Sitting of 19 February 1987

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

PRIVATE BUSINESS
YORK CITY COUNCIL BILL [Lords] (By Order)
CITY OF WESTMINSTER BILL (By Order)
TEIGNMOUTH QUAY COMPANY BILL (By Order)
LONDON DOCKLANDS RAILWAY (BECKTON) BILL (By Order)
Orders for Second Reading read.
To be read a Second time upon Thursday 26 February.

Oral Answers to Questions
  AGRICULTURE, FISHERIES AND FOOD

    EC (Two-tier Pricing)
    Mr. McQuarrieasked the Minister of Agriculture, Fisheries and Food what assessment he has made of the impact on British sheep producers of a two-tier pricing policy.
    The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. Gummer): I apologise for the absence of my right hon. Friend the Minister of Agriculture, Fisheries and Food, who is in the USSR, where tomorrow he hopes to sign an agreement with the Russians.
    We successfully resisted the Commission's proposal for a two-tier support system for sheep at last year's price fixing. The system proposed would have penalised efficiency and deterred structural improvements, and would have disadvantaged our farmers by about £8 million.
    Mr. McQuarrie: Will my right hon. Friend confirm that the average United Kingdom flock is four times greater than that in the EEC? Does he agree that the comments of the alliance leader in support of the two-tier structure would, as the president of the National Farmers Union has said, annihilate the British sheep industry?
    Mr. Gummer: I am sure that my hon. Friend is right and that the two-tier pricing system would do nothing but harm to Britain. The two-tier pricing system suggested by the right hon. Member for Plymouth, Devonport (Dr. Owen) could mean that cereal farmers would transfer to sheep production. That would damage not only the cereal farmers but all who produce sheep in the United Kingdom.
    Mr. Livsey: What negotiations will the Minister enter into this year to ensure that the sheepmeat regime
    1042
    continues successfully in the United Kingdom? Is he aware that the commissioner, Mr. Andriessen has stated that there will be a review this summer? I am glad that he has acknowledged that the alliance has no plans for a two-tier pricing system for the sheep industry.
    Mr. Gummer: We shall seek a prudent pricing policy for all major commodities. We must continue to fight for the key beneficial elements of the sheepmeat regime and resist discriminatory cuts. The right hon. Member for Devonport did suggest that he accepted the possibility of two-tier pricing for sheepmeat.
    Mr. Adley: Is my right hon. Friend aware that many members of the Dorset National Farmers Union believe that the arrangements for lamb and other products from New Zealand are a considerable disadvantage to them? Can he state whether that agreement will remain indefinitely?
    Mr. Gummer: We believe that we owe a particular debt to New Zealand. We sought to negotiate permanent arrangements for the access of New Zealand products into the Community when we joined it, and we stand by our promise.
    Mr. Home Robertson: I apologise for the temporary absence of my hon. Friend the Member for Pontypridd (Mr. John), who is not in Russia. I presume that the Minister of Agriculture, Fisheries and Food has gone to the Soviet Union to learn something about public relations.
    Before the Minister gets too carried away about the deficiencies of SDP policy, may I gently remind him that his policies are not going down too well at present with the NFU or with the Department of the Environment? Will he hazard a guess as to how much longer it will be before increased sheep production on low ground leads to surplus mountains of lamb under the present chaotic trends?
    Mr. Gummer: We are used to the doom and gloom of the Labour party. Opposition Members complain if something is in surplus, but they also complain if there is no surplus. However, sheepmeat is not in surplus. We produce an extremely good product and I have no doubt that we shall continue to dominate the market.

    Falklands Fisheries
    Mr. Tony Lloydasked the Minister of Agriculture, Fisheries and Food what discussions he has had regarding the improvement of fishing opportunities for British fishermen around the Falklands.
    Mr. Gummer: I have had occasion to discuss with a number of British companies their plans for fishing around the Falklands. Through joint venture arrangements, British companies have interests in more than 70 vessels licensed for the 1987 squid fishery, in addition to having taken up three licences for British flag vessels. That is a considerable improvement upon last year.
    Mr. Lloyd: Is the Minister aware of reports in the media that British fishing is being disserviced by this licensing system? The Spanish have already been granted 36 licences, compared with the three that the hon. Gentleman mentioned for British ships. What steps will he take to ensure that the British deep water fleet will have an opportuniy to fish in these valuable waters?
    Mr. Gummer: I have fought continuously to encourage the British fleet to seize any opportunity available to it and I shall continue to do so. It is my intention that the British fishing fleet should take its proper part in the world fisheries, and I shall continue to press that.
    Mr. John Townend: Has my right hon. Friend considered the suggestion by a leading member of the deep sea industry, who lives in my constituency, that the Government should negotiate with foreign countries to allow their fishing boats to have fishing opportunities in the Falklands waters in return for our industry being given fishing opportunities in their waters?
    Mr. Gummer: I have seen that report. No doubt it will be considered not only by me but by my right hon. and learned Friend the Foreign Secretary, within whose ministerial responsibilities a good deal of this matter falls.
    Dr. Godman: On the assumption that such fishing activities in Falkland waters will be undertaken by, say, vessels of more than 50m overall length, will such trawlers be allowed to fish in United Kingdom waters when not fishing in the south Atlantic?
    Mr. Gummer: The hon. Gentleman must accept that the system that we use to restrain the ability to fish in order to be in line with the availability of fish in British waters and in European waters as a whole could not be destroyed by the situation in the Falklands. We would have to keep the rules as we have them. One could not give special permission or special opportunities to those who happen to fish in the Falklands waters.[Interruption.] Those Opposition Members who know nothing about the fisheries regime — such as the hon. Member for Workington (Mr. Campbell-Savours) who, as usual, shouts from a seated position—will know that the hon. Gentleman who asked the question knows what the answer means.
    Mr. Bowen Wells: How much revenue will the Falkland Islands Government gain from the licences issued so far?
    Mr. Gummer: I cannot tell my hon. Friend the answer to that question. It is a matter for my right hon. and learned Friend the Foreign and Commonwealth Secretary.
    Mr. Randall: will the Minister encourage the Falkland Islands Government to give far greater priority to issuing licences to British companies involved in joint ventures? At the moment it is cheaper for countries such as Poland to get a licence, which in fact is a foreign flag licence rather than a joint venture licence.
    Mr. Gummer: I am satisfied that British interests were more than fairly accommodated in the allocation of licences, but I will look at the point that the hon. Gentleman has raised.

    European Community (Two-tier Pricing)
    Mr. Ralph Howellasked the Minister of Agriculture, Fisheries and Food what representations he has received on the implications of adopting a policy in the European Economic Community of two-tier pricing.
    Mr. Gummer: We have received such representations, many of which point to the likely discrimination against the United Kingdom, of the two-tier pricing system and remark that the leader of the SDP's two-tier pricing policy
    1044
    would mean that only 30 per cent. of British grain would gain Community support, as against as much as 80 per cent. of continental production.
    Mr. Howell: I thank my right hon. Friend for his reply. Is he aware that these proposals have been totally dismissed by the NFU and by its president, Simon Gourlay, as they woud mean that farmers in Britain would miss out tremendously compared with the rest of the European Community? Furthermore, will he give serious consideration to an overall set-aside system to reduce surpluses?
    Mr. Gummer: As my hon. Friend knows, we have been pressing the set-aside system in the European Community, and we shall continue to do so. It is now part of the proposals on the socio-economic scheme. I agree with my hon. Friend that the proposals put forward in the Bledisloe lecture were serious for Britain and would have meant that British farmers would have suffered losses and continental farmers would have gained.
    Mr. Maxwell-Hyslop: Does my right hon. Friend agree that it is the two-tier principle that is wrong and that once this alliance-backed policy is accepted—it would cut out most British farmers—the argument would no longer be one of principle but only one of degree?
    Mr. Gummer: My hon. Friend is perfectly right. It is clearly wrong to discourage the most economic producers of cereals. That is not a sensible way to ensure that farming develops properly. The way to deal with the problem of surpluses is to reduce the land area used for growing cereals by enabling people to do something else on marginal land.
    Mr. Home Robertson: Whatever else may be said about the two-tier pricing system, it is at least a policy, which is more than can be said for what is coming from the Government. If the shambolic performance last week was actually supposed to be the launch of a policy, does the Minister seriously expect a diversification package worth £25 million to have a significant impact on a surplus problem which is costing the country £1,600 million? I commend to the Government the positive and comprehensive ideas put forward by the Labour party in its Green Paper on agriculture.
    Mr. Gummer: It is a little difficult for the hon. Gentleman to commend to us a Labour party Green Paper which was published at the personal expense of the Labour spokesman on agriculture because the party would not pay for it. It is extremely difficult to take that document seriously because, as I understand it, it runs counter to Labour party policy and does not mention the Labour party's proposal to rate agricultural land.
    Sir Anthony Grant: Is my right hon. Friend aware that in condemning the foolish two-tier pricing policy of the SDP the president of the National Farmers Union said in effect that the right hon. Member for Plymouth, Devonport (Dr. Owen) did not have the faintest idea what he was talking about? Would the right hon. Gentleman not be better informed and make less foolish remarks if he took the trouble to turn up at Question Time when agricultural matters are dealt with?
    Mr. Gummer: I am sure that my hon. Friend is right about that, but I find it even more surprising that at the NFU meeting last week—at which I was present—the

    1045
    hon. Member for Caithness and Sutherland (Mr. Maclennan), who is the alliance spokesman on this subject, told the farmers that the 140-tonne proposal had never been put forward, even though it was in the Bledisloe lecture.

    Agricultural Holdings (Rates)
    Mr. Soamesasked the Minister of Agriculture, Fisheries and Food what assessment he has made of the impact on the net income of the average dairy farmer in the United Kingdom if rates were imposed on farm buildings and land.
    Mr. Gummer: No assessment can be made of the impact of rating on specific sectors, but the value to the agriculture industry as a whole of the current derating policy is of the order of £430 million a year. Any departure from this policy would clearly have a devastating effect on the profitability of the industry in general and of the dairy sector in particular.
    Mr. Soames: Will my right hon. Friend confirm that the Conservative party, unlike all the Opposition parties and factions, has no intention of introducing the rating of agricultural land? Does my right hon. Friend agree that it would significantly raise farmers' costs and would be likely to destroy a very large number of vital jobs in the countryside?
    Mr. Gummer: It would also increase the price of food. That is the policy of the official Opposition, but I cannot help my hon. Friend on alliance policy. The Liberals announced their intention to tax all land in the document "These are Liberal Policies", which was published in 1986, but I understand that in a Standing Committee yesterday the Liberal spokesman on the countryside said that he no longer believed in it, so I do not know where the Liberals stand.
    Mr. Beith: Has the right hon. Gentleman forgotton that it was from the Conservative Benches that on 21 May 1985 the hon. Member for Southend, East (Mr. Taylor) introduced a Bill to rate agricultural land and that he and his Minister had to follow Liberal Members into the Lobby to defeat that attempt to rate agricultural land? Will he take it from me that the Liberal party is not, was not and will not be—any more than the rest of the alliance—in favour of rating agricultural land? Will he stop trying to spread falsehoods and concentrate on the crisis facing the agriculture industry?
    Mr. Gummer: The hon. Gentleman now tells us that the Liberals were against rating agricultural land in 1985, in favour of the taxation of agricultural land in 1986 and are now against it in 1987. Perhaps they thought that there would be an election in 1985 and that is why they have changed their ideas again this year.
    Mr. Hawkins: Can my right hon. Friend tell me how long it would take to rate agricultural land, and the likely cost of doing so?
    Mr. Gummer: I cannot give details, and I do not believe that the Labour party has worked out that part of the programme. The cost would, of course, be additional to the large sums that the Labour party is proposing should be spent out of taxation. That may be why the Liberal party turned to a straight taxation system rather than a rating system.
    Mr. Deakins: As local authority services in rural areas contribute to the prosperity of agriculture and those who work in it, what would be the impact if those services were not available?
    Mr. Gummer: The hon. Gentleman is perfectly right. Those services help the agricultural community, and that is why we do not believe that it would be sensible for the cost of those services to be placed on the cost of food. Indeed, the Labour party supported us in our decision not to put VAT on the cost of food.
    Mr. Marland: Is my right hon. Friend aware that Gloucestershire county council, under alliance control, has passed a resolution to rate agricultural land and buildings and that the decision was welcomed with relish by David Halford, the alliance leader of that council?
    Mr. Gummer: My hon. Friend confuses me still further. Last year the alliance was in favour of rating or at least taxing agricultural land, but now it is against it. In Gloucestershire, however, the alliance is in favour of it, which makes it very difficult for voters to decide what are the true policies of the alliance.
    Mr. John: Will the right hon. Gentleman give an assessment of the effect of the poll tax on farmers and their families?
    Mr. Gummer: The community charge that is proposed for Scotland, and which we intend to introduce throughout Britain, will place a reasonable burden on people throughout the community, at exactly the same level, but it will not be levied on agricultural land. Therefore, it is uniquely different from the policy of the Opposition. I remind the hon. Gentleman that he told the NFU that he hoped to persuade his party to change its policy on rating before the election, and I can understand why.

    Farm Incomes
    Mr. Spellerasked the Minister of Agriculture, Fisheries and Food what steps he is taking to improve the real level of farm incomes.
    The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Donald Thompson): After a drop last year farm incomes this year have shown an increase of 21 per cent. The best way to improve on that improvement is to bring supply and demand into better balance.
    Mr. Speller: I thank my hon. Friend for the first part of the answer. May I remind him that in the last year for which figures are available the incomes of lowland beef farmers in the south-west went down by 31 per cent. and that those of the upland beef farmers went down by more than 40 per cent.? Will he take corrective measures in regard to the suckler cow premium and a major revaluation of the green pound?
    Mr. Thompson: For suckler cows the maximum possible rate of payment in 1987 will be around £33·40. The current rate is £24·74. The level of the green pound is kept under continuous review, and the recent hard-won devaluation shows that we are prepared to act when necessary.
    Mr. Kirkwood: Will the Minister return to the question of the present value of the green pound? What steps are

    1047
    the Government taking to ensure that the beef sector in this country is protected against the present rate of the green pound?
    Mr. Thompson: As I mentioned, the maximum rate for the suckler cow premium is going up.
    A large number of cows will be coming on to the market to be culled as the milk quota goes down by 9·5 per cent. The Government and the Commission are taking careful note of those considerations while discussing the next round of price fixing.
    Sir Kenneth Lewis: Does my hon. Friend agree that the best improvement in regard to farm incomes is that they should be realistic? The Government are seeking to achieve stability in the market and they should be thanked for that instead of being knocked about by the NFU.
    Mr. Thompson: The Scottish NFU is on the right track and I am sure that the rest of the NFU will quickly follow. I agree with my hon. Friend that the best way to improve farm incomes is to stop spending money on intervention and start spending it on farmers and farming.
    Several Hon. Members rose—
    Mr. Speaker: Order. Before I call the hon. Member for Caerphilly (Mr. Davies) to ask his question, I must point out that there is a misprint on the Order Paper. The word "international" should read "interested". I believe that the Minister knows that.

