which the hon. Gentleman refers. I remind him that Nepal is a sovereign independent country, and we have no locus standi to intervene on behalf of Nepalese citizens.

    NATO Foreign Ministers
    Mr. Fallonasked the Secretary of State for Foreign and Commonwealth Affairs when he next expects to meet the other North Atlantic Treaty Organisation Foreign Ministers.
    The Secretary of State for Foreign and Commonwealth Affairs (Sir Geoffrey Howe): I next expect to meet other NATO Foreign Ministers collectively at the North Atlantic Council ministerial meeting in Brussels in December.
    Mr. Fallon: Does my right hon. and learned Friend agree that one of the primary interests of the Soviet Union is to invent and exploit potential divisions between members of the Alliance—for example, this country and the United States? Is it not highly irresponsible of the shadow Foreign Secretary, when in Moscow, to lend himself to a conspiracy against the membership and strength of the Western Alliance?
    Sir Geoffrey Howe: If I had to account for all the activities of the right hon. Member for Leeds, East (Mr. Healey), I should spend a great deal of time trying to defend him in vain. I hope that he took the opportunity when he was in Moscow to drive home to the Soviets the need for them to reach out for a balanced agreements on arms control.
    Mr. Winnick: Is it the intention of NATO Ministers to send congratulations to the newly elected President of Austria? Can the Foreign Secretary—
    Mr. Speaker: Order. What has this matter to do with the North Atlantic Treaty Organisation?
    Mr. Winnick: I should like to know from the Foreign Secretary whether the NATO Foreign Ministers believe that it is desirable that someone who, at best, prostituted himself for the Nazi war machine and at worst actually gave orders that led to countless deaths should have been elected as President of Austria. Why did the British Government send congratulations? Does the Foreign Secretary understand the deep concern among many people in Britain over what has happened in Austria?
    Sir Geoffrey Howe: I admire the hon. Gentleman's capacity to stretch the rules of order to their limit. It is not my intention, speaking on behalf of NATO Foreign Ministers, to answer his question. Each Government have responded to the outcome of the democratic election conducted in Austria on the basis of their judgment of the facts.
    Sir Peter Blaker: What does my right hon. and learned Friend believe would be the reaction of his NATO colleagues if it were to be announced that this country was intending to give up unilaterally its independent strategic nuclear deterrent and to expel American nuclear bases from this country?
    Sir Geoffrey Howe: I have no doubt at all that my NATO colleagues would react with shock and astonishment at such an announcement, because it would cast away the effective foundation of the defence of this country as well as the effective foundation for our playing a realistic part in the arms control debate.
    Mr. Faulds: Is not one of the most damaging influences at play in relation to the success of NATO the American

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    President, who pursues policies that damage the organisation, such as the rejection of SALT 2, the use of British bases for action outside NATO and his general attitude of disregard for European interests?
    Sir Geoffrey Howe: I certainly cannot join the hon. Gentleman in taking such a view of these matters. It would be welcome if he were to take the same kind of critical attitude of the leadership of the Soviet Union on matters of this kind. In fact, the United States leadership has in the last few years been taking steps to advance the process of arms control, and we have continued to emphasise the importance that we attach to that.
    Mr. Temple-Morris: Will my right hon. and learned Friend firmly take on board the fact that it is not just a question of the Soviet Union exploiting divisions? When he meets the Foreign Ministers, will he firmly express the concern on both sides of this House and in the country over the Washington Administration's attitude towards the SALT 2 treaty, and will he firmly register the great concern in western Europe about that fact?
    Sir Geoffrey Howe: As was made clear by my right hon. Friend the Prime Minister last week and in the discussions in Halifax at the North Atlantic Council, the Government, together with the other Governments of western Europe, attach importance to continued compliance with SALT 2 on both sides. It was for that reason that we welcomed the announcement by the President that he was disposing of the submarines in compliance with that treaty and expressed the hope that the Soviet Union would respond as necessary to enable the treaty to continue to he observed and complied with on both sides.
    Mr. Healey: Will the Foreign Secretary inform the United State Secretary of State that the units of the Alliance can be weakened only when the American Administration vetoes an agreement on human contacts which has already been reached by his own officials and by all European members at the Berne conference, and when President Reagan threatens to violate the SALT 2 restrictions on armaments after all his allies explicitly advised him not to when asked for their opinion a few weeks earlier? Does he not agree that the SALT 2 agreement and the abortive agreement on human contacts are precisely the sort of balanced agreements that the hon. Member for Darlington (Mr. Fallon) claims to want and which I pressed for when I was in Moscow the other day?
    Sir Geoffrey Howe: I do not doubt the importance of seeking to achieve agreement, if possible, in the course of meetings such as the Berne meeting on human contacts. It must be a matter of regret that it was not possible to reach agreement along the lines originally foreshadowed.
    One must take a slightly different view of the SALT 2 agreement by saying that it is surely right to welcome the decision of the United States to stay within the SALT 2 constraints by breaking up the Poseidon submarines, before going on—as I certainly do—to express the hope that it will continue to stay within the SALT 2 constraints to which the United Kingdom attaches importance and on which our views have been made very clear to the United States.

    UN Expenditure
    Mr. Phillip Oppenheimasked the Secretary of State for Foreign and Commonwealth Affairs if he has held
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    discussions recently with Senor Perez de Cuellar concerning United Nations expenditure in 1986; and if he will make a statement.
    Mr. Eggar: My right hon. and learned Friend raised the question of United Nations finances with the Secretary-General during his official visit to this country from 13 to 15 May. He emphasised the need for a sustained effort to achieve economies and recalled our own record of paying our contributions promptly and in full.
    Mr. Oppenhiem: At a time when the United Nations faces its worst financial crisis in its history, how can the continued publication of the controversial PINS — political information news service — report be justified when it costs almost £1 million a year?
    Mr. Eggar: I am sure that these and other aspects of information will be examined both by the Secretary-General in his continuing efforts to reduce expenditure within his control and by the Group of 18, which is looking at the longer term implications for United Nations finances.
    Mr. Tom Clarke: Does the Minister accept that if the United Nations did not exist it would be necessary to invent it? Does he also accept that such flaws as there may be mirror an imperfect world and that, while we seek to improve it, we ought to condemn irresponsible comments, which do nothing but harm to an outstanding international body?
    Mr. Eggar: Her Majesty's Government are, of course, committed to continued membership of and activity in the United Nations both as an ordinary member and as a member of the Security Council.
    As regards finances, the hon. Gentleman must be aware that it cannot be right for the 106 lowest contributing countries, which in total pay 1·83 per cent. of the budget, to force through a budget against the overwhelming view of the major contributors, which, beween them, pay about 70 per cent. of the budget. Reform is necessary.
    Mr. Beaumont-Dark: Does my hon. Friend agree that the United Nations could increase its reputation and its finances by releasing the records of 40,000 Nazi criminals, which are hidden in its vaults? Does he also agree that it is slow to do that because of the proper implication of an ex-Secretary-General of the United Nations? Is it not time that all these records were revealed so that this evil can be cleared up one way or the other?
    Mr. Eggar: As my right hon. Friend the Prime Minister told the right hon. Member for Manchester, Wythenshawe (Mr. Morris) on 19 May, it would not be appropriate for us to consider seeking from the United Nations copies of documents relating to Dr. Waldheim's wartime activities before the Ministry of Defence search of military records is complete.
    Mr. Foulkes: I welcome the Minister's commitment to Britain's continued membership of the United Nations, but will he confirm that the Government totally reject all the calls from the Right wing in his party and in some of the media, inspired again by the Heritage Foundation, to follow withdrawal from UNESCO by withdrawal from some of the other agencies of the United Nations? Will the Minister today pay a tribute to the United Nations and its agencies for the excellent work that it has done in its lifetime for peace and development in the world?
    Mr. Eggar: Developments within UNESCO over the past few months have served to confirm the wisdom of our decision to withdraw at the end of last year. There has been no evidence recently of movement towards a central reform within UNESCO. In relation to the UN system as a whole, of course we are committed to continued membership.

    Pakistan (Drug Trafficking)
    Mr. Spencerasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on what action is being taken jointly with the Government of Pakistan to control drug trafficking.
    Mr. Eggar: We share with the Government of Pakistan a firm commitment to tackle the problem of drug production, trafficking and abuse. We have close and effective co-operation m many aspects of drug enforcement, through Customs and other channels. Over recent years Pakistan has been the main recipient of our drugs-related assistance worldwide.
    Mr. Spencer: Can my hon. Friend confirm the efficacy of the co-operation between the two countries in bringing to book people engaged in this vile trade? Can he tell the House whether there are yet stationed in Pakistan, as in some other countries, representatives of British Customs and Excise? If not, will he work towards that end?
    Mr. Eggar: I can indeed assure my hon. and learned Friend of the considerable efforts that the Pakistan Government, from the highest level downwards, are taking to eradicate drug production and trading. Officials from British Customs have been in Pakistan for some considerable time.
    Mr. Corbett: Has the Minister seen reports today of a warning by Mr. Colin Hewitt, the co-ordinator of the national drugs intelligence unit, that the drug abuse problem is worsening? Against that background, and given the regrettably leading role which evil men in Pakistan play in the continuation of this vile trade, may we have an assurance that we will redouble our efforts and pressure on the Pakistan Government to shut down the supply routes?
    Mr. Eggar: We are deeply concerned about the increasing problems of drug abuse within the United Kingdom, and worldwide. We do not need to put such pressure on Pakistan, because the Pakistan Government, of their own volition and with our assistance, are taking considerable measures throughout the country to assist in cutting down the growth of the heroin trade in particular.
    Mr. Rathbone: Can my hon. Friend confirm the Government's success in placing Customs officers in India, through which almost all of the Pakistani drugs products are smuggled on their way to this country?
    Mr. Eggar: As my right hon. and learned Friend told the Select Committee on Home Affairs on 4 June, following his discussion with Mr. Gandhi, the Government of India have agreed in principle to our proposal to post drugs liaison officers in New Delhi and Bombay. In passing, I pay tribute to my hon. Friend for his work in drawing attention to the problems of drug abuse in this country. Administrative arrangements are now in train with a view to early postings of the drugs liaison officers.
    Mr. Anderson: Can the Minister say exactly when the two drugs liaison officers for New Delhi and Bombay will be in post? Do the Government accept the view of the Drug Enforcement Agency in the USA that many of the drugs going into Pakistan and out through Bombay come via Afghanistan and refugees who use herion as a currency for arms? If the Government accept that, was that matter raised when the Prime Minister welcomed Mr. Abdul Hag, the Afghani rebel leader, earlier this year?
    Mr. Eggar: We are discussing with the Government of India the precise arrangements for the posting of the two drugs liaison officers. We have identified those officers and we hope to have them in post in the near future.
    There is some evidence that some of the drugs that reach the United Kingdom are of Afghan origin. Obviously we are doing what we can, through our cooperation with the Government of India and now with Pakistan, to stop the flow of drugs from Afghanistan. However, our ability to act within Afghanistan is extremely limited, as the hon. Gentleman must be aware.

    United Nations Special Session on Africa
    Mr. Burtasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on his visit to the United Nations Special Session on Africa.
    Sir Geoffrey Howe: I was glad to be able to attend the United Nations Special Session on Africa. Her Majesty's Government greatly welcome its positive outcome. The final resolution, adopted by consesus, represents a commitment by all concerned to work together for sustained economic development based on realistic policies.
    Mr. Burt: I thank my right hon. and learned Friend for that statement. May I offer him the pleasant duty, I hope, of sharing with the House the general satisfaction with the award given yesterday to Mr. Bob Geldof?
    Can my right hon. and learned Friend reassure the nation that the patient and generous work carried out by this country over many years on overseas development will continue, whether or not the public conscience has been stirred, with the general aim of improving the conditions of life for all Africans?
    Sir Geoffrey Howe: I am glad to acknowledge the importance of both the points made by my hon. Friend and to commend the fact that the total British aid going to Africa through bilateral and multilateral channels has increased from £447 million in 1982 to about £570 million in 1985. That is in addition to the substantial measures taken by way of cancellation of aid debts and support for the International Development Agency programme.
    Perhaps the most encouraging aspect is the extent to which the report approved by the General Assembly last week stresses so strongly the acknowledgement by the African Governments of the importance of the positive role of the private sector in the development of Africa.
    Mr. Cambell-Savours: What is the Foreign Secretary's response to the comments of Sir Robert Geldof, who described the right hon. and learned Gentleman's speech at the United Nations illustrating Britain's position on help for those in need in Africa as a lot of old crap?—[Interruption.]
    Mr. Speaker: Order. I know that Mr. Geldof said that, but it is not a very elegant word to use in this Chamber.
    Sir Geoffrey Howe: I regard the use of such language by Mr. Geldof as unhelpful, just as it is even more unhelpful on the part of the hon. Gentleman. It is only one aspect of the character of Mr. Geldof that has made him widely admired around the world for the part that he has played.
    Mr. Wilkinson: Has my right hon. and learned Friend had contacts with Mr. Bradford Morse, the head of the Special Programme for Africa in the United Nations, or the United Nations High Commissioner for Refugees, about the large influx of refugees into Somalia owing to the intolerable programme by the Ethiopian authorities of corralling people into special villages?
    Sir Geoffrey Howe: That is one of the matters that my right hon. Friend the Minister for Overseas Development has constantly in mind in the contacts that he has in that area.

    Soviet Union (Human Contacts)
    Mr. Lawrenceasked the Secretary of State for Foreign and Commonwealth Affairs when he next expects to meet the Soviet Foreign Minister; and whether he will raise the issue of human contacts in the light of the discussions at the conference on security and co-operation in Europe in Berne.
    The Minister of State, Foreign and Commonwealth Office (Mr. Tim Renton): We hope that Mr. Shevardnadze will be able to visit the United Kingdom in the near future. My right hon. and learned Friend has raised issues of human contacts and human rights with the Soviet Foreign Minister in the past and will continue to do so. These issues were also raised during the recent visit to the USSR of the Inter-Parliamentary Union delegation led by my noble Friend the Lord President.
    Mr. Lawrence: Is my hon. Friend aware that the Soviet authorities still refuse to allow thousands of Jews who have applied to leave the Soviet Union to join their families to do so? Is he further aware that in the past week yet another Hebrew teacher — Aleksy Magarik — has been sentenced to three years in a labour camp following the finding of 6g of cannabis which was planted in his luggage? Does my hon. Friend agree that if the Soviet authorities think they can blatantly disregard their solemnly entered into international undertakings on human rights and still convince the West that if they enter into solemn and binding undertakings for arms reduction it will believe them, they had better think again?
    Mr. Renton: I agree with what my hon. and learned Friend has said. It is true that the Soviet Union's record on permitting Jewish emigration is unsatisfactory and that there are no signs of it improving this year. At the CSCE in Berne it was quite clear that Soviet Jewry was a great stumbling block, in that the Soviet delegation was anxious to avoid any recommendations that had a direct bearing on Jewish emigration. At the same time, the West made it clear that it would not agree to a final document which excluded Soviet Jews.
    Mr. Beith: Will the Minister follow up the efforts made by the delegation in Moscow to convince the Soviet leadership that concern for civil rights and the rights of religious groups, Christians as well as Jews, is not a propaganda issue so far as the West is concerned, but an
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    issue of real concern to many citizens in the democratic West? Will he take the opportunity to try to convince the Soviet leadership that it would be in its interests to improve its record on that matter?
    Mr. Renton: Yes. We have done so many times, and we shall continue to do so. It is obviously right that the question of human rights is an integral part of implementing the Helsinki final act. It is tragic that I often hear praise from the East for the value of the Helsinki accord, but at the same time we see every chapter being flouted by it.
    Mr. Marlow: My hon. Friend and the House are rightly concerned for the human rights of Jews as for everybody else. Will he point out to the Israeli Defence Minister that it would be more helpful to the human rights of Israelis if they were concerned for the democracy of Arabs as well as for Jews?
    Mr. Renton: On many occasions we have made it plain to the Israeli Government that we wish to see a total withdrawal from southern Lebanon, where the rights of a number of Palestinians are being badly thwarted. My right hon. Friend the Prime Minister, when she was in Israel recently, raised strongly with the Israeli Prime Minister the lack of rights of Palestinians in the occupied territories.
    Mr. Janner: To revert to the original question, may I thank the Government for their steps to keep this matter before the Soviet Government. I thank also the all-party delegation that went to Moscow. Will the Government please continue to press for the release of people such as Ida Nudel, Alexander Vladimar Slepak, Alexander Lerner and other winners of the annual award of the all-party parliamentary committee for the release of Soviet Jewry? Will the Government say how much we care about these people and their right—which has not been granted—to leave the Soviet Union in accordance with the Soviet Union's constitution and the Universal Declaration on Human Rights?
    Mr. Renton: I very much agree with the hon. and learned Gentleman's thanks to the parliamentary delegation that recently went to Moscow for the manner in which it raised the subject of human rights with Mr. Gromyko and Mr. Gorbachev. Clearly the delegation took every opportunity to raise the subject of those distressing cases. We shall continue to raise not only the cases mentioned by the hon. and learned Gentleman but the split family cases, which concern British citizens in this country. As in the past, we shall continue to do that at every possible opportunity.
    Mr. George Robertson: Will the hon. Gentleman accept that the Opposition believe as strongly as he does in civil and human rights, whether in Eastern bloc countries or any Western country? Does he agree that the unilateral vetoing by the United States and other member states of the CSCE — the Helsinki group — of an agreement in Berne which would have positively improved the ability of people to leave the Soviet Union does little or nothing to help the cause of those in the Soviet Union or other countries who saw the light at the end of the tunnel being denied by the impromptu action of the United States Government?
    Mr. Renton: I note what the hon. Gentleman has said. The United Kingdom delegation was prepared to give its agreement to a document which was, in effect, a

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    compromise reached at the end of the Berne meeting. In fairness, it must be said that the view of the United States delegation was that the recommendations in the compromise document did not go far enough, given the Soviet failure to comply with existing commitments. In some cases the United States delegation thought that the compromise document was a step backwards from the commitments made in the Helsinki final act. On that basis, there was no agreement on the document.

    African National Congress
    Mr. Skinnerasked the Secretary of State for Foreign and Commonwealth Affairs when and where Government officials will next meet the African National Congress.
    The Minister of State, Foreign and Commonwealth Office (Mrs. Lynda Chalker): As my right hon. and learned Friend told the House on 9 April, contacts between officials and the ANC are continuing as appropriate. The central purpose of such contact is to bring home to the ANC the importance of a suspension of violence on all sides in South Africa in order to promote a constructive dialogue.
    Mr. Skinner: Now that the Eminent Persons Group has been bombed out of South Africa by the Botha regime's actions a few weeks ago against three Commonwealth countries, why do not the Government, when they sit down at ministerial level with the ANC—as they should do—call for an unconditional amnesty for Mandela and take a lead on economic sanctions against that unhappy country to stop all the bloodshed and suffering?
    Mrs. Chalker: We have unreservedly condemned the raids on the capitals of the three independent Commonwealth countries, especially at a time when the Eminent Persons Group was making progress. We have called for the consideration of dialogue among all parties. It is not for me this afternoon, before publication of the report of the Commonwealth Eminent Persons Group, to make any comments on it. We shall consider the report with the utmost care.
    Mr. Campbell-Savours: Apathy.
    Mrs. Chalker: There is certainly no apathy in the Government's response.
    Mr. Jackson: Does my hon. Friend recognise that the ANC is the oldest political party in South Africa, that it will play a crucial part in the country's future and that it is important that Britain should be in a better position to influence its thinking?
    Mrs. Chalker: We have had official-level contacts where appropriate to be in a better position to influence the ANC's thinking. One feature of the ANC is that, although it is made up of people with many different views, if the Communists take it over, Nationalists will be denied the means of political expression. That is why we have called for an end to apartheid. That is why we have supported the work of the Eminent Persons Group, which has gone on so thoroughly over six months.
    Mr. Maclennan: Does the Minister agree that in order to promote dialogue between members of the ANC and the authorities in Pretoria the Government should contemplate introducing a ban on commercial air flights
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    to South Africa and should co-ordinate action on that front with other members of the Commonwealth and European Community?
    Mrs. Chalker: In our contacts with the ANC and the South African Government we have always sought to bring home to them the fact that continuation of the policies that deny rights to black South Africans, including the lack of freedom for Nelson Mandela, are to be abhorred. Specific bans, such as the hon. Gentleman mentioned, are for consideration in the light of the report of the eminent persons group. We have not committed ourselves and will not do so until the report has been published. It will be published tomorrow and it then needs to be considered, as has been agreed, between the Heads of Government, at the beginning of August.
    Mr. Winnick: Is it not a fact that the Eminent Persons Group has come to the conclusion that there is no alternative, in view of what is happening in South Africa, but to apply sanctions? When will the British Government realise that it is not good enough to say that we are against apartheid, and could instead recognise that effective actions must be taken to persuade the South African Government to act in the direction that the majority of hon. Members, including a number of Conservative Members, want? There must be fundamental changes in South Africa, and the longer that is delayed the more bloodshed and tragedy there will be in that country.
    Mrs. Chalker: As I and my right hon. and learned Friend the Secretary of State have said on many occasions, we have consistently condemned all the things that the hon. Gentleman has condemned. We have also said that we have argued against collective economic boycotts and things of that kind because experience has shown that they do not work. The question whether any further measures can be taken, in addition to those measures that the United Kingdom has already implemented over the years, has to be considered in the light of experience and of the report. We do not yet have the report.
    Mr. Soames: Is my hon. Friend aware that the imposition of sanctions is likely to produce more bloodshed and more anger? In the townships of Uitenhage and New London unemployment is already running at 50 per cent. What possible advantage could accrue to those we wish to help by the imposition of sanctions?
    Mrs. Chalker: There is no doubt that there are many views on that subject. We certainly know that sanctions as applied in the past have not given a clear outcome. We wanted to ensure, and continue to do so, that the actions we have taken, such as the arms embargo, the Gleneagles agreement, the European Community measures decided at Luxembourg, the Nassau measures and the stepping up of our own policy work. Those things do work and we should consider only measures that will work. Otherwise, as my hon. Friend said, we shall worsen the situation still further.
    Mr. Anderson: When we take over the presidency of the EEC Council of Ministers on 1 July, will we still maintain an objection in principle to meeting the ANC at ministerial level, although we have agreed that other Presidents of the EEC Council should meet them? If we do so will not the British public and our allies not conclude that we are prepared only to engage constructively in dialogue with white South Africans and are not prepared constructively to engage in dialogue with black South Africans?
    Mrs. Chalker: The hon. Gentleman's last remark is absolute nonsense. Of course we are prepared constructively to engage in dialogue with black South Africans. We have been working behind the scenes for a dialogue between all the peoples of South Africa and that is what the Commonwealth Eminent Persons Group has worked so hard for. When we take up the presidency of the European Community we shall consider the measures that need to be taken at that time. I am sure that the discussion will go along such lines.
    Mr. John Carlisle: Does my hon. Friend agree that the EPG's failure is partly because the Commonwealth Secretariat and its director general have been hand in hand with the ANC, which has no intention of pursuing peaceful reform in South Africa? Will she accept that the Government have no business discussing such matters with terrorists and that she would be better spending her time talking to moderate black leaders in South Africa, such as Chief Buthelezi?
    Mrs. Chalker: The earlier part of my hon. Friend's supplementary question was wrong. We shall talk with the full range of black leaders in South Africa, and the best way of doing that must be left to the Government to decide.

    Central America
    Miss Boothroydasked the Secretary of State for Foreign and Commonwealth Affairs what further discussions are planned by the European Community Foreign Ministers concerning the situation in Central America; and if he will make a statement.
    Mr. Eggar: There is regular discussion of Central America within European political co-operation. The 12 have acted five times this year to support the Contadora peace process, most recently before the Esquipulas summit of the five Central American Presidents on 24–25 May, when the 12 called for prompt signature and implementation of a comprehensive and verifiable agreement. The next meeting of Foreign Ministers is on 16–17 June.
    Miss Boothroyd: May I urge the Secretary of State to use his forthcoming presidency of the Council to persuade the Community to speak with one voice in seeking the withdrawal of American funding of the Contras? Does he agree that the continued funding of the Contras' regime by the Americans is the greatest single obstacle to the signing of a peace treaty with the Contadoras?
    Mr. Eggar: The United States Government have reaffirmed their support for a comprehensive, viable and simultaneous settlement that would answer all the 21 Contadora objectives. They did that on 22 May. We hope very much that Nicaragua will negotiate seriously to reach such an agreement.
    Mr. Deakins: Can the Minister tell us one thing that has changed in Central America as a result of co-ordinated action by the member states of the EEC on this issue? Can he say whether, during our presidency, we shall be leading the EEC in opposition to a decision that is likely to be taken this year by the House of Representatives in favour of military aid to the Contras?
    Mr. Eggar: The solution to the problems of Central America rest with the Contadora countries and the Latin America support group. Our role within the EEC, as
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    President of the EEC and as the United Kingdom Government, is to support peace processes, and we shall continue to do so.
    Mr. Foulkes: Will the Minister answer the key question? As the Government are on record as condemning all state-sponsored terrorism, will they condemn the United States Government for their sponsorship — state sponsorship — of the Contra terrorists in Nicaragua?
    Mr. Eggar: As usual, the hon. Gentleman goes right over the top. The Government have consistently advocated negotiations rather than violence. We have advocated a balanced approach rather than the one-sided rhetoric that comes from Opposition Members. We believe that there should be a comprehensive solution to comprehensive problems.
    Mr. Beith: If Nicaragua signs the proposals put forward by its neighbours and there is no change in the attitude of the United States, what will European Ministers do?
    Mr. Eggar: The United States Government have stated clearly that they support the Contadora process. If Nicaragua signs an agreement, presumably the United States Government will support the agreement.

    Afghanistan
    Mr. Gregoryasked the Secretary of State for Foreign and Commonwealth Affairs what assessment his Department has made of the prospects for peace in Afghanistan, following the emergence of a new leader of the Communist regime in Kabul.
    Sir Geoffrey Howe: This change of leadership in Afghanistan does not of itself improve prospects for peace. The only way to make progress is for the Soviet Union to withdraw all its troops, in accordance with successive United Nations resolutions.
    Mr. Gregory: Does my right hon. and learned Friend accept that the appointment of the former head of the secret police as the leader of Afghanistan—a man who carried out an atrocious campaign of slavish acceptance of the Moscow line — will not be conducive to an acceptance of the present regime? Does he agree that the mere presence of over 100,000 Soviet troops in Afghanistan, which has led to tens of thousands of deaths and over 3 million refugees, should be of greater interest to the British Labour party than the anti-Western views that it pursues?
    Sir Geoffrey Howe: I entirely agree with my hon. Friend the appointment of a former head of the Afghan secret police who so ruthlessly prosecuted the polices of the regime does nothing whatsoever to help the prospects of peace. He is even less acceptable to the Afghan people than his presecessor. It would be encouraging if the Opposition would devote half as much attention to the withdrawal of 118,000 Soviet troops from Afghanistan as they do to the question of Nicaragua.
    Mr. Moynihan: Does my right hon. and learned Friend agree that no practical solution to the United Nations peace talks can be achieved without the involvement of the Mujahideen?
    Sir Geoffrey Howe: It is certainly correct that any conclusion, which must involve the withdrawal of Soviet troops, must be acceptable to the Afghan people.

    Chemical Weapons
    Mr. Heathcoat-Amoryasked the Secretary of State for Foreign and Commonwealth Affairs if there has been recent progress at the Geneva disarmament conference in negotiations on chemical weapons.
    Mrs. Virginia Bottomleyasked the Secretary of State for Foreign and Commonwealth Affairs when he next expects to discuss the Soviet capability in chemical weapons with a representative of the Soviet Government.
    Mr. Renton: The conference on disarmament has been in recess since 25 April 1986 and resumed on 10 June. Progress so far this year has not been as rapid as we would have wished. My right hon. and learned Friend hopes to have a full exchange of views on a range of arms control issues, including chemical weapons, when the Soviet Foreign Minister, Mr. Shevardnadze visits London.
    Mr. Heathcoat-Amory: Does my hon. Friend agree that an agreement to ban the production of these weapons without watertight verification would be useless? Will he press the Soviet Union to concede this inspection? Will he further stress that these awful weapons have already been used in the Iran-Iraq war? There is a danger of further proliferation without international agreement outlawing their production and deployment.
    Mr. Renton: Yes, Sir. We hope to achieve a global verifiable ban on the production and stocking of chemical weapons. The question of verification is difficult, but we must try to make progress. The recent use of chemical weapons in Iraq demonstrates the danger of proliferation of these dreadful weapons.
    Mrs. Bottomley: Is my hon. Friend aware that many people in this country supported the Government's decision to abandon our chemical warfare capability in the 1950s? Does he accept that there is now mounting anxiety over what we regard as the increasing chemical warfare capability of the Soviet Union? While I appreciate that no firm plans have been made for a meeting with the Soviet Foreign Minister, can outline what other contacts have been made with the Soviets on this important subject?
    Mr. Renton: Yes. The stockpile of chemical weapons held by the Soviet Union, estimated at not less than 300,000 tonnes of nerve gas weapons, is a matter of serious concern. For that reason, and while we are awaiting Mr. Shevardnadze's visit, we are pleased that Mr. Issraelyan, the chief Soviet representative at the United Nations conference on disarmament in Geneva, is coming here shortly. We shall specifically discuss with him Soviet ideas about implementing a verifiable ban.
    Mr. Dalyell: When Mr. Shevardnadze comes to this country, will the Minister arrange for Foreign Office officials, at senior level, to meet Mr. Julian Perry Robinson and his colleagues at Sussex university who are making a special study of these affairs?
    Mr. Renton: I listened with interest to the hon. Gentleman's request. As Sussex university is on the edge of my constituency, I may have an opportunity to hear Mr. Perry Robinson's views. The hon. Gentleman should take
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    comfort from what I have said. The visit of Ambassador Issraelyan, the chief Soviet representative at Geneva, will give us an opportunity to consider in great detail the degree to which we can move towards a verifiable regime on the key issue of challenge inspection.
    Mr. Haynes: I wholeheartedly agree with the Minister about the banning of chemical weapons. When he gets into negotiations about chemical weapons in Geneva. will he first admit that we have chemical weapons within our shores, although that has been denied ever since I have been here?
    Mr. Renton: I thank the hon. Gentleman for his early support, but I totally disagree with his latter statement. Britain gave up the production and stocking of chemical weapons in the late 1950s. There has been a complete ban on their production in the United States ever since the late 1960s, and it is only against that background that NATO has now agreed to new United States production of such weapons at the end of next year if there is not a total ban in force by them. That is the carrot for us all to move towards. We should get a total verifiable ban before the end of next year.
    Mr. Churchill: Although I recognise that the Soviet Union alone has a large-scale and modern chemical weapon capability which has given NATO little choice but to establish a new force goal for the development of binary weapons by the United States, will my hon. Friend make it quite clear that we favour a dual-track approach and that we would infinitely prefer an all-out chemical weapons ban, with proper verification provisions, to going ahead. in the last resort, with the force goal?
    Mr. Renton: Yes, Sir. I can give my hon. Friend that assurance. NATO has no wish for the renewed production of chemical weapons in the United States if the far better option of a verifiable global ban can be negotiated by that time.
    Mr. George Robertson: Can the Minister confirm that it is not an agreement by NATO to the deployment of binary chemical weapons, but that NATO has only noted the force goal of the United States? It is important to get that precisely correct, as some NATO countries oppose the force goal. Is it not clear that the Soviet Union genuinely wants an agreement on chemical weapons, as was made clear, it is understood, in a reply from Mr. Gorbachev to the Prime Minister only last week? As it is now willing to consider on-site inspection of destruction of stocks and production facilities, surely Britain could use its forthcoming presidency of the Geneva talks on the subject to talk on behalf of the British people, and not on behalf of the American Administration, in seeking an agreement to ban these terrible and wholly unnecessary weapons.
    Mr. Renton: The hon. Gentleman sees matters in a very topsy-turvy fashion. The United States has had a total ban on the production of these weapons for 17 years. It is against the background of a continuing Soviet stockpile of more than 300,000 tonnes of such weapons that NATO has agreed to the force goal of the United States. As for what the hon. Gentleman said about the Soviet attitude, in their recent offers the Soviets have agreed, for example, to examine some points of detail such as declaring chemical weapon production sites within 30 days and beginning dismantling within one year. We have no news at all from them on the key issue of challenge inspection.

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    That is the issue, among others, which we shall explore when Ambassador Issraelyan comes here shortly and, doubtless, when Foreign Minister Shevardnadze comes here later. That is the key issue to be resolved.
    Mr. Viggers: Does my hon. Friend agree that our policy of deterrence and negotiation is far more likely to be successful than the pious and empty hopes of the so-called alliance commission, which announced today, in a press conference taking place now, that it hopes that chemical weapons will be the subject of reduction?
    Mr. Skinner: Who said that, though?
    Mr. Viggers: Not surprisingly, the press conference is taking place despite the ostentatious boycott of the leader of the Social Democratic party.
    Mr. Renton: Yes, Sir. It is absolutely clear that the dual track position of NATO — [HON. MEMBERS: "Of the alliance."] — over intermediate nuclear weapons was effective in bringing the Soviets back to the negotiating table, leading to a possible ban, on a zero basis, on intermediate nuclear weapons. These days it is hard to understand where the other alliance stands on any defence issues, but out position is quite plain. We, and all other Western countries, will fight for a verifiable global ban on chemical weapons.

    Sri Lanka
    Mr. Wareingasked the Secretary of State for Foreign and Commonwealth Affairs when he last met the High Commissioner of Sri Lanka; and what subjects he discussed with him.
    Mr. Eggar: My right hon. and learned Friend the Foreign Secretary has met the Sri Lankan high commissioner on a number of occasions, most recently on 18 March when the high commissioner called on him, accompanied by the Sri Lankan Minister of Foreign Affairs, the hon. Mr. Hameed.
    Mr. Wareing: Does the Minister agree that it is a matter for great sorrow that that Commonwealth country should be ravaged by communal violence? If support is not given to Mr. Rajiv Gandhi's peace initiative, there is a great danger that both communities will be dominated by their own extremists. As the communities in Ceylon inherited that division from the days of British imperialism, could not the British Government play a role in spearheading a Commonwealth initiative to back Rajiv Gandhi in order to bring together those two communities?
    Mr. Eggar: I thank the hon. Gentleman for the way in which he analysed the situation in the first part of his question. We deplore the continuing violence in Sri Lanka. We acknowledge Mr Gandhi's valuable and positive role in encouraging direct talks between the Sri Lankan Government and Tamil representatives. We shall support any efforts that are aimed at furthering the peace process. However, we believe that India has a crucial role in this whole area. We would be prepared to do whatever we can to support that role.
    Mr. Sims: Is my hon. Friend aware that many hon. Members are friends of Sri Lanka and its people and would like to convey to them our distress at the continuing violence and, in particular, our sympathy over the outrage that has been reported today? May I warmly endorse the
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    views expressed by the hon. Member for Liverpool, West Derby (Mr. Wareing), and point out that the Indian Government have sought to effect a reconciliation for 12 months, without any success? Both communities hold the United Kingdom in high regard. Is not the time ripe for the British Government to take a positive initiative in effecting a reconciliation?
    Mr. Eggar: I thank my hon. Friend for his remarks, and I shall ensure that his, and those of the hon. Member for Liverpool, West Derby (Mr. Wareing), are drawn to the attention of the Sri Lankan high commissioner. We continue to believe that we should assist the Indian Government in any way felt appropriate and should keep in close touch with the Sri Lankan Government.
    Mr. Corbyn: Does the Minister accept that the origin of many of Sri Lanka's problems lies in the continual exclusion of the Tamil people from Government and other constitutional processes? Does he further accept that his concern to achieve peace in Sri Lanka would be far more credible if the British Government stopped supplying the Sri Lankan Government with arms, which have been used to kill Tamil people, and withdrew any training facilities offered to the Sri Lankan armed forces in this country? That would be one way of showing that he was determined to achieve peace in that country instead of escalating the communal violence.
    Mr. Eggar: May I first say how pleased I am to see the hon. Gentleman participating in the democratic process rather than demonstrating on the streets—
    Hon. Members: Withdraw.
    Mr. Speaker: Order. Every hon. Member must take responsibility for what he says.
    Hon. Members: Withdraw.
    Mr. Eggar: I have no intention of withdrawing. I do not see that I have anything to withdraw. I welcomed the hon. Gentleman back to the House.
    The hon. Gentleman put a peculiarly one-sided analysis of the problem in Sri Lanka in distinct contradiction to the view of the hon. Member for Liverpool, West Derby. I stress that no serving British military personnel are engaged in training in Sri Lanka.

    South Africa
    Mr. Tom Coxasked the Secretary of State for Foreign and Commonwealth Affairs if he will make it his policy, as President of the European Economic Community Council, to initiate a review of relations between member states and South Africa; and if he will make a statement.
    Sir Geoffrey Howe: The Foreign Ministers of the 12 regularly discuss the situation in South Africa at their meetings. The next such meeting will take place on 16 June. Foreign Ministers of the 12 will continue to meet to review policy during the British Presidency.
    Mr. Cox: Is the Foreign Secretary aware that he, as the President of the EEC Council, will have enormous influence on the attitude of the other 11 members? As the situation worsens week by week in South Africa, and in view of the comments on the attitude of South Africa by the Eminent Persons Group, what else has to happen in that country before the Government start to give decisive

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    leadership against the actions and attitudes of the South African Government? Are we for ever to be making excuses? Are we for ever to be dragging our feet? When will we give some leadership?
    Sir Geoffrey Howe: The Government have condemned the apartheid system without reservation and have made it plain that it ought to go and go as quickly as possible. It is to that end that we have supported the work of the Commonwealth Eminent Persons Group, whose report is now in our hands and will be considered. When the EC Foreign Ministers met the front-line states in February this year they made it clear that that group's report deserves consideration by them as well.
    Mr. Adley: As my right hon. and learned Friend's presidency will, as he has just said, coincide with the publication of the Eminent Persons Group's report, will he give himself the priority of doing his best to align the policies of the EEC, the Commonwealth and Her Majesty's Government.
    Sir Geoffrey Howe: As my hon. Friend will have noticed, the positions adopted by the Community at Luxembourg last September, and subsequently by the Commonwealth in the following month, were closely in line with each other.
    Mr. Healey: Now that the Commonwealth Eminent Persons Group has reported that no progress is likely to be made towards a peaceful settlement in South Africa unless the external powers impose new sanctions on the Botha regime, will the Foreign Secretary persuade the Prime Minister to abandon her pig-headed opposition to sanctions, which has identified Britain as the only protector of apartheid in the outside world, has split the European Community and now threatens to break up the Commonwealth?
    Sir Geoffrey Howe: The right hon. Gentleman's comment is characteristically inaccurate. The European Community's position has been the common position since September last year. The Commonwealth's position has been the common position since last October. It is important that full and careful consideration should now be given to the report of the Commonwealth Eminent Persons Group. We all share the common aim of bringing about an early end to apartheid in South Africa and, if possible, of achieving that without violence through a process of dialogue.
    Mr. Dalyell: On a point of order, Mr. Speaker. In a week when the luck of the ballot gave Ministers an opportunity to answer questions legitimately put by a Select Committee of the House —the Select Committee on Foreign Affairs—is it tactful for the Under-Secretary of State for Foreign and Commonwealth Affairs, the hon. Member for Enfield, North (Mr. Eggar), to lecture my hon. Friend the Member for Islington, North (Mr. Corbyn) on the democratic process?
    Mr. Speaker: Order. I have already made a comment about that. It is not a matter for me.
    Later—
    Mr. Corbyn: Further to that point of order, Mr. Speaker. Is it in order for a Minister, when answering a question in the House, to suggest that Members of Parliament who take part in demonstrations outside the House on matters about which they feel strongly are acting in an undemocratic manner? Is it not the case that democracy means that people have a right to speak freely in the House and also a right to speak freely and to demonstrate outside the House on matters about which they feel strongly?
    Mr. Speaker: I am not responsible for what the hon. Member for Islington, North (Mr. Corbyn), does outside the House. It is perfectly in order for him to demonstrate if that is what he wishes to do. Every hon. Member takes responsibility for what he says in the House.
    Mr. Marlow: Further to that point of order, Mr. Speaker.
    Mr. Speaker: Will it help?
    Mr. Marlow: Could you confirm to the hon. Gentleman in case he is in any doubt, that although any hon. Member is entitled to demonstrate and speak freely, he is not entitled to break the law?
    Mr. Speaker: Order. That goes for all our citizens.
    Mr. Bowen Wells: On a point of order, Mr. Speaker. Will you confirm that Question Time had been completed by the time you permitted a point of order to be raised by the hon. Member for Linlithgow (Mr. Dalyell)?
    Mr. Speaker: Today Question Time ran slightly over to
    3.31 pm
    Mr. Wareing: Further to that point of order, Mr. Speaker. Is it in order for the hon. Member for Northampton, North (Mr. Marlow) to imply that by taking part in demonstrations my hon. Friend the Member for Islington, North (Mr. Corbyn) has been involved in illegal activities? I understand—
    Mr. Speaker: Order. I have already dealt with that matter.
    Mr. Corbyn rose—
    Mr. Speaker: Further interventions do not help. I have given the hon. Gentleman my protection. What else does he want?
    Mr. Corbyn: I am deeply grateful for your protection of democratic rights inside and outside the House, Mr. Speaker. I am sure you would also like it to be placed correctly on the record—because the hon. Member for Northampton, North (Mr. Marlow) obviously reads the headlines, not the stories—that I have not been charged with any offence arising from any actions that took place outside the Old Bailey on Monday morning.
    Mr. Speaker: Order. Let us get on with something that is my responsibility.

Mr. Frank Cousins
3.33 pm
Mr. Tony Benn: I hope that it will be in order, Mr. Speaker, briefly to place on record the sense of sadness that many hon. Members will feel at the death this morning near Chesterfield of a former Member of Parliament and Minister, the Right Hon. Frank Cousins, who was a distinguished member of the trade union movement and a warm and kindly man whose loss will he sadly regretted by those who knew him and worked with him.
Hon. Members: Hear, hear.

Crossbows (Restrictions)
3.36
Mr. Don Dixon: I beg to move,
That leave be given to bring in a Bill to restrict the sale of crossbows and make their sale to minors a punishable offence.
I appreciate that this issue has been raised many times by hon. Members on both sides of the House. Indeed, I pay tribute to the hon. Member for Plymouth, Drake (Miss Fookes), who has been foremost in the fight to have something done about these weapons.
The matter was drawn vividly to my attention last August when a constituent, Mr. Richard Docherty, brought to my office in Jarrow a crossbow which had been bought in a hobby shop in South Shields by his 15-year-old brother, Adrian. On seeing it, Mr. Docherty immediately took the weapon from his brother and tried it out in the garden. From 15 yards the steel arrow penetrated a piece of wood to the depth of 1 in, which is easily enough to kill a person at that range.
The weapon was manufactured by Barnett International of Wolverhampton, and it claimed on the package to be the most powerful crossbow manufactured in the world. This lethal weapon — I cannot describe it otherwise—had been sold in a hobby shop to a 15-yearold boy.
On 5 September 1985 I wrote to the Home Secretary, drawing his attention to this alarming and dangerous position which, in my opinion, could lead to fatal accidents, and urging him to take immediate action. On 30 September I received a reply from the Minister of State, who pointed out that the Prevention of Crime Act 1955 makes it an offence to possess any offensive weapon, including a bow or crossbow, without lawful authority or reasonable excuse. He went on to say:
"Our view, which is shared by the Association of Chief Police Officers, is that bows and arrows do not present the same danger to the public as firearms, and that given the extensive restrictions that already are in use, we would not be justified in imposing on the police the substantial extra work load of further controls such as a licensing system would entail."
However, at the end of the letter the Minister said:
"This is an important matter which we shall keep under review, in consultation with the Association of Chief Police Officers."
An article appeared in the Sunday Sun which is a newspaper covering the northern region, spearheading a campaign to have something done about the sale and use of crossbows. It was a constructive article written by the news editor Alistair Baker. The so-called independent review funded by Barnett International, the main manufacturer of crossbows, says:
"Calls for crossbow legislation have been made at frequent intervals. Many originate with newspapers and are based on highly emotional and often irrational statements which have little or no basis in fact. Others originate from Members of Parliament."
That is an insult to every hon. Member who has had representations from constituents.
Since the article in the Sunday Sun appeared I have had letters from many parts of the country citing incidents that have occurred. One of the letters said:
"Two policemen were attacked as they were getting out of the patrol car at Bracknell police station in Berks. One of the two bolts they dodged was fired with such force that it penetrated the station's concrete wall."
Another incident reported to me by letter was described as follows:

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"A bolt was fired at an airliner. A Dan Air plane with 44 passengers was about 100 ft off the ground. The bolt penetrated a wing and ripped part of the fuselage."
Those are some of the incidents that have been reported to me and no doubt other hon. Members have received similar reports from their constituents.
On 20 February during Question Time I asked the Home Secretary about these dangerous weapons. He said:
"We are considering the matter carefully and urgently to see whether anything sensible can be done."—[Official Report, 20 February 1986; Vol. 92, c. 467.]
Early-day motion 638, tabled in March by the hon. Member for Drake drew the attention of the House to these dangerous weapons, and was signed by right hon. and hon. Members in all parts of the House.
I consulted my right hon. Friend the Member for Manchester, Gorton (Mr. Kaufman), our home affairs spokesman, and gave him copies of my correspondence and copies of the minutes of the Northumbria police authority which had debated this problem after hearing about the incidents in our area. My right hon. Friend wrote to the Home Secretary and in the reply that he received on 16 April the Home Secretary said:
"Particular concern has been expressed recently about the mis-use of crossbows, and I accept that we should look at it again to see if anything further can sensibly be done to try and prevent these weapons falling into the wrong hands."
On 15 April the RSPCA wrote to the Home Office giving all the information it had on crossbow injuries to animals. It said that during the last five years over 100 cases of injuries and deaths were reported to animals and birds and that the numbers were increasing. On 6 May The Mirror had a full page article headed, "Menace of Weekend Rambos." In one part of the article the author talked about "death by mail order". The article said:
"Already crossbows are taking a terrible toll. They can kill a man at 100 yards and are being used by thugs to inflict shocking injury and death on people, domestic animals and wildlife. Police admit that under the present law they are powerless to curb private combat training and the spread of legally-held weapons."
I stress the phrase, "legally held weapons."
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I am sure that other hon. Members have also had letters about the terrible incidents that are happening week after week. If something is not done quickly there will be not just one but many deaths. My Bill asks the Government to do something urgently. First, it asks that the use of crossbows should be licensed under the Use of Firearms Act 1968. Secondly, it would amend section 11(1) (b) of the Wildlife and Countryside Act 1981, to make it an offence to kill any animal with a crossbow and not just wild animals and birds. Thirdly, it would prohibit all mail order sales. Fourthly, it would prohibit sales to all but those over 17.
Something must be done immediately, because if the situation is allowed to go unchecked there will be serious consequences. I hope that the House will accept the Bill and give it a Second Reading.
Question put and agreed to.
Bill ordered to be brought in by Mr. Don Dixon, Mr. Frank Haynes, Miss Janet Fookes, Mr. Lawrence Cunliffe, Mr. Ron Davies, Mr. Ray Powell, Mr. Mark Fisher, Mr. Tony Banks, Dr. David Clark, Mr. Gregor MacKenzie, Mr. Robin Corbett and Mr. Mark Hughes.

Crossbows (Restrictions)

  CROSSBOWS (RESTRICTIONS) BILL
  Mr. Don Dixon accordingly presented a Bill to restrict and control the sale of crossbows and make their sale to minors a punishable offence: And the same was read the First time; and ordered to be read a Second time upon 4 July and to be printed. [Bill 176].
  Mr. Jeremy Corbyn: On a point of order, Mr. Speaker. Is it in order for the manufacturers of offensive weapons to send misleading information to hon. Members the day before my hon. Friend the Member for Jarrow (Mr. Dixon) introduced his ten-minute Bill? They sought to influence the debate without giving hon. Members a chance to check the information in a report sponsored by the manufacturers.
  Mr. Speaker: I am not responsible for any representations that may be made from outside this place to hon. Members.

Social Security
3.45 pm
The Minister for Social Security (Mr. Tony Newton): I beg to move,
That the draft Social Security Benefits Up-rating Order 1986, which was laid before this House on 8th May, be approved.
I understand that it will be for the convenience of the House if we take with this order the four following motions and the prayer in the name of the Leader of the Opposition.
Hon. Members: "Aye."
Mr. Speaker: As that is the wish of the House, we shall be debating as well the following motions:
That the draft Supplementary Benefit Uprating Regulations 1986, which was laid before this House on 5th June, be approved.
That the draft Family Income Supplements (Computation) Regulations 1986, which was laid before this House on 8th May, be approved.
That the draft Child Benefit (Up-rating) Regulations 1986, which was laid before this House on 8th May, be approved.
That the draft Pensioners' Lump Sum Payments Order 1986, which was laid before this House on 8th May, be approved.
That an humble Address be presented to Her Majesty, praying that the Housing Benefits Amendment (No. 2) Regulations 1986 (S.I., 1986, No. 852), dated 14th May 1986, a copy of which was laid before this House on 16th May, be annulled.
Mr. Newton: These instruments, together with the regulations against which the prayer is made, put into effect the proposed uprating of social security benefits that was announced by my right hon. Friend the Secretary of State in the House on 24 February. They also provide for the payment of a £10 Christmas bonus and make a minor technical change to housing benefits that will ease the burden of administration on local authorities without affecting claimants. The social security benefits uprating order is accompanied by a report from the Government Actuary on the effects of our proposal on the national insurance fund. In accordance with his statutory requirements, my right hon. Friend the Secretary of State has also made a statement explaining the reasons behind the proposed uprating of mobility allowance.
I shall remind the House briefly of some of the main features of the proposed upratings, which are set out in full detail in the schedule published at the same time as my right hon. Friend's statement on 24 February. Most benefits, including retirement pension, widows' benefit and unemployment benefit, are going up by 1·1 per cent., which accurately represents the increase in prices between May 1985 and January 1986, which was the relevant period for this uprating. This means, for example, that a married couple's retirement pension goes up from £61·30 to £61·95, and that for a single person from £38·30 to £38·70 a week. The long-term rate of supplementary benefit and the housing benefit needs allowance will go up by the same cash amount as the relevant contributary benefit. Child benefit will go up by 1·4 per cent. from £7 to £7·10 a week, and mobility allowance will be increased in line with the retail price index to £21·65 a week. I make it clear that the increase in mobility allowance has come at a time when the cost of transport, which is one of the elements that needs to be taken into account, fell in the relevant period for the uprating.
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As the House knows, one important feature of the uprating is that it covers a period of only eight months instead of the normal period of a year. This arises from our intention, which has been almost universally welcomed, to change the annual social security uprating cycle from November each yeat to April each year, so that the benefit year is brought into line with the tax and national insurance year and with the time at which local authority rent and rate alterations normally occur. When it is completed, this change will avoid a great deal of unnecessary confusion and difficulty to all concerned, not least, as many hon. Members will know from their postbags and advice bureaux, among pensioners who have suddenly found their tax codes adjusted in the middle of the tax year following the pension increase.
In this transitional year, that problem will be avoided by the provision that my right hon. Friend the Chancellor of the Exchequer has included in the Finance Bill, which means that the pension increase that the uprating order will bring about in July will not be subject to tax in the present tax year of 1986–87. Therefore, the pattern is this. Last November there was a normal annual uprating based on the measured increase in prices from May 1984 to May 1985. This July there will be a further uprating after only eight months, based on the rise in prices in the eight months from May 1985 to January 1986. In April 1987 there will be another uprating, again after only eight months, based on the increase in prices in the eight months from January 1986 to September 1986. Thereafter, there will be annual upratings in April each year. At every stage, pensioners are being compensated for the actual increase in prices that has taken place using the latest actual figures available when the uprating announcement has to be made in order to implement it on time.
It follows from what I have said that the 1.1 per cent. figure on which the present uprating is based, being related to price increases over eight months rather than 12, cannot be compared with annual rates of inflation, as some have sought to do. But as well as the shorter period involved, this figure undoubtedly reflects an achievement that of itself is of great importance to pensioners and other social security beneficaries — the Government's success in cutting back the rate of inflation.
If the hon. Member for Oldham. West (Mr. Meacher) is expecting me to apologise for this uprating, he has another think coming. Nothing in decades has done as much harm to pensioners as the inflationary surge created by the Labour policies of the 1970s. Nothing has been more important to the financial welfare of retired people than what the present Government have done to bring inflation to its lowest level for nearly 20 years, and nothing is more important to their long-term well-being than that this achievement of steadier prices should be maintained.
In a world of uncertainty I am willing to make two clear predictions. One is that if the hon. Member for Oldham, West were let loose to spend as he promises, we should have the inflation back. The other is that. when he comes to speak, we shall hear nothing whatever of the context in which these uprating orders should properly be placed.
Let me sum up this part of my speech by making six sinple points. First, pension and other increases come four months earlier than usual with this uprating. Secondly, when taken together with the increase last November, they mean that the pension for a married couple will be increased by £4·65 a week in less than a year. Thirdly, there will be another increase only months later, thus bringing

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three increases in a period that would normally have seen only two. Fourthly, those increases come with greater price stability than we have seen for decades. Fifthly, they help to give us a more sensible framework for further increases in the future. Sixthly, they are fully in line with our firm and continuing commitment to maintain the pension's value.
With the forthcoming increase in July, the value of the pension will have increased by some 98·5 per cent. since the last uprating before the present Government came into office, and over the same period the rise in prices is expected to have been something around 92 per cent. There has therefore been a real increase in pensioners' purchasing power. In a period when the number of pensioners has itself risen by 850,000—from just over 8·5 million to just under 9·5 million—that is no mean achievement. On the contrary, it is one in which the Government can and do take pride.
Mr. Tony Marlow: It might be helpful to reinforce the point that my hon. Friend made about inflation, given that the Labour Opposition seem to be bent on policies that will increase inflation yet again with devastating effects on elderly people. Do not a large number of elderly people save for their old age and retirement, and with the sort of policies that the Opposition have pursued in the past, and will wish to pursue in the future, we shall again have very heavy rates of inflation which will mean that year after year swathes of hard-earned savings will be taken from these people by such an uncaring Government?
Mr. Newton: My hon. Friend has emphasised the point in words more eloquent than I can command, and I can only agree with everything that he said.
Mr. Frank Field: I do not want to tackle the Minister on changing the date of the general uprating and the effect that that must have if a series of upratings quickly follow each other. Clearly, the size of the increase will be much smaller than if it were to be done on an annual basis, and I believe that the Government have difficulty in convincing people that they are being generous and fair.
I expect that the Minister has seen the Child Poverty Action Group brief. The CPAG does not dispute the calculation for the eight-month period. However, it says that, given the dramatic fall in inflation during the period in which the calculations were made, a married pensioner couple on supplementary benefit will lose about £8·80 over the whole year — almost as much as the Christmas bonus. Do the Government intend to make that up by doubling the Christmas bonus this year?
Mr. Newton: I shall make two points, one rather aggressive and one more in tune with the way in which the hon. Member for Birkenhead (Mr. Field) put his argument. First, under the last Labour Government, pensioners twice lost their Christmas bonus, while this Government have written the Christmas bonus firmly into the law. Secondly, no doubt to my disadvantage, I have not so far been vouchsafed the brief and I am hesitant to be drawn into comment without seeing the basis on which the figures are calculated. As things turned out, because of the falling inflation rate the 7 per cent. increase in pensions last November was larger than the increase in
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inflation which proved to have taken place by November. The increase was related to the increase in prices over the year until May.
One can play games with statistics, but I am glad that the hon. Member for Birkenhead has acknowledged that the pension upratings have at every stage been firmly and fairly based on the measured increase in prices over a historic period at the latest date available to carry the upratings through.
Mr. Field: When the Minister is blessed with a copy of this brief, will he open conversations with outside parties as well as hon. Members on whether the Government have acted totally fairly in changing the dates for the upratings?
Mr. Newton: I shall of course undertake to look at the CPAG brief and to consider any points that arise from it. I shall now give way to the hon. Member from the housing benefit world.
Mr. Nick Raynsford: I want to ask a question relating to the Minister's earlier remarks about the increase in the value of pensions in this Government's lifetime. What would be the pension value now if the increase in the pension had been related, as it was under the previous Labour Government, to the increase in earnings or inflation, whichever was the greater? By how much are pensioners now worse off because of that unlinking?
Mr. Newton: If I were to be drawn in that way I should want to give the figures for the increase in the national insurance contributions which would have to take place, the numbers of additional people who would be made unemployed as a result and the increase in inflation, which would create hardship for pensioners by a different route.
Dr. Norman A. Godman: On the so-called well-being of pensioners, is the Minister satisfied with the way in which applications for exceptionally severe weather payments were made in Scotland and elsewhere?
Mr. Newton: The Department did all that it could to make clear the system for exceptionally severe weather payments and to process applications as efficiently as possible. There are a series of anxieties about the working of that regulation and the Government are reviewing the operation of the scheme to see what changes, if any, are required.
Dr. Godman: The Minister allowed my hon. Friend the Member for Birkenhead (Mr. Field) to put a supplementary question, and I should like to do the same. A goodly number of pensioners have already approached me about the circumstances surrounding the regulation for next winter. What is the probability of a change in the working of the regulation to deal with the very severe weather that we shall experience in Scotland next winter?
Mr. Newton: The hon. Gentleman's confidence in his weather forecasting is greater than mine and of forecasters generally. I hope that we shall not have a third successive winter like the last two. Whether or not we have a severe winter, we have made it clear that we are looking again at the regulation in the light of the two winters' experience, which was not entirely satisfactory. I cannot make a definite commitment about the outcome of our investigations, but I am aware of the anxieties which the hon. Gentleman has properly expressed on behalf of his constituents. I do not dismiss those anxieties.
Several Hon. Members rose—
Mr. Newton: This is a relatively short debate. Although, with my customary good nature, I am giving way to all and sundry, there must come a point at which I allow the hon. Member for Oldham, West to have his say—unpalatable though that will be to me.
Mr. Frank Field: When visiting our constituents, many of us have noticed that, because of the poor weather, they are still using their heating. Is it not during the summer months that many pensioners and families hope to make savings on their fuel bills towards their winter fuel bills? To what extent will the Government take that into account both when making changes in the weekly additions for heating and in their flexibility on severe weather payments?
Mr. Newton: If the hon. Gentleman is inviting me to go down a path whereby exceptionally severe weather payments are paid regularly throughout the year, I am sure that he will understand my hesitation in commenting too far. However, I note his point.
Several Hon. Members rose—
Mr. Newton: I think that perhaps one of my hon. Friends deserves an opportunity to intervene. I hope that he will ask a more helpful question.
Mr. Tony Favell: Indeed, I have a helpful question. Is not the greatest help that we can give to old age pensioners for their fuel bills to hold down inflation and fuel bills—and, indeed, even reduce them—not only during hard weather in Scotland but throughout the year?
Mr. Newton: I very much agree with my hon. Friend. Indeed, during recent weeks it has been striking that there has been held out the possibility of lower fuel hills. I invite Opposition Members to cast back their minds to the last time that that happened.
I wish to make one general and one specific point before I sit down. The general point is that we have not, on this occasion, followed the practice of using different formulae for uprating the different main elements of the benefits system. In particular, the uprating of supplementary benefits has been kept in line with the cash increases in the relevant contributory benefits so as to minimise the problem of people being floated on and off supplementary benefit by tiny variations of a few pence between the supplementary benefit scale rates and the rates of other benefits received by supplementary beneficiaries.
I do not put that before the House in anything other than a spirit of pure pragmatism. We thought that with three upratings in 16 months it was sensible neither for claimants nor for the administration of the system to shuffle people on and off supplementary benefit on each occasion. For similar pragmatic reasons, the regulations do not provide for general changes in the additional amounts paid with supplementary benefits, but only for increases in the adult and children scale rates, the various personal expenses rates and the limited number of additional requirements, but including — this is very important—the higher rate of heating addition that goes to the very elderly, the severely disabled and those with homes that are especially difficult to heat. That heating addition is increased from £5·45 a week to £5·55 a week.
We have adopted a similar approach — this will interest the hon. Member for Fulham (Mr. Raynsford) —to housing benefit needs allowances, partly to avoid
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changes in other benefits triggering changes in housing benefit and partly because this year the timing of the uprating period meant that it was not possible to apply straightforwardly the normal housing benefit uprating formula, which is of such arcane complexity that I suspect that only the hon. Member for Fulham, to whom I pay full credit, is fully conversant with its ins and outs. However, I do not want that to be seen as an encouragement to him to deploy his expertise at length this afternoon—
The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Major): Hear, hear.
Mr. Newton: It is obvious that my hon. Friend's enthusiasm for that prospect is even less than mine.
The arrangements set out in these uprating regulations represent what we believe to be a practical compromise that will cause the minimum of administrative problems for local authorities and beneficiaries alike.
My more specific point, which again is connected with housing benefit, relates to the Housing Benefits Amendment (No. 2) Regulations 1986, which contain some provisions apart from those that simply uprate the housing benefit needs allowances. Those other provisions relate to benefit periods—the period of time for which a housing benefit award is allowed to run before it has to be reviewed by the local authority.
The maximum benefit period for a pensioner is usually 12 months and for a non-pensioner seven months. The existing regulations embodying those benefit periods were drafted with annual upratings in mind and local authorities have always planned their review of cases accordingly.
The pattern of upratings during this period of faster and more frequent than usual upratings would cause many local authorities considerable operational difficulties by requiring them to review the circumstances of claimants twice within a relatively short period and at considerable administrative cost. At the request of local authorities, therefore, we have agreed to ease the benefit period regulations to avoid that. The regulations in question include that beneficial change.
I remind the House that even this uprating, after a period of only eight months, will cost some £420 million in a full year, in addition to the £2,000 million cost of last November's uprating. Total spending on social security will thus stand at almost £43 billion in 1986–87, which is more than 30 per cent. of all public expenditure. That is a massive sum in anyone's book, and a clear demonstration of the Government's commitment to fulfil our obligation to pensioners and others depedent on social security benefits.
In view of what the hon. Member for Oldham, West may want to say in a few moments—I guess that it will include fairly repeated use of the word "cuts"— I must say that the broader context in which this occurs, as is shown in the recent public expenditure White Paper, is that between 1980–81 and 1985–86. far from falling in real terms, social security expenditure rose by £9,500 million in real terms — a real increase of more than 30 per cent. That includes — with many other factors, as I acknowledge — an improvement in support for low-income families in work, a number of important improvements for disabled people — including a real increase in the mobility allowance, the introduction of the severe disablement allowance and the abolition of the

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invalidity trap—significantly increased help with heating costs for the less well-off, abolition of the married women's half test, which did so much injustice to a number of women, and, not least, that real increase in pensions—and for almost a million more pensioners.
It is not a record for which I will apologise to the House; it is a record that I put before the House with pride. I invite my hon. Friends to endorse the motion and to reject the Opposition prayer.
4.7 pm
Mr. Michael Meacher: A few weeks ago the Top Salaries Review Body report was published. The batch of social security orders that we are debating might well be described as the bottom salaries review body report. It certainly highlights the huge contrast in treatment meted out to pensioners, to mothers on child benefit and to unemployed families on supplementary benefit when compared with the plush and velvet glove handling of top civil servants, top judges and top military officers.
For the latter in the elite ranks of society the increase this year is £46 a week. For the average-paid worker, earnings this year will rise by £14·50 a week. For low-paid workers, such as those in the ancillary grades in the National Health Service, the increase currently on offer is about £3·25 a week. For a pensioner in retirement, the increase proposed is just 40p a week. For mothers on child benefit, it is precisely 10p a week — an amount so piffling that I suspect most people would scarcely bother to stoop down in the street to pick it up.
I think that the message is not lost on Ministers. I have not before heard the Minister in quite such a defensive mood as he was today. Perhaps he protests too much. I listened to all his caveats, and there could scarcely be a more eloquent testimony of this Government's obsession with one law for the rich and another for the poor.
The Government argue that they have increased pensions and benefits — the Minister, predictably, brought forward the argument today — strictly in line with the retail price index over the relevant period. So they have. That is the reason for the minuscule increases. The Government's argument is wholly fallacious. There is no statutory requirement that benefit increases should be limited to the RPI over the review period. All there is is a floor, a statutory minimum, for increases in benefit. The Government have said from time to time that they would like to improve the basic pension in real terms. In 1980, the Secretary of State for Social Services stated explicitly that it was the Government's intention to allot pensioners a share in rising national prosperity. This year, when the retail price index increase is so minute, the Government were offered a perfect opportunity to achieve that alleged intention. They have ostentatiously turned it down.
This year's increase is the most insulting one for decades. It is worse than that. The Government, by changing the operating periods this year, have cheated pensioners out of a bigger increase that they would have received if the uprating periods had remained unchanged. I shall explore that point which was made earlier. If the uprating had taken place at the normal time in November 1986, single pensioners would have received double the extra cash from a 4 per cent. increase paid for only four months thereafter up to the April 1987 changeover than they will receive under today's uprating from a 1 per cent. increase paid for eight months until April 1987.
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The Secretary of State, when he introduced the changes in the uprating periods, chose to present them in terms of simplification, as he so often does. Pensioners have learned from bitter experience that whenever the Government speak of simplification they generally mean a cut. I will not apologise for the use of that word because that is exactly what people's experience is. The present position is no exception. As I said at the time of the announcement of the uprating arrangements on 24 February, the Government's sleight of hand with the arrangements will mean a loss to pensioners of around £120 million, which they will not recover.
The new arrangements matter in view of other aspects of Government policy on pensioners. The critical point in the debate is that, every year, the break in the upratings link with earnings which the Tory Government carried through in 1980 bites ever deeper. The loss grows much more in years in which earnings significantly outstrip prices. This year is a prime example. Earnings are rising at about 7·5 per cent. compared with prices which are rising at about 3 per cent. In other words, if the Government had not broken the link with earnings, and if they had not fiddled the uprating period, the pension increase this year would have been more than double, as it would under Labour's formula, even for the full year. That is a significant difference.
Mr. Martin M. Brandon-Bravo: I do not think that the House disputes what Labour party policy was eight years ago. Can the hon. Gentleman guarantee that that policy would not have changed had the Labour party been in office for the past seven years? His party's track record on pensions, the Christmas bonus and the real cuts in the National Health Service might lead people to believe that the Labour party ditched that policy long ago.
Mr. Meacher: It is a bit rich for the hon. Gentleman to challenge us on our record on the National Health Service. If he had considered the views of the electorate on cuts in the National Health Service, he would not have taken that as an analogy. I invite him to listen to the end of my speech when I shall make absolutely clear the full assurance that he seeks, perhaps contrary to what he expects.
The exact figures regarding the earnings link have been provided by the Library. Since the Minister was so coy about the figures, I shall cite them. The statistical section of the Library calculates that if the link had not been broken by the Government in 1980, the single pension, which is £38·30 a week, would have been £42·30 —exactly £4 a week more. The married pension, which is £61·30 a week, would have been £67·60 a week—£6·30 a week more. For millions of pensioners who are forced to eke out their lives never far from want or financial hardship, those are substantial and serious losses.
The size of the loss to pensioners can be seen from the fact that it represents savings to the Government this year at the expense of pensioners of no less than £1·8 billion. That is the total value of the cut in pensions this year as a result of the break with the earnings link.
Mr. Newton: As the hon. Gentleman has accused me of being coy, can he tell me whether the Library has also calculated what increase there would have been in national insurance contributions, how many more people would

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have been placed out of work as a result, and how much higher the rate of inflation would have been if we had gone down that track?
Mr. Meacher: Coming from a Government which has tripled the rate of unemployment, that is another pretty rich question. As the Minister knows only too well, we are talking about transfer payments between the working population and those who are retired. I think that the Minister knows that we would have run a different kind of economic policy — not the kind of monetarist contractionary policy which has produced a level of manufacturing output that has still not reached its 1981 level. Out of that extra output, it would have been relatively easy to pay a significant increase in pensions.
The link with earnings was instituted by the Labour Government in 1975. That is the fundamental reason for the huge difference in the pensions record between the Labour Government and the Tory Administration. In six years of Labour Government, the pension increased by 20 per cent. in real terms. In seven years under the Tory Government the pension has increased by just 3 per cent. in real terms. I suggest that the difference between the parties in terms of priorities for the pensioner could scarcely be plainer than those figures show.
Mr. David Lightbown: Can the hon. Gentleman say what the rate of inflation increased by in the period that he is stressing pensions have increased?
Mr. Meacher: The hon. Gentleman has missed the point that what matter to pensioners is the overall increase in their income after taking account of inflation. I do not know whether he knows the meaning of the words "in real terms". "In real terms" means after taking account of inflation. The inflation rate, at 26 per cent. in Labour's worst year, was too high, as was 22 per cent. in the Tory Government's worst year. Taking account of both of those facts, pensions increased six or seven times more in real terms under Labour than they have, alas, under the present Government. That is the key point.
Mr. Michael Forsyth: Can the hon. Gentleman say what happened to the savings in money that pensioners had put aside in real terms?
Mr. Meacher: The same thing happened regarding the too-high rate of inflation in 1975 as happened regarding the too-high rate of inflation in 1981. Of course, inflation damages pensioner savings. We accept that there is a need to reduce the rate of inflation for that reason. Pensioners with significant amounts of savings are in the minority. The real point for the majority of pensioners is the real increase in pension over and above inflation. The record of the present Government is tenuous compared with the record of the Labour Government. In no other respect is the difference between the parties so stark.
It is proposed this year to pay the pensioners' Christmas bonus at a rate that has been unchanged for 14 years. If the £10 rate paid in 1972 had been uprated each year—no matter which party was in power—in line with prices, it would now be no less than £44. I submit that, apart from the huge shrinkage in value to pensioners because the bonus has been kept at the original £10 rate, there is another strong reason why the Government should
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increase it this year. Each year until now, the annual pension increase has been paid in the month before Christmas. Pensioners therefore have some extra resources with which to meet Christmas costs and some protection against increasing winter fuel bills. This year, that extra pension increase, which is now being paid in July, will not be available as a new increase to pensioners. That is why the failure to increase the Christmas bonus this year—when it has already lost more than three quarters of its real value since 1972 and when this year's pension increase is merely a pathetic 1 per cent.—is so regrettable.
Therefore, our charge is that the Government are treating pensioners extremely shabbily. Of course the Government state that they cannot afford to do more. They always say that. But they can certainly find big money for other, favoured causes. There is a great deal of talk during the run-up to the general election about the Government cutting the basic rate of income tax from 29 per cent. to 25 per cent. That would cost nearly £5 billion. If such amounts can be found, why are pensioners fobbed off with this cheap and insulting option of a 40p pension increase?
Then there is the £3·64 billion—the Treasury's figure — by which taxes have been cut since 1979 for the richest 5 per cent. That is twice as much as would be needed to restore the earnings limit for pensioners. Why should directors on £30,000 or more a year get a huge cash bonanza while pensioners are left out in the cold, literally as well as metaphorically?
It is all a matter of priorities. Our priority, as we have demonstrated, is for the pensioner. The Government, as they demonstrate each year, are for the wealthy and the privileged. By contrast, we shall take back the £3·64 billion which has been handed out to the rich and distribute it instead to the beneficiaries — perhaps I should say victims — of these social security measures. We shall increase the single pension by £5 a week and the married pension by £8 a week.
Mr. James Couchman: When?
Mr. Meacher: It shall be done in the first Labour Budget. We shall increase child benefit by £3 a week. We shall extend the long-term rate of supplementary benefit to all of the long-term unemployed. All of those major improvements for people on some of the lowest incomes can be afforded without any increase in taxation for 95 per cent. of our people. That can be done simply by making the top 5 per cent. hand back what they should never have been given in the first place.
Mr. Frank Field: I am sure that people outside the House will he following this part of the debate more carefully than most of our debates. My hon. Friend has referred to the Labour commitment of a £3 a week increase in child benefit. Is the Labour Front Bench giving a clear commitment that that increase will be given in the first year of the next Parliament?
Mr. Meacher: Yes. They are all straightforward, redistributionable changes, which we intend to make in the first year in our first Budget.
Mr. Favell: My hon. Friend the Minister for Social Security said that the bill to the nation for the uprating will be £420 million. If the hon. Gentleman were standing at the Government Dispatch Box, what would his bill be?
Mr. Meacher: Clearly, the hon. Gentleman was not listening. My point was that we will take back the £3·5 billion, or slightly more, that has been handed out in tax cuts—income tax, capital transfer tax and capital gains tax, the abolition of the investment surcharge to the richest 5 per cent. of our society—and use that money to pay the pensioners, the mothers with young children and the long-term unemployed. We believe that those are the right priorities, and we shall soon take that message to the nation.
Our second major objection to these measures concerns the 10p increase in child benefit, which is derisory. We object to it for several reasons. First, it makes no effort to restore the 35p cut made last year—a cut to mothers of £175 million in real terms. Secondly, the Prime Minister again trumpeted recently her support for a family policy; yet this tiny increase of 10p shows that her actions belie her words. Thirdly. there is no commitment to index child benefit in line with prices, let alone earnings. The Government Whips organised a filibuster a few weeks ago to prevent the proposal of the hon. Member for Kensington (Sir B. Rhys Williams) from even being debated. That reveals the depth of the Government's opposition to any such notion. Fourthly, there is no assurance that the extra £64 million expenditure on child benefit—due to a reported underestimate of the number of children—will not lead to cuts in other benefits or child benefit, as the Government's record might lead one to suspect. I should be pleased to allow the Minister to intervene if he wishes to deny that.
Mr. Newton: It is simple. The £64 million to which the hon. Gentleman refers and which I think surfaced in a report in The Guardian is additional expenditure that was incurred in 1985–86. Obviously, there can be no question of compensating changes to offset expenditure that has already been met.
Mr. Meacher: I am glad to hear that. That will be a welcome announcement, given the suspicions that we hold for genuine reasons, that that type of overrun is always met by corresponding cuts.
Fifthly, over the past 25 years, the fiscal system has moved steadily against families with children. No attempt is being made this year, when there is such a small increase, to reverse that. That is a great pity. Sixthly, and most importantly, bearing in mind that child benefit is widely agreed by both sides of the House to be by far the most effective device to remedy family poverty, it is surely tragic that the Government apparently still intend to phase it down in favour of family credit. which is footling by comparison.
In case I am unfair about this—I should be glad to give way to the Minister again—I ask this one modest question: Will the Minister give an assurance that the real value of child benefit will be maintained at least until 1988? Would the Minister like to give an assurance on that point?
Mr. Newton: All I can do is give the hon. Gentleman the assurances that we have already given and have shown by uprating child benefit in the motions. We continue to attach great importance to child benefit as a universal benefit normally payable to mothers, but we shall continue to take decisions about child benefit in the context of policies as a whole, including the universally supported
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desire to do more for low-paid families with children, whether in or out of work. That involves from time to time taking decisions about the balance.
Mr. Meacher: That is a carefully worded answer. The implications are clear—we can expect either a freezing or a small increase in child benefit, as there was last year. That is a very unwise decision.
I turn now to the general uprating implicit in these motions. I have already referred to the fact that the switch to a July uprating means a loss to claimants in general over the year. My hon. Friend the Member for Birkenhead (Mr. Field) made the same point. Although it may not be a large loss, the real point is that this year there should not be a loss at all because, at this point, the country can afford a more generous uprating.
With average earnings now rising at 7·5 per cent. a year, as I have said, fully six percentage points above the tax and prices index, it is only fair that the poor and the weak should obtain the same benefits as the rich and the strong. A benefit uprating in line with earnings rather than prices would have been a tangible expression of that sentiment and it would have been supported by the majority of the electorate. When asked whether priority should be given to a 1p cut in the basic rate of tax in the Budget or to increasing benefits for the poor, a recent poll I saw showed that 61 per cent. favoured an increase in benefits compared with 48 per cent. who favoured the tax cut.
I would like briefly to add two other points on housing benefit. This year—the Minister made brief reference to this—supplementary benefit and needs allowances have not been increased by the formulae the Government introduced in 1982. The supplementary benefit formula would have given an increase of 1·2 per cent. Instead, the pension uprating formula has been applied, which yields 1·1 per cent. The difference is, of course, marginal but I would say that it is all the more symbolic for that. If the difference between the two formulae is minute, why do the Government always unerringly choose the lower one rather that the higher one?
No new awards of the supplementary benefit non-householder rent addition will be paid to persons under 25 after July. I realise that that is an order that will come before the House later, so I am making no more than a reference to it. However, it is relevant when we discuss supplementary benefit. I believe that that is a retrograde step. It will further erode the independent status of young people and it is to be condemned as another example of the creeping implementation of the social security review before the Bill is even through Parliament and as another device to save money on transitional protection.
These are not dry or routine social security orders, as I think that the Minister tended to introduce them. We are debating the incomes and livelihood of millions of Britain's poorest families. We will certainly not vote against any improvements proposed in their standard of living, however meagre or limited we might believe them to be. However, I want to put firmly on the record that the incoming Labour Government, which we shall soon see, will take a radically different and more just view of the proper distribution of this nation's wealth between rich and poor. Indeed it is because all of those who are the subject of these orders today — the pensioners, the mothers, the unemployed and the low paid—have a vote that that Labour Government will not be long in coming.
4.32 pm
Sir Brandon Rhys Williams: I have a feeling that a number of hon. Members were not certain what the nature of the debate would be when they came into the Chamber this afternoon, because it is extremely difficult to vote against a series of orders and regulations which have the effect of increasing the amount of benefit that will be available to millions of people. Therefore, if the House is to make constructive use of this short debate we should try to focus our minds on some of the longer-range issues behind the system, which has surfaced again this afternoon, where Ministers have to come to the House at stated intervals to recommend changes in the level of benefit that will be available to different classes of people through our various systems for the redistribution of income.
I think that it might be worth while for the House to consider the ways in which we redistribute income and whether these upratings, and the way in which we calculate the right amounts and the people who will be eligible for the benefits, are what we want, and whether this is a permanent system that will remain in place year in, year out. From the speech that we have just heard from the hon. Member for Oldham, West (Mr. Meacher), from the Opposition Front Bench, it seems that the Opposition are determined to make major changes. However, they have not escaped the criticism that major improvements in the system have to be paid for from somewhere.
My first point is that when we talk about the redistribution of income we have not only to consider who the money is going to and how much it is to be, but to decide where the money is coming from and who will make contributions to the system.
I think that it is worth considering the basis for the entire redistribution of income, because I want to do something that I have done many times before in the House, which is to emphasise that we must look at the income of the redistributive system as well as the outgoings. That leads me to the same conclusion as I have always been led to before, which is that progressively we must move towards integration of the income tax system, national insurance contributions, national insurance benefits, supplementary benefits and the rest. We must work towards the integration of the tax system and the benefit system so that both sides are seen to be fair and administratively comprehensible and simple.
I do not think that anyone on either side of the House would disagree that, for the majority of citizens, the present system is arbitrary, incomprehensible and a disincentive for the millions, divisive in a way that is socially extremely dangerous and on the verge of administrative collapse. The House cannot be satisfied simply to approve the uprating regulations and allow a situation to continue in which there is general agreement on the underlying state of affairs. I do not think that hon. Members would challenge me on those accusations.
It seems that we have never really clarified our thinking on the basis of entitlement to benefits. We are talking about millions of people who will receive benefit as a result of these measures, but we do not really know precisely why we are giving them the money. Is it because we are trying to provide them with a basic income guarantee that is sufficient to live on? If that is the case, in many aspects the amounts that we are paying will not be enough. Is it because there is an actuarial relationship with the
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contributions that they have made during the course of their working lives which decrees that certain payments must be made?
That certainly is not so, not just because inflation is making all our figures turn to jelly, but because we have changed the basis of entitlement to claims for pensions, and so on, as the years have gone by, so that what people have paid into the system in the past and what they are paying now and what they are entitled to draw out of the national insurance system have no actuarial relationship whatsoever. Therefore, we are not relying on arithmetic.
I believe that the system can be divided into four. First, there are the universal benefits. Some of them began to be instituted in the 19th century. I am thinking particularly of public education. In the 20th century there have been great strides forward. The National Health Service is a universal benefit, broadly speaking, and of course there is child benefit, which is a universal benefit, which is paid in cash. I think that there is a considerable degree of public dissatisfaction about all the major universal benefits. I do not think that people are happy about the administration of the Health Service, they are not happy about the administration of public education and there is a considerable degree of opinion that child benefit is not at a sufficient level, considering the real cost of raising a child. There is plenty of room for debate on this subject, and the debates are going on.
Secondly, there are the contributory systems. As I have mentioned, the figures have turned to jelly and nobody has any idea of the relationship between obligation and entitlement in national insurance.
Thirdly, there are the means-tested benefits, not just supplementary benefit, but the housing allowances, which differ very much in different parts of the country. I was given an appalling figure in a parliamentary answer a few weeks ago. I asked how many people in this country were living in families which were dependent, in one way or another, on support obtained through proof of need. The answer was 14 million. As far as I am able to ascertain, that number is rising. There can hardly be a more desperately divisive state of affairs than having 14 million people who are dependent on proof of need to sustain their living standards.
The fourth welfare state that we operate—it is less obvious than the others, but none the less real—is the tax concession system, which produces differentiations of hundreds of pounds a year between people with identical incomes on account of their different commitments and marital circumstances.
I have had the feeling for a number of years that no serious thought has been given, either in the Treasury or the DHSS, to the way in which the redistribution of income is to be handled.
Where are we heading? It seems that there is a steadily rising number of people who are dependent on proof of need. I do not think that many Members realise that the figure has risen to 14 million. My interpretation of trends that can be observed is that that figure is likely to rise. In making an effort to provide a minimum income guarantee so that no one slides into destitution we are dependent increasingly on the old-fashioned means test in various forms. This is disastrous. It means that millions know instinctively, or because they have made the necessary calculations, that there is not too much point in working or in saving.