    Conservation
    Mr. Ron Daviesasked the Minister of Agriculture, Fisheries and Food if he will make it the policy of his Department to hold regular meetings with international bodies on conservation issues affecting agriculture.
    Mr. Donald Thompson: It is already the policy of my Department, in close co-operation with the Department of the Environment, to participate fully with interested or international bodies, according to their timetables, in discussions on conservation issues affecting agriculture.
    Mr. Davies: Now that the Minister and his Department have had time to reflect on the fiasco of last week's statement on the future of agricultural land, is he aware of the damage that he is doing to the future of our agriculture by refusing to give proper consideration to questions, of environmental protection and conservation? Will he acknowledge that there can be no secure future for agriculture until his Department gives proper consideration to those questions, and does he accept that the best way to secure that input into his Department's thinking is to arrange to meet on a regular basis public bodies which have conservation as their prime concern?
    Mr. Thompson: The best protection of the rural economy and the environment is a properly informed agricultural Department, such as MAFF. Yesterday the hon. Gentleman attended the debate on environmentaly sensitive areas and he knows that MAFF and the Countryside Commission have a venture in the Broads to encourage the conservation of the grazing marshes. The farm and countryside initiative is useful for the environment, the code of good agricultural practice avoids water pollution, and there are guidelines on housed livestock, all of which help conservation. I could continue at length if you, Mr. Speaker, would allow me.
    Mr. Conway: Does my hon. Friend agree that the best way to ensure conservation is to use the voluntary method practised by those with the greatest expertise at conserving the countryside, namely, the farming community?
    Mr. Thompson: Any basis for a beautiful countryside, which is what most people regard as environmentally acceptable, must be the farming community. They must form the basis of any such policy.
    Mr. Maclennan: Is the Minister aware that last week, at the annual general meeting of the NFU, the Minister of State, the right hon. Member for Suffolk, Coastal (Mr. Gummer), said that he believed that decisions on the countryside should be taken by those who live there, not by weekenders? How does the Minister square that with the decision announced by the Secretary of State for the Environment that MAFF will no longer be consulted on planning matters in the countryside?
    Mr. Thompson: The first and second parts of the hon. Gentleman's question do not screw together properly, which is perhaps an alliance failing. Weekenders go to the country to live in their caravans at weekends. The beauty of the countryside should be determined by people who spend all week working in and about the country and rural areas.

    Food Surveillance
    Mr. Stevensasked the Minister of Agriculture, Fisheries and Food if he has yet reached any conclusions on the 17th report of the steering group on food surveillance entitled "Survey of Mercury in Food".
    Mr. Donald Thompson: The report recommends that monitoring of foods for mercury and intakes of mercury by special groups of consumers be undertaken. Arrangements for this monitoring are currently being made by my Department.
    Mr. Stevens: I thank my hon. Friend for that reply, particularly his commitment fully to monitor mercury intakes. Will he confirm that the mercury level in food and drink in the United Kingdom is less than one tenth of the safety level recommended by the World Health Organisation?
    Mr. Thompson: My hon. Friend is correct. Over the past 15 years we have had substantial reductions in mercury discharges, and food and drink is safe from any mercury contamination.
    Dr. Godman: With regard to the report, will the Minister confirm that shellfish and white fish stocks in the north Atlantic are utterly and completely free from mercury contamination?
    Mr. Thompson: I should not like to confirm that shellfish and white fish stocks are utterly free from mercury contamination. I said that food sold in Britain is fit to eat and safe. Most of the mercury contamination that flows into the North sea flows in from continental rivers, over which we have little control.

    Food Aid
    Mr. Dixonasked the Minister of Agriculture, Fisheries and Food what are the latest amounts of (a) butter and (b) meat distributed in the United Kingdom under the European Economic Community food aid scheme.
    Mr. Gummer: Releases authorised so far from intervention stores in the United Kingdom represent 15 million packs of butter and 3·15 million portions of beef.
    Mr. Dixon: Has the Minister had any report of local difficulties in the uptake of the scheme? There have been reports of all sorts of problems in the distribution of this food. That is not the fault of the charities involved, because they were given little notice, no information and no resources to carry out the organisation of the scheme. If those reports are true, will the Minister ensure that those for whom the food is meant receive it?
    Mr. Gummer: Charities have welcomed what we have done. The release of stocks was indeed done rapidly, but the cold weather occurred and we wanted to do it as quickly as possible. If we had done it at length, I am sure that the Opposition would have complained had the butter gone out in June. We tried to send the food off as quickly as possible. There are places in which distribution has been better than in others because some charities have been better organised in some places than others. We are trying to help in every way possible. It is a remarkable fact that Britain got off the ground first. We have distributed more than any other country in Europe and have done it more efficiently. Our charities are better run.
    Mr. Burt: I thank my right hon. Friend for his comments about the charities involved. Will he spare a moment to thank the charities for the excellent work that they have done in distributing the food? If it becomes clear that we have not been able to distribute as much as we would like, will my right hon. Friend, in company with his colleagues in Europe, consider extending the deadline so that more of the stock can be distributed to those who need it?
    Mr. Gummer: I cannot give agreement to that at this stage. We are monitoring the position extremely carefully because we want to see how efficient it is. I am impressed by the charities. I commend particularly the Salvation Army and the Womens Royal Voluntary Service for their work. I am also pleased to see the support that the butchery trade has given to the charities to help with the cutting up of the meat.
    Mr. Hugh Brown: I recognise that the Department is monitoring the scheme, but what steps have the right hon. Gentleman or the Secretary of State for Scotland taken to put Members of Parliament in the picture about what quantity of food can be expected in any geographical area, if not in any constituency? Has the right hon. Gentleman given guidelines to the voluntary bodies on that?
    Mr. Gummer: I distributed a note to all Members of Parliament saying which charities were working in this matter and how the system would work. I advised all Members of Parliament to get in touch with me if there were any particular problems. If the note has not reached them, it is because it has not come from their Whips' office. The note was provided, and if there were any particular problems, I asked for hon. Members to get in touch with my office. My office has dealt with any Member of Parliament who wanted help, and I am happy to speak on any detail about which an hon. Member is concerned. The charities have been given general guidelines. I have left it to them to do what they do best, which is to go to the people whom they know in the way that they find most effective.
    Mr. Colvin: Will my right hon. Friend add Age Concern to the list of charities to be congratulated, because, along with the WRVS, it has done a lot of work in my area? Will he also have words at an early date with his friends in the Department of Health and Social Security? I feel that greater liaison between his Ministry and the DHSS is important if we are to get over to people in need the message as to who qualifies for this food. Currently, there is a slight breakdown in communications.
    Mr. Gummer: I commended those two charities because the others which have helped us so much centrally, as well as other smaller charities, have relied on them to a great extent. I add the Red Cross to the list of charities which have done a lot of work for other charities. I am not underestimating the work done by the other charities which have been co-operating.
    I warn my hon. Friend about his comment with regard to the DHSS. We tried to operate a scheme in Europe which enabled the food to go through the charities that had a regular, continuing relationship with those most in need so that we did not have a bureaucratic system which involved saying, "You get it only if you fit into a particular situation. There is that token. You must wait in line." We want a freer system which operates under the guidelines that we have given. That is why we have kept this operation in the voluntary sector. That is the right way to to it.
    Mr. Corbett: Is the Minister aware that until about a week or 10 days ago not a single slice of beef and very little butter had been distributed in Birmingham and the rest of the west midlands? Will the right hon. Gentleman take steps to ensure that if extra assistance to the charities involved in the scheme in Birmingham and the west midlands is needed his Ministry will provide it?
    Mr. Gummer: The hon. Gentleman may be a little behind the times. I was in the west midlands yesterclay, where I helped to distribute the butter which was part of the 5 tonnes of butter going to Wolverhampton alone. The hon. Gentleman has probably got it wrong. If there is a difficulty, I shall certainly look into it for him.
    Mr. Cormack: Is my right hon. Friend aware that, commendable as the scheme is, the amount of food involved is very small? I hope that my right hon. Friend the Minister for Agriculture, Fisheries and Food is not today negotiating away large surplus amounts to the Russians at knock-down prices.
    Mr. Gummer: I think that 15 million packs of butter is quite a lot of butter—we should not be curmudgeonly about the amount of food that is going out in this way — but the scheme will not solve the problems that we have had with stocks. We have sought to stop the stocks from growing. A decision to that effect was the successful outcome of our negotiations in December. We still have to get rid of a very large quantity of butter, some of which is not comparatively new butter—such as the butter to which we are referring—but has been there for some time. I certainly do not rule out the opportunities to sell that butter in other markets.
    Mr. John: As, by common consent, the right hon. Gentleman and all of us are grateful to the charities for their work, will he set their minds at rest by clarifying at whose cost the meat and butter are to be distributed? The

    1051
    Government are paying for the cost of inward distribution, but will the charities have to bear the fuel costs of their distribution of the butchered or packaged foods?
    Mr. Gummer: We discussed in great detail with the charities what the Commission allows in terms of costs. We have gone back to the Commission to suggest that some improvements can be made. I hope that we shall be able to make them. We have a fixed amount for the distribution costs of butter and beef. We are, of course, paying for the cost of buying the milk and cheese at the most suitable market for the charities. We are trying to meet the costs as much as possible. We are discussing with the charities whether they can give any other help. Considerable public funds have been made available for this project, and I think that that is a very satisfactory answer.
    Mr. Charles Morrison: Does my hon. Friend agree that, on the whole, the distribution of surplus food is working well? However, some of the charities and some of the people working for them are a little nervous about the fact that they might be acting in breach of the regulations. Does my right hon. Friend agree that in marginal situations it is better that the charities should err on the side of generosity rather than on the side of bureaucracy?
    Mr. Gummer: The Commission made it very clear in launching what was, by its nature, a rapid scheme that it would look with that attitude in mind at the way in which the scheme was carried out. That is a sensible approach. Of course, I am willing and happy to discuss the scheme with any charity which is concerned about how to interpret the guidelines and the Commission's proposals.

    Radiation Contamination
    Mr. Willie W. Hamiltonasked the Minister of Agriculture, Fisheries and Food if he will make a statement on the continued existence of sheep and lambs contaminated by radiation emanating from the Chernobyl nuclear accident.
    Mr. Donald Thompson: Radiocaesium levels in the majority of sheep within the restricted areas in Cumbria, Wales and Scotland are stable or declining slowly. Extensive live monitoring of sheep which have left the areas has demonstrated that levels fall rapidly when the sheep graze uncontaminated pasture. Some 42,000 of these sheep have been tested to date and fewer than 0·1 per cent. have failed.
    Mr. Hamilton: How many farms and sheep are still in the controlled areas? How soon does the hon. Gentleman expect that the controls will be lifted? Does he recognise that some of those farmers are angry about the delay in receiving compensation payments and their inadequacy? Does the hon. Gentleman understand that this problem shows the great dangers that exist as a result of radiation and nuclear power?
    Mr. Thompson: To answer the four questions as they were asked, there are 466 holdings, 315 in Wales, 150 in Cumbria and only one in Scotland. We have been and are monitoring blue-marked sheep in anticipation that, in the near future, we can make relaxations in the restrictions. I can well understand that farmers are anxious about the future and about the compensation. The compensation
    1052
    has been made in three tranches. We are still talking with farmers. At present we have compensated to the tune of £4 million. We are anxious to remove farmers' anxieties.
    Mr. Campbell-Savours: The Minister referred to contaminated pastures. Does that mean that he accepts that there is contaminated silage? What monitoring is going on of the contaminated silage to ensure that it does not, at any stage, enter into the food chain?
    Mr. Thompson: On the basis of testing and experimental work we can advise farmers that silage and hay can be safely fed to animals without special precautions. Foodstuffs derived from animals fed on silage and hay are being tested to ensure that the position remains satisfactory and that there is no danger whatsover to public health.

    Beef Herd
    Sir John Farrasked the Minister of Agriculture, Fisheries and Food what is the size of the beef herd at the latest available date.
    Mr. Gummer: 1,300,000 head in June 1986.
    Sir John Farr: I am grateful for my right hon. Friend's reply. Is he aware of the economic strain that beef finishers are under today? Will he assure the House that he and his Department recognise the value of the work that the traditional beef finisher is putting in in producing beef cattle in this country off grass in the traditional way, and that that is a skill that is still needed in Britain today?
    Mr. Gummer: I very much agree with my hon. Friend's comments. That is why we fought so hard to ensure that we had a non-discriminatory policy in the Community, that we kept the beef variable premium scheme, that we increased the suckler cow premium and that we ensured that, with the reduction in intervention, the British farmer suffered less than any other farmer in the whole of Europe. That is a proper response to my hon. Friend's point.
    Mr. Haynes: Is the Minister aware that I have some farming in my constituency? Is he also aware that those farms in my constituency that produce beef produce beautiful, delicious beef? Is he aware that the message that he brings back from Europe is not good enough? We want more and more beef produced in this country—English beef for English people. We do not want that rubbish from across Europe.
    Mr. Gummer: I am sure that the hon. Gentleman would like to know that we are 96 per cent. self-sufficient. I agree that the beef industry has major difficulties. I hope that he will tell his beef farmers why the Labour party intends to rate agricultural land, and see what they think about that.
    Mr. Colin Shepherd: Does my right hon. Friend agree that both he and his right hon. Friend the Minister of Agriculture, Fisheries and Food should be congratulated on what they have achieved for the beef industry? Nevertheless, will he bear in mind that the very substantial stress in the industry caused by the green pound differential and adverse monetary compensatory amounts does not lead to confidence in either the short or the long term and that that problem must be addressed? Will he bring all the pressure that he can to bear on the Treasury and on the Commission to get that problem resolved?
    Mr. Gummer: My hon. Friend knows that we shall be discussing the green pound in the price negotiations that

    1053
    are about to begin. I am glad that he supports what the Government have done in this sector. Obviously we are determined to support the sort of policies which mean, for example, the retention of the BVPS for two years so that there is some degree of continuity and confidence as a result.
    Mr. Home Robertson: Is the Minister aware that the failure to operate the hill livestock compensatory allowance was one of the many factors that led the National Farmers Union to pass a vote of no confidence in the Minister of Agriculture, Fisheries and Food last week? Has he had time to consider the terms of that resolution, calling on the right hon. Gentleman to get his act together or to get out? Which will it be?
    Mr. Gummer: The hon. Gentleman would do well to remember that the policies put forward by his party are so disastrous that they are not taken at all seriously by the farming community. Indeed, they are not taken seriously by his own party, because he and his hon. Friend the Member for Pontypridd (Mr. John) had to pay for their own policy document because the party was not even prepared to fund it.

    Horticulture
    Mrs. Roeasked the Minister of Agriculture, Fisheries and Food what is the value of the horticultural output from commercial holdings in 1985 and 1986.
    Mr. Donald Thompson: The value of horticultural output from commercial holdings in the United Kingdom for 1985 was estimated at £1,171 million and is forecast at £1,234 million for 1986.
    Mrs. Roe: I thank my hon. Friend for his reply. Does he agree that the horticulture industry makes a major contribution to the national economy and will he ensure that the extra help for marketing announced in his ALURE package will be available to horticulture?
    Mr. Thompson: I entirely agree with my hon. Friend. Marketing is indeed a most important aspect of horticultural production, and all other production. We shall give any help we can, through our various agencies, to help marketing in horticulture.

  PRIME MINISTER

    Engagements
    Mr. Gareth Wardellasked the Prime Minister if she will list her official engagements for Thursday 19 February.
    The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House I shall be visiting Yorkshire later today.
    Mr. Wardell: Are there any circumstances in which the right hon. Lady's Government would prevent a British company falling into foreign hands?
    The Prime Minister: If we were to say that we would automatically prevent a British company from falling into foreign hands, we would prevent a great deal of inward investment that is welcome in this country.
    Mr. Spellerasked the Prime Minister if she will list her official engagements for Thursday 19 February.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Speller: Will my right hon. Friend consider the anomaly over television licence fees for the elderly? Is she aware that if one is in warden-controlled sheltered accommodation which is council-owned one pays 5p per set per year, but if one is in private residential care or any other form of housing one pays the full fee regardless of age or income? Would it riot be fairer if all people of pensionable age had the opportunity to pay the same fee based upon means to pay, not just upon age?
    The Prime Minister: I note my hon. Friend's suggestion. However, as he will be aware, the House debated that matter recently. I do not believe that it is fair, as a general rule, to exempt particular groups from the licence fee. My hon. Friend's proposal would cost some £80 million, which would add considerably to the cost of the licence fee for others, including many pensioners, who would still be required to pay it.
    Mr. Kinnock: Is the Prime Minister aware that the Secretary of State for Defence said in Washington yesterday that if any part of the strategic initiative programme
    "we are involved in went, in our view, outside the treaty"—
    that is the ABM treaty—
    "we wouldn't want to be involved."?
    Is that now also the position of the Prime Minister, or is she going to be yet again the presidential doormat?
    The Prime Minister: I think that the right hon. Gentleman would do well first to consult my right hon. Friend the Secretary of State for Defence to see exactly what he did say. He will find that it did not resemble exactly what he said. The position is as I have outlined it previously. First, we have no locus in interpreting the ABM treaty. Secondly, deployment is clearly a matter for negotiation, as we have agreed. Thirdly, we have received satisfactory assurances from the United States that there will be consultation about any significant change of policy in relation to SDI research. Fourthly, the Government fully support the SDI research programme, which is permitted by the ABM treaty. It is vital to our defence that the West should always be at the forefront of new technology.
    Mr. Kinnock: I think that the Prime Minister should consult her right hon. Friend the Secretary of State for Defence, since clarity is all-important in this issue, both for the American President and, more importantly, for the British people. Is the Prime Minister aware that, when asked yesterday what he would do if the United States said that it wanted to test SDI technology in space, the Secretary of State for Defence said:
    "The outcome might be that we agreed with what was proposed or might not agree."
    Since, on Tuesday, the Prime Minister started off by supporting the narrow interpretation of the ABM treaty but by the end of Question Time she was supporting the broad interpretation, exactly where does she stand?
    The Prime Minister: The right hon. Gentleman has suggested that I should consult my right hon. Friend the Secretary of State. That is precisely what I did do this morning and that is why I gave the reply that I did.
    Mr. Sumberg: In relation to the north-south divide, has my right hon. Friend noted the remarks of Mr. Kenneth Livingstone, that far too many northern Labour MPs know nothing of life in London and all they do know about are the brothels and wine bars of Westminster.?
    Mr. Speaker: Order. Is all this part of the Prime Minister's responsibilities?
    Mr. Sumberg: Will my right hon. Friend join me in condemning this disgraceful slur on the north of England and on the hard-working northern Members of Parliament on both sides of the House?
    The Prime Minister: I am not going to get involved in that one.
    Mr. Pikeasked the Prime Minister if she will list her official engagements for Thursday 19 February.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Pike: Is the Prime Minister not worried about the reported links between cancer and nuclear installations?
    The Prime Minister: The report to which the hon. Gentleman is referring has been, or will be, placed in the Library of the House when it is available. In fact, its production has been accelerated so that it can be available before the debate on Sizewell. I understand that many people have interpreted it totally differently. Its purpose is to find out the facts and it is for others to make the assessment.
    Mr. Colvinasked the Prime Minister if she will list her official engagements for Thursday 19 February.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Colvin: Does my right hon. Friend agree that the Agriculture Council, under the United Kingdom presidency, took a major and historic step last December when it tackled the mounting problem of food surpluses? Will she acknowledge that the total change of direction that the whole of the agriculture industry is now having to face will be both painful and difficult? What will the Government be able to do to assist the industry in this process of adaptation, bearing in mind the calls for a five-year transition period and the devaluation of the green pound?
    The Prime Minister: I agree with my hon. Friend that the Agriculture Council last December made a great effort officially and in a very practical way to tackle the problem of food surpluses in the Community. I know full well that the adaptation will be painful for farmers, but, as my hon. Friend is aware, we already give considerable national help to farmers in addition to that which they get from the CAP, for example, in capital grants and in support for special areas. Support for special areas totals £141 million.
    I think my hon. Friend is aware that my right hon. Friend the Minister of Agriculture, Fisheries and Food plans to publish next month a document describing in greater detail how the Government's policies towards farming are being adjusted to reflect changes in agriculture and the potential in the rural economy as a whole. With regard to the green pound, that will be a matter to be considered at the annual price fixing. As he knows, there is at present the review of the agro-monetary system.
    Mr. Wrigglesworth: Does the Prime Minister agree that lack of adequate housing is a major impediment to labour mobility and causes great misery in many parts of the country? Will she spend some time today looking at the housebuilding record of her Administration since 1979, which will show that, after eight years, this Government have managed to get only 200,000 new houses started in the private and public sectors last year, when Mr. Harold Macmillan, in his period as Minister of Housing, after four years, was able to build 300,000 houses?
    The Prime Minister: It is not only public sector housing, as the hon. Gentleman is aware. The dwelling stock has increased by 1·4 million. That is an enormous increase during the lifetime of this Government. Capital spending on the renovation of English council housing has increased from about £480 million in 1978–79 to an estimated £1,300 million in 1986–87. So there are more houses and better renovated houses.
    Mr. Cashasked the Prime Minister if she will list her official engagements for Thursday 19 February.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Cash: Does my right hon. Friend share my deep concern that certain Left-wing teachers in London have banned the video which would have enabled children to be properly informed about sex attacks, simply because the police recommended that it should be shown? Does that not demonstrate that those teachers could not care less about child abuse?
    The Prime Minister: I think it absolutely disgraceful that a few Left-wing teachers in ILEA should attempt to jeopardise children's safety in this way. I believe that parents will be appalled, and rightly so, that their children are put at risk because of this anti-police demonstration by Left-wing teachers.
    Mr. Campbell-Savoursasked the Prime Minister if she will list her official engagements for Thursday 19 February.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Campbell-Savours: Did the Prime Minister not make a bit of an ass of her Chief Whip last night, when she allowed Downing street to bypass him and use the hon. Member for Watford (Mr. Garel-Jones) to arrange the tabling of a motion attacking the Labour leader?
    The Prime Minister: I have myself been the victim of attacks from the hon. Gentleman and many others, and I have never squealed or complained about it. But may I make it absolutely clear that I for one, regardless of the hon. Gentleman, welcome the agreement reached by my right hon. Friend the Chief Whip and the Chief Whip of the Labour party that we concentrate on policy matters. I have always tried to do that and shall continue so to do.
    Hon. Members: Tell that to Edwina Currie.
    Mr. Speaker: Order. It sounds like a rabble.
    Mr. Forman: In the course of her busy day, can my right hon. Friend find time to consider the disappointing level of civilian research and development in this country compared with Germany and Japan? As a former trained scientist herself, can she look closely into the matter to see

    1057
    that everything possible is done to improve our position, since, in the long term, if we do not pay attention to this matter there is a danger of its damaging us in international competitiveness?
    The Prime Minister: I know that there is a very important debate in another place today. May I point out that overall net Government expenditure on research and development is at a record level? United Kingdom Government-funded civilian research and development as a proportion of national output exceeds the level in Japan and the United States. My hon. Friend mentioned Germany. It is also true that for all research and development our expenditure as a proportion of national output exceeds that of Germany, so we have a much better record than many people realise.
    Mr. Michieasked the Prime Minister if she will list her official engagements for Thursday 19 February.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Michie: May I bring the Prime Minister's attention back to the question asked by my hon. Friend the Member for Burnley (Mr. Pike), which was not whether the report
    1058
    will be placed in the Library or whether there is a different interpretation, but whether she is worried about the report, which links cancer with nuclear installations?
    The Prime Minister: Unlike some hon. Gentlemen, I prefer to read a report before I pronounce upon it.
    Sir John Farr: May I ask my right hon. Friend whether she will have a chance today to look at the reports of the difficulties in raising finance encountered by those engaged in promoting the Channel tunnel? When she has had a look at those reports, will she assure the House that in no way will the Government put up funds should such people be unable to raise the finance?
    The Prime Minister: As my hon. Friend knows, we are glad to reaffirm the Government's general support for the Channel tunnel project. As I have made clear in the past, no Government money will be provided. I think that both the French Government and our Government remain enthusiastic about the project. It is one of the most challenging of our time. It will provide many man years of work and many thousands of jobs. I hope that the finance will be forthcoming for this project and that this generation will be able to rise to this challenging adventure.

Rover Group
3.32 pm
The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Paul Channon): With permission, Mr. Speaker, I should like to make a statement concerning the Rover Group.
I am pleased to be able to announce today the Government's approval of the Rover Group's 1987 corporate plan. The plan is reviewed annually to cover a rolling period of five years ahead; the strategy in this plan, which relates to the period 1987–91, will evolve in that period to meet market developments. In accordance with usual practice, I am today placing in the Library of the House a summary of the plan excluding commercially sensitive details.
The plan sets out a positive course for the continuation of Austin Rover as a major producer and leading exporter of cars made in Britain. The programme of model collaboration with Honda will be taken forward with a new medium sized car, the AR8, for which a manufacturing agreement should shortly be concluded. The future relationship between the companies will of course continue to develop in the light of experience, but it is the intention of both companies that the relationship should be a long-term one and should endure beyond the life of existing design and production contracts. The Government very much welcome this joint intention to continue to strengthen links in the future.
The corporate plan provides for the new K series engine to be taken forward to full production and used in Austin Rover's smaller engined cars. This engine will equip the company for the next decade with a new high economy engine designed to meet new emissions controls and will also make a major contribution to Austin Rover's strong presence in the small car sector, which, with the planned further development of the model range, is a vital element in the company's marketing plan.
Turning to Land Rover, the plan takes account of the launch of Range Rover in the United States this year, which will be a major step in diversifying Land Rover's market base.
On the commercial vehicle businesses, my hon. Friend the Minister of State, Department of Trade and Industry told the House on 13 January that the sale of Leyland Bus to a management buy-out had been completed. I told the House on 2 December that Rover Group was also holding commercial discussions with DAF in relation to Leyland Trucks and Freight Rover, and separately with Paccar in relation to the trucks company. Following these negotiations, Rover Group and DAF have proposed that Leyland Trucks, DAF Trucks and Freight Rover, shall combine to form a new Anglo-Dutch joint venture. As recommended by the Rover Group board, the Government have accepted these proposals, which create a company with the capability to achieve a major presence in the European commercial vehicle market. The agreement will also include the associated parts operations and certain overseas operations. These proposals build upon important existing distribution links between the companies. RG will take a 40 per cent. shareholding in the new grouping based on the value of the assets it brings to the merged operations and will have board representation.
1060
DAF will hold the remaining 60 per cent. Market conditions permitting, it is the firm intention of RG and DAF to float the company within two to three years.
Within the joint company Freight Rover, which is planning to invest in a major model replacement programme, will continue to manufacture vans at its Common lane site in Birmingham. Leyland will continue as the focal point for truck manufacture in the United Kingdom, and I expect the Albion plant to have a continuing role in the joint operation as a producer of axles.
These decisions take place in the context of severe overcapacity in Europe. As I made plain in my statement in December, all the commercial options open to Rover Group in relation to the trucks business would involve significant rationalisation and restructuring with inevitable job losses. I regret these. The Scammell plant at Watford will be closed and its production transferred to Leyland. The engine and foundry plant at Leyland will not be part of the new company and activities will be gradually run down for closure by the end of 1988. Some 1,700 jobs will be lost through those closures and a further 560 through slimming of the Leyland and Albion operations. Employment levels at Freight Rover are expected to be maintained.
I believe that this agreement offers the best prospect of building a secure long-term future for Leyland Trucks and Freight Rover and the House will be pleased to know that the plan developed by the two companies envisages significant expansion of truck production at Leyland including for export and an important expansion of the export of Freight Rover vans.
As part of this restructuring, the Government intend to write off the accumulated debts from Leyland Bus and Leyland Trucks left in Rover Group, and the restructuring costs resulting from their sale. The Government have notified the European Community Commission of this intention and the normal procedures are in train. The Government intend to provide up to £750 million for this purpose. I am laying an order today under the Industry Act 1980, and Rover Group will hold a general meeting in March.
The proposals which I have announced today will strengthen both Rover Group and the vehicle industry in this country. Success now depends on achievements in the market place. Mr. Day has focused sharply on the need for commercial success in recent months, and I am encouraged by news that Austin Rover's market share so far this year is sharply up on that of recent months. With new marketing initiatives, increasing sales, recent successes in the fleet market, such as the orders by major car rental companies, and the launch of the Sterling and Range Rover in the United States this year, Rover has the opportunities and skills to succeed.
In short, these proposals will give the go-ahead to Rover Group's corporate plan; safeguard the manufacture of trucks within the United Kingdom in the context of a new European joint venture; and free Rover Group from the accummulated debt of the truck and bus businesses. I am certain that the House will support that.
Mr. John Smith: Is the Secretary of State aware that everyone in the House will wish success to the Rover Group in competing in overseas markets and increasing sales? However, is he further aware of the dismay that will be felt on both sides of the House at the

1061
fact that 2,400 jobs are to go, that the engine plant at Chorley is to disappear completely, like the foundry at Farrington, and that the Scammell plant at Watford is to he closed?
With regard to the Rover corporate plan, the Opposition welcome the commitment to the AR8 and the K series engine for which we have long pressed. What has happened to the AR6 project? Is it included in the corporate plan?
Can the Secretary of State assure us that the stronger links envisaged with Honda will not lead to a merger on the lines proposed for Leyland Vehicles and DAF? What is the Government's intention about the future ownership and development of Land Rover about which the statement is significantly silent?
I want to consider the major elements in the Secretary of State's statement about Leyland Trucks. Is it not crystal clear that, on the basis of a 40 per cent. to 60 per cent. share of the equity in a joint company, DAF will have clear control of the new merged operation? Is the Secretary of State aware that the 1985 DAF annual report states:
"One of DAF Trucks' policy aims is to maintain the company's independence"?
In an interview in the Financial Times of 22 December, Mr. van der Padt made it clear that his company would retain its own identity and engineering capabilities. Is it not clear that he has achieved his objective but that the British Government have not achieved theirs?
Why has Freight Rover—a very successful company with increasing sales, an increasing work force and a strong market performance—been included in this sale? Is it being included as a sweetener for DAF? Why must we sell a profitable company or surrender control of it? Is it not ironic that we appear to be surrendering control of Leyland Vehicles because it makes a loss and surrendering control of Freight Rover because it makes a profit? What is the value of the Rover Group's 40 per cent. share in the new company? [Interruption.] The Chancellor of the Exchequer says that we will discover that when it comes to the flotation. It is important to discover it now before we decide whether this is a good deal. Clearly the Chancellor is happy to remain in ignorance, but I hope that the House will want to know the value of the assets that are committed to the joint venture. If and when flotation occurs, what will happen to the proceeds of the 40 per cent. share? Will they go to the taxpayer, or will they be used to finance future development in Austin Rover? What sort of financial support did Austin Rover ask for from the Government in the corporate plan and what has it received?
What we are witnessing today is the effective surrendering of the control of the British truck and van industry, and no Government should be proud of that.
Mr. Channon: By the tone of his questions the right hon. and learned Gentleman shows that he is not living in the real world. To hear the right hon. and learned Gentleman one would not get the impression that this truck business has been losing £1·5 million a week. It has lost £300 million over the past five years. We have achieved an agreement under which it will be part of a European scale operation with a turnover of £1 billion, and it will be the fourth largest truck company in Europe. An increased number of trucks will be sold and the volume will be considerably increased. That is good news for the future of the truck industry in Britain.
1062
The right hon. and learned Gentleman asked what the Rover Group asked for. It asked for what is in the corporate plan and it has been given everything that it asked for. The corporate plan will be published in the normal way and placed in the Library. It contains everything that the Rover Group asked for. The right hon. and learned Gentleman is disappointed because he is trying to pretend that the Rover Group asked for something that the Government did not give it. The Government did what the Rover Group wanted because we have confidence in the commercial future of that company. I hope that the House understands that.
The advantages of this sale for Freight Rover are enormous. There will be firm plans for the future of the company, with the design and development of a new model range for manufacture at the Common lane plant. There will be opportunity to develop a substantial export business to Europe. There is a good chance that by the 1990s exports could be as much as 20 or 25 per cent. of the company's production. That is good news for Freight Rover and its continuation. There has never been any suggestion of Honda merging with the Austin Rover Group.
The right hon. and learned Gentleman asked me about the AR6. There is already an investment of about £200 million in the K series engine and the related gear box. That is evidence of the Rover Group's continuing commitment to the small car sector. The timing of further investment is a matter for the company to decide.
Mr. John Mark Taylor: Does my right hon. Friend accept that those of us who have always regarded Leyland as an unnatural aggregation are very pleased with his statement and with the continuing process of finding separate destinies for the subsidiary parts of the Rover Group? Would he care to put a time scale on the privatising and floating of Land Rover?
Mr. Channon: My hon. Friend will recall asking me that question a little while ago. We should like Land Rover to be returned to the private sector within a reasonable period. That cannot he considered until we are sure that it is in an excellent position. I am confident that Land Rover will soon have the best possible future as a manufacturer of a renowned British product. My hon. Friend will find that it is an ex tremely satisfactory position and proceeding well.
Mr. Ian Wrigglesworth: Is the Secretary of State aware that the announcement about the long-term relationship with Honda is welcome and that my hon. Friends and I wish it well? Is he further aware that the announcement about the trucks division is a sad epitaph on the eight years during which the Government have been responsible for British Leyland? What bids and proposals were considered for that division? What consideration was given to the bids by Lancashire Enterprises Limited and Paccar? Was consideration given not to a 60: 40 split, but to either having Leyland control over the Anglo-Dutch enterprise or to having at least a 50: 50 split?
Mr. Channon: I am grateful for what the hon. Gentleman said about Honda, and I am glad that he supports the collaboration.
On the merger, the only bids were from DAF and Paccar and I advised the House of that in early December.