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Hon. Members in all parts of the House, and especially those on the Government Benches, know that the success of our economy, and of living together as a society, depends on people recognising the value of thrift and hard work. If 14 million come to realise that there is something wrong with those motives and that they are not borne out by the way in which life treats them in practice, that is disastrous. If it is true that the number in that position is rising steadily, it is a matter that requires the urgent attention of the House.
Mr. Frank Field: Does the hon. Gentleman accept that there is another rather dangerous tendency, which is that of individuals continuing to recognise the value and importance of hard work, but not that of combining hard work with honesty? In other words, they are not declaring their incomes. The more we push people towards means testing, the more we shall increase the incentive to engage in deception.
Sir Brandon Rhys Williams: That is an important part of what I have described as the approaching administrative collapse. The black economy is attracting people more and more because they are losing their sense of honour as a consequence of the Government's system of redistribution. They know that more and more people are breaking the rules, and they are becoming increasingly disposed to break the rules themselves.
Another trend is reflected in the rising proportion of the population who want to have cash resources of their own. It is possible that this has something to do with long-term social changes, especially, perhaps, with female emancipation. In Victorian times women were willing to be dependent on the breadwinner, the male head of the household, to provide them with the money that they needed or such comforts as they required. They want now to be able to make their own choices. That is a phrase that the Prime Minister uses with considerable effect. People want to be able to make their own choices, but in the life that we lead we must have our own resources and have command over our own finances, if we are to make our own choices. That is one reason why there is increasing pressure for women to have their own special tax relationship. Many do not want to be regarded as chattels or adjuncts of their husbands. They want to have a one-to-one unisex relationship with the tax inspector, and I think that they are right in that.
If there are an increasing number of people who want to have discretion in the way in which they handle their own affairs, we must adapt our administrative system to meet that wish. Hon. Members on both sides of the House know that I am enthusiastic about child benefit. I believe that the rate of child benefit should be increased, and should certainly not be diminished. One of the reasons why it is such a popular benefit and has an almost universal take-up is that it is paid normally to the woman in the household, which allows her to exercise her own discretion and make her own choices, at any rate with that small part of the family's overall resources. The Government are fighting against a trend that will prove to be stronger than the Government if they think that they can eat slowly into child benefit and dimish it. I hope that they will not make that serious mistake.
Perhaps more important is the fact that millions of people are restrained from entering the working population, and even from taking on part-time work,
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because they will commit an offence if they take part-time work at the same time as drawing various benefits. We must work our way towards a wholesale reform. I am disappointed that the Government do not appear to be doing any fundamental thinking on this subject.
I was a member of the Committee which considered the Social Security Bill, which has now gone to another place. I was even more convinced at the end of our deliberations than I was at the beginning that the Bill did not represent final answers to the various questions which I have posed and was not enough. I could not do more than vote against the Bill. At any rate, hon. Members know what I think.
What are we asking the Government to do? We must not lose sight of the fact — Opposition Members are open to serious criticism because they do lose sight of this—that one of the Government's primary requirements is to secure the good health and expansion of the economy so that there are resources to be distributed. All too often Opposition Members forget that and call for increases in benefits without explaining how the money is to be generated.
Much of what the Government are doing is right, but I believe that the changes that they are making in the tax system and the provisions that they are making for investment are not sufficient. I hope that they will find ways of breaking through the social security system quickly and introducing a radical overhaul of the system and its administration. It is not good enough to continue from month to month and year to year with DHSS officers being required to make more than 90 million manual entries every week to keep the administrative system going. A much more urgent matter than Ministers recognise is to get something done about that appalling state of affairs.
I understand that progress with the computerisation of the pay-as-you-earn scheme is going very well. Much of the hardware is well on the way to being installed. The restraints that have held us back from a radical reconstruction of the system of income tax and social security are being eliminated at a practical level. The development of the necessary software for the pay-as-you-earn system is still taking a long time. The work should never have been embarked upon before thinking had been done about the sort of service that was wanted.
I ask my right hon. and hon. Friends in the DHSS and the Treasury to think again about the way in which the long-term evolution of the redistribution of incomes is heading. I am sure that it will be agreed that as individuals increase their income they cannot face a sharp reduction in their entitlement to benefit. Millions are entitled to benefits through one or another of our various systems. and we recognise that whenever they lose their benefits sharply there is a disincentive to increase their resources beyond that point. Tapering has become the order of the day. Rather than taking away their benefit on a taper, surely it would be simpler to make them contribute more as their incomes rise through the income tax system. Let them retain their benefit and require them to make a greater contribution through the income tax system. The loss of benefit must be partial if there are not to be disincentive effects. Let the loss of benefit express itself through the payment of more income tax. That would avoid the problems that arise when benefit is eliminated stage by stage as someone's circumstances improve. May we have a promise today, or very soon, that the Government will reconsider this problem in the

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recognition that the various measures which they have brought forward in recent years are not sufficient to meet the case?
4.49 pm
Mr. Archy Kirkwood: I enjoyed listening to the speech made by the hon. Member for Kensington (Sir B. Rhys Williams). He has a distinguished history and reputation and he argued the case for wholesale reforms. As the hon. Member for Birkenhead (Mr. Field) recognised, the hon. Member for Kensington voted accordingly in Committee. I certainly pay great attention and regard to that.
I agree with many of the arguments presented by the hon. Member for Kensington on the need for wholesale reform. I accept the mild rebuke that he made in the direction of the Opposition Benches about the source of the resources needed to generate the money to enable the redistribution of benefits. I hope that all hon. Members will address that point.
When the Minister of State introduced the debate on the detail of the uprating orders, he mentioned the current context. That is an important element in the equation which we must not ignore.
I begin by admitting that the reduction in the rate of inflation to the present level of around 3 per cent. is a valuable contribution to those people who rely on benefits for their income. However, I am worried about the disparity, which has continued to widen since the Government came to office, between the best-off and the worst-off in our society. I eschew the sophisticated statistics that can be floated about that argument from both sides of the House. I am worried about the distance that now exists. In spite of the Government's best endeavours to try to improve the position, there is evidence that persuades me that the gap between the best-off and the worst-off is becoming worse.
Mr. Michael Forsyth: Would the hon. Gentleman be worried if the gap between the worst-off and the best-off was widening if the consequence was that more wealth was created in order to meet the benefits bill, to which he referred at the beginning of his speech? Will he acknowledge that that is happening?
Mr. Kirkwood: That is not happening. We could have an interesting discussion about the relative positions of the lowest 10 per cent. of our society in terms of generating income and their available disposable income and as to whether they are worse off now than at the beginning of the Government's term of office, but I would like to return to my second point in the context of today's debate.
The Government seem to be set on the road to further tax cuts as opposed to the redistribution and increased transfer of payments. The DHSS should make the position clear. The Liberal and Social Democratic parties voted against the 1p reduction in income tax, as the Parliamentary Under-Secretary of State will be aware. That is only a partial answer to the problem, but we should go further than that. I do not know how the figures match up, but we must be prepared to face the fact that we may need to maintain levels of taxation to obtain the money to redistribute benefits.
The formulation of the Government's policy on that question is absolutely crucial. I hope that we will hear from
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the Parliamentary Under-Secretary of State when he replies that he will ensure that resources are found even if that involves forgoing the Government's present policy.
Mr. Favell: We never hear the Opposition referring to the question of incentives on these matters. Does the hon. Gentleman accept that tax cuts produce an incentive to work harder and to save more for old age and bad times? The greater the tax, the less incentive there is to work. What does the hon. Gentleman think about that?
Mr. Kirkwood: I agree that a balance must be struck. That balance has gone wrong in terms of the amount of income that we are asking pensioners to live on. I hope that the Parliamentary Under-Secretary of State will comment on that.
There is a fear across party lines about the operation of child benefit. The hon. Member for Oldham, West (Mr. Meacher) referred to that point and I want to support his comments and those comments made on the matter by other hon. Members, including Conservative Members, in previous debates. There must be a commitment at least to retain the value of child benefit in future. I understand the Minister of State's reply to that point, as he has the Treasury Ministers at his shoulder and he may not be able to go further than that this afternoon. However, I warn the Under-Secretary that if there are cuts, such as the 35p reduction, he will face a major rebellion from the Opposition Benches and from the forces that sit behind him.
I hope that the Under-Secretary of State will be able to clarify matters about the retail price index. That is a rough and crude instrument to measure the increase in prices. Has the Minister had a chance to examine a report commissioned by the Chartered Association of Certified Accountants and carried out by the Institute of Fiscal Studies called "The RPI and the cost of living"? The report reached several conclusions. It stated that the Government had been paying more than they needed in terms of uprating benefits for substantial periods during the past 10 years. To support my argument, the report states that the poorer families in our society suffer more and the real costs of inflation, rather than the statistical calculations, are significantly higher than the general increase in the RPI. I hope that the Department will study the report with care. The Department needs to refine the retail price index in a way that would benefit the least advantaged families in society.
Under what circumstances does the Under-Secretary of State believe that the Social Security Advisory Committee report's recommendations will be implemented when it states that there should be not every year, but occasionally, a linking of increased benefits to earnings so that an inexorable disparity does not appear between the increase in the cost of living enjoyed by people in work and those who are dependent on benefits? There was a case to consider this year for moving towards the average earnings increase.
We have heard that there has been almost a 7·5 per cent. annual earnings increase, which is 6 per cent. higher than the tax and prices index. Can the Under-Secretary of State tell us whether these figures, like the figure of £8·80 annual loss caused by the disposition of the timing of the payments of the increase, will be made good in the round eventually? It is very important that losses sustained because of the timing of the uprating—which was unfair —should be made good.
Mr. Michael Forsyth: I have been waiting so long to intervene that I have nearly forgotten my point. However, if the hon. Gentleman is so concerned about wealth creation and finding the resources to meet a decent social security system — which we all want—how does he reconcile that with the view that benefits should be indexed according to earnings if the earnings are over and above the country average? That would be a recipe for creating a benefit system which we could not possibly afford. That is the opposite to what he was arguing for.
Mr. Kirkwood: I do not understand why it is difficult, improper or in any way impossible to increase benefits according to the increased average earnings. If average earnings are increased, the tax take increases and that would mean more money to be redistributed. There is no difficulty about that.
Mr. Forsyth: The difficulty is that, if, as is happening at the moment, the country is paying in wages more than is being earned and we index benefits accordingly, we will have a monstrous bill which will he paid for only in the destruction of other people's jobs and a higher bill which we will not be able to meet. That would be the consequence of the hon. Gentleman's policy.
Mr. Kirkwood: I fully accept that. The hon. Gentleman takes us into public sector pay and price and incomes policies. We would face up to that by ensuring that there is a system that ensures that people do not get paid more than the country can afford.
The hon. Member for Oldham, West mentioned the Christmas bonus, which is being substantially eroded. Do the Government have any plans to try to make it as valuable as it would have been if it had increased in line with prices or earnings? Its value has been largely discounted. Something must be done about that.
The Government could have done a bit more without breaking their back. I am most anxious that the Minister should be prepared to go into the current public expenditure round with some of the issues that I have outlined in the front of his mind so that he will fight for his Department's budget and so that he can redistribute more in future.
5.1 pm
Mr. Kenneth Carlisle: I should like to make my speech in the context of the general background to the proposed increases. It is generally recognised that the Government promised to ensure that benefits would increase at least in line with inflation. What is proposed accords precisely with our promise to the country at the general election, which has been repeated during the past few years.
We should consider the overall level of inflation. The increase in benefits must be related to the increase in prices. There is no doubt that inflation is the greatest threat to people in receipt of benefits. They are generally those who most need support and they are often the weakest. High inflation and rapid price rises undermine people's confidence. When they go to the shops to buy the necessities of life they see increases each day, but the increase in benefits lags well behind price increases, so people do not understand how they can possibly keep up. The elderly who have some savings see high price increases destroying their life's work. Price increases eat away at savings that have been made over many years of work.
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Inflation has a bad effect on people who both major parties say they want to help. The hon. Member for Oldham, West (Mr. Meacher) was completely wrong to say that inflation does not matter and that the important thing is the increase in benefit after taking account of inflation. He showed a great misunderstanding of the worry caused by inflation. It is a matter of peace of mind. In a period of high inflation, the confidence of pensioners, one-parent families on benefit, the unemployed and people in receipt of housing benefit is greatly affected, as they simply do not know how they will meet increased prices in the shops.
In times of high inflation, the weakest suffer most. That has been proved time and again. It is important to such groups, therefore, that inflation is kept low and that price increases are conquered. There are other effects of high inflation. Declining currency value and rapidly rising prices destroy the morality of a country. We get used to, a declining currency and become cynical about it, and we no longer pursue sound values which give hope for the future.
Another effect is unemployment. There is no doubt that the inflation of the 1970s and early 1980s bred unemployment. Businesses found that they could not sell their goods competitively on world markets, and they continually sought more cash to replace stocks to make products. The strains on business, failures and a fall in growth, or even decline, have an inevitable effect on jobs. All those effects of inflation can be seen throughout the country, but it is the weakest who suffer most. That is why the Government should take credit for keeping price rises low, and why their main aim should he the continuing control of inflation.
It is important that people who are in receipt of benefit have confidence in the system that is used to calculate increases. In that respect, I echo what the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) said. Are we certain that the system is as good as it should be? Does it reflect the costs that people on benefit and the elderly have to meet every day? Such expenditure is quite different from that of someone in a well-paid job. I am aware that our statisticians refine the system occasionally, but it should receive continual examination.
We must also consider the economy as a whole. As my hon. Friend the Member for Kensington (Sir B. Rhys Williams) said, we must pay for the increases. It is no good promising the world. Indeed, it is evil to promise the world when one does not have the means to provide it.
Mr. Marlow: My hon. Friend mentioned increases. Is he aware that, despite the massive increase of last year, the value of child benefit and child tax allowance — the benefits that we give per child—is now £2·70 less than it was in 1955? Whereas there have been increases in some areas, assistance for families with children, especially those with significant numbers of children, is now much less than it was in 1955.
Mr. Carlisle: My hon. Friend has gone back to 1955. I suppose that I must have been in receipt of child benefit then. I cannot recall what the level was. Matters have changed so much that it is not very helpful to go back that far, but I believe that since 1979 the real value of child benefit has increased.
Before my hon. Friend the Member for Northampton, North (Mr. Marlow) made that rather interesting

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intervention, I was considering the overall economy. When promising massive increases in social security payments, the Opposition have a responsibility to consider what they hope to achieve. They must face the reality of how they will pay for the increases. They have promised increased social security payments and increased expenditure on the industrial front, the Health Service and education. There is not a programme that has not been promised extra money.
My right hon. Friend the Chief Secretary has estimated that to pay just for the Opposition's firm promises would require £40 billion of additional expenditure each year, to be carried on year after year. To pay for that, the Opposition would, for example, have to increase VAT to 42 per cent. Such an increase would have a devastating effect on a whole range of people who receive benefit. If the Opposition do not pay for that expenditure by increasing VAT, they will have to raise the money, if they are honest, by some other form of tax, which will have to be paid by all taxpayers, including those in receipt of benefit. The alternative is to borrow. In that case, inflation and interest rates would increase, with all the evil effects that I have already mentioned.
The Opposition's promises are given blandly, but no doubt with genuine sincerity. However, any analysis leaves one sceptical of them, especially given the havoc that would be wrought on the country's economy if those promises were carried out.
Our record of controlling inflation and of trying to get the economy on a course for growth has not been bad and should not be scorned. My hon. Friend the Minister described how we now spend £43 billion a year on social security. That is 30 per cent. of all public expenditure. All benefits have increased by more than the rate of inflation since 1979. The new benefits have also substantially helped the worst off. As my hon. Friend the Member for Stirling (Mr. Forsyth) said, one has to tie any increase in social security directly to the economy's ability to earn the resources to make those increased payments.
I now wish to concentrate on the reform of the social security system. We are talking about one of three upratings over 18 months. The uprating will move forward to April. Thus, we are looking not at an annual uprating but at one for a shorter period when the rate of inflation is low. We are honouring our promise. Many of my constituents will welcome the annual upratings when they move forward to April. I have always received many complaints about the fact that the upratings have been delayed until the autumn. We genuinely welcome the move to April.
I also welcome the reform of social security that is being undertaken. It is generally recognised that, despite the thousands of millions of pounds spent on our social security system it is not directed at the right people. For example, it is accepted that one-parent families and families on low earnings have fallen behind. It is right that we should undertake a substantial review of the social security system so that the large resources available are directed to the right people.
My hon. Friend the Member for Kensington, who has given deep thought to this issue, raised an important point, with which I agree, when he said that the present social security system is far too complex. Even when it has been reformed, it will be difficult to understand it. I urge the
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Government to reconsider the reforms to see whether, with the aid of computers, they can link tax and social security. In this way we could avoid the absurdity of people receiving social security and paying tax. Given the will and the technology that we now have, it must be within our means to devise a much simpler system.
I am glad that I have taken part in the debate, and I shall end by returning to my main theme. Inflation is the worst enemy. Indeed, rapidly rising prices are the worst enemy of all those on social security. If inflation stood at 100 per cent., we could easily double social security benefits annually. That would look very good on paper, and the hon. Member for Oldham, West clearly would not mind that, but I assure him that much agony would be caused to those of our constituents who are on benefit and who are poor. It is they who would suffer most.
The Government's aim to increase social security at least in line with inflation is good. We have honoured our promise. I have no doubt that when the economy generates the necessary wealth those on social security will in turn benefit in a far more stable way, which will give them, not worry, but more security in future.
5.15 pm
Mr. Frank Field: I am sure that the hon. Member for Lincoln (Mr. Carlisle) will understand if I do not take up all the points that he covered in his wide-ranging speech. However, I should like to comment on a few of them. He concentrated on inflation. I hope that hon. Members will read carefully the speech of my hon. Friend the Member for Oldham, West (Mr. Meacher). I thought that for the first time I noticed a much greater realisation of the importance of inflation in terms of both crude politics and votes, and of what it means to our supporters.
I do not follow the line that a Labour Government need worry only about those on statutory benefits. Many of our supporters have only small savings by comparison with the Government's supporters. One could easily construct an argument that those small savings are more important to the saver. Indeed, those of greater means have more expertise available to them and are far more able to protect their wealth than those with small savings.
I therefore took the speech of my hon. Friend the Member for Oldham, West to be very coded. I understood that he was coming round to the view that a Labour Government would not embark on public expenditure policies and discussions on wage levels that would lead to a rapid increase in prices. We need to think that through carefully and to put it with care to the electorate so that those who vote for our package know the price and the responsibilities that will have to be paid by them in seeing that programme through. It will come as no surprise to those who have heard me speak before that I believe that that means that part of our programme must involve policies on levels of prices, wages and salaries. I make no excuse for that. It is crucial. No one in his right mind would want to return to the inflation levels that existed under this Government and under the previous Labour Government.
Rising prices have a terrifying effect on those at the bottom of the pile. The closest analogy is perhaps with totalitarian regimes which want to create such uncertainty that people do not know what will happen to them next. That is the effect of rapidly rising prices on those who have least. I therefore welcome what I understood to be a coded

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message from my hon. Friend the Member for Oldham, West. I hope that we shall become clearer as the election approaches.
Mr. Marlow: Will the hon. Gentleman give way?
Mr. Field: The hon. Gentleman may entice me to give way later. Many hon. Members wish to speak in the debate. I enjoy interventions, but I am aware that time is limited.
The hon. Member for Lincoln echoed the comments made by the hon. Member for Kensington (Sir B. Rhys Williams). It is rare for me to disagree with the hon. Member for Kensington, who is held in an esteem in the House on a par with few other hon. Members. That is not just because of the knowledge which he brings to our debates, but because of the firm resolution with which he is prepared to see those views through in the Lobby, even if it means voting against the Government. It is easy for Opposition Members to do that, but it is much more difficult for a Government supporter.
The hon. Member for Kensington said that we should aim for a system of combining taxes and benefits. I wonder whether that is the best way forward. Those who set the policies for benefits and those who set our tax policies should know what each is trying to achieve. Have we reached the stage when we can move safely towards combining taxes and benefits?
My hon. Friend the Member for Fulham (Mr. Raynsford) will no doubt talk about housing benefit. It is worth remembering that, when that reform was introduced, we were told that it was a simple reform. That simple reform has become a nightmare for our constituents and ourselves. If our ability to understand the world is so limited that this simple reform became such a God-almighty cock-up, what will happen with a big issue such as combining taxes and benefits? Most of us would be resident seven days a week in our surgeries trying to answer queries. I will not support the growing consensus for a combination of taxes and benefits. I want both sides of government to talk to each other occasionally, to understand what their objectives are and not to have contradictory policies.
I shall present in straightforward Tory language some of the arguments which I hope the Government are presenting to the Treasury on child benefit. The DHSS has had and will continue to have a battle with the Treasury over child benefit. That is why, when the uprating statement was made, I welcomed the 10p increase in child benefit. I was mindful of the Government's record the previous year, but, given that the Treasury was aiming for child benefit not to be increased this year so that it could be established that child benefit was not normally increased when other benefits were increased, that was a crucial battle won by the DHSS.
When we debate next week the private Member's Bill to be introduced by the hon. Member for Kensington, we shall have an opportunity to vote on child benefit. Although Ministers may protest otherwise, if many Conservative Members joined us in the Lobby, especially those who have registered their views in early-day motions and in letters to pressure groups in support of child benefit and its automatic uprating, it would massively strengthen the Department's hand with the Treasury.
The arguments that the Department should pursue with the Government in Tory terms are as follows. First, among
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all benefits, child benefit strengthens the family. The Conservative Government say that they are about strengthening the family, not in a paternalistic way with officials putting their sticky fingers into people's private lives, but by giving them the resources to build the lives that they want. That would add massively to people's dignity.
Secondly, for a Government who believe that they should not interfere with wages, at least not in the private sector, child benefit is important in lessening the pressure for massive wage increases by family wage-earners, who are often men, but sometimes women. Thirdly, the bigger the child benefit, the bigger the incentive to work, for the reasons that were outlined by the hon. Member for Kensington.
Fourthly—this is the flip side of the coin—the bigger the benefit, the easier it is for people to remain honest. I note the decline in standards of honesty in our society, and it is harder for people at the bottom of the heap to abide by public notions of morality than it is for people who have bank balances. It is absurd for us to expect the poor to be more righteous than others. One reason why I want a Government who will campaign against poverty is that poverty is not some warm overcoat in which people happily shuffle round, but an evil that destroys them. That is part of the reason why people behave less honestly than they might otherwise do.
The fifth Tory reason for indexing child benefit along with other benefits is that it maintains tax equity. The only way in which we can ensure that we do not shift the tax burden from single people and childless couples to people with children when we increase personal allowances is to increase the tax-free income of those with children by a similar amount.
The sixth reason is the effectiveness of child benefit in tackling poverty. Although I would have put that at the top of the list, it does not come first on the list of Tory priorities.
Mr. Marlow: Could I add a seventh reason why Conservative Members should support child benefit? That is the paradox that those in work used to receive a child tax allowance. Child tax allowance no longer exists; we have child benefit instead. The reality is that, when there was child tax allowance, Conservative Members would accept its indexation and thought it was right and proper. Now some Conservative Members feel that child benefit should be given only to selected members of society. If we move in that direction, as the hon. Gentleman said, we would be taking money out of the pockets of families and putting it elsewhere. I believe, as the hon. Gentleman believes, that that is no thing for a Conservative Government to do.
Mr. Field: All that I would add to the hon. Gentleman's helpful intervention is that it would not just be taking money from the pockets of families; it would be putting money into the pockets of single people and childless couples. I said earlier that the Government told us proudly that they support the family.
I disagree with the hon. Member for Lincoln on another point. As I walk round Birkenhead, I am not set upon by many people who say that they long for the uprating date to be changed to April. I have had no inquiries about that. The Government are changing the uprating date to April because it is more convenient for

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them, not for my constituents or those of other hon. Members. That being so, the Government are duty-bound to ensure that, in the changeover to April, no beneficiaries will lose in the process. I do not argue that it is a mean-minded, miserable little uprating. If inflation was a little more than 1 per cent., and we linked benefits to prices, benefits would increase by only a small amount. However, some of my hon. Friends feel strongly on that point. As the change is for the Government's convenience, they are duty-bound to ensure that people will not be made worse off as a result of the move.
The evidence that I presented earlier from the Child Poverty Action Group brief — the hon. Member for Northampton, North (Mr. Marlow) has a copy with him — shows that there will be a small, but significant, reduction in the increase in benefit as a result of the changeover. A married couple in receipt of supplementary benefit will be a little less than £10 a year worse off. We must tell the Government that losses of that size, which may be unimportant to hon. Members but are crucial to many of our constituents, should be made up. The most effective way of doing that would be to grant an additional Christmas bonus or to introduce a new summer bonus.
5.29 pm
Mr. Michael Forsyth: I look forward to studying in the Official Report tomorrow the speech made by the hon. Member for Oldham, West (Mr. Meacher). I listened to it carefully, but I could not break the code to which the hon. Member for Birkenhead (Mr. Field) clearly has access, which apparently tells us that the hon. Member for Oldham, West is in favour of keeping down inflation and recognises, if I may say so without embarrassing the hon. Member for Birkenhead, the powerful argument that he advanced that high inflation hurts most the poorest and the pensioners in our society. The name of the game in this debate is not to argue about which Government would give the largest upratings in benefit, but which Government are capable of producing the largest increases in real terms and creating the conditions which enable the private sector to generate the wealth necessary to meet the bills.
When listening to the hon. Member for Oldham, West, I thought he was saying that inflation was not important in considering those who were poorest in our society because they are covered anyway by indexed benefits. At the risk of saying something that has been said many times, the hon. Gentleman—he is not here, but I dare say that he will study the Official Report—would do well to read again the remarks made by the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) who pointed out that inflation is the father and mother of unemployment. While the hon. Member for Oldham, West is happily creating inflation in order to fulfil promises rashly made, he will be putting more and more people out of work, who will present yet further demands upon the social security system.
I want to explore the central part of the argument of the hon. Member for Oldham, West, which was whether it was better to have a system which indexed benefits according to prices or according to earnings. Of course, he said earnings because the Labour party is the caring party and is therefore in favour of providing more. That is the deception which he presents to the House and to the
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country. The reality is that if we were to embark on that path—to his credit, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) changed his view half way through his speech, having started off on that path himself — it would result in our having commitments to the poorest in our society which we simply could not meet.
The reality is that even under a Conservative Government, who are determined to control inflation and public expenditure, we are paying ourselves more than we are earning. We are paying ourselves, as we have done for more than a generation, well beyond what we are producing as a nation. If we continue to do so, it will be the poorest who will suffer most and more people will lose their jobs. If we were to follow the prescriptions of the hon. Member for Oldham, West, we would be asking my right hon. Friend the Chancellor of the Exchequer to add to the burden on the wealth-creating sector. We would be penalising those elements in our economy which are capable of generating the resources which we need to meet our obligations.
Mrs. Margaret Beckett: I am listening with great care to the hon. Gentleman, just as I listened with great care to his interventions in the speech of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). I should be grateful if he would explain a little more the point that he is making. On the one hand, he is saying that there should be more wealth creation. He raised that first in his point on greater incentives. Therefore, he is presumably arguing that people in work should be paid more and that the tax burden should be less, and so on. On the other hand, he is lambasting people who are in work for being paid too much. It is not clear to me how he reconciles those two sides of his argument. I am sure that he does, but I am fascinated to know how.
Mr. Forsyth: I am grateful to the hon. Lady. I think that I can help her out, and I hope that she will abandon the policies which are based on such ignorance. The position is simple. I am arguing, not for higher pay, but for higher take-home pay by reducing taxation. If the Government succeed, as I am sure they will, in reducing the basic rate of income tax still further, the effect will be that those on average or below average earnings will have higher take-home pay and the pressure on employers to provide inflationary pay increases which are more than has been generated by increases in productivity will be reduced. One of the key reasons why it is important to reduce the burden of taxation on those in work is to moderate wage demands,. If we succeed in moderating wage demands, we shall be more competitive as a country, we shal generate more wealth and, in turn, increase the overall revenues from a lower rate of taxation. That is the first side of the equation.
Dr. Godman: Now we shall move on to privatisation.
Mr. Forsyth: I should be happy to follow the hon. Gentleman down that road.
The crucial part of the argument is surely that to increase Government commitments in the form of increases in national insurance or taxation in line with artificial increases in pay is to store up problems for the future. The gap will be filled only by borrowing or printing money, which in turn will create more inflation, which in turn will mean that more money has to be found to meet the indexing of benefits which are the consequence of a rise

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in prices. That is a spiral of decline. That is exactly the position in which the previous Labour Government found themselves.
The sheer hypocrisy of the hon. Member for Oldham, West takes the cake. He comes into the Chamber and berates the Government for not increasing the Christmas bonus. I should be happy to see it increased by 10,000 per cent. plus £10 on the levels that were paid by the Labour Government in 1976 and 1977, because a 10,000 per cent. increase on nothing is nothing.
Mr. Marlow: Was there not another misunderstanding in what the hon. Member for Derby, South (Mrs. Beckett) implied? I think she was saying that there was no difference between increased pay and reduced taxation because the benefit to the worker is the same, but there is a massive difference. If pay is increased, the cost of production is increased and unit costs are increased. We become less competitive and lose masses of jobs. is that not one reason why the Labour party seems to be at odds with any understanding of economic policy?
Mr. Forsyth: I am grateful to my hon. Friend. I completely support his analysis, although I would not go along with the views that he expressed earlier on child benefit. I shall come to that.
The other extraordinary thing about the views of the hon. Member for Derby, South (Mrs. Beckett) on tax cuts—
Mrs. Beckett: I have not yet had a chance to give my views on tax cuts.
Mr. Forsyth: I shall gladly give way to the hon. Lady so that she can give us her views on tax cuts, if she cares to do so, but I understand that the position of her party, which I assume she supports, is that it does not think there should be tax cuts. Indeed, several Opposition Members have argued that tax cuts are irrelevant and that what we should do is help pensioners. They all seem to have forgotten that 2·4 million pensioners in Britain pay tax totalling £2·9 billion, which is 9 per cent. of the total tax take.
Yet again we see an inconsistency in the Opposition's argument. which was clear in the promises made by the hon. Member for Oldham, West. He was busily telling us how he would take back all the money that the Government had given away in tax cuts and use it to fund his promises. He mentioned directors earning over £30,000 a year. If we tax people with earnings of over £30,000 a year at 100 per cent., it will be done once, because on the whole people do not work for nothing, as one of my hon. Friends has pointed out, and that will raise £1·8 billion, which will not get anyone very far down the road towards meeting the cost of the bill which would arise from the promises made this very afternoon alone by the hon. Gentleman. Opposition Members must come to terns with the fact that there are simply not enough of the Tory fat cats whom they dream about to meet the bills which a Labour Government would generate. Indeed, the hon. Member for Birkenhead was moving in that direction in his speech.
Mr. Frank Field: We shall make a start.
Mr. Forsyth: When the Labour party does that, it will end the whole process of wealth creation, making life even more intolerable for those whom it seeks to represent.
Mr. Frank Field: The hon. Gentleman's argument that if we reimpose the level of taxation that existed under the Labour Government we will receive no additional revenue in year two is clearly fallacious, because the Labour Government continued to raise revenue. The hon. Gentleman shakes his head. It is disconcerting to stand up and face the Tory Benches, only to see brightness and light. Normally when I face Tory opponents that is the last thing I expect to see. To correct the hon. Gentleman through the sunlight, we are thinking not of imposing a 100 per cent. tax on incomes above £30,000 a year, but of reverting to the previous level of taxation, which continued to raise a certain sum even under the Labour Government.
The argument that cutting taxation would lead to lower output puts the hon. Gentleman into equal difficulties, because there is not much difference between the growth rate under the Labour Government and that during the whole period in office of this Government. It may be that tax cuts are not the panacea for a relatively high growth rate in the British economy.
Mr. Forsyth: The hon. Gentleman is asking me to resolve a difficulty which exists in the Labour party. The Leader of the Opposition has said that a Labour Government would not increase taxes for those earning less than £30,000—he started with £20,000 and changed the figure to £30,000. Having set those guidelines, I am merely pointing out that if one taxes all earnings above £30,000 a year at 100 per cent. that will raise £1·8 billion, which does not go far towards the £25 billion programme of additional expenditure to which the Labour party is committed. Nor does it go far towards meeting the promises made this afternoon.
I agree with the hon. Gentleman that if one wishes to embark on a programme such as he would wish one must tax people who at present are paying tax at the basic rate. There are 18 million people on or below average earnings who, as it is, face penal rates of taxation. It is not in the interests of the country or of eliminating poverty to increase the tax burden on them which would be the consequence of the policies to which the hon. Gentleman is committed. He must address himself to that.
The hon. Gentleman argues that wealth will be generated despite penal rates of taxation on the rich. That is an ideological difference between us and he will have to work extremely hard to convince me that people who pay 98 per cent. tax, as they did previously, will continue to work within the white economy. I thoroughly agree with the hon. Gentleman's emphasis on declining moral standards and the increase in the black economy. That is a consequence of high taxation, and the hon. Gentleman must face the fact that if the Labour party's policies are pursued people will have a greater incentive to work in the black economy and to make demands on the social security system. The hon. Gentleman raised an extremely good point, but it is one which his party needs to resolve and which it has singularly avoided doing today.
I disagree with what my hon. Friend the Member for Northampton, North (Mr. Marlow) said about child benefit. My hon. Friend the Member for Darlington (Mr. Fallon) put it in a nutshell when he asked why we should pay tax-free benefits to duchesses. It is a monstrous waste of money and resources to tax people who pay high marginal rates of tax only to pay their wives child benefit. I am happy to declare an interest, in that I receive child benefit. It is an immense tax-free perk, for which I am

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grateful, but to have many bureaucrats collecting revenue from, and many others dishing it out to, the same family is not a sensible way to run a country. I would far rather see child benefit being taxed or not being available to those who earn high incomes and pay high marginal rates of tax, and instead being directed to families in greatest need. As an across-the-board benefit it is completely unacceptable at a time when we have finite resources and considerable demands.
Sir Brandon Rhys Williams: Does my hon. Friend agree that the simplest way to increase the tax burden on people earning high incomes is to increase the higher rates of tax, not to take away their child benefit? To take away child benefit simply means that they are less well off. If one wishes to penalise high earners, which seems to be the gist of what my hon. Friend is saying, the simplest way to do that is to raise their rate of tax.
Mr. Forsyth: Clearly I have picked up some of the code of the hon. Member for Oldham, West, because my message was somewhat different. I am not in favour of increasing the tax burden on anyone. On the contrary, I should like to see it reduced, because that will result in an increase in the wealth generated. I believe that by reducing tax rates we can increase Exchequer revenue, which has been the United States' experience.
My desire to see child benefit not being paid to those on high incomes is not based on a desire to see those people paying higher rates of tax. I simply think that it is madness to have two bureaucracies involved in transferring money from one pocket to the other. Most families with high incomes—I gave the example of duchesses—do not need child benefit to look after their families.
Mr. Frank Field: Fortunately or unfortunately, depending on one's political perceptive, the country is not made up of duchesses. First, there is a difference between making child benefit selective — in other words, only paying it to poor families — and taxing it. There may well be a case for taxing child benefit, provided the revenue goes back into child benefit and increases its value. Secondly, if the hon. Gentleman wants to abolish child benefit—this question was implicit in the intervention of the hon. Member for Northampton, North (Mr. Marlow)—how will he maintain tax equity between those with children and those without children? In other words, how does he propose to increase the tax-free income of those two groups on a par? How will he avoid transferring the tax burden to those with children?
Mr. Forsyth: There are opportunities to do that through the new social security system.
Mr. Frank Field: What opportunities?
Mr. Raynsford: How?
Mr. Forsyth: Through family income. [Interruption.] I agree with the hon. Member for Birkenhead that the country is not made up of duchesses. The hon. Gentleman is something of an expert in this area and he knows the figures. He knows that we are paying well over £1 billion in child benefit to people on well above average earnings. I should like to see that money redistributed to those in greatest need. I do not have a strong view about whether
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that should be done through taxation or by some other process. At present the system is wasteful and creates an unnecessary dependancy.
Mr. Frank Field: Will the hon. Gentleman give way?
Mr. Marlow: Will my hon. Friend give way?
Mr. Forsyth: I may be short in the tooth, but I know what I am interested in. I give way to the hon. Gentleman.
Mr. Frank Field: The hon. Gentleman says he does not have a strong view on this issue. I do not want to be unkind to the hon. Gentleman, because he has given way to me, but the feeling that I had was that on this matter he did not have a view at all. When pressed to take his argument beyond the slogan, he was hard pushed, to put it politely, to suggest how his alternative would work. I urge him to think carefully after the debate about the points that he is putting to the House and about how in practice his suggestions could be implemented. I do not believe that they could be.
Mr. Forsyth: If the hon. Gentleman is pressing me to express a view, I have to say that I would prefer a tax on child benefit, but that has the great disadvantage that it does not overcome my principal objection, which is that we would still have large numbers of bureaucrats giving out and taking back money. That would mean that less money would be available for the pockets of the families who needed it.
I should like to return to my broad theme, which arises from the speech of the hon. Member for Oldham, West. The Opposition make promises which they cannot possibly fund or keep, and they direct the whole of their energy to misrepresenting the real benefit achievements and the benefits to the Health Service that have been made by the Government.
The most astonishing thing about this uprating is that it costs £420 million, and we are being attacked by the Opposition and by people outside the House over the small percentage increase which arises as a result of our success in reducing inflation. If Britain were ever to be "blessed" with a Labour Administration with a commitment to create inflation of the sort that we heard about from the hon. Member for Oldham, West, the cost of simply meeting the obligations to keep up with prices would be so enormous that the Labour Government would be unable to meet the existing commitments to the benefits system.
The hon. Member for Oldham, West told the House that the Government's record on the Health Service was a disgrace and that it was repudiated all over Britain. To say that shows as much nerve as the nerve that he had when he spoke about the pensioners' Christmas bonus. The last Labour Government made cuts in the Health Service capital programme and cut the spending programme. That is in contrast to the present Government's record. I did not intend to speak in this debate until I heard the hon. Gentleman's speech, but perhaps I could conclude on a lighter note. I obviously missed the code defined by the hon. Member for Birkenhead, but as I listened to the Opposition speeches I was reminded of the lines by Kipling:
"Dreaming of things they meant to do,
All complete in a minute or two,
Something noble and grand and good,
Won by merely wishing we could."
5.53 pm
Mr. Nick Raynsford: I shall confine my remarks to the upratings in the housing benefits scheme and ask for the indulgence of the House for going into relatively complex and difficult calculations. I have to do that because this is a difficult and complex subject. The increase in the needs allowance under the statutory instrument that we are considering is substantially less than it would he if the traditional formula that applied in previous years had been adopted. Therefore, it will be necessary to outline the traditional formula.
The needs allowance that has existed effectively since 1972, when a Conservative Government introduced a rent rebate and allowance scheme, has four elements. The first element is the supplementary benefit long-term scale rate; the second is 40 per cent. of the average council house rent; the third is 40 per cent. of the average rates; and the fourth is 100 per cent. of the average water rates. The logic behind that is that people who receive standard housing benefit, as it is now known, have an income that is generally above the supplementary benefit scale and have to meet a proportion of their rent and rates and 100 per cent. of their water rates. The formula was calculated to try to ensure that they are left in a broadly comparable position to people on supplementary benefit who receive a larger amount of assistance towards those housing elements.
This year the traditional formula has not been applied and the Government have said that they are applying the same increase to the housing benefit needs allowance as they have applied to the increase in the pensions, that is, 40p for a single pensioner and 65p for a couple. Let us leave aside for the moment the fact that that increase is insulting and derisorily small and has been almost universally condemned by people interested in the welfare of pensioners.
The critical question to be asked is: what would the increase in the needs allowance have been if the traditional formula had been applied? This is relatively easy to establish. We know that the supplementary benefit long-term scale rate being put forward by the Government for a single person is £37·95. Forty per cent. of the average council house rent, which is currently £16·57 a week, amounts to £6·63, and 40 per cent. of the average rates, currently around £7·50 a week, is £3, and 100 per cent. of the average water rates is £1·78. That gives a total of £49·36. Allowing for the normal practice of rounding that to the nearest 5p, we arrive at a figure of £49·35. That is the figure for the needs allowance of a single person had the traditional formula been adopted.
Instead of applying the traditional formula, the Government have brought forward a statutory instrument proposing that the actual needs allowance will be £48·10. That is, £1·25 a week below the amount that it ought to be. There has been no explanation from the Government about this shortfall and no apology for it. It has simply been presented to us in the hope that the obscure nature and complexity of the formula will result in no one noticing the difference. It is not a shortfall of a few pence, as one might have inferred from the speech by the Minister who opened the debate. He implied that there were various adjustments because it was only an interim increase, and that the amounts involved were only a few pence. By no stretch of the imagination is £1·25 a week a few pence: it is a significant shortfall.
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What are the implications of that £1·25 shortfall? According to the last answer given by the Minister to a question that I put to him about a month ago, approximately 3·99 million households receive standard housing benefit. That is one in five of the population and represents a significant number of people. What is the average loss to those people because of this strange change in the formula for uprating their benefit? It is not £1·25 because, of course, the formula is complex. The £1·25 is the amount of the needs allowance, but the actual benefit depends on the amount of a person's income in relation to the needs allowance. If a person's income is exactly equal to the needs allowance, he will receive 60 per cent. of his rent and rates.
Someone whose income is exactly equal to the needs allowance will suffer a loss of 75p, which is 60 per cent. of £1·25. For those people whose incomes are above or below the needs allowance, the loss will vary, partly depending on how far the income is above or below the needs allowance, and partly depending on other factors. It is impossible to give an overall figure for every claimant, but. I should like to come back to certain parameters. For a person on the needs allowance, the average loss will be 75p a week, equal to £39 a year. That is the sort of loss that these people will suffer as a result of the Government's increase and the Government have not had the honesty to tell anyone about that loss.
Mr. Frank Field: Give way and allow the Minister to answer now.
Mr. Raynsford: I will give way to the Minister in a moment if he wants to reply.
If that loss of £39 a year applied to every housing benefit recipient—and I do not claim that it does—the total saving to the Government would be £155 million a year. That is a significant amount. In reality, I expect the Government's savings will be less because of the complex formula. I have consulted the Library on this, and it gave me the estimate that the total savings for the Government are likely to be about £100 million in the course of a year. We are dealing with a Government who are making covert savings of between £100 million and £150 million without having the honesty to tell the House about it. That is a serious matter.
I put these figures forward not in the confidence that they are precisely accurate because, as I have explained, a complex formula is involved and it is difficult to be precise, but because I have no other option. A month ago, I asked for detailed figures on this. I asked the Secretary of State for Social Services:
"what savings in expenditure on housing benefit he expects to make in the 1986–87 and 1987–88 as a result of his proposal to increase the main housing benefit needs allowance in July 1986 by the same cash amounts as the retirement pension rather than according to the normal uprating formula."
The hon. Member for Huntingdon (Mr. Major) replied:
"No comparison is available since the traditional uprating formula, which has sometimes produced reductions in entitlement in the past"—
that is an interesting comment because in my memory there has never been a reduction in the needs allowance—
"could not be used on this occasion because the measurement period for the transitional July uprating covers only May 1985 to January 1986."—[Official Report, 12 May 1986; Vol. 97, c. 381.]
That was a convenient answer for the Minister because it allowed him to avoid facing the fundamental question about the amount of the saving.

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Our complaint is that, because the Government have gone away from the traditional uprating formula, there has been a significant cut in housing benefit and a significant saving for the Government, about which they have not come clean. I notice that the Secretary of State is seeking advice on this point. I hope that he gets good advice so that he will be able to inform the House of it.
Who will lose as a result of these changes? In total, about 3,990,000 households receiving standard housing benefit will be affected. Of those, 2·63 million pensioner households will be affected, and will have losses inflicted upon them because of this covert cut in benefit. Some 1·5 million home owners and 1·85 million council tenants will suffer losses because the Government have chosen, secretly and furtively, to cut housing benefit, but have not had the honesty to admit to the House that that is what they are doing.
Mr. Major: Before the hon. Gentleman proceeds with categorical assertions such as this, I point out that it is within the recollection of the House that a few minutes ago he said that he does not have confidence in his figures. Until such time as he does have that confidence, I hope that he will make it clear to the House that his assertions are based on figures that have not yet been examined, and certainly not conceded by the Government.
Mr. Raynsford: As the Minister will also recall, I was talking about the number of households that will suffer losses. I have been able to give these figures categorically because the Minister gave me these figures in answer to a question that I posed a month ago. The figures that I said that I could not give precisely are of the total savings to the Government, because he declined to give me that answer. Therefore, I can state on the basis of his answers that about 4 million households are affected, including about 2·5 million pensioner households, 1·5 million owner-occupiers and 1·8 million council tenants. Those are the Minister's figures. The extent of the loss and the total savings to the Government I cannot give because those figures have been denied me. I hope that the Minister will answer that challenge.
I remind the House that this is not the first time that recipients of housing benefit have suffered loss at the hands of the Government. Some 2·2 million households lost benefit in April 1983 as a result of changes to the housing benefit formula at that stage. In April and November 1984, a further 2 million households lost as a result of further adjustments — cuts imposed by the Government that some Conservative Members had the courage to oppose. In April 1985, a further 90,000 households lost as a result of further changes involving people in areas with high rents, and in November 1985 a further 2 million households lost because of changes to the rate rebate taper formula, a complex issue.
The Government's cuts to the housing benefit scheme have caused extensive losses involving hundreds of millions of pounds. Additionally, the Social Security Bill, which the House recently considered, proposes further swingeing cuts in housing benefit, which will reduce benefit to millions of households and will give the Government a saving of about £450 million. On top of that, we have an unannounced cut that could involve the Government in savings of upwards of £100 million, about which they have not come clean.
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What is the Government's case? The two possible answers that I sensed from the opening speech made by the Minister for Social Security were that the increase has been done in a way aimed at preventing administrative problems to local authorities and the DHSS caused by having different upratings for different benefits. That is a somewhat unconvincing argument coming from a Government who have consistently adjusted the formulae for housing benefit—often at short notice and involving considerable administrative problems for local authorities—to make cuts. Why is it that, on this occasion, when doing the thing properly would have been to the benefit of households in receipt of housing benefit, the Government are not prepared to do so? If they can make administratively difficult adjustments to make cuts, can they not do the same to be fair to claimants? Going on the basis of their previous cuts in housing benefit, that argument seems pretty crude and unconvincing.
The second argument that the Government may advance is that they could not adopt the formula because the uprating came earlier than usual and they did not have the information on the increase in rent and rates to make the assessment. This would be a convenient argument if it carried water, but it does not because the Ministers in the DHSS had only to ask their counterparts in the Department of the Environment what sort of figures they were anticipating for average rent increases in April this year and they would have had an answer. When the new needs allowance was announced by the DHSS, the Department of the Environment was giving advice to local authorities that it was expecting—and this was the basis on which subsidies to local authorities were being calculated—an increase in rents of about 65p.
It would be nice if there were more co-ordination between the Government Departments and if the DHSS actually spoke to the Department of the Environment and asked about these figures. Had it done so, it would have had a solid basis on which to make the uprating assessment. Sadly, this appears to be yet another occasion when the DHSS did not speak to the Department of the Environment about matters that require co-ordination for social policy purposes. One thinks of the long, sad history of the board and lodging allowance cuts, of the proposed cuts on mortgage support in supplementary benefits. In particular, one thinks of the housing benefit cuts, in which the DHSS appeared to be taking unilateral action that had a serious impact on housing policies, but did not have any discussion with the Department primarily concerned with housing policy before making its announcement. Those arguments are unconvincing. If there were a will, undoubtedly a way would be found to ensure that the proper uprating would have been given.
If the Government wanted to apply the normal formula, they could have found a pretty sound basis for doing so. Instead, they chose conveniently to ignore the traditional formula. It was convenient to them because their alternative formula cut benefit increases and substantially reduced expenditure. I shall be interested to hear what the Minister has to say about this.
This occasion contrasts markedly to what happened a year ago, when the DHSS made a swingeing increase in the non-dependent deductions under the housing benefit scheme of some 18 per cent., far ahead of the uprating in benefits. They justified it on the ground that there is an arcane formula used for assessing non-dependent deductions, although anyone in the know knows that that

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is based entirely on owner-occupier costs and the majority of housing benefit recipients are tenants, so it is a most dubious formula. However, the Minister justified the increase on the basis that his time-honoured formula had to be adopted. If that logic was good enough when cuts were in the wind, why is it not acceptable now when claimants have a right to receive a proper and reasonable increase?
The Minister's arguments were unconvincing. A third argument that may be advanced is that this is only temporary because next year, when the April increase takes place, the rent increases that apply this April will be taken into account and it will all catch up in the end. That argument is equally unconvincing on two counts. Why should claimants have to wait that length of time in order to catch up and, secondly, in effect it will not be catching up because by that stage it will be a year after the rent increase before the formula comes into effect. In other words, there will have been a one-year time lag, as a result of which claimants will have lost money.
I can find no justification whatsoever for the Government's action. This proposed increase, which breaks the traditional formula, is a dishonourable action. I am concerned about the lack of any frank information and the Government's unwillingness to answer my questions. The House deserves proper answers from Ministers. In the absence of such answers we should insist on these regulations being annulled and instead insist on a fair and proper increase in the housing benefit needs allowance.
6.11 pm
Mr. Martin M. Brandon-Bravo: I deeply regret that the hon. Member for Oldham, West (Mr. Meacher) is no longer present, because it was obvious from the way in which he delivered his speech that he believes his brief. He must also believe that the British people are just about the most gullible in the world if he thinks that they will swallow what he said. We were treated to a stream of telephone numbers in relation to the kind of money that the hon. Gentleman would spend if he became Secretary of State.
The hon. Gentleman ignores—and I know that his leader tries to ignore—the fact that he is not the only shadow spokesman who talks in telephone numbers when informing us of what Opposition Members will spend when they come to speak—I hope that they never do—from the Government Dispatch Box. Depending on which newspaper one reads, the figure varies between £24,000 million and £30,000 million more in a financial year—
Mr. Major: And that was before this afternoon.
Mr. Brandon-Bravo: My lion. Friend is quite right.
The hon. Member for Oldham, West ought to note what was said by his right hon. Friend the Member for Manchester, Gorton (Mr. Kaufman) just after the general election in 1983. I hope that the House will forgive me, because I do not have the Hansard with me, but I think that I paraphrase the right hon. Gentleman correctly. He said that his party had pledged additional spending of £17,000 million a year, that the British public would not be fooled and that his party's policy therefore lacked credibility. We are going through that same process again, and the Labour party's case lacks the same credibility.
I wish to speak about our pensioners, who constitute a substantial part of our population. They also will not
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have been fooled by the speech of the hon. Member for Oldham, West. After all, those people grew up with very different values from those that the hon. Gentleman would support. They valued thrift and independence rather than dependence, a philosophy of which the Labour party seems to make a virtue.
The Labour party also seems to dismiss as irrelevant and unimportant those pensioners who have savings. I think the comment was made that there were not many of them.
Mr. Frank Field: The duchesses.
Mr. Brandon-Bravo: Not duchesses, Mr. Birkenhead, just ordinary working class pensioners who have put a little bit by for the eventual rainy day, and who after five years of Labour rule found that their little nest egg had become worthless.
Mr. Field rose—
Mr. Brandon-Bravo: I shall not give way for the moment, because we are running short of time. We are not going down that road again —
Mr. Raynsford rose—
Mr. Brandon-Bravo: The hon. Gentleman spoke for a long time and another of my hon. Friends or perhaps even another Opposition Member may still be waiting to speak.
All too often we tend to forget that at long last, after many years, people's savings that are locked away in building societies are now earning a greater return than the rate of inflation. That is important to many of our pensioners who want their savings protected and who rely on the little extra that building society interest gives them. As my hon. Friend the Member for Stirling (Mr. Forsyth) pointed out, it is foolish to talk as though squeezing the rich will be sufficient to deliver all the fancy promises that we have heard from the Labour party.
I think that it was at the Labour party conference in 1976 — [HON. MEMBERS: "Were you there?"] We all watched the television—that the right hon. Member for Leeds, East (Mr. Healey) then used the phrase that the Labour party would squeeze the rich until the pips squeaked. But as my hon. Friend the Member for Stirling said, he discovered that there were not enough such people to deliver the kind of promises that had been made by the Labour party, and at the end of the day everyone was paying more.
Mr. Andrew Rowe (Mid-Kent): It should not escape our attention that the view of the shadow Chancellor about who would need to be taxed more heavily changed markedly when he discovered the average take-home pay of a prison officer.
Mr. Brandon-Bravo: My hon. Friend makes a valid point. Indeed, the figure identifying the wicked rich has been raised from £20,000 to £30,000, because people do not have to hold very important posts for a husband and wife to discover that they are over the £20,000 limit. Those are the very families that the shadow Chancellor would wish to squeeze.
I hope that the hon. Member for Birkenhead (Mr. Field) does not think me patronising, but I believe that he was the first Labour Member at least to have the honesty to say that one must present a balanced package. Labour Members must be honest enough to say that, if they wish to spend astronomical sums, they must come to terms with

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how they would raise them. The honesty of the hon. Member for Birkenhead is perhaps the reason why he speaks from the Back Benches rather than from the Opposition Front Bench.
Like Ministers, I share a sense of unease and uncomfortableness about the 40p adjustment. I know the reasons for it. I was delighted, as was everyone, at just how low inflation had fallen. On that basis, the 40p was technically correct. Some said that it was so small a sum that perhaps it should not have been paid at all and that the payment should have been left until April. I have no doubt that if the Minister had taken that view we should have heard an even louder squeak from the Opposition Benches because pensioners would have had to wait for 18 months. It was the classic Catch 22 — the no-win situation.
If we can maintain that very low rate of inflation—as I believe we can — and if the economy continues to grow, I hope that Ministers will persuade senior colleagues that we should do a little more for our pensioners next April than merely deliver our promise. I am glad that we made that promise and that it has been kept, but we should offer pensioners a little more out of the growth of the economy so that they can enjoy some of the benefits flowing to those in work.
I say that because I am conscious that the cost of living for our pensioners is different from that shown in the conventional cost of living index published in newspapers. I have no figures to prove my assertion, but I guess that the average pensioner does not benefit from a fall in the mortgage rate or from a fall in the cost of petrol. I do not know by what mechanism we can truly establish the cost of living for the bulk of our pensioners, but if it can be established, I hope that my senior colleagues will try to make some move towards delivering a rise next April for our pensioners in line with their cost of living, which is so different from ours.
Mr. Raynsford: In view of what I said earlier about 2·5 million pensioners suffering losses because of the failure to uprate housing benefit needs allowance properly, does the hon. Gentleman accept that an effective improvement could be made for pensioners, including those with savings whose income is above the supplementary benefit level, by pressing the Government for a proper increase in housing benefit this July?
Mr. Brandon-Bravo: When the hon. Gentleman rose and apologised to the House for getting involved in technicalities, I guarantee that, 30 seconds later, he had lost the attention of most hon. Members. That happened not only on the Government side; I saw blank looks of amazement on the faces of most of his hon. Friends.
In Nottingham this winter the local newspaper ran a magnificent campaign for the old and cold. It raised a lot of money, with which it made specific grants to people identified by their neighbours as being in trouble over heating payments. It was with a sense of unease that I accepted that the newspaper had to conduct such a campaign, but I was glad that it did. It was good to see the public responding so well to the appeal.
An interesting sidelight on that campaign for the old and cold is not addressed by all the arguments about additional heating payments. Two or three weeks ago Nottingham university staged an open day. One of the
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exhibitions was about cold and its effect upon human beings. I suppose that I was subconsciously aware of what the exhibition demonstrated, but it had never been brought to my attention in such a forceful way.
The exhibition was about the effect upon our elderly of a poor diet. The professor at the university said that poor diet probably had a greater impact on death through hypothermia than the temperature in an elderly person's home. On reflection, most of us will realise older people want a higher temperature in their homes than we find comfortable. Many elderly people have the strange belief that they do not need to eat as much as most of us. They eat less and less as they get older, and that is one of the major causes of the tragic loss of life through hypothermia.
Perhaps the Government can do something about that. I hesitate to make suggestions because it is difficult to persuade an old person that eating properly is as important as keeping the gas fire on all day.
I agree with hon. Members on both sides of the House that the weakest in our society are affected by inflation. It is no good saying, as members of the Labour party and of the alliance say all too often, that a few extra points on the cost of living index do not matter. They really do. We do no service to our community by arguing that it does not matter if inflation is a few points higher so long as benefits go up in line with that inflation. We cannot have it both ways. If we accept that philosophy, we shall be back to the earnings-related benefits argument. I hope that the Government continue to make inflation their top priority. If we can keep inflation down to tiny percentages, even if we cannot achieve zero, we shall do the greatest service to those at the bottom of the income scale and to our pensioners.
6.27 pm
Dr. Norman A. Godman: I wish to speak briefly to the second order, on supplementary benefit uprating, but first I should like to respond to what the hon. Member for Nottingham, South (Mr. Brandon-Bravo) said. Surely he was not saying that research at Nottingham university demonstrated that diet is more important for the elderly than a warm house. I should have thought that a sensible diet and a warm house are very important to the elderly. The hon. Gentleman might not have said that, but that is what I understood.
The hon. Gentleman spoke about people in work. I am sure that he does not need to be reminded that the numbers of people in work and out of work are not evenly distributed throughout the nation. A large proportion of my constituents are utterly dependent on supplementary benefit and other payments. Indeed, over the past six years there has been a 94 per cent. increase in the number of supplementary benefit claimants in Greenock and Port Glasgow.
About 21 per cent. of the population in Scotland live on or below the supplementary benefit level. In Strathclyde the figure is 26·8 per cent.; in Glasgow 39·5 per cent. of people with dependants live on social security payments, while in my constituency about 33,000 people live on or below the supplementary benefit level. Therefore, upratings are of great importance. It is both inevitable and predictable that there will be pronounced and profound differences in this House on the means by which we reform the system of social security. As I said

369
many times in the social security Bill Committee, we have a ramshackle system of social welfare, of which these upratings are a part.
The Minister said that the regulations covering severe weather payments were being reviewed. I hope that it will not he too lengthy a process. I have spent some considerable time arguing the case for these payments. My hon. Friend the Member for Birkenhead (Mr. Field) asked whether those payments could be made to those saddled with additional fuel bills because of the past few weeks of unseasonably cold weather. He was not being facetious. The severe weather payment is based upon the additional costs brought about by the additional fuel consumed in unseasonably cold weather. Indeed, the Minister said that in February such payments were made to 57,000 pensioners and others in Scotland. It is an important issue and my hon. Friend was right to request payments because of our exceptionally cold summer. Despite what the hon. Member for Nottingham, South said, people need warm rooms, and this has been a dreadful summer.
I also agree with much of what my hon. Friend the Member for Birkenhead said about the dangers of inflation. He made sound sense. However, as well as the spectre of inflation and the distress caused by constantly increasing prices to those on low incomes, especially pensioners, we also have the problem of structural unemployment. More and more people are deeply affected by economic decline. The male unemployment rate in my constituency is at the scandalously high level of 26 per cent., and there has been a 94 per cent. increase in the number of supplementary benefit payments during the past six years. To some extent, that has been generated by the disastrously inadequate and antiquated economic policies of this Government.
It is right and proper that we should all put our minds to the reform of the system of social welfare, although there are bound to be differences across the House. We must consider an increase in taxation for some of those in work, especially the better off. We all have an obligation to protect and promote the interests of the needy in our constituencies. As I have already said, 33,000 people in my constituency are on or below supplementary benefit level — yet it is not the area most heavily affected by structural decline on the Clyde or in other parts of Scotland. It is right that we should examine ways to change the system. I believe that the Labour party system is much better than that supported and promoted by the present Administration.
6.36 pm
Mrs. Margaret Beckett: This has been an extremely interesting debate. I apologise for not having been present throughout, although I have been here for the larger part. I have certainly been here long enough to realise how many of the main points of concern have been ably expressed by hon. Members on both sides.
My main point, which has been made already but bears repeating, is the extent to which our debate is about an opportunity lost. The hon. Member for Lincoln (Mr. Carlisle) suggested that the Government should take credit for the lower levels of inflation that we now enjoy. Over the past few years they have done nothing else, although they have not wanted to take the blame for some of the problems that have accompanied that.
Because the rate of inflation is comparatively low, it gives the Government a great opportunity to do more than
370
the rate of inflation and to do so, relatively speaking, inexpensively. It has been an extraordinary feature of this and other uprating debates that Tory Back Benchers, clearly following the arguments put to them, speak as though it would be inconceivable generosity were the Government to do rather more than increase benefits in line with the increase in prices—as though the standard of living of the poorest members of the community was being fully protected by this and other upratings.
It is important to remember that when in 1980 the Government decided to break the link between earnings and benefits and to retain only the link between benefits and prices the then Secretary of State, in specific and unqualified terms, said that the Government's intention was not merely to increase benefits in line with prices year after year but to take the opportunity — this is his argument, not mine — presented by the economic difficulties in which the Government found themselves to break the link with earnings that was at that time a statutory and bounden duty on the Government and to retain only the statutory duty to increase in line with prices.
I was under the impression that the Chancellor of the Exchequer, let alone the Secretary of State for Employment, believes that we are now in a time of prosperity — that there has been great success in the Government's economic and industrial policies and that things are now substantially better than for many years past. On the basis of the argument put forward by the previous Secretary of State in 1980, surely it is now opportune for the Government to do as they indicated in 1980 they had every intention of doing—from time to time to make a one-off increase in benefits in line with earnings, although they did not intend to do that every year.
The reason that the Secretary of State of the day gave that assurance was a reason of importance which stands today. His recognition that to link benefits only with prices meant, as it means now, a steady and inexorable decline in the standard of living of the poorest members of the community. That is clearly evident now regarding pensioners. The figures are known. A single pensioner has lost about £4 a week through the break with earnings, and a married couple have lost about £7 a week.
It is evident how much people have dropped behind in terms of living standards when one looks at the long-term predictions of the Government Actuary regarding pensions. Even before the Government got their grubby hands on the state earnings-related scheme, the: Government Actuary showed that over a period of years the basic pension so declines in value when linked only with prices that even with the addition of an untouched earnings-related scheme the total pension gradually declines until it is below that of a basic pension today. Those are the Government's own figures and predictions.
The value of child support is being eroded. Not even the £175 million cut last year from child benefit has been restored. The value of child support is now less than it was 30 years ago.
I could not say that one would welcome a decision to leave non-dependent deductions in housing benefit where they were but, as my hon. Friend the Member for Fulham (Mr. Raynsford) said, the Government, having introduced that deduction at an exorbitant and unjustified level, disproportionate to the cost of rent and rates, increased it last year by an amount substantially above the rate of

371
inflation. The fact that the Government did not choose to increase it this year is, I suppose, to be welcomed, but it does not mean that we have forgotten how much they took from such families last year. The deduction affects poor families with young adults who are in work. The decision to scrap the non-household rent addition is a blow to many needy families with young adults out of work. It is a further blow to their independence.
It has been said that, since the Conservative party has been in government, about £1·5 million has been saved at the expense of the young in particular and that substantial savings along those lines are likely in the Social Security Bill. How much do the Government expect to save from the change? We know that, when the Government made similar changes in 1983, they saved £20 million. A further set of changes in 1985–86 saved another £45 million. We shall be interested to learn how much has been saved at the expense, in particular, of young people forced to depend on benefits.
My hon. Friend the Member for Fulham, in an interesting and excellent speech on housing benefit, not only educated many hon. Members — as the hon. Member for Nottingham, South (Mr. Brandon-Bravo) conceded — in the intricacies and byways of housing benefit but put most pertinently to the Government a number of questions on the impact of their changes. It remains for me only to say that I hope that on this occasion the Minister will say whether my hon. Friend the Member for Fulham was correct in asserting that savings of £100 million or £150 million will be made. If he says that my hon. Friend is incorrect, he might tell us the order of magnitude of the sums involved.
The Government have lost an opportunity to restore some of the determination in living standards over recent years for the poorest members of the community. They have seized an opportunity to make more savings along the way, hoping that, because they are made by way of obscure technical adjustments, no one will notice—that is, no one other than the 4 million households which will be affected by the changes in housing benefits. They have seized an opportunity to make the minimum possible increase in benefits.
Much has been said in the House about the amount of the social security budget, implying that the Government are being generous. It should be clearly on record that every year since the Government broke the link with earnings they have given the minimum possible — the minimum that they are forced to do by law — to the poorest members of our community, whereas in every Budget they have brought in they have been generous to those whose needs are least.
My hon. Friend the Member for Fulham said that the Government could have taken account of changes still to come and not made the full savings that they can make because of the time of the uprating, if they had consulted their colleagues in the Department of the Environment. If not this year, in which year will the Government make up the losses? The hon. Member for Nottingham, South said that he hoped the year would come when the Government felt able to give back to the poor some of the living standards that they have lost over recent years. We all hope that that year will come, but since it has been six years since the change was made, we wonder when that will be. Perhaps the hon. Member for Nottingham, South
372
should pin his hopes, as should the pensioners and the unemployed, on a pre-election giveaway. Judging from the Government's track record so far, I am not sure that even those hopes should be strong.
The Government say that the poor are being protected in the uprating just as they say that the National Health Service is prospering, the economy is booming and everything is for the best in the best of all possible worlds. Even Conservative Members clearly realise that that is not the reality of how the Health Service or much else is perceived. There have been some signs in today's debate that they are beginning to realise that the same is true about the rest of the welfare state. We welcome their conversion. We hope that the pressure that they bring to bear will mean that next year's uprating will, for once, implement the pledges given by a former Secretary of State six years ago.
6.45 pm
The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Major): This has been an intriguing debate, spiced with assertion that has, as is traditional on these occasions, ranged far further than the question of uprating. I have no objection to that. As usual, there has been a mixture of informed and constructive comment, and other comment which it would be kindest to characterise as unhelpful. What has been consistent about the contributions from the Opposition Benches is that there have been times when one might been forgiven for believing that the debate was about reductions in benefits rather than orders which increase the main benefit rates and add some £420 million in a full year to social security spending. As I noted what was said, I wondered whether we were debating the draft regulations that I have considered carefully over recent days.
It is worth re-emphasising at the outset that the uprating fulfils our undertaking to increase pensions and other linked long-term benefits in line with the movement of prices. It is an oddity that the pursuit of low inflation, which has been the prime aim of Governments for 20 years, should, once achieved, give rise to criticism over benefit increases.
If the Opposition were presiding over, say, a 16 per cent. inflation rate—I pick the average rate during their last term of office, fearing that their spending plans would re-create that wicked cycle of rising prices and falling prospects—they would no doubt regard it as a matter of pride to protect benefit values by increasing rates by a similar amount. But when we protect benefit values, and savings too—as one of my hon. Friend's trenchantly pointed out — by bringing down inflation, that is a matter for criticism regarding benefit increases.
In reality we must get used again to living in a world of low price rises, when neither benefits nor, I hope, earnings need to go up by enormous amounts simply to keep up with the cost of living. Clearly, it will take some psychological adjustment. I am sorry to see that many Opposition Members are clearly maladjusted in that respect. The only logical conclusion one can draw from much of what they said was that they would like inflation to be higher so that pensioners and others can be given a larger increase.
Although the circumstances of the uprating are exceptional, and the small increase in benefits is due partly to the interim nature of the uprating, it is clear that the downward path of inflation, which thankfully looks as if

373
it will continue, means that it is possible for future uprating debates to be held against a background of low inflation. I am grateful to my hon. Friends the Members for Stirling (Mr. Forsyth) and Lincoln (Mr. Carlisle) and the hon. Members for Birkenhead (Mr. Field), and Roxburgh and Berwickshire (Mr. Kirkwood) for acknowledging clearly and without equivocation the full value of low inflation for those on modest incomes.
The hon. Member for Oldham, West (Mr. Meacher) made a rather expensive speech. No doubt it was enjoyed by Labour Back Benchers but it will conceivably mean misery for that unlikely creature of the future, a Labour Chancellor. I was concerned, not just with what the hon. Gentleman said, but, substantially, with what he left out. He talked of what the Christmas bonus would have been worth if it had been index-linked, but he certainly did not mention what it was worth in the years when a Labour Government found it impossible to pay it. He talked of the level of pensions and what it would have been if pensions had been index-linked to earnings, but, despite being challenged, he did not say what the cost would be in national insurance contributions, lost employment and increased inflation.
The hon. Member for Oldham, West did say — I acknowledge this—that he would claw back £3·6 billion in tax from what he loosely called "the rich" to pay for his new spending programme. I must tell him that £3·6 billion may seem a large sum to him, but his promises would cost a minimum of £4·6 billion in the very first year, of which £1·5 billion would be for child benefit. The Opposition will need to look far wider than the hon. Gentleman suggested if they are to fund their promises.
Mr. Meacher: It is a fantasy.
Mr. Major: To be accused by the hon. Gentleman of citing fantasy figures is surely one of the delights of life.
My hon. Friend the Member for Stirling successfully exploded the myth that these benefit increases could be paid for by taxes on the rich. I commend his speech to the hon. Member for Oldham, West, who was unavoidably absent at that time.
The hon. Member for Oldham, West compared the Government's record with that of their immediate predecessor. Again, there was much that he neglected to say. For example, he did not say, although it is highly relevant to pensioners, that the real value of savings for a pensioner with a building society account fell by 33 per cent. during the period of the last Labour Government, largely because of precisely the same policies that the Labour party now proposes and precisely the same policies that it would use to pay for the better provision about which the hon. Member for Oldham, West talked. Some help that would be to the pensioners. I shall with relish refer the hon. Gentleman's remarks to the tender researches of my right hon. Friend the Chief Secretary, who will doubtless check carefully to ascertain whether the hon. Gentleman's promises are within the £24 billion cost of Labour's programme to date or are a substantive addition to that sum.
The hon. Member for Derby, South (Mrs. Beckett) suggested that, as inflation was now so low — I am grateful for that acknowledgment—we might have done better and that it was trivial of us not to increase benefits by a larger sum. I must say to her, because arithmetic is not a strong point on the Opposition Front Bench—
Mr. Marlow: It is non-existent.
Mr. Major: It is non-existent. My hon. Friend is characteristically less generous than me. Each increase of 1 per cent. in benefits costs some £360 million, which is in no sense a trivial sum.
My hon. Friend the Member for Kensington (Sir B. Rhys Williams) made a typically thoughtful and constructive speech on a theme that he has pursued valiantly for many years. He will not expect me to respond to his philosophical observations, and I shall not disappoint him. But I shall confirm that we are making giant strides towards—
Mrs. Beckett: Tenpence.
Mr. Major: The hon. Lady should wait to hear what I say before she disputes it. I was going to say—I shall repeat it from the beginning so that she may have its full rich flavour—that we are making giant strides towards the efficient computerised system in the Department of Health and Social Security that my hon. Friend the Member for Kensington seeks so that we can deliver an accurate and swift social security service to the public. That is what we seek and what our operational strategy seeks to deliver. I hope that my hon. Friend the Member for Kensington, who, I understand, has some objections to the social security reforms, will appreciate the structural changes in the Social Security Bill which will make a significant contribution to the increased efficiency that he seeks.
Mr. Favell: Will my hon. Friend give way?
Mr. Major: I hope that my hon. Friend will forgive me, but I must respond to a large number of points and I want to deal with as many as I can.
The hon. Member for Roxburgh and Berwickshire invited the Government to re-examine the retail price index. [Interruption.] No doubt he is now examining the Liberal party's defence policy! The hon. Gentleman invited the Government to examine the retail price index in the light of the results of recent reports by the Institute for Fiscal Studies. My hon. Friend the Member for Lincoln raised the same question and added that the RPI needed continuing investigation. It gets that. The construction of the RPI is the responsibility of a committee of statistical experts. At present, the retail price advisory committee is sitting. It will consider the RPI and the special pensioners' price index. I assure the hon. Member for Roxburgh and Berwickshire that the committee will take full account of the type of criticisms made by the Institute for Fiscal Studies and, as normally happens, any recommendations for re-weighting will be taken into account in the RPI from January next.
The hon. Member for Roxburgh and Berwickshire may not be aware that the RPI has done much better for pensioners than the index of changes in their spending arrived at through the special pensioners' index—the so-called pensioners' price index. The RPI has risen by some six percentage points more than the pensioners' index and the level of retirement pension by 16 percentage points more in the period from November 1978 to November 1985. Whatever criticism there may be of the RPI, it has delivered a fairer level of benefit to many people than might have been the case with other, apparently more selective, examinations of their spending patterns.
The hon. Member for Roxburgh and Berwickshire raised a number of other matters concerning future

375
upratings, but I shall not surprise him by responding to them, because he would not realistically have expected me to do so.
The hon. Member for Fulham (Mr. Raynsford), with his special expertise in housing benefit, suggested — "accused" would perhaps be too harsh a word—that the Government had made covert savings in housing benefit as a result of changes in structure. I shall examine the hon. Gentleman's speech carefully, because I appreciate his depth of knowledge, but I do not for one second accept the assertion that that was a covert cut or the charges that he sought to make.
Mr. Raynsford: Will the hon. Gentleman give way?
Mr. Major: I hope that the hon. Gentleman will forgive me and hear what I have to say. In any event, he will notice that time is pressing. I shall carefully examine his comments. However, I do not believe that he was accurate.
If the Opposition vote for the prayer, they will vote against the expressed wishes of local authority associations, which were consulted and which advised us to make the change. They will vote for a reduction in help for many standard housing benefit recipients. I shall await their decision on that point with some interest. That is precisely what will happen, whether the hon. Member for Oldham, West likes it or not.
The hon. Member for Oldham, West made a great deal of the standard of living of 9·5 million pensioners and many millions of other beneficiaries. My hon. Friend the Minister for Social Security said that our record was substantial and beneficial. I confirm that. It is a record of which we are proud. It is demonstrably the case that retirement pensions have kept appreciably ahead of inflation since 1979, and it cannot be denied. It is demonstrably the case that total benefit spending on elderly people has increased in real terms by 26 per cent. in the past five years, and it cannot be denied.
That is not all. Taking together cash benefits and other programmes supporting elderly people, our spending in relation to gross domestic product is the third highest in the European Community. The hon. Member for Oldham, West chose not to mention that. Perhaps he did not know it, or perhaps he simply did not like the fact that it reflected the Government's commitment to the elderly. It is vital to consider pension levels not in isolation but in the context of all the services provided. It is those which, taken together, set the standard of living. It is those facts which the Opposition perennially ignore. The problem with the hon. Member for Oldham, West is that his spending plans are index-linked to his own verbocity. Every speech he makes has a substantial price tag.
We have carefully weighed the resources available to us and been able to achieve many key objectives without damaging the economic aims that make all social security payments possible. Without economic success there are no resources for those social security payments and that might be borne in mind. Economic success benefits nobody more than social security beneficiaries. It is reflected substantially by the uprating orders before the House and I invite my right hon. and hon. Friends to reflect upon that success and give the orders their support, and defeat the prayer should it be moved to a Division.
It being Seven o'clock, MR. SPEAKER proceeded, pursuant to the Order [9 June], to put forthwith the Questions necessary to dispose of the motions.
Resolved,
That the draft Social Security Benefits Up-rating Order 1986, which was laid before the House on 8th May, be approved.

Social Security

  SOCIAL SECURITY
  Resolved,
  That the draft Supplementary Benefit Uprating Regulations 1986, which were laid before this House on 5th June, be approved.—[Mr. Newton.]
  Resolved,
  That the draft Family Income Supplements (Computation) Regulations 1986, which were laid before this House on 8th May, be approved.—[Mr. Newton.]
  Resolved,
  That the draft Child Benefit (Up-rating) Ragulations 1986, which were laid before this House on 8th May, be approved. —[Mr. Newton.]
  Resolved,
  That the draft Pensioners' Lump Sum Payments Order 1986, which was laid before this House on 8th May, be approved.—[Mr. Newton.]

  HOUSING BENEFITS
  Motion made and Question put,
  That an humble Address be presented to Her Majesty, praying that the Housing Benefits Amendment (No. 2) Regulations 1986 (S.I., 1986, No. 852), dated 14th May 1986, a copy of which was laid before this House on 16th May, be annulled.—[Mr. Meacher.]
  The House divided: Ayes 168, Noes 249

  Division No. 219]

  [7 pm

  AYES

  Adams, Allen (Paisley N)

  Cook, Frank (Stockton North)

  Alton, David

  Cook, Robin F. (Livingston)

  Anderson, Donald

  Corbett, Robin

  Archer, Rt Hon Peter

  Corbyn, Jeremy

  Ashdown, Paddy

  Cox, Thomas (Tooting)

  Ashton, Joe

  Craigen, J. M.

  Atkinson, N. (Tottenham)

  Crowther, Stan

  Banks, Tony (Newham NW)

  Dalyell, Tam

  Barnett, Guy

  Davies, Rt Hon Denzil (L'lli)

  Barron, Kevin

  Davies, Ronald (Caerphilly)

  Beckett, Mrs Margaret

  Davis, Terry (B'ham, H'ge H'l)

  Beith, A. J.

  Deakins, Eric

  Bell, Stuart

  Dewar, Donald

  Benn, Rt Hon Tony

  Dixon, Donald

  Bennett, A. (Dent'n & Red'sh)

  Dobson, Frank

  Bermingham, Gerald

  Dormand, Jack

  Bidwell, Sydney

  Douglas, Dick

  Blair, Anthony

  Dunwoody, Hon Mrs G.

  Boyes, Roland

  Eastham, Ken

  Brown, N. (N'c'tle-u-Tyne E)

  Edwards, Bob (W'h'mpt'n SE)

  Brown, R. (N'c'tle-u-Tyne N)

  Faulds, Andrew

  Brown, Ron (E'burgh, Leith)

  Field, Frank (Birkenhead)

  Bruce, Malcolm

  Fields, T. (L'pool Broad Gn)

  Buchan, Norman

  Fisher, Mark

  Caborn, Richard

  Flannery, Martin

  Callaghan, Rt Hon J.

  Foot, Rt Hon Michael

  Callaghan, Jim (Heyw'd & M)

  Forrester, John

  Campbell-Savours, Dale

  Foster, Derek

  Canavan, Dennis

  Foulkes, George

  Carter-Jones, Lewis

  Freeson, Rt Hon Reginald

  Cartwright, John

  Freud, Clement

  Clark, Dr David (S Shields)

  Garrett, W. E.

  Clarke, Thomas

  George, Bruce

  Clay, Robert

  Godman, Dr Norman

  Clelland, David Gordon

  Gould, Bryan

  Clwyd, Mrs Ann

  Hamilton, James (M'well N)

  Cocks, Rt Hon M. (Bristol S)

  Hamilton, W. W. (Fife Central)

  Cohen, Harry

  Hancock, Michael

  Coleman, Donald

  Hardy, Peter

  377

  Harrison, Rt Hon Walter

  Pike, Peter

  Hattersley, Rt Hon Roy

  Powell, Raymond (Ogmore)

  Heffer, Eric S.

  Prescott, John

  Hogg, N. (C'nauld & Kilsyth)

  Radice, Giles

  Holland, Stuart (Vauxhall)

  Randall, Stuart

  Home Robertson, John

  Raynsford, Nick

  Howells, Geraint

  Redmond, Martin

  Hoyle, Douglas

  Richardson, Ms Jo

  Hughes, Simon (Southwark)

  Roberts, Ernest (Hackney N)

  Janner, Hon Greville

  Robertson, George

  John, Brynmor

  Robinson, G. (Coventry NW)

  Jones, Barry (Alyn & Deeside)

  Rogers, Allan

  Kaufman, Rt Hon Gerald

  Rooker, J. W.

  Kennedy, Charles

  Ross, Ernest (Dundee W)

  Kirkwood, Archy

  Ross, Stephen (Isle of Wight)

  Lambie, David

  Rowlands, Ted

  Lamond, James

  Sedgemore, Brian

  Leadbitter, Ted

  Shields, Mrs Elizabeth

  Lewis, Ron (Carlisle)

  Shore, Rt Hon Peter

  Lewis, Terence (Worsley)

  Short, Ms Clare (Ladywood)

  McCartney, Hugh

  Short, Mrs H.(W'hampt'n NE)

  McDonald, Dr Oonagh

  Silkin, Rt Hon J.

  McGuire, Michael

  Skinner, Dennis

  McKelvey, William

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

  Maclennan, Robert

  Snape, Peter

  McTaggart, Robert

  Soley, Clive

  McWilliam, John

  Spearing, Nigel

  Madden, Max

  Stewart, Rt Hon D. (W Isles)

  Martin, Michael

  Straw, Jack

  Mason, Rt Hon Roy

  Thompson, J. (Wansbeck)

  Maxton, John

  Thorne, Stan (Preston)

  Maynard, Miss Joan

  Torney, Tom

  Meacher, Michael

  Wainwright, R.

  Mikardo, Ian

  Wallace, James

  Millan, Rt Hon Bruce

  Wardell, Gareth (Gower)

  Miller, Dr M. S. (E Kilbride)

  Wareing, Robert

  Mitchell, Austin (G't Grimsby)

  Welsh, Michael

  Morris, Rt Hon A. (W'shawe)

  Wigley, Dafydd

  Morris, Rt Hon J. (Aberavon)

  Williams, Rt Hon A.

  Nellist, David

  Wilson, Gordon

  Oakes, Rt Hon Gordon

  Winnick, David

  Orme, Rt Hon Stanley

  Woodall, Alec

  Parry, Robert

  Wrigglesworth, Ian

  Patchett, Terry

  Pavitt, Laurie

  Tellers for the Ayes:

  Pendry, Tom

  Mr. Frank Haynes and Mr. Allen McKay.

  Penhaligon, David

  NOES

  Alexander, Richard

  Bright, Graham

  Alison, Rt Hon Michael

  Brinton, Tim

  Amess, David

  Brittan, Rt Hon Leon

  Ancram, Michael

  Brown, M. (Brigg & Cl'thpes)

  Arnold, Tom

  Browne, John

  Ashby, David

  Bruinvels, Peter

  Aspinwall, Jack

  Bryan, Sir Paul

  Atkins, Robert (South Ribble)

  Budgen, Nick

  Atkinson, David (B'm'th E)

  Bulmer, Esmond

  Baker, Nicholas (Dorset N)

  Burt, Alistair

  Baldry, Tony

  Butcher, John

  Banks, Robert (Harrogate)

  Butler, Rt Hon Sir Adam

  Batiste, Spencer

  Butterfill, John

  Beaumont-Dark, Anthony

  Carlisle, John (Luton N)

  Bellingham, Henry

  Carlisle, Kenneth (Lincoln)

  Bendall, Vivian

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

  Benyon, William

  Carttiss, Michael

  Best, Keith

  Cash, William

  Bevan, David Gilroy

  Chalker, Mrs Lynda

  Biffen, Rt Hon John

  Chapman, Sydney

  Biggs-Davison, Sir John

  Chope, Christopher

  Blackburn, John

  Churchill, W. S.

  Blaker, Rt Hon Sir Peter

  Clark, Dr Michael (Rochford)

  Body, Sir Richard

  Clark, Sir W. (Croydon S)

  Bonsor, Sir Nicholas

  Clarke, Rt Hon K. (Rushcliffe)

  Boscawen, Hon Robert

  Clegg, Sir Walter

  Bottomley, Peter

  Colvin, Michael

  Bottomley, Mrs Virginia

  Conway, Derek

  Bowden, A. (Brighton K'to'n)

  Cope, John

  Braine, Rt Hon Sir Bernard

  Cormack, Patrick

  Brandon-Bravo, Martin

  Corrie, John

  378

  Couchman, James

  Malone, Gerald

  Cranborne, Viscount

  Maples, John

  Crouch, David

  Marland, Paul

  Dickens, Geoffrey

  Marlow, Antony

  Dicks, Terry

  Marshall, Michael (Arundel)

  Dorrell, Stephen

  Mates, Michael

  Douglas-Hamilton, Lord J.

  Mather, Carol

  Dover, Den

  Mayhew, Sir Patrick

  Durant, Tony

  Merchant, Pirs

  Evennett, David

  Meyer, Sir Anthony

  Eyre, Sir Reginald

  Mills, Iain (Meriden)

  Fairbairn, Nicholas

  Mills, Sir Peter (West Devon)

  Fallon, Michael

  Miscampbell, Norman

  Farr, Sir John

  Mitchell, David (Hants NW)

  Favell, Anthony

  Moate, Roger

  Finsberg, Sir Geoffrey

  Montgomery, Sir Fergus

  Fletcher, Alexander

  Morris, M. (N'hampton S)

  Fookes, Miss Janet

  Moynihan, Hon C.

  Forman, Nigel

  Mudd, David

  Forsyth, Michael (Stirling)

  Murphy, Christopher

  Forth, Eric

  Needham, Richard

  Fowler, Rt Hon Norman

  Nelson, Anthony

  Fox, Marcus

  Newton, Tony

  Garel-Jones, Tristan

  Nicholls, Patrick

  Glyn, Dr Alan

  Norris, Steven

  Goodhart, Sir Philip

  Onslow, Cranley

  Gow, Ian

  Oppenheim, Phillip

  Gower, Sir Raymond

  Oppenheim, Rt Hon Mrs S.

  Greenway, Harry

  Osborn, Sir John

  Griffiths, Sir Eldon

  Ottaway. Richard

  Ground, Patrick

  Page, Sir John (Harrow W)

  Grylls, Michael

  Parkinson, Rt Hon Cecil

  Hamilton, Hon A. (Epsom)

  Patten, J. (Oxf W & Abgdn)

  Hamilton, Neil (Tatton)

  Pawsey, James

  Hampson, Dr Keith

  Peacock, Mrs Elizabeth

  Harris, David

  Percival, Rt Hon Sir Ian

  Hawksley, Warren

  Pollock, Alexander

  Hayhoe, Rt Hon Barney

  Powell, William (Corby)

  Hayward, Robert

  Powley, John

  Heddle, John

  Prentice, Rt Hon Reg

  Henderson, Barry

  Price, Sir David

  Higgins, Rt Hon Terence L.

  Proctor, K. Harvey

  Hind, Kenneth

  Raffan, Keith

  Hirst, Michael

  Rathbone, Tim

  Holland, Sir Philip (Gedling)

  Renton, Tim

  Hordern, Sir Peter

  Rhys Williams, Sir Brandon

  Howard, Michael

  Ridsdale, Sir Julian

  Howarth, Gerald (Cannock)

  Rifkind, Rt Hon Malcolm

  Hunter, Andrew

  Roberts, Wyn (Conwy)

  Irving, Charles

  Roe, Mrs Marion

  Jackson, Robert

  Rossi, Sir Hugh

  Jessel, Toby

  Rowe, Andrew

  Jones, Gwilym (Carditf N)

  Ryder, Richard

  Jones, Robert (Herts W)

  Sackville, Hon Thomas

  Kershaw, Sir Anthony

  Shaw, Sir Michael (Scarb')

  Knight, Greg (Derby N)

  Shelton, William (Streatham)

  Knight, Dame Jill (Edgbaston)

  Shepherd, Colin (Hereford)

  Knowles, Michael

  Shersby, Michael

  Lamont, Norman

  Silvester, Fred

  Latham, Michael

  Sims, Roger

  Lawrence, Ivan

  Smith, Sir Dudley (Warwick)

  Leigh, Edward (Gainsbor'gh)

  Smith, Tim (Beaconsfield)

  Lennox-Boyd, Hon Mark

  Soames, Hon Nicholas

  Lewis, Sir Kenneth (Stamf'd)

  Spencer, Derek

  Lightbown, David

  Spicer, Jim (Dorset W)

  Lilley, Peter

  Spicer, Michael (S Worcs)

  Lloyd, Peter (Fareham)

  Squire, Robin

  Lord, Michael

  Stanbrook, Ivor

  McCrindle, Robert

  Stanley, Rt Hon John

  McCurley, Mrs Anna

  Steen, Anthony

  Macfarlane, Neil

  Stern, Michael

  MacGregor, Rt Hon John

  Stevens, Lewis (Nuneaton)

  MacKay, Andrew (Berkshire)

  Stewart, Allan (Eastwood)

  MacKay, John (Argyll & Bute)

  Stewart, Andrew (Sherwood)

  Maclean, David John

  Stewart, Ian (Hertf'dshire N)

  McLoughlin, Patrick

  Stradling Thomas, Sir John

  McNair-Wilson, M. (N'bury)

  Taylor, John (Solihull)

  Madel, David

  Tebbit, Rt Hon Norman

  Major, John

  Temple-Morris, Peter

  Malins, Humfrey

  Terlezki, Stefan

  379

  Thomas, Rt Hon Peter

  Watts, John

  Thompson, Donald (Calder V)

  Wells, Bowen (Hertford)

  Thompson, Patrick (N'ich N)

  Wells, Sir John (Maidstone)

  Thorne, Neil (Ilford S)

  Whitfield, John

  Thornton, Malcolm

  Wilkinson, John

  Thurnham, Peter

  Winterton, Mrs Ann

  Townend, John (Bridlington)

  Wolfson, Mark

  Townsend, Cyril D. (B'heath)

  Wood, Timothy

  van Straubenzee, Sir W.

  Woodcock, Michael

  Viggers, Peter

  Yeo, Tim

  Walker, Bill (T'side N)

  Young, Sir George (Acton)

  Waller, Gary

  Walters, Dennis

  Tellers for the Noes:

  Ward, John

  Mr. Tim Sainsbury and Mr, Francis Maude.

  Wardle, C. (Bexhill)

  Warren, Kenneth

  Question accordingly negatived.

Procedure
7.13 pm
The Financial Secretary to the Treasury (Mr. Norman Lamont): I beg to move,
That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills, any Finance Bill of the present Session may contain provisions taking effect in a future year with respect to activities of entertainers not resident in the United Kingdom and sportsmen not resident in the United Kingdom.
It might be for the convenience of the House, Mr. Deputy Speaker, if with this we take motions Nos. 8 to 16:
That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills. any Finance Bill of the present Session may contain provision with respect to the limit imposed by section 4 of the National Loans Act 1968 in relation to loans made by the Public Works Loan Commissioners in pursuance of section 3 of that Act.
That, for the purposes of any Act resulting from the Finance Bill, it is expedient to authorise any increase in the sums payable out of or into the National Loans Fund which is attributable to any provision of that Act increasing to £42,000 million, with power to increase by order to £50,000 million, the limit imposed by section 4 of the National Loans Act 1968 in relation to loans made by the Public Works Loan Commissioners in pursuance of section 3 of that Act.

Procedure
  DOUBLE TAXATION RELIEF: ADVANCE CORPORATION TAX
  That provision may be made amending section 100 of the Finance Act 1972.
  PAYMENTS ON RETIREMENT OR REMOVAL FROM OFFICE OR EMPLOYMENT ETC.
  That provision may be made amending Schedule 8 to the Income and Corporation Taxes Act 1970
  STAMP DUTY (LOAN CAPITAL)
  That provision may be made with respect to stamp duty in relation to loan capital.
  STAMP DUTY (DEPOSITARY RECEIPTS)
  That provision may be made with respect to stamp duty in relation to instruments transferring securities to persons concerned with depositary receipts.
  STAMP DUTY (CLEARANCE SERVICES)
  That provision may be made with respect to stamp duty in relation to instruments transferring securities to persons concerned with clearance services.
  STAMP DUTY RESERVE TAX (DEPOSITARY RECEIPTS)
  That provision may be made for charging stamp duty reserve tax where securities are transferred, issued or appropriated after 18th March 1986 in pursuance of an arrangement (whenever made) relating to a depositary receipt.

  STAMP DUTY RESERVE TAX (CLEARANCE SERVICES)
  That provision may be made for charging stamp duty reserve tax where securities arc transferred or issued after 18th March 1986 in pursuance of an arrangement (whenever made) relating to the provision of clearance services.
  7.14 pm
  Mr. Terry Davis: I think that it would be a good idea if the Financial Secretary to the Treasury were to explain to the House why the Procedure and the Ways and Means motions are necessary. Indeed. I think that the Minister has an obligation to do so, having presented the House with a record number of extra motions.
  We realise that all Governments, Labour and Conservative, have found it necessary to introduce extra Ways and Means motions during the proceedings in Committee on the Finance Bill so that the Committee can deal with matters that it would not otherwise be able to consider. I accept that there is often a need for some extra motions to be put before the House. We have, however,

  381
  been presented with an exceptional number of extra motions. I have looked back over the past 12 years, and I think that on this occasion the Government have tabled a record number. It is a record that can be added to the Government's other records on unemployment, real interest rates and the imbalance in our trade in manufactured goods. We now have a record number of motions so that the Government can get out of the jam that threatens them in Committee on the Finance Bill.
  As I have already said, I accept that there is often a need for some motions of this sort to be tabled, but we are being confronted with an exceptional number in this instance. There are no fewer than 10 Procedure and Ways and Means motions on the Order Paper.
  We are bound to draw the conclusion that the Government are an Administration of indecision and dither, if not incompetence. Some of the matters that we are being asked to refer to the Standing Committee were included in the Budget statement of the Chancellor of the Exchequer. I should have thought that it would have been possible to include such matters in the Finance Bill. If that was not possible, they could at least have been included in Ways and Means motions at an earlier stage. I think that the Financial Secretary owes us some explanation of why it was not possible to include the matters now before us in the original motions, and why it is necessary to come to the House with these motions at such a late stage in the proceedings of the Committee that is considering the Finance Bill.
  Mr. Lamont: The Procedure motions are permissive instructions to the Finance Bill Committee. They will enable it to include items in the Bill which it would not otherwise have been able to do. The Procedure motions cover two matters, one relating to a future year and provision for the taxation of entertainers, and the other covering borrowing through the Public Works Loan Commissioners. The money resolution is necessary because it is a charge to the Exchequer. Again, it relates to the Public Works Loan Commissioners.
  One of the Ways and Means motions refers to double taxation relief and another is directed to golden handshakes. The majority of the Ways and Means motions that are causing concern to the hon. Member for Birmingham, Hodge Hill (Mr. Davis) relate to stamp duty. It has been necessary to make a number of changes in the Government's intentions on stamp duty, which is an extremely complicated tax and extremely difficult to amend. Therefore, it has been necessary in many instances to table new clauses. A new clause on stamp duty was tabled on 3 June and a Ways and Means motion was tabled on 5 June. My hon. Friend the Economic Secretary to the Treasury wrote to the hon. Member for Thurrock (Dr. McDonald) in anticipation of these changes and explained what the Government intended. I hope that that was some advance warning and explanation.
  As the hon. Gentleman knows, the new clauses that have been tabled today will not be discussed in Committee until next Tuesday. I hope he will consider that that gives him some time to consider my explanations as well as the explanations that have been given by my hon. Friend the Economic Secretary. The hon. Gentleman is correct in saying that there have been a substantial number of Government new clauses this year. There have been 17. I am not sure—
  Mr. Terry Davis: The hon. Gentleman has missed the point. I am not complaining about the number of new clauses that have been tabled. I have not mentioned the new clauses. I am complaining about the Procedure and Ways and Means motions, of which there are no fewer than 10. I believe that there are more than we have ever had in the House before. I accept the need for new clauses, but why are we having to deal with so many matters which apparently were not envisaged when the Bill was published?
  Mr. Lamont: As the hon. Gentleman knows, the Ways and Means motions relate to new clauses, and specifically to changes in stamp duty. I do not think that they represent an unprecedented number of new clauses. As stamp duty is a tax that is so difficult to amend, some of the new clauses might be considered more in the nature of amendments. I do not want to weary the House, but there are precedents for taking new clauses and amendments together. The number of changes that the Government have made is not unprecedented. The changes are necessary for the reasons outlined by my hon. Friend the Economic Secretary to the Treasury in his letter to the hon. Member for Thurrock.
  7.19 pm
  Mr. Gerald Bermingham: As a member of the Finance Bill Committee and one who the Minister would agree has created some trouble over the question of stamp duty, it appears to me that these motions show that the Government, in their proposals of 19 March, had not thought through the problems about stamp duty. Indeed, a Minister admitted in the Committee that the one thing that he had done wrong as a member of the Committee was that as new Ministers had come to the Committee he had not shifted the responsibility for stamp duty to someone else. I suggested to him that perhaps he should simply resign.
  We have had stamp duty since before the 1850s, and it is a well-known form of taxation. However, it requires careful and considered thought if amendments are to be made to it. It is not good enough that my hon. Friend the Member for Thurrock (Dr. McDonald) should receive a letter on 3 June saying that further amendments and new clauses are to be tabled for debate next Tuesday. When will the Government think through their philosophy on this matter?
  The truth is that every time the Government make a suggestion a pressure group somewhere puts a little more pressure on them and they change their mind. The result is that there are now 17 new clauses. I do not know how many more there will be before we reach the Report stage, but I suspect that newer and newer clauses will be tabled in the same way as we have newer and newer Ministers on the Committee who do not understand what the old Ministers were doing. I suppose that that is the price that we have to pay on that Committee.
  I should like to take this opportunity, on behalf of those who have to pay stamp duty, to put a plug back into the matter now as I did in Committee. I hope that the Government will reconsider stamp duty, especially in relation to good will and the reconstruction and amalgamation of companies, as was proposed in the Bankruptcy (Scotland) Act 1985. I hope that we shall have some sanity in the matter.
  Treasury Ministers collectively ought to buy a book about stamp duty, sit down, read it and learn what the law

  383
  is about. They should ask their hon. Friends who sit around them, and who have knowledge of these matters, for some decent professional advice and return to the Committee with a little sanity, instead of the awful gobbledegook from which the Committee is suffering.
  7.22 pm
  Mr. Terry Davis: I should like to refer briefly to the comments made by the Financial Secretary. I shall not make a great fuss about the need for new clauses about stamp duty. I can understand the need for that. I appreciate that I have been told about the effect that some unfortunate illnesses have had in that respect. I am not making a fuss about that or about the lack of consultation. I appreciate the difficulties, which I believe are due to personnel problems in the Government.
  That does not excuse all the motions. The Financial Secretary glided over the first two motions.
  I draw the Minister's attention to motion No. 7, which deals with the future taxation of entertainers and sportsmen who are not resident in the United Kingdom. This provision was included in the Chancellor's Budget statement. Why, therefore, was a clause not included in the Bill? Why was there not a Ways and Means motion to cover that point when the other Ways and Means motions were tabled and considered by the House and agreed formally at the time?
  I also draw the Financial Secretary's attention to motion No. 8. This is a Procedure motion to allow us to discuss in Committee a new clause affecting the amount of money that can be borrowed from the Public Works Loan Commissioners. I understand the need for such a clause. However, this must have been known before the Chancellor's Budget statement and before the Bill was published. It must have been known that it was necessary to increase the limit on the amount of money that can be lent by the Public Works Loan Commissioners. This must have been known before the Bill was published and before the new clause was tabled a short time ago.
  I am not criticising the period for consultation. We will deal with that point in Committee if necessary. It shows a certain incompetence and lack of grip on legislation that these matters were not covered in the Bill in the first place.
  7.24 pm
  Mr. Norman Lamont: I am pleased that the hon. Member for Birmingham, Hodge Hill (Mr. Davis) agrees that there has been ample time for consultation.
  Mr. Terry Davis: I did not say that. I said that I was not complaining about that. We will deal with these matters in Committee. The Financial Secretary should not put words into my mouth. I said I was complaining about the fact that these matters were not covered in the Bill as originally drafted. I did not want to take up the time of the House on that issue.
  I must tell the Financial Secretary that I am not surprised that the Leader of the House is present, because the threat to the Government's legislative programme by this kind of behaviour is very serious. If the Opposition so wished, we could mount the kind of exercise that was mounted by Conservative Back Benchers last Thursday.
  Mr. Lamont: I am grateful for the hon. Gentleman's statement that he is not complaining about the period of consultation.
  384
  The motion relating to entertainers is necessary because it relates to a future year. A conscious decision was also made that a motion was needed to cover the Public Works Loan Board. We decided that the Finance Bill was a convenient vehicle to advance the motion.
  The hon. Member for Hodge Hill referred to innumerable changes, but he and his hon. Friends will know that this happens every year with the Finance Bill. In fact, in 1976, when the Labour party was in office, there were no fewer than 161 Government amendments to the Finance Bill—many more than there are now. As I have said, some of the proposals must be put forward in the form of new clauses because stamp duty is not a tax that can easily be amended. I think that at least one of the Ways and Means motions on stamp duty — that relating to loans—is more like an amendment. Today's procedure is no different from what has happened in the past when Governments have made amendments.
  Mr. Terry Davis: The Financial Secretary has missed the point. He is obviously incapable of replying to my arguments. We will discuss this matter again in Committee and I do not want to delay the House by attempting to teach the Financial Secretary so that he can understand what I am saying.
  Question put and agreed to.
  Resolved,
  That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills, any Finance Bill of the present Session may contain provisions taking effect in a future year with respect to activities of entertainers not resident in the United Kingdom and sportsmen not resident in the United Kingdom.

  PROCEDURE (LOANS BY PUBLIC WORKS LOAN COMMISSIONERS
  Resolved,
  That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills, any Finance Bill of the present Session may contain provision with respect to the limit imposed by section 4 of the National Loans Act 1968 in relation to loans made by the Public Works Loan Commissioners in pursuance of section 3 of that Act. —[Mr. Norman Lamont.]

  FINANCE BILL [MONEY]
  Queen's Recommendation having been signified—
  Resolved,
  That, for the purposes of any Act resulting from the Finance Bill, it is expedient to authorise any increase in the sums payable out of or into the National Loans Fund which is attributable to any provision of that Act increasing to £42,000 million, with power to increase by order to £50,000 million, the limit imposed by section 4 of the National Loans Act 1968 in relation to loans made by the Public Works Loan Commissioners in pursuance of section 3 of that Act. —[Mr. Norman Lamont.]

WAYS AND MEANS

  DOUBLE TAXATION RELIEF: ADVANCE CORPORATION TAX
  Resolved,
  That provision may be made amending section 100 of the Finance Act 1972.—[Mr. Norman Lamont.]

  PAYMENTS ON RETIREMENT OR REMOVAL FROM OFFICE OR EMPLOYMENT ETC.
  Resolved,
  That provision may be made amending Schedule 8 to the Income and Corporation Taxes Act 1970.—(Mr. Norman Lamont.]

  STAMP DUTY (LOAN CAPITAL)
  Resolved,
  That provision may be made with respect to stamp duty in relation to loan capital.—[Mr. Norman Lamont.]

  STAMP DUTY (DEPOSITARY RECEIPTS)
  Resolved,
  That provision may be made with respect to stamp duty in relation to instruments transferring securities to persons concerned with depositary receipts. — [Mr. Norman Lamont.]

  STAMP DUTY (CLEARANCE SERVICES)
  Resolved,
  That provision may be made with respect to stamp duty in relation to instruments transferring securities to persons concerned with clearance services.—[Mr. Norman Lamont.]

  STAMP DUTY RESERVE TAX (DEPOSITARY RECEIPTS)
  Resolved,
  That provision may be made for charging stamp duty reserve tax where securities are transferred, issued or appropriated after 18th March 1986 in pursuance of an arrangement (whenever made) relating to a depositary receipt.—[Mr. Norman Lamont.]

  STAMP DUTY RESERVE TAX (CLEARANCE SERVICES
  Resolved,
  That provision may be made for charging stamp duty reserve tax where securities are transferred or issued after 18th March 1986 in pursuance of an arrangement (whenever made) relating to the provision of clearance services. — [Mr. Norman Lamont.]

Financial Services Bill
As amended (in the Standing Committee), considered.
Ordered,
That the Financial Services Bill, as amended, he considered in the following order, New Clauses, Amendments to Clause 1, Schedule 1, Clauses 2 to 10, Schedule 2, Clauses 11 to 35, Schedule 3, Clauses 36 to 83, Schedule 4, Clauses 84 to 96, Schedules 5 and 6, Clauses 97 and 98, Schedule 7, Clauses 99 to 110, Schedule 8, Clauses 111 to 117, Schedule 9, Clauses 118 to 142, Schedule 10, Clauses 143 to 166, Schedule 11, Clause 167, Schedule 12, New Schedules and Amendments to Schedule 13.
Sir William Clark: On a point of order, Mr. Deputy Speaker. I should like to make a plea on behalf of Back Benchers. We are now considering a Bill which originally had 176 pages, 167 clauses and 13 schedules. We now have 278 amendments of which 249 are Government amendments. There are also 17 new clauses, of which 14 are Government new clauses.
I hope that the Government will consider Back Benchers on both sides of the House because there has been little time for us to consider the amendments and new clauses. The Government are pushing the working of the House too hard.
I hope that my hon. Friend the Under-Secretary of State will assure me that this will not create a precedent, as it puts Back Benchers into an impossible situation.
Mr. Deputy Speaker (Sir Paul Dean): I am sure that the Government Front Bench have heard what the hon. Gentleman said. I shall, of course, keep a careful eye open for him and any other hon. Member who may wish to catch my eye on the amendments.

Financial Services Bill
  New Clause 1

    FINANCIAL ASSISTANCE FOR EMPLOYEES' SHARE SCHEMES
    '(1) Section 153 of the Companies Act 1985 (transaction not prohibited by section 151) shall be amended as follows.
    (2) After subsection (4)(b) there shall be inserted—
    "(bb) without prejudice to paragraph (b), the provision of financial assistance by a company or any of its subsidiaries for the purposes of or in connectin with anything done by the company (or a company connected with it) for the purpose of enabling or facilitating transactions in shares in the first-mentioned company between or for the benefit of any of the following persons—

    (i) the bona fide employees or former employees of that company or of another company in the same group; or

    (ii) the wives, husbands, widows, widowes, children or step-children udner the age of eighteen of any such employees or former employees,".

    (3) After subsection (4) there shall be inserted—
    "(5) For the purposes of subsection (4)(bb) a company is connected with another company if —

    (a) they are in the same group; or

    (b) One is entitled, either alone or with any other company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to ordinary share capital which are exercisable in all circumstances at any general meeting of the other company or of its holding company;

    and in this section "group", in relation to a company, means that company, any other company which is its holding company or subsidiary and any other compant which is a subsidiary of that holding company.".'.— [Mr. Howard.]
    Brought up, and read the First time.
    The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard): I beg to move, That the clause be read a Second time.
    Mr. Deputy Speaker: With this it may be convenient to discuss amendment No. 10, in Schedule 1, page 134, line 28 at end insert—
    '(1A) Paragraphs 12 to 16 do not apply to anything done by or on behalf of a body corporate, or a body corporate connected with it, or trustees appointed by a body corporate, for the purpose of or in connection with the establishment, operation or administration of an employees' share scheme (as that expression is defined in section 743 of the Companies Act 1985).'.
    7.30 pm
    Mr. Howard: In response to the point of order raised by hon. Friend the Member for Croydon, South (Sir W. Clark), I should like to say that the vast majority of the Government amendments to which he referred emanate from points made in Standing Committee and from correspondence, often from Back Benchers. I hope that he accepts that, in large measure, they represent an attempt by the Government to respond to various anxieties that have been expressed.
    New clause 1 springs out of a largely technical matter. As I said when we discussed a related point in Committee, the Government support the introduction of employee share schemes. One incentive that companies might wish to offer with such schemes might be the provision of facilities to allow beneficiaries of the scheme and their dependants to trade easily between themselves. There is room for doubt about whether the provisions of section 153(4)(b) of the Companies Act 1985 are wide enough to allow such facilities to be provided. This clause is intended to put it beyond doubt that they may be provided, up to the limits prescribed in section 154.
    Amendment No. 10 concerns an issue that was not raised in Committee. Although I can sympathise with the concerns underlying it, I am not convinced that it is necessary. The Government are strongly in favour of employee share schemes and it is not our intention that employers who introduce such schemes should be required to be authorised. I believe that the existing exclusions in part III of schedule 1 are sufficient to achieve the desired result. I hope that, with that assurance, the hon. Member for Yeovil (Mr. Ashdown) will find it unnecessary to press his amendment.
    Mr. Bryan Gould: I cannot help but notice that the new clause is tabled in the name of the Secretary of State, and I cannot continue without expressing, on behalf of, I am sure, the whole House, our most sincere condolences to him on his tragic loss today.
    I was interested by the Minister's response to the point of order raised by the hon. Member for Croydon, South (Sir W. Clark) and I was grateful to him for conceding that the length of our agenda and many of the amendments reflect the success of the Standing Committee in persuading the Government that some substantial amendments were required. That is a tribute to my right hon. and hon. Friends and other members of the Committee.
    New clause 1 is curious. The Minister conceded that it is technical. It has little to do with the central purpose of the Bill. It is more a matter of company law than
    388
    authorisation for investment business. I was grateful to the Minister for his brief explanation of what the new clause is meant to achieve.
    The Minister was right to say that we debated employee share schemes in Committee. I expressed the clear view of the Labour party that we favour such schemes in principle. The Minister and others will recall, however, that we argued that the exclusion of such schemes, as provided by paragraph 19 of schedule 1, was rather far-reaching as employees in those circumstances were likely to be inexperienced investors and in a vulnerable context, as they would be subject to all of the pressures of superiors at work. They are also potentially at risk from people with some form of inside information. On that basis, we argued and divided the Committee, when we had the support of the hon. Member for Yeovil (Mr. Ashdown). He voted in favour of an Opposition amendment which suggested that some form of independent advice ought to be provided in an employee share shop.
    The Government opposed the amendment, partly on the ground that it would cost more money than was thought acceptable. I imagine that one of the purposes of new clause 1 is to authorise expenditure on setting up a share shop and I wonder whether the Minister has had a moment to reconsider his objection to our earlier amendment. Is he able to enlighten us? Is there anything implicit in the new clause which goes some way to removing his objections to what seemed to many of us a sensible limitation of employers' complete freedom when selling shares in their companies to their work force?
    Mr. Paddy Ashdown: Amendment No. 10 was not intended to make a substantial change but to clarify a point. I am advised that paragraph 19 of schedule 1 is not clear enough about whether employee share schemes are included. It seems that the Government's intentions are clear but I am advised that the wording is rather too broad. Perhaps the Minister would be kind enough to explain why he believes that the matter is covered elsewhere to give us some argumentation.
    Employee share schemes ought to be covered because a company which operates arrangements for employees or trustees who subscribe to or purchase shares, whether at the outset or on an exercise of options later, seems to fall clearly within paragraphs 12 and 13 of schedule 1. Paragraphs 15 and 16 would seem to apply to other activities which such a share scheme might require. The matter is not defined in the exclusions in clause 67, as is the case with occupational pension schemes.
    We believe that if employee share schemes are to be included in paragraph 19 of schedule 1 that should be clear so that there can be no argument about it later. I should be satisfied if the Minister would explain why he thinks the matter is covered elsewhere.
    Mr. Howard: Perhaps I may give the hon. Member for Yeovil (Mr. Ashdown) the explanation for which he has asked. We should consider, first, schemes which are operated by the company. The company may, for instance, create new shares to issue to its employees, or arrange for the transfer to them of existing shares, or grant them options. The first case is excluded from the definition of investment business by paragraph 23(3) of schedule 1. which covers the issue by a company of its own shares. The other two cases would both be covered by the exclusion in paragraph 19. This paragraph disapplies paragraphs 12

    389
    and 13 generally when the purpose is to facilitate transactions in shares between or for the benefit of employees and their dependants. Given the broad definition of "disposal" in paragraph 23(2), the allotment of shares to employees following the exercise of an option in this context would seem to be a transaction in shares for their benefit. It would therefore be excluded from the definition of investment business under the terms of the paragraph.
    When a scheme is run by trustees, they will not benefit from the exclusion in paragraph 19, but unless the trustees are operating the scheme by way of business, the Bill will not apply to them, and no exclusion is necessary. That is why I asserted earlier that amendment No. 10 is not necessary.
    I accept, however, that uncertainty is undesirable. The amendment would go too far, but I am prepared to consider whether the clause covers the hon. Gentleman's

  New Clause 2

    RESTRICTION OF REHABILITATION OF OFFENDERS ACT I974
    '(1) The Rehabilitation of Offenders Act 1974 shall have effect subject to the provisions of this section in cases where the spent conviction is for—

    (a) an offence involving fraud or other dishonesty; or

    (b) an offence under legislation (whether or not of the United Kingdom) relating to companies (including insider dealing), building societies, industrial and provident societies, credit unions, friendly societies, insurance, banking or other financial services, insolvency, consumer credit or consumer protection.

    (2) Nothing in section 4(1) (restriction on evidence as to spent convictions in proceedings) shall prevent the determination in any proceedings specified in Part I of Schedule (Restriction of Rehabilitation of Offenders Act 1974) to this Act of any issue, or prevent the admission or requirement in any such proceedings of any evidence, relating to a person's previous convictions for any such offence as is mentioned in subsection (1) above or to circumstances ancillary thereto.
    (3) A conviction for any such offence as is mentioned in subsection (1) above shall not be regarded as spent for the purposes of section 4(2) (questions relating to an individual's previous convictions) if—

    (a) the question is put by or on behalf of a person specified in the first column of Part II of that Schedule and relates to an individual (whether or not the person questioned) specified in relation to the person putting the question in the second column of that Part; and

    (b) the person questioned is informed when the question is put that by virtue of this section convictions for any such offence are to be disclosed.

    (4) Section 4(3)(b) (spent conviction not to be ground for excluding person from office, occupation etc.) shall not prevent a person specified in the first column of Part III of that Schedule from taking such action as is specified in relation to that person in the second column of that Part by reason, or partly by reason, of a spent conviction for any such offence as is mentioned in subsection (1) above of an individual who is—

    (a) the person in respect of whom the action is taken;

    (b) as respects action within paragraph 1 or 4 of that Part, an associate of that person; or

    (c) as respects action within paragraph 1 of that Part consisting of a decision to refuse or revoke an order declaring a collective investment scheme to be an authorised unit trust scheme or a recognised scheme, the operator or trustee of the scheme or an associate of his,

    or of any circumstances ancillary to such a conviction or of a failure (whether or not by that individual) to disclose such a conviction or any such circumstances.
    (5) Parts I, II and III of that Schedule shall have effect subject to Part IV.
    (6) In this section and that Schedule "associate" means—

    (a) in relation to a body corporate, a director, manager or controller;

    (b) in relation to a partnership, a partner or manager;

    (c) in relation to a registered friendly society, a trustee, manager of member of the committee of the society;

    (d) in relation to an unincorporated association, a member of its governing body or an officer, manager or controller;

    (e) in relation to an individual, a manager.

    (7) This section and that Schedule shall apply to Northern Ireland with the substitution for the references to the said Act of 1974 and section 4(1), (2) and (3)(b) of that Act of references to the Rehabilitation of Offenders (Northern Ireland) Order 1978 and Article 5(1), (2) and (3)(b) of that Order.'.—[Mr. Howard.]
    point completely. If it is necessary to provide greater clarity, I shall ensure that any necessary amendments are brought forward in another place.
    I have to disappoint the hon. Member for Dagenham (Mr. Gould), although I suspect that that will come as no great surprise to him. The purpose of the new clause is to facilitate the giving of certain assistance by employers in order to encourage share schemes for their employees and to enable them to spend money if they so wish in a manner in relation to which there is a certain amount of doubt in the present law. That does not begin to constitute a justification for the imposition of additional and unwanted burdens by way of expenses, which led me to oppose the hon. Gentleman's amendment in Committee, which was then the subject of considerable debate.
    I fear that the new clause will not give the hon. Member for Dagenham much comfort, but I hope that it commends itself to the House.
    Question put and agreed to.
    Clause read a Second time, and added to the Bill.
    Brought up, and read the First time.
    Mr. Howard: I beg to move, That the clause be read a Second time.
    Mr. Deputy Speaker: With this, it will be convenient to discuss the following: amendment (a) to the new clause, in subsection 6(e) at end insert
    'or employee who has contact with clients or prospective clients with a view to obtaining or soliciting orders on behalf of the investment business, advises clients or commits the investment business, for transactions in investments covered by Schedule 1, paragraphs 1, 2, 3, 4, 5, 7 or 8.'.
    Government amendments Nos. 232 and 273.
    Mr. Howard: A few moments ago I omitted to say, on behalf of my right hon. Friend the Secretary of State, how grateful I was for the condolences offered by the hon. Member for Dagenham (Mr. Gould). I am sure that all my right hon. and hon. Friends will wish to associate themselves with them.
    In Committee, I undertook to bring before the House a partial disapplication of the Rehabilitation of Offenders Act. The clause and its related schedule fulfil that undertaking. The complexity and length of the provision indicate the care with which we have focused the disapplication. We have sought to ensure that relevant convictions will be disclosed and that the provisions of the Rehabilitation of Offenders Act will not prevent information about them from being used in appropriate cases when they call into question the fitness and properness of a person to carry on investment business.
    7.45 pm
    But I have been equally mindful of Parliament's intentions in passing the Rehabilitation of Offenders Act and have sought to limit the disapplication, so as not unacceptably to undermine previous legislation passed by the House which significantly affects the rights of individual citizens. I have restricted the provision so that it concerns only individuals in certain senior positions, and then only in relation to certain offences.
    The clause will affect sole traders, partners and those who hold or are to be appointed to senior positions in authorised businesses, or businesses which are applying for authorisation: the positions covered, broadly speaking, are those of director, manager or controller in a company, with appropriate modification for partnerships and unincorporated associations. I propose to follow broadly the definition of manager given in the Banking Act and have tabled an amendment to clause 163 to that effect. The House will see that, under this definition, only those near the top of the hierarchy of a business will be deemed to be managers. Persons holding the same position in companies which have, or apply for, official listing will be affected in the same way: so the new clause will replace clause 130 in the present text of the Bill which provides a less focused disapplication of the Rehabilitation of Offenders Act.
    The limiting of a disapplication to those persons who hold these senior positions follows the precedent of the Banking Act. The disclosure of spent convictions by less senior employees of an authorised business would both deprive a large number of people of their rights under the Rehabilitation of Offenders Act and should anyway be unnecessary as their activities will he properly supervised by the management and directors of the authorised business.
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    Those who will be able to put questions about spent convictions include regulators, be they the Secretary of State, a designated agency, a self-regulating organisation or recognised professional body, the competent authority for listing and a business which is authorised or an applicant for authorisation or official listing.
    One novel feature of this provision is that only certain types of spent convictions will need to be disclosed or may be taken into account when determining an application. These are convictions relating to fraud or dishonesty and to offences under specified legislation of a type related to financial services — banking, credit, building societies and so on. It is spent convictions of this nature which may materially affect judgments about an individual's suitability to be in charge of an investment business. Other offences which are of less relevance to the financial services sector will be outside the scope of this clause and the usual provisions of the Rehabilitation of Offenders Act will apply.
    Information about relevant spent convictions may be used in determining whether authorisation should be granted, a power of intervention used or employment of a particular individual prohibited. The competent authority may use such information to refuse an application for listing.
    I should remind the House that the 1974 Act contains its own built-in safeguards. Convictions do not become spent until substantial prescribed periods have elapsed. Where a conviction results in a custodial sentence in excess of 30 months, it never becomes spent, nor will any other convictions be subsequently incurred. The Act also provides that in any proceedings before a judicial authority evidence relating to spent convictions may be admitted and required if the authority is satisfied that justice cannot otherwise be done. The Act defines
    "proceedings before a judicial authority"
    widely, and proceedings concerning authorisation or admission to listing would be covered. So convictions not covered by the specific disapplication which is the object of the current clause will still be able to be taken into account in appropriate circumstances.
    I believe, therefore, that the new clause provides the right balance between the need to protect investors by ensuring that responsible authorities are fully aware of the relevant previous convictions of applicants and can take them into account, and the need to maintain important rights granted by Parliament under other legislation.
    The amendment tabled by my hon. Friend the Member for Beaconsfield (Mr. Smith) raises a matter which I know to be of concern to the stock exchange. Current estimates suggest that several thousand, perhaps over 5,000, employees of stock exchange member firms will be registered traders and representatives and thus would be caught by the amendment. Many more employees of other investment businesses in similar lines of investment business but not employed by stock exchange firms will also be caught, because the text of the amendment is not confined to the stock exchange.
    The amendment would substantially increase the number of those who would be deprived of their rights, given to them by Parliament, through the provisions of the Rehabilitation of Offenders Act. Such a wide-ranging disapplication runs counter to the intentions of the 1974 Act.
    Those carrying on the activities described in the amendment will be employees of an authorised business.

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    They will be subject to the managerial controls of that business and should be properly supervised. There are also safeguards in the Rehabilitation of Offenders Act itself, to which I have just referred.
    Whenever one draws a dividing line, one runs the risk of being told that it should have been drawn elsewhere, but I believe that the proposals in the new clause strike the right balance. This amendment would tip that balance too far and deprive too many individuals of their rights under the Rehabilitation of Offenders Act.
    Mr. Gould: The Minister was right to remind the House that we debated this matter in Committee. Our short debate then showed clearly that the problem facing the Minister, which he has explained to us again this evening, was to balance two conflicting principles.
    The first was the protection and rehabilitation of those who had committed offences. Indeed, that was very much the purpose that Parliament had in mind in passing the 1974 Act. In our debate, that point was stressed by the hon. Member for Chichester (Mr. Nelson). But running counter to that was the importance, in the interest of protecting investors, of making available to the regulatory authorities all the relevant information about those who were authorised. There is inescapably implicit in the notion of authorisation some form of statement by public or quasi-public authorities that the authorised persons have in a sense passed some test or have a clean bill of health. That makes the conflict between the Act's original intention and our quite proper concern for effective investor protection quite difficult to resolve.
    The Minister has done an excellent job of drafting the new clause and the schedule. By limiting the class of offence to which the disapplication applies to crimes of dishonesty in relation to financial matters, by limiting the disapplication to procedures essentially created, or provided, by the Bill, and by fairly accurately defining the sorts of relationships between those entitled to ask the questions and those obliged to answer them, the Minister has properly limited the extent of the disapplication. As a consequence, the Minister has struck the right balance in what is clearly a difficult matter.
    Mr. Tim Smith: The debate in Standing Committee underlined the fact that there is a conflict of principles. It is a question of balance and of judgment as to where one draws the line. When it comes down to it, I am more interested in protecting the investor than I am in protecting the former crook. One would not know from the debate that that is not a novel restriction. Immediately after the Rehabilitation of Offenders Act was passed, the Government introduced an exception order in 1975 containing exceptions for dealers in securities, insurance companies and authorised unit trusts.
    The proposal in the new clause is not unprecedented. In one sense, it is narrower than the existing exceptions, and in another sense it is wider. The proposal is wider because it extends to all the investment business which is covered by the Bill, but narrower because the existing exceptions cover dealers in securities who are not necessarily principals in their firms.
    The new clause extends only to directors, managers, partners and their equivalents. Those who will be in the front line dealing with investors may be partners, directors and managers, but often they will be employees. That will be the case in stockbroking firms, which is why the stock
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    exchange has suggested this amendment. This will also be the case with life assurance salesmen. The stock exchange suggested the amendment because it is worried about the ambit of the new clause and because it believes that the parallel with the Banking Act 1979 is not realistic as the two businesses are different.
    The stock exchange says about the Banking Act:
    "This Act does not have the same aims as the Financial Services Bill, and deals with an area of business which is quite different from the securities industry. Banking and stockbroking are still quite different and it is very unusual for the employee of a bank to give advice to a member of the public or solicit business on a regular, day-to-day basis without referring to his superiors in the way that the employee of a stockbroking firm does."
    The employee of a stockbroking firm gives advice to the public without referring to his superiors because he must take decisions quickly. There is no time to refer to a superior about investment advice when prices change regularly. He must make decisions at his discretion and off his own bat.
    The stock exchange has a fair point. We should be a little worried about the lack of application of the new clause to life assurance salesmen who will be knocking on doors selling life policies. The Government have decided that there will be no register of life assurance salesmen, but a blacklist. If such information was available, we could. compile a blacklist.
    Mr. Anthony Nelson: It is important in the context of debating the new clause to remember the atmosphere in which the Rehabilitation of Offenders Act 1974 was introduced. Hon. Members who were in the House at that time will recall that there was much debate in Standing Committee and in the House to try to ensure that the extent of the restrictions was limited and that the ambit of that legislation was cast sufficiently wide to ensure that those who had spent convictions and had paid their debts to society could, in certain circumstances, start again and make new lives for themselves.
    As hon. Members on the Standing Committee will know, I believe that that was a worthy objective and one that we should be circumspect about limiting. We must be clear about the ambit of restriction that we will provide in the new clause. Having said that, I pay tribute to my hon. and learned Friend the Parliamentary Under-Secretary of State, who, in drafting the new clause, took account of the opinions on both sides of the Standing Committee about the matter. Although I may not lean to the same side of the balance as my hon. Friend the Member for Beaconsfield (Mr. Smith), I believe that the Minister has struck a reasonable balance between the two conflicting objectives of the Bill and the previous legislation to try to restore and revitalise the opportunities to rehabilitate offenders.
    Before we pass such a new clause, it is important to ask ourselves two questions. First, why are we seeking a restriction with regard to this form of activity? It might be argued in the context of other consumer legislation or other departmental legislation that there were similar grounds for restrictions in other parts of the 1974 Act. I would not wish the passage of the new clause to be considered as something to be built upon in other legislation, in terms of limiting the ambit or reducing the protection to rehabilitated offenders, provided under the 1974 Act. That must be seen as exceptional in the context of new legislation and not something to be extended or repeated elsewhere.

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    Secondly, it is reasonable to ask whether the rationale behind the new clause is that there is clear evidence that the rate of recidivism among those who have been convicted of fraudulent or other dishonest offences is significantly higher than in other areas. As my hon. and learned Friend the Minister said, the 1974 legislation applies to some and not all spent convictions. One would need to be satisfied in those areas where it applies that there was a danger to the public and that if the new clause was not passed the public would be at greater risk.
    I ask my hon. and learned Friend the Minister how it will be apparent to individuals applying for authorisation to carry on a business that they will need to disclose such a spent conviction. Many people who have spent convictions under the Rehabilitation of Offenders Act, and are acutely aware of the provisions of that legislation, may be under the erroneous impression, despite the passage of the new clause, that they need not answer a question put to them by the regulatory authority or anyone else about whether they have had a past conviction. Such a question should be put by the authorising or regulatory authority only when it is seeking to give them authorisation to carry on a business. It must be made clear at that time that they are not covered, as they thought they were, by the terms of the 1974 Act. Otherwise, for genuine reasons, many people might unwittingly transgress the new legislation thinking that they are protected by the provisions of the 1974 Act.
    I also ask my hon. and learned Friend whether the disclosure of a spent conviction for the purposes of the legislation necessarily means that the supervisory authority will not grant authorisation to that sole trader or business. It is exceedingly difficult to ask either the Secretary of State or the designated agency to say in some cases, "Although you have declared a past conviction, we nevertheless believe that it was not sufficiently serious or not so relevant to the business for which you are seeking authorisation that we must refuse your application."
    In some cases, a sole trader setting up an investment business with such a spent conviction may have reasonable grounds for being allowed to proceed with such a business and it should not mean automatic disqualification. If it implies automatic disqualification, there will be a further disincentive on the individual to come clean about that.
    Many of those points have been covered to some extent in the drafting of the new clause, and I commend it, as other hon. Members have, to the House. I refer to a representation made to me, which does not agree with my view but which refers to the amendment moved by my hon. Friend the Member for Beaconsfield. Today, I received a letter from the chairman of the Securities and Investments Board, which states:
    "We believe that as presently worded the clause is too narrow in its scope since it would permit the non-disclosure of convictions by employees (and prospective employees) of authorised businesses, some of whom might be placed in positions of great trust and responsibility; and also by anyone seeking exempt (or appointed) representative status under Clause 41. There is obviously a difficult balance to be struck here between the interests of investors on the one hand and the underlying aims of the Rehabilitation of Offenders Act on the other, but we still feel that rather more weight should be given to the former, as was done in relation to securities businesses in the Rehabilitation of Offenders Act 1974 (Exceptions) Order 1975."
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    For reasons that I have already adduced, I do not go along with that representation, but in all fairness it should be put before the House tonight.
    8 pm
    Mr. D. N. Campbell-Savours: I do not want to prolong the debate, but I want to ask a question, although it does not specifically relate to the matters that we are dealing with under the Bill so far as we are not dealing with Lloyd's. Will the Minister explain whether the disclosure arrangements which would exist under the Bill, subject to the Rehabilitation of Offenders Act 1974, have their parallel under the Lloyd's Act 1982? Are managing agents and operating officers within syndicates of Lloyd's required to comply with a similar provision? If not, to what extent is investor protection as adequately covered as it appears that it will be if the new clause were to have the approval of the House?
    Mr. John Butterfill: I rise briefly merely to say that I obviously respect the views put forward by my hon. Friend the Member for Chichester (Mr. Nelson) whose personal commitment and that of his family to the rehabilitation of offenders is well known to hon. Members. Nevertheless, I feel, rather as does my hon. Friend the Member for Beaconsfield (Mr. Smith), that if we are to strike a balance, in these particular circumstances we must err on the side of caution since the people about whom we are talking will be dealing with other people's money, usually the money of relatively small investors and usually money which is on an extremely large scale for those investors. Therefore. I tend to agree with Sir Kenneth Berrill that we should err even more on the side of caution than my hon. and learned Friend the Minister suggests in the new clause.
    Mr. Howard: First, I thank the hon. Member for Dagenham (Mr. Gould), whose endorsement of the new clause was rather more enthusiastic than that of my hon. Friends. I am grateful too for the endorsement, however qualified, of my hon. Friend the Member for Chichester (Mr. Nelson) and I shall endeavour to respond to his three specific questions. First. I regret that I am not in a position to give him any of the statistics on recidivism which would assist him in formulating his position on the new clause. I doubt whether they are available, but whether they are or are not they are certainly not available to me this evening.
    My hon. Friend's second question was whether someone would know that the 1974 Act was disapplied and that he was obliged to answer the questions being put to him. I think that my hon. Friend will find that that matter is specifically and expressly covered in paragraph 3(b) of the new clause, which provides that the person questioned has to be informed when the question is put that by virtue of the section convictions for any such offence are to be disclosed. I think that that covers my hon. Friend's point.
    Thirdly, my hon. Friend asked whether the disclosure of such a conviction would amount to an automatic disqualification rather than simply something to be taken into account in assessing whether the applicant should be employed or authorised. There would be no question of automatic disqualification. The conviction would be a matter to be taken into account together with the rest of

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    the record of antecedents and character of the person concerned. I hope that that satisfies my hon. Friend on those three questions.
    Of course, I understand the concern which my hon. Friend drew to the the attention of the House, which has been put forward by the Securities and Investments Board and which was commended to the House by my hon. Friends the Members for Beaconsfield (Mr. Smith) and for Bournemouth, West (Mr. Butterfill). As I think everyone recognises, this is a difficult balance to strike. Clearly, it is not the sort of balance on which it is possible to please everyone. Had I pleased my hon. Friends the Members for Beaconsfield and for Bournemouth, West, I should not have pleased my hon. Friend the Member for Chichester, nor indeed the hon. Member for Dagenham. We have attempted to strike the best balance in our judgment. It is perhaps easier for the stock exchange or, indeed, the Securities and Investments Board, which tend, perfectly understandably, and properly from their point of view, to look at a question such as this from a particular point of view and to see only one side of the question or to see one side of the question in a much more immediate perspective than the other side.
    We in this House have a duty to make a much more balanced judgment. It is incumbent upon us to take into account the policy considerations that led to the passing of the Rehabilitation of Offenders Act and to give them full weight in any judgment that we make. It is for that reason that I suggest that the proper balance is that which is represented by the new clause which I commend to the House.
    Question put and agreed to.
    Clause read a Second time, and added to the Bill.

  New Clause 3

    POWERS OF ENTRY
    '(1) A justice of the peace may issue a warrant under this section if satisfied on information on oath laid by or on behalf of the Secretary of State that there are reasonable grounds for believing—

    (a) that an offence has been committed under section 4, 44, 52. 111, 114 or 141(2) or (3) above or section 1, 2.4 or 5 of the Company Securities (Insider Dealing) Act 1985 and that there are on any premises documents relevant to the question whether that offence has been committed; or

    (b) that there are on any premises owned or occupied by a person whose affairs, or any aspect of whose affairs. are being investigated under section 92 above documents whose production has been required under that section and which have not been produced in compliance with that requirement;

    but paragraph (b) above applies only if the person there mentioned is an authorised person, a person whose authorisation has been suspended or who is the subject of a direction under section 32(1) (b) above or an appointed representative of an authorised person.
    (2) A justice of the peace may issue a warrant under this section if satisfied on information on oath laid by an inspector appointed under section 81 above that there are reasonable grounds for believing that there are on any premises owned or occupied by—

    (a) the manager, trustee or operator of any scheme the affairs of which are being investigated under subsection (1) of that section; or

    (b) a manager. trustee or operator whose affairs are being investigated under that subsection,

    any documents whose production has been required under that section and which have not been produced in compliance with that requirement.
    (3) A warrant under this section shall authorise a constable, together with any other person named in it and any other constables—

    (a) to enter the premises specified in the information, using such force as is reasonably necessary for the purpose;

    (b) to search the premises and take possession of any documents appearing to be such documents as are mentioned in subsection (1)(a) or (b) or, as the case may be, in subsection (2) above or to take, in relation to any such documents, any other steps which may appear to be necessary for preserving them or preventing interference with them;

    (c) to take copies of any such documents; and

    (d) to require any person named in the warrant to provide an explanation of them or to state where they may he found.

    (4) A warrant under this section shall continue in force until the end of the period of one month beginning with the day on which it is issued.
    (5) Any documents of which possession is taken under this section may be retained—

    (a) for a period of three months; or

    (b) if within that period proceedings to which the documents are relevant are commenced against any person for an offence under this Act or section 1, 2, 4 or 5 of the said Act of 1985, until the conclusion of those proceedings.

    (6) Any person who obstructs the exercise of any rights conferred by a warrant issued under this section or fails without reasonable excuse to comply with any requirement imposed in accordance with subsection (3)(d) above shall be guilty of an offence and liable—

    (a) on conviction on indictment, to a fine;

    (b) on summary conviction, to a fine not exceeding the statutory maximum.

    (7) The functions to which section 96 above applies shall include the functions of the Secretary of State under this section; but if any of those functions are transferred under that section the transfer may be subject to a reservation that they are to be exercisable by the Secretary of State concurrently with the designated agency and, in the case of functions exercisable by virtue of subsection (1)(a) above, so as to be exercisable by the agency subject to such conditions or restrictions as the Secretary of State may from time to time impose.
    (8) In the application of this section to Scotland the references to a justice of the peace shall include references to a sheriff and for references to the laying of information on oath there shall be substituted references to furnishing evidence on oath; and in the application of this section to Northern Ireland for references to the laying of information on oath there shall be substituted references to making a complaint on oath.
    (9) In this section "documents" includes information recorded in any form and, in relation to information recorded otherwise than in legible form, references to its production include references to producing a copy of the information in legible form.'—[Mr. Howard.]
    Brought up, and read the First time.
    Mr. Howard: I beg to move, That the clause be read a Second time.
    I shall have a word with the hon. Member for Workington (Mr. Campbell-Savours) and answer the point that he made in the previous debate. I apologise for not having done so during the course of the debate.
    During the debate in Committee on amendments tabled by the hon. Member for Dagenham (Mr. Gould) on powers of entry, I undertook to look again at the matter, and this new clause has been tabled to make provision for search warrants to be issued by justices of the peace on the Secretary of State's application. There are precedents for our proposals in the Prevention of Fraud (Investments) Act 1958, which is to be replaced by this Bill, and in the Companies Act 1985.

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    Warrants may be issued with a view to obtaining documents in three types of case. The first relates to suspected offences. The corresponding provision in the Prevention of Fraud (Investments) Act relates only to breaching the restrictions on advertising. That is too narrow and the new clause therefore also embraces a number of other offences concerning unauthorised investment business, misleading statements and practices, restrictions on promoting insurance contracts, unlisted securities and insider dealing.
    The second and third types of case covered by the clause are designed to reinforce the investigation powers in clause 92, when investigating authorised and certain other persons, and in clause 81. If these powers are used to require the production of documents which are not produced in compliance with the requirement, a search warrant may be issued. A corresponding provision exists in section 448 of the Companies Act, designed to reinforce the power to obtain documents in section 447.
    We have considered carefully whether to limit the exercise of these powers in relation to entering the premises of third parties. A limitation is not considered appropriate where a criminal offence is suspected, but use of the power to reinforce an investigation under clauses 81 or 92 may only permit entry of premises owned or occupied by the person under investigation, or by the manager, trustee or operator of a collective investment scheme.
    The new clause provides for the powers which a warrant may authorise the police and other named persons to exercise, including the power to seize documents, and to demand explanations of them. Obstruction is to be an offence.
    The Secretary of State's function of applying to a justice of the peace for a search warrant is one which may be transferred to the designated agency. The normal criteria for transferring functions will have to be met, and the Secretary of State may also impose conditions and restrictions on how the function is to be exercised in the case of a suspected offence. We consider that these are sufficient safeguards for applications by the agency, which will, like the Secretary of State, have to satisfy the justice of the peace that there are reasonable grounds for believing that relevant documents are on the premises in question. It would be cumbersome if the agency had to ask the Secretary of State to make applications for search warrants on its behalf, and delay would carry the risk of documents being moved or destroyed. It would be possible for the Secretary of State to retain the ability to apply for a warrant without affecting the agency's powers to do so.
    The Government believe that these new powers, founded on precedents in other legislation, will improve the effectiveness of the new regulatory regime.
    Mr. Gould: The new clause is a welcome recognition of the fact that the powers hitherto provided by section 14(8) of the Prevention of Fraud (Investments) Act 1958 are still necessary.
    The Minister was right to recall that in Committee I tabled an amendment to the same effect, but not so expertly drafted as the new clause. At that point the Minister took the view that clause 92 provided adequate powers, but I gather from what he now says that he recognises that a power of entry into premises is important. That is the view that we took at the time. We
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    argued that, particularly in today's circumstances, it was of immense importance, when dealing with hardened unscrupulous criminals, that it should be possible to insist on entry to make a search, and that if that power was thought to be necessary in 1958, it was much more necessary today.
    The Minister agreed with the suggestion of my hon. Friend the Member for Workington (Mr. Campbell-Savours) to consult the Securities and Investments Board about this matter. I am glad that the SIB is to have a concurrent power in this matter. The Minister's consultations with the SIB have produced a welcome outcome.
    We perhaps raise an eyebrow at the limitation of the right to enter premises occupied by third parties, but I understand the Minister's reasoning for that. In broad terms we are satisfied that this power, for which we argued so strongly in Committee, is now to find a place in the Bill.
    Mr. Nelson: The new clause marks a significant extension of the powers of investigation, which I welcome generally, in aid of the protection of investors.
    First, I understood my hon. and learned Friend the Minister to say, and it is my understanding from the terms of the new clause, that the claim for a warrant comes into effect only where the request to disclose documents has not been satisfied. Can he confirm that that is correct? I cannot imagine many circumstances, for example, in a case of suspected insider dealing, where an individual who is asked to produce his stock contracts to show whether he has been engaged in share transactions and refuses will leave those contracts lying around long enough for a warrant to be issued and a search to be made. I am not sure whether it is intended that the powers can be invoked and a warrant issued before the other means of investigation have been satisfied.
    Like the hon. Member for Dagenham (Mr. Gould), I am pleased that these powers can be applied concurrently by the SIB — the designated agency. That leaves a necessary option open which will ensure that the SIB has the means and ability to do its job, not just to supervise academically.
    My second question relates to the relevance of the new clause to unauthorised persons. I am not entirely clear whether, under subsection (1), the powers to request a warrant apply only in the case of authorised businesses. What is the position for a suspected unauthorised person who may be committing a criminal offence under these provisions? What is the position for any individual, authorised or unauthorised, who may be committing the criminal offence of insider dealing? As I understand it, the power to claim a warrant in such circumstances is already provided for in separate legislation. Will my hon. and learned Friend clarify that this right to claim a warrant applies in all cases, not just those of authorised businesses?
    Mr. Campbell-Savours: This debate gives the House an opportunity to have an early shot at one of the more controversial areas of the Bill. The issue is not so much the powers, which the majority of hon. Members accept as being important if the protection of investors is to be upheld and the law is to be complied with, but whether it is right that a private organisation should be able to exercise such powers in our society. I know of no precedent for this.
    It is important to establish for those outside that the SIB is a private company. A private company which is no

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    different from Securior or a private policeman will police the City. [Interruption.] We have discussed the matter at length over 22 sittings in Committee, and during the past few months most of the arguments behind the scenes have been about that or the question of immunity, about which the Minister has been more flexible and has, perhaps, produced a reasonable alternative.
    8.15 pm
    Clause 93 states:
    "The Secretary of State may authorise any officer of his or any other competent person to exercise on his behalf all or any of the powers conferred by section 92."
    Basically the Secretary of State is allowing a private company to exercise these considerable responsibilities. Therefore, under the new clause a private company will be allowed to apply to a justice of the peace to secure a warrant, and with that warrant it will be able to enter
    "on any premises owned or occupied by a person whose affairs, or any aspect of whose affairs, are being investigated under section 92."
    That is a substantial power to give to a private organisation, and I must register my strong objection at this stage. It is not that we wish to vote against the matter tonight—we do not have the time to do so because we have many amendments and important matters to discuss —but this area shows up the deficiencies that lie at the heart of the legislation.
    Mr. Howard: I am grateful for the support for the new clause extended by the hon. Member for Dagenham (Mr. Gould) and my hon. Friend the Member for Chichester (Mr. Nelson).
    The answer to my hon. Friend is that it is not necessary, contrary to his understanding, that a prior request should have been made for the documents if an offence is suspected and a justice of the peace is satisfied that there are grounds for believing that the documents are on the premises concerned. The answer to the questions about whose premises may be entered pursuant to the powers granted in the new clause, where an offence is suspected of the type that is identified in subsection (1) of the new clause, is that anyone's premises may be entered. I hope that those two answers reassure my hon. Friend.
    I have no desire to cross swords with the hon. Member for Workington (Mr. Campbell-Savours), particularly at this early stage in our proceedings. I make no apology for the Fact that these powers are to be entrusted to a private body. As I made plain repeatedly in Committee, it is my firm conviction that the role that is to be entrusted to a private body under the legislation will be discharged the more effectively because it is a private body. To suggest, as the hon. Gentleman did, that the private body would be just like Securicor, which was his analogy, is fanciful. Before the private body was designated by the Secretary of State it would have to satisfy exacting criteria prescribed in the legislation. This provides a real safeguard of the responsibility of the private body to which these powers could be entrusted.
    Mr. Gerald Bermingham: If the Minister is thinking along the lines that the power of investigation of this new body can be enhanced by these new powers of search and seize, will he consider extending similar powers to Lloyd's or to other self-regulating bodies for the investigation of insurance frauds?
    Mr. Howard: We are not concerned with Lloyd's or with other self-regulating bodies in the new clause or in the
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    legislation, and I have given the reasons for that. I have carefully considered the points that were raised during our proceedings in Committee and I have been persuaded that it is appropriate for powers of this kind to be preferred. I commend the new clause to the House.
    Question put and agreed to.
    Clause read a Second time, and added to the Bill.

  New Clause 5

    EXEMPTION FROM LIABILITY FOR DAMAGES
    '(1) Neither a recognised self-regulating organisation nor any of its officers or servants or members of its governing body shall be liable in damages for anything done or omitted in the discharge or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in had faith.
    (2) The functions to which subsection (1) above applies are the functions of the organisation so far as relating to, or to matters arising out of—

    (a) the rules, practices, powers and arrangements of the organisation to which the requirements in paragraphs 1 to 6 of Schedule 2 to this Act apply;

    (b) the obligations with which paragraph 7 of that Schedule requires the organisation to comply;

    (c) any guidance issued by the organisation;

    (d) the powers of the organisation under section 49(2), 59(4) or 92(2)(a) above; or

    (e) the obligations to which the organisation is subject by virtue of this Act.

    (3) Neither a designated agency nor any member, officer or servant of a designated agency shall be liable in damages for anything done or omitted in the discharge or purported discharge of the functions exercisable by the agency by virtue of a delegation order unless the act or omission is shown to have been in had faith.
    (4) Neither the competent authority nor any member, officer, or servant of that authority shall be liable in damages for anything done or omitted in the discharge or purported discharge of any functions of the authority under Part IV of this Act unless the act or omission is shown to have been in had faith.
    (5) The functions to which subsections (1) and (3) above apply also include any functions exercisable by a recognised self-regulating organisation or designated agency on behalf of another body by virtue of arrangements made pursuant to paragraph 4(2) of Schedule 2, paragraph 3(2) of Schedule 3 and paragraph 3(2) of Schedule 5 to this Act.'. — [Mr. Howard.]
    Brought up, and read the First time]
    Mr. Howard: I beg to move, That the clause be read a Second time.
    Mr. Deputy Speaker (Mr. Harold Walker): With this it will be convenient to discuss also the following: amendment (b) to the new clause, in subsection (1), after "damages", insert—
    'at the suit of any member of the self-regulating organisation or of any person, whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise'.
    Amendment (a), after subsection (2), insert—
    '(2A) Neither a recognised professional body nor any member, officer or servant of that body shall be liable in damages for anything done or omitted in the discharge or purported discharge of the functions exercisable by the body by virtue of a recognition order unless the act or omission is shown to have been in bad faith.'.
    Amendment (c), after subsection (2), insert—
    '(2A) Neither a recognised professional body nor any of its officers or servants or members of its governing body shall be liable for damages or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in bad faith.
    (2B) The function to which subsection (2A) above applies are the functions of the body so far as relating to, or to matters arising out of—

    (a) the rules, practices, powers and arrangements of the body to which the requirements in section 18(2) apply;

    (b) any guidance issued by the body;

    (c) the powers of the body under section 49(2) or 92(2) (a) above; or

    (d) the obligations to which the body is subject by virtue of this Act.'.

    Government amendments Nos. 42, 44, 161, 179 and 230.
    Mr. Howard: This new clause touches upon a matter that has perhaps aroused a degree of controversy since the Government's decision was announced. The new clause is of considerable importance and it is appropriate for me to speak about it at greater length than I have spoken about the new clauses that we have so far considered.
    When we debated this matter in Committee I said, and no doubt I shall be reminded of it, that in principle regulators should be liable for damages and that the onus was on those who favoured immunity to make the case for it. I remain of that view. I was not then convinced that a case had been made for granting immunity for recognised self-regulatory organisations. However, consistent with the open-minded and receptive attitude that I hope the House will think I have sought to display throughout the proceedings, I am now convinced that the case has been made for doing so.
    Mr. GouldThe Minister feels that his conversion is consistent with an open-minded attitude, but is it consistent with the principle that he expressed in Committee'?
    Mr. Howard: Of course it is. Principles must govern our approach to these things, and it is in the application of those principles that flexibility is appropriate. I shall seek to explain to the House why I have changed my view. I would not have been prepared to consider granting immunity to recognised self-regulatory organizations unless I believed that it was necessary to do so to ensure the effective enforcement of the Bill's provisions. On reflection, I have come to the view that immunity along the lines proposed will significantly strengthen the Bill.
    Two factors led me to that conclusion. The first is that, if regulation is to be effective, a recognised self-regulating organisation needs to be able to act swiftly and decisively, sometimes on less than conclusive evidence, if it seems necessary to do so in the interest of investors. However, its financial resources will often be smaller than those of its members or others affected by its actions. There is a real risk that the prospect of a number of large claims for damages would deter a recognised self-regulating organisation from taking the actions that it believed to be necessary. That would not be in the interests of investors.
    Mr. Budgen: It seems to be put abroad by the stock exchange that every time, with the benefit of hindsight, that it could be said that a judgment was mistaken, that would lead to a successful claim for negligence. If it was obvious to a judge that a regulatory authority had to move swiftly and decisively, he would have that factor in mind. That would lead to his saying that there had not been negligence. It is right, is it not, that the stock exchange has no immunity, but has never been successfully sued?
    Mr. Howard: Everything that my hon. Friend says is correct. The fact that speedy action had to be taken would be taken into account in assessing whether the regulating organisation had been negligent. What my hon. Friend said about the record of the stock exchange is also true. However, he underestimates the inhibition under which an organisation of this kind may labour if at every turn, and whenever it has to make a difficult decision of this kind, it has to contemplate the possibility of action. That is at the heart of this matter. The stress and demands on the financial resources of the self-regulating organisations that are likely to arise through litigation, even if, ultimately, the regulating organisation were to be successful in that litigation, also have to be taken into account.
    Mr. Campbell-Savours: Perhaps the Minister could clarify his response to the hon. Member for Wolverhampton, South-West (Mr. Budgen), who asked about the stock exchange. I understand that the stock exchange produced a report on the Westland affair and the trading of shares. I also understand that it was not able to publish that document for fear of litigation and a series of actions. That document has still not been published. Is that not an example of how the fear of litigation is enough to quell the keenness of an organisation to pursue what is right and proper?
    Mr. Howard: I hope that the hon. Member for Workington and the House will forgive me if I do not yield to the temptation to comment on specific cases. As a general principle, there is little doubt that the principle which I have put before the House and which. I think, is endorsed by the hon. Member for Workington undoubtedly applies.
    Mr. Bermingham: Does the Minister not agree that the mere threat of litigation acts as a form of discipline? If one is answerable for one's decisions, one tends to take them carefully.
    Mr. Howard: The hon. Gentleman leaves out of account the nature of the decision that a regulating organisation has to take. The important thing is that it should not be inhibited from taking action. It is not simply a question of making sure that the action that it takes is correct, but the fact that the action needs to be taken very often on information that is less than 100 per cent. accurate. No doubt a regulating organisation would like it to be 100 per cent. accurate. It may be less than wholly convincing, perhaps flawed, but nevertheless it may justify the self-regulating organisation in taking immediate action. The prospect of litigation brought by big battalions with large pockets may well inhibit the taking of that kind of effective action in the circumstances that we are postulating.
    Mr. Ashdown: Why did the Minister not respond earlier with that sort of argument? The case was put to him in precisely the same terms in Committee and it took the arm twisting—no other phrase is appropriate—of a sitting in order to make him move position. In Committee he did not listen to precisely the same argument to which he is now responding.
    Mr. Howard: The hon. Member for Workington's reading of the situation is much more perceptive and accurate than the construction that the hon. Member for Yeovil (Mr. Ashdown) seeks to place on it. Of course one listens, but one is not necessarily convinced immediately.

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    One reflects upon the argument, and in some circumstances one reaches a more mature and wiser conclusion.
    Mr. Butterfill: Does my hon. and learned Friend agree that perhaps ISRO is a far better example than the stock exchange? Decisions can be taken involving hundreds of millions of pounds or dollars. In cases like that, if ISRO were liable, it could not possibly function.
    Mr. Howard: My hon. Friend is absolutely right.
    I shall now pass on to the second factor of which I have taken account in arriving at my view on this matter. I make no apology for drawing it to the attention of the House, because it is a factor to which any responsible person making judgments on these issues would have to give a great deal of weight. As it became clear on considering this matter, there is a real danger that individuals might be reluctant to work for, or serve on, the governing bodies of RSROs if there were a risk of a personal liability in damages for actions undertaken in good faith. It is essential — I hope that this at least will be common ground — if self-regulation is to work properly that RSROs should employ and be run by people of the highest calibre. Anything that would deter such people from joining RSROs could seriously affect the effectiveness of the organisations in regulating investment business. This would clearly be an undesirable development which we should avoid if at all possible.
    8.30 pm
    Mr. William Cash: The Committee went in great detail into the questions of who are fit and proper persons and who should run these organisations. My hon. and learned Friend gave me an extremely learned letter from his Department about who was a fit and proper person. However, a further question arises here. Does the act or omission by anybody within such an organisation have to be shown to have been in bad faith? That leads us to the alternative question that arises in connection with acts or omissions that amount to negligence. If my hon. Friend cannot answer now, perhaps he will let me have a note about whether this matter could be dealt with by insurance arrangements, whether inquiries have been made as to what the potential liability would be, and whether it would not have been possible for the self-regulatory organisations to arrange insurance in those circumstances.
    Mr. Howard: I am happy to promise my hon. Friend that I shall let him have a note on those matters, although I cannot promise that it will be as long and as learned as that which he received on the definition of "fit and proper". I can give him some preliminary signs. There is no doubt that inquiries were made about the availability of insurance, and it is no secret that the availability of insurance in this sector is becoming increasingly difficult and expensive. I put the matter in modest terms as a preliminary response, and I shall endeavour to add to it when I write to my hon. Friend.
    Mr. Budgen: Might there not have been a case for giving some form of temporary immunity, or partial immunity, so that when the Act, if the Bill is passed, and the insurance matter have settled down it might be possible to see that the regulators are insured? If it is not possible for them to be insured, it might not be possible to have a system of private regulation of this market.
    Mr. Howard: My hon. Friend makes a tempting point, but the absence of insurance was not the only factor that weighed with me. As I have sought to explain, there were a number of factors, and, even if insurance were available, it would not have met all the factors that I have identified.
    For those reasons, I came to the conclusion that it would be right to grant RSROs an immunity similar to that which was in any event provided for the designated agency and the competent authority. This new clause brings all the immunity provisions in the Bill together, and clause 118(9) and schedule 7, paragraph 3, are therefore to be deleted. In each case the immunity is granted to the body itself and to its officers and servants for any acts or omissions in discharge or purported discharge of certain functions—effectively, the functions which they perform in maintaining the regulatory structure for which the Bill provides. The immunity is restricted to an immunity from liability for damages, and it does not apply when an act or omission can be shown to be in bad faith.
    The proposed immunity will still leave interested parties with the possibility of redress. Investors who have suffered loss as a result of a business breaching an RSRO's rules will still be able to sue the business for damages, and compensation schemes will be available. Members of an organisation will be able to use the organisation's appeals procedures against unfair decisions. It will still be possible to seek a declaration setting out the rights and wrongs of the situation or an injunction to stop or prevent an unlawful act or requiring an RSRO to act lawfully. Damages can still be sought where an act or omission is the result of had faith.
    In the light of the immunity conferred under the new clause, the second half of clause 14(7) is no longer appropriate, and it is deleted by amendment No. 42 Amendment No. 44 similarly deletes the second half of clause 20(5). A failure to provide information required by clause 14 or 20 will still provide grounds for revocation of a recognition order or in the case of an RSRO the exercise of the Secretary of State's or designated agency's intermediate sanctions. Amendment No. 161 has the effect that the same consequences would follow from a failure to provide information required under clause 91.
    I believe that the balance that we have struck should remove lingering fears on the part of potential RSROs while leaving adequate remedies in place for aggrieved parties. I commend the proposals to the House.
    My hon. Friend the Member for Beaconsfield (Mr. Smith) and the right hon. Member for Glasgow, Govan (Mr. Millan) have proposed that recognised professional bodies should have a similar immunity, but that suggestion overlooks, it seems to me, the differences that there will be between RPBs and RSROs. The RPBs will be regulating a much narrower range of business on a much smaller scale than will RSROs. The prospect of a number of large claims against an RPB is therefore much smaller than in the case of an RSRO. In these circumstances, I do not believe that it would be appropriate to extend immunity to RPBs. Further, it would certainly be anomalous for RPBs to have immunity when they are incidental aspects of their members' business when they do not have it, and do not appear to have needed it, in relation to the regulation of their members' mainstream professional practice.
    The hon. Member for Dagenham suggested that an RSRO should still be liable for damages to investors, but this could still leave it at risk from a number of large claims. A regulator will face a number of difficult choices

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    in deciding when to act. One of the most difficult issues is deciding when to remove a business's authorisation, particularly on solvency grounds. The situation is rarely clear-cut. There are always arguments that, given another week or so, more capital can be found or a valuable asset sold and the problem will be resolved. The interests of existing clients and others already dealing with a business will often suffer if authorisation is removed, but such action may nevertheless be necessary to prevent harm to future clients.
    Existing clients and those dealing with a business would, of course, suffer more seriously if the business collapsed, but they may claim that the supervisor's action was unnecessary and that the business would not have collapsed if given more time. They might then bring an action for damages against the supervisor on the ground that their loss was the direct result of the supervisor's intervention. The parties bringing such an action might themselves be large financial businesses — the big battalions of the international financial world. For example, a United States securities firm might use a British RSRO member to manage its clients United Kingdom portfolio. If the RSRO expelled the British business, or stopped it undertaking particular activities, because of concern about its solvency, the US firm might sue the RSRO for the loss that it suffered as a result — for example, of missed opportunities or damage to reputation. This threat could he a very serious one, and could put the RSRO's future at risk.
    Supervisors should not have such a threat hanging over them when taking difficult decisions. If they have, the quality and effectiveness of regulation and the interests of investors will suffer. As I have explained, investors will still be able to claim against a business which had broken the rules or, if appropriate, the compensation fund, and I do not believe that the proposed immunity will seriously affect their interests.
    Mr. Bermingham: Can the hon. and learned Gentleman explain the difference between a supervisor or a regulator in those circumstances and a liquidator acting either under a debenture or some other power? The liquidator or receiver is equally liable for his actions, his misfeasances and the mistakes that he makes. Why is the regulator in a different position?
    Mr. Howard: There are two answers to that question. First, I do not believe that liquidators operate in the same kind of world that we are contemplating in the context of this legislation. I do not believe that they run the risk in the same way of actions being brought or threatened by the largest financial battalions in the world which might well be able to use the very power of mounting effective and expensive litigation to bring pressure to bear on the regulators.
    Secondly, and on a purely practical basis, so far as I am aware no one has refused to act as a liquidator because immunity of this kind is not available. But, as I said earlier, I make no apology for the fact that if we are to get an effective regulatory system in operation, it is essential that we get people of the right calibre to accept the responsibilities of serving on these organisations. That is not a difficulty that is encountered in the context of liquidators, but it most certainly is a difficulty encountered in this context.
    Mr. Ashdown: The Minister's comments have been very revealing. The reason for this remarkale Pauline conversion—no doubt the result of this time bomb that has been ticking away in his head as a result of the arguments advanced in Committee—is revealed as being brought about the refusal of the SROs to recruit people to be their officers and members unless such immunities have been granted. In other words, his arm has been twisted to change his mind.
    Mr. Howard: The hon. Gentleman fails to understand the position. The fact that it was important to ensure that people of the right calibre were prepared to serve on the SROs was a matter that I took into account. I suggest that anyone who failed to take that into account would have been utterly irresponsible.
    I have also reflected on the other arguments that were put in Committee, which I have summarised this evening. It is on a totality of those considerations that I suggest that the view that I presently take is to be preferred to the view that I expressed in Committee.
    Mr. Gould: Listening to the debate, I had the sense of watching one of those courtly dances, where at a given moment in the tune the dancers suddenly exchange positions and take up those formerly occupied by their partners. The Minister's manoeuvre has been so bewildering that one is entitled to ask who is calling the tune. The hon. Member for Yeovil (Mr. Ashdown) is right to suggest that the Minister has changed his mind in such a bewildering way because he has been got at by extremely powerful interests in the City. They have done so in such a way, and so thoroughly, as to call into question something that had hitherto been common ground, at least within the Committee — the desirability of self-regulation.
    The Minister fairly recalled that the whole question of immunity for SROs was raised through an amendment tabled by myself. We pointed out that for very good reasons immunity had been granted to the Securities and Investments Board or to the designated agency, and we felt that it was equally necessary in respect of the SROs. That view was supported across the Committee, although not by every hon. Member. Indeed, I seem to recall that the hon. Member for Bournemouth, West (Mr. Butterfill)— who has also done his little minuet—was very much opposed to any form of immunity, let alone the blanket immunity now proposed in the new clause. However, there was all-party support for some form of immunity, and that in turn was given powerful support by a campaign mounted by the SROs and the SIB.
    The case advanced by myself and others who spoke in favour of immunity was to the effect that without it any SRO would be inhibited — indeed, frustrated — in the performance of its duties not by the constant threat of being liable for vast damages but by the real possibility of the issuing of writs and so on. We felt that the SRO would simply find itself incapable of proceeding against those whom it was its duty to regulate. It therefore seemed to us to be extremely important that, if we were to place reliance on the SROs, they should not be frustrated from the outset by being put at risk as a result of actions by those whom they were meant to be regulating.
    8.45 pm
    The Minister's reaction was to say:
    "In principle, regulators should be liable for damages."

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    We advanced the argument that that was indeed a good principle, but that there was a countervailing principle which meant that in the interests of effective regulation the SROs needed a limited immunity. The Minister later returned to the argument when he said:
    "It is common ground between us that self-regulating organisations should not have immunity from suit on the part of investors."—[Official Report, Standing Committee E, 11 February 1986; c. 174, 182.]
    That was something with which I readily agreed, but the whole burden and thrust of my argument was that it was immunity at the suit of those who were supposed to be regulated that was important and desirable.
    Yet, after these firm statements of principle and agreement with me about the importance of absence of immunity in the case of actions brought by investors, the Minister is suddenly converted not only to the idea of immunity against those who are to he regulated: he also abandons the common ground that he had sought with me and staked out. He now says that there should be not only immunity of the sort covered by the amendment but a blanket immunity that will extend to actions from any quarter, including actions brought by small investors who may well feel aggrieved at some glaring dereliction of duty on the part of an SRO.
    It may be that the Minister was so appalled by the admission that he made to the Committee, elicited from him by a question by my hon. Friend the Member for Workington (Mr. Campbell-Savours), that he was prepared to contemplate SROs going bankrupt—that he has now swung around entirely in order to expunge from his memory the fact that he ever made such an astonishing confession.
    But, for whatever reason, I believe that the Minister has now trod a path that we know is fraught with difficulties and danger. In Committee, I drew attention to the provisions of the Lloyd's Act, and reminded the Committee that when Lloyd's piloted its own private Bill through the House it had strongly argued for immunity on the ground that I was prepared to argue for— that it needed that immunity in order to be an effective regulator. In other words, it needed to be able to be tough with those in respect of whom it was entrusted with the duty of regulating, without being threatened with action.
    I pointed out that Lloyd's was tempted —I suspect more than tempted and, indeed, set about—to use that immunity in the case of the PCW scandal not in order to be a more effective regulator but to protect itself against its own failures as a regulator. It would use that immunity to prevent any action brought by aggrieved investors in the PCW syndicates who believed that Lloyd's had fallen clown in its duty.
    The clear view of many people is that Lloyd's did fall down in its duty, and, while one does not necessarily have unlimited sympathy for Lloyd's members, it is entirely right that where they lose money through the clear failures of the supervisory authority they ought to be able to turn to that authority for recompense if — here I associate myself with the telling point made by the hon. Member for Wolverhampton, South-West (Mr. Budgen) — they can make their case in the court. That is not as easy as it seems. It is difficult to think of individuals who have been able successfully to sue bodies of that nature for regulatory failures. That must tell us something about the balance of power and of probability in such circumstances.
    Mr. Butterfill: Mention has been made of the PCW names at Lloyd's and it is suggested that it is proven that the case resulted because of a failure by the regulator. I believe that it is far from proven. The information that I have heard suggests that it was not due to a failure by the regulator but because the syndicates of which they were a part took extremely ill-advised underwriting business. It was high-risk business, no doubt for high rewards. It seems that an attempt is being made to evade responsibilities in the underwriting of that business.
    Mr. Gould: We could have a long debate about the rights and wrongs of the PCW affair. I believe that investors lost money through fraud and theft and then through ill-advised business, undertaken to maximise premium income to cover the tracks of those criminals. All of that took place under a supervisory regime for which Lloyd's was responsible. But that is not the point. The point is whether we should enact, as we did in the case of Lloyd's, a provision which prevents PCW investors from resolving in the courts the debate which the hon. Gentleman and I have just had. Should we say that the PCW investors should be precluded from having their day in court to establish their case?
    Mr. Budgen: Can the hon. Gentleman confirm to those outside that if a plaintiff fails against a regulatory authority the cost of bringing the proceedings is likely to be large and, having failed, he will have to bear not only his own but the defendant's costs?
    Mr. Gould: The point is well taken. There is another explanation, one assumes, for the relative rarity of such actions.
    One could elaborate the case at length, but I do not propose to do that. I want to raise the general principle at the heart of the issue. If self-regulating organisations are to be made immune from suit, from whatever quarter, the nature of the self-regulation with which we have imagined that we are dealing is misunderstood. We have imagined that the self-regulating organisations are an instrument for exercising statutory powers and that they exist because they have particular expertise and the ability to monitor activities day by day.
    That type of self-regulation is suddenly revealed by such a measure not to exist. Under the provision we are confronted with self-regulation on the bad old model where self-regulation is undertaken by groups or professional cliques whose real purpose is to defend the interests of their own members against the outside public. Such a provision will make it impossible to break down the wall built around those organisations, which will be impregnable by the outside investor.
    If we were to enact the provision, the self-regulation which we have hitherto been prepared to support would become a much different proposition. We could not easily tolerate a City regulated by bodies against which there was no possibility of sanction by those who would lose as a consequence of their failures.
    In drawing the line between actions brought by members, or the regulators, and actions brought by investors and members of the public, I am not excluding the possibility that very large investors with very deep pockets might sue self-regulating organisations. That was a possibility which a few months ago the Minister was prepared to contemplate.

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    The difficulty is that the Minister must now make a choice. Does he provide effective investor protection for the small investor, or is he so mesmerised by the possibility of large investors threatening self-regulating organisations that he is prepared to throw investor protection out of the window? That is the consequence of the new clause.
    The investor who wishes to sue the self-regulating organisation will limit his argument in such a way as not to threaten the continued viability of that self-regulating organisation. That is not achieved by any of the proposed amendments. The Minister should be able to come up with a solution which would provide a balance between protecting the self-regulating organisations and protecting the interests of the investor. If he cannot do that, the notion of using self-regulating organisations to carry out the purpose must be re-examined.
    If the Minister believes that self-regulating organisations need to be protected against actions for damages by anybody, one must conclude that self-regulating organisations are not the appropriate instrument for carrying out that function. That is the essential question which must be answered. That is why we believe that the Minister's conversion, while welcome to the extent that we had urged it upon him, has gone too far. The Minister has not adequately explained why he has so demonstrably changed his position.
    Mr. Bermingham: Does my hon. Friend agree that, if the Minister has been converted — I use the word advisedly because I suspect that he does not know where the road from Jerusalem to Damascus really is—could it be because of his fear of the multinational financial institutions? If that is so, perhaps the regulation should be by Government bodies rather than private bodies.
    Mr. Gould: My hon. Friend is right. That is the conclusion that I arrived at. If the contest between the self-regulating organisations and the large City investors, who in most cases will be members, is so unequal, it is hard to see how the self-regulating organisations can bear the weight of the burden.
    Mr. Budgen: I am not sure that the hon. Member for Dagenham (Mr. Gould) has persuaded me that it would be right to grant immunity to the regulated. It is difficult to draw a line between the regulated—particularly the big regulated—and those who are also investors. That is particularly difficult since we now have a multiplicity of capacities in the City. It is difficult to see, when an organisation might be a clearing bank, a stockbroker and a stock jobber, how one can precisely describe it as a big investor or a person regulated by the authority.
    We are not really talking about that tonight. We are talking about whether the Government are wise to grant blanket immunity to all persons who have to deal with the self-regulatory authority. I am grateful to my hon. and learned Friend for the courteous way in which he gave way to me as he expounded his only two reasons for saying that his previous view had changed.
    I agree with my hon. and learned Friend that the presumption should be against immunity. I shall not repeat the two questions that I put to him, although I did not receive a satisfactory answer. I therefore conclude that the Government have been very unwise in general and
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    political terms in granting this blanket immunity to a self-regulatory authority. They allowed Lloyd's blanket immunity through the Lloyd's Act. Plenty of hon. Members say in the Lobbies that they wished that the Government had not granted that blanket immunity because it has not been used as a means of making Lloyd's a straighter or more efficient organisation. It is seen by many to be more of a shield than a sword.
    9 pm
    It must be remembered that a special privilege was granted to the stock exchange in 1983. I was opposed to the Parkinson-Goodison deal because I thought it wrong to take pending litigation out of the ambit of the courts. The restrictive practices of the stock exchange should have been considered by the Restrictive Practices Court. Plenty of people share that view. Perhaps I am wrong, but it appears politically unwise to grant to the stock exchange another great privilege— [Interruption.]. I have failed to satisfy my right hon. and hon. Friends that it is unwise to grant one's friends these great privileges.
    I wish to direct a few words towards the stock exchange. In our society there are two main ways to ventilate a grievance. If one has a disagreement with a state-run concern, there is a political method to ventilate that grievance. For the sake of argument, I might say that I do not like the way in which the Bank of England is controlled by the Government, I will never support Mr. Nigel Lawson or vote Tory again, and that Mr. Lawson should resign. That is perfectly reasonable and everyone understands the way in which political grievance can be ventilated. Equally, everyone understands that a private individual has a right to ventilate his grievance through the courts. However, a self-regulatory body that is not state-controlled and cannot be sued in the courts is, in the last resort, irresponsible.
    Mr. Butterfill: Is my hon. Friend aware that on 3 June the stock exchange announced its intention to appoint an ombudsman to represent the interests of investors as against the stock exchange council?
    Mr. Budgen: Ombudsmen make grave recommendations, but they are not in any way binding. An ombudsman is not a satisfactory alternative to the right to sue through the courts.
    Sir Nicholas Goodison, who is no doubt congratulating himself on his great triumph, has in fact acquired for himself and his organisation a most short-sighted triumph. There will be many changes in the securities industry in the next few years. Many wise people who know a great deal about the industry— I am not wise, nor do I know a great deal about the industry —say that over-capacity is building up, and they may be right.
    I do not know about the way in which prices of stocks and shares go up and down, but there are those who say that eventually there will be a bear market. There are also those who say that the system of Chinese walls will not always work. A combination of over-capacity and a bear market, with opportunities for malpractice, means that a few corners may be cut in future. When Granny Smith finds that she has no opportunity either to take the political course or to sue to ventilate her grievance—it may well be that there is not a Conservative Government at that time — she may say that there is a need for further legislation. She will say, "That wicked old Tory Government in 1986 passed legislation which was plainly to the advantage of their friends and was not fair to me."

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    The danger is that the splendid settlement will be unpicked. When it is unpicked, not only that part of it but the remainder will be unpicked. That will be to the disadvantage of the stock exchange. Certain people may drink their second magnum tonight and congratulate themselves on such a great triumph, but I hope that it does not look too bad for them in five, six or 10 years, when Granny Smith goes to a Member's surgery and complains that she has no means of ventilating her grievance.
    Mr. Bruce Millan: I agree with the hon. Member for Wolverhampton, South-West (Mr. Budgen) that if we are to give special legal privileges of immunity to anybody, there must be good grounds of public policy for doing so. It cannot be given simply as a protection for the body concerned. As I understood the argument in Committee— I was not a member of the Committee— there were good grounds of public policy for giving at least a degree of immunity to self-regulating organisations, because otherwise they might be inhibited, as the Minister said earlier, from carrying out the functions of investor protection placed on them by the legislation. The argument provides a strong case for legal immunity. I believe that the extent of the immunity is a separate matter, as my hon. Friend the Member for Dagenham (Mr. Gould) has argued. My amendment (c) applies the same arguments to recognised professional bodies as have been applied in the Minister's new clause regarding self-regulating organisations.
    As a chartered accountant and a member of the Institute of Chartered Accountants of Scotland to which I am parliamentary adviser. I have an interest in the matter. Listening to the Minister's arguments for his new clause, I found it difficult to accept the arguments that he put up a little later about why recognised professional bodies should not have the same degree of immunity—whatever it is that Parliament eventually decides the degree of immunity should be. After all, under the Bill, those bodies are to be subject to a regime that is intended to give protection to investors equivalent to that which they would obtain through anything done by an authorised person in a self-regulating organisation. The rules and monitoring arrangements to provide that are to be as stringent, detailed and as subject to supervision as those that apply in respect of self-regulating organisations. Therefore, recognised professional bodies will be placed in almost exactly the same position as self-regulating organisations. It is difficult, on the face of it, to understand why immunity is to be granted to one kind of organisation but similar immunity is not to be granted to another kind of organisation—a recognised professional body.
    The Minister used two arguments against that proposition. He said that in the case of professional recognised bodies — I take the chartered accountants' institutes as an example— regulation would be only a small part of their activities, and it could be anomalous if immunity were granted for a small part of their activities when the main part of their activities was not similarly protected by immunity.
    The recognised professional bodies are having particular and new obligations placed on them by the legislation, assuming that they will apply for recognition. It is a matter of choice. They may not apply for recognition if they do not feel that they can take on the obligation. If they apply for recognition, they will take on an entirely different range of responsibilities. For example, the
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    institutes of chartered accountants do not actively monitor their members' activities or have a legal obligation to do so. Of course, they are responsible for discipline, and so on. Under this legislation, they will take on the additional responsibility of monitoring their members' activities with respect to investment.
    Although this aspect may be only a small part of the activities of these professional bodies, it is a new and special responsibility. It is a legal obligation, not a voluntary role. By applying for recognition, a body automatically takes on those responsibilities. The argument that these bodies are not given immunity for the major part of their activities and that, therefore, it would be anomalous to give them immunity for the minor part of their activities does not bear examination.
    It has been argued also that a member of a recognised professional body who has been authorised will be recognised only because certain activities are incidental to his main activity as an ordinary professional person. That is true. The Bill does not lay down a definition of what is incidental. There have been considerable discussions on this point, and I am not arguing that there should be a specific definition in the Bill. A practitioner may be involved in activities that are incidental to his main activities, but that does not necessarily mean that those incidental activities do not involve considerable sums. He may he vulnerable to legal action even though his activities are incidental. Of course, if the activities were not incidental, they would have to be regulated in a way other than through the recognised professional body. That is not a good argument for distinguishing between a self-regulating organisation and a recognised professional body.
    Mr. Bermingham: I put this point to the Under-Secretary of State but he did not seem to understand it. Does my right hon. Friend, with his vast professional experience, accept that often the chartered accountant who is the liquidator or receiver in a company liquidation can be involved in what may appear, on the face of it, to be a small transaction but be liable for vast sums?
    Mr. Millan: My hon. Friend has made that point in a rather different context. Because a person is involved in an activity that is only a small part of his general professional responsibility it does not mean that he is not vulnerable to being liable for large sums. That point has been made. I think that the Under-Secretary of State understands that the professional bodies are agitated about this matter, and I ask him to consider it again.
    I do not want to go at great length into how far immunity should extend. There is a distinction between immunity from action by a recognised professional body's members or someone authorised' by it and immunity from action by a member of the public — for example. an aggrieved investor. From the point of view of the recognised professional bodies or the self-regulating organisations, liability for large sums in damages may arise from the suit of an aggrieved investor rather than art aggrieved authorised member or a member who has been refused authorisation. Vulnerability to liability for large sums of damages may well be caused by bodies outside rather than within an SRO. Amendment (b) restricts immunity to a person,
    "whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise".