1063
The Government endorsed the view of the Rover Group board that DAF's was the best of the bids, which is why we proceeded with it. The deal involves a merger of the two companies, not a sale of assets. It is a reasonable valuation and an exceedingly good deal for the truck industry. Therefore, I disagree strongly with the hon. Gentleman's comments about the past seven years. The future expansion of the industry is on the road and looks good.
Mr. Robert Atkins: Is my right hon. Friend aware that my constituents do not take kindly to the activities of the hon. Member for Gordon (Mr. Bruce), who does not have even the courtesy to be here to listen to my right hon. Friend's statement? The hon. Gentleman made inaccurate remarks about the plants, job losses and locations in my constituency and others.
Does my right hon. Friend agree that the deal offers the best possible future both for my constituents and for those who work in Leyland? The alternative of remaining in the Rover Group is unacceptable on the ground that it would probably mean more job losses and eventually the closure of the plant. Can my right hon. Friend confirm that there will now be continuity at the Leyland assembly plant and the design and development testing track? Can he also confirm that there will be exceptionally generous —[Interruption.] If Opposition Members cared so much about people's jobs, they would be quiet. Can my right hon. Friend confirm that exceptionally generous redundancy offers will be introduced over a period? Will he stress to the Rover board that when the flotation occurs shares should be made available to the company's employees?
Mr. Channon: Yes, I shall certainly do what my hon. Friend has suggested about the flotation.
I am astonished that the hon. Member for Gordon (Mr. Bruce) is not here this afternoon, after his announcement yesterday and having placed an early-day motion on the Order Paper. He gave the misleading impression that 20,000 jobs would be lost. That was a disgraceful remark. I am entitled to say that in his absence because he should have been here. He has caused a great deal of damaging uncertainty to those involved. he should be thoroughly ashamed.
My hon. Friend is entirely right about the alternative solutions that are available to the company. I am convinced that this is the best deal and that it offers the best future for Leyland, the people whom my hon. Friend represents and those employed at Leyland. Difficult decisions have been taken. There will be continuity for the Leyland assembly plant. Redundancies are a matter for the Rover Group and its employees. I am happy to confirm that it is making what I hope people will think to be generous proposals, and I hope that they will be welcomed.
Mr. George Park: The Minister said that success depends on the market place. That being so, I wonder whether, in agreeing to merge Leyland Vehicles with DAF, he took into account the fact that, in November of last year, Leyland Vehicles took the lead in the market. It registered 805 trucks of more than 3·5 tonnes, compared with 658 for Daimler-Benz and 256 for DAF. Leyland maintained its lead. Given these figures and the need to reduce excess capacity, which I accept, would
1064
it not have made more sense for the merger to have taken place in the reverse direction, rather than to lose control of a strategic part of our industrial base, with consequent redundancies? If the climate of economic growth is as the Government say it is, surely this is not the time for the Government to lose their nerve in supporting key sectors of industry.
Mr. Channon: The hon. Gentleman is quite right in drawing attention to Leyland Trucks' share of the British market. He must understand that the company has lost £300 million over the past five years. As I told the House, it is losing £1·5 million a week. In those circumstances, the solution that he advocates — that is, of taking over DAF, which is a profitable company at present—simply was not on offer. I am convinced that, in all the circumstances, we shall see a much stronger commercial vehicle industry in this country with the rationalisation that will take place and with the emphasis on the export of light trucks. We shall see a joint venture—a merger of the two companies — which will be a powerful organisation in Europe and which will lead to more strength for the company.
Sir Reginald Eyre: Is my right hon. Friend aware that he is to be congratulated on the realism of his proposals and that the underpinning of Austin Rover that will be achieved by the Government's further commitment that he specified is to be welcomed? Will he confirm that, with the joint venture proposals affecting Freight Rover, there will be no loss of jobs at the Common lane factory in Birmingham? Will he confirm also that the prospects of the joint truck venture will be improved by the availability of the sales network in Europe that DAF has built up?
Mr. Channon: I am grateful to my hon. Friend and thank him for his question. I can confirm that there is no reason to assume that there will be any loss of jobs at the Common lane site or in Freight Rover in general. I confirm also that Freight Rover will benefit in the way that he said. This offers an exceedingly good opportunity for Freight Rover in the future.
Mr. Gregor MacKenzie: Does the Secretary of State accept that, as was pointed out by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), 2,500 fewer people will work in the motor car industry as a result of the arrangements that he has announced? The Secretary of State made passing references to the Albion motor works situated in Glasgow, an area of exceptionally high unemployment. Hon. Members for the Glasgow divisions wish to know precisely what he meant when he said that there was a future for the Albion works. What positive guarantees will he give? The Minister spoke also of the 560 jobs that are to be lost in the Leyland and Albion operations. How many, if any, will be lost in the Glasgow Albion works?
Mr. Channon: The right hon. Gentleman is quite rightly concerned about the Albion plant. I understand that. There will be rationalisation, as I said in my statement, but I believe that Albion has a continuing future as a manufacturer of axles. That would not necessarily have been true under all the options that were available to me. That should be welcomed. It is important that Albion should continue to manufacture axles for the merged

1065
company. I hope that the right hon. Gentleman will welcome that. Of course I cannot tell him to the exact figure what the results will be. Perhaps he will be in touch with the company about that matter, but I am glad to say that, as I have already announced, there will be a continuing future for Albion.
Mr. Richard Page: Although I do not welcome any plant closures, will my right hon. Friend please accept that his news today is the only chance for genuine, long-term jobs in Leyland Trucks? Will he also please confirm that the redundancy terms will be generous and that some of them will be half a year's salary, plus statutory redundancy, and that advice centres will be set up in areas such as Watford to help to re-employ those people who will be losing their jobs, thus filling skill shortages in the Watford area and helping to satisfy the demand in the many new industries that have been established in that region?
Mr. Channon: I confirm what my hon. Friend says. Obviously the company will be discussing this matter with its employees, but the company tells me that the redundancy terms are indeed generous.
On my hon. Friend's point about this being the best solution —and, indeed, on the point made by the right hon. Member for Glasgow, Rutherglen (Mr. MacKenzie) a moment ago — the solution that I have announced today is not what is causing redundancies. There is massive over-capacity in the industry. Whatever solution was announced, there would, unfortunately, be no alternative but rationalisation in this industry. The House ought to understand that, as I told it last December.
Mr. Dave Nellist: Why should this House believe the promise of future security from this Secretary of State who washed his hands of the Climax affair and who handed the Austin Rover group, following British Leyland, into the hands of the fellow who butchered the shipbuilding industry and who is now going to butcher the car industry? Why should we believe his promise when today he announces that 2,500 families, in his terms, are being rationalised? Where we come from we call it the dole.
Mr. Roger King: On a point of order, Mr. Speaker.
Mr. Speaker: I shall take it in a minute. —[Interruption.] Order. Hon. Members should not refer to strangers in the Galleries.
Mr. Channon: I have already explained to the House why rationalisation of the truck industry is needed in this country. That is an unfortunate fact, but the hon. Member must recognise that the truck companies are losing £1·5 million a week.
As for his general question about the car industry, the hon. Gentleman can choose to believe what he likes, but I believe — and I think that most hon. Members will support me—that the proposals for the Rover Group in general that I have announced today offer the best prospects for its continuing commerical success and for the continuing success of Austin Rover as a major producer and leading exporter of cars made in Britain. We have to take action, and we have accepted the Rover Group's corporate plan. I believe that it has a very good chance of success.
Mr. Steve Norris: Will my right hon. Friend accept that Austin Rover's commitment in the corporate plan to maintain volume and to continue the production of the small car range will be very reassuring to those of us who have been worried by misleading press speculation to the contrary in recent days? Will he accept from me that, coming on top of the 500 new jobs that have been announced for the Montego line at Cowley, his statement will be very good news in my constituency and that it will reassure that skilled, dedicated and now growing work force?
Mr. Channon: I am extremely grateful to my hon. Friend. I, too, am very pleased indeed that the Rover Group has recently taken on 500 additional people at Cowley. That helps to give the lie to those who are painting such a picture of gloom. The prospects for this company can be very good indeed, provided that sensible plans are adopted—as I hope they will be today.
Mr. Doug Hoyle: Will the Secretary of State explain what he means by a joint venture when the foreign competitor has the major share? Will he also say what consultations took place with the trade unions and the employees? Will he accept from me that thousands of people have been left in the dark at Leylands? Will he also say who will manufacture the power train and the cabs of the future? Will it be DAF? If it is, that means that Leyland Lorries will become a screwdriver plant. Who will manufacture the military vehicles that at present are made by Scammell? Finally, will he go along and explain the real world to the redundant workers at Chorley, Leyland and Watford?
Mr. Channon: The hon. Gentleman will not take on board the fact that this company has had a series of appalling losses in the past few years and it was essential — whatever Government were in power — for this company to be rationalised. What I have announced today will provide a better future for the production of trucks at Leyland.
The military contract will be transferred to Leyland and will be more secure.
On the question of the joint venture, I described fully in my statement the arrangements that we are making in this merger — the share of the Rover Group in that merger and the eventual intention to float the shareholdings of the DAF shareholders as well.
The Leyland company will put something in employees' pay packets today concerning the merger and, of course, there will be consultations in the normal way through the usual procedures of the company.
Mr. lain Mills: Can my right hon. Friend remind the House just how much money this Administration have spent on supporting the Austin Rover Group? [Interruption.] I am grateful to the Opposition for their help. I have two questions —[Interruption.] The Opposition appear to find this matter amusing. I thought that they took it seriously. What effect will the £750 million write-off have on the future of my constituents who work for Land Rover? Will my right hon. Friend clearly state that the skills of DAF in having a European network of distribution and manufacture will make it a good partner for Leyland Vehicles?
Mr. Channon: I can give my hon. Friend that assurance. My hon. Friend asked me how much money had been

1067
spent on the Rover Group. The Varley-Marshall assurances for the associated debt came to more than £2 billion. Some Opposition Members try to peddle the idea that the Government have not supported Austin Rover, but that is absolutely nonsensical.
As regards the effect of £750 million write-off, one of the most important effects is that it will remove the millstone of the accumulated bus and truck debts from the shoulders of the car production of the company.
Mr Jack Straw: Does not the Secretary of State understand that his decision today is a betrayal not only of the British manufacturing industry but of thousands of people in Lancashire who depend upon Leyland for their employment and prosperity? Does he also accept that, whatever the difficulties of the European truck manufacturers, the difficulties of Leyland will be made far worse by his dogmatic and incompetent approach to the problem? Since he has decided upon the total closure of the foundry and engine plant at Chorley and Leyland, where will the engines for the Leyland trucks come from?
Mr. Channon: The hon. Gentleman makes wild statements but refuses to tell the House what alternative plans are available. He is well aware that what I am trying to do is to provide a better and more secure future for Leyland and those who are dependent on the truck industry in Lancashire.
Mr. Straw: Where will the engines come from?
Mr. Channon: I will deal with that if the hon. Gentleman will allow me. The result of the Leyland truck decision that I have announced today—the effect would have been the same whatever the decision — is the rationalisation of that industry. As a result Leyland will produce good light trucks for the merged company. That will result in a massive increase in exports. There will be a substantial part of engine requirement for Leyland sourced from United Kingdom manufacturers. I believe that the prospects for the components industry and the trucks are better under this proposal than the alternative proposals.
Dame Jill Knight: Is my right hon. Friend aware that the survival of literally thousands of small businesses depends on their continued ability to provide component parts to the Austin Rover Group? Has he a word of encouragement for them today? What effect does he believe his announcement will have on them?
Mr. Channon: I can help my hon. Friend on that point. My announcement will ensure a securer future for the Rover Group and will therefore mean a securer future for the component manufacturers. I believe that she can tell her constituents who are involved in the components industry that my announcement today on the Rover Group will provide component manufacturers with better opportunities, provided they are reliable, produce good quality goods, deliver on time and charge the right price.
Mr. D. N. Campbell-Savours: Will the proceeds of the sale go to the Government or the company? Is it not true that the great majority of engines will, following this deal, be built in Holland and shipped to Britain?
Mr. Channon: It will depend on the sort of engine. The light engines will be manufactured in the United Kingdom and, over a period of time, more heavy engines will be built in Holland. [Interruption.] I do not know why the Opposition find that so astonishing. It is perfectly obvious that that will occur as a result of rationalisation. That is what I announced in my statement. Opposition Members should pay attention. As a result of rationalisation, we will have a better truck industry throughout Europe and it will be achieved as a result of this Anglo-Dutch joint venture.
The proceeds of the sale will go to the owners of the company.
Mr. Derek Conway: Is my right hon. Friend aware that more than 1,000 people in Shrewsbury work at Perkins Engines? Approximately 300 of those workers manufacture the Eagle engine that is supplied to Leyland. My right hon. Friend's announcement that the heavy engines will be manufactured in Holland is of no comfort to those constituents. By the same token, I am sure that the House will agree that we are faced with an appalling situation because there has been much scaremongering on the radio by the Liberal spokesman who has neither the courtesy nor the guts to be in the Chamber to question my right hon. Friend.
Some questions need to be clarified on the Paccar offer. That offer would have enabled a better United Kingdom manufacturing base to be maintained as Paccar wishes to expand its European market, unlike the Dutch group that wishes to rationalise that market. What were the dates of the Paccar and DAF offers, the financial difference between the two and the percentage of the British manufactured content in the proposals? Does my right hon. Friend concede that this issue is not just one of European unity but of British jobs and the British manufacturing base? In that sense, the Paccar offer would have been far more welcome to the people of Shrewsbury.
Mr. Channon: I appreciate my hon. Friend's concern about his constituents in Shrewsbury and those who work for Perkins. Whatever the solution reached, there were bound to be different effects to different component manufacturers. There is no clear, black and white standpoint— it would affect different people in different ways. I assure my hon. Friend that we considered the Paccar proposals with great care, and indeed I welcome Paccar's investment in Britain.
We had to decide what proposal gave the best future for the company, and the Rover Group recommended to me that the DAF proposal was the better on the grounds that I have outlined to the House. For that reason, and that reason alone, we agreed to accept the recommendations of the DAF proposal because it provided better choice.
Of course we considered the Paccar proposals extremely carefully. I can appreciate my hon. Friend's concern.
Mr. Nigel Spearing: The Secretary of State has admitted that the engines for the heavy vehicles will not be built at Leyland. Does that mean that Britain will no longer be a volume engine truck producer? Where will the engines come from for the remaining Leyland bus group? Does it mean that Britain will no longer be able to design, build and deliver abroad a British bus?
Mr. Channon: No, the hon. Gentleman exaggerates. The intention is that over a period of years the Dutch will