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    In some circumstances, that may be a fairly limited immunity. An aggrieved investor may get beyond the authorised person, with whom his grievance basically rests, to the authorising body which is responsible for monitoring the activities of that person. There is a real dilemma but I do not necessarily want to take a firm view on that matter. All that I am saying is that, whatever the ultimate form or shape of the Bill or the new clause, I think that there are strong grounds, in terms of public policy, for treating self-regulating organisations and recognised professional bodies in exactly the same way.
    9.15 pm
    Mr. Butterfill: My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) referred to Granny Smith and her predicament and her inability to sue. My constituency probably contains more hypothetical Granny Smiths than most others. The difficulty that the Granny Smiths in my constituency encounter is that the law does not seem to do for them what my hon. Friend the Member for Wolverhampton, South-West thinks that it might. They come to my advice centre and say that there is one law for the rich because they can afford it, there is another law for the poor because they can get legal aid, but there is no law for the small people in between who cannot get legal aid because they have a little bit of money. They are precisely the people who will be the investors in the stock exchange and who will not he able to afford the litigation.
    I am touched by the faith my hon. Friend the Member for Wolverhampton, South-West has for the legal process and the courts. It is not a faith that I have heard him express quite so vividly on previous occasions. Nevertheless, it is a touching thought. However, I do not think that it is something which Granny Smith will want to rely on. I think that she would much rather rely upon an ombudsman appointed by the stock exchange especially if, unlike the ombudsman we seem to have created in this place, he actually has some teeth and may get redress for the complainant investor.
    The hon. Member for Dagenham (Mr. Gould) referred to the views I expressed in Committee. I am sure that if he refers to column 176—I have just refreshed my memory on that, he will see that — my view arose from the experience that I and other Members of the Committee had as members of professional bodies. I suggested that since those of us who were members of professional bodies had not seen the need for them to have this type of immunity I did not really see, extrapolating from that, why the immunity should be extended to the stock exchange or any of the other self-regulating organisations we are setting up under the Bill.
    I must tell the hon. Member for Dagenham that I have taken further advice on this matter. However, I have not undergone a conversion in a blinding flash along the road to Damascus. I have trodden the road to Damascus but it was not there that the inspiration came to me. I have considered the representations, as my hon. and learned Friend the Parliamentary Under-Secretary will have done, that have been made to me by those concerned in these matters and those who have much more experience than I have. In an earlier intervention I referred to the position of ISRO, which is dealing with an international money market of billions of dollars. It would be completely
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    impossible for regulators of that type to operate if, in giving a ruling, they were likely to be liable to be sued for damages for billions of dollars. A bankrupt regulator will not be any good to any of us and, therefore, it is essential that we provide the immunity that is suggested in the new clause.
    Mr. Ashdown: I thought that the hon. Member for Dagenham (Mr. Gould) put it rather well when he said that the House was engaged in a rather interesting minuet. We are required to do so in considering the new clause. The hon. Gentleman and I and other Opposition Members called for immunity for SROs and the Minister's change of heart is welcome, but that welcome must be tempered by the fact that he has gone further than the consensus that we reached, such as it was, in Committee, and has done so for some fairly curious reasons. As the hon. Member for Dagenham said, and as the hon. Member and for Wolverhampton, South-West (Mr. Budgen) said in an interesting, amusing and telling speech, that makes this issue one of considerable principle.
    It is right that we should remind ourselves of the terms in which the Minister, with a good deal of enthusiasm and no small despatch, advanced arguments that went against the position that he has now adopted. He told us in Committee, in the face of the arguments that he has presented this evening, that he was against the immunity that is now proposed. He told us that it would be wrong to allow a City institution to operate above the normal workings of the law. He did not use precisely those words but that was the purport of his contention. He declared elegantly and with some force that the immunity for which we asked would go against the trend of English law over the past 50 years. He explained that there had been a move in the opposite direction and added that doctors, lawyers and tour operators had all been made liable for damages for incorrect decisions. We are entitled to investigate why it is that the Minister has committed such an extraordinary volte face. It would seem that the hon. and learned Gentleman is stretching our credibility a little too far by asking us seriously to believe that the arguments which were so powerfully advanced in Committee caused him to change his mind.
    If the Minister's change of mind was caused by the arguments that were presented in Committee and, to a certain extent, by some "practical facts", as the Financial Times put it, presented to him outside the House, I might be better disposed towards him, but I suggest that there is no evidence that that is what happened. The Minister is fast enough on his feet and has a brain that works quickly enough to accommodate and show some serious consideration of the arguments advanced in Committee, but instead he dismissed them with considerable despatch.
    Mr. Ron Davies: And with contempt.
    Mr. Ashdown: I would not go that far. It was a good-natured Committee and I did not see too much contempt displayed. I merely say that the Minister dismissed with enthusiasm the arguments in favour of immunity.
    What has happened? We know that a letter was sent to the Minister on 16 April 1986 from the six nascent SROs—AFBD, IMRO, ISRO, LAUTRO, NASDIM and the stock exchange—which contained a thinly veiled threat. They wrote:
    "Failing to grant immunity from these liabilities in the Bill will discourage the formation"—
    a euphemistic approach—

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    "of SROs in the first instance, as well as compromise their operation if they do decide to seek recognition."
    That was an approach that was articulated more clearly in an article that appeared in the Financial Times. The commentary in the Financial Times that appeared shortly afterwards was rather more blunt but it was accurate enough. The article stated:
    "The six nascent SROs issued a joint statement saying that unless they were granted the same immunity from negligent actions as their immediate overseer, the Securities and Investments Board, they would not invite members to join or to serve as directors and officers."
    There it is. There is the armlock or the half-Nelson. That is why the Minister has changed his mind. In future, as the hon. Member for Wolverhampton. South-West said, when Granny Smith wants to know why it is that she has no recourse and no possibility, neither political nor through the courts, of getting back at wrong decisions, it will be said with some force that the Government changed their mind because some of their friends and some of their paymasters in the City required them so to do. I say that as someone who has not advanced that argument with the strength with which others have deployed it previously. That, however, will be the judgment that history and hindsight will place on the Minister's decision.
    Mr. Campbell-Savours: I find the comments of the hon. Member for Yeovil (Mr. Ashdown) quite remarkable. It is not my place to defend the Minister, but I have a letter from Allen and Overy, solicitors. The organisations took legal advice, and all the matters contained in the letter from the stock exchange are taken directly from the correspondence. If the hon. Member for Yeovil had simply telephoned the solicitors, he would have found the case clearly set out in favour of immunity. The solicitors were commenting only on the relevance of a legal judgment as it affected their position. They were perfectly entitled to obtain the legal judgment and put it to the Minister.
    Mr. Ashdown: It is strange for the hon. Gentleman to place such remarkable weight on the view of lawyers as being the final word in this matter. I am aware that the Committee was overburdened with lawyers and that was difficult for us to cope with. However, we must make a judgment on this. It is possible for anyone to seek an opinion from a lawyer which will meet the desired requirement. I am not against the concept of immunity and I argued for it within certain limited constraints that I will refer shortly, and relate strongly, to the amendment tabled by the hon. Member for Dagenham (Mr. Gould).
    It is perfectly clear that the half-Nelson which the Minister was put in by his friends in the stock exchange and elsewhere caused this remarkable change of mind. It is even more remarkable, because elsewhere in the Bill and throughout the Committee the Minister time and time again placed what many of us regarded as a touching faith in the operation of the courts when it came to decide on such matters as, for example, the meaning of the word "significant" when assessing the proportion of a firms general business which involves investment. The Minister is granting an immunity not just to the members and those who are regulators on the matter—
    Mr. Budgen: Will the hon. Gentleman give way?
    Mr. Ashdown: I will give way to the hon. Gentleman in a moment if he will just be patient. The Minister is
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    granting an immunity not just to the members and those who are regulators, but is going further than what was agreed in Committee on this matter.
    Mr. Budgen: Does the hon. Gentleman agree that the way that the stock exchange suggests that it is accepting self-regulation, as it were to do the Government a favour, is rather odd? The exchange wants self-regulation because it believes that the more skilled and informal way of regulating the market will be a selling point to foreign investors. However, having desperately wanted this self-regulation, sadly it is not prepared to accept its consequences.
    Mr. Ashdown: The hon. Gentleman has made a powerful point. I am in favour of a degree of immunity for reasons advanced in Committee. There are important reasons why there should be freedom of operation in respect of regulated numbers. However, by extending that even to immunity from damage claims by investors, he is seen to have moved much further than he agreed might be appropriate in Committee and in a direction which fundamentally extends the powers of self-regulation to levels that most hon. Members would disagree with.
    There is anxiety about self-regulation as a basic principle, although I agree with that principle. That principle is worrying enough but to give the self-regulators total immunity from anyone in relation to damages levied against them, not only to those who are members of the regulators and to investors, goes far beyond what is acceptable.
    Mr. Butterfill: Does the hon. Gentleman accept that when the big bang occurs the investors and members may be the same people? Is that not the problem?
    Mr. Ashdown: If the investors and the members are the same people, granting immunity to the members should be sufficient. I would happily go along with such a proposal.
    The Minister has moved for the wrong reasons. He has moved not because of democracy and argument in Committee but because he has been put in a half-Nelson. The second reason for the Minister's shift is even more worrying. The City has caused a fundamental change in his mind by simply saying that it will not operate a set of regulations which is enshrined in an Act of Parliament. That bodes very ill for the future of self-regulation as one of the determining factors of the success of self-regulation is the City's attitude. That is a matter of not inconsiderable weight.
    9.30 pm
    As for what the Minister should have done, I cannot add significantly to what the hon. Member for Dagenham said. To offer immunity to those who are regulated is appropriate, but to offer it to those who are investors as well is dangerous. If the Minister is saying that the power of investors in terms of the money that they can generate is so great as to cause him considerable worry in this matter, it might be right for him to recognise that there should be a state organisation. That is not my view, but. if the Minister believes that the power of investors will be so great as to undermine his Bill, giving a private body such immunity is going too far by a long way.
    This is an issue of fundamental principle. I am in favour of immunity for the regulated, but we should not grant immunity from damages levied against the SROs in respect of those who invest. To do that would be significantly to

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    undermine the Bill and to extend the power and influence of SROs to an unacceptable extent. We would also diminish the safeguards for investors.
    Mr. Tim Smith: This has been a bizarre little debate. It has something in common with "Through the Looking Glass". My hon. and learned Friend the Minister has changed his mind and, ever since announcing it, he has been attacked by the very people who wanted him to change his mind. I refer not to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) but to those who made the mistake of speaking in the earlier debate on this subject.
    Mr. Gould: The hon. Gentleman cannot be allowed to get away with that statement. We approve of the Minister changing his mind 100 per cent. —it is the 200 per cent. which makes things difficult for us.
    Mr. Smith: It is partly that and partly the suggestion that he has not changed his mind on the merits of the argument but has somehow been got at. It has been suggested that the stock exchange got at him.
    We should be clear who is calling the shots. No fewer than 49 out of the 50 leading members of the stock exchange are owned by members of ISRO. The stock exchange will soon be a subsidiary of ISRO, so if anybody is calling the shots it is ISRO and the international securities dealers. It is important to listen to what they have to say. Everybody who wanted a change agreed that there should be immunity for members.
    It is easy to exaggerate the difficulties of view and their consequences, but we are considering whether there should be immunity for investors. The hon. Member for Yeovil (Mr. Ashdown) completely misunderstood the point made by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) about investors and members being the same people. They will not be the same people on the same occasion. When we speak about large investors, we speak about the people who are members of ISRO and other bodies with substantial clout. My hon. and learned Friend might perhaps consider whether we can draw a distinction between the very large operators, who are probably quite capable of looking after themselves, and the Granny Smiths to whom my hon. Friend the Member for Wolverhampton, South-West referred. Such a distinction exists because the Government have tabled an amendment to schedule 6 which makes it.
    When I saw the Government's proposal, I was a little surprised in view of what my hon. and learned Friend said previously. I see the force of his arguments, however, and that the professional investor does not need such protection. The origin of the Bill is concern for small investors. Perhaps we should see whether we cannot deal with the matter in that way.
    My amendment (a) is very similar to amendment (c) tabled by the right hon. Member for Glasgow, Govan (Mr. Millan). I subscribe to all the arguments put forward by the right hon. Gentleman in favour of extending the clause to include recognised professional bodies.
    Mr. Bermingham: I do not propose to detain the House for long. But it is incredible that the Minister, who comes from a learned profession, should seek to negate the actions of the courts in this matter. I do not know whether
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    it was the blinding light on the road to Damascus again, pressure from the City again, or pressure again on other hon. Members from the little chaps across the coffee table, which has led to the claim that there is a difference between the stock exchange and other professional bodies. On occasion, the Law Society has been the subject of actions. The Glanville Davies case is a classic example. In that instance, the Law Society found that it was in the wrong. Other professional bodies, such as the accountancy profession, have been the subject of actions. But those actions are always undertaken by small people.
    Apparently, however, we are to exempt the new SROs and the Securities and Investments Board from liability for their actions. From the Minister's argument — I hope that he will pay me the courtesy of listening to this point — it seems that these bodies will be gagged by the actions of large American and other institutional investors. Apparently they will issue a series of gagging writs, as a result of which no actions will be taken. If the House acknowledges that there are powerful enough bodies, in the City or elsewhere, to gag other bodies set up by the House simply by issuing writs, it is a very weak and namby-pamby place. After all, that has never been the position.
    If someone said today that all professional bodies were to cease functioning simply because rich, powerful and influential bodies could issue writs to threaten them and subdue them into submission, I trust that the House would have the courage to act. On Second Reading I was very much against — as I always have been — the SIB or independent concept of self-regulation. In the light of the Minister's remarks, I am confirmed in my belief that we cannot trust the City to regulate itself. That is what worries me.
    I was always in favour of the American solution, with the Securities and Exchange Commission or a Government body. I was in favour of a state body regulating the whole investment industry. I accept, as I believe the hon. Member for Beaconsfield (Mr. Smith) mentioned, that there are SROs in New York, but they are in turn subject to other controlling bodies.
    I am prepared to concede limited immunity between those companies or businesses which are to be regulated and the regulator. I understand the argument that if bodies do not like how they are being regulated they, as a collective group, can change the rules on how they are run; but I strongly object to the negation of an individual's rights. That individual could be a bank or the Granny Smith referred to by the hon. Member for Wolverhampton, South-West (Mr. Budgen). Indeed, for once I entirely agree with his remarks. He hit the nail on the head.
    I strongly object to the man in the street being told that he has no right of redress. In its own way that is a negation of democracy. One cannot have a body that is answerable to nobody. I concede immediately that such bodies would be by way of declaratory judgments, and so on, answerable, say, through the divisional court. But that does not provide the necessary remedy to the ordinary person.
    Perhaps the Minister would like to travel again on the road from Jerusalem to Damascus. I am sure that the House will understand the time that it takes. Perhaps once again he could hope that the light would hit him and this time lead him to understand that he has no need to be

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    frightened of the large multinationals. Britain and our courts are big enough to protect us against the gagging and conspiratorial tactics which he so fears from them.
    Mr. Camphell-Savours: They are not.
    Mr. Bermingham: My hon. Friend says that the courts are not strong enough. He knows not what he says. Indeed. the courts are strong enough and they will not accept that sort of behaviour, because it is in itself a conspiracy to pervert.
    I say to the Minister: think again. The House has the power to set up regulations in a way that meets the needs of all. To deny the individual the right of redress and to say that if we do not have this blanket immunity the City, which is being given the right to regulate itself, will not play really is the conduct of a spoiled brat. Let him have the courage to say to the City, "Look, we believe that the individual has rights. If you want self-regulation, have the courage to do it, but in a form which makes you answerable to the people you seek to regulate."
    Mr. Nelson: Some immaculate points of principle have been put forward this evening by hon. Members. Indeed, some of them have almost waxed biblical in their defence of people's right to bring suits. However, we must decide whether we want the legislation to work, whether we want the legislation well thought out, given a Second Reading and enjoying a large measure of support on both sides of the House. If we do, we must ensure that the bodies which are charged with this responsibility have the incentive, the means and the ability to carry it through.
    Those of us—I am one of them—who advance the case for extending immunity to SROs do not do so because in some idle way we think that it would be a useful immunity that would help the running of the City. We do not do so because we have paymasters or vested interests. We do so because, as we have clearly said, we are interested in investor protection. It is because we want to protect investors that we want SROs to do their job and it is because we want SROs to do their job that we want to ensure that they have the membership, the effectiveness and the immunity so to do.
    I find it odd that in the debate so far there has been no mention of or objection to the immunity which the SIB enjoys. The SIB is given complete immunity from suit by SROs, by members of SROs and by the investing public.
    Mr. Budgen: The SIB is far less of a self-regulatory authority and far more of a state organised authority.
    Mr. Nelson: That goes to the heart of a debate that we shall no doubt have later on Report, on which the Standing Committee spent no little time.
    The fact of the matter is, as is proposed, that the SIB or the designated agency will remain a private sector body. It is given, and I welcome it, substantial powers of regulation and power over SROs, but enjoys— a fact that nobody has complained about—total immunity.
    Some hon. Members have complained—again, it is a compelling and almost immaculate argument—that not to be in favour of extending immunity to self-regulating organisations because they are private sector as opposed to governmental is either a case for not extending that immunity or a case for making the system statutory. That was the point made by the hon. Member for Yeovil (Mr. Ashdown).
    However, making the system statutory, even if it were practically possible, making not only the SIB but every
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    SRO, including the stock exchange, a statutory body, would not of itself mean that those SROs could not be challenged in court or in law. They would only not be challenged if, in the legislation giving them statutory identity, an immunity was extended to them as well. Exactly the same point exists whether or not the SROs and the SIB are statutory or private. Therefore, those arguments are wholly defective.
    We must consider whether we want the legislation to work and whether the proper presumption against the. extension of immunity to any body or organisation should be waived or limited to this extent because we think a greater good will be served. I share the view to some extent that regulators should be liable and responsible for their actions, and that there should be a presumption against an extension of immunity as a generality. I am fearful— have expressed this to self-regulating organisations and in Committee — that SROs may sometimes act in a capricious or negligent way, possibly in the interests of the firms for which individual members of SROs work, rather than in the interests of the public or the market as a whole.
    9.45 pm
    I am well persuaded, as I believe my hon. and learned Friend the Minister was, that the practical reality is that. SROs will be blockaded or rendered impotent by the threat of suits or damages of an order substantially greater than the hon. Member for St. Helens, South (Mr. Bermingham) imagines. [Interruption] I am making a point and I am open to challenge.
    The resources available to the legal departments of some investment banks, which will be both members of ISRO and investors on the international securities market, not only are prodigious but will be deployed, as the investment banks have said, because when acting on behalf of various substantial investment interests one may be culpable if one does not fling bricks in every direction and overstate the damages that can be claimed. If the hon. Gentleman honestly believes that that will not happen, he should consider what has happened in the United States, where the volume and size of writs has been enormous.
    Mr. Bermingham: Does the hon. Gentleman not agree that to say that companies will use inflated writ procedure by in-house lawyers brings upon them the disgraceful allegation that they would do so and upon the judicial system the equally disgraceful allegation that it would tolerate such conduct in the English courts?
    Mr. Nelson: Of course companies would, and the courts would have to tolerate it. It happens in the United States. The sums involved are enormous compared with the cost of taking a case to court, which may be substantial in absolute terms but which is nothing when one considers the turnover of some individual investment houses which is now over ․1 trillion.
    Mr. Budgen: My hon. Friend should also mention contingency fees, which make a difference between here and New York.
    Mr. Nelson: I recognise that., and I concede the point to the extent that there are different practices and attitudes in this market. But let us not underestimate the extent to which these suits will be brought.
    I was well persuaded by the chairmen of the SROs, members of SRO steering committees and individual member firms that they will not get lay or professional

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    members on those SROs. Ian Steer of ISRO, to whom I have spoken, Charles McVeigh, a member of the standing committee, and Salomon Brothers International, all of whom are involved in establishing and running this organisation and are investors and self-regulators in the market, say that there is no way that they will put themselves forward and have the opportunity cost of highly paid executives' time to make themselves vulnerable to the sort of law suits which they believe will undoubtedly be brought, if this sort of immunity is not extended.
    For those reasons, my hon. and learned Friend was absolutely right. Although, with the benefit of hindsight, the announcement could have been made more sensitively, the judgment is correct and deserves support.
    Regarding professional bodies, it is important that we draw a differentiation between incidental business and mainstream business. The arguments would be different if recognised professional bodies were to preside over member firms whose investment activities extended well beyond the sort of incidental business for which they will be authorised. Where they engage in such business, it will have to be authorised, and where they are authorised, they will be a member of an SRO in the usual course of events. For all these reasons, my hon. and learned Friend deserves far greater support than many have so far given him.
    Mr. Campbell-Savours: In Committee I took a great interest in the subject of immunity, and the Minister has been wise to pursue the course that he has adopted. However, he would do well to note the comments of my hon. Friend the Member for Dagenham (Mr. Gould). At the beginning of the debate I said that I had an open mind on this matter.
    Mr. Ashdown: Oh, yes?
    Mr. Campbell-Savours: I am being objective in the way that the Liberals tell the public they are always objective. It is a pity that they cannot apply their objectivity in the Chamber, where people such as I do so. I have been thoroughly objective. In Committee it was remarkable that at every stage of our 22 sittings we sought a balanced judgment. We have so many amendments because we went about our business in an objective way.
    Mr. Ashdown: Will the hon. Gentleman give way?
    Mr. Campbell-Savours: I want to watch a football match at 11 o'clock, and I intend to do so, so I shall proceed with the important business.
    My hon. Friend the Member for Dagenham was right in his comments on the need for a special look at the position of investors and that one has to weigh up these matters carefully and have a balanced judgment about them. As I understand it, he was saying that if, through concern about the power of multinational corporations and large investors, we end up by applying a system that does not fully protect the small investors, we question the whole principle of the self-regulatory organisation. 11' we do that, we do great damage to the principle of self-regulation.
    As far as I can see, the only way around this is to pursue the proposition put forward by the hon. Member for Beaconsfield (Mr. Smith), who also was most reasonable. He suggested that there would be a case to answer and asked whether we could find some way of drawing a
    424
    distinction between the large and the small investors. Over the next few weeks the Minister might examine these matters and, before the Bill is dealt with in the other place, produce a solution. I do not know what it might be, but it could be some form of ceiling on immunity. We must find a way round this problem. It would be wrong to be so near to perfection, but yet slightly undermine a system that would work.
    Mr. Cash: I am extremely disappointed with these provisions. In Committee I spoke about fit and proper persons and asked whether the Bill, which is leading up to the big bang, would lead either to a galaxy or a black hole. That has much to do with the manner in which the SROs operate. The new clause will go through. I am sure that if there is a Division it will go in the direction that the Government want, but that does not detract from my main point. The immunity that is to be extended to the SROs in these circumstances will lead to a serious situation, as the Granny Smiths of this world will learn to their cost in due course.
    Having said that, there is a broader issue that must be addressed — whether the self-regulatory organisations would be prepared to operate. It is clear on the balance of the argument that they are not prepared to operate unless this provision is put through. It is more important that the Bill should succeed. I have expressed the warning, and I stand by it. I hope that the Government will use the powers in new clause 6 to rectify the matter in due course if things go wrong.
    Mr. Howard: I agree so much with the eloquent remarks of my hon. Friend the Member for Chichester (Mr. Nelson) that I can be brief in replying to the debate.
    Perhaps the most remarkable feature of the debate has been the eagerness of Opposition Members, led by the hon. Member for Dagenham (Mr. Gould), who was joined somewhat eccentrically by the hon. Member for Yeovil (Mr. Ashdown), to take credit for the change of mind that I had in response to the arguments that they put forward in Committee. I have fully explained that change of mind.
    Mr. Gould: I am delighted to take credit, not only for the conversion of the Minister, but for the conversion of every Conservative Member on the Standing Committee who voted on the issue when we pressed on the Minister the matter of immunity for self-regulating organisations. We marvel, not only at the scope of that conversion in terms of the numbers of Government Members, but at the area which the conversion covers. The Minister is so enthusiastic in support of the arguments that we advanced that he is now taking the matter beyond the bounds of what is reasonable.
    Mr. Howard: The hon. Member for Dagenham should not be surprised at the fact that when the Government undertake to rethink matters we do so in a thorough way. Having done that, we follow our thoughts through to their logical conclusion.
    My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) had the courtesy to tell me today that he was not in favour of the proposals contained in the new clause. I knew that he would put forward the views that I expressed in Committee with a great deal more pungency than I could ever hope to aspire to. I have admired the intellectual honesty of my hon. Friend for over a quarter of a century, and I hope that he will

    425
    continue to reflect upon these matters in the same way as I have reflected upon them, and that in due course he will see the force of the arguments that I have presented to the House. I am sure that when that moment arrives he will put forward those views with the same pungency as he expressed his views in this debate.
    Some hon. Members have spoken about the relatively small investor. It is perhaps characteristic of the changed positions that we have adopted in the course of the debate that Aunt Agatha, who was such a faithful companion in the Standing Committee, has been transformed into Granny Smith for the purposes of this discussion.
    The small investor will be protected. The investor will still be able to pursue investment businesses and will have the advantage of the compensation arrangements that will be made available if those investment businesses, for some reason, are not able to meet claims for compensation.
    As I say, the small investor will be protected, and that is important. Such protection is at the heart of these matters, and I attach great importance to it. That has a lot to do with the reason why, after giving a great deal of thought to the possibility of a distinction, which was put forward by my hon. Friend the Member for Beaconsfield (Mr. Smith), between professional investors and small scale investors, I came to the conclusion that it would be extraordinarily difficult to arrive at such a distinction, because of the difficulties of defining a professional investor in that context. It is also unnecessary to do so, because of the protection which in any case exists for the benefit of the small investor.
    I have already advanced my argument about the professional investor. The right hon. Member for Glasgow, Govan (Mr. Milian) was right to stress the importance of the definition of incidental investors. That definition will, of course, be a matter for the professional bodies themselves. It will be in their power to limit the kind of investment which their members will be allowed to undertake and which they think they will be able to regulate effectively without the benefit of immunity.
    The hon. Member for Dagenham was right when he said that the path we have chosen is difficult. There are no easy decisions in this area. However, he was wrong to suggest that we were in any way sacrificing investor protection. It is because we wish to ensure that that protection is effective that I commend the new clause to the House.
    Question put and agreed to.
    Clause read a Second time.
    Amendment proposed to the new clause: (b), in subsection (1), after 'damages', insert
    'at the suit of any member of the self-regulating organisation or of any person, whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise'.—[Mr. Gould.]
    Question put, That the amendment be made:—
    The House divided: Ayes 111, Noes 202.

    Division No. 220]

    [10 pm

    AYES

    Adams, Allen (Paisley N)

    Bell, Stuart

    Alton, David

    Benn, Rt Hon Tony

    Archer, Rt Hon Peter

    Bennett, A. (Dent'n & Red'sh)

    Ashdown, Paddy

    Bermingham, Gerald

    Ashton, Joe

    Bidwell, Sydney

    Atkinson, N. (Tottenham)

    Brown, N. (N'c'tle-u-Tyne E)

    Banks, Tony (Newham NW)

    Bruce, Malcolm

    Barron, Kevin

    Callaghan, Jim (Heyw'd & M)

    Beckett, Mrs Margaret

    Campbell, Ian

    426

    Campbell-Savours, Dale

    Maclennan, Robert

    Carter-Jones, Lewis

    McNamara, Kevin

    Clark, Dr David (S Shields)

    McWilliam, John

    Clarke, Thomas

    Madden, Max

    Clay, Robert

    Mason, Rt Hon Roy

    Clelland, David Gordon

    Maxton, John

    Cocks, Rt Hon M. (Bristol S)

    Maynard, Miss Joan

    Cohen, Harry

    Meacher, Michael

    Coleman, Donald

    Mikardo, Ian

    Cook, Robin F. (Livingston)

    Millan, Rt Hon Bruce

    Cox, Thomas (Tooting)

    Miller, Dr M. S. (E Kilbride)

    Craigen, J. M.

    Mitchell, Austin (G't Grimsby)

    Crowther, Stan

    Morris, Rt Hon J. (Aberavon)

    Dalyell, Tam

    Nellist, David

    Davies, Ronald (Caerphilly)

    Parry, Robert

    Davis, Terry (B'ham, H'ge H'l)

    Patchett, Terry

    Dewar, Donald

    Pavitt, Laurie

    Dixon, Donald

    Pendry, Tom

    Dormand, Jack

    Penhaligon, David

    Douglas, Dick

    Pike, Peter

    Eastham, Ken

    Powell, Raymond (Ogmore)

    Field, Frank (Birkenhead)

    Prescott, John

    Fields, T. (L'pool Broad Gn)

    Randall, Stuart

    Flannery, Martin

    Redmond, Martin

    Forrester, John

    Robinson, G. (Coventry NW)

    Foster, Derek

    Rogers, Allan

    Foulkes, George

    Ross, Stephen (Isle of Wight)

    Freud, Clement

    Rowlands, Ted

    George, Bruce

    Shields, Mrs Elizabeth

    Godman, Dr Norman

    Silkin, Rt Hon J.

    Gould, Bryan

    Skinner, Dennis

    Hardy, Peter

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

    Harrison, Rt Hon Walter

    Snape, Peter

    Haynes, Frank

    Spearing, Nigel

    Hogg, N. (C'nauld & Kilsyth)

    Steel, Rt Hon David

    Holland, Stuart (Vauxhall)

    Thompson, J. (Wansbeck)

    Home Robertson, John

    Thorne, Stan (Preston)

    Howells, Geraint

    Wallace, James

    Hughes, Simon (Southwark)

    Wardell, Gareth (Gower)

    John, Brynmor

    Welsh, Michael

    Jones, Barry (Alyn & Deeside)

    Wigley, Dafydd

    Kaufman, Rt Hon Gerald

    Wilson, Gordon

    Kirkwood, Archy

    Winnick, David

    Lambie, David

    Woodall, Alec

    Leadbitter, Ted

    Lewis, Terence (Worsley)

    Tellers for the Ayes:

    Livsey, Richard

    Mr. James Hamilton and

    McGuire, Michael

    Mr. Mark Fisher.

    McKay, Allen (Penistone)

    NOES

    Alexander, Richard

    Brown, M. (Brigg & Cl'thpes)

    Amess, David

    Browne, John

    Ancram, Michael

    Bruinvels, Peter

    Arnold, Tom

    Bulmer, Esmond

    Ashby, David

    Burt, Alistair

    Aspinwall, Jack

    Butcher, John

    Atkinson, David (B'm'th E)

    Butterfill, John

    Baker, Nicholas (Dorset N)

    Carlisle, John (Luton N)

    Baldry, Tony

    Carlisle, Kenneth (Lincoln)

    Banks, Robert (Harrogate)

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

    Batiste, Spencer

    Carttiss, Michael

    Beaumont-Dark, Anthony

    Cash, William

    Bellingham, Henry

    Chapman, Sydney

    Bendall, Vivian

    Chope, Christopher

    Benyon, William

    Clark, Dr Michael (Rochford)

    Best, Keith

    Clark, Sir W. (Croydon S)

    Bevan, David Gilroy

    Clarke, Rt Hon K. (Rushcliffe)

    Biffen, Rt Hon John

    Clegg, Sir Walter

    Biggs-Davison, Sir John

    Colvin, Michael

    Blackburn, John

    Conway, Derek

    Boscawen, Hon Robert

    Coombs, Simon

    Bottomley, Peter

    Cope, John

    Bottomley, Mrs Virginia

    Cormack, Patrick

    Bowden, A. (Brighton K'to'n)

    Corrie, John

    Braine, Rt Hon Sir Bernard

    Couchman, James

    Brandon-Bravo, Martin

    Crouch, David

    Bright, Graham

    Dicks, Terry

    Brinton, Tim

    Douglas-Hamilton, Lord J.

    Brittan, Rt Hon Leon

    Dover, Den

    427

    Dunn, Robert

    Monro, Sir Hector

    Evennett, David

    Montgomery, Sir Fergus

    Eyre, Sir Reginald

    Morris, M. (N'hampton S)

    Fallon, Michael

    Moynihan, Hon C.

    Farr, Sir John

    Murphy, Christopher

    Favell, Anthony

    Nelson, Anthony

    Fenner, Mrs Peggy

    Newton, Tony

    Fletcher, Alexander

    Nicholls, Patrick

    Fookes, Miss Janet

    Norris, Steven

    Forman, Nigel

    Oppenheim, Phillip

    Forsyth, Michael (Stirling)

    Osborn, Sir John

    Forth, Eric

    Parkinson, Rt Hon Cecil

    Fox, Marcus

    Pawsey, James

    Gale, Roger

    Pollock, Alexander

    Gardiner, George (Reigate)

    Powell, William (Corby)

    Garel-Jones, Tristan

    Powley, John

    Glyn, Dr Alan

    Prentice, Rt Hon Reg

    Goodhart, Sir Philip

    Price, Sir David

    Gow, Ian

    Proctor, K. Harvey

    Gower, Sir Raymond

    Raffan, Keith

    Gregory, Conal

    Rathbone, Tim

    Griffiths, Sir Eldon

    Rhys Williams, Sir Brandon

    Ground, Patrick

    Ridsdale, Sir Julian

    Grylls, Michael

    Roe, Mrs Marion

    Hamilton, Hon A. (Epsom)

    Rossi, Sir Hugh

    Hamilton, Neil (Tatton)

    Rowe, Andrew

    Hampson, Dr Keith

    Ryder, Richard

    Hargreaves, Kenneth

    Sackville, Hon Thomas

    Harris, David

    Shelton, William (Streatham)

    Hawksley, Warren

    Shepherd, Colin (Hereford)

    Hayward, Robert

    Shersby, Michael

    Heddle, John

    Silvester, Fred

    Hind, Kenneth

    Smith, Sir Dudley (Warwick)

    Hirst, Michael

    Smith, Tim (Beaconsfield)

    Hogg, Hon Douglas (Gr'th'm)

    Soames, Hon Nicholas

    Holland, Sir Philip (Gedling)

    Spencer, Derek

    Hordern, Sir Peter

    Spicer, Jim (Dorset W)

    Howard, Michael

    Stanbrook; Ivor

    Hunter, Andrew

    Steen, Anthony

    Jones, Gwilym (Cardiff N)

    Stern, Michael

    Jones, Robert (Herts W)

    Stevens, Lewis (Nuneaton)

    Kershaw, Sir Anthony

    Stewart, Allan (Eastwood)

    Knight, Greg (Derby N)

    Stewart, Andrew (Sherwood)

    Lamont, Norman

    Stradling Thomas, Sir John

    Lawrence, Ivan

    Taylor, John (Solihull)

    Lee, John (Pendle)

    Tebbit, Rt Hon Norman

    Leigh, Edward (Gainsbor'gh)

    Temple-Morris, Peter

    Lennox-Boyd, Hon Mark

    Terlezki, Stefan

    Lightbown, David

    Thomas, Rt Hon Peter

    Lilley, Peter

    Thompson, Donald (Calder V)

    Lord, Michael

    Thorne, Neil (Ilford S)

    McCrindle, Robert

    Thornton, Malcolm

    McCurley, Mrs Anna

    Thurnham, Peter

    MacKay, Andrew (Berkshire)

    Townend, John (Bridlington)

    MacKay, John (Argyll & Bute)

    Wakeham, Rt Hon John

    Maclean, David John

    Walker, Bill (T'side N)

    McLoughlin, Patrick

    Waller, Gary

    McNair-Wilson, M. (N'bury)

    Ward, John

    Major, John

    Wardle, C. (Bexhill)

    Malins, Humfrey

    Watts, John

    Malone, Gerald

    Wells, Bowen (Hertford)

    Maples, John

    Wells, Sir John (Maidstone)

    Marland, Paul

    Whitfield, John

    Marlow, Antony

    Wilkinson, John

    Marshall, Michael (Arundel)

    Winterton, Mrs Ann

    Mates, Michael

    Wolfson, Mark

    Mather, Carol

    Wood, Timothy

    Maude, Hon Francis

    Woodcock, Michael

    Mayhew, Sir Patrick

    Young, Sir George (Acton)

    Merchant, Piers

    Meyer, Sir Anthony

    Tellers for the Noes:

    Miscampbell, Norman

    Mr. Tony Durant and

    Mitchell, David (Hants NW)

    Mr. Peter Lloyd.

    Moate, Roger

    Question accordingly negatived.
    Clause added to the Bill.

BUSINESS OF THE HOUSE
Ordered,
That, at this day's sitting, the Motions relating to the Financial Services Bill, the Latent Damage Bill [Lords], and the Crown Agents (Amendment) Bill, may be proceeded with though opposed, until any hour.—[Mr. Durant.]

Financial Services Bill
As amended, in the Standing Committee, further considered.
Financial Services Bill
  New Clause 6

    ALTERATION OF RULES FOR PROTECTION OF INVESTORS
    '(1) If at any time it appears to the Secretary of State that the rules of a recognised organisation do not satisfy the requirements of paragraph 3(1) of Schedule 2 to this Act he may, instead of revoking the recognition order or making an application under section 12 above, direct the organisation to alter, or himself alter, its rules in such manner as he considers necessary for securing that the rules satisfy those requirements.
    (2) If at any time it appears to the Secretary of State that the rules and practices of a recognised organisation which is concerned with two or more kinds of investment business do not satisfy any requirement of Schedule 2 to this Act in respect of investment business of any of those kinds he may, instead of revoking the recognition order or making an application under section 12 above, direct the organisation to alter, or himself alter, its rules so that they preclude a member from carrying on investment business of that kind unless he is an authorised person otherwise than by virtue of membership of the organisation.
    (3) Any direction given under this section shall, on the application of the Secretary of State, be enforceable by mandamus or, in Scotland, by an order for specific performance under section 91 of the Court of Session Act 1868.
    (4) Before giving a direction or making any alteration under subsection (1) above the Secretary of State shall consult the organisation concerned.
    (5) A recognised organisation whose rules have been altered by or pursuant to a direction given by the Secretary of State under subsection (1) above may apply to the court and if the court is satisfied—

    (a) that the rules without the alteration satisfied the requirements mentioned in that subsection; or

    (b) that other alterations proposed by the organisation would result in the rules satisfying those requirements,

    the court may set aside the alteration made by or pursuant to the direction given by the Secretary of State and, in a case within paragraph (b) above, order the organisation to make the alterations proposed by it; but the setting aside of an alteration under this subsection shall not affect its previous operation.
    (6) The jurisdiction conferred by subsection (5) above shall be exercisable by the High Court and the Court of Session.
    (7) Section 11(2) to (7) and (9) above shall, with the necessary modifications, have effect in relation to any direction given or alteration made by the Secretary of State under subsection (2) above as they have effect in relation to an order revoking a recognition order.
    (8) The fact that the rules of a recognised organisation have been altered by or pursuant to a direction given by the Secretary of State or pursuant to an order made by the court, under this section, shall not preclude their subsequent alteration or revocation by that organisation.' — [Mr. Howard.]
    Brought up, and read the First time.
    Mr. Howard: I beg to move, That the clause be read a Second time.
    Mr. Speaker: With this we shall discuss Government amendments Nos. 34 to 38, 43 and 57 to 60.
    Mr. Howard: When we discussed in Committee the provisions of the Bill relating to RSROs, it was clear that there was widespread support for the proposal that the Secretary of State or designated agency should have the power in certain circumstances to alter the rules of an RSRO without having to apply to the courts under the procedure provided for in clause 12. I undertook at that stage to consult interested parties and bring forward an amendment on Report. The new clause reflects the results of those consultations.
    As hon. Members will recognise, the new clause incorporates the provisions of the existing clause 13. The new power is provided in subsections (1), (4), (5) and (6). The clause will allow the Secretary of State or designated agency to act quickly when the interests of investors so demand, but will also allow an RSRO an opportunity to have its original rules, or an alteration proposed by the organisation, restored. I believe that this proposal strikes the right balance between effective enforcement by the Secretary of State or designated agency and the autonomy which RSROs will need if they are to command confidence and authority. The proposal is, I believe, acceptable to the Securities and Investments Board and to the potential RSROs. I commend it to the House.
    The amendments to clause 12 extend the compliance order provisions to cases where a self-regulating organisation, a registered investment exchange or a recognised clearing house has failed to comply with an obligation to which it is subject by virtue of the Bill. Under the Bill as originally drafted, such a failure was a ground for revocation of a recognition order but not for seeking a compliance order. The Government will be bringing forward amendments in another place to apply the compliance order provisions to recognised professional bodies.
    The remaining amendments are largely technical. They make clear that a failure to comply with an obligation imposed under, for instance, clause 91 — which is concerned with the provision of information — constitutes grounds for the revocation of a recognition order.
    10.15 pm
    Mr. Gould: 'The new clause represents the fulfilment of yet another undertaking, I think it is fair to say, extracted from the Minister by an all-party consensus in the Standing Committee. Indeed, it could be claimed to have been our first major victory. Therefore, I am delighted to see it. Since I was criticised on an earlier occasion for failing to take credit for a change which the Minister proposed, I shall take the credit for that amendment. I also pay tribute to the Minister's hon. Friends on the Committee who agreed with the position we took. I believe that, in the end, we agreed to support the amendment of the hon. Member for Beaconsfield (Mr. Smith).
    The amendment that the Minister has finally produced is, to all intents and purposes, a complete fulfilment of his undertaking. One regrets, perhaps, that the Securities and Investments Board's preference for practices as well as rules to be subject to the rule-changing power has not been given effect. I think that the Minister has gone as far as one could reasonably expect him to to meet the virtually unanimous view of the Standing Committee. Even the self-regulating organisations which, for understandable reasons, were not keen on the change have reluctantly accepted it, or at least have not resisted it too strenuously.
    430
    I should like the Minister to elaborate on two small points. The fact that a rule book change is forced on a self-regulating organisation by the new power under subsection (8) does not mean that the rule book is set in concrete. Nevertheless, it opens up, at least, the rather unattractive prospect that there may be an unedifying game of ping-pong between the SIB and an SRO. Can the Minister say how he will avoid such an unfortunate circumstance?
    The Minister proposes that a self-regulating organisation which has been subjected to the power under subsection (5) should be able to go to the court to have the decision reversed. I would agree with him if he said that the power of judicial review should be available. It is difficult to see how it could be excluded. I regret that the Minister has found it necessary to provide a right of appeal, in effect, on the merits. That can only introduce an unwelcome element of uncertainty.
    It is appropriate to refer to the fact that although the new clause does not deal with the matter, the Minister does not propose to introduce a similar measure in respect of recognised professional bodies, although that was something which the Committee had asked for and expressed an opinion on. As I understand from the Minister, the matter is to be dealt with in another place. One must recognise and establish that the Minister, perhaps for understandable reasons, has failed to fulfil an undertaking that he gave to the Committee. We must register our disappointment that he has not moved on that element, although we accept that he has substantially fulfilled the undertaking he gave on self-regulating organisations.
    Mr. Nelson: The hon. Member for Dagenham (Mr. Gould) is difficult to please. When his arguments fail to move my hon. and learned Friend the Under-Secretary of State, he complains. When his arguments move my hon. and learned Friend, he complains. When my hon. and learned Friend changes his view because of outside influences, the hon. Gentleman commplains. My hon. and learned Friend should not feel too disappointed or surprised at the reaction to the new clause.
    I very much welcome the new clause. I welcome the responsive way in which my hon. and learned Friend replied to the debate in Committee. In the judgment or many of us, it is important that the self-regulating organisations should to some extent, have their powers fettered by the supervisory intervention—at least on a contingent basis — of the designated agency, the Securities and Investments Board. I think as do many others, that it is an essential and important part of the new regulatory structure that the designated body will be able to act in certain instances quickly and positively where investor protection is imperilled.
    I should like to take up specifically the point concerning the recognised professional bodies. Recently, my hon. and learned Friend answered a question that I had tabled on this matter. He made it clear that he intended to deal with their position in a rather different way. I had great misgivings about extending to any of the professions an exemption from the rule-changing power of the SIB. It seemed to me that many people in the professions were to an increasing extent, offering the same sort of investment service as many individuals or authorised persons. It would be wrong, when those people were departing from the mainstream activity of their chartered body and

    431
    moving into these more lucrative areas, to extend to them a preferential status or immunity from their charter rules being changed thereby placing authorised persons operating under other SROs in a preferential position.
    Having said that, I found the arguments put forward by my hon. and learned Friend very compelling. He argued that the recognised professional bodies would enable only their individual members or member firms to give incidental or limited investment advice. Because the type of business that individuals or firms within professions will be able to offer will be much more limited than the type of investment advice that other organisations will be able to offer, there is perhaps less need for the sort of rule-changing power that will be imposed on other SROs.
    In accepting that, I should like to enter one important caveat. Much depends on the policing by the SIB of the professions. If it transpires that many of the recognised professional bodies are engaging, not in incidental general investment advice, but in particular wide-ranging investment advice and are operating outside the sphere of the professional body in such a way that they should get separate authorisation, this matter should be reviewed, even if it touches the sensibilities of some of the royal charter organisations. For the time being at least, it is reasonable to deal with the matter in this separate way. Perhaps my hon. and learned Friend will direct his attention to the more particular proposals that he intends to make in another place.
    Mr. Ashdown: I join in welcoming the new clause and in paying tribute to the hon. Member for Beaconsfield (Mr. Smith), whose amendment in Committee is put into effect by this new clause. I am sure he recognises that other hon. Members argued for that amendment as well. It has been a vehicle for a useful debate.
    I must express a degree of disappointment. The Under-Secretary of State has allowed for alteration of the rules but not followed the sensible recommendations put forward by Sir Kenneth Berrill in his letter to the Minister in which he cogently argued in favour of a similar level of intervention and power in the case of practices.
    The particular practice in which one is interested is the enforcement of the rules. It is one thing to have a set of rules; it is another thing to ensure that the self-regulating organisation concerned enforces them adequately. I believe that the Minister must answer that point more fully, and I hope he will say why he agrees that there should be intervention in the case of rules without having to seek recourse to what was referred to in Committee as the "nuclear deterrent," the ultimate revocation of recognition, but he has not applied that in the case of practices.
    We all recognise that we are talking about a reserve power. It is a power that is most unlikely to be used. Indeed, the fact that the power is on the statute book means, in many cases, that it will never be used. Were it not there, obviously the leverage that could be exercised by the SIB in respect of an SRO would be considerably less than it currently is. We all know, and Sir Kenneth Berrill has made it clear, that he would wish the broadest level of consultation to occur before such a reserve power was used. Therefore, it would be the ultimate "nuclear deterrent" of revocation.
    432
    If that is a reserve power, one which the Minister agrees is unlikely to be used, and would be used only under exceptional circumstances, why has he not been prepared to extend it just one small step further to ensure that the SIB can intervene in respect of practices, especially in respect of enforcement? That seems to lose nothing and to gain a great deal in the powers of the SIB.
    In his reply to the letter from Sir Kenneth Berrill of 10 April the Minister said, although I did not find it convincing:
    "But I do not think there is the same need to be able to act immediately about practices. Problems about the adequacy of enforcement or other practices are likely to develop only over a period."
    Would that it were always so. Unhappily, that is not the case. Reference has been made to the Westland affair. It would be wrong at this point to state categorically that the rules of the Stock Exchange were overturned in that affair. However, there is some question over the matter. What happened was that the people involved simply went ahead and acted and presented the stock exchange with what was essentially a fait accompli. There is similar concern over the activities of people involved in, for example, dawn raids and whether that infringes the rules.
    The question of having an ultimate reserve power to be able to dictate or intervene in the enforcement of the rules laid down by an SRO is important, not only as a reserve power, but to enable the SIB to move quickly and effectively and with the maximum amount of influence. I believe that this is an important point, and I hope that in answering the debate the Minister will at least give rather more flesh to what I thought was scanty reasoning in his reply to Sir Kenneth Berrill, so that the House will understand why he has chosen to limit this ultimate reserve power to just short of that which I believe to be necessary.
    Mr. Cash: Following the rather unsatisfactory position in which we now find ourselves as a result of passing new clause 5, I should like to welcome new clause 6 because it provides an opportunity for rectifying some of the difficulties which may arise under new clause 5. I hope that new clause 6 can be used to the fullest possible extent for that objective.
    On the matter of the recognised professional bodies, I should like to draw the Minister's attention to the fact that there appears to be a slight omission from clause 18. I drew that to the Minister's attention in Committee, but it does not seem to have been taken up. On some reasonable construction of clause 18, the Law Society would not qualify as a recognised professional body. That is somewhat extraordinary and I should be glad to hear from the Minister on that point.
    I should simply like to say that, at the end of the day, schedule 2 will determine the manner in which the Bill operates and, unless we use the powers of new clause 6 effectively I fear that it will not work as we had intended and as we had understood it would in Committee.
    New clause 6 applies to circumstances which arise after an event has occurred, whereas new clause 5 would have created a situation in which a body—to all intents and purposes a statutory body, in respect of which the law on negligence is well established—would have been able to operate in the same way as the CEGB, for example, if it faced a statutory liability involving sums similar to those in other examples of such liability.
    10.30 pm
    Mr. Tim Smith: As I moved the amendment in Committee which would have had the same effect as the new clause, I should like to welcome the fact that my hon. and learned Friend the Minister has introduced the clause. I think that it meets the concerns of all those who spoke in Committee on this issue.
    I shall refer to the position of recognised professional bodies because my hon. and learned Friend said in Committee that he would deal with the matter subject to the practical difficulties. We are all conscious that the position of the RPBs is different from that of the SROs as they already exist. Indeed, some of them are subject to a royal charter. There were probably two considerations that my hon. and learned Friend had in mind when he told my hon. Friend the Member for Chichester (Mr. Nelson) in an answer on Monday that he proposed to deal with RPBs by introducing provisions along the lines of clause 12.
    We are talking only about incidental investment advice. My hon. and learned Friend talked about the possibility of a new sort of mainstream work for professionals, and if it is mainstream work they will not be able to follow this route. They will have to have authorisation from an SRO, or directly from the SIB. Secondly. the way in which my hon. and learned Friend proposes to deal with the matter will ensure, as the courts will be involved, that any difficulties arising from royal charters or any other constitutional problems will be dealt with by the courts.
    Mr. Howard: I am grateful for the general welcome that the new clause has received. We said at the outset that judgment on this issue was finely balanced and that we would listen to the views that were expressed. It was on that basis that I felt able to accede readily to the view that was expressed almost unanimously in Committee that a direct rule-changing power should be introduced.
    I confess that I was mildly surprised, but pleasantly so, that the amendment that we devised was able to obtain the approval of the SIB and the SROs. I regard that as a considerable achievement. It was a balance, and if we disturbed it in the way which has been suggested by some Opposition Members, I do not think it certain that we would preserve the accord.
    The hon. Member for Dagenham (Mr. Gould) referred to clause 8, and his argument was covered by his remarks about clause 5. As the court is the arbiter of these matters, there would be no point in the ping-pong that he envisaged. It would be idle for an SRO to change immediately a rule change which had been ordered by the court, as it would find itself back in court with the same consequences. It was essential that some provision such as that in clause 8 be introduced, otherwise once a rule had been changed by the court it would he set in concrete and could not be changed. That would obviously be undesirable.
    That fact that the court can consider the merits of the argument under subsection (5) is part of the balance to which I have referred, and which I believe it is important to keep. That is the answer to the hon. Member for Yeovil (Mr. Ashdown). The fact that intervention in the practices of the SRO is not to be provided by the clause is part of the same balance. I adhere to the argument that I set out in my letter to Sir Kenneth Berrill that the reason
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    advanced for the provision for a direct rule-changing power which the clause provides is the need for speedy and effective action to be taken over the change in rules.
    As it is not envisaged as part of the regulatory structure that the designated agency should interfere with specific cases for discipline or enforcement but only with the general pattern which it is its duty to assess, there cannot be the same need for a speedy and immediate response in relation to practices as is necessary with changes in the rules. That is the reason that I explained in my answer to Sir Kenneth Berrill and I do not in any way [rime from that. I remind the House that in order to achieve a proper balance, we must take all the elements of a solution into account.
    Mr. Gould: Does the Minister agree that the development of an objectionable practice may nevertheless be evidence of a lacuna in the rules? In that sense we ought to be considering practices as well as rules, to ensure that abuses are not allowed to develop unchecked.
    Mr. Howard: Of course objectionable practices should not he allowed to develop. However, the way in which the hon. Gentleman put his question confirms that that is not something that happens at a moment in time, requiring a snapshot response in the same way that a change in the rules or a failure to change the rules on the part of a self-regulatory organisation may require. The evolution of an objectionable pattern in terms of practices needs to be assessed over a period, can be assessed over a peroid and can be dealt with by the designated agency in many ways without the need for this immediate rule or practice-changing power which the clause provides.
    Mr. Ashdown: I will not press the Minister too far on this point, because we could get into a ridiculous position. However, I would like to postulate a possible situation. There may be a set of rules in an SRO—for example, the stock exchange—which govern the business of the operation of dawn raids. A pattern may develop in the stock exchange where a number of these are causing damage to the probity of the stock exchange and of the City and operating in a way that is damaging to the investors. There are rules, but the stock exchange has chosen, for all sorts of complicated reasons no doubt, through the enormous pressure from its members, simply not to enforce those rules or not to enforce them adequately. In this matter of enforcement, it would be important for the SIB to be able to act quickly and to have a reserve power whereby the SIB can say that the rule must be enforced more effectively to provide precisely the swift action which I believe is necessary.
    Mr. Howard: The hon. Gentleman's example proves my point. It would be undesirable for the designated agency to intervene in any specific case of abuse of that nature. If the hon. Gentleman is worried about a pattern, which by definition is not instant but which develops over a period, the designated agency would be able to make use of the other remedies that are available to ensure that proper enforcement is undertaken by self-regulating organisations. I do not think that the case for instant response of the kind which the direct rule-changing power confers has been made out in connection with practices. I believe that the balance is about right in the clause as it stands and I commend it to the House.
    Question put and agreed to.
    Clause read a Second time, and added to the Bill.

  New Clause 7

    RECIPROCAL FACILITIES FOR FINANCIAL BUSINESS
    '.—(1) If it appears to the Secretary of State or the Treasury that by reason of—

    (a) the law of any country outside the United Kingdom; or

    (b) any action taken by or the practices of the government or any other authority or body in that country,

    persons connected with the United Kingdom are unable to carry on investment, insurance or banking business in, or in relation to, that country on terms as favourable as those on which persons connected with that country are able to carry on any such business in, or in relation to, the United Kingdom, the Secretary of State or, as the case may be, the Treasury may serve a notice under this subsection on any person connected with that country who is carrying on or appears to them to intend to carry on any such business in, or in relation to, the United Kingdom.
    (2) No notice shall be served under subsection (1) above unless the Secretary of State or, as the case may be. the Treasury consider it in the national interest to serve it; and before doing so the Secretary of State or, as the case may be, the Treasury shall so far as they consider expedient consult such body or bodies as appear to them to represent the interests of persons likely to be affected.
    (3) A notice under subsection (1) above shall state the grounds on which it is given (identifying the country in relation to which those grounds are considered to exist); and any such notice shall come into force on such date as may be specified in it.
    (4) For the purposes of this section a person is connected with a country if it appears to the Secretary of State or, as the case may be, the Treasury—

    (a) in the case of an individual, that he is a national of or resident in that country or carries on investment, insurance or banking business from a principal place of business there;

    (b) in the case of a body corporate, that it is incorporated or has a principal place of business in that country or is controlled by a person or persons connected with that country;

    (c) in the case of a partnership, that it has a principal place of business in that country or that any partner is connected with that country;

    (d) in the case of an incorporated association which is not a partnership, that it is formed under the law of that country, has a principal place of business there or is controlled by a person or persons connected with that country.

    (5) In this section "country" includes any territory or part of a country or territory; and where it appears to the Secretary of State or, as the case may be, the Treasury that there are such grounds as are mentioned in subsection (1) above in the case of any part of a country or territory their powers under that subsection shall also be exercisable in respect of any person who is connected with that country or territory or any other part of it.'. —[Mr. Howard.]
    Brought up, and read the First time
    Mr. Howard: I beg to move, That the clause be read a Second time.
    Mr. Deputy Speaker (Mr. Paul Dean): With this it will be convenient to consider Government new clauses 8, 9 and 10 and Government amendments 251, 254 and 257.
    Mr. Howard: New clauses 7, 8, 9 and 10 replace clause 151. The changes are designed to make the reciprocity provision more flexible. It was decided to include a reciprocity provision in the Bill to provide the United Kingdom with leverage in seeking access for our financial services firms to foreign markets. At present there are no powers to prevent foreign firms from becoming established as banks or securities dealers, provided they meet the legal requirements. The reciprocity provision empowers the
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    Secretary of State—the power is not to be transferable to the designated agency — to disqualify or restrict a foreign connected firm from carrying out investment or insurance business if British firms do not enjoy access to that foreign market equivalent to that which foreign firms enjoy here. The Treasury has a similar power to disqualify in respect of banking business. The power is applicable to those seeking authorisation as well as to those already authorised to do business.
    The power as originally drafted would have meant disqualifying or restricting a firm in respect of all of its investment, insurance or banking business. On reflection, we consider that this total business approach lacks flexibility and risks unnecessary hardship for investors.
    We now propose, therefore, to introduce a further category of restriction — a partial restriction notice. It will enable the Secretary of State, or the Treasury, to focus any such restriction on any type of business which a firm is authorised to carry out, or on the way in which such business may be conducted. A firm might be prohibited from dealing in options on securities but not from dealing in the underlying securities themselves. Similarly, a firm might be prohibited from dealing with certain categories or, by contrast, confined to dealing only with certain categories. It will give us much greater flexibility in deciding how to use the reciprocity power, the allow us more easily to take into account the interests of British investors, policyholders or depositors.
    The Secretary of State and the Treasury will be subject to the same requirements and will be required to follow the same procedures for partial restriction notices as for other forms of notice served under this provision. The restriction must be considered to be in the national interest, the notice Must state the grounds and it must give a date when it will come into effect.
    We were persuaded by discussion in Committee that notices should not automatically come into effect on the date of service to give the firms affected an opportunity to unwind their existing busines with the minimum adverse impact on investors, policyholders, or depositors. We were also persuaded that disqualification notices should not restrict authorisation in respect of contracts entered into before the notice comes into force. This, too, will minimise the adverse effect on investors, policyholders, or depositors.
    This is an important provision. Knowledge that it is to he included in the Bill has already helped us in seeking improved access to foreign markets for our financial firms. Nor are we alone. Many other countries already have a variety of reciprocity provisions in respect of financial services, and many of those provisions require strict reciprocity, failing which access is forbidden. Our provision is discretionary. We have the choice whether or when to use it and the ability to be selective about how we use it. Of course, we hope not to have to use it, but we will not hesitate to do so if we have to.
    As a consequence of these changes, it is necessary to leave out clause 151. Further consequential changes are needed to clause 158 to ensure that prosecutions in respect of offences under new clause 9 are instituted in the same way as prosecutions for breaches of the Banking Act 1979.
    Mr. Gould: As the Minister knows, we welcome the reciprocity provisions.
    The Minister used the euphemism of increased flexibility. Will he concede that one of the principal

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    changes effected by these four new clauses is to strike out the retrospective nature of the disqualification order, which was understandably objected to by some Conservative members of the Committee?
    Will the Minister assure us that the increased flexibility does not imply a derogation of the admirably robust sentiments that were expressed in Committee, which found a welcoming echo from the Opposition, and that the reciprocity provisions will be enforced with all due vigour?
    Mr. Nelson: I oppose this group of new clauses and amendments. It is somewhat futile for me to say so, and I promise not to be an impediment to their passage. I expressed my objections on Second Reading and in Committee, and had suffered the ignominy of being the only person to vote against the provision. I want to restate my objections because I know that, if they are not shared by any other hon. Members, they are shared by some people outside the House.
    I object to these reciprocity provisions for several reasons. One is that they lie uneasily in the Bill. They have nothing whatever to do with investor protection and should not be here. They are wrong because they seek to infringe the practice and obligations of companies that have legitimately engaged in business, been attracted here, provided employment and prosperity and enhanced the productivity and foreign earnings of the City of London. They are also in restraint of the competition principles to which I think that my party and Government should subscribe. I accept that they have helped my hon. and learned Friend the Minister, most recently in Japan, but I regret that more countries must engage in such sword-of-Damocles legislation. It lies uneasily with other principles that we expound, and I like to think that I have been no party to it. But I shall not waste the time of the House other than to restate my objections, for I fear that, in the course of time, the matter will be raised again.
    10.45 pm
    Mr. Ashdown: I rise briefly to correct the hon. Member for Chichester (Mr. Nelson), who forgot that I voted with him in Committee on that occasion. However, he is alone now. The Minister has moved, and I am grateful for the flexibility that he has introduced in operation and discretion. Although I share many of the hon. Gentleman's sentiments, for exactly the same reasons, it is important to have such a power available to be used as flexibly as possible. Contrary to the comments of the hon. Member for Dagenham (Mr. Gould), whose first instinct in such matters seems to be the Little Englander idea of trading practices and reciprocal operations, I hope that the Minister will use the provision sparingly, recognising that there is increasing protectionism in the world, which must damage Britain's trading capacity, especially since it is primarily a trading nation.
    Mr. Howard: I share the regret expressed by my hon. Friend the Member for Chichester (Mr. Nelson) at the need for such swords of Damocles. However, I am no more in favour of unilateral disarmament in this area than I am in others.
    I can briefly answer the two questions asked by the hon. Member for Dagenham (Mr. Gould). I see no inconsistency between the flexibility called for by the hon. Member for Yeovil (Mr. Ashdown) and the rigour called
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    for by the hon. Member for Dagenham. I hope that the clause will be applied flexibly and rigorously, and I am happy to answer both his questions in the affirmative.
    Question put and agreed to.
    Clause read a Second tune, and added to the Bill.

  New Clause 8

    INVESTMENT AND INSURANCE BUSINESS
    '(1) A notice under section [Reciprocal facilities for financial business] above relating to the carrying on of investment business or insurance business shall be served by the Secretary of State and such a notice may be a disqualification notice, a restriction notice or a partial restriction notice and may relate to the carrying on of business of both kinds.
    (2) A disqualification notice as respects investment business or insurance business shall have the effect of—

    (a) cancelling any authorisation of the person concerned to carry on that business after the expiry of such period after the service of the notice as may be specified in it;

    (b) disqualifying him from becoming authorised to carry on that business after the expiry of that period; and

    (c) restricting any authorisation of the person concerned in respect of that business during that period to the performance of contracts entered into before the notice comes into force;

    and the period specified in such a notice shall be such period as appears to the Secretary of State to be reasonable to enable the person on whom it is served to complete the performance of those contracts and to terminate such of them as are of a continuing nature.
    (3) A restriction notice as respects investment business or insurance business shall have the effect of restricting any authorisation of the person concerned in respect of that business to the performance of contracts entered into before the notice comes into force.
    (4) A partial restriction notice as respects investment business may prohibit the person concerned from—

    (a) entering into transactions of any specified kind or entering into them except in specified circumstances or to a specified extent;

    (b) soliciting business from persons of a specified kind or otherwise than from such persons;

    (c) carrying on business in a specified manner or otherwise than in a specified manner.

    (5) A partial restriction notice as respects insurance business may direct that the person concerned shall cease to be authorised under section 3 or 4 of the Insurance Companies Act 1982 to effect contracts of insurance of any description specified in the notice.
    (6) If it appears to the Secretary of State that a person on whom he serves a notice under section [Reciprocal facilities for financial business] above as respects investment business is an authorised person by virtue of an authorisation granted by a designated agency or by virtue of membership of a recognised self-regulating organisation or recognised professional body he shall serve a copy of the notice on that agency, organisation or body.
    (7) If it appears to the Secretary of State—

    (a) that any person on whom a partial restriction notice has been served by him has contravened any provision of that notice or, in the case of a notice under subsection (5) above, effected a contract of insurance of a description specified in the notice; and

    (b) that any such grounds as are mentioned in subsection (1) of section [Reciprocal facilities for financial business] above still exist in the case of the country concerned,

    he may serve a disqualification notice or a restriction notice on him under that section.
    (8) Sections 27, 32, 55, 56 and 57 above shall have effect in relation to a contravention of such a notice as is mentioned

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    in subsection (4) above as they have effect in relation to any such contravention as is mentioned in those sections.' — [Mr. Howard.]
    Brought up, read the First and Second time, and added to the Bill.

  New Clause 9

    BANKING BUSINESS
    '(1) A notice under section [Reciprocal facilities for financial business] above relating to the carrying on of a deposit-taking business as a recognised bank or licensed institution within the meaning of the Banking Act 1979 shall be served by the Treasury and may be either a disqualification notice or a partial restriction notice.
    (2) A disqualification notice relating to such business shall have the effect of—

    (a) cancelling any recognition or licence granted to the person concerned under the Banking Act 1979; and

    (b) disqualifying him from becoming a recognised bank or licensed institution within the meaning of that Act.

    (3) A partial restriction notice relating to such business may—

    (a) prohibit the person concerned from dealing with or disposing of his assets in any manner specified in the direction;

    (b) impose limitations on the acceptance by him of deposits;

    (c) prohibit him from soliciting deposits either generally or from persons who are not already depositors;

    (d) prohibit him from entering into any other transaction or class of transactions;

    (e) require him to take certain steps, to pursue or refrain from pursuing a particular course of activities or to restrict the scope of his business in a particular way.

    (4) The Treasury shall serve on the Bank of England a copy of any notice served by them under section [Reciprocal facilities for financial business] above.
    (5) Any person who contravenes any provision of a partial restriction notice served on him by the Treasury under this section shall be guilty of an offence and liable—

    (a) on conviction on indictment, to a line;

    (b) on summary conviction, to a fine not exceeding the statutory maximum.

    (6) Any such contravention shall be actionable at t he suit of any person who suffers loss as a result of the contravention or is otherwise adversely affected by it. but no such contravention shall invalidate any transaction.
    (7) At the end of subsection (1) of section 8 of the Banking Act 1979 (power to give directions in connection with termination of deposit-taking authority) there shall be inserted—
    "(d) at any time after a disqualification notice has been served on the institution by the Treasury under section [Reciprocal facilities for financial business] of the Financial Services Act 1986…[Mr. Howard.]
    Brought up, read the First and Second time, and added to the Bill.

  New Clause 10

    VARIATION AND REVOCATION OF NOTICES
    '(1) The Secretary of State or the Treasury may vary a partial restriction notice served under section [Reciprocal facilities for financial business] above by a notice in writing served on the person concerned; and any such notice shall come into force on such date as is specified in the notice.
    (2) A notice under section [Reciprocal facilities for financial business] above may be revoked at any time by the Secretary of State or, as the case may be, the Treasury by serving a revocation notice on the person concerned; and the Secretary of State or, as the case may be, the Treasury shall
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    revoke a notice if it appears to them that there are no longer any such grounds as are mentioned in subsection (1) of that section in the case of the country concerned.
    (3) The revocation of a disqualification notice as respects investment business or insurance business shall not have the effect of reviving the authorisation which was cancelled by the notice except where the notice relates to investment business and the person concerned would (apart from the disqualification notice) at the time of the revocation be an authorised person as respects the investment business in question by virtue of his membership of a recognised self-regulating organisation or recognised professional body.
    (4) The revocation of a disqualification notice as respects banking business shall not have the effect of reviving the recognition or licence which was cancelled by the notice.
    (5) Nothing in subsection (3) or (4) above shall be construed as preventing any person who has been subject to a disqualification notice as respects any business from again becoming authorised or, as the case may be, becoming a recognised bank or licensed institution within the meaning of the Banking Act 1979 after the revocation of the notice.
    (6) If it appears to the Secretary of State that a person on whom he serves a notice under this section as respects investment business was an authorised person by virtue of an authorisation granted by a designated agency or by virtue of membership of recognised self-regulating organisation or recognised professional body at the time that the notice which is being varied or revoked was served, he shall serve a copy of the notice on that agency, organisation or body.
    (7) The Treasury shall serve on the Bank of England a copy of any notice served by them under this section.'.—[Mr. Howard.]
    Brought up, read the First and Second time, and added to the Bill.

  New Clause 11

    INDUSTRIAL ASSURANCE
    '(1) In section 5 of the Industrial Assurance Act 1923 (prohibition on issue of illegal policies) the references to policies which are illegal or not within the legal powers of a society or company shall not be construed as applying to any policy issued—

    (a) in the course of carrying on investment business in contravention of section 3 above; or

    (b) in the course of carrying on insurance business in contravention of section 2 of the Insurance Companies Act 1982.

    (2) In section 20(4) of the said Act of 1923 the reference to a person employed by a collecting society or industrial assurance company and in section 34 of that Act the references to a person in the regular employment of such a society or company shall include references to an appointed representative of such a society or company but as respects secton 34 only if the contract in question is an investment agreement.
    (3) No dispute to which rules made by virtue of section 45(2) (j) above (or corresponding rules made by a recognised self-regulating organisation) apply shall be referred to the Industrial Assurance Commissioner under section 32 of the said Act of 1923 but where those rules relate only to part of the matters in dispute—

    (a) this subsection shall not preclude the reference to the Commissioner of the matters to which the rules do not relate; and

    (b) the Commissioner may, if he thinks fit, delegate his functions in respect of those matters so as to enable all the matters in dispute to be determined in accordance with the rules.

    (4) The foregoing provisions of this section shall apply to Northern Ireland with the substitution for the references to sections 5, 20(4), 32 and 34 of the said Act of 1923 of references to Articles 20, 27(2), 36 and 38 of the Industrial Assurance (Northern Ireland) Order 1979 and for the references to the Industrail Assurance Commissioner of references to the Industrial Assurance Commissioner for Northern Ireland.'.—[Mr. Butcher.]
    Brought up, read the First and Second time, and added to the Bill.
    Further consideration adjourned.—[Mr. Lennox-Boyd.]
    To be further considered tomorrow.

Latent Damage Bill [Lords]
Order for Second Reading read
10.43 pm
The Solicitor-General (Sir Patrick Mayhew): I beg to move, That the Bill be now read a Second time.
The Law Reform Committee has been in existence for 34 years. Its work is patient and constructive, and its valuable reports upon the matters referred to it by the Lord Chancellor recommend practical measures of law reform. It is a good thing. Accordingly, the world being what it is, not many people know about it.
The Bill seeks to enact the recommendations of the committee's 24th report, published in November 1984, on the subject of latent damage. It was asked to consider the law relating to the accrual of the cause of action and limitation in negligence cases involving latent defects, other than latent disease or injury to the person. Those cases can cause great distress. The law governing them must be practical, even-handed and just.
The character of the Bill is revealed by the words in which the committee expressed the first of its conclusions in its report:
"The present law is unjust to plaintiffs and defendants. In our view, it requires reform which will take care of the interests of both. Reform is, therefore, bound to be, in effect, a compromise between conflicting interests."
That is exactly what the Bill comprises—a compromise between conflicting interests.
The Bill has three main objectives. The first is to amend the law relating to limitation of actions in negligence cases by providing potential plaintiffs with an extended period within which to commence proceedings of this nature. The second is to provide potential defendants with an overriding time limit, or a long stop, that will bar proceedings once 15 years have elapsed from the date of the defendant's original breach of duty. Thirdly, it gives a right of action to a person who acquired already damaged property when the fact of such damage was not already known and could not be known to him at the time when he acquired his interest.
In negligence cases it is the law that the cause of action accrues when damage occurs. The ordinary limitation period for negligence actions — apart from cases of personal injury with which the Bill is not concerned—is six years. Proceedings must be commenced within that time. Thereafter they will be time-barred.
In most cases of negligence the plaintiff is perfectly well able to discover within the normal six-year period of limitation that he has suffered damage. But in some cases, a defendant's negligence, or its effects, may lie hidden for years. For example, if a builder puts into a building defective foundations, the owner of the building may be quite unaware of the error. The property may pass through several hands before the damage becomes apparent. That can be many years after the initial lack of care.
In such cases, and they are multifarious in their circumstances, serious damage can result and real hardship may be caused. But the present law of limitation of actions often obstructs justice and is less than practical.
Under the present law, whose judicial development has been distinguished by some remarkable oscillations, for the victim of a negligent act or omission the starting date for reckoning the period of limitation is the date when the
444
damage actually occurs, and time will start to run against him even if' the damage is not discoverable. The result is that potential plaintiffs may find themselves barred from action before they knew, or could even be in a position to know, that they had suffered damage.
Potential defendants, too, are handicapped because they have no way of telling in advance for how long they may be at risk of legal proceedings. Where damage does not occur until long after the events giving rise to it, they are likely to be faced with the grave practical difficulties of contesting a very stale claim. Although the date of accrual is no longer—since the Pirelli case in the House of Lords — governed by discoverability, it still starts from the date of damage and it cannot be predicted when damage will occur.
The Law Reform Committee, in formulating its recommendations for reform, identified three principles which it described as being "of critical importance". They were, first, that plaintiffs must have a fair and sufficient opportunity of pursuing their remedy; secondly, that defendants are entitled to be protected against stale claims, although the sad truth is that no reform of the law can eliminate the factual uncertainties which are likely to arise in cases of latent damage; and, thirdly, that uncertainty in the law is to be avoided wherever possible.
The committee said that it would not find any proposal for reform of the law acceptable which failed in any significant respect to satisfy those criteria. Therefore, it recommended that the ordinary period of limitation of six years should be subject to a special extension which would allow the plaintiff three years from the date on which he discovered, or could reasonably have discovered, that he had suffered significant damage.
Secondly, the committee recommended that there should be a long stop which should operate to bar all negligence claims involving latent defects brought more than 15 years from the date of the defendant's breach of duty. The committee's remaining recommendations, although they are quite important, are essentially consequential upon its two principal recommendations.
Mr. Eric Forth (Mid-Worcestershire): Will my hon. and learned Friend tell the House at some stage in his remarks whether he is satisfied that the interests of potential defendants in such cases will be sufficiently safeguarded by the proposals? I have in mind professional people, such as architects, one of whom has approached me about the matter. They are worried that their possibility of obtaining liability insurance will be minimised or even reduced to almost zero precisely because of the potentially open-ended nature of their liability under these proposals, as the 15-year limitation runs only from the date of discovery. Therefore, an architect may find that a fault is found many years after he has designed a building, and 15 years after that he will still be liable. Can my hon. and learned Friend satisfy my constituent and me that my constituent has any hope of obtaining effective professional liability insurance under these proposals?
The Solicitor-General: I acknowledge that there are genuine anxieties about obtaining insurance for liability for latent defect, and they were expressed to the Committee which gave them serious consideration. There is a problem. If I am asked whether the interests of architects are sufficiently well protected, my reply is yes, in the context of the necessity to balance the interests of

445
architects and others engaged in the construction industry on the one hand, and the interests of consumers on the other. As I said at the beginning the committee said that this was an exercise in balancing conflicting interests, and I believe that that exercise has been satisfactorily achieved.
The 15-year override represents a new element in the law. As my hon. Friend knows, delay can extend, perhaps for 20 years before damage occurs, but under existing law, the architect or defendant is liable. At least that uncertainty is terminated by the 15-year override.
Mr. James Couchman: Is my hon. and learned Friend aware of the concern that has been expressed by a number of professional people that the 15 years can follow someone well into retirement and that even a widow may be saddled with the responsibility of her late professional husband within the 15 years?
The Solicitor-General: Indeed, I am aware of that and the committee expressly took that circumstance into account in its report. I should correct my hon. Friend the Member for Mid-Worcestershire (Mr. Forth), who said that the 15-year time bar derived from the date when the damage was discovered. That is not the case; it derives from the date of the defendant's breach of duty.
While insurance was not within the remit of the Law Reform Committee, it considered that the question of insurance should be considered by an appropriately qualified body. The Building Economic Development Committee is at present investigating the desirability and feasibility of latent defects protection insurance for non-residential buildings. Its work is taking fully into account the interests of building owners and producers, and we are awaiting its conclusions with the greatest of interest. Its work is being based on a report entitled: "Latent defects in buildings: An analysis of insurance possibilities" prepared by Atkins Planning. It is a substantial document.
Mr. Michael McNair-Wilson: There seems to be a certain inequity, since under the long-stop situation somebody who retires at 65 could still require professional indemnity insurance up to the age of 80, whereas a person who faces the same sort of problem but who still has several years of active working life ahead will be able to meet the indemnity more easily. Is the Solicitor-General satisfied that we should treat everybody the same, regardless of age? Perhaps in the case of those who are retired, we should limit the period to one more brief than 15 years.
The Solicitor-General: I can see an advantage in that from the practitioner's point of view. However, I can see no advantage at all for the customer or the client. I have no doubt that these matters will be taken into account in the course of the examination that I have mentioned. They are important and far from simple matters.
As I said, the committee's remaining recommendations are essentially consequential on its two principal recommendations. The committee concluded that its recommendations should be of general application and not confined to any specific area of activity, such as building, or class of litigant, such as house purchasers. I have explained in general terms the scope and scheme of this measure. It is confined to the tort of negligence. It does not attempt to deal with limitation under other heads of tortious liability, such as a breach of statutory duty or nuisance, nor is it concerned with matters, substantive or
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procedural, arising out of contract. It is confined to what the Law Reform Committee referred to in paragraph 4.4 of its report as the
"relatively narrow band of 'negligence cases involving latent defects'".
The scheme is as follows. Clause 1 inserts two new sections into the principal Act, the Limitation Act 1980. New section 14A is what might be called the plaintiffs provision. It provides a special time limit for negligence actions where facts relevant to the cause of action are not known at the date of the accrual. It provides for a period of six years from the actual occurrence of the damage, which is the normal rule, or three years from the date on which the plaintiff knew or ought to have known of facts about the damage if that period expires later, within which he can institute proceedings.
New section 14B is the main defendant's provision. It provides the long stop. It prevents the institution of proceedings after 15 years from the date of the defendant's original breach of duty. The effect of the long-stop is to bar the plaintiff's remedy. It does not extinguish his right of action. It vests a defendant with the right to rely on the defence of limitation even where the plaintiff still does not know that he has suffered damage. This is because there does come a time beyond which the Government and the Law Reform Committee consider it becomes unjustifiably onerous to require potential defendants to preserve their records and to remain exposed to the uncertainties and difficulties of responding to stale claims in respect of long-past incidents.
Mr. Forth: I crave the indulgence of my hon. and learned Friend. I am a layman in these matters, as some of my hon. Friends have been kind enough gently to point out to me. If an architect makes a fault in the design of a building and that fault is discovered 16 years later, does that absolve him from responsibility? Architecture is but one of the many professions involved in these cases. If the fault is discovered many years after the original design, does the 15 years run from that point or does the period start at the point where the faulty design work is carried out? I and my constituent would like to be reassured on that point.
The Solicitor-General: The period is taken from the date of the original breach of duty. The starting point for reckoning the 15 years, the overriding time limit, is from the date of the breach of duty and not from the date on which the damage is discovered. I hope that reassures my hon. Friend.
Mr. Simon Hughes: I should like to raise a different point about the starting date. There is still general anxiety that the accrual date for a cause of action might be difficult to define in certain circumstances. For example, one might not know whether the defect related to foundations laid in year one or year two of the building project. This might ultimately manifest. itself in a defect in a building. Is it possible to consider at a later stage, or has such consideration already been rejected, a definition that relates, perhaps, to the certified completion date of the building so that one can have a more precise layman's understanding of the date from which the cause of action starts to accrue?
The Solicitor-General: It would be possible to use the completion date. That was considered by the Committee and rejected for reasons to which I shall come in about 45 seconds, if I do not give way again.
The length and date of the long-stop period follows precisely the recommendations of the Law Reform Committee. On the length of the long stop, the committee considered a number of periods of different duration. At paragraph 4.13 of its Report, it observed that the long-stop should not be so long that it had no useful effect, nor so short that it would cause injustice. It said:
"We have come to the conclusion that a period of 12 years, although it would probably work satisfactorily in most cases, might also bar some worthy claims. At the other extreme we think that a 20 year period might permit some very stale claims and expose many defendants to the risk of litigation for an unreasonable length of time. We have concluded that a 15-year period strikes the right balance between justice for plaintiffs and certainly for defendants".
The Government believe that the committee, looking at the matter from an entirely independent point of view, struck the right balance. The Lord Chancellor's Department consulted on the committee's report, and received conflicting responses, notably from those concerned within the construction industry and the appropriate professional bodies. Some commentators thought that the period was too short to be fair to plaintiffs. They suggested that nothing less than a 20-year period would be sufficient. Others have argued that the court should be empowered to exercise a discretion to permit claims after the 15-year period has expired, basing their argument on the discretion available to the courts to set aside the statutory time limit in personal injury cases. Others, with the interest of potential defendants in mind, argued that the proposed 15-years is too long. Some have suggested 12 years, others 10 or even six years. One group even suggested three months, which would at least have been a gesture.
As the Law Reform Committee recognised, the interests of potential plaintiffs and defendants conflict. Its conclusion was that the law required reform that would take care of the interests of both, which is bound to result in a compromise. We consider that the 15 years provides potential plaintiffs with a sufficient opportunity to pursue their remedy, but also provides the potential defendants with proper protection against really stale claims. It provides both with certainty, which the present law demonstrably lacks. It is not restricted to any one area or industry and covers the full range of possible instances of latent damage.
The starting date for reckoning the long-stop period has also been the subject of much discussion. The Law Reform Committee concluded that it should start to run from the date of the defendant's breach of duty. That is the effect of subsection (1) of new section 14B. Some have criticised this approach for its alleged uncertainty. An alternative suggestion that has been put forward on behalf of the construction industry is the date of completion of the building. The Law Reform Committee considered several alternative dates of commencement. Of the "date of completion" approach it said:
"We are doubtful, though, whether this is really a satisfactory alternative and in particular we can see formidable difficulties in adapting the concept of completion to all the types of circumstances (other than personal injury) where latent damage might arise. There is also the possibility
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of injustice to defendants where completion, on a very large project for instance, takes place many years after the relevant breach of duty."
It came down in favour of breach of duty. I need not develop further the basis for that.
Mr. Simon Hughes rose—
The Solicitor-General: I wish to get on, and I have given way several times.
Clause 2, which is consequential on clause 1, adds a new section 28A to the 1980 Act. Subsection (1) gives additional protection to those who are under a disability at the time of discoverability. Subsection (2) disapplies the special time limits in new section 14A, and the long-stop in new section 14B, in negligence cases where the defendant has deliberately concealed facts from the plaintiff.
Clause 3 creates a fresh cause of action for the successor in title — he may, for instance, be a purchaser — who does not know and could not be expected to have known that the relevant property was already damaged when he acquired his interest. Time will run in future as if no transfer had occurred, but it will be treated as having started on the date when the original cause of action accrued. The balance is thus maintained.
The remaining provisions of the Bill are purely supplementary and do not require any elaboration at this stage.
This short but highly technical Bill will make for fewer hard cases, although it will not eliminate them, and for better law. I commend it to the House.
11.10 pm
Mr. John Morris: I am sure that the thanks of the whole House go to the Solicitor-General for his careful exposition of the Bill. Our thanks also go — as did those of the Solicitor-General — to Lord Scarman and the distinguished members of the Law Reform Committee, upon whose 24th report the Bill is based.
Let me say immediately that I support the principles of the Bill, in the same spirit as Lord Silkin of Dulwich did in another place. The current mischief related by the Solicitor-General is dealt with by the Bill. Some may say that the Bill has gone too far, while others may say that it does not go far enough. However, the introduction of such proposals as are before us is not an exact science. To satisfy everyone would be simply wonderful, but, as the Solicitor-General said, this is a compromise Bill, with all the strengths and weaknesses of a compromise. That does not mean that necessarily I am satisfied with every proposal, and I shall return to some of them.
Although the Bill does not deal exclusively with causes of action in negligence arising from latent defects in buildings, it is in this area that the mischief primarily lay, and I prophesy that it is in this area that most advantage will be taken of it.
Defendants and their organisations are usually well organised, and there have been interventions in that vein. They are frequently insured and well able to take care of themselves. On the other hand, plaintiffs are one-off sufferers and frequently one-off litigants. I would have thought that Conservative Members would intervene on behalf of those who believe in a home-owning democracy. There has been none so far, but perhaps we shall hear interventions on behalf of greater and better protection for plaintiffs. I look forward to that.

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The resources of plaintiffs are generally much more limited, and I shall not weep unduly if the balance is tilted more in favour of plaintiffs. On the other hand, as the Solicitor-General rightly said, the Bill brings certainty to defendants as well.
Nevertheless, I want to raise a real problem which I hope the Solicitor-General and the Lord Chancellor's Department will consider. It is a growing problem that will be considered more and more in due course, and it relates to the growth of claims for professional negligence. One is told that in some areas the practice of medicine is becoming increasingly more hazardous in the United States becaue of the substantial growth of negligence claims. Here in the last five years there has been a dramatic growth in personal claims for professional negligence, resulting in an increased cost of insurance premiums.
Where a claim is justified, every facility must be provided so that just claims brought in reasonable time are not denied justice, but we should be aware of the consequences, and the parallel that I shall pose has general application to the area with which we are now dealing.
If medicine ever became too expensive to practise because of the high cost of insurance, the bottom line of benefit to the public would be a minus figure. This is an extreme example. In the area with which we are now dealing — architecture in particular—claims running to millions of pounds can arise even after the death of the architect. Indeed, I understand that in one instance in Liverpool the widow of a notable architect was sued many years after his death. That is a matter that we must examine. The responsibility on accountants is becoming more onerous daily as one reads of the claims contemplated for huge amounts in litigation.
The repeal of the model Act in 1825, the passing of the Joint Stock Companies Act in 1844 and the eventual Limited Liability Act in 1855, were major milestones in the creation of modern society. I suspect that the concept of limited liability was not achieved without considerable growing pains. It certainly was the engine for the development of this country as an industrial nation and a world financial capital. If the principle of personal liability had been maintained — I am sure that there were good reasons—progress would have been stultified.
I raise this point now, against the background of the Bill. I believe that those who give professional advice should be responsible for that advice and should, in the case of negligence, be made to answer for it if damage is caused. Fortunately, well-ordered professions are insured. My profession certainly is and the costs can be recouped from a broad spread of clients. However, when a claim exceeds the insured amount, the result can break an individual's professional practice. Many professions, including mine, will not allow partnerships, let alone limited liability. Has not the time come to examine seriously limited liability for those who give professional advice?
As I said earlier, it is of no value to the public if professions become too hazardous to practise, or if because of one major claim dispensers of counsel are put out of business. It is of no benefit to the individual plaintiff if insufficient funds are available to meet his claim. It is of no benefit to him if the cost of insurance is so enormous that he has to pay through the nose for services. I believe strongly in taking responsibility for damage, wherever it occurs, but we must consider where we are going as regards quantum.
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I endorse the principles behind the Bill. As the Solicitor-General said, plaintiffs must have a fair and sufficient opportunity to pursue their remedies. Secondly, defendants are entitled to protection against stale claims. Thirdly, uncertainty in the law is to be avoided where possible.
The countermanding of the wisdom in the cases of Sporham-Souter in 1976, Anns v. London Borough of Merton and similar cases by the Pirelli case, which was mentioned by the Solicitor-General, was not only a matter of great regret, but was little short of a catastrophe. The House of Lords in its judicial capacity, was right to say that it was time that this matter was looked into.
It needed this Bill to deal with that last decision, when it was held that the date of limitation arose when the cracks in the chimney first appeared, although no one had seen them, no one had been up the chimney and no one knew that they were there. This measure brings relief by adding to the provision that action may be brought. in addition to the present liability period, three years from the date on which the plaintiff knew, or should have known, about the damage—whichever is the later.
Of course, the Bill does not pretend to cover every case. Some will fall outside even this extension, but hopefully very few. A limitation in the 15-year long-stop period is now proposed. The case for that is the need for certainty. There must be some end—although it can be argued as to what should be the end — to the possibility of litigation. There is a dichotomy between the principle of certainty and the principle of fair and sufficient opportunity to bring an action.
I believe that the Committee has made a fair stab at the problem. However, I should have preferred it to examine, as has been done in other limitation areas, the possibility of some flexibility. This is a matter to which we may return in Standing Committee, to determine whether the proposed period is right, whether it is too comprehensive and whether some discretion should be exercised in the way in which it operates.
There were many important discussions — and we value them—in another place. Many amendments were tabled, especially by the noble Lord Hacking, who prosecuted many of them with great zeal. However. none of the total of 15 amendments moved in Committee or of the six on Report were accepted. It might be that we will not pursue all these matters in Committee, but we may wish to raise some of them especially the long-stop period.
At this hour of the night I do not propose to weary the House by going into any further details, save to repeat that while it is a compromise Bill, it is a fair attempt to put the law—certainly in one respect —where it was before and to bring certainty, which should be valued by defendants.
The noble Lord Denning said that this was a reforming Bill in a situation that was crying out for reform. I certainly support the spirit of the Bill.
11.22 pm
Mr. Sydney Chapman: It may be helpful if I declare a possible interest. I am a non-practising architect, but I have been a member of the Royal Institute of British Architects for 26 years.
To judge from the remarks that have been made, it is. obvious that architects in particular and the construction industry in general are deeply affected by the provisions of the Bill. I welcome the principle of the Bill, which tries to strike a balance of fairness between — to use legal

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jargon — potential plaintiffs, who, generally speaking, and in terms of the Bill, would be owners of buildings, and potential defendants, who could be not only architects, builders, subcontractors, specialists and civil engineers, but local authorities. They have responsibilities in the process of building, not least in inspecting the building works to ensure they are in accordance with the building regulations.
There is no doubt in my mind that there is a need for a change in the law on latent damage, because it is complex, obscure and uncertain, and has been for the past 10 years, principally as a result of a judicial decision known as Anns v. London Borough of Merton. Unfortunately, many people in the construction industry have concluded that the compromise solution—I accept that there must be a compromise — instigated by the Lord Chancellor's Law Reform Committee, whose proposals are clearly the basis for the Bill, leaves the law just as uncertain, complex and obscure, if not more so.
I shall say why I believe that to be the case. There are three themes to the measure. The first is that it is designed to retain the existing limitation of six years from the accrual of the cause of action, and it still leaves the courts to determine whether the cause of action accrues at common law. Secondly, the Bill decrees — this is my word — that there is a long-stop of 15 years from the date of the breach of duty. Thirdly, the plaintiff must bring his action within three years of what has been called "discoverability" — the word is not specifically mentioned in the Bill — of the latent damage. The Bill contains a lengthy and complicated definition of discoverability, which is taken from the law on damages for personal injury. I suggest that it is not helpful or relevant in respect of construction works.
Mr. Greg Knight: I am listening with interest to what my hon. Friend is saying. What does he find uncertain about the long stop provisions? Surely an architect knows that after 15 years any action is statute barred.
Mr. Chapman: I shall try to explain exactly what I mean. There seems to be no statutory definition in the Bill of breach of duty. I suggest that it is not as certain as lawyers seem to think. My hon. Friend will want evidence of that—not merely an assertion. Surely it is borne out by the series of judicial decisions handed down from and since the Anns v. London Borough of Merton case in 1977, which have instigated the need for the Bill. I do not believe that the Bill cures the problems contained in that series of judicial decisions.
I shall give an example. I ask my hon. and learned Friend to comment on it when he replies to the debate. I suggest that if there is deliberate concealment, another law seems to operate. The Bill excludes the provisions of sections 14(a) and 14(b) of the Limitation Act 1980 where there has been deliberate concealment of any fact relative to the plaintiff's right of action. On the face of it that seems to be reasonable, but it is not reasonable when one realises that the phrase "deliberate concealment" is defined in section 32(2) of the 1980 Act thus: "deliberate concealment—"
"of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty."
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With the greatest respect, in the context of construction works, with which the Bill is principally concerned, the majority of defect cases will fall into that category. That means that the criterion by which such cases will be decided will be that of discoverability, with all the uncertainty that that involves.
I want to persuade the House that I am not trying to make a special plea on behalf of my erstwhile profession, because I believe that it is just as much in the interests of prospective plaintiffs—the owners of buildings—that the law should be stated unequivocally, even if it involves rough justice on both sides. The one thing that an aggrieved plaintiff wants is a quick remedy at law, with compensation. I suggest that delay or legal arguments—which will be as great under the Bill's provisions as under present law—will not help plaintiffs in getting defects remedied quickly.
I should like to say also, because it is germane to the problem, that if the defendant—say, a builder—is not in business at the time the case comes up and the architect or civil engineer cannot afford the professional indemnity premium, the plaintiff does not receive damages. I stand to be corrected if I am wrong on that point. I understand that in recent years architects' premiums have soared. In many firms—I do not think that this is an exaggeration —those premiums exceed more than 10 per cent. of the gross fee income of the practice. That is the case, even for a firm which does not have a bad record or has had no claims laid against it. Hon. Members on both sides of the House will realise that, unlike in the motor insurance business, there is no such thing as a no-claims bonus being operable.
The Solicitor-General: I wonder whether it would help my hon. Friend if I dealt immediately with his point about concealment. He quoted section 32 of the 1980 Act, which is the relevant legislation, and argued that in the majority of cases the criterion will be discoverability. He said—I paraphrase his comments — that most of the matters complained of were unlikely to be discovered for a considerable time. The answer is that the key word in section 32(2) of the 1980 Act is "deliberate". The section states:
"For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment".
Most of these cases amount to a breach of duty which is not deliberate. Where there is a deliberate commission of a breach of duty, it is justifiable that that should be categorised as deliberate concealment. I think my hon. Friend will find that that is not quite his point.
Mr. Chapman: I am immensely grateful to my hon. and learned Friend. I hope that he has reassured many people working in this field, at least on that matter. I have read the Lord Chancellor's Law Reform Committee report deeply and carefully. I realise that in paragraph 4.20 a number of points are advanced in relation to this matter. Equally, I know that my hon. and learned Friend will understand that I have been advised that the law would stand in the way that I have described. Perhaps that matter will be considered in more detail in Committee.
I apologise for keeping the House, but I should like to make a few more comments. A number of hon. Members have mentioned that an architect—or a civil engineer or any other design consultant—will face the prospect of

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paying high premiums after retirement. Unlike other forms of insurance, one does not in this case insure the product for all time. The design consultant—whether he is the architect or the civil engineer or anyone else—can insure himself or his company only for a particular year. If a company has to pay more than 10 per cent. of its gross fee income, the penalty and financial obligation imposed on a person who has retired will be severe.
As I understand the operation of the law and judicial decisions, if a builder who is liable to have a claim made against him ceases business, that liability can and may be passed on to the architect. Therefore, the architect or perhaps the other design consultant seems to be liable, in the event of a builder going out of business, for the total liability and not just his possible part of it. I have to say, at the risk of meeting the opprobrium of the legal Members of this august Chamber, that statistics show that compensation finally paid to injured parties is substantially less than the income derived by the legal professon in dealing with a claim under these forms of latent damage.
The law must be a fair compromise in such cases. accept that absolutely, and it is in the interest of owners that it should be fair and reasonable to defendants. The British Property Federation, which of course cannot claim to speak on behalf of all owners of buildings, but can claim to speak on a substantial sector of ownership in the building industry, recognises that and states unequivocally that, above all, the law must be certain. Before 1977 and Anns v. London Borough of Merton, the accepted convention was a six-year liability from the completion of the job in contract or tort; unless the contract was under seal, when the liability under contract was for 12 years. Apart from the discrepancy between the 12 years and 15 years, which would leave matters undecided in at least certain contracts, I appreciate the endeavours of the Lord Chancellor's Law Reform Committee and the logic and propriety of the Government in presenting the Bill. However, I respectfully suggest to my hon. and learned Friend the Solicitor-General that the Bill should be amended in Committee.
I should like my hon. and learned Friend to confirm that, although he was right to point out the nuances and differences of the disparate parts of the construction industry—they could not initially agree on exactly how the law should be changed — there is now a consensus not only in the construction industry but it is shared by the British Property Federation. That view is that the most practical and fair solution to this difficult problem should be a long-stop, which is 15 years from the breach of duty, as provided in the Bill, or 12 years from the completion of the work. My hon. and learned Friend might say that the sting is in the tail because they recommend that it should either be the long-stop of 15 years or 12 years from the completion of the work, whichever expires first.
Many of us could argue that the long-stop should he reduced to 10 years, which, incidentally, is the proposal in the EEC document on product liability, or, for example —obviously I choose examples that are beneficial to the point I am trying to assert to the House — that the position should be 10 years as it is in France. The liability period, incidentally, is five years in Denmark. I believe that the consensus of the contruction industry and the British Property Federation should be the one that the Government earnestly and sympathetically consider.I
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believe that it will cause fewer anomalies if that holds true, rather than the Government's proposals, and it is for that reason that I commend that proposal to the House.
11.40 pm
Mr. Simon Hughes: I am grateful for the opportunity to substitute for my hon. and learned Friend the Member for Montgomery (Mr. Carlile), who would normally he in his place to speak on behalf of my party on measures of this sort. I am pleased to act as his junior. We share the view of the Solicitor-General and the right hon. and learned Member for Aberavon (Mr. Morris), who spoke from the Opposition Front Bench, that the Bill is one to be welcomed. We welcome the principle and, in substantial measure, the details of the Bill.
I shall start where the hon. Member for Chipping Barnet (Mr. Chapman) finished. The hon. Gentleman suggested that in seeking to achieve the fair compromise, which should be the right test, we should look to the British Property Federation. That suggests immediately a degree of unfairness in definition. As the Solicitor-General rightly said, we are seeking to find a compromise between two groups, the consumer, who will normally be the plaintiff, and the industry, which will normally be the defendant. I understand many of the arguments that the hon. Member for Chipping Barnet advanced, but it is inevitable that the British Property Federation. as any group representing a part of the whole of the industry, would be likely to see matters primarily through its own eyes.
Mr. Chapman: I was saying that the British Property Federation is the consumer in this instance. It cannot claim to represent all consumers, that is all the owners, but some of its members are developers and owners who commission builders to erect buildings.
Mr. Hughes: That I understand. The greatest inequity, inevitably, as the Solicitor-General said, lies as between the person who is in most instances a one-off plaintiff—someone who finds only once in his life that there is a defect in the building, whether he is a house owner, a property owner or a possessor of another property — and those who work in property for a living. In most instances the construction industry will be involved. Only a minority will involve professional negligence. In cases of commercial activity, occupation, profession and income, there are normally more available remedies in the form of insurance, to which the Solicitor-General has referred. than for the person who, only once in a lifetime, finds himself needing to challenge something with which the Bill concerns itself.
The attempt to find a balance is something that is prima facie best done by a body such as the Law Reform Committee. I join those who have already paid tribute to the committee. It is always good to see proposals made by such committees coming before the House. By their very nature they are impartial assessments that have been made on the basis of practicality by those with experience of dealing with practicalities. Those who comprise the Law Reform Committee and seek to propose reforms act through the eyes of those who have seen how the law works and not on behalf of the consumer alone or of the industry alone.
It is clear that the law was not working. There were occasions when people were impeded in taking rightful

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action because they discovered that something had been done negligently at too late a stage, through no fault of their own. The Bill properly addresses all the issues that are relevant within the areas of tort and negligence. That was the diet on which I was brought up in my earlier existence as a lawyer outside the House before I became a Member of this place. Cases such as Anns v. London Borough of Merton were important tests in which it was established, or thought to be established, that someone could take a party to court—in the case to which I have referred, a local authority — and succeed where that party, or someone down the line from him, had been negligent in his professional duty. The same test applies whether one is talking about the building industry, which was one of the areas in which I used to work as a member of the Bar, or in terms of professional negligence. The same test applies because one is seeking to find a method of protecting people who may not be able to discover that what they were given by way of advice, or what they secured by way of agreement, was negligent until much later. Clause 1 allows for certainty, which is something that I have heard called for by Conservative Members. It states—the deadline is not too long—that actions will not be allowed more than six years after the date
"on which the cause of action accrued".
It will be six years in some instances and three years in others. Those are certain and not very long periods. They will arise only when the facts relevant to the action were not known when the action accrued.
I must make the point to the Solicitor-General about the date and the definition of the course of action. He will appreciate that there is still some anxiety about that definition. Lawyers may be able to understand that definition easily, but it does not give certainty because, as the Solicitor-General will probably understand better than any other hon. Member, one of the purposes of the Bill is to achieve certainty throughout these matters. Although there may be long periods during a construction project when the period is sufficiently long to make another definition difficult, if we accept the suggestion that I made about the date set for completion there may be a possibility of dealing with that definition because there are often staged completion certificates in the larger building contracts. I hope that that question can be dealt with in Committee, to achieve certainty of definition as well as certainty of period, which I believe that the Bill has achieved.
The new section 14B causes some concern, as the hon. Member for Chipping Barnet made clear in his speech. It suggests a 15-year period overriding period. We properly have a duty to allay the fear of the lay community, which was expressed in the intervention of the hon. Member for Mid-Worcestershire (Mr. Forth). We are required to say that that is an absolute long-stop. It is important for people to know that if the period of 15 years passes, that is the limit and people may then sleep safely and soundly in their beds in the knowledge that they cannot be defendants after that period.
It is important that there should be a long-stop. If we are to consider guidance as to whether that long-stop should be 12, 15 or 20 years, we could probably best consider the advice of the committee that produced the proposals for the Bill. It is difficult and we are plucking a figure out of the air. There is no perfect figure. We are
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trying to deal with the realities of experience. The Solicitor-General will know, and I recall from practical experience not just at the Bar, that there are often long delays before problems come to light.
Soon after I was elected, substantial defects were found on the Bonamy estate in my constituency. It was then too late for action to be taken through the courts against the architects, builders and developers by the local authority. That defect in procedure has cost the local authority a substantial sum of money. I pass no judgment as to whether the local authority should have discovered the problems before, but a period substantially less than the 15 years suggested in the Bill would not have been sufficient for the authority to act. Often if there are defects, especially in the foundations, it takes a long time for the evidence to come to light and for any one to be properly advised to take action. I urge the House to resist the suggestion to alter the period for a long-stop below 15 years before we have considered that and taken the independent, non-client-based advice of the Law Reform Committee.
When we consider the dates, we must also consider the practices in other countries. We should also consider the interlocking practicalities for the profession. One of these practicalities involves insurance and we have a duty to examine ways in which insurance can be provided properly. We should follow the Solicitor-General's suggestion that we should consult on the report that he mentioned and reach a conclusion.
It might also he useful to compare the growing practice of guarantees being given with buildings. I believe that I am correct to say the National House Building Council now has a 10-year guarantee period. If that is right, and the Bill goes through with a 15 year long-stop, the two ought to be married.
If someone deliberately conceals something, but not with the intention that it should be concealed for ever, that is sufficient mischief to come within the definition of deliberate concealment. We all know how things may be done when builders try to get around planning legislation. The mischief will come to light eventually. We must try to prevent that.
It is worrying that someone who retires at, for example, 60, should have to carry a liability into retirement, or have his estate or family carry one. The appropriate way around that is insurance. No doubt the right hon. and learned Member for Aberavon took out insurance in his chambers. That is now the norm for people who might be the recipients of a writ or legal action. There are mechanisms in trades and professions for picking up people who do not take out insurance. We should look to insurance to protect people who are not at fault, such as spouses. It should not be a sufficient argument against the principle that some people will not be in practice and therefore not earning enough to pay.
I hope that the Committee will examine the Bill carefully. I also hope that its principle, which comes from the independent proposal of the Law Reform Committee, will be accepted. That being so, we shall have achieved a fair compromise. I hope that the Government will give the proposal a trial period before giving in to any side's demands to compromise on a well-researched and sound proposal.
11.53 pm
Mr. David Crouch: This will be rather more of a question for my hon. and learned Friend the Solicitor-Genera] than a speech.
I have studied closely all the reports of the proceedings of the other place in the Bill. I was enormously impressed by the wisdom and depth of the investigation made by so many Members of another place and by the extremely helpful and thoughtful investigation carried out by the Law Reform Committee under the chairmanship of Lord Scarman.
My question concerns what comes outside the Bill. Paragraph 1.6 of the Law Reform Committee's report refers to,
"matters outside our terms of reference."
In studying the reports of debates in another place, I noticed that their Lordships concentrated on the problems arising in the construction industry, and especially in domestic houses. I am anxious about the problems of latent damage in the construction of industrial plants, and I am talking of buildings costing £10 million, £20 million, £50 million, £100 million or even more.
The British Chemical Engineering Contractors Association, which gave evidence to Lord Scarman's committee, is a group of about nine vast contractors, which build chemical plants in Britain and elsewhere. Those plants are extremely expensive. The contracts already contain many provisos concerning responsibility. How far does the Bill go in defining the liabilities of the constructors and operators of such plants?
The Solicitor-General: Just as much.
Mr. Crouch: That worries me, because it is an enormous responsibility. It is rather worrying for the industry that that should be so.
Their Lordships said much about the large-scale construction of dwelling houses, but nothing about the construction of steel or chemical plants. The contracts drawn up in those cases contain a clear division of responsibilities between contractors and operators of plants. A plant can go wrong because of maladministration by its management. That has been shown in famous cases, for example, in the nuclear industry. I do not mean Chernobyl, for we do not know what went wrong there; hut we know what went wrong at Three Mile Island. Not only the construction but the management of the plant was faulty. Where did the responsibility lie? How will this important Bill affect liability in this contentious area?
I do not wish to delay the House further, but this is an important point, and I hope that my hon. and learned Friend can give a clear assurance, if not now, in Committee, so that anxieties in the construction and operating sectors of the chemical industry can be allayed.
11.58 pm
Mr. Neil Thorne: I declare an interest in this matter as a chartered surveyor and as a member of Lloyd's.
The right hon. and learned Member for Aberavon (Mr. Morris) asked Conservative Members to declare their interests in the plaintiff, and I wish to identify with the plaintiff in such matters. However, I am against greedy lawyers. We should not create another field day for them in this area. My hon. Friend the Member for Chipping Barnet (Mr. Chapman) was right to say that lawyers have
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done well out of such claims. I was glad to hear that the right hon. and learned Gen tleman's branch of the legal profession has joined the rest of us by becoming liable for negligence in their sphere of activity.
The public must be properly protected. Nobody would disagree with the Government's aims in doing that. But it is also important that, in achieving that objective, they should not make it more difficult for the public to obtain professional advice at a resonable price. If, as the hon. Member for Southwark and Bermondsey (Mr. Hughes) mentioned, professional people are priced out of the market, they may try to recover their additional insurance premiums from their clients, which will add considerably to the cost, and also lead to fewer people being available to give advice.
I understand that in the United States, in some fields of medicine, doctors are having to withdraw their services completely because of the claims that are being made against them through the courts. That is a worrying situation and I hope that we shall not reach that stage in Britain.
Mr. Keith Best (Ynys Môn): I am most grateful to my hon. and gallant Friend for giving way. Although the old maxim used to be justitia magnum emolumentum est, I would make one plea on behalf of the lawyers. When my hon. Friend compares the position in the United States and here, I am sure that he is aware of the contingency fee basis in the United States and the fact that damages are determined by juries. As a member of Lloyd's — I declare my own interest—he will know only too well that that is the principal cause for alarm about damages awarded in the United States, not the system that we have here.
Mr. Thorne: I fully accept what my hon. Friend says. I would hate British law to get into that position. Nevertheless, my hon. Friend the Member for Chipping Barnet mentioned that already half the damages seem to go to lawyers in Britain, so goodness knows what must go to those in the United States. We certainly want to avoid that.
If a building is constructed by a contractor who acts negligently and 25 years later a defect is found, as I understand it there would then be three years in which the occupier or owner could make a claim. If the contractor had by that time gone out of business, presumably the person against whom action would be taken would be the designer or the architect or some other engineer. That would mean that there would be a claim perhaps 28 years after a building had been constructed. If that is the case, that could be well after the designer's death. Would his widow then be expected to sell her possessions, including her house, in order to satisfy some claim which had originated through some defective work by a contractor 28 years before? I should be grateful if my hon. and learned Friend the Solicitor-General could reassure me on that when he replies. If that is what we are suggesting, we should think long and hard before we put that into effect.
I should also be grateful if my hon. and learned Friend could advise the House whether in view of the liability which I believe has recently come to rest on the shoulders of some local authorities—they have been found to be involved in negligence claims if it was thought that their building inspectors were not carrying out their work properly — they would also be similarly involved and have some commitment.