1069
concentrate more on the heavy end of the market and the British on the light end. That is what is meant by rationalisation in this case. There will be more work for Leyland as a result of that and more light engines will be produced in Britain than previously.
Mrs. Ann Winterton: Is my right hon. Friend aware that the decision in connection with Leyland Trucks will strike dismay in the hearts of the manufacturing sector? I refer, as many of my hon. Friends have done, specifically to the components industry. What guarantees or information can my right hon. Friend give to the House about the British content of Leyland and the new series of vehicles in future as opposed to the Dutch content? Is he aware that major Leyland customers much preferred the Paccar option and that, conversely, the decision announced today may bring a silver lining to Sandbach in my constituency because those customers will, I hope, turn to the vehicles of Foden and ERF, which latter is the last independent British truck manufacturer left?
Mr. Channon: I know that my hon. Friend has a great deal of experience and knows the industry well. I hope that Foden and ERF will be successful. However, I cannot agree that the DAF deal is inferior to the Paccar deal, as she implied. We examined both extremely carefully and took account of the clear recommendation of the Rover group.
On the question of components, the DAF proposals envisage significant and continuing sourcing requirements in the United Kingdom—for example, for the majority of components in light trucks, suspension units, axles, engines and cabs. DAF intends to increase its purchasing in the United Kingdom. I am satisfied that the proposals will not have the fearsome effect on the component industries which my hon. Friend fears.
Mr. Gavin Strang: I accept the benefits of continued collaboration between Honda and Rover, but does the Secretary of State recognise that it is crucial that he gives a clear commitment to the long-term future of Rover as an independent British company, not least because of the damage that he caused the company when he tried to sell it to Ford?
Mr. Channon: As I said in my statement, the plan sets out the continuation of Austin Rover as a major producer and leading exporter of cars made in Britain. That is our plan and we shall achieve it.
Mr. Anthony Beaumont-Dark: Does my right hon. Friend accept that there will be widespread relief and genuine satisfaction that the Government share the view of many of us in the midlands that Austin Rover has a great future as a British company? Does he agree that that is shown by the writing off of £750 million? Does he agree that that is justified by the fact that it has obtained £184 million worth of fleet orders and has a splendid new vehicle in the Rover Sterling? Does he agree that, with this backing Rover must now save itself, its workers and our city's future through its own endeavours?
Mr. Channon: I agree with my hon. Friend. He mentioned fleet orders and it is encouraging that the group has received orders from Hertz, Avis, Europcar and others. The Government have done everything that the
1070
Rover group has asked them to do, and now it is up to it in the market place. I have every confidence that the group will succeed.
Mr. Tony Blair: Since the Secretary of State talked about realism, may I tell him that the unanimous view of both unions and management at the Cummins plant in north-east England, where several hundred of my constituents work, is that the proposed merger with DAF is the worst possible thing that can happen to the United Kingdom car component industry? What estimate has he made of job losses in the car component industry? As he has yielded 60 per cent. in the merger plan to DAF, what guarantee can he give either on the heavy or light truck vehicle market that DAF will not use this as a means of transferring production to Holland?
Mr. Channon: The company will be placed under joint ownership. Rover group has 40 per cent. with a seat on both boards. Both DAF and Rover want to make the company a success and to float it successfully in 1989 or thereabouts.
It is extremely difficult to quantify the effects on Darlington. I know that hon. Members are worried about that and I have seen correspondence about it. There will be some gains in light engines and losses on heavy heavy engines. I hope that the position in Darlington would not be affected enormously by either of these proposals. Obviously that is a matter mainly for the company to consider, and I hope that the hon. Gentleman will get in touch with it.
Mr. Roger King: Does my right hon. Friend accept from me that the people of Birmingham will feel great relief and confidence as a result of his statement this afternoon, first, because Freight Rover will be a partner in a European truck and van making operation which will involve it in having large sums for new model products which it wishes to introduce, and, secondly, because in my constituency his endorsement of the K series engine will enable us to continue to make a considerable number of small and super-mini cars for a discerning world market?
Mr. Channon: I agree with my hon. Friend; he is right. Freight Rover has an excellent future under these proposals and the K series engine will be of great value to the company. The future of Longbridge looks extremely good. I welcome my hon. Friend's support, and I am sure that he is right that this will receive widespread support in Birmingham.
Mr. Jim Craigen: The Minister talked about expectations for the Albion plant and mentioned the options available to him. Can he be more specific about the assurances that he exacted about the future of the Glasgow plant and about the make-up of the 560 job losses?
Mr. Channon: I should like to help the hon. Gentleman as much as I can, but, if I am to be strictly accurate, all I can say is that under the proposals Albion will continue to supply axles to the new joint venture company. I hope that he finds that of some reassurance.
Mr. Michael Fallon: Will my right hon. Friend get it into his Department's head that the interests of the Rover Group are not identical with those of the British components industry? Why was the Paccar deal not preferred to the Dutch auction of British jobs?
Mr. Channon: I accept my hon. Friend's initial remarks: the interests of the components industry may or may not be exactly the same as the interests of the Rover Group. Different matters must be considered. I considered all those factors before accepting the Rover Group's proposal. If the Paccar proposals had been better, the Government would have accepted them. For all the reasons that I have given to the House, we believe that the DAF proposal is superior, which is why we accepted it.
Mr. Robin Corbett: Is the Secretary of State aware that what he has said about the AR8 and the K series engine will be welcomed in Birmingham and the west midlands? Can he clarify the position of the AR6? Will he also please explain how exporting more than 2,000 jobs and ending large truck engine production will do anything to protect our manufacturing base?
Mr. Channon: I am grateful for the hon. Gentleman's remarks about the AR8 and the K series engine. Everyone regrets the job losses, but they were inevitable under any commercial solution. I hope that the House will understand that. The losses are not caused by the DAF proposal, but would have occurred under any conceivable commercial proposal that the House had to consider. That is because for years there has been massive overcapacity in the commercial truck industry in Europe with massive losses. At present Leyland's losses are running at £1·5 million a week. There will be investment of about £200 million in the K series and related gearbox. That is the continuing commitment to the small car sector that the Rover Group is showing. Obviously the timing of further investment will be for it to decide and, no doubt, it will bear in mind what the hon. Gentleman has said.
Sir Dudley Smith: Does my right hon. Friend agree that the car components industry is crucial to the west midlands? Given those circumstances, will he do everything to encourage the company — I welcome his announcement — to buy British where everything else is equal? With regard to Leyland, is my right hon. Friend aware that the Opposition will never learn that any enterprise cannot trade at a loss forever?
Mr. Channon: I agree with my hon. Friend, and I shall certainly do what he wants. I hope that the House realises that in the long term manpower levels in component firms will benefit from the fact that Freight Rover and Leyland Trucks will have a higher rate of production. That must be good for the component industry.
Mr. Dennis Skinner: Why can the Dutch Government build trucks when the Tory Government cannot? The only thing that the Government are capable of is sending a boy genius from Guinness to the Dispatch Box to tell us that we shall get rid of another 2,500 jobs in Britain.
Mr. Channon: I have explained that on innumerable occasions. What I have been trying to tell the House, and I think the House as a whole understands it, is that this will increase production and provide a securer future for the truck industry.
Mr. Bowen Wells: Is my right hon. Friend aware that he deserves the congratulations of the House and the country on preserving a manufacturing base for trucks in Britain? Is he aware that the strength of the DAF organisation, with its distribution in Europe, will
1072
enable us to build a new company which is capable of competing with its strongest rivals in Europe? Is he aware that, far from there being 2,500 job losses, which are regrettable, what would have happened, if he had not made this proposal to the House, is that we would have lost more than 5,000 jobs with the closure of the Leyland trucks factory?
Mr. Channon: I hope that the House realises that, with this joint venture, we shall have one of the largest commercial vehicle companies in Europe, with a European-scale operation, volume increasing and a larger number of trucks being produced. That must be good news, not bad news.
Mr. Derek Spencer: Does my right hon. Friend agree that the Labour party does not understand the difference between a business which is a wealth creator and a business which is a wealth consumer? For far too long, Leyland Trucks has been a voracious consumer of wealth. The best chance that we have of turning it into a wealth creator is the arrangement that my right hon. Friend has announced.
Mr. Channon: I entirely agree with my hon. and learned Friend, and I am grateful to him.
Mr. Tony Favell: How much will this merger cost the taxpayer?
Mr. Channon: We shall write off the debt in the bus and truck operations. In some senses, one could say that that has already been lost. I can assure the House that there will be no further call on the Rover Group for the losses—which I hope will not exist—in buses and trucks in the future. That is good news for the taxpayer.
Mr. Tony Baldry: Does not the creation of 500 new jobs at Cowley demonstrate that, if the British car industry produces cars of the quality that people want to buy, it leads to more jobs on the production line? The greatest burden that Austin Rover at Cowley now carries is the Oxfordshire Labour party. The Labour-controlled city council and the Labour-dominated county council are vying with each other as to who places the greatest percentage increase in rates on Rover, and the greatest burden on businesses by extracting further rates from them.
Mr. Channon: I am not in the least surprised by what my hon. Friend has said. I am sorry to hear it.
Mr. Robin Corbett: That is not true.
Mr. Channon: If my hon. Friend the Member for Banbury (Mr. Baldry) says that it is true, I am sure that it is.
As to the prosperity of Cowley, as my hon. Friend points out, I am glad that Austin Rover has recently taken on 500 people. I am glad that it has also won orders in the fleet car sector. That is extremely good news.
Mr. Kenneth Warren: May I support my right hon. Friend's conclusion that this is a good deal? Unless there had been such a deal, there would have been no jobs at Leyland Trucks. I support the statement that was made by my hon. Friend the Member for Congleton (Mrs. Winterton), but, in evidence given to the Select Committee on Trade and Industry last week, the

1073
directors of Leyland Trucks told the Committee, in public session, that there had been no consultation between them and the corporate directors of Rover as to their future.
Mr. Channon: I am grateful to my hon. Friend for his support. What I have announced today is the considered opinion of the Rover Group, which the Government have independently considered. The Government came to the view that it is in the national interest that this proposal should go forward. It is the best opportunity that we have; it is a good opportunity. I hope that it will be widely welcomed. It is good news for the car and truck industry and Freight Rover.
Mr. John Smith: The Secretary of State said that Rover will have two seats on the hoard. How many seats are there on the board? Will the right hon. Gentleman tell us how many jobs will he lost in the Netherlands truck industry and the extent to which capacity in the Dutch motor vehicle industry will suffer as a result of this merger?
Mr. Channon: The right hon. and learned Gentleman omits an important point — [Interruption.] I am surprised that Opposition Members do not like me answering the questions that they keep asking me. The right hon. and learned Gentleman omits the important fact that the DAF operation is profitable. It has been making money, whereas Leyland Trucks has been losing hundreds of millions of pounds over the years. That is the difference between DAF and Leyland Trucks. That is why these steps have had to be taken. Any alternative steps that would have had to be taken would have been worse than these proposals, which provide a secure future for the truck industry.
Mr. John Townend: On a point of order, Mr. Speaker.
Mr. Speaker: I shall take points of order after the business statement.

Business of the House
4.27 pm
The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen): With permission, Mr. Speaker, I should like to make a statement on the business for next week.
MONDAY 23 FEBRUARY—There will be a debate on the report of the Sizewell B public inquiry on a motion for the Adjournment of the House.
TUESDAY 24 FEBRUARY — Remaining stages of the Ministry of Defence Police Bill [Lords].
Motion on EC documents relating to the Commission's proposals for the provision of free food to the most needy. Details of the documents concerned will be given in the Official Report.
Motion on the Appropriation (Northern Ireland) Order.
WEDNESDAY 25 FEBRUA:RY — Opposition Day (9th Allotted Day). Until about seven o'clock there will be a debate entitled "Priorities for the Elderly". Afterwards there will be a debate entitled "Health Care and Services for the Elderly". Both debates will arise on Opposition motions.
Motion on the annual report from the European Court of Auditors for 1985. Details will be given in the Official Report.
THURSDAY 26 FEBRUARY — Consideration of Lords amendments to the Teachers' Pay and Conditions Bill.
FRIDAY 27 FEBRUARY—Private Members' motions.
MONDAY 2 MARCH—There will be a debate on Welsh affairs on a motion for the Adjournment of the House.
[Tuesday 24 February Relevant European Documents

(a) Unnumbered Intervention food to meet hardship Wednesday 25 February

(b) OJ C321 The European Court of Auditors' Report for 1985

Relevant Reports of European Legislation Committee

(a) HC 22-vii (1986–87), para 1 and HC 22-viii (1986–87), para 2

(b) HC 22-ix (1986–87), para 1.

Mr. Neil Kinnock: May I thank the Leader of the House for granting a debate on Welsh affairs as near as possible to St. David's day?
We have just had a statement from the Secretary of State for Trade and Industry on Leyland Truck, which gave us news of a £750 million write-off, major job losses and further industrial retreat under the Government, all to provide a bargain package for a foreign competitor that will strip the company, if not shut the company or substantial parts of it.
In view of those circumstances, and the continuing pressures on Bedford vehicles at Bedford and Luton, and other difficulties in the motor vehicle industry, can I ask the right hon. Gentleman to provide us soon with the opportunity, in Government time, for a debate on the motor vehicle industry in the United Kingdom?
There are serious implications for the Scottish economy in the closure of the Caterpillar tractor plant at Uddingston, near Glasgow, with the loss of 1,200 jobs. I understand that the Prime Minister's approach to the company has been rebuffed. Two weeks ago I asked if the Leader of the House would arrange a debate on the issue in Government time. Will he now do that?

1075
Today, as the right hon. Gentleman knows, the House of Lords is debating its Select Committee report on research and development in Britain. In view of the serious conditions arising from under-funding, the brain drain and proposed further cuts, and the grave warnings which were given yesterday by the Committee of Vice Chancellors and Principals, will the Leader of the House see that we have a debate in the near future in this House on all these matters, that are of great national interest, as one of his right hon. Friends earlier asked the Prime Minister?
Will the right hon. Gentleman arrange, as soon as possible, a debate on the proposed privatisation of Rolls-Royce? The Government are selling off the best known name in engineering—nationalised at a previous date by a Government which the right hon. Gentleman supported— and selling it off for next to nothing. It is vital that the House is able to give its view on this further effort to rip off important national British assets.
In the light of yesterday's announcement by the Secretary of State for the Environment that he is scrapping more of the Government's pernicious legislation affecting local government services, will the Leader of the House arrange for a series of statements by Ministers to tell the House what other legislation is to be scrapped? Such a move would no doubt help the Leader of the House by giving him the time to allow me and other right hon. and hon. Members to raise the. questions which are of real importance to the people of this country.
Mr. Biffen: I thank the right hon. Gentleman for the restrained and courteous way in which he put his six points, doubtless within the terms of the Wakeham-Foster concordat on revised relations. I accept his congratulations on having the Welsh affairs debate as near St. David's day as possible. Indeed, if it were on St. David's day, we would all be here on a Sunday. That reform would not have marked me out as a welcome innovator.
The right hon. Gentleman mentioned the statement which we have just heard from my right hon. Friend the Secretary of State for Trade and Industry. It was an important statement which was highly welcome to the Government. The right hon. Gentleman rightly observed that the announcement involves, among other things, a substantial write-down in Treasury finance. I shall, of course, consider the possibilities of having a debate on the motor industry, as the right hon. Gentlman requested.
The right hon. Gentleman requested a debate on the closure of the Caterpillar plant in Scotland and on research and related topics, not least in the context of the consideration today of those subjects by their Lordships. Both matters are of general interest throughout the House. We might consider through the usual channels what facilities we can provide.
I note also the right hon. Gentleman's request for a debate on Rolls-Royce. That is also a matter that could most profitably be pursued through the usual channels.
Finally, I have to dissent from the right hon. Gentleman. He said that my right hon. Friend the Secretary of State for the Environment had announced the scrapping of legislation. I thought that a great deal of my right hon. Friend's time was devoted to saying that it was only postponed. I have no wish to speculate on how these matters will proceed, but I suspect that many Conservative
1076
Back Benchers would carefully attend to these topics in some general election at some future date. The request for a series of statements in relation to the scrapping of legislation is unnecessary, and I think that it was put forward in a mischievous sense.
Mr. John Stokes: Will my right hon. Friend allow time for a debate on the teaching of English in our schools because, under the new GCSE proposals, it appears that that will be phased out? After all, is not history a pillar of our society and to be ignored at our peril? May we hear about King Alfred and the cakes, about Queen Elizabeth I inspecting the troops at Tilbury and, of course, about those innumerable occasions when we beat the French?
Mr. Kinnock: It would not include next Saturday.
Mr. Biffen: It should go on record that the Leader of the Opposition said that it would not include next Saturday, because that would mark out just what are his powers of prophecy.
My hon. Friend raises an important point. In the context of our present education reforms, especially in the GCSE, there is a lively interest in the manner in which English is taught. I shall draw my hon. Friend's points to the attention of my right hon. Friend the Secretary of State for Education and Science.
Mr. David Alton: Will the Leader of the House try to find time for a debate on the prayer in the names of my right hon. Friends the Members for Tweeddale, Ettrick and Lauderdale (Mr. Steel) and for Plymouth, Devonport (Dr. Owen) against the order imposing charges on milk producers for unsolicited inspections by officials of the Ministry of Agriculture, Fisheries and Food?
Many Conservative Members have signed early-day motion 601, which draws attention to these extra charges.
[That this House calls upon the Minister of Agriculture, Fisheries and Food, not to impose charges on milk producers for unsolicited inspections by his officials which are any higher than the charges imposed on restaurants and cafes for visits by public health inspectors, or on factories for unsolicited inspections by the Health and Safety Executive.]
Does the right hon. Gentleman agree that these charges are of considerable concern throughout the House and that the dairy industry is very worried about this unnecessary imposition?
Mr. Biffen: The hon. Gentleman's long-standing commitment to the dairy industry is well known. On that basis, of course, I look charitably on his remarks and say that this matter perhaps could be considered through the usual channels.
Mr. John Wilkinson (Ruislip—Northwood): I remind my right hon. Friend that, whereas certain parts of the legislative programme can be judiciously postponed, the same does not apply to the space programme? Will my right hon. Friend persuade our right hon. Friend the Minister for Information Technology to come to the House at an early date to announce his Department's decisions on the British national space programme, as a report from the British National Space Centre has been sitting on his desk for many weeks?
Mr. Biffen: No doubt my hon. Friend will have noted that the Department of Trade and Industry is the first

1077
Department listed for questions on Wednesday. I shall refer his comments to my right hon. Friend the Minister responsible for space technology.
Mr. Jack Ashley: May we have a debate on disablement in addition to the debate which we had last Tuesday? I am sorry that during that debate I said that it was all about the Prime Minister's veracity. I said that in the heat of the moment, and I should like to withdraw it completely. The debate was about the Prime Minister's selective use of statistics. We want to answer those selective statistics in a further debate.
Mr. Biffen: It is characteristic of the right hon. Gentleman's generosity that he should seek to withdraw words that he thought might prove offensive to my right hon. Friend the Prime Minister. I give him as a solace the fact that there are
"lies, damned lies and statistics."
Therefore, if a statistical analysis is at the centre of the dispute, I think that we should all be rather generous.
I shall consider the right hon. Gentleman's other point, but he has already drawn my attention to the fact that we debated the topic only last week. I know that it is one that raises general interest in the House.
Mr. Andrew MacKay: I know that my right hon. Friend is aware of the concern expressed by my constituents and others about excessive development, especially in the south-east of England, and future planning policy. They are especially worried in the light of recent speeches by the hon. Member for Birmingham, Perry Barr (Mr. Rooker) on behalf of the official Opposition, in which it appears that the Labour party is in close alignment with the developers to continue a policy of excessive development. May we have a debate at an early opportunity so that we can discuss the matter further?
Mr. Biffen: This is a matter of national concern but, even more, one of regional concern in the area part of which my hon. Friend represents. I shall certainly bear my hon. Friend's point in mind.
Mr. James Hamilton: Bearing in mind that the Prime Minister has written to the Caterpillar tractor company in America about the drastic closure of the Caterpillar plant in my constituency, will the right hon. Gentleman seriously consider the request made by my right hon. Friend the Leader of the Opposition for a debate on this serious matter? As the right hon. Gentleman is aware, 1,221 people at the factory have been made redundant and the factory has closed. In an area in which 22·1 per cent. of the population is unemployed, surely the subject warrents a debate so that we can come to a conclusion and retain the factory.
Mr. Biffen: I am sure that the hon. Gentleman very much appreciates the concern and interest that is being shown in the Caterpillar plant closure by my right hon. Friend the Prime Minister. I shall bear the hon. Gentleman's remarks in mind in the context of the answer that I gave the Leader of the Opposition.
Mr. Patrick McLoughlin: Will my right hon. Friend inform the House that Monday's debate will be on a motion to adjourn the House? Will he confirm that there will just be a discussion on the report in general and that no decisions will be made? Does my right hon. Friend expect a vote to be taken?
Mr Biffen: My hon. Friend is absolutely right. The motion is drawn in such terms because my right hon. Friend the Secretary of State for Energy has said that he wishes to hear the views of the House before he takes a decision. In those circumstances, I cannot see what purpose a vote on a motion for the Adjournment of the House will achieve.
Mr. Greville Janner: Is there any prospect of a debate on road safety? Is the Leader of the House aware that there is great anguish in my constituency at the death of Lisa Szymczak, aged 14, on a road where some of us have been trying for a long time to get safety measures adopted for the children at both of the major schools in that area, but that Government funding has been quite inadequate? The local authority has provided only a small number of crossings each year, as opposed to the large number that are required, and everyone seems to push the blame on to someone else. How many more tragedies will there be before the Government will help local authorities to deal with those matters?
Mr. Biffen: The hon. and learned Gentleman raises a topical matter. Doubtless he will have noted in any case that my right hon. Friend the Secretary of State for Transport is first for questions on Monday. I suggest that, at least initially, he tries his luck on that occasion.
Mr. Peter Bruinvels (Lexester, East): Will my right hon. Friend consider a debate on the power and abuses of local authorities? Will he especially join me in offering sympathy to the Leader of the Opposition because, without having a Local Government Bill before it, the House has been unable to curb some of the Left-wing abuses that have occurred in my local authority, which now has a Nicaragua training officer at a salary of £9,216? That is the current arrangement in Leicester. There is a "go gay" policy in Leicester. The rates increase has been reduced to 4·9 per cent. as a good electioneering point.
On the campaign for more houses in Leicester, I discovered in a parliamentary question that Leicester has 947 empty council houses. Will my right hon. Friend therefore provide time for us to highlight the obvious abuses of Left-wing loony councils that spend our money as ratepayers to promote Labour party propaganda on the rates?
Mr. Biffen: The weekly unfolding drama of Leicester matches anything that can be produced by "EastEnders". I will consider my hon. Friend's request that Government time be made available for such a debate, but in the meantime I hope that he will also try to see what opportunities he can take elsewhere in the parliamentary programme.
Mr. Peter Pike: When the Leader of the House reconsiders through the usual channels the need for a debate on the privatisation of Rolls-Royce will he also take into account the importance of our aerospace industry, the effect of privatisation on the people employed in that industry and its effect on widespread areas of the country such as north-east Lancashire, which suffered drastically when that company was last in the private sector?
Mr. Biffen: I understand the hon. Gentleman's point that the aerospace industry in itself might possibly be an

1079
appropriate topic for a debate, since that would incorporate Rolls-Royce, but those are matters for further consideration.
Mr. Harry Greenway: Does my right hon. Friend share my concern and that of the public on the position of the family and the fact that it is under repeated attack from many sides? Is he aware that I held a conference in my constituency on that theme—
Mr. Speaker: Order. Will the hon. Gentleman please relate his point to the need for a debate?
Mr. Greenway: I am coming to that, Mr. Speaker.
Will my right hon. Friend consider allowing a debate on that topic as a conference on that theme in my constituency last Saturday addressed by Cardinal Basil Hume, a professor on the subject of AIDS and the leaders of the Sikh, Hindu, Muslim and Free Church communities with Bishop Maurice Wood, drew an audience of hundreds over many hours. It highlighted the concern felt there and across the country on this important subject?
Mr. Biffen: Of courser j 3–8 my hon. Friend is absolutely right in identifying the role of the family in the context of many of the social problems that now beset the world of politics. I cannot immediately offer the prospect of a debate in Government time upon that topic, but I shall certainly bear those points in mind.
Mr. Donald Coleman: I join my right hon. Friend the Leader of the Opposition in welcoming the Welsh day debate on 2 March. As the Leader of the House is aware, I have had some experience of the speeches of Conservative Members on Wales. In the light of that, will he take note of his motion on the Order Paper today on short speeches? Will he advance that somewhat further so we might perhaps have a decision about that earlier than seems to be the case at the present time?
Mr. Biffen: I confess to lethargy at once, but it is lethargy at what is possibly the fruitless task of seeking a broad measure of unanimity before that proposal was written into Standing Orders as opposed to merely a Sessional Order. However, I accept the hon. Gentleman's spur.
Mr. Eric Forth: I know that my right hon. Friend is a keen student of European Community matters. He must be aware that, as this year unfolds, the budgetary problems in the Community are likely to become more acute. Is my right hon. Friend prepared to give the House time so that it may give its support to the Government in their strong stand against any further expansion of the European Community budget, and especially to express its desire that there should be no so-called intergovernmental agreements that fall outside the budgetary arrangements and the Fontainebleau agreement in order to continue strict financial discipline within the Community?
Mr. Biffen: I appreciate my hon. Friend's point; it is probably true that most of our Community debates take place within the framework broadly suggested by the Scrutiny Committee, but I shall look at that point further.
Mr. Nigel Spearing: On that very topic, on the third debate on Wednesday next relating to the EEC auditors' report, is the Leader of the House aware
1080
that that massive report is qualification on qualification of those accounts? Will he, by seeking the assistance of the Comptroller and Auditor General, see that the motion that goes down in relation to that document reflects the contents and flavour of its criticism?
Mr. Biffen: I was not aware, but I am certainly not surprised and I will look at the point about the motion.
Sir Dudley Smith: Will my right hon. Friend consider providing a debate in the next few weeks in prime time on the subject of AIDS? I know that there was one debate at the turn of the year, but things have moved on since then through the Government's publicity campaign and the increasing awareness of the public of this dread disease and the anxieties that arise. In all the circumstances, Parliament should have the opportunity of considering the position as it is now.
Mr. Biffen: I take note of my hon. Friend's request. No one can deny that it is a most important topic, but perhaps for the moment I could leave it there.
Mr. Dave Nellist: Will the Leader of the House consider arranging an urgent debate on political asylum and refugee status, especially in the light of the extraordinary attempts and lengths to which the Government have gone over the past six days to expel 58 Tamil refugees, including several families, at Heathrow? If he can arrange such a debate, will he, as a preface to it, get the Foreign Secretary to telephone the high commission in Colombo to send a written report to the Minister of State, Home Office? The right hon. and learned Gentleman could then no longer say at the Dispatch Box and outside the Chamber that those people have no reasonable fear of persecution or that they are package tour political refugees. That high commission could tell him that, in recent weeks, 15 Tamil bodies a day are discovered in Jaffna in the northern peninsula of Sri Lanka and that the position is not much better in the civil war area of the east.
Mr. Biffen: I have no reason to doubt the good faith or the accuracy of any remarks of my right hon. and learned Friend the Foreign Secretary on this matter. At present the matter is before the courts. I do not wish to comment further, except to say that my right hon. Friend the Home Secretary has acted in the public interest and with widespread public support. I can offer no prospects of an early debate.
Mr. Steve Norris: May I commend to my right hon. Friend early-day motion 424, which he will know is supported on both sides of the House and which deals with community care for the adult mentally ill and mentally handicapped people.
[That this House, noting the Government's response to the Report of the Select Committee on Social Services on Community Care for Adult Mentally Ill and Mentally Handicapped People, HC, 1984–85, 13, calls for an early debate on the replies to the Committee's recommendations, in view of the widespread and continuing concern.]
Will my right hon. Friend bear in mind that that unanimous report deals with one of the most important health care issues before us today and does not deserve simply to lie upon the shelf'? It addresses some of the most important considerations before the National Health Service today.
Mr. Biffen: My hon. Friend is absolutely right in identifying the importance of that topic. In the immediate future anyway, there is no available Government time for a debate upon the subject, but I shall bear his point in mind.
Mr. Jeremy Corbyn: Has the Leader of the House had an opportunity to study early-day motion 626 concerning the treatment of asylum seekers?
[That this House is alarmed that the Home Secretary tried to remove 58 Sri Lankan Tamil asylum seekers from Britain after refusing to allow honourable Members to place stops on their removal in accordance with the procedure laid down by this House; is further alarmed that after notification of their intention to seek judicial recourse he further tried to remove them; notes with satisfaction that this attempt to circumvent the due process of law was thwarted; is concerned at Her Majesty's Government's attempts to renege on their obligations to asylum seekers; and demands an undertaking that there will be no recurrence of this disgraceful episode.]
It has already been signed by 16 hon. Members and it draws attention to the way in which the Home Secretary and the Minister of State, Home Office sought to circumvent the due process of law in seeking to remove 58 asylum seekers from this country before their case could be properly considered.
Does he not feel that, in view of what happened to those 58 people and the condition in which many Tamil people are living in Sri Lanka, it is essential that the matter be debated? Is he not also aware that unless there is some confidence that the British Government are prepared to uphold their obligations to the United Nations charter concerning people seeking asylum, it is essential for the matter to be debated in the House so that the Government's position can be clarified?
Mr. Biffen: I am fully aware of the early-day motion on the treatment of asylum seekers in the name of the hon. Member for Islington, North (Mr. Corbyn). However, I am sure that he will appreciate that my reply to his hon. Friend the Member for Coventry, South-East (Mr. Nellist) has covered the points he has raised.
Mr. Tony Banks: Does the Leader of the House recall a most unhelpful reply that he gave me to a parliamentary question about the use of Westminster hall? Does he not think it scandalous that such a large space should be unused for so long? Will he arrange for a debate so that we may discuss some of the proposals for a better use of that facility, certainly by some of the arts groups in London such as dancers, musicians and painters who would like to use the space? The people of London and visitors could come to see it and we could turn Westminster hall back into the thriving heart of the Palace of Westminster that it once used to be.
Mr. Biffen: I do not want the hon. Gentleman to be under any misapprehension. I now give a personal view; I think that one of the great attractions of Westminster hall is how little it is used.
Mr. D. N. Campbell-Savours: In the light of the publicly declared concern by the Leader of the House on developments in the City over the past 12 months, will he arrange for the Secretary of State for Trade and Industry to make an interim statement as to the nature of inquiries being carried out by the Department of Trade and Industry inspectors into various City institutions?
Mr. Biffen: The hon. Gentleman will have an opportunity to raise that subject when my right hon. Friend the Secretary of State for Trade and Industry is top of the list for questions on Wednesday.