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The point that has been made about the enormous cost to a retired person is important. Certainly, if 10 per cent. of the gross fees have to be laid out in insurance payments, and if that is to be continued for at least 15 years after retirement, I would also like an assurance that the architect or designer could get tax relief, if nothing else, upon that payment. I had heard that that was a source of great concern to professional people: that they could not offset their insurance payments for that reason.
In Committee I hope that it will be possible to consider the question whether or not, after 15 years, it would not seem more reasonable to place the matter on the shoulders of the insuring company of the builders. After such a period, it would be right and proper to expect insurance to be covered by building insurance, particularly in view of the complexity which is likely to arise and the hardship which could be caused, especially to individuals not practising under limited liability.
The right hon. and learned Member for Aberavon said that the professions should be moving towards limited liability. That has started in one or two professions and I am sure that the move will be extended in the coming years. It could smack of a desire to exonerate oneself from the liability that has traditionally rested on the shoulders of professional people. I would not wish the Government's action in this measure to force professional people in that direction. That would be a great mistake. I await my hon. and learned Friend's reply with interest.
12.6 am
Mr. Greg Knight: The right hon. and learned Member for Aberavon (Mr. Morris) was a little unkind when he implied that Conservative Members were concerned only about the interests of potential defendants. We are interested in ensuring that as far as possible justice is done.
During the debate it has become clear that the present law causes injustice both to potential defendants and to plaintiffs and that action is need to rectify the problem. Such action involves a balancing act between three points. First, the plaintiffs must have a fair opportunity to pursue their remedy. Secondly, the defendants are entitled to be protected against stale claims. Thirdly, as far as possible uncertainty in the law is to be avoided. By and large the Bill achieves that balance, so I support it.
However, I wish to express my disappointment that the Bill does nothing about the matter raised by Lord Hacking in another place in respect of the accrual point for the periods of limitation. One difficulty that exists for lawyers and potential litigants alike is that different actions have a different starting point for the limitation period. In other words, the clock starts to run at different points for different actions, even on the same set of facts.
I shall not enlarge upon all the differences because I sense that the House wishes to make progress. However, I refer my hon. and learned Friend to the comments of the Law Reform Committee. Paragraph 44 on page 16 states:
"In cases involving negligence, a plaintiff's cause of action might accrue at different dates depending upon whether the negligence was in the performance of a contractual duty, or a statutory duty or a duty of care at common law and this can lead to complications. Indeed a single set of facts could in theory give rise to claims for breach of duty under all three heads, with three limitation periods. This situation was criticised by a number of those who wrote to us. Our terms
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of reference on the other hand are limited to the relatively narrow band of 'negligence cases involving latent defects' and we consider that it would he quite inappropriate for us to make general recommendations, applicable for instance in the contract field, in the context of the present review."
That is a slight disappointment to me and I hope that, perhaps in Committee, some consideration can be given to rectifying this problem. Having said that, I welcome the measure and especially clause 3 which rectifies a longstanding problem and will enable successors in title of the original victim to inherit the cause of action. This rightly continues to be actionable only within the original limitation period and is still subject to the longstop provisions. Having expressed the minor disappointment that the Bill does not go further, I welcome the measure.
12.11 am
Mr. Roger Moate: I do not know if there can be such a thing as a lawyer's paradise, because that may be a contradiction in terms, but a lawyer's paradise is an apt description of the Bill. As the House might know, there was an earlier Parliament from which lawyers were banned. The legal profession rather rudely called it the unlearned Parliament and, I think, the fool's Parliament. The layman is a fool if he trespasses on such legalistic ground as this Bill. I prefer the term drunken Parliament. That referred to a Parliament which met for only about eight days and passed hardly any legislation. It met in Glasgow and perhaps that explains the title.
Despite the fact that laymen might look at the Bill with some trepidation, there is no doubt that it could have a widespread effect on consumers and producers alike and, indeed, upon the whole community. The effects of the legislation may be quite different from those envisaged by my hon. and learned Friend the Solicitor-General and the other Law Officers. This type of legislation has a widespread effect and will have some unexpected results over many years in commerce and in the construction industry and upon the way consumers will act. For that reason, I regret that we are debating the Bill at a rather extraordinary hour, a point with which my hon. and learned Friend the Solicitor-General might well sympathise. The speeches by hon. Members show the interest in this legislation.
I recognise the need to remove by statute uncertainties in the existing law. As many of us know, over the years some court cases have taken the law in one direction while others have taken it in the opposite direction. It must be difficult for practitioners in businesses associated with matters of this kind to know with any certainty what the law will be in the future and it must be right in principle to have clarification of the law and to improve it.
The present law can be grossly unfair to a claimant who might well find himself beyond the limitation period before he is even aware that he has an actionable claim. In that respect the law ought to be amended. The right hon. and learned Member for Aberavon (Mr. Morris) was a little unfair to Government Members when he said that we were simply supporting the case of the producer. That is certainly not correct. There is a recognition that the law needs to be remedied.
Mr. John Morris: I was not being unfair. I was merely passing judgment, perhaps with a measure of partisanship, on the interventions that had occurred up to that time.
Mr. Moate: The right hon. and learned Gentleman should have refrained from passing judgment until he had

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heard the wise speeches from other hon. Members. The interests of the consumer and the producer are not as far apart as perhaps he suggests. Under these proposals, many years after fulfilling a contract or supplying a product a defendant might be the subject of a claim of which he has little or no knowledge, and about which he may have inadequate records. It is also probable that he will not have any insurance protection. Although I welcome certain principles in the Bill, I have to express serious doubts about whether the Government have got it right.
In essence, I can see the case for allowing the plaintiff the extension of the ordinary period of limitation of six years, with that additional three years from the date when he discovers, or could reasonably have discovered, that he has sustained a loss. I have not read or heard any disagreement with that proposition.
That extension in itself is dramatic. It imposes an immense burden on the producers of goods such as builders, manufacturers and any providers of any service, or upon the insurers. That is where I declare my interest. Even if it were just six years as at present, an additional three years, would he a major extension. For that reason, I argue strongly that the 15-year longstop is far too long. I dispute the contention of my hon. and learned Friend the Solicitor-General that, somehow, 15 years represents a proper balance between the producers and the consumers.
By extending the limitation period by the three years —I accept that that is an over-simplification—we are already substantially tilting the balance against the producer. By then putting in a longstop, we are going too far. That is not a balance, but simply a little less unbalanced. For my hon. and learned Friend to say that some suggested 10 years and some 20 years, and that the Government stuck at 15 is simply plucking figures out of the air. This is a matter of judgment, but to go from what was in the past understood to be a limitation of six years to 15 years will strain at the bounds of commercial reality.
I also question whether we are doing the consumer a favour. Obviously we shall be doing some individuals a favour, because some will be able to make claims that would otherwise be time-barred. However, are we doing the consumer in general a favour? Are we benefiting the community'? I doubt it. I can illustrate this point through the insurance profession, with which I have sonic connection. The problems of insurance are not just of some minor inconvenience or expense, or even of considerable expense to consumers. They have a profound affect on consumers, prices and employment. It is possible, by over-protecting the consumers, that we shall damage not only the community but those consumers.
Hon. Members have already referred to the malpractice suits in the United States, which are literally putting some doctors and dentists out of practice. More relevant to this country is that many British manufacturers cannot export their products to the United States because of the difficulty of getting liability insurance. It we encourage that trend here in the United Kingdom, which I suspect we are doing by opening the doors that bit wider, we are making it harder for manufacturers to manufacture, and builders to build.
Mr. Peter Thurnham: As I understand it, it would be relatively simple for the purchaser of a 10-year-old house to take out an insurance policy against there being some defect in it, whereas the burden to the contracting industry of provisions to cover
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a 15-year period could add more to the cost of the house than taking out a simple insurance policy. Can my hon. Friend advise me on the initiative taken by the National Economic Development Office concerning such insurance? I have heard of this initiative, but not of any results.
Mr. Moate: I welcome the point made by my hon. Friend. If one is seeking to protect the home owner—I accept the genuineness of the points made by Labour Members — one does not necessarily do it in what I would call a rather naive way by simply extending the period of limitation to allow individuals, in theory, to be able to pursue a house builder, estate agent or solicitor who might, decades after the building of the house, no longer be around. Alternatively, if he is, it might be extremely difficult for the home owner to take action successfully.
Frankly, it sounds good but it is naive. If one is really trying to protect the home owner, one should not do it by widening the law in this way. Instead, one should look for specific remedies of the sort that have been referred to. I suspect that there is much better protection for the home owner through schemes such as the NHBRC and specific insurance than by this fairly unsatisfactory opening of the floodgates of the law.
Mr. Best: Is not the inevitable conclusion of my hon. Friend's remarks that there should be compulsory insurance? If so, in fairness he should state it. That must follow from his remarks unless there is to be some protection for a potential plaintiff. My hon. Friend should look more carefully, not at the 15-year longstop but at the fact that there is a three-year stop for a plaintiff once he knew, or ought reasonably to have known, of the defect.
Mr. Moate: I am certainly not arguing the case for compulsory insurance. I am saying that it is unrealistic to pretend that one is protecting home owners simply by extending the period of limitation. That is not a real argument in favour of the Bill. I am not sure whether I follow my hon. Friend's point In effect there will be an opportunity for an individual to claim after six years, as at present, but if he does not discover the loss he has sustained until the fifth or sixth year, he then has three years from that date up to a maximum of 15 years. I am simply saying that a shorter period than 15 years is realistic.
Let me emphasise further just how much insurance difficulties can impinge upon the value and quality of the goods and services enjoyed by the consumer. Today, many substantial practices seriously question their ability to survive in business, faced as they are with the enormously high insurance premiums that are now being quoted. None of us can really foresee the future, but if awards become substantially greater—that seems to be the trend in the Western world—premiums get higher, and the insurance market contracts, many substantial companies or partnerships will not be able to get insurance. We can already see the effect of that on commercial activities in the United States, even on British companies acting in the United States, and we do not want to see it happen here.
That relates only to the large practitioners, and hon. Members—particularly the hon. Member for Southwark and Bermondsey (Mr. Hughes)—have glibly dealt with the question of insurance. A large number of people are single practitioners, and there is virtually no way in which

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they will carry on insurance for 15 years after they have retired, be they estate agents, architects, solicitors or surveyors. In reality they will not do it—nor, I suspect, will most barristers maintain a 15-year run-off insurance after they have ceased practice.
Mr. Simon Hughes: There is a very practical answer to that. During the time of professional work one should insure against claims in the period of 15 years after one ceases to work, and the payment can be made during one's professional life.
Mr. Moate: The hon. Gentleman misunderstands the nature of the business at the present time. Because of the examples that exist around the world, most insurers are trying to retreat from that long-tail type of business and to curtail their exposure during that period of time. Increasingly, great difficulties will arise.
I am not saying that there should not be a long period during which claimants can claim. We have already accepted that. But I am saying that 15 years is too long, and we have a better example that we should be considering. I do not often quote with favour examples from the European Economic Community but when I do it obviously proves a good point. The EEC directive on product liability sets out a ten-year limitation. I ask my hon. Friend seriously to consider that ten years is six, plus three, plus a little more. That is as good as any period, and better than most suggested. It is a considerable extension of the present law and gives a certainty that will be helpful to all involved. I urge the House not to gloss over the difficulties which the longer period would entail for many in industry. I do not think that the longer period would confer on the user the benefits in which my hon. Friend believes.
In principle I welcome the Bill. I hope that the House will treat it seriously and consider the many representations that it is likely to receive.
12.25 am
Mr. Andrew Hunter: The debate generated by this five-and-a-half page Bill is relatively confined. The salient points have already been made many times. Had I caught your eye earlier, Mr. Deputy Speaker, I should have tried to make many of the points covered so eloquently by my hon. Friend the Member for Chipping Barnet (Mr. Chapman). I endorse, applaud and support all his arguments.
The debate has concentrated on two simple factors. The right hon. and learned Member for Aberavon (Mr. Morris) said that we should remove uncertainty from the law. Of course we must. The question is whether the Bill will do that. When considering the time factor I support my hon. Friend the Member for Faversham (Mr. Moate). We should examine carefully the 10-year precedent established by the Common Market.
We have concentrated upon clauses 1 and 2. I want to discuss clause 3. Clause 3, according to the explanatory memorandum,
"enables a person acquiring real or personal property to bring an action for negligence where the property concerned is in fact (but unknown to him) already damaged when he acquires it."
This might seem technical, but I wonder whether the clause will prove to be something of a minefield,
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intentionally or unintentionally. It enables those owners of houses in the categories listed in the Housing Defects Act built privately, and therefore not covered, to seek redress. The negligence referred to in clause 3 may not extend to defective housing as defined by the Housing Defects Act. That might be significant.
The Committee on the Bill will have a lot of work to do. It is a worthwhile Bill, but fundamental questions will have to be explored.
12.29 am
Mr. Peter Thurnham: I hesitate to speak about such a legal matter, but I must declare an interest in that I am not a member of Lloyd's, I am not a lawyer, but in my limited spare time I am an engineer and I pay lawyers' fees. My hon. and learned Friends describe the Bill as a compromise and the right hon. and learned Member for Aberavon (Mr. Morris) said that he wanted to tip the balance towards the plaintiffs. I wonder whether it is in the interests of either potential defendants or plaintiffs if the balance is tipped towards lawyers.
As someone who has to run a business and decide what has to be done, I am anxious about the number of records that might have to be kept and stowed away for an excessive time from a starting point which is not at all clear.
I should declare a fuller interest in that I am a Fellow of the Institute of Mechanical Engineers, a member of the Electrical Contractors Association for many years and a recent adviser. My own business, which I founded in 1972, now employs 500 people in specialist engineering contracting. My company has had a long involvement with the committee dealing with specialist engineering contract law.
I was intrigued last week to find that my daughter, whom I am supporting while she studies law at King's college, had my company's case come up in her first-year examinations because an injustice that I had suffered had been put right by a change in the law. I was pleased to hear that. It cost £7,000 in legal fees to pursue a £1,500 contract without success in the Court of Appeal. I was told that I should go to a higher court, but I decided that I had had enough of the law.
We all agree that the present law is unjust — it is unfair to plaintiffs and defendants. The principles of the new law are much to be welcomed, and three years from discovery is obviously to the benefit of plaintiffs. I raise the practical question whether 15 years is not too excessive a period, because the breach of duty is a rather difficult period to determine for a practising contractor. Exactly what date should he put on his documents? I feel that 15 years is excessive, especially as the EEC is talking about 10 years.
I wonder whether the Solicitor-General can enlighten me as to who the members of the Law Reform Committee are. I suspect that they are all lawyers, but perhaps I am wrong. As lawyers, they say that 12 years might bar some worthy claims but would probably work satisfactorily in most cases. They say that a 15-year period probably strikes the right balance. They are seeking to strike a balance of legal niceties and are losing account of the practical realities of people who have to run businesses and decide how to deal with claims that go back such a long time.
I agree with many of the points made by my hon. Friend the Member for Faversham (Mr. Moate), who might be interested to know that I rang the British Insurers

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Association today to discuss its view on this matter. It said that it welcomes the introduction of a long-stop, but thought that 10 years would be more practicable. If the insurers who will have to help contractors say that 10 years would he practicable, I question why the Government feel that they should go so far beyond 10 years in seeking to strike some nebulous balance in favour of the plaintiffs, who, one hon. Member said, were not organised and needed to be borne in mind. If we burden consumers with excessive costs to strike some nicety of legal balance, we will not do the people of this country a favour.
At a time when the Government say that they are cutting red tape, I earnestly ask them to reconsider whether a period as long as 15 years is in the interests of business, especially as we are seeking to find jobs for 3 million unemployed. Will it get more people back into the job market to impose a 15-year period when a lesser period has been advocated by so many who have spoken this evening, and when consumers can gain protection by taking out an insurance policy at, I suspect, a much lower cost?
Mr. Greg Knight: I know that the House wishes to make progress, and I hesitate to rise. Is my hon. Friend really suggesting that the House should encourage jerry-builders?
Mr. Thurnham: I think that my hon. Friend would agree that if a building has stayed up for 10 years it would not be too difficult for the owner or purchaser of that building to take out an insurance policy to indemnify himself against any defects that might arise. If no defects have occurred in the first 10 years, I cannot believe that it would be difficult for him to take out insurance to cover himself. To suggest that someone is not a jerry-builder if there is nothing wrong in 15 years, but is a jerry-builder if something goes wrong in 10 years is a rather silly distinction, if I may say so, without being disrespectful.
On the one hand, we are arguing about political judgments as to whether the period should be 10 or 15 years and, on the other, we are asking architects and others to keep massive records and access to those records for 50 per cent. longer. For what purpose should we burden the industry with those costs? It is for no purpose other than to satisfy a few lawyers that they were doing the right thing from a legal point of view, and perhaps some political judgments which were arrived at too quickly and without proper attention to the costs that would be incurred.
12.36 am
The Solicitor-General: I express my gratitude for the welcome that has been given by the right hon. and learned Member for Aberavon (Mr. Morris) to the Bill. I thank hon. Members for their kind remarks regarding the work of the Committee.
I think that the House has moved some distance from an understanding of the concept of negligence. We are talking about provisions to deal with the limitation of actions arising from negligence — negligence by those responsible for turning out a product containing a latent defect. Negligence means failure to take reasonable care in all the circumstances. For the consumer, who is the victim of negligence in those circumstances, that means not getting what he has paid for, not being able to recognise that at the time, and having to carry the can unless he can have a remedy in the courts.
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Most hon. Members' constituents would wish to have a remedy in the courts in those circumstances. The law, as it stands, gives them a remedy, and it is a remedy without time, to the extent that they may bring an action provided they are within the statutory period of limitation starting from the date when the damage occurred. If a builder uses concrete which turns into Stilt on cheese after 20 years. it is only from 20 years that the statutory limitation period starts to run. The law at present makes a builder liable—this is the answer to the question by my hon. Friend the Member for Ilford, South (Mr. Thorne) — and vulnerable to an action for damages provided it is brought within six years from that date—20 years after he built the house which turns into Stilton cheese.
What the Bill does in the interests of the defendants —the builders—in those circumstances is to say, "In no circumstances may an action be brought 15 years after the date of your breach of duty, your negligence, your failure to take reasonable care." Those who have inveighed against the hardship occurring to defendants—if the Bill is enacted—have not fully understood that point, I feel. Perhaps we shall have an opportunity in Committee to demonstrate a little more clearly how that is actually a benefit to defendants in such circumstances.
The right hon. and learned Gentleman raised the issue of limited liability. I think that I should limit my own liability by informing him that I have noted his suggestions carefully and will bring them to the attention of my right hon. Friends, without any commitment whatsoever.
For many months and indeed years my hon. Friend the Member for Chipping Barnet (Mr. Chapman) has displayed great interest and knowledge in these issues. I am grateful for his welcome of the principle of the Bill. I was sorry that he found so much to criticise in it. When he said that it contained no statutory definition of breach of duty, he was seeing a tiger where no real difficulty exists. The concept of negligence is well understood. The definition of discoverability has occasioned no real difficulty. I dealt with my hon. Friend's anxieties at the time in connection with the concealment provision.
My hon. Friend the Member for Chipping Barnet apparently believes that the architect becomes liable if the builder who is a subcontractor goes out of business. I am able to reassure my hon. Friend and others who have raised that issue. It is not true to say that an architect will be responsible for the negligence of the builder where the latter becomes bankrupt. As a matter of general principle, a person who arranges for work to be done for him by an independent contractor is not liable for the negligence of the contractor in the course of carrying out the work, provided, of course, that he has taken reasonable care to choose someone who is suitable. But an architect who is held only partly to blame for a defective building cannot be held fully liable simply because another defendant has gone bust. Nor can an architect who would not otherwise be held liable be liable because someone has gone bust. That is also the answer to part of the question raised by my hon. Friend the Member for Ilford, South.
Mr. Chapman: Surely the point is that the role of an architect is not only to design the building but to a certain degree, to supervise and overlook its construction. If the plaintiff cannot sue—if that is the right legal word—the contractor, inevitably he sues the architect, as he is advised

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to do, to try to make out a case that the architect did not supervise the job properly, even though there was a liability on the builder to construct the building properly.
The Solicitor-General: If the architect were liable at all, he would be liable whether or not the builder was also liable.
I say yes to the suggestion of the hon. Member for Southwark and Bermondsey (Mr. Hughes) that there is no special magic about 15 years. However, it represents, in the views of the Government and the Law Reform Committee, a reasonable compromise between those who want 20 years, such as the Consumers Association and many others, and those who would like 12 years or fewer. I agree; let us see how it works.
My hon. Friend the Member for Canterbury (Mr. Crouch) asked whether the Bill's provisions will apply to chemical works. The answer is yes. But we are dealing with latent defects, not with questions of management and with someone who sets the wrong temperature at Chernobyl, or whatever. We are talking about latent defects in the construction of premises. The Bill is not limited to the construction of housing.
In the rather elaborate illustration posed by my hon. Friend the Member for Ilford, South, a person discovers 28 years after work has been completed that there is something wrong. There would be a complete bar to his bringing any action, because such an action cannot be brought any later than 15 years after the breach of duty. I shall certainly not at this stage embark on questions of tax relief for insurance premiums. I expect that my hon. Friend knows more about it than I do.
I appreciate the welcome given to the Bill by my hon. Friend the Member for Derby, North (Mr. Knight). One will have a reasonable chance of successful law reform if
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one limits one's objectives. It is not the point of the Bill to interfere with the law relating to accrual of a cause of action. My hon. Friend the Member for Faversham (Mr. Moate) thinks that that will have unsuspected results, although he recognises that the law is unfair to plaintiffs. I am grateful to him for his fair speech in that regard. I must say, with respect, that my hon. Friend confused questions of limitation with questions of liability. At present, the date of accrual is the date when the damage first occurred—15 years from the date of breach of duty is a restriction on the liability to which a building constructor may be subject.
Mr. Thurnham: Will my hon. and learned Friend give way?
The Solicitor-General: I should like to finish. Of course I shall give way if my hon. Friend insists, but we all want to proceed.
Those who say that this is bad for the consumer because insurance premiums will increase seem to be saying that it is easy for the consumer to take out an insurance policy to cover the risk. If it is easy for the consumer to do that, I do not see why it becomes impossible, in terms of price, for the contractor or architect to do so. All of these matters can be gone into in more detail in Committee. It will obviously be an interesting Committee.
This has been a Second Reading debate and I choose to get from this debate a general welcome for the effect of the Bill, which is to reduce the injustice of the present law and strike a fairer balance between the conflicting interests of the construction industry and those who buy its product. I commend the Bill to the House and I hope that it will get a Second Reading.
Question put and agreed to.
Bill read a Second time and committted to a Standing Committee pursuant to Standing Order No. 42 (Committal of Bills).

Crown Agents (Amendment) Bill
Not amended (in the Standing Committee) considered.
Bill reported, without amendment.
Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Raison.]
12.45 am
Mr. Stuart Holland: The waiving of interest in international development is not something that we wish to oppose. provided the case is right, that it is merited in development terms and that it is subject to the scrutiny and approval of the House. The question is whether the House will have such scrutiny and powers of approval, since clause 1(b) deems that section 17(10) of the Crown Agencies Act 1979 shall cease to have effect. Perhaps the Minister could elaborate on the case for that. On what grounds is it unduly burdensome on the House that it should not have the power of section 17(10) of the original Act? After all, in the Second Reading Committee on 18 December the Minister said that he could not
"predict to what extent the power will need to be used."—[Official Report, Second Reading Committee, 18 December 1985; c. 4.]
On those grounds, why can the right hon. Gentleman be so sure that no order should be laid before the House and approved by resolution of the House?
We all know the background to the financial difficulties of the Crown Agents—the property speculation of the early 1970s, followed by a cleaning of the stables, only to he followed by the loss of the Brunei contract and the knock-on effect on development financing of other projects which that has entailed. Why is there to be no reference to the House in the future? It is not as if we still have a Select Committee on Development which could supplement the Floor of the House by giving such scrutiny as will be denied by the deletion of section 17(10).
In the Second Reading Committee the Minister failed in his winding-up speech to answer one of the three main points that I put to him on the question of finance. It is relevant to the question of waiving interest. My question was whether there would be any obligation on the Crown Agents to become a licensed deposit taker. We would be glad to know the Government's views on that matter.
I also raised with the Minister the question whether the 50:50 joint ventures with Lloyd's were a liability to the agents. At that time, 18 December, he said that they were not. Is he so satisfied today?
I congratulate the Minister on his decision to retain the pensions division of the Crown Agents within the Overseas Development Administration. We were pleased that he could see delegations on that matter before the decision, and glad that the decision was made. May we have an assurance from him tonight that the provision in the Bill for waiving interest is designed to serve the continuing work of the agents as a public body, rather than a backdoor to privatisation, through reducing costs and raising returns to the agents over and above what they would otherwise be? That is something on which we should have an answer now.
12.50 am
Mr. A. J. Beith: I welcome the decision affecting the staff at the pensions division at East Kilbride, to which the hon. Member for Vauxhall (Mr. Holland) referred. This is an issue that has attracted much
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attention during the long period during which the Bill has been before the House. It has been before us since December 1985, and one would imagine that it has been the subject of the most intensive and lengthy Committee consideration. Those who have followed it closely will know, however, that its consideration has been brief and widely spaced.
As I understand the Government's intentions, the Bill is a holding operation. Its function is to enable the work of the Crown Agents to continue and some of their difficulties to be met in a period during which the Government intend to proceed to make the Crown Agents a privatised concern. This was hinted at by the hon. Member for Vauxhall, when he said that the Government might have changed their mind. As I understand it, it is still the Government's intention to proceed to privatisation. The Bill will simply hold the fort until then. The stage will be reached when its provisions are no longer relevant and the Crown Agents will become a privatised concern, thereby losing a status that is necessary for their relationship with Commonwealth Governments, many of whom are accustomed to working through Government agencies for much development work and who expect an organisation such as the Crown Agents to have Government status.
Confidence in the Crown Agents has inevitably been shaken by the experiences of recent years. I am not. satisfied that turning the body into a private corporation will assist the rebuilding of confidence and help to enable it to play as full a part as it can undertake in development work in which the Government are engaged and in the activities of other Commonwealth Governments.
On behalf of the alliance, I welcome the Bill as far as it goes. I welcome the opportunity that it gives the Secretary of State to continue to assist the Crown Agents to enable them to provide the useful function which was impaired for a number of years but which they can still undertake in the work of Commonwealth countries.
12.52 am
The Minister for Overseas Development (Mr. Timothy Raison): The Bill was given a Second Reading and considered in Committee without opposition, although there was a certain amount of discussion. I am happy that Third Reading has been reached. I have been asked one or two questions, to which I shall respond, but I do not think that the House wishes to be detained for very long at this hour.
It is our intention that the Crown Agents should continue to move towards privatisation. We hope to see the organisation strengthened and we believe that it is becoming a stronger body under the excellent leadership that it has received from the chairman and those who are responsible for its management. As I have said, I hope that this will lead to privatisation.
I am grateful for the support that has been given to the Government's decision on the pensions division, which has been widely accepted. I believe that the House was in sympathy with what was done.
I have been asked one or two specific questions. First, the hon. Member for Vauxhall (Mr. Holland) asked about licensed deposit taking. Sections 5 and 8 of the Crown Agents Act 1979 give the Crown Agents authority to accept deposits in respect of their agency activities. While they continue to operate under the Act, the authority will remain valid. When they are privatised and cease to be a

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statutory body, financial arrangements will have to be made for the privatised company to conform with the requirements of the relevant Acts on the acceptance of deposits or pre-payments. The present situation does not require any further action.
Mr. Stuart Holland: The financial effect of the Bill will make it possible for interest of about £10 million due to the Exchequer to be waived. We know that the Crown Agents have been paying interest at rates that are less than the full market rate. If the Minister is really saying that the Government are proceeding to privatisation, will he give the House an assurance that any such £10 million, which amounts, in effect, to a public subsidy, will be paid back by those to whom the sale in privatisation is undertaken? It will be a public subsidy of the private sector otherwise.
Mr. Raison: I do not think that the House will expect me at this stage to anticipate the legislation that will bring about privatisation in due course. When that step is taken, a Bill will come before the House in the proper way and it will receive full discussion in the House.
Questions were asked about clause 1(b). This provision deletes section 17(10) of the 1979 Act, which, as a consequence of the amendment to section 17(9), becomes superfluous. Section 17(10) requires that any order extending the original initial period from five years to seven years should be laid and approved by resolution of the House. As I have said, that now becomes superfluous.
I believe that the Bill is an important advance and that the Crown Agents are doing a good job. The Bill gives them a further chance to do that, and I commend it to the House.
Question put and agreed to.
Bill accordingly read the Third time, and passed.

Dogs (Control)
Motion made, and question proposed, That this House do now adjourn.—[Mr. Donald Thompson.]
12.55 am
Miss Janet Fookes: The House will be aware of my long-standing interest in matters affecting animal welfare, and I rise now to inquire about Government policy on the control of dogs.
The debate has been sparked off by two recent occurrences. The first was the widespread reports that the Government intended to abolish the licence fee for dogs, although I understand that no such decision has yet been made. It was also sparked off by the investigations of the television programme "That's Life" into the scandal of puppy farms.
I would first like to give a brief sketch of the problems relating to dogs and then to give a short summary of the measures that animal welfare groups have taken in the past and also to offer a package of proposals for the Government's urgent consideration.
The scale of the problem of dogs is staggering. It is estimated that there are some 6 million dogs at any one time in Britain and half of those are unlicensed. That is a highly unsatisfactory state of affairs, although it is not surprising in view of the very low licence fee of 37p. I am not surprised that the Public Accounts Committee has commented on the absurdity of that, as it is costing far more—about £3 million more—to collect the licence fee than the revenue obtained.
The problem of stray dogs is especially distressing. I am closely linked with the RSPCA and the National Canine Defence League. I also know a fair amount about the work of Battersea dogs home and the work of local cats and dogs homes in Plymouth. According to the latest annual report, the RSPCA dealt with 103,000 abandoned or stray dogs. However, the RSPCA estimates that that is a measly 20 per cent. of the full number of such unfortunate animals. Half the cruelty cases dealt with by the RSPCA inspectors relate to dogs.
The stories that we hear about abandoned dogs are heart-rending and it is unfair to expect the animal welfare societies to put so much time, effort and money into a problem which the Government ought to tackle. However, apart from the dogs themselves there is the problem caused by dogs that are out of control and which cause a nuisance in society. That problem is especially worrying when it affects livestock. The National Farmers Union has recently suggested that there are about 10,000 cases a year of livestock which are killed or seriously injured by the depredations of dogs out of control — for example, in sheep worrying. There is also the problem of the fouling of pavements, beaches and parks, which understandably causes public outrage.
I am glad that my right hon. Friend the Prime Minister has embarked on a campaign against litter. I suggest that dog fouling is a particularly offensive form of litter and my right hon. Friend would undoubtedly welcome any enforcement of the law on fouling.
There is also over-production of puppies, often in horrendous conditions. That was the subject of the "That's Life" programme. Miss Rantzen has been kind enough to send me a dossier, which I will pass on to my hon. Friend the Minister, outlining some of the cases which were seen on the programme. I am told that, following the

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programme on puppy farms, hundreds of letters and telephone calls were received from viewers—some 500 by the time that I received the dossier, but I gather that more were coming in each day.
Today newspaper has also made its own investigations, which would repay further study by the Minister. Many people have bought puppies from puppy farms, only to find that the poor little creatures are very sick and have a miserable and short life. They frequently die, perhaps after the owners have spent a great deal of money on veterinary bills. Many of the problems arise from the non enforcement of the Breeding of Dogs Act 1973. It ought to be tightened up. On re-reading it, I noticed that local authorities, which are responsible for licensing breeding establishments, may inspect them. I suggest that they should have a duty to inspect them before a licence is granted and that there should be far more follow-up visits than there appear to be.
No longer do we want dogs to be subjected to so much disease and infection and the likelihood of being separated from their mothers far too soon. Anyone who, like me, saw the Esther Rantzen programme will have been horrified by the details that were revealed. They were familiar to me as I work in animal welfare, but I think that, for many members of the public, it was a terrifying insight into the difficult conditions in which some animals are born into the world.
The problem is not new. In 1973, so difficult were the problems relating to dogs that an organisation which rejoices in the name of JACOPIS—the Joint Advisory Committee on Pets in Society—was set up. It produced a comprehensive report in 1975, which was followed by a report by the Department of the Environment in 1976 which bore a remarkable resemblance to the proposals made by JACOPIS. There was an attempt at a private Member's Bill in 1982, and conditions in Northern Ireland were so serious that the Government introduced an order at the end of 1983 which contained many of the principles which were advocated by JACOPIS.
The efforts that have gone into producing a different set of proposals for dealing with dogs have quite a long history. I hope that the Government will not suggest that they need much more time to consult, investigate and the rest — the standard excuse for doing nothing. Forgive me, Mr. Deputy Speaker, if I sound a little cynical, but one gets used to Governments saying that they need more time when they are trying not to make any decision at all.
I should like now to consider the package of proposals which I should like the Government to adopt. The control of stray dogs and the law relating to dogs generally should be placed entirely in the hands of local authorities, and not with the police, who have other and more important tasks than dealing with stray dogs. There should be a mandatory dog warden system in each district. The duties of dog wardens would not be simply the obvious ones such as dealing with strays. They would include advising the public of their duties, being generally helpful and ensuring that the law is enforced, including that concerning the fouling of footways.
To make that possible, there should be a substantial increase in the present ridiculous licence fee. Although the Public Accounts Committee wishes to end the fee entirely, I believe that it should be increased to £5 or £10. The licence would have to be bought on the acquisition of the dog or when the dog reached the age of four months, whichever is the sooner. It is important to stop impulse
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buying, and if the acquisition of the licence must come at that point, and it costs substantially more than it does now, it might deter people from buying animals without sufficient thought. As one welfare society says, one has a dog not simply for Christmas, but for life.
Furthermore, it would be desirable to reduce the licence fee for any animal that was spayed or neutered to discourage the overproduction of animals and thus reduce the stray dog population. The Government might wish to consider exemptions for working dogs or for needy retirement pensioners. That would be possible under the scheme that I suggest. As a means of enforcement, I suggest that every dog should wear a disc, which would be not only a form of identification but a sign that the licence fee had been paid. It could even be colour-coded so that one could see at a glance whether the licence was current or out of date.
If sufficient funds were available through an increased licence fee, one could ask local authorities to undertake much more inspection of breeding establishments, pet shops, puppy supermarkets and the like, and enforce the conditions which exist theoretically, on paper, but which are too often flouted, as we saw from the "That's Life" programme.
I do not expect my hon. Friend the Minister to give me definitive answers on all those points tonight, much though I would wish it. But I must tell him that the patience of the animal welfare organisations with which I am connected is running out, and my patience is nearly at an end, because we have made constructive proposals for many years but still the Government are stalling. For this purpose, it does not matter whether they are Labour or Conservative Governments. Both have been united in shilly-shallying and failing to take positive decisions.
I hope that the Government will give serious and urgent thought to the points that I have made in this brief debate, remembering the long history of decisions made by the animal welfare organisations about what might be practical and prudent. My request is in no way unreasonable. It is clear that we have a serious problem of too many dogs coming into the world, many of them leading a miserable existence, and the welfare societies almost having to clear up the mess that should be dealt with by the Government.
Britain is still free from the dread threat of rabies, but it must be an ever-present worry to all those concerned with the disease. It would be far easier to cope with rabies if we had fewer animals wandering round unwanted and if there were far greater controls through licensing and enforcement and a proper dog warden service. I hope that, if nothing else, it will make the Government think carefully about the proposals that I have made, which I warmly commend to my hon. Friend and to the House.
1.9 am
The Parliamentary Under-Secretary of State for the Environment (Sir George Young): I begin by paying tribute to the work that my hon. Friend the Member for Plymouth, Drake (Miss Fookes) has done, both in the House and outside, for animal welfare. She has been a prominent member of the parliamentary animal welfare group and also a past chairman of the Royal Society for the Prevention of Cruelty to Animals. As she referred to tonight, she is also vice-president of the Joint Advisory Committee on Pets in Society, which brings together many important and influential organisations with an interest in

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the control and welfare of dogs. Dog owners, dog interests and indeed dogs are fortunate to have such a formidable champion available to them. My hon. Friend has put forward this evening an eminently sensible manifesto, which is no less than I would have expected from her.
I apologise to my hon. Friend for the absence of my hon. Friend the Member for Mitcham and Mordern (Mrs. Rumbold), who takes a particular interest in canine matters within the Department. She has slipped her leash and is in Luxembourg for a European Community Council of Ministers meeting. Indeed, all Ministers in my Department who have any interest in dogs seem to have fled the country. My hon. Friend the Member for Surbiton (Mr. Tracey), the Minister with responsibility for sport, who I assume looks after greyhounds, is in Mexico, where his presence has had the desired stimulus on the English football team, and the Minister for Environment, Countryside and Local Government, my hon. Friend the Member for Bristol, West (Mr. Waldegrave), is also in Europe.
I make it clear at the outset that the Government have taken no final decision on the future of dog licensing. My hon. Friend the Member for Drake referred to speculation in the press a few weeks ago that the Government intended to abolish the licence. That is one possible course open to us, but I stress that a final decision has yet to be made and before we do so we shall consider carefully what my hon. Friend has said tonight.
I understand my hon. Friend's feeling of impatience, indeed cynicism, at the length of time that it has taken to reach a decision on the future arrangements for the licence. There is, as my hon. Friend said, a large measure of consensus between a number of the very influential bodies concerned with dogs, their welfare and control. However, as the failure of successive Governments to take any action perhaps shows, it is not that simple.
The path ahead is not free of hazards and the Government are anxious not to tread on them. The issues are indeed complex and span the responsibilities of a number of Departments. Some of the courses involve primary legislation, which might be time-intensive and we are anxious to find the right conclusion before we embark on that process.
The arguments are not about the end to be achieved but about the means to achieve a happier co-existence between dogs and society. It is easy for the arguments to be seen in terms of dog-lovers against dog-haters. In fact, few people, whether or not they are fond of dogs, would deny that owning a dog can bring benefits in terms of companionship, comfort and security, particularly to those living alone and to the elderly. It can add a new and enjoyable dimension to family life and teach children a sense of responsibility to dependants. Dogs have an important role to play in the police, sniffing out drugs and explosives, and they are of benefit to the blind and the deaf.
On the other side, there are those who are concerned about dog nuisance. They are in fact concerned about the irresponsible owner who allows his dog to stray, to hark for long periods, to foul public places or to run uncontrolled intimidating others, or who keeps a large dog in a city in a restricted space and with inadequate exercise.
It is the same irresponsible owner who causes suffering and distress to his dog. The strays that my hon. Friend
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talked about are frequently not well-cared-for animals. The real villain of the piece is the unthinking, uncaring owner. It has been said with some justification that there are no bad dogs, only bad owners.
What are the options? As my hon. Friend has said, the current licensing arrangements are absurd. The Government bear the Post Office's charge for issuing licences, which in England and Wales amounts to some £3·5 million and substantially exceeds the revenue that local authorities receive of about £0·9 million. On the grounds of financial prudence alone, some change is clearly called for.
We acknowledged that in our consultation paper. The criticism has been made, as my hon. Friend said, by the Public Accounts Committee and the Select Committee on the Environment and we said in our paper, that the present situation does not allow any Government who value good administration to do nothing.
We issued a consultation paper which set out three main options — a simple increase in the licence fee, giving local authorities discretion and the abolition of the licence. The response was not conclusive.
Many organisations and individuals have argued to us, as my hon. Friend has, that an increased licence fee would provide funds for local authorities to devote to dog welfare and control measures. Our postbag leaves us in little doubt of the strong feelings which many people have about the dirt, nuisance and fright which can be caused by dogs which are not properly controlled, and my hon. Friend highlighted concern about the welfare of strays.
On the other side of the argument, there are those who feel that it would be wrong for individual dog owners to bear the financial burden of dog control. They argue that the vast majority of dog owners are responsible, care for their pets properly, and prevent them from being a nuisance to others. It is a minority, who would not in any case purchase a licence at a higher cost than at present, who are irresponsible. Some suggest that the number of strays might even increase, were there a higher licence fee, since more dogs would be abandoned. The value of a dog as a companion or protector carries with it the suggestion that some groups might find the cost of a higher licence fee particularly difficult to find, and my hon. Friend suggested some exemptions.
The message to emerge is that there is real concern about the control and welfare of dogs. What is not so clear is how the Government might best tackle these problems and bring to an end the absurdity. My hon. Friend put forward one strategy tonight. We are aware of the views of the joint advisory committee which she has outlined. My hon. Friend the Member for Mitcham and Morden will shortly have the benefit of meeting a deputation from the advisory committee to hear the views of its constituent organisations at first hand. It would be completely wrong not to take seriously the experience and wisdom of those in the front line of caring for dogs, such as local authorities, vets and the RSPCA, which do such important work in dealing with strays and in many other fields.
However, the thought I wish to leave with my hon. Friend is that a higher licence fee is not the only way in which concern about control of dogs and dog nuisance can be met. The Government would need to reflect carefully before abolishing the licence without taking some positive steps to ensure that local authorities and other agencies can carry out the valuable work they already perform in relation to dogs. The importance attached to this by local

477
authorities is shown by the number—almost 200—which already provide a dog warden service for important educational as well as enforcement purposes. I understand that they would welcome the additional revenue that an increased licence fee would provide.
However, there are administrative costs with any licensing system and it can he argued that scarce resources should not be diverted from tackling the problems directly by educating owners in their responsibilities and dealing with the consequences of the irresponsible minority's thoughtlessness. I repeat that no decision on the future of licensing has yet been taken. However, we shall not ignore the concern about dog nuisance when we come to that decision.
My hon. Friend mentioned the fouling of parks, pavements and so on. As I represent an urban constituency. I am aware that this is a genuine issue. It has been estimated that a dog population of 6 million produces 1 million gallons of urine and 1,000 tonnes of faeces daily.
There are already substantial powers available to local authorities for controlling the nuisance and annoyance that dogs can cause. My right hon. Friend, the Home Secretary is the confirming authority for such byelaws. At present a district or borough council can make byelaws which make it an offence for a person to allow his dog to foul footways or designated grass verges. Many authorities have adopted those byelaws.
Byelaws may also be used to ban dogs from enclosed recreation grounds which are in need of special protection, such as children's play areas, sports pitches and ornamental gardens. There are also bans which apply to certain areas of the beach during the summer months. These byelaws are carefully examined before they are approved to ensure that dog owners are not unfairly discriminated against.
A further power which is at the moment under examination is the so-called "poop-scoop" byelaw, which requires owners to clear up after their dogs when they foul public places. A pilot scheme has been running since September last year in four areas including, appropriately, the London borough of Barking, to test the effectiveness of the byelaws. The results are encouraging. Final conclusions cannot be drawn until the end of the trial period in September and then the Home Office will examine the working of the scheme and publish a report. If, as seems likely, the byelaws prove successful, it should be possible to offer these powers to other local authorities.
My hon. Friend mentioned puppy farms and I was distressed to hear her account of the poor conditions in which dogs are apparently being kept and sold by certain establishments covered by the That's Life programme and this week in the newspaper Today. The regulation of breeding and pet-selling establishments is a matter for my right hon. Friend the Home Secretary, and I shall call to his attention the dossier my hon. Friend mentioned in her speech. I understand that so-called puppy farms will be subject to local authority licensing under either the Breeding of Dogs Act 1973 or the Pet Animals Act 1951.
The Breeding of Dogs Act requires that any person keeping more than two bitches for the purpose of breeding for sale should be licensed by the local authority which must satisfy itself that certain standards of health, welfare and accommodation are met. Any person running a
478
business selling animals as pets must also be licensed by the local authority under the Pet Animals Act 1951. Appropriate conditions can be attached to a licence, which may include a condition about the age at which animals may be sold. That is a major concern in the cases to which my hon. Friend has referred.
There are extensive powers of entry and inspection in relation to premises covered by the Acts I have mentioned and I suggest that anyone who has reason to believe that dogs are being reared and kept in had conditions should. take up the matter with his local authority. As a further safeguard, the Protection of Animals Act 1911 makes it an offence to cause unnecessary suffering to any domestic or captive animal. I can well understand the widespread concern that these reports have caused, and will ensure that my hon. Friend's comments are relayed to my colleagues at the Home Office. Our view is that legislation provides suitably flexible controls over the breeding and sale of dogs, but we shall look at the suggestion by my hon. Friend that "may" might be replaced by "shall".
My hon. Friend spoke about strays. Responsibility for strays rests with the police and my hon. Friend suggested that the matter should be transferred to local authorities. The many and varied demands on police manpower and resources today mean that the police are not always able to give this as high a priority as they, and we, would wish. However, this is a matter for each chief officer of police who has operational responsibility in his force area. Voluntary organisations also play an important role in dealing with strays, as my hon. Friend knows. The requirement in the Control of Dogs Order 1930 for a dog on a highway or public place to wear a collar with the address of the owner inscribed on the collar or an attached plate can be a help in tracing owners.
If I am unable to deal with all the matters raised by my hon. Friend, such as livestock worrying and attacks on people, and rabies, I shall write to her. My hon. Friend mentioned Northern Ireland, where there is a £5 licence fee. We have, of course, kept in touch with experience of these arrangements, but it has long been recognised that the situation in the Province, especially in relation to strays and livestock worrying, is more serious than in Great Britain. I do not think it necessarily follows that what is appropriate for Northern Ireland is appropriate elsewhere.
I also appreciate my hon. Friend's interest in the possible role of a licensing system if an outbreak of rabies should occur. I am advised that dog licensing would have little or no relevance to the actions which would have to be applied in the event of a rabies incident here. We have drawn up contingency plans to deal with this. As I say, my understanding is that although it is under review, a licensing system is not of direct application.
My hon. Friend's concern about dog licensing may well have been heightened rather than allayed by what I have said. I can give her the assurance that the Government are fully apprised of the points she has made and of the widespread anxiety that undoubtedly exists about dog control. I hope that it will be possible to announce a decision about dog licensing in the very near future.
Question put and agreed to.
Adjourned accordingly at twenty three minutes past One o'clock.

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  Capital Gains Tax Retirement Relief
  Eastern Bloc Imports
  Eastern Bloc Imports
  Mortgages
  Mortgages
  Select Committee Reports
  Select Committee Reports
SCOTLAND
  New Hospitals
  New Hospitals
  Entry and Search Powers
  Entry and Search Powers
  NHS (Employees)
  NHS (Employees)
  NHS (Private Contracts)
  NHS (Private Contracts)
  Electronics Firms
  Electronics Firms
  Local Government Finance
  Local Government Finance
  Health Boards (Property Sales)
  Health Boards (Property Sales)
  General Managers
  General Managers
  Breast Milk (Survey)
  Breast Milk (Survey)
  Bathing Beaches (Cleanliness)
  Bathing Beaches (Cleanliness)
  Pentland Regional Park
  Pentland Regional Park
  Nuclear Power Stations (Accidents)
  Nuclear Power Stations (Accidents)
  Radiation
  Radiation
  Nuclear Power Stations (Evacuation)
  Nuclear Power Stations (Evacuation)
  Chernobyl Accident
  Chernobyl Accident
  Possession Orders
  Possession Orders
  Nuclear Reactors (Inspection)
  Nuclear Reactors (Inspection)
  Shipbuilding Orders
  Shipbuilding Orders
  Salmon
  Salmon
  Radioactive Cargoes
  Radioactive Cargoes
SOCIAL SERVICES
  Barrow-in-Furness
  Barrow-in-Furness
  Local Offices (Survey)
  Local Offices (Survey)
  Mortgage Interest
  Mortgage Interest
  Tavistock Clinic
  Tavistock Clinic
  Private Residential Homes
  Private Residential Homes
  EC Trade Barriers
  EC Trade Barriers
  Maternity Allowance
  Maternity Allowance
  Children in Care
  Children in Care
  Drug Manufacture
  Drug Manufacture
  Hospitals (Nurse Training)
  Hospitals (Nurse Training)
  Overseas Visitors (NHS Charges)
  Overseas Visitors (NHS Charges)
  McColl Committee
  McColl Committee
  AIDS
  AIDS
  Fraud Staff
  Fraud Staff
  Giro Payments (Bank Charges)
  Giro Payments (Bank Charges)
  Hospital Complaints Procedure
  Hospital Complaints Procedure
  NHS Expenditure
  NHS Expenditure
  Private Facilities
  Private Facilities
  NHS Staff (Pay)
  NHS Staff (Pay)
  Supplementary Benefit
  Supplementary Benefit
FOREIGN AND COMMONWEALTH AFFAIRS
  Arab States (Relations)
  Arab States (Relations)
  State Terrorism
  State Terrorism
  EC Budget
  EC Budget
  Cyprus
  Cyprus
  Mr. Eduard Shevardnadze
  Mr. Eduard Shevardnadze
  South Africa
  South Africa
  South Africa
  South Africa
  Afghanistan
  Afghanistan
  Namibia
  Namibia
  Central America
  Central America
  Comprehensive Test Ban Treaty
  Comprehensive Test Ban Treaty
  UNITA (Arms Supplies)
  UNITA (Arms Supplies)
  Libya
  Libya
  Chile
  Chile
  Falkland Islands
  Falkland Islands
  Israel
  Israel
  Chemical Weapons
  Chemical Weapons
  Anglo-Soviet Relations
  Anglo-Soviet Relations
  Pakistan
  Pakistan
  Arab-Israeli Dispute
  Arab-Israeli Dispute
  Washington (Visit)
  Washington (Visit)
  Middle East
  Middle East
  Israel (Prime Minister's Visit)
  Israel (Prime Minister's Visit)
  Disarmament
  Disarmament
  British-Israeli Relations
  British-Israeli Relations
  United States Forces (Personal Expenditure)
  United States Forces (Personal Expenditure)
  El Salvador (Officer Training)
  El Salvador (Officer Training)
  Anglo-Syrian Relations
  Anglo-Syrian Relations
  Argentina
  Argentina
  Terrorism
  Terrorism
  Disarmament Agreement
  Disarmament Agreement
  United Nations Secretary-General
  United Nations Secretary-General
  Chemical Weapons
  Chemical Weapons
  Central America
  Central America
  Turkey
  Turkey
  East-West Relations
  East-West Relations
  Human Contacts Conference, Berne
  Human Contacts Conference, Berne
  Portugal
  Portugal
  United States of America
  United States of America
  Spain
  Spain
  China
  China
  Israel and Jordan
  Israel and Jordan
  Gibraltar
  Gibraltar
  Mr. Robert Nestor
  Mr. Robert Nestor
  Irina Ratushinskaya
  Irina Ratushinskaya
  Disarmament (Verification)
  Disarmament (Verification)
  Zimbabwe (Ministerial Visit)
  Zimbabwe (Ministerial Visit)
  Vietnam
  Vietnam
  Greece (Terrorism)
  Greece (Terrorism)
  SALT 2
  SALT 2
  Haiti
  Haiti
  United States Ambassador
  United States Ambassador
  Albania
  Albania

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

Tourist Industry: Booking Cancellations
Lord Hatch of Lusby: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many tourists they estimate to have cancelled their visits to this country as a result of the bombing of Libya, what the economic loss will be and what help they are offering to the British tourist industry.
The Secretary of State for Employment (Lord Young of Graffham): My Lords, precise details of the number of cancellations by prospective tourists, since the attack on Libya, are not available. At worst, the tourist industry had estimated that the number of visitors from the United States of America could be down as much as 15 per cent. this year, representing a drop in tourist spending of some 3 per cent.
Nevertheless, there are signs of an early upturn in business. The Director-General of the British Tourist Authority, who recently returned from the United States, has said that forward bookings are now "back on the right track" and that tourist inquiries of BTA offices are returning to their former levels. I can also assure your Lordships that the Government are taking all possible steps to convey the message to prospective visitors that Britain is a very safe and enjoyable destination.
Lord Hatch of Lusby: My Lords, is it not ironic that an action which was described by the British and American Governments as making the world a safer place to live in has had as its first impact a sense of fear so far as American tourists are concerned? Although I realise that the Minister cannot give precise numbers, is it not the case that the tourist industry itself estimates that 30 per cent. of the American tourists expected will not come this year, which represents 30 per cent. of a quarter of all the tourists expected in Britain?
Lord Young of Graffham: No, my Lords. I must leave the sense of irony to the noble Lord; I do not share it. I should have thought that making the world safe from terrorists was the best possible way to lay the foundation for a good international tourist business. But I must tell your Lordships that it appears that the temporary drop in the number of American tourists came primarily from those who were coming on group tours. The vast majority of American tourists coming under their own resources continue to come. Indeed, if I may quote from the Director-General of the British Tourist Authority, who is just about to retire after 40 years in the tourism business, he said:
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"Consumer inquiries at BTA's five offices in the United States are returning to former levels, with the New York office alone reporting in excess of 500 inquiries a day during the past week"—
and that was last week. He went on to say:
"If there is one thing I have learned in my 40 years of promoting travel to Britain, it is never to underestimate the power of recovery of the American travel market."
Lord Annan: My Lords, is the noble Lord not puzzled by the tenor of this Question and the inference in it? Surely it is the kidnapping and murder of American citizens, and the hijackings of American aircraft, that may have dissuaded some Americans from crossing the Atlantic. And is it not a fact that many American tourists, when they cross the Atlantic, want to visit not merely this country but other European countries? Might it not be the fact that some European countries have not responded as strongly as this country which has dissuaded American tourists from coming?
Lord Young of Graffham: My Lords, if I may make a confession to your Lordships' House, I have often felt some puzzlement in looking at the origin of some of the Questions from the noble Lord. But I must say that we should not forget that, also, before whatever action was taken against Libya, an American family, including an 18 month-old baby, was blown out of an American plane by terrorist action. What we have to do is work together in a concerted effort to reduce the level of terrorism and to make this a world safe to travel in.
Lord Beloff: My Lords, does my noble friend the Minister agree that we must look at all possible sources for the reluctance of some Americans to visit us? May I call his attention to a remark made to me by an American who frequently visits this country and has done so over many years? What depresses him is what he finds for the first time this year—concerted anti-American propaganda, of which we have had some very marked examples in Questions in your Lordships' House in recent months?
Lord Young of Graffham: My Lords, I should make it very clear that we welcome visitors from all countries to our shores. We welcome those who speak our language as well as those who do not. Our overriding desire is to ensure that those who come to our shores wish to come here again.
Lord Parry: My Lords, will the Secretary of State and the House accept my apology for late entry? I came in when the noble Lord was in fact speaking. Has he had an opportunity which I have missed, to congratulate British Airways on its massive initiative in having recouped a very great deal of the lost traffic by a splendid and professional appeal to the United States, to its people and to their interest in a little free travel? If he has the opportunity to do that now in the discussion here, could he also end it on the very positive note that there are a great many American people already appearing here and that the trade, the people of Great Britain and everyone in this House welcome their presence?
Lord Young of Graffham: My Lords, I am very glad to hear what the noble Lord has said.
Lord Kinnaird: My Lords, is this not a strange Question? What is it trying to say? It seems to me that it is saying, "Never stand up to a bully in case you get hurt."
Lord Shackleton: My Lords, is the noble Lord aware that some Canadians are alleged to have cancelled coming to Europe for fear of Sikh terrorists blowing up Air India planes, and that the Libyan terrorists are not the only ones in this world?
Lord Young of Graffham: My Lords, I am very grateful to the noble Lord. That surely demonstrates, once more, that an essential part of the policy of all civilised nations must be to eliminate terrorism, whence-ever it comes. Just to assure all your Lordships, may I say that for the first three months of this year, which are the only months for which we have yet published figures, the number of visits increased by 10 per cent. to 2·6 million and that visits from North America increased by 15 per cent., while spending was constant and increasing. I suspect that we shall show a drop, particularly from North America, in April and May, but I have no doubt that with many events to come we shall see a resumption of the sustained growth of this economy.
Lord Ponsonby of Shulbrede: My Lords, will the noble Lord not agree that the question of terrorism may have been only a single contributory factor in the particular decisions that have been taken and that probably the pound-dollar relationship had more impact on the tourist figures? We hope that the so-called cancellations may be only postponements of decisions to visit the United Kingdom. I think they are and that many Americans may be visiting over a number of years and can easily postpone a visit and come next year.
Lord Young of Graffham: Yes, my Lords, as well as the pound-dollar relationship, there was the dollar-deutschemark relationship and the dollar-French franc relationship. The American dollar dropped in purchasing power which initially must have affected some decisions. But we have seen in the past six months a drop in the price of oil. We are now beginning to experience a considerable reduction in the cost of transatlantic fares and I have no doubt that all these things will level out.
Lord Kennet: My Lords, while I agree with much that the noble Lord has said, may I ask him to beware of falling into the trap of rewriting history? Is it not the case that the cancellations became apparent, not after the hijackings and assassinations which he has mentioned, but after the attack on Libya?
Lord Young of Graffham: No, my Lords; it is not for me to say what is in the mind of Americans. But I suspect that it had a great deal to do with the singling out of Americans wherever they were overseas.
Lord Molloy: My Lords, will the noble Lord the Minister agree—I think he is bound to do so—that all civilised people and all civilised nations must be totally and absolutely opposed to any form of terrorism and to any financiers of terrorists? Will he not further
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agree—and perhaps the United States acknowledges this in that the President of the United States has agreed to the extradition of IRA terrorists, who are financed by organisations in the United States—that we have behaved in an exemplary manner? The argument really is about this: there can be right ways, tough ways and hard ways, and there can also be wrong ways and dangerous ways, of dealing with appalling terrorists.
Lord Young of Graffham: My Lords, that is a long way from the Question, which is specifically about Libya. But I will agree that we must deal with terrorism in the best way possible. The best way is often a firm way, but we must deal with it.
Lord Mellish: My Lords, is the Minister aware that cancellations may well have something to do with our lousy weather?
Lord Young of Graffham: My Lords, this morning I had the great distinction and pleasure of taking the Secretary General of the People's Republic of China, Hu Yaobang, down the River Thames. I regret to inform all in your Lordships' House that it did not stop raining. That did not help the tourist industry.
Baroness Fisher of Rednal: My Lords, does the noble Lord the Minister recall that the Prime Minister herself went to the United States, spoke on television, and appealed to American tourists not to cancel their bookings, saying that Britain is a much safer place than New York? Was she not so concerned about the loss of revenue to the tourist industry that she went on breakfast television, noonday television and every other television network in the United States to make that appeal?
Lord Young of Graffham: My Lords, my right honourable friend the Prime Minister gave an interview which was shown on American television and which I believe did a great deal towards reassuring American tourists. The wife of the President, Mrs. Nancy Reagan, announced that she was coming to London for the Royal Wedding. What we have seen and what the BTO is reporting now is a resumption of the former situation. I hope that the cancellations will just turn out to be an unhappy incident.
Lord Hatch of Lusby: My Lords, is it not a peculiar form of priorities for the Prime Minister of this country to go on American television to appeal for the tourist industry when the Government have always said—and the noble Lord himself has constantly said—that the Government cannot intervene with regard to manufacturing industry? Considering that it requires a 3 per cent. increase in service industries to make up a 1 per cent. reduction in manufacturing industry, is it not a peculiar set of Government priorities that the Prime Minister should be heading the drive of the tourist industry—in other words, the service industries—but removing herself and the Government from any intervention in the collapse of manufacturing industry?
Lord Young of Graffham: My Lords, I expressed a sense of puzzlement at the motives behind the original

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Question. I must confess to be even more puzzled at this supplementary question. If my right honourable friend the Prime Minister is asked to give an interview to be shown on American television, what could be more natural than that she should say that this country is a safe place to be, and invite American tourists to come back? We need industry, we need the service sector, we need tourism—we need everything that creates wealth and promotes jobs.
Viscount St. Davids: My Lords, with regard to my noble friend's sense of puzzlement, is he not surprised that the noble Lord who asked the Question is unable to link courage and fear? Is he not aware, as I am sure he is, that any time I have had to do anything particularly courageous, I have felt very considerable fear up to the point of being physically affected? If one is courageous is not the ultimate result that one's friends back one considerably more because of one's courage?
Lord Young of Graffham: My Lords, we are now straying a very long way indeed from the Question. I think that we should let it go at that.

Gibraltar: Future
2.50 p.m.
Lord Vernon: 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, in the interests of good Anglo-Spanish relations and in the light of the remarks by the King of Spain during his recent visit to this country, they will now reconsider their attitude to the future of Gibraltar.
Baroness Hooper: My Lords, the British and Spanish Governments are discussing their differences over Gibraltar in the friendly and co-operative spirit that befits two European allies and partners. Those discussions are taking place against the background of the British Government's commitment to honour the wishes of the Gibraltarians.
Lord Vernon: My Lords, I thank the noble Baroness for that reply. Is she aware, however, that circumstances have changed very dramatically over the past few years; that Spain is now a democracy and a member of the European Community? Would it not be in the interests not only of Great Britain and Spain but also of the people of Gibraltar in the longer term that sovereignty over Gibraltar should be transferred to Spain, subject to the necessary safeguards, such as a lease-back or any other arrangement that may be appropriate?
Baroness Hooper: My Lords, we are fully aware of the changes and transformations that have occurred in Spain over the past few years, and not least of the importance of Spain's entry into the European Community in that context. The important point in this respect is that the process of negotiation has begun and that the climate has been improved. As King Juan Carlos himself said here in this Parliament, there remains a long way to go. It is very important to us that discussions on sovereignty at all times take place
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against a background of firm political commitment to the Gibraltarians.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that relations between this country and Spain are not helped, but are indeed hindered, by linking them with a claim to override the wishes of 27,000 British subjects who, so far at any rate, have indicated that they desire to remain British? Will my noble friend advise our Spanish friends that pressing that point will do harm and not good?
Baroness Hooper: My Lords, we are fully aware of the wishes of the people of Gibraltar. We fully intend to respect those wishes and I believe that the Spanish Government are fully aware of that commitment on our part.
Lord Cledwyn of Penrhos: My Lords, we have noted with great interest what the noble Baroness has said. Is she aware that on 13th May Sir Joshua Hassan said that it was his firm intention to introduce a new impetus in the near future in respect of the Brussels Agreement on Gibraltar? Will the noble Baroness tell the House what form that impetus has taken thus far?
Baroness Hooper: My Lords, the Chief Minister of Gibraltar has always been fully consulted about and involved in negotiations. He himself welcomed the references made by the King of Spain during his speech to this Parliament to the progress that was being made. At present I am not in a position to inform the noble Lord of any new impetus since 13th May. I can only say that with the British presidency of the European Community coming up the incidence of meetings and contact between Spanish ministers and the British Government will, if anything, increase. Within that context, I have no doubt that more progress will be made.
Lord Gladwyn: My Lords, is there any reason to suppose that the inhabitants of Gibraltar, any more than the inhabitants of the Falklands, should have a veto on any decisions as to their future that may be arrived at, after negotiation, which, in the opinion of the Parliament in Westminster, are in the interests of those inhabitants, of this country itself, and indeed of the peace of the world?
Baroness Hooper: My Lords, any attempt to make a comparison between Gibraltar and any other particular part of the world can be difficult and dangerous. I can only reaffirm to the noble Lord that Her Majesty's Government have guaranteed to the people of Gibraltar that their wishes will be taken into consideration in any negotiations.
Lord Morris: My Lords—
Viscount Hanworth: My Lords—
The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead): My Lords, it must be one noble Lord or the other. We have heard one noble Lord from the Liberal Benches. Perhaps we may now hear my noble friend and then the noble Viscount.
Lord Morris: My Lords, I am grateful to my noble friend the Deputy Leader of the House. Bearing in mind the provisions of the Gibraltar Act, would my noble friend not agree that it is rather more important that the people of Gibraltar should reconsider their attitude towards the Kingdom of Spain rather than the United Kingdom reconsider its attitude towards the future of Gibraltar?
Baroness Hooper: My Lords, since the full opening of the frontier in February of last year there has been increased contact and co-operation between the Spanish people and the people of Gibraltar. I believe that such contact can only be good and of benefit to the ultimate outcome
Viscount Hanworth: My Lords, might it not be a useful step forward if Spain were to offer dual nationality to those in Gibraltar?
Baroness Hooper: My Lords, it is not for me now to pre-empt the negotiations that are currently in progress. It may be that Spain would make such an offer and we would consider it at the time.
Lord Elwyn-Jones: My Lords, as these negotiations are taking place in a friendly and constructive fashion, might it not be more helpful that they should be continued rather than made sour by ill-advised questions in your Lordships' House?
Baroness Hooper: My Lords, I can only agree wholeheartedly with the noble and learned Lord.
Lord Molloy: My Lords—
Noble Lords: No!
Lord Molloy: My Lords, it takes more than a trivial remark to prevent me from saying what I have to say. I am very concerned about the future of the people of Gibraltar. Therefore I ask the noble Baroness whether she is in a position to tell the House this afternoon that before any ultimate decision is made the people of Gibraltar, who have always exhibited such great loyalty to Great Britain, will be fully consulted, and that nothing will be done until such consultation has taken place?
Baroness Hooper: My Lords, I believe that I have already said enough to convince the noble Lord that that will be so. We are all very concerned about the wellbeing of the people of Gibraltar.
Lord Kennet: My Lords, is the noble Baroness aware that her use of the verb to "honour" governing the noun the "wishes" of the inhabitants will be observed with the greatest interest throughout Europe? Is the noble Baroness in a position to comment further on what that phrase means in this context? How does it differ from "abide by", or "pay attention to", or "give overriding value to"?
Baroness Hooper: My Lords, the British people have a reputation for honouring their agreements in the international context, and my use of those words will be applied in that particular context also.

Rented Accommodation: Government Action
2.57 p.m.
Lord Grimond: 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 steps they are taking to increase the availability of rented accommodation.
Lord Skelmersdale: My Lords, in the next Parliament we hope to introduce legislation to reform the Rent Acts in order to encourage the supply of homes for renting in the private sector. More immediately, in the current Housing and Planning Bill we are seeking to extend the assured tenancy scheme for new property so that it will cover also property that has been improved, repaired or converted. We continue to encourage local authorities to bring empty properties back into use and to give priority to people with special needs, and we provide substantial funding for housing associations.
Lord Grimond: My Lords, is the Minister aware that I greatly welcome his undertaking that the Rent Acts will be amended and also that empty accommodation will be made available to occupiers? Is the Minister aware also that, excellent though owner-occupation is in many ways, it will never solve the problems of the homeless, and that in addition to the admirable projects he has mentioned, there must be more resources made available to provide accommodation for renting?
Lord Skelmersdale: My Lords, I am grateful for the noble Lord's welcome of the announcement I have just repeated. So far as concerns homeless families, which I understand to be the noble Lord's particular worry, finding permanent accommodation for homeless families is of course a major priority for local authorities in the few localities where homelessness is a serious problem, and it is taken into account when making HIP allocations.
New building, however, is not always the best answer. A great deal can be done to improve utilisaton of existing housing, both public and private. In some cases there are far too many empty dwellings, and that is an affront to the homeless. The Audit Commission has estimated that if authorities could improve their reletting times by around 20 per cent. an additional 20,000 dwellings could be made available for occupation.
Lord Renton: My Lords, in considering further legislation will my noble friend bear in mind that many more premises, or parts of premises, would be let if it were not so difficult to get rid of tenants who turn out to be unsatisfactory or are unable to live happily with other occupants in the same building?
Lord Skelmersdale: My Lords, I agree with my noble friend to the extent that our aim must be to create conditions in which landlords have the confidence to let, to improve their property and to provide more rented accommodation. Equally, the tenants must have a measure of security, and it is that balance which we need to achieve.
Lord Wallace of Coslany: My Lords, is the noble Lord aware that it is utterly futile to talk about the mobility of labour unless adequate rented accommodation at reasonable rents is made available?
Lord Skelmersdale: Yes, my Lords, I fully agree with the noble Lord.
Lord Orr-Ewing: My Lords, is my noble friend aware that it is very welcome news that the Government are to grasp this nettle of the Rent Act? Will he bear in mind, when framing the legislation, the very admirable report by His Royal Highness the Duke of Edinburgh and the admirable debate we had in this House, from which many good lessons emerged which could be incorporated in the legislation?
Lord Skelmersdale: Yes, my Lords, I confirm to my noble friend that both the report of the inquiry into British housing chaired by His Royal Highness the Duke of Edinburgh and the recent debate on that subject, and linked subjects, are undergoing great scrutiny by my honourable friend.
Lord Crawshaw of Aintree: My Lords, will the noble Lord accept that I agree with what the Minister said about the necessity of providing for lower paid workers? Is it not rather remarkable, however, that this year the housing associations, to which the Minister has paid great tribute, are in real terms receiving less money than last year? Moreover, as the allocation is, quite rightly, being given mostly to the inner cities, many of the local housing associations are this year in great difficulties. They do not have sufficient allocation even to keep the staffs they have built up over the years. As housing associations are a means of providing proper accommodation at a reasonable rent for lower paid people can the Minister at least consider refunding the money that has been taken away from so many housing associations so that the position can be improved?
Lord Skelmersdale: My Lords, it is true that this year's provision for the housing associations' gross programme is the same, more or less, in cash terms as for last year. Some housing association schemes will, of course, also be funded by local authorities. The problem to which the noble Lord has drawn my attention is, I confess, new to me and I will certainly look into it.
Viscount St. Davids: My Lords, has the noble Lord noticed that at this very moment the Government are busy advising African nations that the best way to produce more food is to remove restricting laws which inhibit the proper working of agriculture? Is not sauce for the goose sauce for the gander?
Lord Skelmersdale: My Lords, I am afraid I find it rather difficult to identify the relevance of that supplementary question to the Question asked by the noble Lord opposite.
Lord Dean of Beswick: My Lords, the Minister referred to the Government's intention to repeal the Rent Act, but is he not aware that the last time a Conservative government did that, in 1957, no extra houses for letting were produced at all? All that happened in taking away the protection from the tenant was to force up rents and introduce Rachmanism, which no one wants to see return. Since the Government took office there has been a loss of 820,000 properties for rent in all sectors, the waiting lists have increased from just over 1 million to 1.2 million, the homeless have increased from 53,000 to 83,000, and requests for sheltered and wheelchair accommodation now stand at a quarter of a million. Does not the Minister agree that the measures outlined in his Answer to the noble Lord, Lord Grimond, are totally inadequate to deal with the problems we now face?
Lord Skelmersdale: No, my Lords, I do not see that at all. What I do see is the ability of your Lordships' House to identify and learn from the lessons of history. I have no doubt that we shall also do that on this occasion.
Lord Winstanley: My Lords, in regard to the further steps that the Government are taking, may I ask that they do not overlook the need to increase the availability of rented accommodation for university students in urban areas, bearing in mind that many are in desperate difficulties and that some are being outrageously exploited?
Lord Skelmersdale: My Lords, we most certainly will not overlook that. There are, of course, special housing associations to look after this problem which in certain university and polytechnic towns and cities are meeting the problem very well.
Baroness Macleod of Borve: My Lords, is my noble friend aware that a councillor from the London Borough of Southwark recently admitted that over 2,000 dwellings were ready for occupation but were empty? If my noble friend is aware of that fact will he draw the attention of the housing Minister to it?
Lord Skelmersdale: My Lords, I am grateful to my noble friend. I was not aware of the statement by the councillor and I will most certainly draw the attention of my honourable friend to the facts that my noble friend has revealed. This goes to show how important it is to have the downtime on let properties as short as possible so that more people can be housed as rapidly as possible.

Salmon Netting: Legislation
3.8 p.m.
Lady Saltoun of Abernethy: My Lords, I beg leave to ask the Question standing in the name of the noble Lord, Lord Chelwood, on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will have sufficient powers without substantially amending the proposed salmon legislation to control, restrict and if necessary end all commercial netting for salmon in UK waters, in order the better to conserve the Atlantic salmon.
Lord Belstead: My Lords, netting for salmon and migratory trout is already tightly regulated in United Kingdom waters. Existing legislation provides powers further to restrict and, in appropriate circumstances, terminate commercial netting for salmon in England and Wales and, subject to minor exceptions, elsewhere in the United Kingdom.
Lady Saltoun of Abernethy: My Lords, even at this late stage will not the Government consider increasing the weekly close time, particularly in Scotland, from only 42 hours per week?
Lord Belstead: My Lords, we are taking powers in Clause 3 of the Salmon Bill to enable weekly close times in Scotland to be increased by statutory instrument. I fully understand the reason why the noble Baroness has asked this Question, and I have to say, in responding in the way I have, that we must also consult all interested parties before we take a final decision.
Lord Moran: My Lords, is the noble Lord aware that I greatly welcome the announcement in Committee in another place yesterday that the Government are to establish a standing advisory committee on salmon conservation under an independent chairman? That goes a long way towards meeting the wishes of those of us who argued for a national salmon policy when the Salmon Bill was being considered by your Lordships' House.
On a specific point, may I ask whether the restrictions on drift netting for salmon off North-East England, announced by the Government last November, are all in force during the current season?
Lord Belstead: My Lords, I am grateful to the noble Lord, Lord Moran, for his welcome for the announcement made in Standing Committee in another place by my right honourable friend the Minister of State that a standing advisory committee on salmon conservation is to be set up. Indeed, that was a response to opinion in another place but also very much took into account the views expressed on all sides of your Lordships' House.
I know that it is the firm intention that the restrictions on the north-east fishery should be in place during this season. I cannot guarantee that all of them are in place at this moment, but I will write to the noble Lord to give the exact state of play. However, I repeat that it is our intention that they shall be in place during this season.
Lord Kimball: My Lords, would my noble friend agree that the passing through this House of the Private Member's Bill dealing with safety at sea would be an ideal opportunity to insist that the trawlers operating in the Northumberland drift net fishery
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should put their numbers and their licence numbers on top of their wheelhouses so that we are able properly to police this fishery from the air?
Lord Belstead: My Lords, this is a point that was made by my noble friend during the passage of the Salmon Bill a couple of months or so ago. I am therefore familiar with it. Indeed, I am sure that the Government would wish to look with interest on the proposal if it were to form part of a Private Member's Bill.
Lord Mackie of Benshie: My Lords, is the Minister aware that the traditional salmon netting round the coast of Scotland is under sufficient regulation and that to talk of ending salmon netting there would be a severe blow to the many communities which derive considerable income from it?
Lord Belstead: My Lords, I am interested to hear that view from the noble Lord, which certainly the Government will take with seriousness.
Lord Glenamara: My Lords, further to the question of the noble Lord, Lord Mackie, is the noble Lord the Minister aware that the fishermen of Northumberland have netted salmon for many years and that the danger to the Atlantic salmon does not come from their activities? Will the noble Lord bear that in mind?
Lord Belstead: My Lords, we certainly made it clear during the passage of the Salmon Bill that we were bearing precisely in mind the view expressed by the noble Lord, Lord Glenamara. The noble Lord will remember that further restrictions are to be introduced so far as the north-east drift net fishery is concerned, and their effects will be reviewed after three years. I am sure that the noble Lord will agree that we must not pre-empt that review.
Lord Moran: My Lords, have the Government taken note of the fact that Norway has recently announced conservation measures, including the banning of monofilament nets from 1988, the ending of all drift netting for salmon from 1989 and the extension of the close season by two weeks? Will this not leave this country and the Republic of Ireland in the unenviable position of being the only countries which are represented in NASCO that will not have announced radical measures to conserve Atlantic salmon stocks?
Lord Belstead: My Lords, Great Britain already controls salmon fishing very tightly and has a better record on conservation than many countries. I believe that the further measures contained in the Salmon Bill will be recognised internationally as enhancing that contribution.

Business
Lord Denham: My Lords, it may be for the convenience of the House if I announce that the Committee stage of the Gas Bill will be adjourned at approximately 7 p.m. for approximately one hour and that during this adjournment the Third Reading of the Housing (Scotland) Bill will be taken.

Gas Bill
3.13 p.m.
Lord Belstead: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Belstead.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD NUGENT OF GUILDFORD in the Chair.]
Clause 30 [Validity and effect of orders.]:
Lord Diamond Lord Diamond moved Amendment No. 125ZA:
Page 36, line 8, at end insert—
"(8A) Notwithstanding the provisions of section 7(6) of this Act the Secretary of State may, subject to subsection (8C) hereof, revoke an authorisation under section 7 by 30 days notice in writing given to the supplier at its registered or principal office if the supplier fails to comply with a final or provisional order under the preceding subsections of this section which has been confirmed under those subsections and such failure is not rectified to the satisfaction of the Secretary of State within three months after the Secretary of State has given notice in writing of such a failure to the supplier.
(8B) Subject to the following subsection, the Secretary of State shall, notwithstanding the provision of section 7(6) aforesaid, revoke an authorisation under section 7 three months after he has given notice in writing to the supplier of the third such unrectified failure.
(8C) Where an application has been made to the Court under subsection (1) above, no such revocation shall be made until the validity of any final or provisional order in question has been confirmed by the Court.")
The noble Lord said: I beg to move the amendment standing in my name on the Marshalled List. The purpose of moving this amendment is to explain the attitude of these Benches. This is an important amendment but it is not the most important amendment among those coming before the Committee today. I say "today" because agreement has been reached that the business of the Committee shall be completed today. I understand that by "today" we do not mean tomorrrow at two o'clock, three o'clock or four o'clock in the morning.
We must have regard to that agreement and to the fact that it is quite impossible to give anything like adequate consideration to the amendments that are still before us for discussion at Committee stage. All these amendments refer to a part of the Bill which was guillotined in another place and therefore we have not our normal duty of taking a second look at the Bill but the double duty of taking a first and a second look at many of its provisions. In the circumstances if the agreement to which I have referred is to be kept—and obviously I cannot speak for Conservatives or members of any other party who may wish to speak, but so far as these Benches are concerned an agreement means an agreement—it will be quite impossible for us at the Committee stage to move all the amendments that we think deserve attention. Therefore we can only take the line of not moving them now and transferring them to the Report stage for consideration then. This is one such amendment. If there is no Member of the Committee who desires to speak to this amendment, I shall seek the Committee's permission to withdraw it.
Amendment, by leave, withdrawn.
Clause 30 agreed to.
Clause 31 [Duty of Director to investigate certain matters.]
Lord Stoddart of Swindon Lord Stoddart of Swindon had given notice of his intention to move Amendment No. 125A:
Page 36, line 15, at end insert—
(" ( ) has come to his attention in the normal administration of his functions;").
The noble Lord said: This, too, is an important amendment, though perhaps not as important as the one which has just been withdrawn. I concur with the noble Lord, Lord Diamond, in his strictures (which is what I think they were) on the inadequate time that has been available to discuss, and discuss properly, the provisions of this Bill. The noble Lord is quite right; an agreement has been reached that we shall complete this stage of the Bill by eleven o'clock tonight or thereabouts, and certainly "today" means today and not tomorrow.
As Members of the Committee will realise, that would mean that discussion would have to be restricted on some very important amendments, particularly in relation to Part II of the Bill which will be discussed later. In the light of those circumstances, like the noble Lord Lord Diamond, and his colleagues, we are compelled not to move a number of amendments which we otherwise would have moved. I think that this situation is most regrettable, and the noble Lord must understand that we shall wish to come back to these matters at Report stage, when I sincerely trust that adequate time will be given to enable us to discuss them fully and properly, as this Chamber is entitled to do. I shall not now move the amendment.
[Amendment No. 125A not moved.]
On Question, Whether Clause 31 shall stand part of the Bill?
Lord Diamond: I do not need to go over all the ground again, but it will be obvious to the Committee that part of our duty in perusing a Bill at Committee stage is to raise questions as to whether the clause should stand part of the Bill so as to obtain a clearer understanding of the Bill and to see whether it requires amendment in any particular respect. Of course it is our responsibility to do that during the Committee stage.
We cannot carry out our responsibilities in the time allotted and therefore, so far as concerns these Benches, we shall not be raising questions on many of the clauses as to whether they should stand part of the Bill, as we would have done but for the restriction in time. Therefore, we shall be compelled to raise them at Report stage, and if necessary to move amemdments at a later stage, for example at Third Reading, if that proves necessary in terms of the explanations which we need but for which at present we have no time to ask.
Lord Belstead: I think perhaps I ought very briefly to say a few words in reply to the noble Lord and to the noble Lord, Lord Stoddart. The Committee ought to be aware, when the noble Lord, Lord Diamond, calls in aid the fact that this Bill was guillotined in another place, that after the guillotine was imposed the discussion on the guillotined clauses never in fact ran

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up to the time when the guillotine would have fallen at each successive moment. Therefore it is reasonable for me on the government side to make the point, which is a valid one, that discussion was not curtailed in the way that is being suggested, although it is true that a guillotine was imposed.
Regarding discussion being curtailed in Committee, we are grateful to noble Lords on the Benches opposite for agreement that we can finish the Bill today. As to whether there has been a full opportunity for the Committee to have a full discussion on the Bill so far, I leave it to all those who have kindly sat through the long sessions to decide that.
Clause 31 agreed to.
[Amendments Nos. 126 to 130 not moved.]
Clauses 32 and 33 agreed to.
[Amendment No. 131 not moved.]
Clause 34 [General functions]:
[Amendments Nos. 132 and 132A not moved.]
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 133:
Page 38, line 35, at end insert—
("( ) It shall also be the duty of the Director, after consultation with the Secretary of State and the Gas Consumers' Council, to establish and consult with, as appropriate, an advisory body for matters affecting small businesses; and in establishing such a body under this section the Director shall have regard to the desirability of having members who are familiar with the special requirements and circumstances of small businesses.").
The noble Lord said: I beg to move the amendment standing in the names of my noble friends Lord Stoddart of Swindon and Lord Gallacher. This amendment deals with the general functions of the director as expressed in Clause 34. We seek to impose an additional duty on him in the exercise of his more general functions. The Committee will note that we propose to insert:
"It shall also be the duty of the Director, after consultation with the Secretary of State and the Gas Consumers' Council, to establish and consult with, as appropriate, an advisory body for matters affecting small businesses; and in establishing such a body under this section the Director shall have regard to the desirability of having members who are familiar with the special requirements and circumstances of small businesses".
We on this side of the Committee have taken careful note of the general trend in the Government's policies of paying special attention to the problems of small businesses. We are well aware that they will argue that the functions that we suggest can already be assumed by the director acting alone or in consultation with the more general body of the consumer councils and other machinery created under the legislation. Exactly the same argument could have been used by the Government in relation to their own structure.
It has long been the policy of successive governments to have the affairs of small businesses dealt with essentially by the Department of Trade and Industry or the equivalent departments before that large department was established. However, this Government feel that the problems of small businesses are so great and so important that they have decided to appoint a special Minister—notably, the noble Lord, Lord Young of Graffham.
Aside from his major preoccupation of massaging the unemployment figures and effecting changes in the retail price index, it cannot be denied that he has had some impact in that field, and long may it continue. Any endeavours in the interests of small businesses made by him when he is not engaged in the statistical adjustments to which I have referred will be greatly welcomed. We on this side of the Committee are fully sensible of the encouragement that ought to be given to small businesses, the special account that should be taken of their problems and in some cases the special dispensations that they should be given.
If they were given half the advantages or dispensations that are accorded to large conglomerates, big industrial companies and the City of London generally, we should be highly delighted. We share the Government's views that the successful development of small businesses can contribute significantly to the recovery of the country from the disastrous consequences of seven years of Tory rule.
In those circumstances, it is not necessary for me to argue the merits of the amendment. All we are doing is asking the Government to live up to their own philosophy. Noble Lords opposite know quite well that for a policy to be successful not only has it to animate the higher reaches of government but it should be translated all the way down the line; the writ should run not only in Whitehall but all the way down the line.
The amendment gives the Government the most magnificent opportunity to translate their often expressed philosophy, however imperfectly it may be carried out in practice, down to the lower reaches and particularly in this field which is so important to the nation as a whole. In the hope that the noble Lord will immediately agree the amendment for the reasons I have stated, I beg to move.
Lord Elliott of Morpeth: I have a great deal of sympathy with the speech made by the noble Lord, Lord Bruce. It is a few years ago now but I once initiated in another place a debate on the problems facing small and medium-sized businesses. As a consequence of having initiated that debate, and also being very conscious indeed of the considerable problems that face small businesses at this time, I have sympathy with the amendment. I therefore appeal to my noble friend to consider such an advisory body. With the noble Lord, Lord Bruce, I feel that small businesses have a great deal to contribute to our national well-being and to the national economy as a whole.
I believe that it is, as the noble Lord rightly said, an integral part of the philosophy of the party which I support, and of the government of the day, that the smallest businesses should receive the greatest encouragement. I therefore support the amendment.
3.30 p.m.
Lord Ezra: I too, should like to support the amendment. I feel that small and medium-sized businesses play an increasingly important role in this country, a role to which I believe all parties subscribe. It is important therefore that their interests should be safeguarded as much as possible so that they may

265
continue to help towards the regeneration of industry in Britain.

One of the safeguards that small businesses should have is for it to be ensured that under the new regime for gas their interests and possible complaints or concerns will be adequately and quickly dealt with. A separate body to do that, manned by people who are familiar with the problems of small businesses, would seem to be appropriate.
Viscount Hanworth: The amendment, in part, deals with what I was trying to put forward in a previous amendment. One is worried because there will be competition among various fuels and small businesses cannot change overnight from gas to electricity, and so on, as perhaps most larger companies can. One feels that it is vital that small businesses should be protected and encouraged as much as possible. The amendment goes a long towards doing that.
The Minister of State, Scottish Office (Lord Gray of Contin): I can start on a note of agreement with those noble Lords who have spoken because the Government also agree that small businesses are crucial to this country's long-term success. As noble Lords are aware, we took a great deal of trouble to discuss our proposals for the privatisation of the gas industry with a wide range of interested parties, including a number of individual companies and of course the CBI. None of those interested parties expressed the view that there was a need for more than one body to represent consumer interests to be set up under the Gas Bill.
We are providing just that in the form of the Gas Consumers Council. The council is given the responsibility to deal with complaints from all types of customer and will naturally equip itself to deal with all the problems of those customers whether they be small businesses, domestic consumers or large industrial consumers. The type of advisory group which the noble Lord, Lord Bruce, and his friends have proposed in Amendments Nos. 133 and 143 would therefore be unnecessary.
I also suggest that it would be curious to provide, as Amendment No. 133 seeks to do, that complaints made by small businesses should be handled by a body which would not be independent of British Gas and that complaints from all other customers should be handled by the Gas Consumers Council which is an independent body. As for the suggestion contained in Amendment No. 143 that the Gas Consumers Council should establish a group within the council to concentrate on the problems of small businesses, I point out to the Committee that the Gas Consumers Council will be able to organise both itself and its staff in the way that it sees fit. If problems from small businesses prove to be a large proportion of the complaints received, no doubt the council will gear itself to deal with that problem.
It is impossible to predict the types of problems with which the new council will deal. It may be, for instance, that schools and colleges, or horticultural and agricultural groups will form the most vociferous complaints group. I suggest that it would be unwise to tie the council's hands in the way proposed by the
266
amendment. It would be better to leave the council able to meet consumers' needs as it sees fit in the light of experience.
I am anxious to make progress and therefore I am going to follow the example given by others by being brief in my reply to the suggestions which have been made. I am also anxious to enter into the spirit of goodwill which obviously abounds within the Committee today. I paid particular attention to the contribution made by my noble friend Lord Elliott and I am prepared—this I shall do without commitment—to take this matter away again and to look at it very carefully. I know that noble Lords would wish me to go further than that, but I cannot do so at this time. I am not satisfied that the creation of yet another body is the way to achieve what I think we all seek to do, but I am prepared to take this amendment away, to examine it again and to give consideration to what has been said, before Report.
Lord Diamond: Before the noble Lord who is in charge of the amendment decides what advice he will offer to the Committee, may I suggest to the noble Lord the Minister—I am not asking for any further commitment—that, in giving further consideration to the views behind the amendment, he might consider whether it would be appropriate, when appointing members of the consumers council, that one such member should have special knowledge of and interest in small businesses.
Lord Gray of Contin: That is a reasonable request. I shall certainly draw the attention of my noble friends and my right honourable friends to what the noble Lord, Lord Diamond, has said.
Lord Bruce of Donington: The noble Lord is at his genial best this afternoon. Without any hesitation, I accept his assurance, albeit qualified in the terms that he has qualified it, that he will look at the matter again. In token of the mutual warm regard that there is on this matter, I ask the leave of the Committee to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 134 to 135D not moved.]
Clause 34 agreed to.
[Amendments Nos. 136 and 137 not moved.]
Clause 35 agreed to.
[Amendment No. 138 not moved.]
Clause 36 agreed to.
Clause 37 [Fixing of maximum charges for reselling gas]:
Baroness Burton of Coventry Baroness Burton of Coventry moved Amendment No. 138A:
Page 40, line 32, at end insert—

("(4) If any person resells any gas supplied by a public gas supplier at a price exceeding the maximum price fixed under this section and applicable thereto, he shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 3 on the standard scale.

(5) Where the commission by any person of an offence under subsection (4) above is due to the act or default of some other person, that other person shall be guilty of the offence; and a

267
person may be charged with and convicted of the offence by virtue of this subsection whether or not proceedings are taken against the first-mentioned person.

(6) In any proceedings for an offence under subsection (4) above it shall be a defence for the person charged to prove that he took all reasonable steps and exercised all due diligence to avoid committing the offence.").

The noble Baroness said: I am sorry to break the continuity, but I hope that the great goodwill coming from the noble Lord, Lord Gray of Contin, will last through this amendment. I am sure that it will come as no surprise, and I hope it is not necessary to remind him, that he answered a Question of mine dealing with the resale of electricity on 5th December last. He had the Government Statement printed, and it may be helpful to the Committee if I quote the first paragraph of that Statement:
"The Government expect to deal with this subject not by making overcharging a separate criminal offence but as part of the proposed new legislation on misleading price indications announced in my noble friend Lord Lucas's Statement of 4th March to this House. When the necessary powers become available under that legislation we would expect to introduce an order which would require those who resell electricity to give itemised bills which include a statement showing the number of units charged for, the rates applied and the statutory maximum rate. The general provisions of that legislation, under which it would be a criminal offence to give a misleading price indication, or to fail to comply with an order, would then apply to those bills and the information given in them. The present civil remedy would also continue to be available".—[Official Report, 5/12/85; col. 1404.]
Following that statement, the noble Lord, Lord Gray, was asked whether legislation might be expected this Session. The noble Lord said that he could not be specific but that legislation would be forthcoming as soon as parliamentary time permitted.
After those preliminary remarks, which I hope are relevant, I come to the actual amendment. My original Questions arose from the report of the Director General of Fair Trading on the resale of electricity where there were complaints of considerable abuse. This concern was upheld and remedies suggested, but the Director General of Fair Trading did say that there was less evidence of abuse for resale of gas than for resale of electricity. Without in anyway weakening the amendment, that comment, I believe, would be accepted.
At present, I understand, the position is that under the Gas Act 1972, British Gas, the supplier, sets the maximum charge, whereas, for the first time under this Bill we are discussing, the Director General sets the maximum that can be charged on resale. I believe, the various gas consumers councils believe, the general public and, I think, Members in both Houses believe that overcharging by landlords for the resale of gas should be made a criminal offence. The fact that overcharging was a criminal offence would be a deterrent to landlords considering exploiting their position. They would no longer have just the tenant to deal with.
Without this safeguard, all those interested in this problem wonder how the Minister would suggest that tenants deal with the matter. We are talking about a minority of landlords. But they do much harm to the reputable majority who want a remedy as much as we do. There is no getting away from the fact that some landlords whose rents are controlled find that they can make a profit on the resale of gas. They buy it at a fixed
268
rate and sell it at a much higher rate to their tenants. All of us, I am sure, wish to protect tenants against this unscrupulous minority.
From the reply given to me on 5th December concerning electricity and from subsequent information reaching me that may, or may not be correct, I am not clear what action, if any, has definitely been decided upon by the Government. What is done over electricity is important to us today because of what the Minister of State for Energy said on 27th February at col. 1154, in Standing Committee F on the Gas Bill. I can perhaps quote some of his remarks. The Minister of State said:
"It might be helpful if I describe the action that the Government propose to take over the recommendations of the Director General of Fair Trading on the resale of electricity. The Director General discovered clear evidence of abuse in overcharging for electricity. As a result of his report, the Government intend to introduce an order requiring that the price charged for electricity by landlords should be clearly set out in an itemised statement and that the landlord must be responsible for stating the maximum price. Failure to comply with the order, or charging a different price from that shown on the statement, would give grounds for prosecution by a trading standards officer".
The Minister went on to say:
"I am in genuine doubt about whether we should, through this primary legislation, introduce a criminal offence, given that the problem is less with gas than it is with electricity … should evidence arise comparable to that found by the Director General of Fair Trading for electricity, of overcharging for gas, a similar order could be made".
I have nearly finished the quotation and I believe that it will save the Committee's time if I continue with it. The Minister went on to say:
"Although such an approach means some delay over the problem of overcharging, it means that gas will be dealt with on all fours with electricity, which seems commendable. Where there is overcharging, although there may be electricity meters without gas meters, there will be few gas meters without electricity meters. I feel that the procedures should be the same so that the person who is being overcharged is familiar with them and that to have different procedures for gas and electricity could lead to confusion … I acknowledge that there is abuse, although less with gas than with electricity".
I have three questions for the Minister. The first—it is the one to which the amendment is directed—is to ask whether the Government will make overcharging by landlords for the resale of gas a criminal offence? A secondary and minor point is to ask whether it is necessary or indeed essential that action on electricity resale should be taken prior to any action on the resale of gas? If so, my third question is to ask exactly what action is to be taken, and when? I beg to move.
3.45 p.m.
Lord Brabazon of Tara: I am grateful to the noble Baroness for moving this amendment. It was probably myself who answered her most recent Question on the matter relating to the resale of electricity rather than gas. As the noble Baroness reminded us, this question has been looked at from time to time in respect not only of gas but also of electricity. Most recently, there was the report of the Director General of Fair Trading last year.
The DGFT pointed out that there was far less evidence of abuse in respect of gas than electricity, and made no recommendations about resale of gas. Our view is that the introduction of a criminal sanction is not needed, and, more importantly, would not be helpful to a tenant. In circumstances where a tenant

269
has been overcharged, he is likely to be nervous of initiating criminal proceedings against the landlord because of the inevitable result this would have of damaging the often delicate relationship between landlord and tenant. We believe that the tenant has some incentive to take action where he has the prospect of recovering the amount he has overpaid. There would however be no such incentive in instituting criminal proceedings, and I believe therefore that a criminal penalty would be ineffective in discouraging overcharging by landlords. That is the answer to the noble Baroness's first question.
I would briefly point to the action the Government have taken in response to the director general's report in respect of electricity where there is evidence to suggest that there is a problem. As the noble Baroness said, we propose to bring in as soon as possible—I cannot, as she will be aware, go any further than that and cannot pre-empt what might be in the Queen's Speech—a consumer goods and services Bill. Once that is on the statute book, an order will be made that will require the price being charged for electricity by landlords to be clearly set out in an itemised statement. Failure to comply with this order, or the giving of a misleading statement, would give rise to a prosecution by a trading standards officer.
I can reassure the noble Baroness that if at any point there was evidence to suggest that a significant problem had emerged in relation to the resale of gas, a similar order could be made speedily. That answers the question raised by the noble Baroness that we do not at this stage propose to introduce both at once. But if a problem did arise, I can give the assurance that we could speedily do so.
I believe that the most effective way of providing protection for the consumer in the present situation is to enable him to recover the excess through civil action, as we have done in the Bill. As I have already explained, there will be available in the new consumer goods and services Bill a facility for providing additional enforcement if this becomes necessary. I hope that on the basis of what I trust have been reassuring words the noble Baroness will feel able to withdraw the amendment.
Lord Gallacher: The Minister's reassurance is not totally satisfactory. While admittedly this problem, on the basis of the evidence collected by the Office of Fair Trading, is linked to electricity rather than gas, there may well be tenants using gas who are equally disadvantaged. The failure to deal with the problem of overcharging in respect of electricity may, perversely enough, encourage a spread of the problem to charging for gas. Therefore, while one is to some extent reassured by the Minister's statement that in forthcoming legislation there will be powers to make orders to deal with electricity, it appears that with regard to the present position it is only electricity that is considered to be in need of treatment and that the position on gas can remain much as it is. I think that that, too, is probably an unsatisfactory state of affairs, but it is a matter for the noble Baroness, Lady Burton of Coventry, to judge.
I also felt that there was an element of indecision in the Minister's statement when he said that the tenant might be reluctant to see criminal prosecutions
270
brought against his landlord in case the tenancy itself were prejudiced. But he seemed to feel that if the trading standards officer received evidence of overcharging against the statement of charges to be made and subsequently initiated prosecutions that would preserve a relationship between the tenant and the landlord which would not be harmed by action by the trading standards officer compared with direct action by the tenant. I think that is a little unreal and unworldly. We do not find it particularly reassuring.
Neither did the Minister say very much about whether the creation of British Gas as a private and profit-making company has any bearing on this situation. The electricity authorities, I well know, have co-operated extensively in an attempt to eliminate this problem. Their only difficulty has been that the law does not allow them to do very much about it until such time as the Minister takes the action which he indicated may be going to be taken in his reply to the noble Baroness this afternoon. I therefore feel that there may be something to be said for providing such legislation in this Act. To that extent we on these Benches are in support of the amendment, although I shall obviously leave it to the judgment of the noble Baroness, Lady Burton, as to whether or not she feels that the assurances that she has been given go far enough.
Lord Ezra: My Lords, I should like to support the view of the noble Lord, Lord Gallacher. It seems rather unrealistic to argue that a tenant who is concerned to keep on good terms with his landlord would somehow be ready to take civil but not criminal proceedings. I think that there is no difference between the two with regard to good relations.
We are concerned that there should be adequate sanction against those who may take advantage of their situation in the resale of gas, to make sure that they will be deterred from overcharging. We feel that the present provisions in the Bill do not go far enough.
Baroness Burton of Coventry: The reply was given certainly in the spirit of what seemed to be good will. However, it did not get us very far. In fact, it did not advance us one iota from what I, and I am sure the Committee, knew.
This is an amendment about which, as I have said, all the gas consumer councils and people who are subject to this overcharging feel very strongly. It seems incredible to me that the noble Lord should talk about the good relationship with the landlord being affected if this were made a criminal offence. I can assure him that good relations are at the moment severely jeopardised by people who have not the knowledge to tackle their landlords on this matter, for fear of the embarrassing position in which they will be put. They have no alternative about that at all.
The noble Lord talked about the goods and services Bill. We have heard quite a bit about this, and from information that has been coming to me we are not sure what will be in this goods and services Bill. We might well find ourselves, after the next Queen's Speech, with no goods and services Bill. I gathered from what the noble Lord said today that, if the goods and services Bill was forthcoming, I shall not say that he would hope but we might expect to find in it the

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question of overcharging, and so on, for electricity, but nothing at all to do with gas.
I feel that people who are subject to this kind of over-sale by landlords should have some protection. They have none at the moment. I therefore propose to test the opinion of the Committee on this matter.
3.54 p.m.
On Question, Whether the said amendment (No. 138A) shall be agreed to?
Their Lordships divided: Contents, 93; Not-Contents, 116.

DIVISION NO. 1

CONTENTS

Airedale, L.

Lloyd of Hampstead, L.

Amherst, E.

Lloyd of Kilgerran, L.

Ardwick, L.

Longford, E.

Attlee, E.

McGregor of Durris, L.

Aylestone, L.

Mackie of Benshie, L.

Banks, L.

McNair, L.

Birk, B.

Mayhew, L.

Blease, L.

Milford, L.

Blyton, L.

Molloy, L.

Boston of Faversham, L.

Monson, L.

Bottomley, L.

Murray of Epping Forest, L.

Brockway, L.

Nicol, B.

Bruce of Donington, L.

Oram, L.

Burton of Coventry, B. [Teller.]

Parry, L.

Phillips, B.

Caradon, L.

Pitt of Hampstead, L.

Carmichael of Kelvingrove, L.

Ponsonby of Shulbrede, L. [Teller.]

Chitnis, L.

Cledwyn of Penrhos, L.

Prys-Davies, L.

Crawshaw of Aintree, L.

Rhodes, L.

David, B.

Ritchie of Dundee, L.

Davies of Penrhys, L.

Robson of Kiddington, B.

Dean of Beswick, L.

Rochester, L.

Diamond, L.

Seear, B.

Elwyn-Jones, L.

Shackleton, L.

Ezra, L.

Shepherd, L.

Fisher of Rednal, B.

Silkin of Dulwich, L.

Foot, L.

Simon, V.

Gallacher, L.

Stallard, L.

Gladwyn, L.

Stamp, L.

Glenamara, L.

Stedman, B.

Graham of Edmonton, L.

Stoddart of Swindon, L.

Grimond, L.

Strabolgi, L.

Hampton, L.

Strauss, L.

Hanworth, V.

Taylor of Blackburn, L.

Harris of Greenwich, L.

Taylor of Gryfe, L.

Hatch of Lusby, L.

Taylor of Mansfield, L.

Houghton of Sowerby, L.

Turner of Camden, B.

Hughes, L.

Underhill, L.

Irving of Dartford, L.

Wallace of Coslany, L.

Jeger, B.

Walston, L.

Jenkins of Putney, L.

Wells-Pestell, L.

Kennet, L.

Whaddon, L.

Kilbracken, L.

White, B.

Kilmarnock, L.

Williams of Elvel, L.

Kinloss, Ly.

Willis, L.

Leatherland, L.

Wilson of Langside, L.

Llewelyn-Davies of Hastoe, B.

NOT-CONTENTS

Ailsa, M.

Bessborough, E.

Aldington, L.

Boyd-Carpenter, L.

Allenby of Megiddo, V.

Brabazon of Tara, L.

Alport, L.

Braye, B.

Ampthill, L.

Brookes, L.

Annan, L.

Brougham and Vaux, L.

Auckland, L.

Broxbourne, L.

Bauer, L.

Bruce-Gardyne, L.

Belhaven and Stenton, L.

Butterworth, L.

Belstead, L.

Caccia, L.

272

Caithness, E.

Lovat, L.

Cameron of Lochbroom, L.

Lucas of Chilworth, L.

Campbell of Alloway, L.

McFadzean, L.

Carnegy of Lour, B.

Macleod of Borve, B.

Cathcart, E.

Mancroft, L.

Constantine of Stanmore, L.

Manton, L.

Cork and Orrery, E.

Margadale, L.

Cottesloe, L.

Marley, L.

Cowley, E.

Maude of Stratford-upon-Avon, L.

Davidson, V.

De Freyne, L.

Merrivale, L.

De La Warr, E.

Mersey, V.

Denham, L. [Teller.]

Milverton, L.

Drumalbyn, L.

Morris, L.

Dundee, E.

Mottistone, L.

Eccles, V.

Murton of Lindisfarne, L.

Eden of Winton, L.

Noel-Buxton, L.

Effingham, E.

Norfolk, D.

Ellenborough, L.

Nugent of Guildford, L.

Elliott of Morpeth, B.

Orkney, E.

Elton, L.

Orr-Ewing, L.

Faithfull, B.

Porritt, L.

Ferrier, L.

Portland, D.

Fisher, L.

Rankeillour, L.

Fortescue, E.

Reay, L.

Fraser of Kilmorack, L.

Renton, L.

Gainford, L.

Rochdale, V.

Glanusk, L.

Rodney, L.

Glenarthur, L.

Rugby, L.

Gray, L.

St. Aldwyn, E.

Gray of Contin, L.

St. Davids, V.

Gridley, L.

Saltoun of Abernethy, Ly.

Grimthorpe, L.

Selkirk, E.

Hailsham of Saint Marylebone, L.

Sempill, Ly.

Shaughnessy, L.

Halsbury, E.

Skelmersdale, L.

Hardinge of Penshurst, L.

Soames, L.

Harris of High Cross, L.

Stodart of Leaston, L.

Hives, L.

Strathcona and Mount Royal, L.

Home of the Hirsel, L.

Hooper, B.

Swansea, L.

Hylton-Foster, B.

Swinfen, L.

Kaberry of Adel, L.

Swinton, E. [Teller.]

Kimball, L.

Terrington, L.

Kinnaird, L.

Tranmire, L,

Lane-Fox, B.

Trumpington, B.

Lauderdale, E.

Vivian, L.

Layton, L.

Whitelaw, V.

Liverpool, E.

Young, B.

Long, V.

Resolved in the negative, and amendment disagreed to accordingly.
Clause 37 agreed to.
4.3 p.m.
Lord Stoddart of Swindon Lord Stoddart of Swindon moved Amendment No. 139:
After Clause 37, insert the following new clause:
("Duty to maintain the safety of gas fittings.
.—(1) If any person who resells any gas supplied by a public gas supplier for use in a gas fitting provided by that person fails to maintain such gas fitting in a safe working condition that person shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 4 on the standard scale.
( ) It shall be a defence for the person charged to prove that he took all reasonable steps and exercised all due diligence to avoid committing the offence.").
The noble Lord said: I beg to move Amendment No. 139, which stands in my name and that of my noble friend Lord Williams of Elvel. It is to insert a new clause. This matter is aimed at private landlords who install cheap and/or secondhand appliances which turn out to be dangerous. It is also aimed at those who fail to carry out proper repairs to appliances.
In the last amendment, which was so admirably moved by the noble Baroness, Lady Burton, we were talking about money and about people being defrauded. That of course is important enough. However, in this new clause we are talking about people's safety and even their lives, because we all know that badly installed or badly made, defective appliances can cause injury and death. That is why we seek to insert this new clause in the Bill—so that landlords who install such fittings know perfectly well that they can be subject to the criminal law if the fittings are not safe and kept in a safe condition.
When the noble Lord, Lord Brabazon, resisted the last amendment he said that the question of price should not be a matter for the criminal law. That is a matter of opinion. I think that it probably should have been. However, surely there cannot be any question that any person who puts another person's life at risk should be subject to the criminal law. That is why in this new clause we seek to make such an offence subject to the criminal law.
Many noble Lords will have seen the recent programme "That's Life", which highlighted a number of deaths that had occurred through the use of defective and sometimes badly installed water heaters. Most of those deaths have occurred in privately-rented premises. Therefore, there is a clear need to do something positive to prevent people's lives being put in danger by unscrupulous landlords who will not keep their fittings in good order and who will install, and are now installing, secondhand appliances which are not fit to be installed.
In the Bill, and certainly in Clause 4, the director has powers to ensure that public gas suppliers keep the public safe. That of course is absolutely essential. However, there is nothing in the Bill which protects the position of people who are subject to unscrupulous private landlords who put their lives at risk by installing defective appliances and not properly maintaining those appliances. I believe that the public should be protected. Indeed, they should have been protected long before now. We seek to clear up the law. We can do it by means of this new clause. I hope that the noble Lord, Lord Brabazon, who is to reply, will be able either to accept this new clause or at least assure me that the Government take this matter seriously, and that they will take it away and by the Report stage bring forward their own amendment for the protection of the public. I beg to move.
Lord Elliott of Morpeth: I interject only on one point. I wholly agree with the noble Lord, Lord Stoddart, on the responsibility of landlords with regard to installation. I do not think that there is any argument there. Landlords should be required to install safe appliances. However, there is the other half of the problem which the noble Lord, Lord Stoddart, raised, which concerns maintenance. I think that one ought to give a thought here to the responsibility of tenants as against landlords. Can landords always know whether appliances are being reasonably maintained by tenants? Is not a somewhat unfair responsibility being proposed in this new clause for landlords in that tenants are bound to have a better idea whether an appliance is safe and working than
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landlords who quite often own vast areas and vast numbers of properties? Therefore, I think that one ought to have a moment of caution with regard to the responsibility of landlords in the second half of the noble Lord's new clause—that is, the area of maintenance.
Lord Stoddart of Swindon: Perhaps I may just reply to that particular point because it is an important one. Indeed it is well understood. Of course tenants too have a responsibility for their own lives. That is accepted. I thought we had covered that in fact by the second section of the new clause, which reads:
"It shall be a defence for the person charged to prove that he took all reasonable steps and exercised all due diligence to avoid committing the offence."
I think that that is what we should expect of a landlord. Quite clearly he will inspect his premises and the appliances from time to time. We would expect that of him as a matter of fact, because he, rather than the tenant, owns the appliance. The landlord therefore has the responsibility. But if after having done that the tenant is then negligent and knocks the thing around, or knocks the gas stove around or takes it apart and does not put it together properly, that would be a proper defence. That is why we have put that second part in, because we understand the position of the landlord and wish to protect that position.
Lord Boyd-Carpenter: May I ask the noble Lord another question arising out of his original speech moving this amendment? The noble Lord used the expression "unscrupulous private landlords", and suggested that this amendment was directed against such people. Is it intended that this should apply only to private landlords? If a local authority or a housing association, or any other owner other than a private landlord, allows the equipment to get into bad order and a tragedy results, are they not covered by the clause? If so, why is the noble Lord picking solely on private landlords?
Secondly, I wonder whether the noble Lord has considered that in any event without this amendment if someone is injured because his landlord has installed or failed to maintain defective machinery of this sort, obviously under the ordinary common law he will have a right to sue for any damages he suffers. It may well be that it is more satisfactory to an injured person to recover substantial damages than to see a necessarily limited criminal penalty imposed on his landlord.
Lord Stoddart of Swindon: Those are two perfectly reasonable questions. The reason I referred to unscrupulous private landlords is that of course, generally speaking, local authority dwellings are unfurnished and the appliances will be provided by the tenant; therefore, the appliance belongs to him and he is responsible for its maintenance. Usually these appliances are installed in private furnished places, although I do accept the stricture of the noble Lord, Lord Boyd-Carpenter, that there are certain local authority and private housing associations which do furnish completely and install a cooker or some other appliance which may belong to them. In that sense, the noble Lord is probably right—I should not have referred only to private landlords. There are other

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landlords who could neglect their duty and the new clause does cover them. It does not refer to unscrupulous private landlords. I hope I have covered that particular point.
The other point the noble Lord, Lord Boyd-Carpenter, raises is that if someone is injured he would have the opportunity to go to court and claim damages. That would not be taken away by this new clause; as I understand it, he would still be able to do that. He or she could still claim damages. But, in the same way as the noble Lord believes in the nuclear deterrent, we believe that if this is a criminal offence it will be a deterrent against the purchase and installation by private landlords or by any landlord of appliances which were not safe. It will also be an incentive to them to keep those appliances safe. I do thank the noble Lord for raising these two important points and I hope I have been able to satisfy him on them.
4.15 p.m.
Lord Boyd-Carpenter: I do not want to prolong this discussion, but I wonder why the noble Lord, Lord Stoddart of Swindon, thinks a criminal penalty—which sounds rather a powerful weapon, though presumably it would be distinctly limited in its impact—is more of a deterrent to a landlord. I am glad to know he accepts that his clause would bite on public as well as private landlords. It is much more of a deterrent to know that if someone is badly injured, for example, the damages in accordance with present levels of damages awarded by our courts would be enormous. We are talking of tens of thousands of pounds and certainly we are talking of amounts far larger than would be imposed by way of criminal penalties. I wonder whether perhaps the noble Lord does not appreciate that the real deterrent, apart from any questions of conscience, the real physical deterrent to having defective apparatus of this sort is the risk of having to pay enormous damages.
Lord Stoddart of Swindon: If that were so, if the criminal law were no deterrent, why are we sitting here at all? Why do we pass laws making certain things a criminal offence if we do not think they will deter people from committing offences?
As I said earlier, under the new clause the tenant would have the protection of the criminal law acting as a deterrent. Certainly I think the criminal law has a deterrent effect. If a person believes that he may be hauled before the courts and fined, I think it imposes a certain discipline on him. In fact it is additional to the point that the noble Lord makes—that if a person causes death or injury, he may be sued in the courts and may be told by the courts that he will have to pay considerable damages. In fact this is an additional protection, not an alternative.
Baroness Macleod of Borve: It seems to me that this is a very important clause. As I read it, it should cover all rented accommodation, whether it be a bed-sitting room, a furnished house, or an unfurnished house not actually owned by the person inhabiting it. I think this is very important.
I am not quite certain that this amendment as it is put down is actually correct. I entirely agree with the
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principle, and I am looking forward to hearing what the noble Lord the Minister has to say because I think that private people have to be protected and there are very few ways in which they can be protected from faulty installations in property that they do not own. That is why I think it is so important and I look forward to hearing what the noble Lord the Minister has to say.
Lord Diamond: I hope when the noble Lord the Minister comes to reply he will be able to make clear something which I find totally unclear—and I am not a lawyer. Where a landlord who deserves to be prosecuted is prosecuted and, if necessary, is sent to prison (which is a very great deterrent, I should have thought) is it impossible for the tenant to take separate proceedings for damages in a civil court?
Lord Brabazon of Tara: We have had an interesting debate on what is, I think, a very important matter. I am grateful to all noble Lords on all sides who have expressed their concern about it. As we have already explained during our debates on Clause 18 amendments, matters concerning gas safety are the responsibility of the Health and Safety Commission. They, through the Health and Safety Executive, administer the gas safety legislation which will, following the passage of this Bill, become relevant statutory provisions for the purposes of the Health and Safety at Work Act 1974.
One of the pieces of legislation which the Health and Safety Commission enforce currently is the Gas Safety (Installation and Use) Regulations 1984. Regulation 34 requires that no person shall use a gas appliance, or permit a gas appliance to be used, if at any time he knows or has reason to suspect that it is unsafe on one of five specified grounds. These include inadequate flueing, insufficient air for combusion, or escapes of gas.
This means that there is at present a responsibility on both the tenant and the landlord to ensure that any gas appliance which is used is safe, and noble Lords will note that if an offence is committed under Regulation 34 the maximum penalty is a fine not exceeding £2,000, rather than level 4 (presently £1,000) proposed by noble Lords in this amendment. It is twice as much as the amendment proposes.
I can understand the noble Lord's desire to lay the main burden of the responsibility on the landlord, but I agree with what my noble friends Lord Elliott of Morpeth and Lord Boyd-Carpenter have said, that the tenant should also have a responsibility not to use an appliance which he suspects to be unsafe, since in practice he is far more likely to be aware of such a situation than the landlord. Therefore, I believe that the current provision under the 1984 regulation is the right one. It puts an onus on both parties to check that the appliance is safe. Obviously, if the tenant informs the landlord that he thinks something is wrong then by virtue of the words "has reason to suspect" the landlord must take notice of that because he would thereby have reason to suspect.
However, should it ever be considered that a provision along the lines suggested in this amendment would be appropriate, health and safety regulations under the 1974 Act as extended by Clause 18(1) of the

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Bill could be made. I, too, saw the programme to which the noble Lord, Lord Stoddart of Swindon, referred regarding open flue water heaters. I would remind the noble Lord and the Committee that installation of these is no longer permitted under the gas safety regulations—I think it is Regulation 25 of the 1984 regulations—so that prevents their installation. Only room-sealed appliances should be used in bathrooms.
I would also point out to the Committee, and I hope to the public at large, that British Gas have agreed to publicise the importance of having these old water heaters properly serviced and maintained, and that they will make a free safety check on any reported to them. I hope that will help that particular situation. The provisions already in force under the regulations, which are similar to those proposed in the amendment, are satisfactory. Therefore, there is really no need for this amendment.
I would just answer quickly the point that the noble Lord, Lord Diamond, raised. There is no objection in principle, if the statute expressly permits, to both a criminal sanction and civil damages. I think civil damages would be allowed in this as well as the statutory sanction.
Lord Stoddart of Swindon: I thank the noble Lord for what he has said, but I am not sure that what he has told me satisfies me that the position is covered. As I understand it, the regulations under the Health and Safety at Work Act do not cover people who resell gas; they cover the people who install appliances. Therefore, the person who is liable is the installer. That is my impression of it, but does the noble Lord wish to intervene?
Lord Brabazon of Tara: The regulation reads as follows:
"No person shall use a gas appliance or permit a gas appliance to be used".
That covers not only the user but the person, who could be the installer or the landlord, who permits a gas appliance to be used.
Lord Stoddart of Swindon: In the light of that explanation, I shall certainly have to look at what the noble Lord has said. If the regulation has the meaning that the noble Lord says, then it may very well cover the position I have in mind. We all agree that it is right that the position should be covered. The best thing I can do with this is to take it back, have another look at it, and particularly Regulation 84 under the Health and Safety at Work Act, and if I find that the position has not been covered then we reserve the right to come back to this at Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 38 [Power to require information etc.]:
[Amendments Nos. 140 and 140A not moved.]
Clause 38 agreed to.
Clause 39 agreed to.
Clause 40 [General duty to advise Director]:
[Amendments Nos. 141, 141A and 142 not moved.]
Clause 40 agreed to.
[Amendment No. 143 not moved.]
Clauses 41 to 44 agreed to.
On Question, Whether Clause 45 shall stand part of the Bill?
Lord Diamond: I raise this point shortly. Clause 45 provides for bodies corporate and others being guilty of offences. I want to be assured that the clause is not too draconian, as it might seem to be on casual reading. Subsection (1) of Clause 45 talks about a body corporate being guilty of an offence, and if that is attributable to neglect on the part of a director or similar officer then that officer, as well as the body corporate, shall be guilty of that offence. That is fine and straightforward.
When we come to subsection (2), it says:
"Where the affairs of body corporate are managed by its members",
which is not a very clear picture to me, then the same rule applies,
"in relation to the acts and defaults of a member";
and a member can be prosecuted,
"in connection with his functions of management as if he were a director of the body corporate."
I am always a little hesitant about these clauses which pretend that somebody is not what he is and deems him to be doing something else, and gives him a different title, and then proceeds to put him in gaol. I am really asking for an explanation or reassurance, and perhaps for an example and precedent, that we are not being too tough under the provisions of Clause 45(2) on people who are not directors but are in fact only members.
Lord Belstead: There is a precedent in the sense that subsection (2) provides that subsection (1) shall apply to the members of a body corporate responsible for the management of its affairs as if they were directors. We find that in the case of a nationalised industry such as British Gas.
Lord Diamond: I should have said (only I am anxious to save time) that of course one is familiar with this in a nationalised industry, We are talking about privatising this industry, and what I am asking therefore is for a precedent in a privatised industry, in the private sector of the economy, of people being treated in this way.
4.30 p.m.
Lord Belstead: I should like to look at this again. The precedent that I have is the Gas Act 1972, Sections 43(4) and 44(5). It may be that those two precedents suffer from the criticism which the noble Lord is levelling at me. I have given the noble Lord some information in reply to his question. If I might have a further look at it possibly I might write to him.
Lord Bruce of Donington: I too am a little puzzled about the wording of this clause. A "body corporate" is essentially an inanimate object. It may have a legal

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personality, but it can act only through its officers or through its servants. If we are to make a distinction between the body corporate itself and the individuals who are responsible for acting on its behalf and indeed for activating the company, we are getting into rather complicated grounds to which the provisions of the normal Companies Acts might well apply.
The noble Lord will recall that under the Companies Acts the occasions on which a director or an officer can have an action brought against him are clearly specified. I would hope that in this case, which will apply presumably to British Gas plc, the occasions on which an officer or director of the company can be prosecuted, where they are not already covered by the provisions of the Companies Acts and similar Acts, could be rather more closely specified than as put in this general form. The inquiry is quite a friendly one and if the noble Lord can help to elucidate the position a little that would help.
Lord Belstead: I am a little surprised that the noble Lord, Lord Bruce, has intervened in that way because I understood that the noble Lord, Lord Diamond, was satisfied with subsection (1). But once again perhaps I can read what the noble Lord, Lord Bruce, has said and if there is anything which we feel we need to add I shall write to the noble Lord, Lord Bruce.
I am sorry that my answers to the noble Lord, Lord Diamond, were not satisfactory. They were not satisfactory. The noble Lord was quite right to say what he said to me. The key to this is that the system of regulation has to apply to the existing British Gas Corporation until vesting day, that is why we have to cover the British Gas Corporation as we know it now. That is why subsection (2) is necessary and that is why the answers I gave are correct, although I did not explain why they were correct.
Clause 45 agreed to.
Clauses 46 and 47 agreed to.
Clause 48 [Interpretation of Part I]:
[Amendment No. 144 not moved.]
Clause 48 agreed to.
Clause 49 [Vesting of property etc. of Corporation in a company nominated by the Secretary of State]:
Lord Diamond Lord Diamond moved amendment No. 144ZA:
Page 49, line 3, at beginning insert ("Subject to subsection (1A) below").
The noble Lord said: This is an amendment which I hope the Committee will feel is well worth pursuing. I therefore beg to move. I am sorry that my diction is suffering a little. I have been biting my tongue so many times every time we have come to clause stand part that it is getting a little sore. However, I shall do my best to make clear my views to the Committee. This is a paving amendment for Amendment No. 144ZC, which I think may conveniently be discussed at the same time. That provides that the transfer date for this huge gas business shall not be prior to the end of the period of eight weeks throughout which the price of crude oil has on every day been above 15 United States dollars a barrel.
We have previously been discussing Part I of this Bill. We have done the best we can in recognition of our duty to improve the Bill and we have concentrated on matters such as looking after the consumer better, looking after safety better, and matters of that kind. We have now come to Part II which deals with the transfer of the undertaking of the British Gas Corporation and we shall now try to do our duty similarly in improving this part of the Bill.
One of the obvious ways of improving this part of the Bill is to try to secure that a good price, if possible the best possible price, is obtained for an asset which belongs to the nation and which the Government are seeking to sell. The Government show every sign of being in a hurry to sell. It is not very good if you are a seller to be in a great hurry, because you will have to accept the price that is available at that time. If you accept that, and it is a time at which the price has dipped, you will not get as much for the sale of your asset as you would if you were to wait until the price has recovered.
I do not need to justify my statement that the Government are in a great hurry. We all know what estimates the Chancellor has put in of the moneys which he expects to collect by virtue of floating off these national assets and using the money, as we all know it has been made absolutely clear, for current purposes, namely, the reduction of taxation. He needs everything he can lay his hands on. He has made that very clear and the pressures of public expenditure make it even clearer. So there is no doubt whatever that the Chancellor is under very great pressure to sell the shares in the gas undertaking; in other words, to sell the assets of the present nationalised company as fast as he jolly well can.
We are concerned whether that is the best way of protecting the nation's purse and disposing of the nation's assets. I do not think it is. Therefore, an amendment has been introduced in order to give some protection to that sale. The protection proposed is to wait for such a period as that when the crude oil price expressed in dollars has broadly settled down into a figure which is, on the basis of those who are knowledgeable in this field, reasonable to start to base a sale on. I am afraid that I have not ascertained exactly what the price per barrel is today—
Lord Ezra: Eleven dollars.
Lord Diamond:—but it has been descending towards 10 dollars a barrel. I gather from my very knowledgeable friend Lord Ezra that it is at the moment about eleven dollars a barrel.
A report was issued by the United States Department of Energy at the end of April, quoted in The Times, which gave a warning that cheap oil was unlikely to last much beyond the end of this year and that prices will gradually move back to between 25 and 32 dollars a barrel by the mid-1990s. It also feared that the price could go as low as 10 dollars a barrel. It is quite conceivable, as it is now eleven dollars, that the Chancellor might be tempted, as a result of the pressures that are upon him, to try to float the sale of these shares at a time when the market was immensely depressed because of the dollar price per barrel.

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I hope the Minister will not say that this is a very imprecise form of measurement. It may be slightly imprecise, and if the Minister prefers a formula which gives greater precision nobody would be better pleased than I would. But it is as an amateur that I use the language, which is the common language in the market at the moment, of talking about the dollar price of crude oil. That is a sufficient indicator. So what I am suggesting is that we must have a minimum of 15 dollars in relation to anybody's estimates of the extent to which the price will improve in the not too distant future. In particular, we must have some measure of stability in the price. Therefore, I have suggested a period of eight weeks throughout which the price has on every day been about this minimum.
Again, the Government may say that they do not like eight weeks, that they would prefer six weeks or 12 weeks, or some other formula to determine a stable price. The formula does not matter. What we are concerned with is getting a good price, and, if possible, the best price, for the sale of our national assets. I think this is a very important aspect to bear in mind. We know that the Chancellor is under enormous pressures, and I think therefore that there ought to be inserted in the Bill a provision to encourage him to take a longer view and to withstand being pushed around by those who are pressing him to get cash at whatever cost in the long term to the nation. I beg to move.
Lord Boyd-Carpenter: This is a very odd amendment indeed. It is a matter on which one can speculate as to the motives that lie behind it. But taking it first of all, as courtesy demands, at its face value, it is a very odd proposal indeed. Of course, the price of oil at any one time certainly would be a factor in the view which the market would take of the sale of the gas industry. But the noble Lord, Lord Diamond, knows perfectly well that it will be only one factor and that the price which the Government would feel able to seek would depend not merely upon the price of oil but on a whole variety of other factors—the general state of the market, the general state of confidence or lack of confidence in the economy and the competing claims of other considerable financial transactions such as the large takeover activities that are taking place. There will be a whole variety of factors of which this is only one.
There might well be a situation in which all the factors, bar the price of oil, pointed to this being the right moment to go ahead with the transfer. But if you carried this into law, the Government would have to sit by, watching the price of oil daily and see that opportunity go. The whole thing, with respect, would be a very great nonsense, and I suspect that no one knows that better than the noble Lord, Lord Diamond.
As I see it, this is simply an attempt to delay the denationalisation of the industry. The noble Lord, Lord Diamond, and his noble friends have made it perfectly clear that they oppose this denationalisation. They are entitled to their view just as some of us 30-odd years ago were entitled to our view that the industry should not be nationalised. But the Second Reading and earlier Committee proceedings of this
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Bill and the proceedings in the other place have taken place and the general principle has been accepted by Parliament that denationalisation is to go forward. Therefore, to try to hamper by one limited piece of legislation such as this those who have to handle the actual marketing of the industry I really think goes against the whole way in which we try to conduct our public affairs in this country.
I appreciate, as I am sure the Committee appreciates, that one of the most difficult problems that the Government have to face in any denationalisation project is the price which they are going to ask for the shares. I would be the last man to say that in previous rounds the Government have always been right. In one or two cases their decisions, at any rate, have been very questionable. I think that one must accept that the Government want to get the highest price they reasonably can consistent with the whole of the considerable operation of marketing the shares going ahead. It is a difficult enough task, particularly when, as the Government know, if the price that they ask for and get seems to public opinion to be too low they will be very much criticised. There will be all sorts of remarks about selling the family silver and other clichés to which we have become almost drearily accustomed in the last year or two.
But the Government have to take the responsibility of setting the price and the Government therefore have to take the responsibility, once Parliament has decided on denationalisation, as to the timing of the marketing operation. I suggest to the Committee that it would be quite ludicrous to take just one factor—perhaps not even the most important one—that could affect the price obtainable, and tie everything by law to that. I hope that the Committee will not treat this amendment very seriously.
4.45 p.m.
Lord Bruce-Gardyne: I am marginally more in sympathy with the noble Lord, Lord Diamond, on this amendment than is my noble friend Lord Boyd-Carpenter; but I must say, not much. In particular, I could not agree more with the noble Lord, Lord Diamond, in his proposition that the formula suggested is imprecise. There is not one price for oil; there is a whole series of prices for oil and it is very much open to question which particular price might be appropriate if one were to espouse his basic concept at any given moment. I very much agree with what my noble friend Lord Boyd-Carpenter had to say about the other factors which could have a much more significant impact on the price that the Government obtain for this asset when it comes to putting it into the private sector.
Apart from that, I have myself always felt that the return to the Exchequer should not be the overriding consideration in these operations. Personally I have always thought—and I still think—that the overriding consideration should be the enhancement of choice to the consumer and the provision of enhanced competition. I very much regret, as I have said before, that the Government have chosen to avoid that opportunity in the context of this particular legislation. Having done so, I think that, as my noble friend Lord Boyd-Carpenter has said, there are obviously all sorts of considerations which should

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determine the precise timing and the price that the Government are likely to get.
The only reason that I have some slight sympathy with the noble Lord's amendment is that I increasingly wonder whether the Government are going to find the climate for the disposal of this particular asset to be particularly alluring this autumn. We are seeing gas prices sliding in pursuit of oil prices. I have said on many occasions that I have a nasty suspicion that any widow or orphan who entrusted his or her savings to the tender mercies of Sir Denis Rooke to look after them as the guardian of an investor in a private sector corporation might have cause to regret that choice. I certainly think that the background could well be less than ideal; less ideal than it otherwise would have been, in any case, given these other considerations, by the time this autumn comes along.
Having said that, I would submit to the Committee that this particular amendment can hardly be the most appropriate way to try to ensure that the Government get their timing right. In fact, I think it could be quite easy to imagine that there could not be a much worse way of tying the Government's hands as to the precise timing of this disposal.
Lord Stoddart of Swindon: I should like to get up and support the noble Lord, Lord Diamond—
Lord Boyd-Carpenter: Surprise, surprise!
Lord Stoddart of Swindon: I am glad that it is not a surprise to the noble Lord, particularly since he was speculating about the motive behind the amendment. The motive behind the amendment is quite clear. In fact, the noble Lord, Lord Diamond, spelled it out and there is no reason to disbelieve him when he says that the motive behind this amendment is to protect the taxpayer, to protect the owners of the existing organisation, which it seems to me is an entirely laudable thing to do. Bearing in mind the experience with British Telecom, where millionaires were made overnight at the expense of the taxpayer, it seems to me that the noble Lord, Lord Diamond, should be commended for his efforts to ensure that we do not have another British Telecom situation thrust upon us because of the oil price.
I do not want to speak for too long, but the oil price is indeed important. It is important because the British Gas contracts with third parties are, as I understand it, tied to the oil price. Therefore, the lower the oil price, the lower the assets in the gasfields of the British Gas Corporation and the lower the value of the British Gas Corporation's own assets. That is bound, in turn, to affect the view of people who wish to invest in the new privatised British Gas.
Although I agree with the noble Lords, Lord Boyd-Carpenter and Lord Bruce-Gardyne, that it is only one element which investors take into account, it could now be a very large element because the pressure on oil prices, and the lowering of oil prices, not only reduces the perceived assets, the value of the gas assets of the gas corporation, but has an effect on perception as to the future gas price and, therefore, the profits that can be made from gas, particularly since there is now—and we have heard a lot about competition from
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electricity—the very acute competitive pressure from the electricity industry on gas prices.
Only last week the chairman of the Electricity Council stated that any lowering of the gas prices later this year would be matched by the electricity industry. The price war is now on. Is this the most propitious time, when there could be a price war in the autumn, to launch the sale of British Gas, when the reason for that price war is the depressed price of oil? It seems to me that the noble Lord, Lord Diamond, has been perfectly logical and has acted logically in putting down this amendment, in order to draw the attention of the Committee to the problems which exist and to try to protect the taxpayer.
We are serious people in this committee and we have a care, I hope, for the assets of the people. They belong to all the people at the moment and we ought to have a care for them. We are all taxpayers and, though we in this Committee have no financial role, we are nevertheless known for protecting people and for looking after the overall and best interests of the country. Therefore, it seems to me that the noble Lord, Lord Diamond, has drawn our attention to an important matter.
According to the newspapers, the sale is already under way. The Observer last Sunday stated:
"Countdown begins for gas privatisation: Telecom hype for British Gas",
while in The Times this morning there is an article headed "British Gas Warms Up". It is all very nice to have these articles from journalists, but our job here is to see that when the Bill leaves this House it is the sort of Bill which will be good for the country. Therefore, I support the noble Lord, Lord Diamond, in his amendment and I am glad that he put it down to enable us to have this discussion.
Lord Taylor of Gryfe: I should like to support my colleague, my noble friend Lord Diamond. I accept all that has been said by the noble Lords, Lord Boyd-Carpenter and Lord Bruce-Gardyne, that this is not a perfect formula, but it gives us the opportunity of inviting the Minister to say what are the considerations which will influence him in the timing of taking British Gas to the market.
I accept that the price of oil is not an overwhelming factor. There are other factors—the competition of other issues in the market at the moment; the weight of issues that are overhanging the market; the state of the market in general and the fact that it is substantially a "bear" market at the moment, particularly in the energy sector. So this might not be the best time to sell this important national asset. I always like to think that in looking at this matter the House of Lords should constitute itself as a kind of board of directors of the national assets, or custodians of the national assets, and consider whether this is the right time to dispose of assets of the company. Undoubtedly, this is not the right time.
The record of the Government in disposing of state industries has not been a good one. If you look at the post-mortems which usually occur in the Public Accounts Committee in another place, you will see the record of prices that have been set for the disposal of national assets. That indicates that the Government have not been very successful or wise in terms of the

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national interest in the disposal of these assets. Amersham was a case in point, as was British Telecom, where the taxpayer did not get value for the assets which were then sold in the market.
What we are inviting the Minister to tell us today are the considerations, and what kind of remit he will give to the distinguished merchant bank which is handling this quotation. Will it have to sell at the best possible price at the best possible time, or dispose of the asset in order that the Treasury will get sufficient money to pay for tax concessions before the next general election? If it is the latter, it is bad stewardship in safeguarding the national assets.
I notice that people are calculating the kind of price that might be realised for the disposal of British Gas, as though I billion here or there were of no account. It may fetch £5 billion or even £6 billion—as though £1 billion does not matter in terms of disposing of a great national asset. So I invite the Minister, in the light of this amendment, to tell us a little more about how best we are going to realise the maximum advantage in disposing of British Gas.
Lord Sanderson of Bowden: There is always a right time and a wrong time to dispose of an asset, to float a company or whatever. I suppose that one could go on arguing this all evening. After all, it could be that if this Bill had passed into an Act at the beginning of this year the stock market would have been considered at the wrong level. Much to the surprise of many people, in the first three months of this year there was the most enormous hype—I think that word was used by the noble Lord, Lord Stoddart of Swindon—in the general price of the market. I am all for listening to the Minister to find out exactly what considerations are taken into account when a flotation of this size comes to the market, but to tie the hands of the Government and to say that under this amendment one has to wait until these conditions are fulfilled is going totally in the wrong direction.
It is very interesting to note that a very large company is coming to the market. Before one makes general statements about the price of shares, one ought to see what the relative prices of the British Petroleum Company and Shell Transport and Trading have been over the past few months. I have not noticed that there has been a significant downturn in the prices of these major companies in the oilfields. They are affected by the state of the oil market but they are big enough to withstand the ups and downs in the oilfields, which is not possible in the smaller companies. We should look at that when we are considering how free a hand the Government should have to float this large company on the market.
5 p.m.
Lord Brabazon of Tara: We have had an interesting discussion on this amendment and I must say straight away to noble Lords opposite that the only matter about which I can probably agree with them is that the Government are indeed concerned to get a good price for the sale of the British Gas Corporation. I am sure that the noble Lord, Lord Diamond, has seen the report published recently by the stockbrokers Wood Mackenzie which throws some light on this aspect—the effect of lower oil prices on British Gas.
Lord Stoddart of Swindon: I am sorry to intervene so soon but I could not help hearing what the noble Lord said. The Government expect "to get a good price". What I expected the noble Lord to say is that the Government will get the best price. That is what it is all about.
Lord Brabazon of Tara: I am quite happy to rephrase my original remark. The Government are concerned to get the best price. Having said that, it is nearly impossible to get absolutely the best price, as the noble Lord will be aware.
I was mentioning the report by the stockbrokers Wood Mackenzie which throws some light on this amendment and on the impact of the oil price on the valuation of British Gas. The report makes clear that the effect of lower oil prices on British Gas' business is highly complex. It concludes however that,
"profits, over a period, should not be under undue risk",
and that,
"investors wishing to have an energy flavour to their portfolio … might find this company an attractive way to achieve such an exposure".
It is clear then that while the effect of lower oil prices is far from straightforward, there is no need for the excessive caution which this amendment seeks to impose. The noble Lord, Lord Diamond, said that the general perception was that oil prices would rise next year and thereafter as well. All I can say to the noble Lord is that this will surely be reflected in the market's assessment of British Gas even if it is sold, as expected, later this year.
Perhaps I could also just mention the purpose of Clause 49 in which this amendment is placed. Clause 49 is the fundamental provision for vesting British Gas's undertaking in a successor company on a transfer date to be fixed by the Secretary of State. The transfer date is not of course the date of flotation. It is reasonable to assume that the transfer date will be some weeks ahead of any proposed flotation date to allow the new company to establish itself and to trail the proposed sale of shares. The noble Lord, Lord Stoddart, was quoting from the newspapers, including The Times—I am very pleased to hear that he is allowed to quote from The Times newspaper—in saying that that process has already started. That is obviously a matter for the journalists and not for me. To the extent that oil prices may be relevant to the sale—and we believe they are of only limited relevance—it is the flotation date which matters rather than the vesting day or the transfer date.
My noble friends Lord Boyd-Carpenter and Lord Bruce-Gardyne quite rightly said that a number of other factors would have to be taken into consideration. I can confirm what they have said. The flotation will proceed only if the Government are satisfied that a fair price can be obtained against the background of prevailing market circumstances.
The noble Lord, Lord Taylor of Gryfe, asked me to throw further light on that, and this I will do. The most important consideration will be the company's value to investors at any particular point in time and they will judge this against the profitability of other companies and the overall state of the market. The Government will of course consider most carefully the

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timing of the proposed sale but oil prices are only one of many factors against which a decision on timing will be made. I am afraid to say therefore that I cannot really—
Lord Bruce-Gardyne: I apologise for interrupting my noble friend but he made a rather important statement just now and I want to make sure that it is clear. He said that the Government would choose the flotation date on the basis that a fair price could be obtained against the prevailing market conditions, or words to that effect. Does he mean that a fair price could be obtained in the estimation of the Government in general terms, or the price that could be obtained would be a fair one given the conditions in the market place? There is a distinction there.
Lord Brabazon of Tara: I said,
"a fair price can be obtained against the background of prevailing market circumstances".
That is what I said.
I therefore feel that this matter of the oil price is not of the relevance which the noble Lord's amendment gives it. It would fetter the discretion of my right honourable friend the Secretary of State in deciding the best time to make the vesting order. Therefore, I cannot accept it.
Lord Ezra: Is the noble Lord saying, as the noble Lord, Lord Bruce-Gardyne, was trying to elicit from him, that the Government's prime concern will be to estimate a fair price in relation to any given set of market conditions? Does that mean that they are relatively indifferent to the market conditions and that all they will seek to ensure is that they will get a fair price in relation to those conditions?
Lord Brabazon of Tara: I think that that is what I said.
"The most important consideration will be the company's value to investors at any particular point in time and they will judge this against … the overall state of the market".
Obviously, we will attempt to get the very best price that is possible at the time of the sale.
Lord Ezra: That, I believe, is the issue upon which we appear to be divided. We are saying that this sale should take place in favourable market conditions—by "market" I do not refer only to the price of oil, although I agree that that is very important—not at a level which is judged by the Government to be fair in respect of any market conditions. There appears to be a fundamental difference between us. If the noble Lord is right in his preliminary assertion, which was amended after the intervention of the noble Lord, Lord Stoddart, that the Government would be aiming to get the best price, they must surely be seeking to dispose of these assets in the best market conditions. Is that what the noble Lord really means?
Lord Brabazon of Tara: I do not really believe that the market works like that. Who is to judge when the best market conditions will take place? We might have just missed them for all I know. I do not feel—
Lord Bruce-Gardyne: I would sit down quickly if I were you.
Lord Brabazon of Tara: I am not going to take my noble friend's advice at this point but I shall fairly speedily sit down. The Government will seek a fair price in the light of all the circumstances and these will include market conditions.
Lord Stoddart of Swindon: The noble Lord has put me in a terrible difficulty. I do not quite understand what we are doing now. What the noble Lord seems to be saying is that the Government will go ahead and dispose of the assets at the best price they can get bearing in mind the market conditions as they stand at the point of sale. I am right? That is what he is saying, is it not? But where does the value of the asset come in? The value of British Gas must be so many thousands of millions of pounds. I believe it is about £16 billion. At what point do they say, "Thus far and no farther down"?
Does the noble Lord understand what I am getting at? If I had a car to sell, or if I had a house to sell, with a market value of £50,000, how far down might I be prepared to go to sell that property? Would the figure be £50,000, £40,000, £30,000 or £10,000? In other words, bearing in mind the market position at the time of the sale, to what extent are the Government prepared to devalue the undertaking they are selling?
Lord Brabazon of Tara: The noble Lord has answered his own question, when he said the house that he used as an example had a market value of £50,000. That is the price at which we would attempt to sell the house—£50,000. The noble Lord should not confuse the asset value, which we will come to in a later amendment, with the market value of the company.
Lord Stoddart of Swindon: I will not pursue that point because we would be here all night.
Lord Diamond: I anticipated that at the outcome of this discussion we would be more discontented than we were at the beginning, and that is the case. If I may say so pace the noble Lord who keeps challenging my motives, I wish that he would stop doing so because I do not challege his. I am talking about the noble Lord, Lord Boyd-Carpenter. The noble Lord is perfectly free to get up and support the Government over every single amendment, because he no doubt feels that way as a good Tory and wants to support the Government. That is fine, but he need not challenge my motives every time that he does so.
I am trying to see to it that the Exchequer gets as much as it reasonably can out of the sale. That is our duty in this Committee. The arguments that have been put against the amendment by noble Lords who have spoken on the other side have mainly been that that is a consideration but it is not the only consideration. Of course it is not. There are all sorts of other considerations, such as the condition of the market. I invite the noble Lord, Lord Boyd-Carpenter, to follow up the logic of his statement and put down an amendment saying what the condition of the market must be before the Government shall sell.

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The noble Lord would find that a little difficult to do. I found it impossibly difficult to put down any form of words that would be intelligible in the statute and define the condition of the market—although I hope of course that any trustee selling an asset on behalf of the beneficiary would have general regard to the condition of the market. So I am limited to putting down amendments that are intelligible and that refer to an important condition—a very important condition.
I have already said that 15 dollars a barrel is not as precise a definition as I would like, but it is general parlance and everybody knows what is meant. Every day the papers tell one that the price has gone up by £1 a barrel or has gone down by £1 a barrel. What they mean is a particular Kuwaiti quotation, but it does not matter because everybody knows what is meant. At the moment, the price is depressed.
The report did not say quite that which the Minister thought it did. The report to which I referred from the United States Department of Energy, which cannot claim to be supporting this side of the Committee or the other side, gave a warning that cheap oil is unlikely to last much beyond the end of this year. Cheap oil means oil at 10 or 11 dollars a barrel. It stated also that prices will gradually move back up, to between 25 and 32 dollars a barrel, which is a very different figure, by the mid-1990s. That is not quite what the noble Lord said and it does not support his argument about selling next year; one can wait a little longer to see how the market is moving.
The amendment is a fair attempt to protect the Chancellor against the pressures under which he exists. When we pressed the Minister to tell us what the Government are saying, he read out a form of words that was an insult to the intelligence of the Committee. It said precisely nothing—absolutely nothing. I took very careful note of what was said the first time. If the Minister will forgive me, I have regard to the brief that he read out and not to the trimming that he attempted to put on it off his own bat. What the Government will do is that stated in the brief, and it means absolutely nothing. I am not surprised that one of his noble friends invited him to sit down as quickly as possible.
We have had no assistance whatsoever offered to us in protecting the public purse on the sale of this asset. We are asked not to restrict the discretion of the Chancellor—the man who has disposed of assets with such brilliance hitherto, especially on the last occasion, which was British Telecom! He disposed of that with such brilliance that anybody with a spare dollar in his pockets on the New York Stock Exchange could make money by selling the stock the same day. I am not a little Englander. I am known to be a full European and a most enthusiastic one. I believe in neighbours, but I see no reason why British assets should be sold for the benefit of speculative New Yorkers on the New York Stock Exchange who can clear their account in one day and make a very nice profit. Millions were made in the one day, never mind in the first week.
Such is the brilliance of the Chancellor with whose discretion I am invited not to interfere. We would all of us be guilty of total negligence in this Committee if
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we did not seek to limit the discretion of a person who has behaved in that way with British assets, especially contemplating the present situation—a situation in which, as everybody knows, the market has moved down; a situation in which oil is depressed, as everybody also knows; a situation in which one has a huge amount of stock to float onto the market. The only way in which one is going to float it is by giving such a discount that one can be assured of getting it underwritten. The price has already dropped in general estimation. The value of the flotation of the company has already dropped since this measure was first put forward, and since the Government first introduced this Bill in another place, by something like £2 billion.
I hope that I have established, first, what are my motives; secondly, why I believe that a limitation on the discretion of the Chancellor is necessary; finally, why I believe that this is the best possible option available to those of us who have the responsibility of drafting amendments and for putting them down for discussion. In those circumstances I do not propose to budge one inch.
5.18 p.m.
On Question, Whether the said amendment (No. 144ZA) shall be agreed to?
Their Lordships divided: Contents, 81; Not-Contents, 111.

DIVISION NO. 2

CONTENTS

Ardwick, L.

Kilbracken, L.

Attlee, E.

Kilmarnock, L.

Aylestone, L.

Kinloss, Ly.

Banks, L.

Kirkhill, L.

Birk, B.

Llewelyn-Davies of Hastoe, B.

Blease, L.

Lovell-Davis, L.

Blyton, L.

McGregor of Durris, L.

Bottomley, L.

Mackie of Benshie, L.

Brockway, L.

McNair, L.

Bruce of Donington, L.

Molloy, L.

Buckmaster, V.

Mulley, L.

Caradon, L.

Nicol, B.

Carmichael of Kelvingrove, L.

O'Neill of the Maine, L.

Chandos, V.

Parry, L.

Chitnis, L.

Phillips, B.

Crawshaw of Aintree, L. [Teller.]

Prys-Davies, L.

Rhodes, L.

David, B. [Teller.]

Ritchie of Dundee, L.

Davies of Penrhys, L.

Rochester, L.

Dean of Beswick, L.

Rugby, L.

Denington, B.

Seear, B.

Diamond, L.

Sefton of Garston, L.

Donaldson of Kingsbridge, L.

Shackleton, L.

Elwyn-Jones, L.

Shepherd, L.

Ennals, L.

Simon, V.

Ezra, L.

Stallard, L.

Falkender, B.

Stedman, B.

Fisher of Rednal, B.

Stoddart of Swindon, L.

Foot, L.

Strabolgi, L.

Gallacher, L.

Taylor of Blackburn, L.

Gladwyn, L.

Taylor of Gryfe, L.

Glenamara, L.

Taylor of Mansfield, L.

Graham of Edmonton, L.

Tordoff, L.

Hampton, L.

Turner of Camden, B.

Hatch of Lusby, L.

Underhill, L.

Heycock, L.

Wallace of Coslany, L.

Houghton of Sowerby, L.

Walston, L.

Hughes, L.

Wells-Pestell, L.

Irving of Dartford, L.

White, B.

Jeger, B.

Williams of Elvel, L.

John-Mackie, L.

Ypres, E.

291

NOT-CONTENTS

Ailsa, M.

Lawrence, L.

Airey of Abingdon, B.

Layton, L.

Allenby of Megiddo, V.

Liverpool, E.

Bauer, L.

Long, V.

Beloff, L.

Lucas of Chilworth, L.

Belstead, L.

Lyell, L.

Boyd-Carpenter, L.

McAlpine of Moffat, L.

Brabazon of Tara, L.

McFadzean, L.

Braye, B.

Macleod of Borve, B.

Brougham and Vaux, L.

Mancroft, L.

Bruce-Gardyne, L.

Manton, L.

Butterworth, L.

Margadale, L.

Caccia, L.

Marley, L.

Caithness, E.

Marshall of Leeds, L.

Cameron of Lochbroom, L.

Maude of Stratford-upon-Avon, L.

Campbell of Alloway, L.

Carnegy of Lour, B.

Merrivale, L.

Cathcart, E.

Mersey, V.

Constantine of Stanmore, L.

Middleton, L.

Cork and Orrery, E.

Milverton, L.

Cottesloe, L.

Morris, L.

Craigavon, V.

Mottistone, L.

Cullen of Ashbourne, L.

Orr-Ewing, L.

Davidson, V.

Peel, E.

De La Warr, E.

Pender, L.

Denham, L. [Teller.]

Plummer of St Marylebone, L.

Drumalbyn, L.

Dundee, E.

Porritt, L.

Eccles, V.

Portland, D.

Eden of Winton, L.

Rankeillour, L.

Ellenborough, L.

Reay, L.

Elliot of Harwood, B.

Renton, L.

Elliott of Morpeth, B.

Rochdale, V.

Elton, L.

Rodney, L.

Erroll of Hale, L.

St. Davids, V.

Faithfull, B.

Saltoun of Abernethy, Ly.

Ferrier, L.

Sanderson of Bowden, L.

Fortescue, E.

Selkirk, E.

Fraser of Kilmorack, L.

Sempill, Ly.

Glanusk, L.

Skelmersdale, L.

Glenarthur, L.

Stodart of Leaston, L.

Gray, L.

Strathcona and Mount Royal, L.

Gray of Contin, L.

Grimthorpe, L.

Swansea, L.

Hailsham of Saint Marylebone, L.

Swinfen, L.

Swinton, E. [Teller.]

Hardinge of Penshurst, L.

Terrington, L.

Harmar-Nicholls, L.

Teynham, L.

Harris of High Cross, L.

Tranmire, L.

Hives, L.

Trumpington, B.

Hooper, B.

Ullswater, V.

Hylton-Foster, B.

Vaux of Harrowden, L.

Ingrow, L.

Vivian, L.

Kaberry of Adel, L.

Westbury, L.

Kimball, L.

Wolfson, L.

Kinnaird, L.

Young, B.

Lane-Fox, B.

Young of Graffham, L.

Lauderdale, E.

Resolved in the negative, and amendment disagreed to accordingly.
5.26 p.m.
Lord Diamond Lord Diamond moved Amendment No. 144ZZA:
Page 49, line 3, at beginning insert ("Subject to subsection (1B) below,").
The noble Lord said: This amendment refers to "subsection (1B) below", which is contained in Amendment No. 144ZD, and I assume the Committee will wish to consider that at the same time. Amendment No. 144ZD states:
"The transfer date referred to in subsection (1) above shall be subsequent to the day on which Parliament has considered the precise figure of the Efficiency Factor included in the price formula under which a public gas supplier shall be authorised to charge tariff customers for gas supplies".
In short, this amendment seeks to ensure that Parliament will have an opportunity to consider the figure of the efficiency factor, which we have not been promised on Report but which we still hope will be available on Report. If not, we shall do everything we can to insist on it being available before the Bill leaves your Lordships' House. The amendment seeks to ensure that Parliament should have the opportunity to consider the figure of the efficiency factor, which we understand is at the moment under discussion, and has been for a very long time, between the Government and the British Gas Corporation.
Why do I attach the utmost importance to Parliament—that is, both Houses—having an opportunity to consider that one figure before the Bill completes its passage through Parliament? It is because in my view it is the most important single figure in the whole Bill. May I be permitted to explain? Under the Bill, which transfers to a private monopoly what is at present a public monopoly, the protection of the consumer (which everybody admits is essential under a private monopoly) is ensured by giving the consumer such protection as to the price that he knows he will not be overcharged.
The consumer is not in a position to go elsewhere for what he needs. I am speaking now about the tariff consumer—the 16½ million tariff consumers who have to buy at this shop and cannot buy anywhere else. They cannot compare the price at one shop with the price at another shop. They are compelled to obtain their gas from this source only. Therefore it is the duty of the Committee to protect the consumer, as everyone recognises.
How is the consumer protected? The consumer is protected by having a price which will be fair in relation to the changing circumstances day by day and year by year, and that is not simply a cost-plus price. Apart from the efficiency factor, for all practical purposes this is a cost-plus price, and we all know that the last thing to be entrusted to a monopoly is a cost-plus method of calculating the sale price to a tied consumer. Therefore another element has to be introduced. The Government recognise this—we are on totally common ground at this point—and have introduced that other factor. It is called the efficiency factor.
One does not charge cost-plus overheads, etc., plus a measure of profit plus the variation in the way in which prices move from year to year. One takes off an efficiency factor to encourage improved efficiency and to allow the consumer to obtain the benefit of that increased efficiency. That is the efficiency factor. That factor has not been disclosed. I shall not go so far as to say that it has not been agreed, because I do not know that. All I know is that it has not been disclosed and that this Committee knows nothing about it, nor does the other place.
This amendment seeks to make sure that this Chamber will know about it, because, if the efficiency factor is a small figure, for all practical purposes it does not alter the basic principle of cost-plus charging. I do not want to weary the Committee with all the difficulties that have arisen with cost-plus charging in public life but I hope that we are all aware of them and can recollect them. We have to avoid cost-plus charging even where there is no monopoly. Where

293
there is a monopoly we have to avoid it like the plague. It would be cost-plus charging if it were a minimal efficiency factor. It would not be cost-plus charging if it were a substantial efficiency factor.
If one is seeking to protect the consumer, the whole basis on which approval of this Bill should depend is whether the consumer will be charged a reasonable price or overcharged. The consumer will be charged a reasonable price if the efficiency factor is substantial. He will be overcharged if the efficiency factor is small or negligible. Therefore in order to carry out our responsibility for protecting the consumer, we have to know what will be the efficiency factor. If the Government are not in a position to give that information now, they must give it as soon as they can and certainly before this Bill leaves this House.
One knows that the factor must be fixed before the shares go on the market, because, first the Government, in the person of the Minister himself, have said so and, secondly, no shareholder will touch this transaction with a bargepole unless he knows exactly what it will be. It might make all the difference to future profits or losses. He will not touch the shares at all unless he knows the efficiency factor exactly. It has to be in the prospectus and the Government have to make a statement about it. They know they have to do this and have said that they will do so.
I am simply asking that the figure which the Government will give the public shall be given to Parliament first, so that Parliament can decide whether the consumer is being adequately protected. That is the first duty of Parliament when agreeing to the privatisation of such a fundamental service as the supply of gas to 16½ million households. I beg to move.
Lord Bruce of Donington: We on this side of the Committee should like to offer our support to the noble Lord, Lord Diamond, in pressing for urgent and favourable consideration by the Committee of these two amendments, which should be taken together.
As the noble Lord, Lord Diamond, has said, there can be no doubt that until we know the extent of the efficiency factor it will not be possible for us to know the impact of this privatisation Bill upon the amounts paid out by the 16 million consumers of gas in this country for the continuation of the service with which they have been so successfully provided by the corporation that is responsible through the Minister to Parliament.
I am well aware that rumours have been bruited—as appears from today's Times, if I may quote from the City column:
"The other aspect of the package is the X factor in the formula for controlling gas prices. After prolonged discussions between the Treasury, the Department of Energy and Sir Denis, a formula allowing British Gas to raise prices annually by 2 per cent. below the rate of inflation appears to have been agreed".
We should like to know whether that speculation is true. In any event, if it is true then the Government should come clean and provide Parliament with the opportunity of discussing the matter. There is a world of difference between an efficiency factor of 2 to be taken into account in the price formula and an efficiency factor of, say, 5—a very great difference indeed.
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It is extremely important that the public, who of course will not be informed by the popular press as to the significance of this particular figure, should be aware of the consequences to their gas bills of the figure being fixed. The amendment that is now put forward by the noble Lord provides for notification of the figure to Parliament. Therefore Parliament is provided with an opportunity to discuss the figure and to consider how it has been reached. So far, the Government have been very coy about the considerations that they have in mind—the various factors and the weight that is attached to them for the determination of the figure. They may have given a hint, but the population at large and the 16 million gas consumers do not have a clue as to what considerations the Government have in mind.
Even the discerning readers of the Wapping-produced Times and the Tory broadsheet, the Daily Telegraph, let alone the more independent Financial Times, are still not aware of the various considerations entering into the efficiency factor. As the noble Lord, Lord Diamond, pointed out so succinctly, consideration by Parliament should precede the transfer date so that everybody may know exactly where they stand.
I am well aware that in the report of the House of Commons Select Committee on Energy on the regulation of the gas industry, at Appendix 2, there appear certain tentative speculations on the assumption of variable efficiency factors. I am not a continuous viewer of the television screen, but I doubt whether those illustrations have appeared anywhere on television, and I can testify that they have not appeared at all extensively in those portions of the press that are popularly bought by the general public.
The noble Lord is known as a most reasonable man. I appeal for his support for what his right honourable friend the Prime Minister calls open government. I invite him to come clean and to provide full explanations, with adequate illustrations, of exactly what the consequences will be for the consumer of the application of the efficiency ratio at various levels so that everyone knows. That should be accompanied by an explanation as to exactly what it means and exactly what considerations the Government have in mind. At the same time it should be explained to the people at large what the effect will be of the changes in accounting practice, to which I shall refer later when we discuss the various accounting factors relating to the Bill. What will be the effect of those changes on the forecast profits, which have to be taken into account in determining the efficiency factor?
Nothing can be lost by being open and straightforward about that. By and large, the population is already highly suspicious of the Bill, as is well known. I am bound to remind the noble Lord that in a recent Gallup poll nearly 80 per cent. of the population expressed distrust of the Government's trustworthiness. That is one of the reasons; they do not believe that the Government have been forthcoming with them and they ought to explain more frankly, openly and honestly exactly what they are doing.
The amendment of the noble Lord, Lord Diamond, may lack the degree of precision that he would like, but undoubtedly at Report stage he can amend it to

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meet the exacting requirements of parliamentary counsel and parliamentary draftsmen. But I implore the noble Lord in the best interest of good government to accept the amendment.
5.45 p.m.
Lord Belstead: There is nothing sinister in the efficiency or X factor in the price formula which is to be found in the authorisation and which is the subject to the two amendments moved by the noble Lord, Lord Diamond. It is a factor that will be set prior to privatisation when the scope for improved efficiency has been fully assessed, and the idea is that it will ensure that customers benefit. As I think on all sides we agree that that is highly desirable, it is also highly desirable that we should get the efficiency factor right.
I gave an assurance to the noble Lord, Lord Diamond, some days ago on a previous debate on the Bill that we were not deliberately delaying a decision on the efficiency factor but that we should need to announce the value of it well before flotation. I cannot give either noble Lord the assurances that they want this afternoon, but I understand that an announcement is likely to be made on the efficiency factor shortly.
Lord Diamond: I am grateful to the Minister. I accept what he says, that discussions are still going on, but I do not think that they are going on with quite the sense of urgency that a government who have high regard for the two Houses of Parliament would adopt. His final promise was that an announcement would be made shortly. Happily we are on common ground that there is nothing sinister about the efficiency factor. I never said that there was. There might be something sinister about the Government being unwilling to disclose it to the Houses of Parliament.
We agree that the efficiency factor has to be fixed before flotation. I said that the noble Lord had been good enough to assure me on that. That is for the common sense reason that no one would buy a single share if it were not. He says that it will be fixed shortly. The only question is whether that will be before the Bill has left your Lordships' House. If he can go a little further and say that the Government have to provide the figure before flotation, they will provide it shortly and that means before the Bill leaves your Lordships' House, I should say that I was grateful and sit down. Is he prepared to give that assurance? If he is not, why not? The sinister side then comes up. I hope that he can give that assurance and that therefore we need not think what to do about the amendment just yet.
Lord Belstead: I cannot give the assurance for which the noble Lord asks. I am sure that we shall be doing our best, and I have no doubt that I shall be able to say something more shortly.
Lord Diamond: I am grateful to the Minister. We are content to take small—almost invisible—crumbs on this side of the Committee, as we know that we shall be voted out every time that the Government want to do so. We are permanently in a minority. We understand that and we understand that that is the way that democracy functions in this great country of ours. That being so, we have to be satisfied with the
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minimum sized crumb. Will the noble Lord be good enough to say what he meant when he said that he would be making an announcement shortly? Will that be before or during the Report stage and no later than that? If it is later than that, it will be of no use to us.
Lord Belstead: I am afraid that I have exhausted the offerings that I can make to the noble Lord, except to say that "shortly" means shortly.
Lord Bruce of Donington: May I press the noble Lord a little further? It is not unknown for governments to defer announcements until after Parliament has gone into recess and on occasion by a planted Written Question to be replied to officially on the last day that Parliament is sitting. That device must be known to the noble Lord and to the great department in which he has some interest. Can the noble Lord give Parliament the assurance that the announcement will be made before Parliament goes into the Summer Recess, because that might assist us a little?
Lord Belstead: I must say that I am disappointed in the noble Lord. He started his remarks on this amendment by generously saying that I was a reasonable man who would treat in all fairness the Committee and the things that we do. Now the noble Lord is suggesting that I shall make some announcement just after the House has gone into recess. Perhaps the noble Lord was not saying that, but I am not sure.
Lord Bruce of Donington: I hasten to disassociate the noble Lord from the machinations of the department of government in whose hands the Bill finally rests. We well know that if matters were left to the noble Lord as the Minister of State of the department responsible for this wretched Bill, things might be considerably different, but he is not in that position; he is the spokesman of the department concerned; he is not the Minister responsible. Surely it should be within the noble Lord's competence to find out by a suitable reference, which can be across the Committee on paper, whether the announcement will be made before Parliament goes into recess.
Lord Belstead: It had crossed my mind that that is what the noble Lord, Lord Bruce, meant. I could not credit though that the noble Lord was casting aspersions upon my right honourable friend the Secretary of State who has produced an admirable Bill which will be excellent in the effects that it has upon customers.
I shall for a moment return to the original reason for the amendment being tabled. The noble Lord, Lord Diamond, has at heart the customer's interests and so does the noble Lord, Lord Bruce; but so do the Government. It is in that context that I repeat the undertaking that I gave a little while ago: we hope to be saying something more about this matter shortly.
Lord Diamond: It is difficult for the Member who has moved the amendment to interpret the word "shortly". The essence of the difference between us, which is small but important, is not the date and what "shortly" means; it is whether Parliament will have an opportunity to consider the matter. Why should the

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Government be unwilling to give Parliament that opportunity? They have a huge majority in the other place and a reliable majority in this place. They can achieve their purpose, no matter how dissatisfied Parliament may be—and I hope that it will not be—with the efficiency factor when it is disclosed.
I cannot understand the Government's hesitation. I should have thought that the Government would be prepared to say that they will undertake to see that the negotiations are completed in sufficient time to put the decision in front of your Lordships before the Bill leaves the House.
I have no need to press the noble Lord the Minister any more. He has gone as far as he can go. He has been good enough to say that an announcement will be made shortly. We are in Committee and we shall be coming to the Report stage later. We shall have an opportunity on Report to air our views on this matter again if—and I hope it is not the case—we have not received the information within the next two or three weeks, if that is what "shortly" means.
I repeat that we shall do everything in our power to persuade the Government during the Bill's remaining stages to see that it does not leave this place until your Lordships have had the opportunity to consider that figure, which is crucial for protecting the consumer. On that basis I hope that the Committee will agree that on balance, this being the Committee stage, with the Report stage to follow, and a Third Reading after that, I should ask for permission to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 144ZB to 144ZD not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 144A:
Page 49, line 12, after ("Corporation") insert ("and the Director").
The noble Lord said: This is a relatively minor amendment and I hope one which will be accepted easily by the Government. When choosing the successor company in its shell form, if I may put it like that, the Secretary of State may, as the Bill is presently drafted,
"after consulting the Corporation, by order nominate",
the successor company.
It is our belief that the director, who will after all have overall powers under the statute to control the industry, should be consulted even at this early and relatively unimportant stage on which company and what form it should take before the Secretary of State makes his order.
I say that because the company—although it will be a company limited by shares owned wholly by the Crown—may have certain characteristics which the director may find objectionable in the context of it being the shell company into which the assets of the British Gas Corporation will be pushed. I do not believe that the issue is complicated or important. I hope that the Government will see fit to accept the amendment. I beg to move.
Lord Brabazon of Tara: We recognise the widespread desire to give the director the fullest
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possible role in relation to the industry. However, it would be inappropriate formally to involve the director in matters relating to the vesting or the flotation of the company. The Director General of Gas Supply is appointed under Clause 1 to act as a regulator for the gas industry. Ofgas will be an independent regulatory body. We have already had a number of debates about the director's functions under earlier clauses. It is important to remember that those functions are assigned to the director by Part I of the Bill. The director has no functions under Parts II or III of the Bill. That is made clear by Clause 1.
The director will be responsible for ensuring that public gas suppliers and others meet the full requirements of the regulatory regime, whether set out in the Bill or in the authorisation conditions. He will have the enforcement powers necessary to ensure that that happens and he will be able to modify public gas suppliers' authorisations if that is necessary. He will also have a number of other functions in relation to gas supply matters.
The Secretary of State is at present the guardian of the nationalised British Gas Corporation. It is the Secretary of State who appoints the transfer date and nominates the successor company under Clause 1, and who gives directions as to the issuing of securities in the successor company under Clause 51. Clearly, it is right that he should consult the corporation about the identity of the company to be nominated as the successor company as it is to that company that all property and rights will be transferred. We do not believe that there is any purpose in consulting the director, who has no relevant functions, although there is nothing to prevent the Secretary of State from consulting him informally if he wishes to do so. I feel that the amendment is another attempt to fetter the Secretary of State's discretion in a way which is unnecessary and inappropriate. I therefore cannot accept it.
Lord Williams of Elvel: I am grateful to the noble Lord for his response. I hear all that he says. He merely outlined what the director's responsibilities are under the Bill as proposed. If we can have an assurance that the company that will be nominated will be a "clean" company, without assets and liabilities other than the proceeds of its paid up share capital—in other words, it is a "clean" company without any problems—then I shall be happy to withdraw the amendment and shall not move Amendment No. 144B.
6 p.m.
Lord Brabazon of Tara: As the noble Lord says, we really come to that on the next amendment. However, I am quite happy to speak on that amendment now and to give the explanation that the noble Lord, Lord Williams, seeks. The successor company to be nominated by the Secretary of State will be a registered company with no assets and liabilities, and with an authorised share capital of £50,000 with a paid-up share capital of two £1 shares owned by the Secretary of State or his nominee. In other words,it will in all respects be a "shell" company which will not have traded until vesting day. This "shell" company has already been formed in preparation for vesting but will be entirely dormant until then. It is not proposed

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to vest the corporation's assets in a company already trading on the market, nor is it a route to a back-door merger. If the noble Lord examines subsection (2) closely, he will see that the company to be nominated must be wholly owned by the Crown. Therefore, the successor company will need to be one specifically set up for the purpose. I hope that this explanation will clarify the noble Lord's mind.
Lord Williams of Elvel: I am grateful for the noble Lord's full explanation, which does indeed answer the points that I wished to make. We have incidentally discovered another interesting fact—that a company has already been formed in the ownership of the Secretary of State to receive the assets of British Gas for privatisation. I mention that in passing. It has already happened. In the light of what the noble Lord has said, I have the assurances that I wanted. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 144B not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 144C:
Page 49, line 15, at end insert—
("( ) An order made under subsection (2) above shall include the successor company's Articles of Association.")
The noble Lord said: We come now to the very important question of the special share arrangements contained in the draft articles of association which the noble Lord on the Front Bench opposite has been kind enough to make available to us. The status of the privatised British Gas, whether it is to continue to be a British company in the full meaning of the word or whether it is to be directly or indirectly controlled by foreign interests, is, in my view, one of the fundamental questions dealt with in the Bill. We are, of course, not suspicous. Far be it from us to be suspicious about the noble Lord's right honourable friend the Secretary of State for Energy. I cannot help noting, however, that under Article 10(5) of the articles of association as at present drafted it is stated:
"The Special Shareholder may, after consulting the Company and subject to the provisions of the Act, require the Company to redeem the Special Share at par at any time by giving notice to the Company and delivering to it the relevant share certificate".
In other words, the Secretary of State or other agent of the Crown who, under Article 10 of the draft articles of association, is empowered to hold this share, may, if he feels it appropriate, require the company to redeem the share. Under those circumstances, all the rights attached to the special share, which prevent foreign interests—I shall not go into the legal jargon—holding collectively more than 15 per cent. of the privatised British Gas, are immediately removed. For us, this is a very fundamental question. We have argued it on previous occasions; we have argued it on other Bills in respect of other organisations that are being privatised. Indeed, only yesterday, in your Lordships' House, we had a prolonged discussion about the status of the special share in the Airports Bill.
Our amendment puts what I would call the minimalist position. In other words, we seek to ensure—and this is the minimum that we
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require—that the articles of association of the successor company shall be in parliamentary form; that is to say, that they will be included in the order that the Secretary of State makes, and, as such, will be submitted to Parliament. There is, if I may say so, a maximalist formula, which is contained in Amendment No. 144FA in the names of the noble Lords, Lord Diamond and Lord Whaddon, that would make the special share the object of a new clause on the face of the Bill. The Government can accept whichever of these amendments they think fit, but one of the amendments, in our view, they must accept.
It is intolerable for us to accept that we can privatise a major industry, a very large company, which has in many respects a natural monopoly position, without having an assurance which only Parliament can renege on, which only Parliament can cancel, that it will not fall under the control, direct or indirect, of people who might be working against British interests. This argument has been made on a number of occasions in a number of places—in another place as well as in your Lordships' House—on other Bills, and I do not want to elaborate it. For us this is an extremely important matter. I beg to move.
Lord Diamond: I do not want to delay the Committee but I wish to assure the noble Lord, Lord Williams of Elvel, that I support entirely what he has put down. It is, as he says, a minimal provision. It does not go anything like as far as I should like it to go. The noble Lord will not mind my saying so, I know. He probably agrees. But it is the minimum, and it is not a bad policy when dealing with a Government that have an inlaid majority to ask for the minimum. I support the noble Lord on that basis.
Lord Brabazon of Tara: I am grateful to the noble Lord for this opportunity to address the question of the articles of association since these are, of course, fundamental to the activities of the new company. Let me say straight away that I understand the desire of noble Lords to ensure that the draft articles of British Gas, which have been public for some months and which were made available to noble Lords at the beginning of the Committee stage, should be established as the articles of the successor company. However, I hope to demonstrate to noble Lords why a statutory arrangement would be inappropriate.
As a matter of company law, articles can always be changed by shareholders' vote. To set them by secondary legislation, as proposed in the noble Lord's amendment, would deprive shareholders of their normal rights. This would be a completely unwarranted interference in the normal rights of shareholders. A statutory arrangement would also be unworkable. A need to change the articles could arise at any time for a variety of reasons. It would be extremely difficult to effect changes speedily if the articles had been laid down in legislation. But overriding all these considerations is a more fundamental point. The only legitimate Government interest in the articles of association of what will be a private company is the limitation on shareholdings. This is protected by the special share referred to by the noble Lord, Lord Williams, which effectively entrenches the limitation in the articles. The Government's interest is therefore fully protected.

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As regards the special share, the articles of the company state that certain specified matters including the 15 per cent. limitation on shareholdings are deemed to constitute a variation of the rights attaching to the special share. Under the Companies Act 1985, rights attached to a particular class of share cannot be varied unless inter alia the holders of 75 per cent. of the shares of that class consent to the variation. Since the special share constitutes a class of its own, its rights, including the 15 per cent. limitation, cannot be varied without the Government's consent. I accept that the explanation that I have given does not go so far as the noble Lord, Lord Williams of Elvel, would hope. I believe, however, that I have explained the workings of it in any case.
Lord Williams of Elvel: I am afraid that I find the noble Lord's explanation less than wholly convincing, as I am sure he probably expected. It is certainly true that the articles of association of a public company can be changed under normal circumstances by a special resolution that requires 75 per cent. of those present and voting. But these are not normal circumstances. This is a privatised monopoly. It does not seem to me relevant in any way to refer to the normal activities of a private company, to the normal rights of shareholders of a private company, when we are talking about British Gas plc.
Furthermore, the rights of shareholders, as the noble Lord himself has remarked, are affected by the draft articles of association. Here the shareholders cannot change certain articles in the articles of association by the normal procedures of a special resolution. I am asking: why not put the whole lot in the order? The order can be changed; there is no problem about that. Orders have been changed; orders have been revoked. The only point is that if an order is changed after a suitable resolution by shareholders, then it is submitted to Parliament and Parliament has the right to pronounce on it. That is the minimal position, and I am afraid we cannot move from that position.
Lord Bruce of Donington: May I ask the noble Lord to elucidate one point? He said that circumstances might arise that would necessitate a change in the company's articles. In previous debates in Committee one of the strong points that the Government have called in aid is the intention of the new plc in a whole number of respects to do exactly the same as the corporation has hitherto done—to pursue the same policies over a very wide field. Will the noble Lord give the Committee some account of the circumstances that he or the Government have in mind? He referred to "in certain circumstances". Can the noble Lord give an account or description of the circumstances that his department has in mind?
Lord Brabazon of Tara: No, not really. I cannot give a reason why the company might wish to change its articles of association. I am sure that there could be various different reasons. I said that with regard to the Government their interest in the articles of association was restricted to the limitation of holdings in which the special share is important. That is a matter which cannot be changed whereas they might want to change something relatively minor.
6.12 p.m.
On Question, Whether the said amendment (No. 144C) shall be agreed to?
Their Lordships divided: Contents, 75; Not-Contents, 102.