Early-day Motions
4.54 pm
Mr. John Townend: On a point of order, Mr. Speaker. We always abide by your decisions and try to take your advice. It would be helpful if you could give a little guidance and clarification to the House. Over the past two or three years there have been a number of early-day motions which have attacked not only the personal integrity of the Prime Minister but members of her family. Indeed, they have included statements which, if repeated outside the House, would be actionable. Would you tell the House in what way those early-day motions differ from the proposed early-day motion tabled by my hon. Friend the Member for Shipley (Sir M. Fox), which was rejected by you? Is there a difference, or has there been a change of ruling? We need to know exactly where we stand in the future.
Mr. Eric Forth: Further to that point of order, Mr. Speaker. I, like most other Back Benchers, have become aware over the past 12 hours or so of the events yesterday and during the evening, and we have heard through the media about a certain involvement of yourself and the Chief Whips. Could you let me and other Back Benchers know exactly where the House now stands with regard to statements, either in the form of early-day motions or, indeed, unsupported and unsubstantiated allegations and statements made in the House about individuals either in the House or outside? We need to know where we stand now, the importance of what has happened over the past several hours, and the effect that it will have on Back Benchers on both sides of the House, particularly those who have been prone recently to make unsubstantiated allegations, so that we know exactly what may or may not be done within the House.
Mr. Peter Bruinvels: Further to that point of order, Mr. Speaker. I was in my constituency yesterday and I came back to the House at about 7 o'clock and went to the Table Office wishing to sign the three early-day motions in question, all of which I supported. I would be grateful to find out from you when it was decided that hon. Members were no longer able to sign those early-day motions. Was one of the reasons the fact that the Leader of the Opposition was alleged to be anti the monarchy? If that had been removed, would that early-day motion have been—
Mr. Speaker: Order. Since the matter has been raised, I shall clarify the position. I do not usually refer in the House to rulings that I have made in private. However, the House may wish to know that last night I directed that three early-day motions submitted by the hon. Member for Shipley (Sir M. Fox) and others about the Leader of the Opposition should not be printed. That was at 7.30 in the evening. In my opinion they were irregular and not a proper subject for debate, being, in the words of "Erskine May" — the hon. Member for Leicester, East (Mr. Bruinvels) will find it on page 382—
"designed merely to give annoyance."
1084
This gives me the opportunity to say that I deprecate the Notice Paper being used for personal attacks by one hon. Member upon another, and I hope that the House can conduct its affairs without recourse to such attacks.
Mr. David Alton: Further to that point of order, Mr. Speaker. In view of the support that the hon. Member for Workington (Mr. Campbell-Savours) has just been giving you in making your ruling, may I draw your attention to early-day motion 550 and ask that your ruling be made retrospective in view of the embittered, hateful and totally untruthful statement that the hon. Member for Workington makes about my right hon. Friend the Leader of the Liberal party when he says that he should
"advise the House what sums have been paid or agreed to be paid to the Alliance by Mr. Ernest Saunders and when and how such payments were arranged"?
It was suggested by the hon. Member for Workington that Mr. Ernest Saunders was offered a peerage by my right hon. Friend the Leader of the Liberal party. That is unsubstantiated and untrue. Therefore, I hope that you will also rule on that.
Mr. Speaker: I do not think that we want to have a debate upon this. I cannot make rulings retrospective. Every motion that is outside the normal scope is brought to my attention. I cannot recollect that long ago whether that particular motion was so brought to my attention. Nevertheless, I hope that the statement that I made today will make its impact on the House, because we should use our freedom of speech and the freedom of the Notice Paper with the greatest care particularly if we impute any motives or dishourable conduct to those outside the House who have no right of reply.
Mr. Campbell-Savours: Further to that point of order, Mr. Speaker. I should like to clarify the record. The hon. Member for Liverpool, Mossley Hill (Mr. Alton) referred to two amendments, one of which is mine. The one referring to money was tabled by the hon. and learned Member for Perth and Kinross (Mr. Fairbairn).
Mr. Alton: The hon. Gentleman added it.
Mr. Campbell-Savours: I did not. I tabled the amendment that appears before that. The hon. Gentleman has not read the first amendment. If he reads it he will note that I asked the Leader of the Liberal party to make a statement. Perhaps the subtlety of it has escaped the hon. Gentleman.
Mr. Alton: Further to that point of order, Mr. Speaker. As my right hon. Friend the Leader of the Liberal party has tabled an amendment to that proposed amendment, I hope that the hon. Member for Workington will withdraw his insinuations.
Mr. Barry Porter: Further to that point of order, Mr. Speaker. I thought that the purpose of your ruling yesterday was to try to get the House to behave like adults and, if at all possible, like gentlemen. If that was the purpose of the exercise, I certainly support it.
Mr. Speaker: I am grateful to the hon. Gentleman.

Orders of the Day
  Banking Bill
    New Clause 2
    As amended in the Standing Committee, considered.
    New Clause 2

      OBJECTION BY DIRECTION OF THE TREASURY
      '(1) The Treasury may direct the Bank to serve a notice of objection under this section on a person—

      (a) who has given notice under section 21 above of his intention to become a shareholder controller of any description of an institution; or

      (b) who has become such a controller without giving the required notice under that section,

      if it appears to the Treasury that, in the event of his becoming or, as the case may be, as a result of his having become, such a controller, a notice could be served on the institution by the Treasury under section 183 of the Financial Services Act 1986 (disqualification or restriction of persons connected with overseas countries which do not afford reciprocal facilities for financial business).
      (2) No direction shall he given in a case within subsection (1)(b) above more than three months after the Treasury becomes aware of the fact that the person concerned has become a controller of the relevant description.
      (3) Any notice of objection served by virtue of a direction under this section shall state the grounds on which it is served2.—[Mr. Ian Stewart.]
      Brought up, and read the first time.
      5 pm
      The Economic Secretary to the Treasury (Mr. Ian Stewart): I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker (Sir Paul Dean): With this we may discuss the following: Government new clauses 3 and 4.
      New clause 6—Regulations regarding changes of control—
      'Without prejudice to the provisions of subsection (9A) of section 36 of this Act the Treasury shall after consultation with the Bank make regulations including regulations applying sections 21 to 24 with appropriate modifications to enable the Bank to apply to a significant shareholder the restriction provided for by section 24(2)(b) of this Act.
      Government amendments Nos. 7 to 11.
      Amendment No. 12, in clause 22, page 16, line 23, leave out 'and' and insert 'or'.
      Amendment No. 13, in page 16, line 32, at end insert—
      '(1A) Where the Bank considers that it may be contrary to the interests of the United Kingdom, or any substantial part thereof, for a person who has given a notice under section 21 above to become a controller of the description in question of the institution it shall inform the Treasury; and if the Treasury is satisfied that it would be contrary to those interests for him to become a controller of that description of the institution it may direct the Bank to serve a notice of objection on him.'.
      Government amendment No. 14.
      Amendment No. 15, in page 16, line 33, after 'objection' insert 'under subsection (1) above'.
      Government amendments Nos. 16 and 17A.
      Amendment No. 17, in page 17, line 6, after 'objection' insert 'under subsection (1) above'.
      Government amendments Nos. 18 to 24, 32 and 38.
      Amendment No. 59, in clause 102, page 74, line 17, leave out '15 per cent.' and insert '10 per cent.'.
      Mr. Stewart: It might be for the convenience of the House if at this stage I confine myself to describing the purpose of Government new clauses 2, 3 and 4, and then,
      1086
      if I catch your eye at a later stage, Mr. Deputy Speaker, and with the leave of the House, I can respond to a debate which will no doubt touch on a number of wider issues in relation to the other new clauses and amendments.
      New clause 2 deals with reciprocity. The Financial Services Act contains power to refuse, remove or modify the authorisation of an institution whose country of origin does not offer to British institutions reciprocal facilities for financial business. These provisions apply to banking, investment and insurance businesses and were introduced to help British firms gain access to overseas markets, but because a substantial part of banking business is based on short-term deposits it is possible that a threat to revoke or even to impose conditions on a bank's authorisation will have adverse effects on public confidence in the institution and so be against the interests of its depositors.
      The new clause would allow the Treasury to direct the Bank of England to object on reciprocity grounds to the acquisition of controlling shareholdings in British banks before that takes place and if necessary to block voting rights on the shares or to require divestment. These provisions could apply if the potential shareholder's country of origin does not allow British financial institutions equivalent access to its markets.
      New clauses 3 and 4 relate to unsuitable shareholders. During the Committee stage of the Bill, anxieties were expressed by hon. Members on both sides about the effectiveness of the Bank of England's powers to prevent substantial shareholdings being built up by persons who might be unsuitable on prudential grounds. I undertook to introduce a clause that would require anyone acquiring 5 per cent. or more of the shares in a bank to give notice to the Bank of England of such a holding and to provide information required by the supervisors. I also said that I would bring forward another clause to extend the I3ank of England's powers in relation to 15 per cent. shareholdings to cover such shareholdings at any time, and not merely at the point of acquisition. I believe that the two new provisions contained in new clauses 3 and 4 will greatly strengthen the Bank of England's powers in relation to undesirable bank shareholders.
      Dr. Oonagh McDonald: Clause 2 is certainly an advance and I welcome the way in which the Economic Secretary has moved some way towards accommodating the views and anxieties that were expressed in Committee. We do not oppose that move in any way.
      New clauses 3 and 4 offer a welcome response to the anxieties that were expressed in Committee, especially about the percentage of shareholding. We are glad that the Bank of England will have to be notified of the existence of significant shareholdings as defined in new clause 4. These new clauses are welcome additions to the Bill.
      I beg to move amendment No. 13, in page 6, line 32—
      Mr. Deputy Speaker: Order. The hon. Lady cannot move the amendment at this stage. It has been selected for debate with this group of new clauses and amendments. If the hon. Lady wishes to press her amendment to a Division, I shall at the appropriate time ask her to move the amendment formally.
      Dr. McDonald: Thank you, Mr. Deputy Speaker. I shall ask for a Division on the amendent.

      1087
      It is important that, in addition to the proposed changes in new clause 2, the additional powers mentioned in amendment No. 13 are added. The concern and anxiety felt by hon. Members on both sides of the House relates to the foreign takeover of British banks, partly because we expect the Government to rely on the clearing banks to be responsive to economic and monetary policy. We expect British banks to be more inclined to act in the national interest.
      We recognise that there is a risk of British banks being taken over by foreign banks, particularly Japanese and American banks, whose stock market valuation is far greater than that of the main British clearing banks and might therefore wish to take over one of these banks in order to be even more firmly established in the activities of the City of London than they are at present.
      It is interesting to note the way in which Japanese banks operate in this country. They concentrate on wholesale distribution, central and local government, energy and water suppliers, and building societies. They pick out the safest part of the market and lend very little to traditional United Kingdom manufacturing industries. One cannot help wondering what the impact would be on the availability of finance for industry if British clearing banks were taken over by Japanese banks that are operating in this fashion in the City.
      We want to see British concerns remaining British. It is proper for such a view to be expressed not just to financial institutions but to manufacturing industry. As each day unfolds, we are sorry to note that the Government have no such desire to see manufacturing or any other concerns remaining in British hands. We are firmly of that view because of various statements that have been made. We would like to see British concerns—be they financial or manufacturing—remaining British and providing jobs and services in this country to the benefit of Britain.
      The provision in new clause 2 depends on reciprocity. I understand the Economic Secretary's reasons for introducing the new clause, but that is not enough to ensure that British banks remain British. The chances of a British bank being able to take over a major Japanese bank or a major American bank are remote, because it would not be able to afford to do so, whereas the converse seems to apply. The chances of a British bank being taken over by a foreign bank are much more likely.
      If we think of the major problems in the banking sector over the past 15 years or so, we find that the Bank of England has had to rely on the main British clearing banks to rescue banks that failed, first, in the secondary banking crisis of 1974, and again in the Johnson Matthey case. British banks were persuaded by the Bank of England to join in those rescue attempts. They may have done so with reluctance, and it may have required pressure from the Bank of England, but nevertheless they responded. They may not have played as big a part as the Bank of England might have wished, but they did respond.
      I wonder whether a London clearing bank run from Tokyo or New York would have been quite so willing to engage with the Bank of England in rescue attempts. Such a bank might have transitory reasons for wishing to do so —it might wish to gain acceptance or popularity here—but we could not rely on that. Therefore, it is important from many points of view that the Government have
      1088
      reserve powers to ensure that a bank remains British if it is considered in the national interest for that to happen. That is the purpose of my amendment. It goes beyond the provisions of new clause 2 and I think that it is right that it should do so.
      Mr. William Cash: In Committee I raised a similar amendment to that on which the hon. Lady has just addressed the House because I felt it important to draw attention to what would happen if one or two of our main clearing banks were acquired by a foreign banking institution. I had, I suppose, Japan as much in mind as any other country. I wish to put on record the fact that I, and no doubt many of my colleagues, greatly welcome the arrival of the Japanese in the City of London. I believe firmly in the liberalisation of the market place in all matters, and in particular to relation to banks and financial institutions. Having said that, and having regard to the fact that we are also concerned in the Bill with prudential banking, I believe that there is an important question to consider in regard to prudential legislation.
      We could easily get into a position where, for example, the Midland bank, with a capitalisation of about £1·9 million, would be easy prey to Namura with a capitalisation of £19 billion. The word "predator" is used loosely. With the economy doing as well as it is doing under this Government, and because many people would like to invest in this country, we would be unwise to leave ourselves exposed to the taking over of our major banks by institutions based in foreign countries, although we have much to learn from, for example, the Japanese on management in Nissan in the north-east and elsewhere. If it was not the Japanese who wanted to take over a major bank, it might be the Americans or the Germans. I do not think that I am taking a little Englander approach in being cautious about what could happen if we had that scenario.
      Mr. Edward Leigh: My hon. Friend speaks of the need for the liberalisation of trade and he knows that the City of London depends on that, yet he argues in effect for the restraint of trade. Does he not believe it possible that America, and the protectionist lobby in America, might respond and thereby inhibit the workings of the City of London?
      Mr. Cash: My hon. Friend perhaps has not taken account of the fact that our banking system is different from the banking systems in Japan, in the United States and in Germany. In the United States there are about 14,000 banks. In Japan there is a strong centralised banking system in which the Bank of Japan plays a pivotal role. In Germany the Bundesbank is part of the constitution. The distinction has to be borne in mind. I hasten to add that I am not going down the route of the amendment in the name of the hon. Member for Thurrock (Dr. McDonald)—quite the opposite. Indeed, as I was about to say, it is on record that I abstained on this amendment in Committee precisely because I wished to ensure that the Government had ample opportunity to consider other aspects of the arguments that I put in Committee; in particular the arguments relating to sections 183 and 185 of the Financial Services Act 1986, having been a member of the Committee which considered that measure.
      5.15 pm
      The amendment which my hon. Friend has proposed is very important, because it ensures reciprocity. We went