DIVISION NO. 3

CONTENTS

Airedale, L.

Kirkhill, L.

Ardwick, L.

Llewelyn-Davies of Hastoe, B.

Attlee, E.

Lloyd of Kilgerran, L.

Aylestone, L.

Lovell-Davis, L.

Birk, B.

McGregor of Durris, L.

Blease, L.

McIntosh of Haringey, L.

Blyton, L.

McNair, L.

Boston of Faversham, L.

Mulley, L.

Bottomley, L.

Nicol, B.

Brockway, L.

Oram, L.

Bruce of Donington, L.

Phillips, B.

Carmichael of Kelvingrove, L.

Ponsonby of Shulbrede, L.

Chandos, V.

Prys-Davies, L.

Chitnis, L.

Rhodes, L.

Cledwyn of Penrhos, L.

Ritchie of Dundee, L.

Crawshaw of Aintree, L.

Rochester, L.

David, B. [Teller.]

Seear, B.

Dean of Beswick, L.

Shackleton, L.

Denington, B.

Shepherd, L.

Diamond, L.

Silkin of Dulwich, L.

Elwyn-Jones, L.

Simon, V.

Ewart-Biggs, B.

Stallard, L.

Ezra, L.

Stedman, B. [Teller.]

Falkender, B.

Stoddart of Swindon, L.

Fisher of Rednal, B.

Strabolgi, L.

Foot, L.

Taylor of Blackburn, L.

Gallacher, L.

Taylor of Gryfe, L.

Glenamara, L.

Tordoff, L.

Graham of Edmonton, L.

Turner of Camden, B.

Grey, E.

Underhill, L.

Hampton, L.

Wallace of Coslany, L.

Hanworth, V.

Walston, L.

Harris of Greenwich, L.

Wells-Pestell, L.

Hatch of Lusby, L.

Whaddon, L.

Hughes, L.

Wigoder, L.

Irving of Dartford, L.

Williams of Elvel, L.

Jeger, B.

Wilson of Langside, L.

John-Mackie, L.

NOT-CONTENTS

Ailsa, M.

Ferrier, L.

Allenby of Megiddo, V.

Fraser of Kilmorack, L.

Alport, L.

Gibson-Watt, L.

Arran, E.

Glanusk, L.

Bauer, L.

Glenarthur, L.

Beloff, L.

Gray, L.

Belstead, L.

Gray of Contin, L.

Brabazon of Tara, L.

Hailsham of Saint Marylebone, L.

Broxbourne, L.

Butterworth, L.

Hardinge of Penshurst, L.

Caccia, L.

Harmer-Nicholls, L.

Caithness, E.

Hives, L.

Cameron of Lochbroom, L.

Hooper, B.

Carnegy of Lour, B.

Hylton-Foster, B.

Coleraine, L.

Ingrow, L.

Colville of Culross, V.

Kaberry of Adel, L.

Colwyn, L.

Killearn, L.

Constantine of Stanmore, L.

Kimball, L.

Cork and Orrery, E.

Lane-Fox, B.

Craigavon, V.

Lauderdale, E.

Cullen of Ashbourne, L.

Lawrence, L.

Davidson, V.

Liverpool, E.

Denham, L. [Teller.]

Long, V.

Drumalbyn, L.

Lucas of Chilworth, L.

Dundee, E.

Lyell, L.

Eden of Winton, L.

McAlpine of Moffat, L.

Elliot of Harwood, B.

McFadzean, L.

Elliott of Morpeth, B.

Macleod of Borve, B.

Faithfull, B.

Margadale, L.

303

Marshall of Leeds, L.

Sanderson of Bowden, L.

Merrivale, L.

Seebohm, L.

Mersey, V.

Selkirk, E.

Middleton, L.

Skelmersdale, L.

Milverton, L.

Stanley of Alderley, L.

Morris, L.

Stodart of Leaston, L.

Mottistone, L.

Strathclyde, L.

Mountevans, L.

Swansea, L.

Murton of Lindisfarne, L.

Swinfen, L.

Newall, L.

Swinton, E. [Teller.]

Onslow, E.

Tranmire, L.

Orr-Ewing, L.

Trumpington, B.

Pender, L.

Tryon, L.

Plummer of St Marylebone, L.

Ullswater, V.

Vaux of Harrowden, L.

Rankeillour, L.

Vickers, B.

Reay, L.

Vinson, L.

Renton, L.

Vivian, L.

Renwick, L.

Westbury, L.

Rochdale, V.

Wolfson, L.

Rodney, L.

Young, B.

St. Davids, V.

Young of Graffham, L.

Saltoun of Abernethy, Ly.

Zouche of Haryngworth, L.

Resolved in the negative, and amendment disagreed to accordingly.
6.20 p.m.
[Amendments No. 144D to 144F not moved.]
Clause 49 agreed to.
Lord Diamond Lord Diamond had given notice of his intention to move Amendment No. 144FA:
After Clause 49, insert the following new clause:
("Special Share-holder

.—(1) The Secretary of State shall, in the Articles of Association of the successor company, provide for a share to be held by the Secretary of State as a Special Share-holder.

(2) The Articles shall include the provision that if there are, in the opinion of the Special Shareholder, reasonable grounds for believing that any person or relevant persons has obtained, or it attempting to obtain, directly or indirectly, control over the Board or its composition, the special share holder shall give written notice to the Board that there are such grounds.

(3) From and after delivery of such notice under subsection (2) above the special share shall, if voted against the resolution in a poll on any resolution to appoint, re-elect or secure any Director have a total number of votes which (when added to the total number of votes which may be cast on such a poll in respect of all the voting shares registered in the name of the Secretary of State) shall be one more than the total number of votes which may be cast on such poll in respect of all the voting shares which are not registered in the name of the Secretary of State.

(4) The Special Shareholder may, after giving due notice, also exercise the power of the special share to appoint or dismiss any director.")

The noble Lord said: It is perfectly clear from the answer which the Government gave to an amendment which proposed a good deal less than is required in this amendment that the Government will not give way at all at this stage on this amendment. Therefore, I am simply making it clear that we shall return to this amendment but that it would be a waste of the Committee's time to try to pursue it at this stage. Therefore, if no other noble Lord wishes to speak on this amendment, I do not propose to move it.
[Amendment No. 144FA not moved.]
Clause 50 agreed to.
Clause 51 [Initial Government holding in the successor company]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 144G:
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Page 51, line 4, leave out ("securities") and insert ("ordinary shares")
The noble Lord said: I beg to move Amendment No. 144G. It may be for the convenience of the Committee if I also speak to Amendments Nos. 144H, 144J, 144K, 144L, and 144N. The objective of these amendments is to ensure that the Secretary of State has discretion only to ask for the allotment of shares—that is, ordinary shares in the successor companies—to himself rather than securities of a general nature. This amendment attempts to probe the Government's intentions in regard to the balance sheet which British Gas plc will have when it comes to be floated.
Perhaps I have started this debate rather late in the day, because I read in Monday's Financial Times that:
"British Gas has lost its battle to be privatised without debt in its balance sheet. It is to have about £2.5bn of borrowings, which will moderate the corporation's ability to make acquisitions and large investments.
"The shape of the balance sheet was one of the most important issues to be settled before the flotation, due to take place at the end of November. By choosing to burden British Gas with debt, the Government is preventing it becoming too dominant in the oil industry. At present, it has no net borrowings, whereas other oil groups carry significant debt".
It is certainly true that over the years British Gas has accumulated surpluses, and it is certainly true that it has no long-term debt on its balance sheet. It is in theory quite sensible for a government who are deciding to privatise such a company to ensure that it does not become too dominant in the oil industry and—this was a point which the noble Lord, Lord Ezra, made—that it should not be in a position to be able to go out and make acquisitions right, left and centre well outside its normal remit.
However, there are two problems. The first is that it is surely the province of the directors of a plc to decide how much debt they should have in their company in relation to the equity which the company has. It is not for the Secretary of State or anybody else to intrude on the authority of the board of directors in that area.
Secondly, it is perfectly clear that British Gas has accumulated its surpluses due to the fact that it has had a virtual monopoly, and it is the consumers who have actually paid the money to make up that surplus. Therefore, I can certainly see the logic in loading the balance sheet of British Gas with debt—maybe even of £2.5 billion—as long as British Gas were to use that £2.5 billion perhaps to refund some of the money which the consumers had paid, which had given rise to the accumulated surplus of British Gas. It certainly does not seem sensible for the Secretary of State to appropriate that money in the way in which he appropriated the total assets of Enterprise Oil without compensation at all to the British Gas Corporation.
The amendments are of a slightly technical nature and I accept that there may be provisions in the Companies Acts, and certainly in listings particulars, which would make these amendments slightly defective. However, it is the principle which I think Members of the Committee will wish to discuss.
The decision may by now have been taken. It we are to believe the Financial Times, the decision has been taken. If we are to believe the Financial Times, the decision is to be announced in the next few weeks, which may or may not be equivalent to the expression

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used by the noble Lord, Lord Belstead, a little earlier, when he said "shortly". I very much hope that the Government would announce what they propose to do about the balance sheet of British Gas well before the Report stage in your Lordships' House. I very much hope that they would answer this debate and be prepared to debate with us whether it is not a proper use for the surplus which British Gas has accumulated that there should be some rebate to the customers who have provided that surplus.
Furthermore, I ask the Government to justify the figure—if it is the figure of 2.5 billion—in relation to the equity capital of the business, to explain to us on what basis they have lighted upon this figure, and to say whether the directors of British Gas plc are to be invited to comment on that figure. These are the problems to which I believe the Government have to respond, and it is in seeking answers to these questions and problems that I beg to move the amendment.
Lord Belstead: I hope that the noble Lord, Lord Williams, will not think that I am being in any way dismissive, because the noble Lord has every right to have an interest in the proposed capital structure of the company. Obviously it is a matter in which the Committee has a right to be interested. However, at the moment it is premature to expect that I can answer detailed questions, not least about the figure of £2.5 billion, because the capital structure is a matter requiring careful consideration with the corporation itself and with City advisers. Therefore, I really cannot be as forthcoming as the noble Lord and indeed perhaps the Committee might wish.
The noble Lord obviously recognises that to substitute "shares" for "securities" in this group of amendments would make it impossible for the company to issue debentures to my right honourable friend. This would, of course, make it impossible to introduce debt into the successor company. As the noble Lord made clear, he is moving these amendments first of all on a probing basis.
Although no decisions have yet been made one thing I am certain of is that it is important that the Secretary of State should have the necessary flexibility to require the company to issue debentures, if this seems the right way to achieve the sort of financial package likely to prove attractive to investors. The capital structure of the company is still under consideration, as I have said, and an announcement will be made most certainly at the appropriate time. But the one thing I am absolutely certain about on this group of amendments is that we really must retain the necessary flexibility in order to be able to deal with the capital structure as seems best.
This is perhaps a rather inadequate reply, but it has to be inadequate under the circumstances. The effect of the additional amendment, No. 144N, which I know the noble Lord wanted to take with the other amendments, more or less falls, because I am not able at this particular stage to go further than I have on the other amendments.
6:30 p.m.
Lord Diamond: The noble Lord who moved this amendment I suspect must feel as unhappy as I do, not
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only at the answer we have had on this amendment, but at the whole attitude of the Government in denying to the Committee information which they are prepared to give to the press, but which they do not want the Committee to be aware of until the Bill has left this Chamber. It is really making a laughing stock of the Committee to ask us to approve a Bill, yet not to give us the essential information which we need in order to do so while, at the same time the outside world is made aware of it.
That leak to the press did not just happen. The Financial Times did not find something under the carpet as it woke up one morning. This is information which has been given to the Financial Times by people authorised to give it. I hope they were authorised to give it. I hope we are not going to have another episode such as that which we have recently experienced and which we are glad to be rid of. This is information which has been given. It is information within the knowledge of the Government, and information which they want to deny to the Committee. I just do not understand it or see the point of it. If the Government want to keep it secret from everyone, well and good. But why give it to the press and not give it to the Committee? It cannot be the case that the Government have not anticipated what the shape of the balance sheet will be. The noble Lord told us in the discussion on the last amendment that the company is already formed; the successor company already exists. That successor company must have a balance sheet. That company has got to know whether it will have securities or debentures, or whatever. I shall not say that the Government are coy, but I shall say that they are deliberately withholding information from this Committee which they gave to the press. It is a wholly unsatisfactory way of dealing with your Lordship's Committee, and I hope when the time comes your Lordship's Committee will say so.
Lord Bruce of Donington: Perhaps I may amplify what the noble Lord, Lord Diamond, has just said. The noble Lord referred to the Financial Times, but the leak has been a good deal more extensive than that. If it had been to one paper only, it might have been accidental, but I see that in The Times for today we have the following piece:
"Sir Denis would plainly have liked a debt-free corporation to bring to market, but that was never a realistic proposition, given the scope it would have given the company for substantial acquisition-making. Reluctantly he has agreed to the injection of some £2.5 billion of debt, reducing the value of shares to be sold in the City from around £8 billion to £5 billion".
That is in the financial columns of The Times and is on substantially the same lines as that which was noted by the noble Lord in the Financial Times. The fact that the two articles differ slightly in the text is possibly due to the fact that representatives of both papers were present and gave their own construction when the leak was made. This is how it is done. The Government are expert at leaks. We have leaks prior to the Budget. One has only to read the Sunday papers to discover what is going to be in the budget on the following Tuesday.
Why do the Government try to conduct their business in this way? It is not straightforward. If in fact the Government have decided on what they are going to do and are prepared to leak it to the press as they obviously have done, they should make a declaration

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to Parliament and to this Committee. If they decline to do so, the Committee can draw its own conclusions, and I hope the country will draw its own conclusions as well.
Lord Belstead: In view of the hostile reaction from the noble Lords, Lord Bruce of Donington and Lord Diamond, I should say that we are as a matter of fact—although noble Lords might not suspect it—conducting a short discussion on a group of amendments which would make it impossible for the company to issue debentures to my right honourable friend. It is that which I am resisting.
I am also saying that at the moment we still want the necessary flexibility to decide the best way forward, because we are still being given advice by City advisers, and we are taking advice also from the corporation itself. I have said no more than that. I think that is a reasonable attitude to take.
Lord Diamond: I am sorry, but the noble Lord, Lord Belstead, tried to make the technical point that the acceptance of the amendment would cause difficulties about issuing debentures at a later stage. That is not the issue; everyone knows it is not the issue. If the amendment is not acceptable in that respect, let the noble Lord say so and move on to the other respect.
Why is this information, which is needed before going on flotation—and which obviously has been discussed and given to at least two most responsible financial papers—being kept from your Lordships' Committee? Are the Government ashamed of it? I cannot see that there is anything to be ashamed of. It is something to be justified and explained. I can see no reason at all why the Government should hide it. It is bound to come out later. All we ask is that the Government should reasonably take Parliament into its confidence and let us all know what they are proposing about some most important issues. That is all.
It is a very reasonable request. We just want the Government to tell us what they are proposing to do, and why. The Government will not even say when they are going to tell us. They know it will be published shortly, but the noble Lord the Minister did not even say "shortly" on this one. He went back on "shortly" and said, "At an appropriate date". It is what the Government consider appropriate to their plans, appropriate to their secrecy, and appropriate to their lack of openness in dealing with Parliament. I repeat what I said before: this is not the way to treat Parliament, and I hope Parliament will register its dissatisfaction.
Lord Stoddart of Swindon: I must confess that I am now more puzzled at this stage of the debate than I was at the beginning. I am certainly much more puzzled now than I was when the Bill started its passage through the House of Commons and, indeed, through the House of Lords.
My noble friend Lord Williams of Elvel is an expert; he is an economist. My noble friend, Lord Bruce of Donington is an accountant; so he is an expert. The noble Lord, Lord Diamond, is also an accountant—and not only that; he was Chief Secretary to the Treasury for six years and so he is an expert.
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Probably he is the expert of experts. He knows what all this means.
Of course, most of us in this Committee and, indeed, most people in the House of Commons, are non-experts. What we cannot understnad first of all is what the noble Lord, Lord Diamond, cannot understand; that is, why on earth the Government are so secretive. Why do they conduct their affairs in such a way that those of us in Parliament who have to vote and make decisions, as we no doubt shortly will on this amendment, are not informed of what the Government have in mind?
My impression when this Bill started was that the Government were going to issue shares to the public in order that they could have a holding in British Gas. To a simple, non-expert fellow like me, that meant that they were going to issue ordinary shares that you and I, and all of us, could buy, in the first instance perhaps at a reduced rate, through certain agencies, after which we could sell or buy as we wished on the Stock Market, getting a dividend that would be published every day, certainly in the Daily Telegraph and perhaps in The Times and in other newspapers.
That is something I can understand. But when I read in the Financial Times that it is now to be different, that in fact the Government have something else in mind, that they are thinking of floating British Gas with 2½ billion of debt and will then only issue £5,000 million of ordinary shares, I become bewildered. I know, of course, that as an ordinary member of the public I can buy shares, and no doubt will be enabled to do so. Whether or not I will is, of course, another matter. I shall have to think about it.
The noble Lord says, "Don't think too long". That gives us a clue, does it not? He says, "Don't think too long" because he thinks they are going to be snapped up. Why does he think that they are going to be snapped up? Is it because he thinks they are going to be cheap? Is that not right? The only reason why they would be snapped up and why I would not be able to get some is because they will be cheap—probably too cheap.
Let us get back to the proposition that instead of floating on the Stock Market 7,000 or 8,000 million ordinary shares the Government now have it in mind to float £5,000 million of ordinary shares and 2½ thousand million of debt. I know about the shares. I know that I shall be able to buy these shares through some broker, or perhaps my bank or the post office, but how do I get a bit of this debt?
The noble Lord, is right; I do not get it. I am not going to be enabled to get a bit of the debt, even though perhaps those who get hold of a bit of the debt will get a good rate of interest. I do not know, because I am an ordinary member of the public and not an expert like my noble friends and the noble Lord, Lord Diamond, who was the Chief Secretary to the Treasury for six years and knows about these things. The noble Lord will see why I am puzzled, and why I have been most surprised at this apparent change of heart by the Government.
I think the noble Lord will realise why the ordinary mortal, the person who is not an expert like my noble friends, or not an expert who writes for the Financial Times or The Times, is puzzled and why we need more

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information from the Government, and why we are asking for more information from the Government, which apparently the noble Lord cannot give us. But how can we make progress without the proper information? The Government, of course, are the Government. They would like to get their legislation with the least possible bother; I realise that. But Parliament is Parliament, and this Committee of the House of Lords is part of the great British Parliament. This Opposition is Her Majesty's Opposition, and we are entitled, therefore, not only on our own behalf but on behalf of Her Majesty, to have the proper information from the Government before we proceed with the business of this Committee.
I hope I have made myself plain to the noble Lord as an ordinary lay member of the public. The noble Lord has a duty to ensure that the public understand this legislation, or at least understand the benefits they can get from this legislation when it is passed. At the moment, far from increasing their understanding the Government have confused it. I hope the noble Lord can therefore help me, and, by so doing, help the public to understand exactly what the Government are about.
6.45 p.m.
Lord Diamond: I am sorry to pursue this, but I must. It is very good of the noble Lord who has just spoken to refer to the fact that I had the privilege of being Chief Secretary to the Treasury for six years. During those six years, when I had the responsibility of getting Finance Bills through Committee with Mr. Macleod leading from the Conservative side—and the noble Lord who has been a Minister in the other House will confirm this—if I had attempted to deal with that Committee in the way that Ministers are dealing with this Committee I would have been torn to bits. I would not have attempted to deal with it in that way. I certainly would not have lasted for six years.
I do not want to put it on a political basis. I refer to my experience as chairman for nearly six years of the Royal Commission on the Distribution of Income and Wealth. This was an all-party organisation. Members of that Royal Commission were drawn from every walk of life, every philosophy, and every kind of political background. We had to report about the City, among other things. One of our reports dealt with the City. The first thing we did was to take evidence from City representatives far and wide; and the first thing in taking evidence was to find out the gearing that they regarded as appropriate and right in a variety of circumstances. The gearing is the ratio between shares and debt. Without going into detail, everybody who is familiar with the City will know that you must know what the gearing is in making an assessment of a company.
We have asked the Government to give us some help on this. They say not one word except, "We will tell you when it is appropriate". I do not want to call that insulting language, but it is not far off it if you are taking a real interest in a Bill and trying to help it forward, and if all you are told is that you will be given the information when it is appropriate. That is what we used to tell our children in the nursery.
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The press has been told. It has been told that the gearing has been worked out, and it is two to one. That is £5 billion in shares and 2½ billion in securities, in loan. That is the gearing. It is very simple: two to one. We can understand that. If we are told that that is a fact, we can debate it and see the arguments for and against; and the Government will no doubt be able to say why they think that that kind of gearing is appropriate in these circumstances. It is a matter of opinion. The Government can justify themselves. It is nothing to be ashamed of; it is not a sin. But it is a relevant issue in dealing with this privatisation and in securing the best possible terms.
If the Government will not say the exact amount of debt they are proposing that the company should be loaded with, or the nature of the debt—whether it is transferable debt, or a series of debentures; whether they are going to institutions, or whether they are going to individuals—can they at all events say what the gearing will be? That will be of some help to us. Can they say they have discussed this, they cannot of course fix the total price yet but they do know what the proportions will be? All the indications from two respectable organs of the press are that the proportions, namely the gearing, will be 2:1. Can they at any rate say that, to help us?
Lord Williams of Elvel: If the Government are not prepared to say that, would they be prepared to comment on a further except from the Financial Times from which I quoted?
"The exact form of the debt has not been fixed, but one possibility is that British Gas would refinance in stages its obligation through sales to the public of long-term debt, repaying the Government over the next two years to fill gaps in its sales of gilt edged stock".
This would,
"allow the Government to finetune the timing of revenues from its privatisation programme".
Again, the Financial Times seems to me to have got it pretty well right. I suspect that is what the Government have in fact decided. Is the noble Lord prepared to confirm that that is the case? If he is not, and if he is not prepared to give us any more information, then I am afraid the only alternative we have is to try to prevent the Secretary of State from issuing securities to himself and confine him to ordinary shares. That is why we shall have to press the amendment.
6.52 p.m.
On Question, Whether the said amendment (No. 144G) shall be agreed to?
Their Lordships divided: Contents, 70; Not-Contents, 84.

DIVISION NO. 4

CONTENTS

Airedale, L.

Carmichael of Kelvingrove, L.

Alport, L.

Chandos, V.

Ardwick, L.

Cledwyn of Penrhos, L.

Attlee, E.

Crawshaw of Aintree, L.

Barnett, L.

David, B.

Blease, L.

Dean of Beswick, L.

Bottomley, L.

Denington, B.

Brockway, L.

Diamond, L.

Brooks of Tremorfa, L.

Elwyn-Jones, L.

Bruce of Donington, L.

Ennals, L.

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Ewart-Biggs, B.

Mulley, L.

Ezra, L.

Nicol, B.

Falkender, B.

Oram, L.

Foot, L.

Phillips, B.

Gallacher, L.

Pitt of Hampstead, L.

Glenamara, L.

Ponsonby of Shulbrede, L. [Teller.]

Graham of Edmonton, L. [Teller.]

Prys-Davies, L.

Hampton, L.

Rea, L.

Harris of Greenwich, L.

Ritchie of Dundee, L.

Hatch of Lusby, L.

Rochester, L.

Heycock, L.

Seear, B.

Houghton of Sowerby, L.

Simon, V.

Hughes, L.

Stoddart of Swindon, L.

Irving of Dartford, L.

Strabolgi, L.

Jeger, B.

Taylor of Gryfe, L.

John-Mackie, L.

Taylor of Mansfield, L.

Kagan, L.

Tordoff, L.

Kirkhill, L.

Turner of Camden, B.

Llewelyn-Davies of Hastoe, B.

Underhill, L.

Lloyd of Kilgerran, L.

Wallace of Coslany, L.

Lovell-Davis, L.

Walston, L.

McGregor of Durris, L.

Whaddon, L.

Mackie of Benshie, L.

Wigoder, L.

McNair, L.

Williams of Elvel, L.

Molloy, L.

Wilson of Langside, L.

NOT-CONTENTS

Allenby of Megiddo, V.

Long, V.

Arran, E.

Lucas of Chilworth, L.

Bauer, L.

Lyell, L.

Beloff, L.

Macleod of Borve, B.

Belstead, L.

Marshall of Leeds, L.

Birdwood, L.

Maude of Stratford-upon-Avon, L.

Brabazon of Tara, L.

Broadbridge, L.

Merrivale, L.

Butterworth, L.

Mersey, V.

Caithness, E.

Morris, L.

Cameron of Lochbroom, L.

Mottistone, L.

Campbell of Croy, L.

Moyola, L.

Carnegy of Lour, B.

Murton of Lindisfarne, L.

Coleraine, L.

Newall, L.

Colville of Culross, V.

Orr-Ewing, L.

Constantine of Stanmore, L.

Pender, L.

Cork and Orrery, E.

Plummer of St Marylebone, L.

Cowley, E.

Davidson, V.

Rankeillour, L.

Denham, L. [Teller.]

Reay, L.

Drumalbyn, L.

Renton, L.

Eden of Winton, L.

Renwick, L.

Elliott of Morpeth, B.

Rochdale, V.

Ferrier, L.

Saltoun of Abernethy, Ly.

Fraser of Kilmorack, L.

Seebohm, L.

Gibson-Watt, L.

Selkirk, E.

Glanusk, L.

Skelmersdale, L.

Gray, L.

Stanley of Alderley, L.

Gray of Contin, L.

Stodart of Leaston, L.

Greenway, L.

Strathclyde, L.

Hailsham of Saint Marylebone, L.

Swansea, L.

Swinfen, L.

Hardinge of Penshurst, L.

Swinton, E. [Teller.]

Harmar-Nicholls, L.

Tranmire, L.

Hives, L.

Trefgarne, L.

Hooper, B.

Trumpington, B.

Hylton-Foster, B.

Tryon, L.

Ingrow, L.

Ullswater, V.

Kaberry of Adel, L.

Vaux of Harrowden, L.

Killearn, L.

Vinson, L.

Kimball, L.

Wolfson, L.

Kinnoull, E.

Young, B.

Lauderdale, E.

Zouche of Haryngworth, L.

Lindsey and Abingdon, E.

Resolved in the negative, and amendment disagreed to accordingly.
7 p.m.
Lord Brabazon of Tara: I think we have reached a suitable stage to resume the House. In doing so I would
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suggest that we do not return to further consideration in Committee of the Gas Bill until 8 o'clock.
I beg to move that the House do now resume.
Moved accordingly, and on Question, Motion agreed to.
House resumed.

Housing (Scotland) Bill
Read a third time.
Clause 1 [Extension of right to purchase and of "secure tenancy"]:
Lord Gray of Contin Lord Gray of Contin moved Amendment No. 1:
Page 1, line 10, leave out subsection (2).
The noble Lord said: My Lords, it may be for the convenience of the House if I speak to Amendments Nos. 1 and 6 together. All the amendments related to housing association matters tabled at this stage in the Bill in my name arise from the amendments your Lordships' House chose to make, against the advice of the Government, at Report.
It is one of the conventions of drafting practice that is is the duty of the draftsman to ensure that Bills pass from one House to the other in a legally correct form; a form in which they could become law. So four of my amendments might be described as drafting. These are two of them. Your Lordships' House decided at Report to exempt from the right to buy tenants of housing associations which have a stock of less than 250 houses. I will not comment on that decision except to say that in moving these amendments I am not in any way indicating that the Government accept or reject that proposal. My purpose is simply to satisfy the legal proprieties.
As it now stands the amendment lies in an odd place in the Bill. Clause 1 is about the extension of the right to buy. Exemptions from the right to buy (and there are a number of them) lie in Schedule 1 to the Bill, which contains the bulk of the amendments to the Tenants Rights Etc (Scotland) Act 1980. Amendment No. 1 thus deletes the exemption for small housing associations from Clause 1 and Amendment No. 6 replaces it, somewhat altered, in that appropriate part of Schedule 1.
The exemption itself has some problems of application in practice. The exemption implies a test of the size of an association upon the result of which depends whether or not the association is in or out of the right to buy. But it is not clear when this test should be applied. If, for example, an association with 260 houses and thus in the right to buy, then received applications to buy from 11 tenants; does the last applicant get his house or not? Assuming that he did not, but that the association, fortified with receipts, built a few more houses, once again exceeding the 250 limit, does the original tenant now have the right to buy?
We felt that this doubt and the possibility that associations might oscillate in and out of the right to buy was unfair and probably unworkable. The draftsman too, felt that the exemption was likely to be regarded as defective in such circumstances.

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Accordingly, the second amendment in the pair provides that once the right to buy applies, because the association stock has reached 250 houses, it should apply thereafter no matter how the stock numbers may vary. I trust your Lordships will see this as only a minor divergence from the exemption made, and one which is made in the spirit of good drafting. I beg to move.
Lord Carmichael of Kelvingrove: My Lords, we are grateful to the Minister for the gracious way in which he moved his amendments and also for the spirit in which he moved them. I would also thank him for having written me with more explanation of the reasons for the amendment. He will appreciate that I received the letter on a very complicated subject only today. Without the slightest reservation, I accept his good faith. As he said in the letter, already we know that draftsmanship cannot always express exactly what was meant and intended by the House. However, largely because this House very wisely passed a couple of amendments, there is an opportunity to look at the Bill again in another place.
Although I cannot see any obvious points which will be changed, I hope the Minister will realise, that we on this side and all those who supported the amendments will nevertheless wish to reserve our position until a close examination can be made of the full intent of what is a very complicated and technical amendment. I should like to reinforce the points made by the noble Lord when he said that he trusted that we would take this letter as an evidence of good faith. I have no hesitation at all in accepting his good faith in this matter. I would only thank him for accepting the amendments agreed to at the last stage of the Bill in the spirit in which that was done. I hope the amendments, with the polishing up that his draftsmen have given them, will have the effect that this House intended when they were passed.
Lord Mackie of Benshie: My Lords, I should like to thank the Minister for the full explanation he has given us in his letter and in his speech. I am glad to see they are tidying up the Bill so that it leaves this House in a workable form. To me, this is a very good sign because if they were going to remove it forthwith they might not have bothered; so I am full of hope. I think that the amendment limiting the number to 250 is a substantial one, I suppose, in a way and I can see the force of it. Any small association, if it is going to stay small, has its reasons. If it is going to grow, then it comes into the common position with the other associations. I think there are a lot of arguments for fixing a point and leaving it at that. That then leaves it to the associations themselves to decide what they are going to do. I can see the force of moving in and out of the no-selling area. I thank him again for tidying this up. I trust that it has the meaning that I have put upon it, though he has explained that that is not necessarily so.
The Earl of Selkirk: My Lords, I thank my noble friend for the letter of explanation which he sent and with which I fully agree. He says that there are complications which might arise. They are not the only complications which might conceivably arise under this Bill. There are a great many cases of
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interpretation which are going to be difficult, I have no doubt. This seems to be a very minor one compared with some of the others which we shall have to ascertain. I am grateful to my noble friend and I have no further comment to make.
On Question, amendment agreed to.
Clause 9 [Extension of power of islands and district councils to indemnify certain heritable creditors]:
Lord Gray of Contin Lord Gray of Contin moved Amendment No. 2:
Page 8, line 45, leave out from ("Treasury") to end of line 10 on page 9.
The noble Lord said: My Lords, it may be for the convenience of the House to speak to Amendments Nos. 2 and 9 together, since they cover what is essentially the same point. The effect of these two amendments is to remove the definition of the expression "heritable security" from this Bill and from the Housing Associations Act 1985.
I am advised that it would now be better if the definition of "heritable security" were to be removed both from the Bill and from the Housing Associations Act 1985. We have reached this view because, with the passing of time, the expression has a meaning now generally understood by those using the statute and we believe that it could, in fact, lead to confusion if it continues to be defined in statutes where no deviation is intended from the general and well understood meaning of the expression.
I apologise to your Lordships for bringing forward these minor and somewhat technical drafting amendments at such a late stage, but I am sure that your Lordships will appreciate this attempt to tidy up the statute book in a small way. My Lords, I beg to move.
Lord Carmichael of Kelvingrove: My Lords, I thank the noble Lord for his explanation. From the information that I have received from those who are particularly specialised in this field, it appears that this is a clearing-up of something that should be welcomed by everyone. Therefore, we see no reason to oppose the amendments.
On Question, amendment agreed to.
Clause 14 [Payments etc. in Community-based housing associations]:
Lord Carmichael of Kelvingrove Lord Carmichael of Kelvingrove moved Amendment No. 3:
Page 10, line 44, leave out paragraph (b) and insert—
("(b) the granting of a tenancy of a dwelling to a person described in subsection (2) below who is not an employee or the close relative of an employee of the association; but only if the granting of the tenancy is made under the published rules required under the Housing Associations Act 1985.").
The noble Lord said: My Lords, this is an amendment which is very close to the one I moved at Report stage and which has become something of a cause célèbre in the whole question of housing associations, the sale of houses and the letting of houses. I withdrew the amendment then, but said that I would, if necessary, reintroduce it when I had received more advice. Since then, far from receiving

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advice, I have had a very large correspondence from housing associations in Scotland. If I may mention just a few of these associations, to give the noble Lord the Minister some indication of the feeling in Scotland about the benefits that could accrue, or that are assumed to accrue, to members of housing associations because their families may be given houses, your Lordships will realise why I and others wish to raise this problem again.
One of the representations that I have received is from the Three Towns Housing Association Limited, the three towns being Ardrossan, Saltcoats and Stevenston. The letter is a very heartfelt plea in which the chairman of the committee, Mr. John McDonald, said:
"Residents in the area who are nominated by the District Council, who are legitimately at the top of their waiting list or transfer list are having to be refused houses because they are related to members of the Committee".
In this instance, there is a special case within a special case. He continued:
"As this area consists of small communities, most of whom have remained stable over the years, most residents are inter-related. We are already losing one member of the committee, and possibly several others, who do not feel that they have a right to prevent relatives from obtaining housing in the area".
Although the Minister comes from an area some distance away, I think he will be familiar with the Ardrossan, Saltcoats and Stevenston part of Scotland, and will appreciate that these are three towns where there has been a stable community over a very long period and that the association of families is therefore fairly continuous. Since we have no clear definition of a close relative, it is very difficult to make any decisions in a case like this, unless there is a great deal more flexibility on the part of the Government in this section of the Bill.
Another association which has written to me is the Linthouse Housing Association Limited, who wrote, quite boldly and correctly:
"The time will come when no decent, caring parent will volunteer to serve on such a Committee when they learn that their families are debarred from housing within their place of birth. This can only spell disaster for the future and encourage less suitable types to formulate Committees".
One of the marvellous things about housing associations has been the quality of the people who have set them up. They are people with little or no experience, many of whom had never been to a trade union meeting, a church meeting or any other meeting. But something had motivated them and they became involved in the community, and the more people get involved in the community at this level the richer the community becomes.
These people say, quite rightly, that not only are they leaving their houses night after night to take part in these committees, and worry about problems, which is a big enough penalty for their families, but when their families are due for housing in the area where they wish to be housed they will not be given a house. So it is understandable that they will almost certainly decide that it is not worth the effort and will decide to give up. I cannot say whether others of the same quality will take their place, but if they do they will be in the same position and, when their families legitimately expect to be housed, they will not be given
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the opportunity because the parents are on the committee of a housing association.
I will end with this letter, although there are many others who have been in touch with me and some of my colleagues over the last few weeks. This is from the Key Housing Association Limited of Broomielaw Street, Glasgow, and they state:
"Key Housing Association was set up by the Scottish Society for the Mentally Handicapped to provide housing and hostels in the community and prevent people from being put in an institution. Key works closely with the Branches of the Society, whose members are parents and close relatives of people with a mental handicap. Approximately 50% of our Committee members have a close relative who could be housed by the Association, but who are denied the right to hostel or housing because of Schedule 16".
They continue:
"The dilemma facing Committee members in this situation is whether to put the welfare of the greater number of mentally handicapped people requiring accommodation before that of their own son or daughter. Where they do this they take the risk of nothing happening whilst they are still serving on the Committee or within a year of resigning, which will necessitate the relative requiring supportive housing or hostel accommodation".
They go on:
"Many of our Committee members are awaiting the outcome of the Lords decision on the proposed amendment to exclude a tenancy from the definition of 'benefit' before they themselves decide on whether or not to resign at our AGM in June. They feel that the price to pay for their contribution to Committee is too high and see no alternative than to withdraw from Committee entirely".
I think noble Lords in all parts of the House have great sympathy with groups such as that, and we have all tried to impress on the Minister the great amount of voluntary effort that has been put in by people in the community who want their own area to be improved. Also, organisations such as the Key Housing Association Limited, spastics groups and other bodies in the community have a specific interest in helping people who, very frequently, by the nature of things are related.
I know that the Minister has been through this before, but there is the old story that dripping water sometimes wears away a stone. Although I would never consider the Minister to be stony hearted, I know that he has a whole department behind him which takes a lot of shifting. I hope that, because of what was said previously and is continuing to be said, as well as the extra evidence we are getting as this Bill proceeds, the more powerful will the case become and the more courage will that give him to agree with what I know he, in his heart of hearts, believes is a very worthwhile amendment. I hope that he will do something about it tonight, or at least promise that we can look forward to the next stage in another place with a little more hope than we have had up to now. I beg to move.
Lord Mackie of Benshie: My Lords, I will not take up much time as the arguments have all been put. The noble Lord, Lord Carmichael, said one thing which I think is terribly true. More and more evidence is coming forward to show that the position is upsetting a great many committees. These people are committed because of some personal experience in nearly every case. It is grossly unfair that they should be put in a position different from councillors who let many more houses and are not subjected to this restraint.

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Surely it is possible to produce a code of conduct in the case of letting to relations of members of the committee so that this can be done fairly. In fact, very often it goes the other way and being a relation makes it much more difficult to get a house. But to exclude it altogether will I feel destroy a great many well motivated committees. I hope the Minister has reconsidered the position.
Lord Taylor of Gryfe: My Lords, perhaps I may add a sentence or two to the pleas of the noble Lords, Lord Carmichael of Kelvingrove and Lord Mackie of Benshie. Like both of them, I have been approached by individuals who are involved in the housing association movement. I have the greatest respect for them because they are taking up these duties with a strong community interest. It seems unfortunate that people who are prepared to give their time in the interest of building a community in this way should be discriminated against. That is what it means.
If you are a member of the Glasgow City Council there is no prohibition on your relatives getting a council house. Indeed, it used to be a feature of Glasgow Corporation that being a member of the council was a positive advantage in bringing you up the list, but I shall not dwell on that. I simply want to say that people who do this voluntary service in housing associations should not be discriminated against as they are in this case.
The whole purpose of the housing association is to build communities. People join a housing association in the hope that they will be able to improve the environment of their community. It is surely not a bad thing that they should even hope that their children will not be debarred from occupying some of the areas which by their efforts they have enriched. I appeal to the Minister in this case to depart from his brief and to respond to what is a case of good sense and good humanitarian principle.
Lord Gras of Contin: My Lords, I could not very easily depart from my brief on this issue because my own view coincides entirely with the brief I have in front of me. I can well understand why noble Lords opposite have repeatedly tabled this amendment in both Houses. There are a number of emotive examples where anomalies could be caused by the strict application of what is, after all, sensible legislation designed to avoid workers in the housing association movement being subject to accusations of self-interest. That is the purpose of the legislation.
But I doubt very much that removing the general controls is the way to tackle the problem found in one, albeit important, sector. It cannot be right that members of a committee of a housing association who are elected from a very limited group within the community should be able to grant themselves the prime gift available to them—namely, a tenancy. While the committee is elected, it is elected by a small band, the members of the association, which does not usually include even all the tenants. This is not democracy compared with that which forms the foundation of local councils, with which some comparison has been made in the past and again tonight.
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The safeguard offered by this amendment is that the granting of tenancies would be subject to the allocations policy of the association, but even that is decided by the same small band of members of the committee.
Lord Taylor of Gryfe: My Lords, I am sorry to interrupt the noble Lord but could he not say further that the rules of the association are monitored and approved by the housing corporation, which is outside the scope of the independent authority of these little associations to which he refers?
Lord Gray of Contin: Yes, my Lords, but I do not think that changes the principle. The members of the committees are in a position to grant themselves or their relations tenancies. Wherever that pertains, those people are in danger of being accused of showing favouritism towards their own. I do not think that that is right. I do not think it is realistic to compare the situation of those who are elected to those associations with those who are elected to local government. The kind of electorate is quite different; and even if the elections to local government are often on very small turnouts there is the opportunity for a much wider and larger cross-section of the community to take part in those elections. Therefore, I do not think it is a fair comparison or even a comparison at all.
The case of small specialised associations was raised where, for example, parents set up an association to care for their handicapped children in later years. I can see that the rules bite hard. But I see no reason why the parents should actually be committee members. They can still be members of the association without being committee members. The association's committee, which acts as the trustee of the association's interest, could take its decisions in the light of advice from a group of well-informed and interested parents. The committee would grant the tenancies, but not to its members or their families, and the advisers could receive tenancies.
As I said at the outset, I can understand why this amendment has been tabled. I know that there is pressure outside. I know that noble Lords have been written to on this subject. But I cannot accept that all committees of housing associations should come under threat of suspicion merely to avoid what may be a minor administrative difficulty for a few. I am afraid that, although I certainly have great sympathy with those who are involved, I feel that we cannot deviate on this matter. With regret, I must ask the noble Lord to withdraw his amendment. If he insists on pressing it I am afraid I must ask my noble friends to resist it.
Lord Carmichael of Kelvingrove: My Lords, we are all disappointed, not merely with the Minister's reply but with the fact that the Minister says that he agrees with the reply. We have always had a much higher opinion of the Minister than that. However, the noble Lord made a number of points. He said that the members of the association need not be members of the committee. But everyone knows that in these organisations the committee members are the ones who have the drive. The people within the organisations are likely to be the ones who started it and want to improve their locality.

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The noble Lord, Lord Taylor of Gryfe, made a strong point when he said that the housing associations have their codes of practice and letting policy supervised by, passed and accepted by the housing corporation. The housing corporation makes a great effort to ensure that the association letting rules are fair and correct. I say to the Minister that, particularly in the small communities, the strongest possible way of keeping everyone on the committee on the straight and narrow path is public opinion, which will know very quickly if someone gets preference over someone else merely because he happens to be a committee member.
The Minister has never dealt with the question of close friends. There is no way of dealing with it. It has been said by a number of people (including myself on the last occasion) that sometimes friends are much closer than relatives. There is no restriction on them.
I do not like to do this to the Minister because he is normally so sympathetic; but I believe that this House must also show some sympathy with those people who go out night after night in all weathers, leaving their families, to attend meetings; to try to get things done; to lead deputations to local authorities and to the Government; and who spend a great deal of time and energy—and, in many cases, money—in order to build up something for the community, for a part of the community, or for disadvantaged people in the community.
I believe therefore that this House should show a certain amount of empathy with those people by making its view known. Reluctantly, I feel that we must press this matter to a Division.
7.30 p.m.
On Question, Whether the said amendment (No. 3) shall be agreed to?
Their Lordships divided: Contents, 49; Not-Contents, 53.

DIVISION NO. 5

CONTENTS

Airedale, L.

Kirkhill, L.

Ardwick, L.

Lloyd of Kilgerran, L.

Blease, L.

Mackie of Benshie, L. [Teller.]

Brooks of Tremorfa, L.

Bruce of Donington, L.

McNair, L.

Carmichael of Kelvingrove, L.

Molloy, L.

Chitnis, L.

Mulley, L.

Cledwyn of Penrhos, L.

Nicol, B.

Crawshaw of Aintree, L.

Phillips, B.

David, B.

Ponsonby of Shulbrede, L. [Teller.]

Dean of Beswick, L.

Diamond, L.

Prys-Davies, L.

Elwyn-Jones, L.

Rea, L.

Ennals, L.

Ritchie of Dundee, L.

Ezra, L.

Rochester, L.

Ferrier, L.

Seear, B.

Gallacher, L.

Simon, V.

Graham of Edmonton, L.

Southwark, Bp.

Hampton, L.

Stoddart of Swindon, L.

Harris of Greenwich, L.

Strabolgi, L.

Houghton of Sowerby, L.

Taylor of Gryfe, L.

Hughes, L.

Underhill, L.

Jeger, B.

Williams of Elvel, L.

John-Mackie, L.

Wilson of Langside, L.

Kagan, L.

Young of Dartington, L.

Kilmarnock, L.

320

NOT-CONTENTS

Abinger, L.

Lauderdale, E.

Auckland, L.

Layton, L.

Bauer, L.

Lindsey and Abingdon, E.

Belstead, L.

Long, V.

Birdwood, L.

Lyell, L.

Brabazon of Tara, L.

Mersey, V.

Caithness, E.

Murton of Lindisfarne, L.

Cameron of Lochbroom, L.

Napier and Ettrick, L.

Carnegy of Lour, B.

Perth, E.

Coleraine, L.

Plummer of St Marylebone, L.

Colville of Culross, V.

Constantine of Stanmore, L.

Renton, L.

Cork and Orrery, E.

Renwick, L.

Davidson, V.

Rochdale, V.

Denham, L. [Teller.]

Saltoun of Abernethy, Ly.

Elliott of Morpeth, L.

Seebohm, L.

Glanusk, L.

Shannon, E.

Gray, L.

Skelmersdale, L.

Gray of Contin, L.

Stanley of Alderley, L.

Greenway, L.

Stodart of Leaston, L.

Harmar-Nicholls, L.

Strathclyde, L.

Hives, L.

Swinfen, L.

Hooper, B.

Swinton, E. [Teller.]

Hylton-Foster, B.

Trefgarne, L.

Ingrow, L.

Trumpington, B.

Kimball, L.

Ullswater, V.

Kinloss, Ly.

Wilberforce, L.

Resolved in the negative, and amendment disagreed to accordingly.
7.38 p.m.
Clause 15 [Extension of sections 44 and 45 of 1985 Act to Scotland]:
Lord Gray of Contin Lord Gray of Contin moved Amendment No. 4:
Page 12, line 26, at end insert—
("( ) in subsection (3), at the end there shall be added the words"; and a dwelling is also publicly funded for this purpose if it is in Scotland and housing association grant has been paid in respect of a project which included its improvement or repair or, where it and another dwelling are both provided for letting under the project, the improvement or repair of that other dwelling.";").
The noble Lord said: My Lords, this amendment arises from the exemption from the right to buy for charitable housing associations that the House decided on at Report. Unlike my other housing association amendments, it is not of a drafting nature but is intended to ensure that tenants are treated as evenhandedly as possible.
The amendment's purpose is to extend the HOTCHA scheme—that is, home ownership for tenants of charitable housing associations—to tenants of charitable housing associations whose houses have been improved or repaired with housing association grant. It is needed because a number of houses that were taken out of the right to buy by the general exemption of charitable housing associations are older houses that the existing provisions relating to HOTCHA do not cover. Thus, tenants of those houses would, without the amendment, receive neither the right to buy nor the transferable discount available under HOTCHA. They would understandably be angry to have their aspirations so thwarted.
In my efforts to explain the scheme succinctly to the House at Report stage, I may have oversimplified it, and I welcome the opportunity to put matters right. Under HOTCHA a tenant of a charitable housing association who cannot buy his existing house is able to apply the discount he might otherwise have received

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to the purchase of a house on the open market. The value of the house bought is limited by a ceiling related to the costs, in that area, of the kind of house a first-time buyer might be expected to buy. There are also corresponding safeguards on the maximum discount which can be applied.
The transaction is conducted through another, non-charitable association. Having chosen his house the tenant asks the acquiring association to buy it and to sell it to him after applying the discount he has achieved on his existing house. The balance of the cost is paid to the acquiring association by way of housing association grant. These costs are met from the overall allocation to the Housing Corporation and have to be controlled to avoid an untoward limitation of the movement's scope for development.
But to return to the amendment. To qualify for HOTCHA the tenant must occupy a house which was provided by housing association grant. This grant was introduced in 1974 and there are many houses belonging to the older established housing associations which were provided using public finance in a variety of guises. Being older, the estates on which these houses are situated have often been repaired or improved and housing association grant has been paid on this work. The amendment simply provides that where a house is in a scheme or estate on which housing association grant has been paid for repairs or improvements then, if the landlord is a charitable housing association to which the right to buy does not apply, the tenant is eligible for HOTCHA.
We hope in this way to have ensured that as many as possible of the tenants of housing associations have access to the right to buy, either directly or through HOTCHA. That is in line with the expressed intention of the Bill, which received a good measure of support in this House. I trust the amendment will be welcomed. I beg to move.
Lord Carmichael of Kelvingrove: My Lords, I listened with care to the Minister and I should certainly like to give what he said considerably more thought. I should like to raise two points. First, is there such a clause in English legislation? I understand that no such clause applies to England, and that means there is a difference in treatment between the two countries.
The second point, which has been glossed over perhaps because of the lack of appreciation of the real problem, is that the housing associations will not, at the end of the day, receive enough money from the sale of a house to build a replacement. Moreover—and this is extremely important—there is a time gap. One cannot sell a house today and get the money for it in a fortnight's time and build another house in a month's time. There will be a long gap. The housing associations were set up to keep communities together and create vibrant communities in some of the older areas. They will not be able to replace houses as quickly as might be thought by those who worded this clause.
The Minister has given us an opportunity to see his words. Obviously the Bill will be going to the other place where, as they should be, these matters can be digested and discussed at more leisure. However, I
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should like to know whether a similar clause exists in English legislation. If the Minister cannot tell me tonight perhaps he will let me know later and I will pass on the information to whoever raises this issue at another time.
The Earl of Selkirk: My Lords, I believe that this is an improvement to the Bill. There is a curious situation with this complex arrangement between this Act and the Housing Associations Act 1985 where some of the clauses belong to Scotland and some to England. One thing done by the Bill is to bring Clauses 44 and 45 into the Scottish Act where they were not before. I believe that to be an advantage because it brings in more definitely the question of improving houses with repairs and maintenance. That is an important and, in many ways, unique part of the housing associations. It brings in the point—which I had omitted to notice—that if one has a charitable association one wants to use the HOTCHA system. I believe that is right. Therefore, I welcome the amendment.
7.45 p.m.
The Earl of Perth: My Lords, I agree with the noble Earl, Lord Selkirk. This is a terribly complicated situation. The noble Lord, Lord Gray of Contin, wrote a letter to various noble Lords outlining his proposals. In that letter he said that he hoped we would agree this to be a fair and useful extension of the aims we had originally achieved in carrying the amendment on Report. Therefore, I too thank the Minister for bringing forward the amendment. All in all, I think it is useful.
Lord Gray of Contin: My Lords, I am grateful to my noble friend Lord Selkirk and to the noble Earl, Lord Perth, for their support.
The noble Lord, Lord Carmichael, asked one or two questions. He asked whether there is a similar clause in English legislation. The answer is that there is no parallel clause. My advice is that it may be that the same problem does not occur to the same extent as it does in Scotland. The noble Lord also asked about HOTCHA sales. I will consider the point he raised and write to him with a full explanation.
On Question, amendment agreed to.
Lord Mackie of Benshie Lord Mackie of Benshie moved Amendment No. 5:
After Clause 19, insert the following new clause:
("Functions of local authorities with respect to persons who are homeless or threatened with homelessness.
.—(1) The Housing (Homeless Persons) Act 1977 shall be amended in accordance with the following provisions of this section.
(2) In section 1(2) (homeless persons and persons threatened with homelessness) after paragraph (c) there shall be inserted the following paragraph—
"(d) it does not provide the ordinary facilities of a residence and it is inappropriate for his needs, or it is unreasonable for him to continue to live in it."
(3) In section 4 (duties of housing authorities to homeless persons and persons threatened with homelessness) after subsection (6) there shall be inserted the following subsection—
"(7) Where a local authority has a duty under subsections (4) and (5) above "accommodation" shall be defined as either—

(a) a separate dwelling house that shall not be over-crowded as defined in section 89 of the Housing (Scotland) Act 1966 and shall meet the tolerable standard as defined in section 14 of the Housing (Scotland) Act 1974, or

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(b) in exceptional circumstances where a separate dwelling house as defined in (a) above is not appropriate to the needs of an applicant accommodation that is appropriate and reasonable in all the circumstances." ").

The noble Lord said: My Lords, this amendment when last discussed raised a tremendous amount of sympathy in this House. The noble Lord, Lord Gray, pointed out that the amendment I moved at that time was technically wrong. I withdrew it and said that we would bring forward an amendment at a later stage. That is what I am now doing.
The issue hinged on what was a point of law. I understood the noble and learned Lord, Lord Elwyn-Jones, to say that in law it was right but not in practice. The House heard of accommodation which was described as adequate, but I think that everyone realised that the accommodation itself, although it could be called accommodation, was not the sort of accommodation in which one would permit or like one's own family to live. The matter caused a great deal of stir and many people are worried about it.
The Government now have an opportunity to put right the situation in Scotland through this Bill and I hope they will grasp this opportunity. In 1985 there were in the region of 18,000 homeless applicants in Scotland. Those are Shelter figures. Shelter believes that the figure is likely to exceed 20,000 in 1986. We must have the definitions of what is "homeless" and what is "accommodation" sensibly applied. That is what we seek to do in the amendment.
There are a number of arguments. I shall not repeat them all because we went through this matter thoroughly on the last occasion. In a Scottish case the noble and learned Lord, Lord Wheatley, remarked:
"I reject the argument that as long as accommodation was available it did not matter what the nature of the accommodation was. In my view it must be reasonable in all the circumstances. A pigsty might be accommodation, but not reasonable accommodation".
Of course this is true, but it is carrying the comparison to extremes. Though I myself have known some very comfortable pigsties, they are not places where I should like to live, nor would I like anyone else to live in them. We are simply asking the Government to put the position back to what it was before, and I think that that is a reasonable request.
We are not impressed by the argument that has been put forward by the Minister in another place who said that he would "wait and see". That is a good Asquithian phrase, I dare say, but in this case it appears to me to be nonsense. The statistics that have been collected do not show and would not show the anomalies that have been occurring, nor the attitudes that local government may be driven to adopt owing to a shortage of cash. We only want to put right a decision which is admitted by lawyers legally to be based on paper and not on practicality. We want the Government to rectify this decision and return to common sense. That is what this amendment tries to do.
There is concern in Scotland, and in fact the General Assembly of the Church of Scotland moved an addendum to the report of the Church and Nation Committee saying:
"The General Assembly notes with grave concern that a recent judgment in the House of Lords … has disclosed serious
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deficiencies in the provisions made for homeless persons, and urges Parliament to bring forward legislation with utmost urgency to restore the rights of homeless families to be decently housed".
That appears to me to be a good request from a reputable source. I beg to move.
Lord Carmichael of Kelvingrove: My Lords, I should like to support the noble Lord, Lord Mackie, who moved the amendment and say that this is again a situation where much concern is shown by public opinion in Scotland and by those who are very much involved in the problems of housing, and particularly the housing of homeless people. I have received the views of the Dundee Liaison Committee on Homelessness which urges us:
"to bring in legislation to undo the damage done by the House of Lords".
That is perhaps an over-enthusiastic reaction to the decision of the judicial committee of the House of Lords which did not do damage but merely interpreted the law correctly. Perhaps more appropriate is something which the Scottish Legal Action Group has suggested:
"The Group urges the Secretary of State for Scotland to bring forward legislation urgently to ensure at least a return to the status quo existing before the House of Lords decision".
This is our concern. The noble Lord, Lord Mackie, cited the opinion of the noble and learned Lord, Lord Wheatley, and mention has been made of the opinion of the noble and learned Lord, Lord Denning, before the House of Lords gave its final decision. The opinions of all the other legal people until this decision from the House of Lords was that there was an implicit qualification on accommodation. Quite correctly, the decision on appeal was that there was no word on the face of the Act (and in the last few days we have heard quite a lot about putting things on the face of a Bill) that qualifies in any way the question of accommodation.
We all know that that is a nonsense. No matter what the law itself may actually state, we know that it was never the intention of those who put forward the legislation in the first place, though the strict legal interpretation may leave no room for doubt. Therefore, we are making a plea to the Minister that we should return to the previous situation as regards the question of the definition of accommodation, and return to the terms in which everyone in Scotland, and also I imagine in the United Kingdom, really believed that accommodation was defined.
There have been many precedents and many instances of retrospective legislation. The one defence of retrospective legislation that I can accept arises in a situation in which the legal profession of the entire nation has believed that something was the intention of Parliament and then suddenly on closer examination of the actual words of the Act finds that this is not the position. There have been a number of instances where retrospective legislation has restored a situation to that which everyone had believed it to be earlier.
We are asking the Minister to do something similar today. We are asking not for retrospective legislation but for legislation that will be operative from the moment the Act receives the Royal Assent, but which will restore the position to that which everyone had believed it to be before. I very enthusiastically support the views of the noble Lord, Lord Mackie of Benshie.
Lord Stodart of Leaston: My Lords, both noble Lords who have spoken on this amendment have quoted from a document which I possess and which has been sent to me and many others by Shelter. I have read this document with considerable care and I am bound to say that if what is in it is correct, as I am sure it must be, there have been major differences of view among some of the most eminent legal luminaries in the land. The noble Lord, Lord Mackie, has quoted the noble and learned Lord, Lord Wheatley, on the pigsty and said that it was not reasonable accommodation. According to the notes, that case went on to the Appellate Committee of this House where the noble and learned Lord, Lord Fraser, wholeheartedly and entirely accepted that accommodation provided must be reasonable. Then, later on, in what is called the Puhlofer case we were told that the word "reasonable" had to be excluded because that was the law.
I say somewhat sadly that all of this argument leaves a very simple farmer such as myself somewhat bewildered and I am relying totally on the clear springs of lucidity which characterise the utterances of my noble friend the Minister to give me a clear answer to two questions that I shall put to him.
The noble Lord, Lord Carmichael, made reference to what I find is the general drift of the notes from Shelter and said that what this amendment is asking for is a return to the status quo; not retrospective legislation, but from now onwards to have things as they were before the Puhlhofer judgment. I should like my noble friend to say whether this is precisely the effect of this amendment. If it is, was the situation prior to the Puhlhofer judgment unsatisfactory?
8 p.m.
Lord Wilberforce: My Lords, I shall say only one or two words as it is getting late and I shall keep my comments brief. As we all know, this amendment arises from a decision that was given by this House in its appellate capacity. I certainly do not wish to enter into a discussion as to whether that decision made legal sense or not. It is a decision that has been given. Another decision could have been given which went the other way. There it is.
One understands the desire of people concerned with housing to redress the balance and correct what is undoubtedly a difficult situation, but it is necessary to face the fact that this Act of 1977 is a very difficult Act. It always has been—it has been commented on a number of times judicially—because it puts local authorities in an impossible situation.
The Act gives to a certain category of people defined in a particular way priority as regards local authorities for the provision of accommodation—priority over a number of very meritorious people who may have been for years on the housing lists and who find themselves now displaced in favour of people coming into the area possibly for the first time and who are by the Act given statutory priority over those who have been waiting. This is particularly acute, as one knows, in English boroughs, particularly in the Borough of Hillingdon, where a great number of people arrive from Heathrow Airport and say: "We satisfy the requirements. We are entitled to immediate priority. We must go on regardless of the housing needs of people in the neighbourhood".
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To say that the amendment is intended to restore the situation as was thought to exist before the House of Lords decision is, if I may respectfully say so, rather begging the question. We do not know exactly how far the Act of 1977 was intended to go. It was a benevolent and thoroughly goodhearted Act but, I must say, ill thought out because of the dilemma in which it puts local authorities.
One finds here in both parts of the Act—the one which contains the definition of homeless persons and the one which defines the duties of local authorities—very difficult words:
"it is unreasonable for him to continue to live in it"
in the first part, and
"appropriate and reasonable in all the circumstances"
in the other part. Was it intended to give so wide a priority to a class of persons as those words define? We do not know.
I certainly should be in favour of redressing the balance to some extent as against the House of Lords legal decision. I think that that has created a difficult situation. Whether it is right to go so far as this amendment does seems to me rather less clear.
I feel, and I think that the House ought to understand, that if this amendment is accepted there is bound to be a great deal of litigation and there are bound to be cases of great hardship the other way on account of people coming in and saying, "It is unreasonable for me to live there" or "The house is not appropriate for me to live in and I must be given priority over the people in the neighbourhood". It may be that the correction goes too far and creates hardships in other directions.
To take a definite position on the amendment is difficult. I should be inclined to support it as, on the whole, a well intentioned amendment and perhaps leave it to another place to see whether some correction, modification or scaling down are necessary on the wording used, which I must say I feel goes rather too far in the direction of providing priority for a particular class of persons. With that, I would give the amendment a qualified approval, but only a qualified one.
The Earl of Perth: My Lords, I have heard the case and in particular the noble and learned Lord, Lord Elwyn-Jones, mentioning the legal problems; but all the same I have a feeling that we must do something. At Report stage the noble Lord, Lord Gray, said that the Government were going to wait. They had come to the conclusion that it would be premature to consider the possibility of amendments until and unless it was demonstrated that local authorities were taking a different approach to the discharge of their responsibilities. How long does one wait? Who judges? Does someone say "Now is the moment. Three or four cases have gone wrong and so we had better move", or what?
Surely it is much better that we should accept the amendment as it is or have the Government agree that they will put in an appropriate amendment in the light of what we have just been hearing? We should ask them at least to do that. It is wrong to say that we should wait until the matter is quite clear. At that time there may have been half a dozen cases of great hardship and that would be wrong.

327
If the noble Lord does not accept the amendment, I hope he will at least give us an undertaking that the Government will consider it further and in another place bring in an amendment, which is what we all want, in the form that we all want.
Lord Gray of Contin: My Lords, this amendment has aroused the conscience of the House and it has led to some interesting and useful contributions. I am particularly grateful to the noble and learned Lord, Lord Wilberforce, for what he had to say. He has highlighted the difficulty that the Government would be in if we accepted the amendment. Indeed, as a result of what he said, my view that the Government simply could not accept the amendment in its present form is wholly confirmed.
This matter has been raised before, notably when the Bill had its Report stage in another place early in March and again at the Report stage in this House last month. When the matter was brought before this House last month at Report stage I was able to announce the outcome of the consideration that the Government had been giving to the matter. I told the House that we had concluded that an early amendment to the Housing (Homeless Persons) Act would not be appropriate. We believe that it would be premature to consider such an amendment unless and until it can be demonstrated that local authorities are taking a different approach to the discharge of their responsibilities to homeless people. We have no evidence, and nor have we been given evidence this evening, that such is the case. We shall, however, keep the position closely under review through the regular quarterly statistics and other information coming to hand, and I indicated that we should welcome any supplementary evidence that Shelter or other voluntary bodies might care to submit to us.
Apropos of what noble Lords have received from Shelter, my noble friend Lord Stodart of Leaston asked me exactly what the amendment did and whether it would put things back to exactly where they were before. The noble and learned Lord also referred to that. The amendment defines what accommodation will count as fulfilling an authority's duty. If an authority placed a homeless family in other accommodation—for example, bed-and-breakfast—it would not have fulfilled its duty and could be open to applications for judicial review. That is quite different from the present position where an authority would be fulfilling its duty by placing the applicant in bed-and-breakfast accommodation but must have regard to the code of guidance which says that that should be used only as a last resort and even then as a temporary measure.
The noble Lord may not have intended to open up the practice of authorities to judicial review in that way, but that is the effect of the amendment and it is not acceptable. There will inevitably be circumstances in which authorities have to provide temporary accommodation for an initial period.
Secondly, the amendment stresses the need to provide permanent accommodation, and that is, I suspect, its main purpose. The code asks that permanent accommodation should be secured as soon as possible. I believe that we should think carefully
328
before making that mandatory. We have said that we shall monitor that, and monitor it we will. I accept that we may need to think again when there is more evidence, but it would be a great mistake to rush in at the present moment. With the greatest respect to the noble Lord, Lord Mackie of Benshie, I am not at all satisfied that the amendment which he has proposed and which the House is considering tonight would achieve what he hopes it will achieve, nor am I satisfied that it would even be an improvement on the present situation.
I know that your Lordships wish to reach a conclusion on the matter, but let me quickly say why I believe that the amendment is defective. In the first place, subsection (2) seeks to provide that a person shall be regarded as homeless if he has accommodation but,
"it does not provide the ordinary facilities of a residence and it is inappropriate for his needs, or it is unreasonable for him to continue to live in it".
What are the "ordinary facilities of a residence", however? That is not defined either here or elsewhere in statute. What is meant by "appropriate for his needs"? A millionaire might consider that a fashionable address in Edinburgh was appropriate to his needs. The Tenants' Rights, Etc. (Scotland) Act 1980 includes the concept of accommodation being
"reasonably suitable to the needs of a tenant",
but it takes half a schedule to define the phrase.
The noble Lord has used three undefined expressions in one sentence. In the lack of any definition of what those phrases mean, it is left to the local authority in the first instance to interpret them as it sees fit. That is likely to give rise to exactly the same problems as the noble Lord alleges arise under the present Act, where local authorities have a discretion to decide what constitutes "accommodation".
Secondly, subsection (3) seeks to provide that, where a local authority accepts that it has a duty to secure accommodation for a homeless person, that accommodation shall take the form of a separate dwellinghouse, which is not overcrowded and which reaches a tolerable standard or, in exceptional circumstances where a separate dwellinghouse is not appropriate, such accommodation as is appropriate and reasonable. What are those exceptional circumstances? I am not trying, and I know that the noble Lord will not for one moment think that I am, politically to shoot down his amendment; I am trying to point out that the amendment, with which I have dealt in some detail, will create more problems than it will resolve. For that reason, I am afraid that I cannot accept the amendment. I must suggest to the noble Lord that he withdraws his amendment, but if he insists I must ask my noble friends to reject it.
The Earl of Selkirk: My Lords, my noble friend said that he could not accept the amendment. I can readily understand that, because we are dealing with a narrow and difficult subject. In the past 50 years—if I may take one word from the amendment—what has been regarded as tolerable has obviously changed greatly. What we were prepared to tolerate 50 years ago is probably different now.
As the noble and learned Lord, Lord Wilberforce, has said, we have an unacceptable decision made by

329
the House in its judicial capacity. We should give the Government the chance to improve the amendment or if they want to, to take it out in the other place. We should put the amendment in to make the Government think. I do not want to be too harsh on them if I can possibly help it, but it is proper that this is a matter which the House should not let rest. Something has gone astray. We should show that we want to correct the position slightly. I agree with the noble Lord that "tolerable" accommodation is difficult to define. The present definition is wrong. The Government should be asked to put the amendment into more acceptable words. If the noble Lord presses the amendment I shall support it.
Lord Mackie of Benshie: My Lords, it has been a fascinating debate. I am disappointed that the noble Lord the Minister did not say that he would look at the matter in another place. He has reiterated that the Government will monitor what goes on. That is not good enough. Not that I suggest the noble Lord means it in this way, but monitoring is often a device for doing nothing.
The noble and learned Lord, Lord Wilberforce, put me in a perfect pother when I thought he was going to damn the whole proposal. Happily he came around to saying that the amendment perhaps went too far but that he was inclined to support it. The argument he was putting forward about the Act was a political and not a legal one. He suggested that the Act creates an injustice for people who have been on the waiting list for a long time while providing for homeless people who are in dire need and who come into an area.
I wholly agree with the noble Earl, Lord Selkirk, that we should put this matter to the Government. We should not leave it as it is because the House has clearly expressed an opinion that the House of Lords, in its judicial capacity, has left the position such that "accommodation" can be defined as any sort of cover.
The amendment may not be perfect. I should find it reasonably easy to follow the instructions contained in it. I think that the views expressed by Members are such that the House should express its opinion.
8.15 p.m.
On Question, Whether the said amendment (No. 5) shall be agreed to?
Their Lordships divided: Contents, 51; Not-Contents, 42.

DIVISION NO. 6

CONTENTS

Airedale, L.

Graham of Edmonton, L.

Annandale and Hartfell, E.

Hampton, L.

Blease, L.

Harris of Greenwich, L.

Broadbridge, L.

Houghton of Sowerby, L.

Bruce of Donington, L.

Hughes, L.

Carmichael of Kelvingrove, L. [Teller.]

John-Mackie, L.

Kagan, L.

Chandos, V.

Kilmarnock, L.

Cledwyn of Penrhos, L.

Kirkhill, L.

Craigavon, V.

Mackie of Benshie, L. [Teller.]

Crawshaw of Aintree, L.

David, B.

McNair, L.

Dean of Beswick, L.

Masham of Ilton, B.

Diamond, L.

Molloy, L.

Donoughue, L.

Mulley, L.

Elwyn-Jones, L.

Nicol, B.

Ezra, L.

Perth, E.

Gallacher, L.

Phillips, B.

330

Ponsonby of Shulbrede, L.

Stoddart of Swindon, L

Prys-Davies, L.

Strabolgi, L.

Saltoun of Abernethy, Ly.

Taylor of Blackburn, L.

Seear, B.

Underhill, L.

Seebohm, L.

Whaddon, L.

Selkirk, E.

White, B.

Shackleton, L.

Williams of Elvel, L.

Simon, V.

Wilson of Langside, L.

Southwark, Bp.

NOT-CONTENTS

Abinger, L.

Kimball, L.

Allenby of Megiddo, V.

Layton, L.

Ashbourne, L.

Lindsey and Abingdon, E.

Auckland, L.

Long, V.

Bauer, L.

Lyell, L.

Belstead, L.

Margadale, L.

Brabazon of Tara, L.

Maude of Stratford-upon-Avon, L.

Brougham and Vaux, L.

Caithness, E.

Mersey, V.

Carnegy of Lour, B.

Murton of Lindisfarne, L.

Coleraine, L.

Plummer of St Marylebone, L.

Constantine of Stanmore, L.

Cork and Orrery, E.

Rochdale, V.

Davidson, V.

Skelmersdale, L.

Denham, L. [Teller.]

Strathclyde, L.

Elliott of Morpeth, L.

Swinfen, L.

Elton, L.

Swinton, E. [Teller.]

Gray of Contin, L.

Thorneycroft, L.

Greenway, L.

Trefgarne, L.

Hives, L.

Trumpington, B.

Hooper, B.

Ullswater, V.

Kaberry of Adel, L.

Zouche of Haryngworth, L.

Resolved in the affirmative, and amendment agreed to accordingly.
8.21 p.m.
Schedule 1 [Amendment of 1980 Act]:
Lord Gray of Contin Lord Gray of Contin moved Amendment No. 6:
Page 21, line 37, at end insert—
("( ) where a landlord so mentioned has at no time let (or had available for letting) more than 250 dwellings; or").
The noble Lord said: My Lords, I have already spoken to this amendment. I beg to move.
On Question, amendment agreed to.
Lord Gray of Contin Lord Gray of Contin moved Amendment No. 7:
Page 21, line 50, leave out from ("but") to ("section") in line 6 on page 22 and insert ('is, by virtue of").
The noble Lord said: My Lords, I hope that it will be for the convenience of the House if I speak to Amendments Nos. 7 and 8 together. The purpose of these amendments is to remove—
Lord Diamond: My Lords, I thought we were going on to my amendment. Which Bill are we discussing?
Lord Gray of Contin: My Lords, although the Minister has not changed, the Bill has. While the noble Lord has been refreshing himself we have been studying the Housing (Scotland) Bill, but we are, I think, coming almost to a conclusion. I realise the hour. We are running perhaps 20 minutes late. As I was saying before the noble Lord interrupted me, these amendments are intended—
Lord Diamond: My Lords, I am sorry to interrupt the noble Lord. The instruction from the House was that we would resume at 8 o'clock. I thought that this was the instruction.
Lord Gray of Contin: My Lords, the noble Lord will recall, I think, that my noble friend said "not before 8 o'clock".

331
These amendments are intended to remove unnecessary words. The Bill now requires that an association must have charitable rules and have been granted exemption from tax. But the Inland Revenue will grant tax exemption to an association only if it has, at the time of the application, charitable rules. So the first requirement, to have such rules, is redundant and can be omitted. My amendments achieve this, and I trust that the House will accept them for the simple drafting amendments they are. The effect of the exemption is unchanged. I beg to move.
On Question, amendment agreed to.
Lord Gray of Contin Lord Gray of Contin moved Amendment No. 8:
Page 22, line 8, leave out from ("charities) ") to end of line 10 and insert (", exempt from tax;").
On Question, amendment agreed to.
Schedule 3 [Repeals]:
Lord Gray of Contin Lord Gray of Contin moved Amendment No. 9:
Page 33, line 24, column 3 at end insert ("In section 106(2), the definition of "heritable security".").
The noble Lord said: My Lords, I have already spoken to this amendment. I beg to move.
On Question, amendment agreed to.
Lord Gray of Contin: My Lords, I beg to move that the Bill do now pass.
Moved, That the Bill do now pass.—(Lord Gray of Contin.)
On Question, Bill passed, and returned to the Commons with amendments.

Gas Bill
8.25 p.m.
House again in Committee on Clause 51.
[Amendments Nos. 144H and 144J not moved.]
Lord Diamond Lord Diamond moved Amendment No. 144JA:
Page 51, line 17, after ("value") insert ("per share").
The noble Lord said: In moving this amendment it will perhaps be convenient if we also discuss Amendment No. 144JB. The purpose of the amendment is to make clear that the clause as amended says:
"Shares issued in pursuance of this section—
… shall be of such nominal value per share as the Secretary of State may direct".
There is no problem about that. It then goes on to say:
"and shall amount in total to the value of the net assets of the Corporation as shown in its latest audited Balance Sheet as adjusted";
and there follow a few words to show how you adjust it. That is pure accountancy.
The amendment seeks to assure that the value of the company, for the purposes of the flotation, shall be at least the value of the net assets as valued on the balance sheet brought up to date. That is a very reasonable request. It is to make sure that the country gets at least the cost price, as it were, of the net assets in this flotation.
As every noble Lord who is familiar with the City knows, all companies and all company chairmen keep
332
an eye on their share quotations. When the share quotation gets below the net asset value, they become very concerned and worried about what might happen in the way of predators and in the way of credit. It is accepted all round (is it not?) that the net asset value is a minimum value. It allows nothing for goodwill, for profits or for future profits. It allows nothing for the fact that this company is going to be the sole purveyor of gas to 16.5 million households in the future. It allows nothing for that enormously valuable goodwill and for that asset. It simply says that the asset of the old company is the minimum price that you can get.
I cannot imagine that the Government would want to get less than that. However, we wish to protect the public purse and to protect the Chancellor. We do not want the Chancellor pressurised into a position where he has to consider for a moment selling this enormously valuable company at less than its net asset value. In view of the time and in view of the fact that we started, unfortunately, 25 minutes late, I shall say no more at the moment. I beg to move.
8.30 p.m.
Lord Belstead: On the first amendment, this is a question of drafting. My advice is that it is quite clear that the text is referring to the value of the shares per share. The proposed amendment is therefore not necessary. If one looks at the text the value refers back to the shares, on the drafting. I was not surprised to receive advice that this is not a necessary amendment.
The second is a substantial amendment. It is matter which has been discussed before, and indeed earlier on this afternoon. The Government have consistently made clear their view that valuing companies on the basis of the current replacement cost of their assets is not the way to go about things. The company's value should be seen as the value of the business to investors and depends on a number of factors including the profitability of the company, the profitability of other companies in the same market sector and the overall state of the market.
I am sorry if the noble Lord and the Government do not agree on this but I am afraid that we do not agree with this amendment.
Lord Stoddart of Swindon: Did I understand the noble Lord to say that it is now the Government view that replacement cost is not a good basis for valuing companies? I find that very surprising because gas consumers have been paying prices based on replacement cost over a long period of time. The gas consumers—who have had their gas prices raised in order that they can suit the balance sheet, which is related to replacement cost—having paid extra prices now find that the Government have changed their minds. As taxpayers they will get only half the value upon which they have been paying increased prices. I find that amazing and scandalous.
Lord Belstead: All I can add is that I am surprised that the noble Lord says that. The value of a business must surely be judged by reference to the income that can be generated from its assets or by the value of its assets if they are sold individually on the open market, rather than the accounting value computed by adding together the replacement cost of the assets. I am sorry, but if the noble Lord thinks that, the Government do not.
Lord Bruce of Donington: This is quite intolerable. For many years now the Government themselves have been insisting with regard to nationalised industries that the accounts shall be presented on a current cost accounting basis. I can give the noble Lord many examples, particularly during the early stages of the Local Government Finance (No. 2) Bill which had to be abandoned because of an intervening general election, where the Government, from that very Bench, were producing argument after argument in favour of the validity of current cost accounting methods. They were arguments with which many of us did not agree. Nevertheless, that was the view of the Government and they took it for very obvious reasons. They wanted to put the squeeze on nationalised industries, and impose targets of performance on them that were based upon current cost accounting. They did that because they wanted to tighten their credit control, their loan control, over the nationalised industries. I do not know whether they have departed from this practice since the days of the noble Lord, Lord Cockfield, who was an expert exponent of the art where the indebtedness of nationalised industries featured as part of the public sector borrowing requirement. We all know this. What has happened, as my noble friend Lord Stoddart has said, is that over the years this continuous basis has been adopted. The result is that very considerable reserves will now accrue which will come back to the company and which will be available for dividend distribution by the new British Gas plc. That means a transfer, as a result of this manoeuvre, of hundreds of millions back into the P and L account, all of which has been taken from the consumers. My noble friend Lord Williams of Elvel referred to exactly the same phenomenon in the course of an argument during a previous amendment.
This two-facedness will not do. We all know what the Government have done. The Government have consistently insisted on the presentation of a P and L account on a current cost accounting basis because they wanted to show to the public that nationalised industries were not as profitable as the remainder of industry. This is what they wanted to do. Now that they want to turn gas over to private enterprise, and to privatise, they switch back to historic cost accounting, which, for the current year, will show profits of £400 million greater than the profits which have accrued from current cost accounting.
The manoeuvre is transparent. I sincerely hope that my noble friends will support the amendment.
Lord Belstead: The noble Lord talks about transparent manoeuvre. What the noble Lord, Lord Bruce, has omitted to say is that we are talking about the net asset value being a suitable basis or not for valuation on a flotation. The noble Lord, Lord Diamond, talked about this earlier. As I understood the noble Lord, he said that company directors ought to be concerned if their share price drops below the net asset value. I would agree. That is indeed the case if that net asset value is calculated on the basis of what would be realised on disposal of those assets, since a new owner could then take the company over and dispose of the assets.
However, the figures in the British Gas balance sheet are on a replacement cost basis. They are not the value on disposal. They are therefore not, in the view of the
334
Government, a suitable basis for valuation or a flotation.
Lord Bruce of Donington: Will the noble Lord agree that that is not quite accurate? In the current balance sheet they are expressed at replacement cost net of depreciation.
Lord Diamond: The trouble is that the Minister has not said one word about the alternative way of looking at this; namely, giving an indication of the minimum figure at which the Government would be willing to sell. We are privatising a huge industry. The Minister is not giving us the slightest indication of what the price is going to be. We have suggested a way of arriving at the minimum. There is nothing to prevent selling at more than this. These words mean the minimum. I am afraid that it is totally unacceptable. I am grateful to the noble Lord for what he said about Amendment No. 144JA; namely, that the Bill already means what this amendment makes clear. I therefore have no need to pursue that. But when we come to it in a moment, I shall seek to take the view of the House on Amendment No. 144JB. I therefore beg leave to withdraw Amendment No. 144JA.
Amendment, by leave, withdrawn.
Lord Diamond Lord Diamond moved Amendment No. 144JB:
Page 51, line 18, after ("direct") insert—
("( ) shall amount in total to the value of the net assets of the Corporation as shown on its latest audited Balance Sheet as adjusted (to the nearest million pounds) in respect of variations in assets and liabilities occurring between the date of the Balance Sheet and the transfer date;").
The noble Lord said: We have already discussed the amendment. I beg to move.
8.39 p.m.
On Question, Whether the said amendment (No. 144JB) shall be agreed to?
Their Lordships divided: Contents, 35; Not-Contents, 52.

DIVISION NO. 7

CONTENTS

Airedale, L.

Kilmarnock, L.

Blease, L.

McNair, L. [Teller.]

Bruce of Donington, L.

Molloy, L.

Chandos, V.

Mulley, L.

Cledwyn of Penrhos, L.

Nicol, B.

Crawshaw of Aintree, L.

Phillips, B.

David, B. [Teller.]

Ponsonby of Shulbrede, L.

Diamond, L.

Prys-Davies, L.

Donoughue, L.

Seear, B.

Elwyn-Jones, L.

Simon, V.

Ezra, L.

Stoddart of Swindon, L.

Falkland, V.

Taylor of Blackburn, L.

Gallacher, L.

Underhill, L.

Graham of Edmonton, L.

Whaddon, L.

Harris of Greenwich, L.

White, B.

Houghton of Sowerby, L.

Williams of Elvel, L.

John-Mackie, L.

Wilson of Langside, L.

Kagan, L.

NOT-CONTENTS

Abinger, L.

Brougham and Vaux, L.

Allenby of Megiddo, V.

Caithness, E.

Ashbourne, L.

Campbell of Croy, L.

Auckland, L.

Carnegy of Lour, B.

Bauer, L.

Coleraine, L.

Belstead, L.

Constantine of Stanmore, L.

Brabazon of Tara, L.

Cork and Orrery, E.

335

Craigavon, V.

Mersey, V.

Davidson, V.

Morris, L.

De La Warr, E.

Murton of Lindisfarne, L.

Denham, L. [Teller.]

Pender, L.

Elliott of Morpeth, L.

Plummer of St. Marylebone, L.

Elton, L.

Glanusk, L.

Rochdale, V.

Gray of Contin, L.

Saltoun of Abernethy, Ly.

Greenway, L.

Sanderson of Bowden, L.

Hives, L.

Skelmersdale, L.

Hooper, B.

Stodart of Leaston, L.

Kaberry of Adel, L.

Strathclyde, L.

Kimball, L.

Swinfen, L.

Layton, L.

Swinton, E. [Teller.]

Lindsey and Abingdon, E.

Thorneycroft, L.

Long, V.

Trefgarne, L.

Lyell, L.

Ullswater, V.

Margadale, L.

Vinson, L.

Masham of Ilton, B.

Zouche of Haryngworth, L.

Maude of Stratford-upon-Avon, L.

Resolved in the negative, and amendment disagreed to accordingly.
[Amendments Nos. 144K and 144L not moved.]
8.47 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 144M:
Page 51, line 26, at end insert ("which shall only be given if the disposal follows the provisions contained in Schedule (Arrangements for Disposal of Securities of Successor Company) to this Act.").
The noble Lord said: I beg to move Amendment No. 144M. It may be for the convenience of the Committee if I also speak to Amendments Nos. 144R and 144Y. The object of the paving amendment, Amendment No. 144M, and the new schedule, which is Amendment No. 144Y, is to ensure that the highest possible price be received by the Government acting in their fiduciary capacity as representative of the taxpayer when the successor company is finally floated.
I believe that all Members of the Committee would wish to ensure that the episode of the British Telecom flotation can never happen again. In our view the reason that the Telecom flotation went wrong was twofold. First, it was necessary for the purposes of the New York flotation to fix a price, such being the practice in New York, which went into the preliminary prospectus, known in the jargon as the "red herring". Once that price had been fixed, it became impossible to change it. The result was that when the market moved upwards, it was quite quickly found that the price which had been fixed for the New York flotation, which consequently had to be fixed for the London flotation, could not be changed.
The result was the episode about which we all know: that the price at which British Telecom was finally floated on the impact day was unrealistic in terms of what the market on that day would have been prepared to pay. I do not think that there is any disagreement about that in your Lordships' Committee.
The only way to avoid such a problem occurring again is the method we describe in the new schedule which is in Amendment No. 144Y. I hope your Lordships will accept my view that just because an issue goes to a premium in dealings after the issue date, this does not mean it is necessarily a success. In many
336
quarters, in the City of London and elsewhere, if you float a company at a price of, say, 100 and dealings start at 120, then there is a lot of shouting and hurraying, saying, "This is a great success". If the vendor is to receive the fair, highest possible price, the correct premium in dealings after the issue date is zero. Dealings should be at the issue price.
Under the normal arrangements for offer for sale in the United Kingdom, it is very difficult to achieve that position. There is a price at which an offer is underwritten, and there are no arrangements for tendering other than at the price which is underwritten, minus the commissions. This means—and we have seen it not only in British Telecom but in all sorts of other issues—that if it is a success the issue goes to a heavy premium; if it is a failure it is left to the underwriting institutions.
There have been two examples of straightforward tenders in privatisation. One was Enterprise Oil and the other was Britoil, both of which were unsuccessful tenders because they were tenders not underwritten against a rising oil price. It happened that in the tender period the oil price went against both those companies. The successful tender which has taken place and which I put forward to your Lordships' Committee as a model for the tender of British Gas, was the tender for Reuters which took place both in London and in New York. The way it was done was relatively simple, although the technicalities are extremely complex. But for the purposes of the New York market where a fixed price or a range must be indicated in the preliminary or pathfinder prospectus, there was a range. In the case of Reuters it was the dollar equivalent of 200p to 235p.
New York institutions were quite prepared to underwrite the securities being offered on the basis that the striking price in the tender would be in that range. There was provision in that prospectus for a change of the range should the market turn differently during the underwriting period, and there was an arrangement in the prospectus that if that range were to change there would be an announcement and the underwriting institutions in New York would take appropriate note of that.
An offer for sale by tender, assuming it is underwritten, does allow various classes of shareholders to be allotted in full at the striking price. If the Government are intent on encouraging wider share ownership, it is perfectly possible to say that all applications for under 1,000 shares, or whatever it might be, can be satisfied in full. It is perfectly possible to say that applications from employees at the striking price will be satisfied in full. It is perfectly possible, equally, under a tender system to place firm with institutions on priority, and claw back those shares again if the tender shows that there is a requirement from the priority shareholders, like small shareholders or employees, which cannot be satisfied in the normal course of events.
In other words, it is our view that the tender mechanism is the best mechanism for this particular type of issue. It is not only the best mechanism, in our view; it is also the fairest mechanism and the mechanism that will be seen to be fair by the outside world; nobody will be able to complain either that the issue has flopped or that it has gone to a high premium,

337
or that fortunes have been made in the first few hours. The striking price will be the price at which the market will clear.
If I may turn for a moment to the details of the Schedule which is in Amendment No. 144Y, I think we are agreed that the Government should seek to achieve what is specified in paragraph 1 of the new schedule: the highest possible price on the disposal of the securities of the successor company. I believe that that is a position which the noble Lord, Lord Brabazon of Tara, stated quite clearly earlier on.
If I turn to paragraph 2 of the schedule, in the draft articles of association the 15 per cent. rule on foreign ownership is established by the special share arrangements, and there is nothing in paragraph 2 which contravenes anything which the Government intend in the articles of association.
There is a let-out clause in paragraph 3. It may well be that all my arguments are wrong, and that the arguments of other people in the City of London are wrong. It may be that the Government have better arguments, so that they can come before a Joint Committee of the Houses of Parliament to satisfy that committee that the arguments are wrong and that they have found a better way of doing it. I say this genuinely because there may well be a possibility—indeed, there is a certain amount of talk in the City of London about this possibility—that a half-tender, a half-fixed underwriting, might be the right way to go about this flotation, which would be a new technique not yet tried but which is under study in one or two cases. This could be something which the Government, and the advisers to the Government, might wish to persuade Parliament is the right way to go about it.
Paragraph 5 simply reiterates in effect the objective of paragraph 1, that individuals and corporations have a right to tender under paragraph 4 but the price to the Government is what matters.
I do not want to go into very great detail at this time in your Lordships' Committee because we still have much business to do, but I would ask the Government to give full consideration to the points that I have made, to look particularly at the Reuters tender offering which was made and which was successful, and to see whether they agree with us that this is the right way to float British Gas plc. I beg to move.
Lord Sanderson of Bowden: Before we go any further, could I have clarification of what the noble Lord, Lord Williams, is seeking in paragraph 2—
"Not more than 15 per cent. of the voting rights of the successor company … shall be benficially owned or controlled … by nonresidents …?
Is that in total, or in any one particular holding?
Lord Williams of Elvel: I am grateful to the noble Lord, Lord Sanderson. It is in total, and not one holding.
9 p.m.
Lord Belstead: This is an important group of amendments. The new schedule in Amendment No. 144Y puts forward a number of propositions which the noble Lord, Lord Williams, just went through in relation to the disposal of securities when the flotation
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of British Gas happens. Subject to this main part of the amendment, disposal must achieve the highest possible price, no more than 15 per cent. of the shares should be in foreign ownership—that relates to the question asked by the noble Lord, Lord Sanderson; the disposal shall be by tender unless it is agreed by a Joint Committee of both Houses of Parliament that this would not achieve the highest possible price, and that in considering which individuals or corporations may buy the securities my right honourable friend's sole consideration should be the price offered for the shares.
May I follow the noble Lord in trying to be brief and concentrate on only two of those points; the question of tender and the question of foreign ownership. The requirement to sell the shares in the company in a formal tender, with an obligation to allocate shares to the highest bidder, would mean selling the company in a totally novel way which we could not practically aim to achieve. I say that in the context of privatisations. Selling shares by tender is a procedure which I doubt the small investor would feel able to apply for.
The Department of Energy and its advisers are carefully reviewing all possible methods of sale and will consider carefully the recommendations of the Public Accounts Committee in their three reports into privatisation sales, but in this connection may I remind the Committee that there has been no criticism by the Public Acccounts Committee of the use of the fixed price method in the case of British Telecom. In general the kind of modified tender sales which have been used are more suited to smaller sales where the issue is difficult to price. But once again we have the difficulty that they are not an entirely straightforward method so far as smaller investors are concerned.
I give an assurance to the noble Lord, Lord Williams, that the Government and their advisers will take full account of all the relevant experience in the past, including, when appropriate, the sales such as the sale of Reuters which the noble Lord described briefly. But I make these two simple points on the question of tender. If we are to take the amendment at its face value and say that the flotation shall be by tender, the small investor of the kind about whom the noble Lord, Lord Stoddart, was talking before the dinner break, is not going to get involved in any numbers at all. Even in the case of the modified tender, that is not so easy for the small investor as would be a fixed price, although I assure the noble Lord that the Government's mind is by no means closed and we have taken into account what the noble Lord has said on this.
The other point is the imposition of a restriction of 15 per cent. on foreign ownership. I am advised that restrictions on the sale of shares to foreign persons, or companies, in this Bill would not be permissible under the Treaty of Rome. Even though this is an argument—indeed it is a provision—which has appeared in certain other Bills, in this Bill we believe that it would not be permissible. Even in the event of a decision not to sell any British Gas shares overseas in the flotation, we could not prevent sales to people from abroad purchasing in the United Kingdom market.
Indeed, I wonder whether we would want to. After all, we are today the second highest holder of net overseas assets, I believe, in the world compared with

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all other countries, and we are attracting into this country investment, particularly from the United States and Japan, which is competitive with practically every other country in the world. I believe that Japanese investment in this country is higher than in any other European Community country, and that is good for jobs and for the economy of the country.
I believe that we should attach considerable importance to maximising the proceeds from the sale, and there is no doubt that overseas sales broaden the market and potentially increase the sale proceeds. Where I come much nearer to the noble Lord is in saying that the Government recognise that the important thing to do is to guard against any dominant influence over the company's affairs being exerted by any one organisation or group buying shares in concert, whether they are foreign or British. But the special share, together with the 15 per cent. limitation on share holdings, will I think achieve this.
Particularly going back to the first part of the amendment, although I know that this is a matter to which the noble Lord, Lord Williams, attaches importance—and the noble Lord spoke about it on Second Reading and has mentioned it since—I think that, for the reasons I have attempted to deploy, the amendment as it stands is not one we can accept.
Lord Williams of Elvel: I am grateful to the noble Lord for his response. He dealt with two points. First, the foreign ownership point. I do not feel particularly strongly about the foreign ownership element in this schedule. This is not really the main point of the argument. I just note in passing that a lot of this stuff about net overseas assets in the possession of the United Kingdom being good for jobs has nothing to do with whether these shares in British Gas are sold to foreigners or not. It is an argument that has no relevance whatsoever. Nevertheless, I do not think that the foreign ownership point is central to the point that I am making.
The noble Lord made another point about tendering which is that the small shareholders would feel inhibited in some way from applying for shares. I have heard this argument advanced before by people in the City of London. I have no evidence at all that this argument is right or wrong. The noble Lord may be right; the noble Lord may be wrong. I have no evidence, and nobody I have ever talked to has any evidence on the subject.
We assume, judging from the newspaper articles that we read almost every day, that there is going to be the same amount of—and I think my noble friend Lord Stoddart mentioned this—hype on British Gas as there was on British Telecom. If you have an advertisement on television every day for six weeks, I can guarantee that small shareholders will start applying for British Gas. If you do not have advertisements like that, if you do not market it like that, they will not.
This has nothing to do with the method of offer, because—and here I return to the central point I made which I do not think the noble Lord quite appreciated—in the initial pathfinder prospectus, the red herring in New York, a range of prices is immediately established. You can go on television and
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say to all the world, "This is the sort of price range we are going to be in". I gave the figures, which were 200, 235, in the case of Reuters. I simply do not believe that argument about the small shareholder. However, having regard to the late hour and that we have a lot of business to do, and I accept that the noble Lord and his advisers are going to look at it, I beg leave to withdraw this amendment.
Amendment, by leave, withdrawn.
Viscount Chandos Viscount Chandos moved Amendment No. 144MZA:
Page 51, line 26, at end insert—
("( ) The Treasury, in consultation with the Bank of England, shall be responsible for ensuring that the disposal of any such securities shall not interfere with or inhibit the fund-raising activities of other companies already listed on the London Stock Exchange and that the reasonable financing requirements of those companies shall take precedence over the disposal of any securities in the successor company.").
The noble Viscount said: I should perhaps begin by repeating a statement declaring an interest on the grounds that I last made it at a quarter to four in the morning and not all the Committee had the privilege of hearing it. I am a director of the bank advising the British Gas Corporation.
The justifications advanced by the Government over the past seven years for their privatisation programme have been many and varied: the widening of consumer choice, as the noble Lord, Lord Bruce-Gardyne, alighted on this afternoon; the promotion of greater efficiency in the corporation concerned; the widening of share ownership generally and by employees in particular; and the raising of revenue for the Government. Even the supporters of the Government, such as the noble Lord, Lord Bruce-Gardyne, do not always agree with all these justifications all of the time, while those of us on these Benches are even more critical, but constructively critical, of the reasons advanced. On these Benches we believe that the sale of some public corporations has been beneficial to their employees, to consumers and to the country as a whole, and some have not, and some will not be, as we believe is the case with British Gas.
The amendment I have moved this evening is intended to bring to the Committee's attention one danger posed by the disposal of shares in the successor company to British Gas and in particular by their disposal as part of a large, continuing and accelerating programme of public sector asset sales by the Government. The irony is that this massive programme of privatisation is now creating an obstacle to the private sector's orderly, cheap and efficient financing, the ensuring of which was one of the earliest objectives of that very privatisation programme. I shall not risk irritating the noble Lord, Lord Boyd-Carpenter, by harking back to the truths which he regards as cliches, other than by saying that there are good economic and financial grounds for regarding the sale of Government assets as not being a substitute for reduced Government expenditure or increased taxation. So the presentation of the public sector borrowing requirement as being measured after the sale of public assets is misleading and misguided, presenting to the electorate a picture of supposed fiscal rectitude which cannot in reality be justified. That

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definitional measurement of fiscal rectitude may in turn be misguided. But if it is the standard by which the Government wish to be judged then let the Government at least be consistent in the presentation of their accounts to Parliament and to the nation.
I began by reminding the Committee of this inconsistency because any analysis of the Government's actual deficit in recent years, and that projected for future years, will show a clear and definite trend whereby less and less of that deficit is being financed through the sale of Government debt and more and more is being financed through the sale of shares in companies which were previously Government owned. One of the Government's constant campaigns in recent years has been to encourage companies to raise long-term finance through the issue of loan stock, debentures and bonds rather than through bank borrowing, and the reduction of the Government's own use of the debt market has been seen as an important factor in stimulating such a move.
Once more it is possible to question the validity of the concept of crowding out; for example, by looking at the the vibrant and successful corporate bond market in America throughout the time the US Government have been raising more than 200 billion dollars a year at interest rates consistently lower than in the UK. But even if one could be certain that the reduction of Government borrowing in the debt market was a necessary precondition for the revival of the corporate bond market in this country, this should not be pursued regardless of the consequential effects in other sectors of the market. The effect of the privatisation programme is that the Government, in order to avoid crowding out corporate fund raising in the debt market, are instead risking far worse crowding out of corporate fund raising in the equity markets, which are so much more important to those companies. The privatisation tail is wagging the industrial dog.
The Bank of England is responsible through the Control of Borrowing Order for ensuring an orderly UK capital market, and in an increasingly complex and internationally inter mingled market it performs this duty with great skill and subtlety; but with every month that has passed more and more economists and analysts within the City and outside have found that the forecast call on institutional liquidity, resulting from the projected sale of British Gas, of the water authorities and of other corporations thereafter, represents a major and potentially depressing factor in the expected performance of the United Kingdom equity market.
Furthermore, the heavy programme of fund raising by companies in recent weeks, be they manufacturing companies, retailing and service companies or financial institutions, has been widely reported as being caused by their desire to raise the necessary finance before the autumn, when the sale of British Gas is expected. I would suggest to the Committee that a major manufacturing company that might employ tens of thousands of people would find extreme difficulty in being given a place in the rights issue queue operated by the Bank of England in the last part of this year whatever its requirements and circumstances. Moreover, there is a risk that for a
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substantial period thereafter, and even before, it will be more difficult and more expensive for such a company and all others to raise equity finance.
I should like to believe that the professional judgment and expertise of the Bank of England could be regarded as sufficient protection for the interests of other companies and that existing procedures were adequate to ensure this. But the ruthless disregard for every type of legitimate interest that the Government have shown thoughout the conduct of this Bill unfortunately does not promote any degree of faith that this would be the case. The independence of the Bank of England may not be able to withstand the Government's desperate determination to sell British Gas whatever the market conditions, as we have discussed before, and whatever the impact on the financing plans of other companies. For that reason, I believe that it is correct for this Bill to be amended to ensure that the political interest and ideological obsession of the Government do not damage the financial strength of British industry. I beg to move.
9.15 p.m.
Lord Bruce of Donington: We on this side of the Committee should like to support this amendment but it will not be necessary for us to repeat the very cogent reasons that have been put forward by the noble Viscount, Lord Chandos, to which I think we would add only this. The Government's philosophy has always been a belief in free competition. Yet in this Bill, as in the Bill for British Telecom, they took powers to exempt themselves from the requirements of the Companies Act in relation to the making of prospectuses, and indeed the offer for sale of shares in companies, by which all other companies, other than British Telecom and apparently this one, remain constrained.
At the present time the Government have in mind a campaign which is described in today's edition of The Times in the following words:
"Domestic gas users are to be offered big incentives to buy shares in British Gas when it is floated on the Stock Exchange in November. The Government is planning to introduce a voucher scheme which will entitle purchasers of British Gas shares to a discount on their gas bills".
At the same time they are going to accompany it, on the same lines as with British Telecom, by mass advertising of British Gas. They are going to do everything they can, completely outside the provisions of the Companies Act relating to prospectuses, to make quite sure that this issue goes.
Is that fair competition between this flotation and that of other companies who for other purposes are seeking to raise money on the London Stock Exchange for the purpose of the legitimate financing of their own activities? I am told that there is a limited amount of finance available. Otherwise, we should not hear all this talk of crowding out to which the Government treat us from time to time. One of the effects of this amendment would be to require the Government to comply with the provisions of the Companies Act relating to the contents and issue of prospectuses in exactly the same way as is required of every other company in the United Kingdom. This is what it would require, and this is very fair.

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There is another point too. The particular method by which the Government propose to do this—a method which, of course, has been leaked once again by way of kite flying—is one which is going to cost money for those of the 16 million consumers who cannot in any way afford to buy British Gas shares. They do not have the money to do so. The noble Lord seems to be under the illusion that at the present time every adult has adequate funds to invest in the Stock Exchange. That is not so, as the noble Lord should well know if he examines the figures produced by the Treasury and reproduced in Hansard of another place, showing the distribution of wealth in the United Kingdom. The fairest way of going about this would be for the Treasury to subject itself to the same disciplines as those of limited companies under the provisions of the Companies Acts, and the reason we support this amendment is that it would do just exactly that.
Lord Brabazon of Tara: I am aware of the concern expressed by the noble Viscount, Lord Chandos, that an issue of the size of British Gas might impact adversely on the normal fund-raising activities of other quoted companies. I have to say that I do not believe his fears are justified. The Government plan their privatisation programme well in advance and those plans are known and understood by those involved in both the UK and overseas markets.
The noble Viscount referred to the Bank of England, which has for many years, as agent for the Treasury, supervised the timing of all new issues and other fund raising activities to ensure that the demands on the London market at any particular time are not unreasonable. It would therefore be nonsense, for instance, to put pressure on the market by attempting to dispose of British Gas and British Airways at the same time. Moreover, such clashes, by overstretching the absorbative capacity of small investors, would be inconsistent with the Government's objective of securing a wider spread of share ownership among the public at large.
But granted that such clashes are avoided, there is no evidence that investment in share issues such as British Telecom or Jaguar has led to distortion of the market or shortage of funds for other companies seeking to raise money by share issues or by recourse to normal sources of finance. I find it difficult to accept the noble Viscount's argument—
Lord Stoddart of Swindon: May I just ask the noble Lord a question, because he mentioned British Telecom? This issue is of a much greater order than British Telecom. We were talking, I think, about £2 billion in the case of British Telecom. Here we are talking about £5 billion to £6 billion and the situation is surely very much different.
Lord Brabazon of Tara: Yes, I quite accept that it is different. But I do not think anybody would suggest that the whole £5 billion to £6 billion should be raised at one go. I think that is taken for granted—
Lord Stoddart of Swindon: Neither was British Telecom. It was issued in three tranches.
Lord Brabazon of Tara: If the noble Lord wishes to intervene, perhaps he would do so from other than a
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sedentary position. Perhaps I may continue with my theme. The noble Viscount referred to the extensive fund raising which has taken place in the last few months. I have to say that this is despite the fact that the market well knows that this issue is coming along and, therefore, I think that that totally refutes that argument.
As I have stated before, the Government's objective will be to get the best possible price for British Gas shares. The noble Lord, Lord Bruce of Donington, talked of what is reported in the press today about a possible discount on gas bills and the Government doing everything they can to make the issue a success. I would say to the noble Lord that that is entirely in line with Amendment No. 144Y, paragraph 1, which we have just been talking about and which asks the Government to ensure that the highest possible price is received by the taxpayer. So I cannot see any consistency in the argument of the noble Lord.
The Bank of England already takes care of the concerns which the noble Viscount expresses in his amendment and, therefore, I think that to have an amendment such as this put on the face of the Bill would be thoroughly undesirable. I must also say on looking at the amendment that I should have thought it was an absolute recipe for litigation of any sort, where any company could come along and say, "Hello, we have not been able to raise the amount of money which we might have wanted to raise because British Gas is coming to the market". It would be an absolute recipe for disaster and a whole lot of specious claims.
Lord Williams of Elvel: I was most interested to hear from the noble Lord that the Government intended to make the British Gas issue in a series of tranches. This is not the time to pursue this point, but he will be coming back to it on Report because it is something which I think your Lordships would wish to hear more about.
Viscount Chandos: I find it difficult to accept the suggestion of the noble Lord the Minister that the financing programme of companies in recent weeks was a demonstration of the fear that the privatisation programme over the next two years would create difficulties in the equity market for other companies. The privatisation programme to date has been more limited than the aggregate that is now being talked of by the Government to be achieved before the date of the next general election. It is that change in degree and scale which has caused the greatest comment among analysts and economists in the City, many of whom are in other respects strong supporters of the Government's policies. It is simply not possible to decry those fears as being ill-founded.
I suggested in my opening comments that I regard the Bank of England's supervision of the capital markets as being first class. None the less, it has not to the same extent as I suspect it will have to in the future had to contend with a government selling increasing amounts of shares where there is a strong political objective on the part of the vendor to achieve those sales before the next election. Nothing the noble Lord the Minister has said can have done anything to allay those fears either on this side of the Committee or

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among those commentators in the City and elsewhere who have raised them independently of myself. However, as the time is now quite late—
Lord Sanderson of Bowden: Before the noble Viscount decides what to do with his amendment perhaps I may ask him this question. Do I take it, as it looks very clear from this amendment, that he does not believe in privatisation, or does he believe in privatisation? It seems that the terms of this amendment leave a wide open door to anyone to object to the privatisation of British Gas at any time.
Viscount Chandos: I said at the beginning of my comments that I and I think my colleagues on these Benches have supported some instances of privatisation and would do so again in the future. It is quite possible to imagine public corporations being sold in tranches or of a size and with a regularity that does not interfere with the financing requirements of the hundreds and thousands of companies that are already in the private sector. What I have been suggesting is that the sale of British Gas and the sale of the other public corporations, such as the water authorities, that is being discussed in the time scale of the next two years is sufficient to cause serious disruption of the equity markets of this country. Despite that, as the time is late and a number of Divisions have already been called, sadly unsuccessfully, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
9.30 p.m.
Lord Diamond Lord Diamond moved Amendment No. 144MA:
Page 51, line 30, leave out ("the Consolidated Fund") and insert ("a fund controlled by the Treasury designated the Consolidated Capital Fund.
( ) Payments out of the Consolidated Capital Fund (up to a maximum of twenty per cent. in each subsequent fiscal year) may only he made for purposes certified by the Comptroller and Auditor General as being the bona fide creation of new national assets and subject to the approval by the House of Commons of detailed estimates submitted to them.")
The noble Lord said: What the clause provides for at the moment is the usual position—that any money received by way of dividends or sale of securities shall be paid into the Consolidated Fund. There is no particular objection to that, except that once it gets into the Consolidated Fund it gets lost, it disappears. It is used for current purposes and we get the classical situation of the family silver being used to pay for the groceries.
What the amendment seeks to do is to save the nation's assets. There is no possible objection to nations, trusts or individuals selling one asset and replacing it with another asset if they want to do that. In their view, it may be beneficial to do so. What the amendment proposes is quite simple. Instead of the assets being paid into an undesignated consolidated fund, there would be started a new fund for capital purposes called the Consolidated Capital Fund. It would be looked after by the Treasury in the ordinary way, and any sales of capital assets would go into that capital fund.
Would the assets stay in that fund for ever? No, because if one looks further on in the amendment, one sees what will happen to the money in that fund:
"Payments out of the Consolidated Capital Fund … may only be made for purposes certified by the Comptroller and Auditor General as being the bona fide creation of new national assets and subject to the approval by the House of Commons of detailed estimates submitted to them."
So the capital fund that is derived from the sale of the nation's assets can only be used for the creation of new assets.
That is secured by having a certificate by an independent and informed authority—namely, the Comptroller and Auditor General. The words "bonafide creation" are necessarily incurred so that the Government do not attempt, and so that any government do not attempt, to deceive the nation by using the funds for purposes that would have arisen anyway on the creation of small assets. They have to be used quite definitely for the bona fide creation of new assets.
In the ordinary way, just as payments out of the Consolidated Fund can only be made on the basis of detailed estimates submitted to the House of Commons, so could the payments out of the capital fund. The reason why the amendment includes the words,
"up to a maximum of twenty per cent. in each subsequent fiscal year"
is that we are impressed by the logic of the Government, who have said to every local authority, "You may sell your capital assets and may use the funds—up to 20 per cent. per year—in the purchase of further local government assets". That is a reasonable way of spreading the use of that money over a period of time. It would not all be spent immediately, and it would not be right that it should be so spent.
Here is a simple provision that will enable the Government to do what they have never been able to do so far, but which in view of the behaviour of the present Government, in selling asset after asset of the nation month after month, becomes necessary; namely, having what every normal business has, which is the separation along the lines of that which the noble Earl, Lord Stockton, recommended in his maiden speech. I refer to the separation between income and capital. One has one consolidated account for ordinary purposes, income purposes, revenue purposes—and one has another account for capital purposes. It is used in that way. It is very simple. It is what every business has. It is something that the Government should have had a long time ago, and it is something that they should now have to do in order to protect their stock of assets. I beg to move.
Lord Gray of Contin: This is a novel thought, straight from the mind of a former Chief Secretary of the Treasury. I wonder what the noble Lord's reaction would have been, when he was Chief Secretary of the Treasury, if somebody had suggested that government sales of any kind should be thus treated. I know that, sadly, the noble Lord's Government were not inclined to privatise in the way that this Government are. Indeed, we might not have been in the difficulties that we were in at that time, in the late 1970s, if the noble Lord's Government had acknowl-

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edged the potential of some of their assets. However, I wonder what the noble Lord's attitude would have been today. I do not believe that it would be very different from that of any other Chief Secretary of the Treasury.
The Consolidated Fund is that little pot of gold which Chief Secretaries guard to the end. It is a general principle that Government revenue should be paid into the Consolidated Fund. This is true of all sources of Government income, including the major revenue earners such as income tax and VAT. It has often been argued in my part of the country, in Scotland, that if all the money paid by Scots into the road fund had been spent on roads in Scotland we might not have had some of the criticisms that we have had in the past. But that is not the way of the Treasury and the ex-Chief Secretary knows that very well indeed. It is equally true of relatively minor sources such as the authorisation fees to be paid by gas suppliers to the Secretary of State or director under Clause 7 or Clause 8 of the Bill. Establishment of a special purpose fund in this way would therefore run counter to the traditions of government accounting developed over many years and which have worked satisfactorily.
We all know of the problems which a Labour Chief Secretary would have. The most difficult jobs in a Labour Government must be Chief Secretary, Chancellor of the Exchequer and Minister of Defence. Any one of the three positions must be a tremendous load on the shoulders of the occupant.
Payments out of the Consolidated Fund have, of course, to be voted by Parliament on the basis of estimates submitted to it—either the main supply estimates presented with the Budget or supplementary estimates presented throughout the year. So far as principles are concerned, therefore, the existing arrangements adequately safeguard Parliament's right to determine the purposes to which government expenditure should be directed.
I listened very carefully to what the noble Lord had to say. He is never short of ideas. However much we may disagree with him we must acknowledge that he has a most fertile mind. Sadly those ideas do not always fall into line with this Government's obejectives. In this case he has not provided something which could in any circumstances be acceptable to us. Therefore, I must ask him to withdraw his amendment, for the time being at least.
Lord Stoddart of Swindon: Before the noble Lord, Lord Diamond, decides what to do about his amendment, I should like to say to the noble Lord, Lord Gray, that he was being most unfair to the noble Lord, Lord Diamond, and, indeed, to the last Labour Government. We all appreciate—indeed, we have come to appreciate it very much during the debates on this Bill—that the noble Lord, Lord Diamond, is a ex-Chief Secretary to the Treasury. Indeed, his interventions in the debates have been most valuable, not only because of his personal qualities and expertise in accountancy but also because of the experience he had as Chief Secretary.
I have no doubt that the noble Lord, Lord Gray, is thinking that the noble Lord, Lord Diamond, if chief Secretary now, would understand and wish to
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perpetuate the doctrine of no hypothecation of revenue. That is full understood by all parliamentarians; but the noble Lord, Lord Diamond, is not suggesting anything to the contrary by this amendment. What he has done—and this came from his experience—is to provide a new idea; a new way in which capital assets from the sale of public assets can be used not for immediate tax reliefs but for the good of the country or, in other words, to provide employment opportunities, for example, for those extra two and a quarter million people who have been put on the dole since 1979, when this Government took office.
So in fact the fertile mind of the noble Lord, Lord Diamond, has shown the Government a way to escape from the accusations which we and other people have made against them. One of the main points of our opposition has been that this is a Bill to privatise British Gas not because it is inefficient and does not make money (it is efficient and it does make money) but simply and solely in order to obtain money to bribe the electorate before the next election. In actual fact, accepting the amendment of the noble Lord, Lord Diamond, is a marvellous way of convincing us that we are wrong. If they did that, the main plank of our argument would be taken away from us. The Government would benefit because they would be cleaner than they appear to be at present; and it would also be good for the country in that every year 20 per cent. of this capital fund would be put into the rebuilding of industry or rebuilding of infrastructure. Frankly, I think that the noble Lord, Lord Diamond, is to be congratulated on his amendment and that the Government will be wise to accept it. I am sorry that so far they have not done so.
Lord Gray of Contin: As always, I was interested in what the noble Lord, Lord Stoddart, had to say, but before the noble Lord, Lord Diamond, decides what he will do about this amendment I should like to put one question to him. I suspect that he actually did have an opportunity of trying out this experiment—
Lord Bruce of Donington: No!
Lord Gray of Contin: Oh, yes. Just let me finish. I suspect that he had an opportunity to try out this experiment or to influence his party to try it out, because, if my memory serves me correctly, in 1977, long after which time the noble Lord had ceased to be Chief Secretary to the Treasury but when he was still a member of the Labour Party, his Government sold a massive tranche of BP shares. Did he suggest to his Government at that time that they should put that money into a special fund, or did he acquiesce in the idea that it should go into the Consolidated Fund? That is an interesting thought, and perhaps the noble Lord might be able to enlighten us.
9.45 p.m.
Lord Diamond: Let me answer the question immediately. I hope the noble Lord will not take offence if I preface my answer by saying that he is the person who is paid to answer questions and I am not a person who is paid to answer questions. At that period I had the privilege of being the full-time chairman of the Royal Commission on the Distribution of Income and Wealth, and I kept my mouth shut

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completely in your Lordships' House. I was not concerned with anything other than that, and if I am asked whether I approved of the way in which the then Labour Government acted in relation to that money I should have to look into all the facts. I do not think that I could answer without having ascertained all the relevant facts.
However, the noble Lord the Minister twitted me about the situation which existed at the time I was Chief Secretary. He asked me what I might have imagined if this had happened when I was Chief Secretary. I gladly answer. I shall tell the noble Lord that for the six years from 1964 to 1970, when I was Chief Secretary, I could not have imagined—and he has been good enough to say that I have a fertile imagination—a situation in which unemployment would rise to seven times the maximum that it was during those six years. I could not have imagined it.
It was accepted philosophy that if unemployment went over 1 million there would be a revolution, and now it is over 4 million. I could not have imagined that. I could not have imagined that the basic rate of interest would have been three times what it was at any time during the period when I had any responsibility in that field. I could not have imagined that any Tory Government would be so irresponsible and unaware of how to manage the economy and to act as a trustee of the nation's assets that they would proceed to dissipate them in the disgraceful way that they have done over these years.
I say to all noble Lords on that side of the Committee that I am astonished at the way that they accept that their Government can sell capital assets and replace them with nothing, year after year. The only senior Conservative politician who has objected has been the noble Earl, Lord Stockton. That is what I say in reply to the noble Lord who twits me about the position when I was Chief Secretary.
That situation never arose because no Government ever for one second contemplated that we should so alter the form of accounts—we had below the line and above the line, the noble Lord will remember—as to deceive the nation as to what we were doing with the money. That could not have arisen then. We acted with propriety. We distinguished between capital and revenue, as every businessman does and as every noble Lord on the other side who has responsibilities in industry also insists on doing. We distinguished between the two.
I suggest now in this situation where the Government are compelling the country to accept the change, with their enormous majorities in both Houses of Parliament, that they might for one moment think about what is the proper and responsible way to look after the nation's assets and adopt the simple device of having a capital as well as an income fund, as all trusts are compelled to do. Every single piece of trust legislation has that division.
The noble Lord may interrupt me if he wishes to suggest that I am wrong. I assert that under trustee legislation every trust fund must be divided in that way. Here are the biggest trustees of all sitting on that Bench, insisting that the Chancellor of the Exchequer may breach the natural trust of looking after the nation's assets by spending and dissipating them in
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that way. If this provision were adopted it would prevent that.
The noble Lord was wasting the time of the Committee when he talked about how the House of Commons has to vote that money. I have provided for that in the amendment. He went on to say that the House of Commons was already in control of the situation. It is not. That is, like every single statement that the noble Lord has made in answer to my points, wholly wrong. The House of Commons is not in control of that; it is in control of expenditure and not of income. The income is paid into the Consolidated Fund.
What can a Member of the House of Commons do if he wants the Government to spend more on the infrastructure? As the noble Lord knows, he can do nothing. All the Back-Benchers on the Tory side, the Labour side and everybody else put together can do nothing. It is in the Government's gift as to whether expenditure is initiated. The noble Lord knows that. If in the other place the whole House wanted to rebel against the Government and say, "Please reduce unemployment by spending money on the infrastructure", they could not achieve that, no matter how many votes they won. They could throw the Government out of office on a vote of no confidence, but they could not achieve expenditure on capital assets because it is not within the powers of a Back-Bencher to initiate government expenditure. Here is a method to protect the Government's assets.
The only reason that I do not insist on testing the opinion of the Committee at this stage is that it is very, very late and we are terribly pressed to get through the Bill by a given hour. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 144N not moved.]
Clause 51 agreed to.
[Amendments Nos. 144P to 144R not moved.]
Clause 52 agreed to.
[Amendments Nos. 144S and 144T not moved.]
Clause 53 agreed to.
Clause 54 [Target investment limit for Government shareholding]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 144U:
Page 53, line 2, leave out ("six months after") and insert ("the date on which").
The noble Lord said: It will be for the convenience of the Committee if I speak also to Amendment No. 144V. There are two points on these amendments. The first relates to the time period in the Bill as drafted that is allowed to elapse before the Secretary of State commits himself to an order fixing the target investment limit. I am sure that the Government will agree that it is necessary to ensure that there is an orderly market in the shares of British Gas plc after flotation. One thing that destroys an orderly market is to have an overhang.
This is a slightly financial type of amendment. If the Secretary of State were obliged to fix his target

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investment limit on the point of flotation instead of waiting for six months that would ensure that the market does not have that overhang. I think the amendment is reasonable. It is not political; it is purely technical and I hope that the noble Lord, Lord Brabazon, will take that on board.
Amendment No. 144V is of a slightly different nature. Under the Bill as drafted, the Secretary of State is obliged, if he fixes a new target investment limit, to ensure that that new limit is lower than the one it replaces. We see no reason for that provision. We should like to give the Secretary of State freedom of action because, who knows, in the future there may be different Secretaries of State who wish to raise the target investment limit in British Gas plc. For that reason, and very quickly because it is late and the Committee still has a great deal of work to do, I beg to move.
Lord Brabazon of Tara: I am tempted to take these amendments briefly. The purpose of the first (the six-month limit), and there is no dispute on this, is merely a requirement to set the target investment limit immediately, and it would remove the Secretary of State's flexibility and could give rise to practical difficulties in relation to the need, for example, to retain a short-term float of shares which could be allotted to deserving cases, such as lost application forms, during an interim period following the allocation. Those would revert to the Secretary of State if the float were not exhausted.
The arrangement that the noble Lord proposes would, I opine, not work because there might need to be a certain number of shares to be used for the purpose that I have described.
As regards the second amendment, where the noble Lord seeks to enable the Secretary of State to set a higher target investment limit if he chooses, it would run completely counter to the purpose of the clause. As I have already explained, the object is to reduce the level of Government ownership, in line with the overall objective of the proposed sale of shares to take British Gas from Government control and to provide for genuine public ownership and ensure that the
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Government do not seek to regain a controlling interest in the company once sold. It would defeat the purpose of the target investment limit if it could be raised by order of the Secretary of State.
The target investment limit will in effect prevent shares being bought by the Secretary of State. It is not therefore concerned with further sales or any overhang of shares. I hope that the noble Lord may be able to accept the first explanation. As to the second, I appreciate that there will be a difference between us. I am afraid, however, that I cannot accept the amendment.
Lord Williams of Elvel: I am grateful to the noble Lord. Will he kindly give me an assurance that the six-month time period will be looked at again? This is not a political point; it is a purely technical point. The noble Lord may find that my arguments are a little more persuasive than they appear at this hour of the night when the officials look at the matter again. I believe that, if it is left at six months, there will be a serious overhang in the market when no one is certain in the market how far the Secretary of State is going to go in fixing the new limit. I believe that this will be a problem. I am trying to help the Government.
No doubt, the setting of new limits as we go forward has something to do with what the noble Lord said a few moments ago about selling British Gas in tranches. We look forward to having further discussions on Report.
Lord Brabazon of Tara: I shall certainly look at the first point that the noble Lord makes and write to him. If there is any way in which the Bill can be improved by taking account of the suggestions that the noble Lord has made, we shall be delighted to do so.
Lord Williams of Elvel: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 144V and I44ZZA not moved.]
Clause 54 agreed to.
Lord Diamond Lord Diamond moved Amendment No. 144VZA:
After Clause 54, insert the following new clause:
("Rate of dividend on ordinary shares.
.—(1) The Secretary of State with the consent of the Treasury shall decide the maximum rate of dividend on ordinary shares payable by the successor company and shall, after every subsequent period of five years, review the position and, with the consent of the Treasury, decide the maximum rate for the ensuing five years.
(2) In reaching the decisions referred to in subsection (1) above the Secretary of State shall have regard to the need to maintain a fair balance between the interests of the shareholders and of the consumers of the products of the successor company.
(3) The decisions referred to in subsection (1) above shall be implemented by order subject to approval by both Houses of Parliament.")
The noble Lord said: This amendment, as opposed to the previous amendment that I had the opportunity of moving, is not, as the Minister was good enough to say then, a novel idea. There is nothing novel at all about this amendment. I am going back to ancient history and precedent. The amendment proposes that the Secretary of State, with the consent of the Treasury, shall decide the maximum rate of dividend on ordinary shares payable by the successor company. This limitation of dividends was absolutely standard, as noble Lords will recollect, with all utility companies. Why?—because you have to reconcile the philosophy of maximising profit in the interest of the shareholder and maximising service in the interest of the consumer. You have to marry those two philosophies where you have a monopoly affecting the consumer on a large scale. That is what utilities were. They had their monopoly. Some exist now—for example, some water companies. The water company that supplies me with my water is such a one. You have the situation where a fair balance between these two philosophies has been arrived at. You get a dividend, but it is a limited dividend. So the consumer is looked after as well as the shareholder.
We are moving over from a public monopoly where the motivation is service to a private monopoly where the motivation is profit. Therefore, the interests of the shareholder are predominant unless the consumer is protected. We spent a great deal of time on Part I of the Bill trying to devise better protection for the consumer. Here I am saying, why not do what we always used to do and to a certain extent still do and have a method of restricting slightly the principle of maximisation of profit so that the consumer, who would otherwise be inadequately represented, can have his interest represented as well?
That was the philosophy behind the limitation of dividends on all the utilities, for example, which went into constituting British Gas Corporation which will now be privatised. It will be privatised as one organisation. It may be right in terms of maximum efficiency. I do not know enough about it to say yea or nay, but that argument has taken place and the British Gas Corporation has won the argument to satisfy the Government that it should be continued as a single integrated organisation.
That is well and good. But one still has the situation where with the private monopoly the consumer is put at a disadvantage unless there is a suitable small brake placed on the principle of maximisation of profit. This
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has been done over the years, but I am suggesting that it could be improved. The amendment therefore proposes that the Secretary of State shall decide on a maximum rate of dividend on ordinary shares payable by the successor company—that is the dividend limitation—and shall, after every subsequent period of five years, review the position and decide the maximum rate for the ensuing five years.
In short, I am not saying to any private enterprise company, "This will be your maximum dividend for all time." I am saying, "This will be your maximum dividend for five years. If your behaviour over the next five years is such as to satisfy the Secretary of State, then you may be able to persuade him to alter in your favour, if you like, the maximum rate of dividend for the following five years."
I am not saying that—as was the case in all utility company capital structures, and is the case in a number of utility companies that remain today—the accumulation of profits in reserves is also limited. If one makes a profit and has a limitation on the distribution of profits, what will one do with the profit left over? I was familiar with this when I had to look after that side of the Treasury business when we had dividend limitation. What does one do with the amount left over? Does one limit it or allow the companies to accumulate it? In existing utilities there is a limitation on the accumulation of undistributed profit; that also applied in utilities which no longer exist.
I am not proposing that that should apply here. I am proposing that there should be greater encouragement for the shareholder through knowing that there is no limitation on the accumulation of profit. It is perhaps erring slightly too far in favour of the shareholder, but I have to deal with the Committee as I find it. I have to convince the Government to move a small way if they will not move the full distance. I am proposing that there should be dividend limitation, but for only five years and reviewed every five years. I am not proposing that there should be limitation on the accumulation of undistributed profits. There is therefore every encouragement for the new gas plc to be efficient, to make as much profit as possible through efficiency, but not to rest on its laurels, because it will be reviewed every five years.
I think that this is a way forward. It is a way that tries to marry the two principles which are represented on the two sides of the Committee. It is a fair half-way house. I think that it would work very well. I beg to move.
10 p.m.
Lord Bruce of Donington: For our part, we should like to commend this amendment to the Government on grounds of prudent finance and prudent administration. The position of the consumer vis-à-vis the shareholder will of course be dealt with very largely, and certainly in the short-term, by the figure that is put upon the efficiency factor incorporated in the price determination formula. This is the way in which the short-term position of the consumer can be safeguarded, provided that the efficiency factor is put

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sufficiently high, without of course damaging the company, to ensure consumer protection against any undue increases in price that arise following privatisation and following the removal from the corporation (which then, of course, is a plc) of the political constraints that have exercised some influence, and which continue to exercise some influence, over the corporation itself.
I think that the noble Lord, Lord Diamond, would agree that in the main his proposal deals with the other aspect of the matter. Quite clearly, any restriction on the amount of dividend distributed has little impact upon the total equity capital and income rights together of the shareholder, because what is not distributed in dividend remains to the credit of the reserves and therefore in the worth of the shareholding.
The amendment ensures that a tendency in the case of this monopoly—and it will be a private monopoly—to go for undue dividend distribution for the purposes of keeping up the share price and satisfying the short-term interests of shareholders shall not result in starving the company of its own reserves, which it could use on research and development, as extra working capital, or whatever it might be. As Members of the Committee know perfectly well, it is a very unsound policy indeed to distribute all your profits as dividends, even after making due allowance for depreciation and so on. Provision has to be made for research and development, and provision has to be made in the case of an expanding business for additional working capital.
This amendment tries to ensure a broad public attitude—the attitude of sound public finance in industry and administration—notwithstanding the temptation afforded by privatisation and shareholder pressures on the directors of the privatised company, which will undoubtedly ensue. There are references in today's press to the growing tendency to have regard to short-term interests and high dividends in order to ensure that a public policy is pursued with the minimum of constraint over a monopoly which will not now be under political control but which will be entirely in private hands.
Lord Brabazon of Tara: As the noble Lord, Lord Diamond, explained, the amendment seeks to give the Secretary of State control over the maximum rate of dividend payable on ordinary shares by the successor company. The whole purpose of privatisation is to free British Gas from interference by government in its affairs, to which it is subject at present, and to provide for real public ownership so that consumers and others can take a personal stake in the industry whose services they use.
It is therefore right that British Gas, like any other private sector company, should be able to decide on the appropriate level of dividend and that investors should be able to benefit from their investment through dividends related to the company's performance and not subject to artificial constraints imposed by the Government.
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The noble Lord, Lord Diamond, spoke about the protection of the consumer in a public monopoly. We have been over these arguments on many occasions during the last six and a half days of consideration of this Bill. This is a highly regulated regime we are imposing on British Gas so far as the tariff customer is concerned. As we have indicated on many occasions, the contract and industrial customer has no wish to be a part of this regulated regime and is quite happy with the arrangements we have set.
The noble Lord, Lord Bruce of Donington, spoke about the efficiency factor in the price formula. This, I have to say, is a decision which the Government have made after a great deal of thought. We believe that price control, not profit control, is by far the best way of ensuring the best both for the shareholders and for the consumers. What the amendment of the noble Lord, Lord Diamond, really seeks to introduce is profit control. Profit control gives no incentive for the company to improve upon its efficiency. Therefore, we have introduced this strict formula of price control so far as the tariff customer is concerned.
Turning now to the point which the noble Lord made that he would not restrict profits, only dividends, I quite accept that. In my opinion, this would only lead to the accumulation of massive reserves by the company's management, which I do not believe would encourage efficiency on their part. I cannot accept that this would be in the interests of either consumers or shareholders. The noble Lord, Lord Diamond, said that dividend control was not a novel idea. I realise that it is not a novel idea, because it was one of the first things which this Government removed when they came into office in 1979. Therefore, I do not think the noble Lord will be surprised that we cannot accept this amendment.
Lord Diamond: I wish the Government Ministers would get some of their facts right, because it would save so much time. The Government did not remove dividend control. There are utility companies existing today supplying water with dividend limitations. I do not know what the noble Lord the Minister is talking about, or who briefed him to make that statement. They are carrying on today. The noble Lord said he wants this new company to run as all other companies run.
All other utility companies supplying utility products in this way, and with a monopoly, have had, and the few remaining ones still have, dividend limitation. I am asking for the normal; it is the Government who are insisting on the abnormal.
The Government say that the proposal I make is profit control. I just do not know what words mean if the Government really believe that. I have especially said there is no profit control: there is limitation on the distribution of profit; there is no limitation on the retention of profit. I said it, and the amendment itself says it.
It really is heartbreaking that the Government are not prepared to treat seriously any single amendment we have moved on this Bill from the word "go". The consumer is not adequately protected. Our whole argument has been that the method of regulation is totally inadequate. The noble Lord the Minister comes along and says there will be a vast accumulation of

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profits and that is not an encouragement to efficiency. No, it is an encouragement to reducing the price. If you do not want to make such profits you reduce the price to the consumer; that is the philosophy behind the dividend limitation in utility companies at the present day as I am standing here addressing your Lordships. We must be living in totally different worlds. I get my water every day from a company which has its dividend limitation. So I can only say that the Government are not treating any of our amendments seriously. I give up in despair, and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 55 agreed to.
Clause 56 [Temporary restrictions on successor company's borrowings, etc.]:
10.15 p.m.
On Question, Whether Clause 56 shall stand part of the Bill?
Lord Stoddart of Swindon: The Committee will note that we gave notice of our intention to oppose the Question, That Clause 56 stand part of the Bill. We put down no amendments to the clause but it is an important clause and we had intended to have a debate.
However, time is getting on and we have given our undertaking that we shall finish the Committee stage of this Bill by 11 o'clock, and we intend to see that that undertaking is honoured. But I want to make the point that it has not been possible for us to probe and examine this Bill in the way that we should have liked to. Having made that point, I now sit down and will allow Clause 56 to proceed without a Division.
Clause 56 agreed to.
Clause 57 agreed to.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 144VA:
After Clause 57, insert the following new clause:
("Pre-transfer provisions relating to the Corporation.
.The accounts for the Corporation for the year ended 31st March 1986 and for each succeeding completed year prior to "the transfer date" provided for in section 49 of this Act and for the period from the last completed year until "the transfer date" shall be prepared under the same current cost accounting principles as those used in the preparation, presentation and publication of the Corporation's accounts for the year ended 31st March 1985 and shall include, in addition to those particulars required by the Companies Act 1985 section 228 and where applicable section 229 of that Act, detailed statements comparable with those contained in the Corporation Annual Report and Accounts for 1984–85, with the following sub-heads:

(a) ten year financial summary to and including the end of the year covered by the accounts submitted;

(b) statistics for the industry for each of the ten years up to and including the end of the year covered by the accounts submitted;

(c) statistics for the Regions for the year covered by the accounts submitted;

(d) performance ratios for each year for the ten year period to and including the year covered by the accounts submitted.")

The noble Lord said: In order to save the time that was lost by the Government's half-hour underestimate of the business taken at 7 o'clock, and in view of our undertaking, with the Committee's permission I shall
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discuss this amendment with 144VB and 144VC, even though they would normally have been due for separate consideration.
I am aware that particularly at this time of night, and perhaps even in broad daylight at a more reasonable hour, it is difficult to discuss matters of accounts. Accounts are not the most interesting subject to induce a sense of ecstacy in Members of the Back Benches on either side of the Committee, unless of course they have a specialist interest in these matters. Because of the existing composition of the Committee, I assume that there is an intense interest in accounting matters among those who are present this evening.
The purpose of the first amendment is clear. We have had no indication from the Government yet as to when the transfer date covering the transfer of the assets and liabilities of the corporation to the successor company is going to be. There have been many rumours. What this first amendment seeks is to ensure that for each completed year up to the date of transfer and after 31st March 1985—which therefore includes the year ended 31st March 1986—and for each succeeding completed year before transfer date, or if the transfer date comes before the completion of another year, accounts are presented in the same form as the accounts that have been presented for the year 1984–85.
I should have thought that this was a modest and reasonable amendment. Any director of a company, or any person in public life who has become accustomed to the desirability of the presentation of accounts on the basis of consistency, which is the accepted standard practice thoughout the industrial world and the City of London and adopted by all professional accounting bodies, would regard this as being a desirable thing to do. It may well be that the friends of privatisation, who are so ideologically hidebound, think themselves quite free to abandon ordinary commercial standards, industrial standards and accounting standards. They have shown a degree of eccentricity in this respect, as I have explained before, whenever it has suited their purpose.
But there is an additional reason for moving Amendment No. 144VA, because the accounts as published by the corporation for the year 1984–85 contain a great deal of valuable information which strict compliance with the Companies Act 1985 does not require. It publishes much information which is surplus from the point of view of the rigid requirements of the Companies Act. The corporation is under no legal obligation at the present time to give all this additional information that has been of such value to the country as a whole, or those sections of the community who see it as their task (self-appointed or otherwise) to have some regard to the public interest. So the amendment provides, as the Committee will note, that the various particulars that I have ventured to set out, and which any of the Committee will see already reproduced in the accounts for the year 1984–85, are continued on until the transfer date.
The next amendment carries the same principle forward. It endeavours to impose a responsibility on the successor company for publishing its accounts in exactly the same way. This matter was dealt with by the energy committee in another place in its first

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report, The Regulation of the Gas Industry, House of Commons Paper No. 15.
These are the conclusions at which the energy committee in another place arrived and which are set out at paragraph 71 of its report, on page xxviii. I quote:
"In its comments upon the evidence of the Electricity Council, BGC disputed the Council's suggestion that after privatisation it should … be subject to any accounting requirements other than those applying to any other private sector company".
That refers to the statutory provisions under the Companies Act 1985. The quotation continues:
"We reject this argument on two grounds. Firstly, British Gas will not, by and large, be competing with other private sector companies but with nationalised energy suppliers. Secondly, its continuing effective statutory monopoly in the gas tariff market, and the legacy of its historically privileged position, means that it will not be comparable to normal private sector companies. It can retain customers with relatively little effort and obtain profits with relatively little risk. In return for this privilege it must accept that it is required to demonstrate openly that it is acting for the public good, as must other monopoly energy suppliers".
I should like to refer the Committee, if I may, to the further observation that has been made by the Electricity Council. At page 182 of the same report, which covers the memoranda submitted to the energy committee and whose conclusions I have already dealt with in my earlier quotation, the Electricity Council says this:
"With the exception of the Scottish Electricity Boards, both industries' published accounts are on a current cost basis and show separately the results of their trading activities. After privatisation, comparisons between the industries will continue to be made; therefore, the published accounts of the successor company to the BGC should be on the same basis and in the same format as that currently adopted by the Corporation".
So I present the Committee with the considered view of the all-party committee in the other place and with the extract from the memoranda which was carefully considered by the committee in another place and upon which its opinion was grounded. I hope therefore that the Committee will acquit me in any way of being partisan about this matter. There is no question of party politics being involved in it. It is purely a question of good administration.
The other parts of Amendment I44VB endeavour to put some further requirements on the new successor company from accounting standpoints than are already the responsibility of British Gas. The reasons for that are very simple. The amendment itself—and for the purpose of saving time, I shall not read it aloud which I am quite sure the noble Lord will appreciate—seeks to have reproduced in the published accounts those vital statistics that will be used by the director general in determining the mathematical outcome of the application of the price-fixing formula. So the directors' own calculations and own conclusions can be checked and can be commented upon on the basis of the published accounts of the new successor company. These additional requirements, which are in fact very minor in a way because they arise only from an analysis which any spreadsheet or computerised spreadsheet will show very quickly and throw up almost instantaneously, impose no particular responsibility on the new British Gas plc.
The third amendment deals with the whole question of transparency and impinges once again on the
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necessity for the transactions that are involved in this whole sordid business to be made as open as possible. We know quite well that the Government very much prefer to keep everything under a mist of ambiguity which the friendliness of their own media of course faithfully conceal from the British public. But at least perhaps those independent journals that are still capable of producing news and facts that are unpalatable to the Government will be able to obtain the information that they require.
Amendment 144VC provides that, in continuation of what I have already put forward in the other two amendments:
"All the property, rights and liabilities passing from the Corporation to the successor company under the provisions of section 49 of this Act shall be transferred at the value stated in the Accounts of the Corporation as at the transfer date."
This is normal commercial practice on the takeover by one company of another and it ought to present the Government with no particular difficulty unless it reveals too much.
Then it stipulates:
"Within three months from the transfer date or within the period from the transfer date until the first exercise by the Secretary of State of his powers under section 54(5) of this Act, whichever is the less, the Corporation shall prepare, present and publish a statement of affairs showing it financial position immediately following the transfer date".
So we know exactly the opening position accounting-wise of the successor company.
The amendment continues:
"At the conclusion of the transitional period provided for under section 57 of this Act the Corporation shall prepare, present and publish a full account showing its transactions up that date from the date"
with which the previous subsection dealt.
I am well aware that all this sounds very complicated indeed, but there is, in fact, no complication at all. It seeks to lay open to the public gaze, particularly to independent newspapers like the Financial Times—which I am happy to say is still almost unique in having a reputation for complete veracity—and to the discerning individual, who may be interested in public affairs and may not always care to rely on leaked Government statements or blanket statements of ambiguity, the facts about what has happened. So, as I said, the last amendment provides in respect of each critical date—the transfer date and the first flotation date—a complete statement of the accounting position, and of the transactions that have taken place between the dates, so that everybody knows what is happening.
I fear that I have detained the Committee a little long on these three amendments. I am afraid that I cannot apologise for that, because these accounting matters are a little complicated and one's powers of exposition on matters in which one is professionally engaged on a day-to-day basis very often result in utterances in some kind of code, but I have tried to avoid that by explaining these amendments in comparatively simple terms. I sincerely hope that the amendments will find favour with your Lordships. I beg to move.
Lord Belstead: The noble Lord has moved Amendment No. 144VA and spoken to two other

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amendments. They are of some complexity and I shall do my best briefly to reply to the noble Lord's thorough exposition of his case. The first amendment, on which the other two really hang, is an attempt by the noble Lord to ensure that there shall be absolute and transparent honesty in the accounts of the corporation in the run-up to privatisation.
I would just say on Amendment No. 144VA that the attempt here to require the corporation to prepare accounts for the year ended 31st March 1986 and any subsequent period in accordance with a prescribed accounting principle—namely, current cost convention—and also to require that these accounts should include prescribed detailed financial statements, statistics and ratios, goes well beyond the Companies Act requirements. The amendment would put in place statutory requirements where none existed in the past, as the noble Lord said, and which would be unacceptable because they are far more stringent than those which currently apply to other statutory bodies.
I do not believe it would be right to accept the amendment for a further reason; that is, that the timetable for the passage of the Bill, and for when it receives Royal Assent, is a matter for Parliament. Should this take place after the publication of the corporation's annual report and accounts for the year ended 31st March 1986 the amendment would effectively introduce retrospective legislation. At any rate, the preparation of that annual report and accounts, in compliance with the requirements of the 1972 Act and the directions given by my right honourable friend, is already at an advanced stage. I should like to make it crystal clear in replying to the noble Lord that these accounts can be expected to include relevant and useful detailed statistics, ratios and supplementary financial statements for an appropriate number of years.
The noble Lord said that the second amendment carried on the logic of the first amendment so far as the successor company is concerned. Yes, indeed it does, but if I may say so I do not think it is appropriate for us to state in primary legislation whether the historic or current cost accounting basis should be used by a private sector company. Condition 2 of the draft authorisation requires British Gas to draw up accounts for the gas supply business as a whole, and gives a clear role to the director in scrutinising the allocation of cost between the gas supply business and any other business British Gas undertakes. This will ensure that proper accounts are drawn up which represent a true and fair view of the gas supply business, separate from the other activities that British Gas undertakes, such as appliance trading. The condition also requires the accounts to be audited—an important point overlooked in the amendment.
But in undertaking activities outside gas supply, such as appliance trading, British Gas will be in competition with other companies. We have previously been over the ground that regulation ought to be confined here to where it is needed—namely, to gas supply. It is inconsistent with this approach to seek to regulate the accounts relating to activities outside gas supply, as this amendment would seek to do. The amendment would also require separate accounts for tariff and non-tariff sectors of the market. The noble Lord will forgive me if I say that we have been over this
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ground more than once in the past and the noble Lord is familiar with the reasons why the Government have resisted that suggestion.
Finally, the noble Lord has put forward a very complicated amendment which is divided into three parts. Perhaps I may reply only to the first part of it. The effect of Amendment No. 144VC would be that all the property rights and liabilities passing from the corporation to the successor company would be transferred on the basis of their values as at the transfer date and would be recorded in the accounting records of the successor company at these values. This is contrary to what is provided in the Bill as drafted, and I would just make clear that Clause 55(4) of the Bill provides that for the purposes of any statutory accounts of the successor company the vesting shall be deemed to have been effected immediately after the end of the last complete financial year of the corporation ending before the transfer date, and that the value of any asset or liability vested shall be taken as the value assigned to it in the accounts of the corporation at that date.
I should like to think that the answers to the three amendments which the noble Lord has put to the Government, although I know they do not go down the same road as the noble Lord would wish, do show that we are making provision in the Bill and in the authorisation for accounts which will accord with what the noble Lord wants, which is a clear demonstration of what the facts are in the company at the moment of privatisation.
Lord Bruce of Donington: I thank the noble Lord for the tone and tenor of his remarks in reply to the representations I ventured to make on behalf of these three amendments. I am not at all surprised that the noble Lord speaking for the Government has been unable to accept the amendments. I fear that until a little more mature consideration has been given by those who advise him to exactly what I said, to exactly what the arguments are and to precisely what the implications are, it would be quite useless for me to argue further with the noble Lord.
The noble Lord, or, rather the Government (because I cannot attribute these characteristics to the noble Lord as being personal ones, any more than I should wish to do so to the noble Lord who has also been dealing with the matter; I speak of the Government as a whole) have treated the Committee with contempt in regard to this Bill. They have relied entirely on their majority, a very large number of whom have not graced the Committee with their presence except at Division time. The Government have been impervious to any logical argument that has been put forward. They have their briefs, and it has been the brief and nothing but the brief.
It would therefore be useless for me to argue further with the noble Lord, and in view of the time I do not propose to do so. However, I should like to express my complete contempt of the attitude of the Government towards this Bill. Judging from the way that they have ventured to deal with the Bill not only in this Committee but also in another place they must think that the Opposition and the public outside are complete idiots. I shall take the opportunity once again to press these matters at a later stage in the Bill,

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in the hope that by that time the noble Lord will have taken further instructions as to what his responses should be. In the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 144VB and 144VC not moved.]
Clause 58 [Statements in connection with flotation]:
On Question, Whether Clause 58 shall stand part of the Bill?
Lord Williams of Elvel: I seek very quick clarification from the noble Lord on Clause 58. I have warned the noble Lord that I would be seeking such clarification. Clause 58 refers to the immunities that are granted under the Bill as drafted to various people. They are the Crown, agents of the Crown, those acting on behalf of the Crown, directors of the company, persons responsible for the preparation of, or of any part of, the listing particulars, and so on. All that is perfectly clear. The clause states that those immunities shall apply provided that the Council of the Stock Exchange has agreed the prospectus. The Council of the Stock Exchange really is the place where the buck stops.
Under the Financial Services Bill that is being debated in another place at the moment it is the Government's proposal that the Stock Exchange shall equally be granted immunity from civil proceedings. If the Stock Exchange is granted immunity from civil proceedings by the Financial Services Bill, then I ask this question: If there is a misleading prospectus, or if there is a misleading mini-prospectus, who does one sue?
Lord Gray of Contin: I am most grateful to the noble Lord for having the courtesy to warn my noble friend that he intended to raise this question. That has given me an opportunity to examine the matter and take advice. The answer is quite simple. Clause 58 gives exemption from liability only where the mini-prospectus is not misleading if read with the full listing particulars. If it is misleading, there is no immunity. The clause does not affect liability for statements made in the full prospectus. If those statements were shown to be misleading, liability would follow for those making the statements in the normal way.
The purpose of Clause 58 is, however, to permit the publication of a summary of the full prospectus for marketing purposes, and to ensure—so long as that summary, taken together with the full prospectus, would not be misleading—that no liability arises merely because it is a summary. However, if the summary and the prospectus taken together mislead, liability remains in the normal way. I hope that explanation answers the noble Lord's query and that it will enable him to allow Clause 58 to stand part of the Bill.
Lord Williams of Elvel: I am most grateful to the noble Lord. In fact it does not finally answer my query, but perhaps I may take up the matter with the noble
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Lord privately and have a conversation about it. It is a very important point.
Clause 58 agreed to.
Clause 59 agreed to.
Clause 60 [Tax provisions]:
[Amendment No. 144W not moved.]
Clause 60 agreed to.
[Amendments Nos. 144X and 144Y not moved.]
Schedule 6 agreed to.
Clause 61 [Interpretation etc. of Part II]:
[Amendment No. 144Z not moved.]
Clause 61 agreed to.
[Amendment No. 145 not moved.]
Clauses 62 and 63 agreed to.
10.45 p.m.
Lord Ezra Lord Ezra moved Amendment No. 146:
After Clause 63, insert the following new clause:
("Right of vendor of gas not to supply certain information.
.—(1) A potential vendor of natural gas to a public gas supplier may elect not to supply certain information to the public gas supplier, for the purposes of relevant negotiations, provided—

(a) that the public gas supplier would be able to obtain an unfair commercial advantage from the said information, if he was in possession of it;

(b) that the vendor has the information's conclusions verified by an independent expert; and

(c) that these conclusions are communicated by the said expert to the public gas supplier.

(2) The said expert must be agreed between the parties and approved by the Secretary of State.
(3) In the event of the public gas supplier, by reason of such election, discriminating against such potential vendor in any matter, he shall be guilty of an anti-competitive practice, as specified in the Competition Act 1980 and the matters covered by this provision include, without limitation—

(a) the conduct or further conduct of the relevant negotiations; and

(b) the agreement or award of any contract to cover the whole or part of the natural gas to which the information relates.")

The noble Lord said: This amendment is designed to strengthen the impact of Clause 63. It deals with information which could be used to create an unfair competitive situation. The difficulty with Clause 63 is that the information is passed in the first place and restrictions on its use are then imposed. The purpose of the amendment is to ensure that in certain circumstances when a potential vendor of natural gas to a public gas supplier feels that he has to pass to the gas supplier certain information which is relevant to the negotiations he is undertaking for the sale of the natural gas, such information is not used to unfair commercial advantage. Therefore, the proposal is made that in those circumstances the information should be passed to an independent expert who would be agreed by the parties concerned and approved by the Secretary of State.
I am aware of the fact that a number of enterprises involved in the exploration and production of natural gas, both onshore and offshore, are concerned about the situation which could arise from the new gas corporation plc having a dual capacity—namely, as far

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and away the biggest purchaser of natural gas for resale on the one hand and being involved in the exploration for natural gas on the other; and probably also for oil.
I suggest to the noble Lords opposite that this new clause is a reasonable extension of the measures in Clause 63 to ensure that there shall be fair competition in those circumstances. I very much hope that they will enable us to depart from these lengthy deliberations with a slightly lighter step than we otherwise might by saying that they will consider this, the penultimate amendment on the Marshalled List. I beg to move.
Lord Belstead: As the noble Lord recognises, Clause 63 has been included in the Bill to deal with the problem which he outlined. It will enable my right honourable friend to give a direction to a public gas supplier to ensure that no unfair commercial advantage is gained from information acquired in the course of gas purchase negotiations. The intention of the Government is to give a direction to British Gas which requires the company not to pass on geological and geophysical data obtained during gas purchase negotiations to people in the company or any associate company who are involved in obtaining licences or interests in licences, and the direction will apply to all negotiations for gas supply.
The proposed new clause of the noble Lord would add to these arrangements a right for companies to choose not to make information available to British Gas at all. Of course there is nothing in the Bill or the law as its stands at present which requires companies to give information to British Gas against their will. The Government are indeed aware that some companies have their own in-house rules about the types of information that they are not prepared to reveal to British Gas. But I think that we need to recognise that it is of genuine importance for British Gas that it should be an informed buyer. The contracts that it concludes with gas producers typically require it to buy all the gas that can be produced from the field in question, and it is therefore of the first importance that it should be satisfied about the quantity of gas that is likely to be produced from the field and also that the field will produce at the annual levels and at the swing promised by the producing company. If British Gas were prevented from satisfying itself in this way, there would be a greater degree of uncertainty about its future gas supplies. It is for these reasons that we have Clause 63 in the Bill.
May I just add that I realise that the new clause provides that if a company chooses not to provide information it will provide British Gas instead with the conclusions to be derived from the information, verified by an independent expert. I am uneasy about this provision. Certainly, as a result of the discussions that we have had this evening, we shall have a look at it but I am sure that the noble Lord will recognise that there may be circumstances in which an expert acting in a go-between role, though he has a valuable part to play, can also be fallible. The answers which experts give can depend on the precise questions that they are asked, and confidence in their judgments is bound to be diminished when there is no opportunity to test and question their judgments against the raw data on which they are based.
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It is for those reasons that I feel I must say that in Clause 63 we have put into the Bill something which is of value, and we should certainly hesitate hard and long before departing from it.
At the end of this very long Committee stage, it would be churlish of me to say to the noble Lord, Lord Ezra, who has been here from the beginning to the end of these proceedings, that I shall not look very carefully at what he has said, but I hope that perhaps on his side he will look carefully at the Government case also.
Lord Diamond: As this is in fact the penultimate amendment on the Marshalled List and is the last amendment on that list to be moved, may I say first of all on behalf of these Benches that we are very grateful to all the Ministers who have taken part in this long Committee stage and who have been here? I cannot go so far as to say that they have listened to the arguments, but they have been here and for that we are grateful. I can congratulate them on their intense loyalty to the Government. Every amendment where the brief was headed "Resist" has been resisted with the utmost vigour and obstinacy.
If I may now be serious, I started the proceedings today by making it clear that so far as these Benches were concerned, we should terminate proceedings by 11 o'clock. Clearly we shall be doing that, albeit difficulties were added to that already immensely difficult task by the dinner break extending for an extra 22 minutes.
Although one would have thought from listening to the responses of the Government for the last 20 minutes or so that they were listening to the arguments—and although for the whole of the period that we have been honoured with the presence of the Leader and the Deputy Leader of the House, the Ministers have been particularly courteous—I hope that the Leader of the House will be good enough to instruct someone to analyse today's proceedings for him, because I am hound to say that so far as I am concerned I do not think that the Government have treated our amendments seriously at all. They have not read them, they have not been prepared for them, they have not dealt with the essential points; and I think that they have relied on my foolishness in saying at the start of the proceedings that they would be brought to an end by 11 o'clock. I feel that very seriously, and it would be wrong of me to hide that from the Committee.
Having expressed my gratitude to the Ministers, I leave it to my noble friend to decide what he will do on this amendment.
Lord Stoddart of Swindon: I agree with the sentiments of the noble Lord, Lord Diamond. I agree with him very much in thanking noble Lords opposite for their attendance and for the courteous way in which they have replied to the many debates on the Bill. But like the noble Lord I have to express my complete dissatisfaction with the replies and the attention given to our arguments.
The Leader of the House is here. He has not been here throughout, and we understand that. He has many things to do, and we appreciate what he does for

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the House. I ask him to take due note when he reads Hansard of the co-operation of all sides of the Committee in drawing the debate to a close at 11 o'clock. We have withdrawn very many amendments that were important, and we shall come back to them. It is a complicated Bill and it needs time to probe it. We have not had sufficient time to do so. We shall come back to the Bill full of vigour and with many amendments at the Report stage.
Lord Ezra: I was pleased to note that the noble Lord, Lord Belstead, said that he would take Amendment No. 146 away and have a look at it. In so doing I ask him to bear in mind the concern on the part of potential vendors of natural gas about the difficult position in which they may be put in dealing with such a powerful, dual-functioning organisation as the new British Gas plc. They feel that the proposal for the intervention of an independent expert in certain cases would be fair to both sides. In seeking to sell the gas they will have to reveal to somebody the relevant technical information. In certain cases where that geological information could be misused, they would like to do so through a third party approved by all concerned. With those remarks I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 64 [Provisions as to orders]:
[Amendment No. 147 not moved.]
Clause 64 agreed to.
Remaining clauses and schedules agreed to.
House resumed: Bill reported with an amendment.

Royal Observatory: Herstmonceux
11 p.m.
Earl De La Warr Earl De La Warr rose to ask Her Majesty's Government whether they will reconsider the proposal to move the Royal Greenwich Observatory from Herstmonceux.
The noble Earl said: My Lords, I must begin by apologising to my noble friend for the fearsome hour at which we are starting, and to the staff of the House to whom we owe so much for the late hours that they keep. I must also apologise for the absence of my noble friend Lord Chelwood, who was to have put the Question but who sadly is very ill.
The proposal to move the Royal Greenwich Observatory may be seen by many to be a minor affair but it has aroused a degree of opposition, particularly on the part of astronomers and scientists, which in my opinion points to the strong possibility that the Science and Engineering Research Council is on the verge of a serious mistake.
There are many powerful reasons for thinking that a move from Herstmonceux would cause substantial and lasting damage to astronomy in Great Britain and abroad. There would be a grave danger that the Royal
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Greenwich Observatory would lose its identity. I make no apology for drawing your Lordships' attention to the fact that for 300 years it has been, and still is, one of the marvels of the scientific world. There would be a loss of what I call the "window on astronomy" that exists at the present location because a university campus does not spell easy access for the public. There would be damage also to working relationships with other countries, particularly Spain and the Netherlands, as a result of the disruption of the construction work on La Palma. There might well, and I shall come to this later, be an unacceptable degree of cost to the taxpayer.
Before I deal with those points in detail, I want to say something about the lack of consultation that preceded the announcement by the SERC in March of its proposal that the RGO should move. The profession was not consulted. Not even the heads of the universities to which the observatory may go were consulted. The Royal Astronomical Society was not consulted, and there was not even any consultation with the Astronomy Space and Radio Board whose job it is to oversee the work of the observatory on behalf of the council.
I find that secrecy hard to understand, and the noble Earl, Lord Halsbury, has asked me to say, and I join with him, that we both hope that this matter will cease to be dealt with as though it were one of the Eleusinian mysteries. The SERC is not an oracle. We should like to see the decision dealt with as part of open government.
I turn to the options. I begin with the report produced late in 1985 by a group under Sir John Kingman who was then chairman of the council. I am sorry to have to say that the report was not strong on reasoning, nor was it decisive. It confined itself to offering not a conclusion but four options. The first was to leave things as they are—the status quo option. The second was to merge the RGO with the Royal Scottish Observatory at Edinburgh. The third was to move the RGO to a university campus, and I understand that Cambridge and Manchester would be among the favourites. The fourth was to merge the two observatories and move them to a campus. Surprisingly, one apparently obvious option was omitted, namely, to move the Edinburgh observatory to Herstmonceux. I wonder why.
When the SERC considered these options in March, all it could manage was to discard one option and to decide that the RGO should move somewhere. It could not decide where. The council could not decide either whether it should merge with an observatory or whether it should go to a university campus. The merger with the Edinburgh observatory was said to produce greater flexibility and efficiency. The move to a campus was going to give greater access to computing and microelectronics. Two differing sets of reasons, but either of them said by the council to be better than the existing set-up.
There is no evidence of anything like a cost/benefit analysis and, so far as I know, no evidence of any straight costing. I believe that, under those circumstances, this proposal counts as little more than a kite—a kite that, let us pray, can be hauled down by the council lest it may turn into a Concorde. The

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opportunity for saving money on this score by a merger is to my mind absolutely minimal.
So far, there has been just one result. The staff of the RGO have been thrown into confusion and anxiety by the announcement. This is bad enough in itself. But coming, as it does, in the middle of construction work on the 4.2 metre William Herschel telescope on La Palma, it is devastating. They are continuing to do their job well in spite of the uncertainty. But there must be a strong possibility that many key staff will be lost. Some have already gone to good and well-paid jobs in industry. It will not suffice to say there will be no move until 1990. A stay of execution, when the sentence still stands, is not likely to put the victim's mind very much at rest. I wonder whether we can get my noble friend to agree on that point.
I also draw attention to the other activities at Herstmonceux. I refer to the equatorial group of telescopes which are used in collaboration with Sussex University for teaching and research and as test beds for new equipment. They are used also for longer-term projects that are the foundation of astronomy. The satellite Laser Ranger is at the forefront of work on such things as continental drift and the earth's rotation. These activities, I must tell your Lordships, are accorded just two lines in the chairman's report of the council's meeting in March. I suggest that they deserve much more attention than that.
I come now to the subject that controls so much of our life, namely, finance. The council has said that a move from Herstmonceux must be self-financing, I believe over a period of five years. As I have said, we have not been privy to its costings, if any, but one thing can be taken as certain. There is no other source of finance available to cover the cost of moving, other than the proceeds of the sale of Herstmonceux Castle. The assumption that this will raise £3.5 million or so, and will be made available to pay for a move, is at the heart of the council's proposals. This raises some rather intriguing questions about which I hope that my noble friend will be able to help us.
First, has the Treasury been consulted? If so, by whom? If it has, does it agree to a sale? Does it also agree that the proceeds of this asset should be used in the way that the council intends? Has the council considered where it should look to find a buyer outside the public sector, for this would be essential for a nil-cost result. How has it arrived at the figure of £3.5 million? All these questions must be answered.
There is one other. Perhaps my noble friend could comment on a report that my right honourable friend the Secretary of State for Education and Science has been approached by my noble friend the Secretary of State for Employment because the latter is concerned on account of the effect on tourism? That would be very useful.
This is primarily a scientific question. I have referred already to the massive opposition from astronomers. Last week there was a meeting of 200 astronomers and scientists which I was privileged to attend, although I am certainly neither an astronomer nor a scientist. Professor Martin Rees—one of the two astronomers from Cambridge, and known the world over for his excellence—spoke for them all I think when he said this:
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"The RGO is splendidly situated. It is widely known and much visited by the public. It is a shop window for UK science—as such a real asset to the SERC. From their Herstmonceux base the SERC-supported astronomers not only run La Palma but also maintain successful collaboration with many Universities.
Many of us would like to see the RGO maintained there—as an internationally distinguished centre for science and innovation in its own right as well as an essential support for astronomers in Universities."
That seems to me to say it all.
There is such a wide abyss between the views of SERC and those of astronomers, that I believe that it is the Government's duty to make their own consultations and come to their own decision. The issue is so important and covers such a wide spectrum, that nothing less than that will do.
I very much hope that my noble friend will be able to help us with some of the answers in this complex and difficult situation.
11.14 p.m.
Lord ordoff: My Lords, the House will be grateful to the noble Earl, Lord De La Warr, for raising this question. It is no secret that his Question is a successor to a Question put down by the noble Lord, Lord Chelwood. I think that we would all express our regrets that the noble Lord, Lord Chelwood, is ill and cannot be with us. He has been seriously ill, but I gather he is improving, and we hope that his improvement and return to your Lordships' House will be rapid.
Like everybody else who is speaking on this question tonight, I can say without fear of contradiction that I am no expert on the subject. I shall confine myself to a number of questions. Quite honestly, I became interested in this subject only because I was lobbied on it, but I became so interested because of the lobbying that I have no hesitation in standing up and asking the Government a number of questions, some of which touch on the matters which have already been raised by the noble Earl, Lord De La Warr. I hasten to say that I am not speaking tonight as a party spokesman on science, education, astronomy or anything else; I am merely speaking because I have been very moved by the case put forward by the supporters of the Royal Greenwich Observatory at Herstmonceux, and I think that the Government need to answer a number of questions.
Therefore, in addition to the questions that the noble Earl has asked, perhaps I may ask the following. Is it true that SERC did not ask the opinion of its own space and radio board before the meeting in March, when it decided to go ahead with moving the RGO? Is it true that SERC has refused to make public the report of its own panel, chaired by its own former chairman? Is it true that it has not even let this information be seen by the Royal Astronomical Society, which one would have thought comprises people who might well have some comment to make? Is it true that SERC said that a majority preferred to move, but that in fact the truth was that the largest number preferred the observatory to stay where it was and that each of the rest had different ideas as to where the observatory should go? In other words, as the noble Earl has said, there was no clear view as to where it should go, but the largest number of people felt that it should stay where it was.

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Are the Government aware that two-thirds of the staff have indicated that they would not move to Edinburgh, which is said to be the preferred site in SERC terms? If that is the case, are the Government aware that this team will break up and that the breakup of this team, which has co-operated so well with Spain and the Netherlands in the setting up of the Herschel telescope in La Palma, will be the greatest loss to optical astronomy that this country has known for a very long time? Is it true that the present site is the best observing site in Britain? If that is so, why is it suggested that they should move away?
Is it true that Herstmonceux is within 100 miles of seven top universities dealing with astonomical research in this country? Is it true that it has close links with the University of Sussex, just down the road, and that it has close co-operation with a number of universities up and down the country? If that is the case, is it not true that it is better than being absorbed within one university? Can the Government tell us whether it is true that, of the 31 professors approached by the Royal Astronomical Society, 17 supported the observatory at Herstmonceux staying where it is and only five were against?
Is it true that the total cost of the move is likely to be £6 million or more, and that SERC, again as the noble Earl has said, hopes to get this sale of the castle? Is it true that the castle was given to SERC by the Admiralty? Is it true that one of the possible occupants is the Ministry of Defence; and, if that is true, is it not likely that the Ministry of Defence will want the castle back on the same terms as it was given by the Admiralty in the first place—namely, free? If that is true, where is the balance of the finance?
Is it not true that the archives there are some of the most important astronomical archives in the world? Indeed, some of the oldest working records of astronomy in the world are contained in those archives. Is it not true that, if the observatory moves, those archives either will be broken up or will not be able to be kept near contemporary working documents? Is it not true that, while America and Europe are working on the next generation of optical telescopes, we must play our part if we are to stay within touch of optical astronomy? How is that going to happen if this team is broken up?
There are many questions like this that we need to have answered tonight. I believe from what I have heard, and I am happy to be corrected by the Government if they feel it is right, that if these questions are not answered then it will be true that the Royal Greenwich Observatory is set on a course of destruction. Does the Government not agree that that would not only be sad, but a piece of wanton barbarism?
Mr. Patrick Moore, who is not the greatest professional astronomer in this country but is certainly someone who has perhaps as much feeling for astronomy as anyone who is not a professional astronomer, has made it clear that it is his belief that if the RGO is moved from Herstmonceux it will be reduced to being simply a plaque on a wall in a university somewhere else in the country.
Like the noble Earl I do not believe we can throw away 300 years of excellence, 300 years of our
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scientific history. I do hope that the Government will take note of what has been said here tonight and will advise SERC to change course when it comes to the point of decision next Thursday.
11.22 p.m.
Lord McIntosh of Haringey: My Lords, the House must be very grateful to the noble Earl, Lord De La Warr, for raising the matter, and for raising it with a persistence which encourages him to stay this late at night in order to do so. It is important that he raised it and that the matter is considered by the House now because the Science and Engineering Research Council is due to make a decision on this matter at a meeting on 18th June.
One must have some sympathy with the SERC in the difficulties that they face. Fundamentally, of course, its problem is one of resources, not just for astronomy but for all the scientific and engineering subjects under its control. When it looks at astronomy it must be aware there have been many changes since Herstmonceux was set up and the observatory moved from Greenwich in 1948. The most important of all is that first-hand observation itself is no longer as dependent on a location in this country as was the case many years ago. The atmosphere of this country, quite apart from improvements in clean air in London over the past 40 years, has never been as good as it is in other parts of the world. The resources being devoted to La Palma in the Canaries and to observatories in California and Australia are evidence of that. If our fundamental effort in observational astronomy is to be in other parts of the world, it does not really matter very much if it is at Herstmonceux or somewhere else. It is also true, as we know from a Question in the House I think a few weeks ago, that the significance of the time signal is now somewhat psychological rather than practical, and the fact that Herstmonceux is on the meridian is not of the importance it was some years ago.
I have listened carefully to the noble Earl, Lord De La Warr, and to the noble Lord, Lord Tordoff, but it has to be said that there has been conflicting evidence from the astronomical community. Yes, it is true that there has been no majority for any particular change, but there has not been a majority for Herstmonceux staying where it is, and those of us who are concerned with regional development may well say that devolution outside the South-East of England is not necessarily a bad thing in planning terms if other things are equal.
Then again there is the issue of separation from universities or inclusion in universities. I do see the argument that an independent research institution can successfully collaborate with a number of universities and many of the universities concerned are in the region of Herstmonceux, but it has been the experience in many scientific disciplines that the isolation of a particular subject from a university, from an academic community with a wide range of disciplines and subjects, is not necessarily the best way of pursuing an academic discipline. In all these matters I start with some sympathy for the Science and Engineering Research Council, and some doubts about the case put by the noble Earl, Lord De La Warr, and the noble Lord, Lord Tordoff.

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However, having said all those things, I have much greater doubt first about the procedures which the SERC has adopted in coming to this conclusion, and secondly about the extent to which it has taken account of the wider considerations which ought to be taken into account in reaching a decision. It seems that the procedures adopted have been grossly inadequate. Noble Lords have already referred to the fact that the Kingman Report has not been made available even to those most closely concerned, let alone to the public.
One must echo the direct questions of the noble Lord, Lord Tordoff. Why was the report not available to the Royal Astronomical Society? Why was it not made available to the local councils in Sussex? Why was there no consultation with the Astronomy, Space, and Radio Board? Above all, why was there no adequate taking of the views of the staff of the Royal Greenwich Observatory? That must be, in management terms, the worst failure of the Science and Engineering Research Council in the way it went about this matter.
The question has been raised of the valuation of the castle and whether there is any real likelihood of its sale resulting in additional funds to the SERC. Unless that issue is firmly resolved—and it ought to be resolved by the Government in answer to this Question tonight—the SERC is in danger of making a decision on totally inadequate evidence and in danger of making a wrong decision. Let nobody be in any doubt of the seriousness of the decision with which we are concerned.
It is not just a matter of the future of the staff there. Staff in academic disciplines come and go, but in a discipline such as astronomy where there is such a concentration of staff at an observatory, and where the dispersion of other staff among different universities is not going to be dramatically changed, the break up of the largest single group of professionals and scientists, which would happen if a significant number of them refused to go to any new location, would be a tragedy. Adquate attention does not appear to have been paid to that possibility.
Then there is the whole question of education. An independent observatory such as that at Herstmonceux has the opportunity, and takes the opportunity, of participating in the educational aspects of astronomy. Astronomy is one of those subjects which is immediately appealing to young people, and the open days that the RGO has and the visits that are available to the castle and the astronomical exhibition are taken up by many thousands of people a year and have a great value. As the noble Earl said, it is doubtful whether they could continue in the same way if the RGO was to be subsumed within a university campus which is not normally a focus of outside visits.
Above all, we have here a history of 311 years of a public observatory in this country. It was on the same site for nearly 300 years at Greenwich and it has been on the second site for nearly 40 years in Herstmonceux. There has to be a very good case made out not just financially but also in scientific terms for such a change as that which is proposed at the moment without the clear consent and agreement of the scientific and astronomical community and without
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the arguments being laid open before the public and before those in particular who are specifically involved with the decision.
If it is the case that the only motivation behind the consideration which is now being given by the SERC to this move is a question of funding, and if that is the responsibility of the inadequacy of the Government's grant to the Science and Engineering Research Council, then it is the Government's responsibility to see to it that a wrong decision which would reverberate over the years is not taken on such inadequate grounds, on such secret grounds, on such grounds that are lacking in consultation.
I can do no more than say that unless the Government have adequate answers to the questions which have been put already by noble Lords, then the Government have a very severe responsibility if a wrong decision is taken now.
11.31 p.m.
The Earl of Swinton: My Lords, even at this late hour of the night the House is grateful to my noble friend for raising this topic, which has aroused a significant amount of public debate, and some of it not totally well informed. I should also like to join other noble Lords and my noble friend in wishing my noble friend Lord Chelwood, who put down the original Question, a speedy recovery. We hope to see him back here very soon.
The Royal Greenwich Observatory is a component part of the Science and Engineering Research Council, and the council has the responsibility for ensuring that it functions in the most effective manner and serves the astronomy community in United Kingdom universities to the best of its ability. This is subject only to certain requirements to obtain prior approval from the Department of Education and Science to large capital expenditure and to retaining funds obtained from the sale of capital assets for use elsewhere. My right honourable friend the Secretary of State for Education and Science has final responsibility to Parliament for the research councils, but there is a long-standing practice over many years, observed by governments of both complexions, not to overturn a decision taken by a council on scientific grounds. The decision on the future of the RGO would appear to fall firmly into that category, although the council has yet to take a final decision on its future.
The council will consider the proposals further at its June meeting, as noble Lords have said, and hence this debate is timely since I am sure that the council will take into account the points that have been raised tonight. I think that in view of the pleas for the retention of our scientific heritage expressed tonight it is worth outlining the recent history of the Royal Greenwich Observatory and the situation that has led to the present decision in principle by the council.
As my noble friend and the noble Lords, Lord Tordoff and Lord McIntosh, said, the observatory has had a long and eminent record. The figure of 300 years was mentioned. That 300 years covered the time when it was at its original site at Greenwich before it moved to Herstmonceux in 1948 to take advantage of the clearer Sussex sky and the much lower background illumination. Its beautiful historic setting and the

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Victorian telescopes in the equatorial group, which now houses the new astronomy exhibition, give the observatory a misleading air of permanence.
The success of the move to Herstmonceux was, however, relatively short-lived so far as professional observational astronomy is concerned, because, although it is, as one noble Lord said, one of the best locations in the UK, there is substantial cloud cover and strong background illumination from Eastbourne. As the noble Lord, Lord McIntosh of Haringey, said, for these reasons in the last few years the large Isaac Newton telescope has been moved to the island of La Palma, which I understand has the best atmospheric conditions for astronomical observations in the northern hemisphere. A second large instrument, the William Herschel telescope, is currently being constructed at this site and when this is completed in 1990 United Kingdom astronomers will have access to a comprehensive range of world class facilities provided at a cost of some £30 million. The site is widely regarded by the international community as one of the best in the world and, indeed, the observatory represents an international collaboration involving the United Kingdom, Spain, Holland, Denmark and others.
On a personal note, I had the great honour to be present when the site was opened by His Majesty the King of Spain. Thus, to a large extent, the Royal Greenwich Observatory has moved to La Palma but, to support the British community's use of the La Palma telescopes and to carry out other tasks such as the Greenwich Time Service, the Nautical Almanac Office, the Satellite Laser Ranger and the maintenance of the libraries and archives, a United Kingdom base is essential.
To put the other work of the RGO in context, in 1986–87 I should perhaps say that 85 per cent. of the staff and 90 per cent. of the budget of the RGO is devoted to the support of the La Palma Observatory. Completely independently of the current consideration of the location of the RGO's UK base, the Science and Engineering Research Council had planned for a reduction of staff at the RGO after completion of the William Herschel telescope. The planned complement after 1990 will be about 125, of whom, at any one time, about 30 will be at La Palma. I understand that it is the council's view that the present support functions of the RGO—which, I repeat, occupy 85 per cent. of the staff and 90 per cent. of the funding—will be best carried out in close cooperation either with a large university experimental astronomy group or by amalgamating the two Royal Observatories—the RGO and the Royal Observatory, Edinburgh, which supports the council's infra-red and microwave telescopes on Hawaii—to form a larger unit with a close association with the University of Edinburgh.
A second reason for proposing the move to a university is that the success of the La Palma observatory will depend to a very large extent on the way the supporting instrumentation and remote operation facilities are developed. Close association with suitable university departments would have many advantages in this respect. The three short-listed
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sites being considered by the council at its June meeting are Cambridge, Manchester and Edinburgh.
It is thus that these two scientific and functional considerations, coupled with the council's concern over the vulnerability of the relatively small size of the RGO, and particularly its Herstmonceux headquarters, have led to the present proposals. More generally, it is perhaps worth noting that there is a growing feeling that research council institutes, especially those that support university research, should be closely associated with, although remaining distinct from, a university rather than being isolated units. Indeed, this was one of the recommendations of a working party set up by the Advisory Board for the Research Councils in 1983 to inquire into the distribution of research council resources in support of research in its own establishments in universities and elsewhere.
I have touched on the remaining activities of the RGO, all of which are secondary to its main function but nevertheless important. I understand that it is the council's view that none of these functions needs be carried out at Herstmonceux and that it will make suitable arrangement for these other scientific activities. Noble Lords have asked me a number of questions. I will do my best to answer most of them anyway, if I cannot answer them all.
All noble Lords have commented on the apparent lack of consultation by the council on this matter. I understand, however, that there have been a number of phases of consultation. First, during the period of the Kingman Working Group an open invitation to comment was issued both as a press notice and through the Royal Astronomical Society. Secondly, after the January meeting of the SERC the chairman or secretary of the council visited eight universities with significant astronomy departments, including the University of Sussex and the RGO. Finally, after the March meeting of council, when a decision was taken to consider in detail the implications of moving to one of a short list of three sites, council officers embarked on a wide-ranging consultation with the heads of all astronomy groups in UK university departments, the Royal Society, the Royal Astronomical Society and the UK's international collaborators on La Palma. Following on from this, several noble Lords referred to the fact that the Kingman Report has not been published.
This report was an interim one which set out four possible options for the council to consider further. These were in no particular order: first, the status quo; secondly, a move of the RGO to a university site; thirdly, a merger on the Edinburgh site and, fourthly, a merger on another site. The Kingman Report was considered at the January meeting of council, together with a dissenting minority report from one of its members, Sir William McCrea. Further information was requested and at the March meeting the council decided to concentrate on further investigation of a merger on the Edinburgh site and a move of the RGO to Cambridge or Manchester universties. As this was only an interim report, indicating further investigations that were required, the council decided that it would not publish it.
The noble Lord, Lord McIntosh of Haringey, asked me about staff consultation and I understand that the

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staff side's views were put to all three council meetings; at the two that took place in January and March, and further ones were being put forward in June—
Lord Tordoff: My Lords, I wonder whether the noble Earl would possibly be good enough to answer the question that I asked him about the Kingman Report; namely, is it not the case that the largest number of people actually took the view that the status quo was what was preferred, and that the other options were split widely among the other people?
The Earl of Swinton: My Lords, that must have been a decision taken by the SERC at their meeting. I am afraid I do not know the answer to that.
The noble Lord asked me about the University of Sussex and the relationship with the RGO. I can confirm that there has been fruitful co-operation between the RGO and the Astronomy Group at the University of Sussex. The council would not wish in any way to belittle the mutual benefit of this interaction over the last 15 to 20 years. It would, of course, be very convenient if the present arrangements could provide the environment that the council is seeking for the RGO, and the University of Sussex was one of the universities visited by the council's chairman before the March meeting.
Unfortunately, the present level of interaction falls considerably below that sought by the council, not only with the Astronomy Group, but also with other departments with expertise of use in the development of instrumentation and remote operation facilities. In this context, it is relevant to note that the University of Sussex is still some 20 miles from the RGO and the interests of its Astronomy Group are mainly in the theoretical aspects of astronomy.
The noble Lord, Lord Tordoff, also asked me about the archives. The SERC is aware that the RGO at the Herstmonceux site houses a priceless collection of astronomy archives, as well as one of the most comprehensive collections of rare and current astronomy books. Taken together, these are a unique resource for historians of science and practising astronomers and astrophysicists. The council will ensure that they remain easily accessible and that recent work on cataloguing and conserving will continue and, hopefully, improve in any future arrangement.
Let me now turn to the question of finance. May I make it absolutely clear to the noble Lord, Lord McIntosh, that this is not a proposal in any way brought about because of the lack of funds. It is to improve support for the new telescopes at La Palma. It is anticipated that a move to either a university site or to the Royal Observatory, Edinburgh would result in some recurrent savings. Worthwhile though this would be, however, this is not the driving force for the move, which the council stresses is based on the scientific case.
The other major question is the initial capital financing of any move, which, as my noble friend Lord De La Warr pointed out, would of course have to be met mainly by the sale of the Herstmonceux estate. At its earlier consideration of the future of the RGO, the council stipulated that any move must be self-
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financing over not more than five years. I understand that the latest costing information obtained by the council suggests that this target could be achievable for each of the short-listed sites.
My noble friend asked me about the Treasury and its attitude. The Treasury has not yet been approached because it requires a full case before it will consider whether the council can retain the proceeds of any sale. I know that the council appreciates the effect of a move from Herstmonceux on local tourism and educational opportunites. I have to say that from an overall national perspective such benefits would become available wherever the observatory was sited. Nevertheless, and despite the fact that these aspects cannot be a prime concern to the council, it is of course willing to consider ways of minimising the impact of any move, and, for example, I am delighted to tell my noble friend Lord De La Warr, has offered to separate the equatorial group of telescopes which houses the new exhibition centre from the rest of the site if any national or local group wishes to make use of them. Discussions are already in hand to this effect.
We have had some erudite contributions this evening. As I have already explained, those considerations which are of scientific timbre—and they nearly all are such—are ones that the SERC must weigh up in coming to its decision later this month, rather than ones which the Government must themselves address. I am sure that the chairman and members of the council will read the Official Report of this debate, which I know will be circulated to all of them, and will take due note of the many points made by noble Lords this evening when they come to their difficult decision on this most important matter.

Insolvency Bill [H.L.]
Reported from the Joint Committee with amendments, and recommitted to a Committee of the Whole House.

Company Directors Disqualifications Bill [H.L.]
Reported from the Joint Committee with amendments, and recommitted to a Committee of the Whole House.
House adjourned at a quarter before midnight.

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