      1089
      into this question in Committee on what is now the Financial Services Act. Hon. Members on both sides of the House will remember the arguments. We insisted upon, and got, reciprocity. I argued in Committee that we should have that as a minimum, in conjunction with monopoly and mergers legislation, to ensure that our banking system was not at risk. As I have said, if our main clearing banks were taken over by institutions based in other countries we would be severely at risk.
      I go further. If other countries were to allow us into their banking systems on the same terms, my concern would be greatly allayed. At the moment it is not possible for us to get into the banking systems of other countries. The use of the reciprocity provision will enable us to make sure that there is a fairly even playing field. The matter could usefully be discussed under the GATT. No doubt my hon. Friend the Minister and his colleagues will do that. I congratulate them on the way in which they have treated the subject.
      If any one of our clearing banks was taken over by a banking institution in one country, inevitably a bank in another country would want to take over another of our banks. It is precisely because we have only four main clearing banks that we need to be prudential in the legislation.
      There is a further question, which we also discussed in Committee. I am referring to the efficacy of the monopolies and mergers legislation to deal with the other limb of the argument, which is not merely that we want reciprocity, but that we want control in the public interest in the context of monopolies and mergers legislation. My hon. Friend may recall that I said in Committee that, because the monopolies and mergers legislation was under review, it was difficult for us to know what would emerge. At the moment we run on the basis of competition guidelines, but there are questions whether that will be the case when the the review is completed. Therefore, it is difficult to assume that the competition law devised to deal with current policy will necessarily be the same in, shall we say, 18 months' time when, as I confidently assert, this Government will be handling the problems and the difficulties, as we always do with great competence and skill, of the ever-expanding liberalisation of the financial markets and the contraction of the time span, the time scale and the global village that we have to occupy.
      The review of monopolies and mergers is central to the question of how we balance the sensible provisions of reciprocity which have been introduced by my hon. Friend — with, I have no doubt, the full approval of the Chancellor of the Exchequer and all the other members of the Cabinet. This is not a question of playing games. It is a question of serious economic, political and diplomatic importance.
      The question is whether the monopolies and mergers provisions as they now stand will be adequate to deal with the situation. There are serious problems relating to the presumption that applies to references under the current monopolies and mergers provisions. Some would argue that it is the wrong way round, that all mergers are regarded as being in the public interest and, that one can make an adverse reference only if a case is regarded as against the public interest. That is something that I am sure will be reviewed, and it is of immense importance in the context of banking legislation and of any monopolies or mergers that might arise in the banking world.
      1090
      Furthermore, there is no domino effect as between one decision and another. Unlike most of our other legal situations and cases, we do not, when considering monopolies and mergers legislation, operate on the basis of precedent. Each case is taken ad hoc. Therefore, I share the view of my hon. Friend when he ribbed me slightly over my reference to the Hong Kong and Shanghai bank as a precedent. He was quite right to point out that it is not possible to draw too much of a conclusion from that decision, but, as changes and the review are taking place, I believe that it is important to put on record the principles underpinning the application of the monopolies and mergers legislation to banking. I would be grateful if my hon. Friend could make a few remarks on that when he replies to the debate.
      Another problem is the role of the Bank of England. There are people who believe that the status of the Bank of England has diminished to some extent. I do not believe that this is the case. It is important that we get that firmly on the record. It is crucial that the Bank of England should exert significant and substantial influence on legislation of this kind. I congratulate the Bank of England and, indeed, the British Bankers Association on their great help during the Committee's proceedings.
      My hon. Friend will know that I am happy with the provisions relating to reciprocity. For the reasons that I have given, I shall not follow the hon. Member for Thurrock on her national interest point, although I suspect that the argument will rumble on. I shall watch the matter with great interest and with some sympathy, but for the underpinning reasons, not for the reasons that the hon. Lady has brought forward.
      I have put down one or two other amendments which deal with the question of significant shareholders. I believe that there is a serious problem affecting merchant banks. My hon. Friend will recall that while I was absent on one occasion he kindly notified the Committee that an amendment was to come forward on Report and I was allowed about 30 seconds—I am not complaining, Mr. Deputy Speaker, for a minute—in which to deal with the question of significant shareholders. This is a problem that has attracted a great deal of attention in the City of London and I hope that I may be allowed to go into this question.
      With reference to the Government's proposed 5 per cent. provision in relation to the significant shareholder clauses, the problem, in a nutshell — I said this in Committee — is that it does not incorporate any sanctions in the event of a person being deemed not fit and proper. The position is that the Bank of England may request information from a 5 per cent. shareholder, but if the bank considers that that person is not fit and proper it can take no further action unless the shareholding is increased to 15 per cent. At that point—this is crucial—the provisions applying to controller shareholders are triggered.
      The proposed provision has a deficiency. It does riot recognise the serious practical implications and consequences to a deposit-taking institution and its business of a significant shareholding being in the hands of a person considered not to be fit and proper. Those serious implications and consequences are heightened rather than reduced by the public announcement of the shareholding that takes place under the Companies Act 1985, so the result may be the reverse of that intended.

      1091
      It seems to me that there is no good reason for objection to a shareholder who is judged by the Bank to be fit and proper and whose intentions as a shareholder are in the interests of the deposit-taking institution. I believe that judgment must be made on a case-by-case basis. The purpose of the supervisory regime is to regulate the situation where the fit and proper requirements are not, or are not likely to be, met. It is in the interests of deposit-taking institutions, the Bank of England and the reputation and status of the City of London as an international financial centre that that should be so.
      The nature of the business of deposit-taking institutions, particularly those operating in international markets in the corporate and in the Government sector, sets them apart from other commercial enterprises. Whereas an unwelcome shareholding of 5 per cent. might not affect either the management or the business of most commercial enterprises, it can have a damaging impact on a deposit-taking institution.
      It is therefore important not only that there should be a requirement for the 5 per cent. shareholder to give written notification to the Bank of England and any further information that the Bank may request, but that the Bank should be able to take further action should it view the shareholders as not fulfilling the fit and proper requirement. As the Bill currently stands, a shareholder who is not considered fit and proper could, nevertheless, increase his stake by 200 per cent., to 15 per cent., over and above the level of 5 per cent. at which he must notify the Bank of his shareholding.
      Under clause 24(2) the Bank is afforded powers to impose one or more of four restrictions on a shareholder controller on whom an objection notice has been served. In the case of a significant shareholder — which is defined as someone holding 5 per cent. or more, alone or with associates, which follows clause 102(3)(c) — it is appropriate that the Bank should have a sanction available to suspend voting rights for the part of any shareholding in excess of 5 per cent. should the Bank find that the shareholder is not fit and proper. The voting rights so suspended would be reinstated in the event of the sale of shares to a person who, alone or with associates, would hold less than 5 per cent. or who would thereby hold more than 5 per cent. but be deemed to be fit and proper. The shareholder would therefore not be prohibited from making a trade investment in terms of the dividend income of his shares and any capital uplift on his holding.
      In introducing a clause dealing with a situation in whch a person requires a holding of 5 per cent. or more, the Government have recognised that there should be a mechanism for monitoring and investigating that person. However, that provision may not be adequate to prevent damage to the business occurring when a person who is not fit and proper continues his stake. It is necessary that the Bank of England should have power to take positive action before the sanctions at the 15 per cent. level become available. That power should simply be the ability to suspend the voting rights for that part of the shareholding in excess of 5 per cent.
      5.30 pm
      I make no apology for having explicitly and carefully explained the circumstances that underpin the new clause. The argument is complicated, but necessary. I am certain
      1092
      that my hon. Friend the Economic Secretary will have listened to my argument with some interest and great care. I sincerely hope that at the appropriate time he will respond and the matter may be taken forward.
      Finally, I want to consider the minor amendment, No. 12. It involves the substitution of the word "or" for "and" in clause 22. I sincerely hope that my hon. Friend will approve the amendment on the basis that it does not alter very much, although it seeks to achieve a great deal.
      Mr. Austin Mitchell: I do not want to follow the line pursued by the hon. Member for Stafford (Mr. Cash) in his brief, courageous and exciting speech which had a stunning, if not mesmeric, effect on the Conservative Benches. I hope that the hon. Gentleman's speech succeeds in getting him a job with either the British Bankers Association or the Bank of England, for which he was clearly angling in the early part of his speech.
      I welcome the support of the hon. Member for Stafford for amendment No. 13. The hon. Gentleman's argument about the effect of the Government on the British economy is one of the major arguments for amendment No. 13. The Government have produced a position rather like a fire sale or a sale of damaged goods in the major part of the economy and especially in manufacturing. That has allowed overseas organisations to enter this country with the prospect of taking over the damaged goods which the Government's economic policies have created in the market.
      The hon. Member for Stafford produced a strong argument in favour of amendment No. 13. I do not wish to disparage the hon. Gentleman's support because I know that he always has the courage to carry through his bold declarations and to follow them up with his vote. If it becomes necessary, I hope that he will do so on this occasion.
      I want to speak only briefly. I would have liked to be able to speak for longer, but my new clause 5, which would have reconstructed the Bill to provide for a banking commission, has not been selected, although it was important. I hope that there has been no subterranean interference by Barclays bank, Otley road, Shipley to sabotage my amendment. However, that is now out of the scope of the argument.
      My hon. Friend the Member for Thurrock (Dr. McDonald) did not speak to amendment No. 59, but will the Economic Secretary to the Treasury tell us whether the basic intention of that amendment is, as I presume it to be, covered by the new clause? I hope that it is and I hope that that is why my hon. Friend the Member for Thurrock did not refer to it. I believe that the amendment is worth while, but I believe, too, that it is covered by the new clause.
      The financial community is becoming more and more internationalised and intermeshed. There is clearly real cause for concern about penetration into banking institutions in this country. As our institutions become more international, so other institutions are moving into this country and the two sets of institutions—abroad and here — are in increasing likelihood of merging. Therefore, we must pay more attention to that problem.
      Banking is a crucial institution in the economy. It is, as we say in Grimsby, sui generis and therefore requires the Government's particular attention. I hope that the Government would want to pay some attention to the national interest which is not necessarily served by foreign

      1093
      takeovers of British banks, given the ramifications of those banks and the way in which their tentacles extend into the whole economy.
      My hon. Friend the Member for Thurrock said that she was primarily concerned about the high street banks. That is correct, but we should also be concerned about the whole range of banking. Because of banking's unique nature, there is a special need for concern. That would be met effectively by amendment No. 13. That amendment does not say necessarily that the Treasury has to ask a bank to lodge an objection to every possibility of foreign takeover or intervention, it just states that the bank "may". In other words, it leaves it to the Treasury's discretion. In that context, the Treasury is the custodian of the national interest, which, particularly in banking, must be safeguarded even if the Government pay so little attention to it in other aspects of the economy.
      Sir Julian Ridsdale: I want to support new clause 2. I was very interested in the Opposition's argument, especially their desire to place an additional safeguard against the huge strength of Japanese banks and financial institutions. There is a question of balance at the moment and I believe that the balance that the Government have achieved is about right.
      It is terribly difficult to decide in these matters. In dealing with the Japanese at the moment in banking, we are not receiving the reciprocity of treatment that we should, either on the Tokyo stock exchange or in Tokyo itself. I should like to believe that new clause 2 is a warning shot to our friends who claim that it is their intention to create a freer trading system. We have a fair trading system at the moment. The Tokyo system is not completely open—as I would like it to be—and the City of London is far more open than Tokyo.
      Those of us who deal and talk with the Japanese banks and business houses impress upon them as hard as we can the necessity for more open markets. That is the advice that I have been giving. However, I believe that the balance that the Government have achieved in new clause 2 is about right. I understand the Opposition's fears, but I would not go as far at this stage as they have gone, especially in connection with the United States. I remind the Opposition that the Midland bank bought the unfortunate Crocker bank. Perhaps it would have been better if the Midland had not done that. Nevertheless, we want to maintain an open banking system, not a closed one. Therefore, I support new clause 2, but would not want to go as far as the Opposition suggest at the moment.
      Mr. Ken Weetch: I rise to support amendment No. 13 and I shall not be long about it. This amendment is of considerable importance because it seeks to asert the national interest in matters of bank control.
      According to clause 21, anyone who intends to become a controller of an authorised bank must give notice. The Bank of England can object to such a notice on various grounds. For example, it can object if it considers that that person is not fit and proper or if the depositor's interests are at stake. These are wise precautions, but they are not sufficient.
      We should protect ourselves in the Bill from the potentially damaging repercussions of foreign control over a British bank. There is a danger that we may be talking at cross purposes here and I accept the final point made by the hon. Member for Harwich (Sir J. Ridsdale). The
      1094
      purpose of this clause is not to exclude foreign banks from the City of London, but to take steps when there is a chance that the repercussions will be damaging. We are talking about specific and not general intervention.
      I take the point that the prosperity and the activity in the City of London has been enhanced by the activities of foreign banks. Nobody would gainsay that. We are talking about potential events. Amendment No. 13 should make the Economic Secretary think carefully. The arguments that I shall put forward in support of that are not mine. They have already been advanced by the Bank of England itself in an inquiry at which the Royal Bank of Scotland was the object of a takeover by the Hong Kong and Shanghai Banking Corporation and the Standard Chartered bank.
      At that time, the arguments were clearly set out and their validity has not altered. First, the possibility of foreign control could interfere with the interests of the depositors of the bank. One cannot separate prudential matters from matters of national interest. It could well be that foreign control would make it more difficult to protect depositors' interests. Foreign ownership could well intefere with prudential supervision.
      Secondly, if we were talking about a major clearing bank, it would make the Bank of England's task of financial control of the money supply, bank lending policy and the creation of control of credit much more difficult. Those dealings would be rendered more difficult if ownership and control were not in the United Kingdom.
      Thirdly, banking and finance are becoming more international. At the same time, the distinction between types of banking and commercial investment functions is becoming increasingly blurred. As time passes, British banks will become more susceptible to foreign takeovers. We should not always resist mergers of this kind, but sometimes we should, and that is what the clause is about. In time, foreign control may reach a point at which no further foreign penetration is desirable. The national interest would then be at stake and amendment No. 13 would enable the Government to intervene on those grounds.
      Fourthly, such intervention in the case of a foreign takeover could have an effect upon a region of Britain. The most quoted example is the one about which I have already spoken, the Royal Bank of Scotland. In Committee my hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen) gave chapter and verse about the reservations north of the border regarding that very point. The point should be repeated and underlined.
      Amendment No. 13 proposes that the Bank of England should be responsible for adjudicating in the national interest. The argument against that is that the bank's purpose should always be prudential and not political. Who are we kidding? Very often the Bank of England acts in a political way and there should be no difficulty about that. If the Bank of England does not know what Britain's political interests are, the Chancellor of the Exchequer could soon tell the bank precisely what is at stake. The national interest should figure largely in this Bill as the first point for consideration.
      5.45 pm
      Mr. Anthony Nelson: I congratulate my hon. Friend the Economic Secretary on fulfilling a number of commitments that he made in Committee by bringing forward the new clauses. I admit that I am probably in a

      1095
      minority of one about new clause 2, because I have some reservations about the implanting in legislation of protective measures that seek to provide reciprocity in the provision of financial or banking services.
      That is not so unusual outside the House and many commentators, not least the Financial Times during the passage of the Financial Services Act 1986, took the view that it was wholly inappropriate for reciprocity provisions to be built into that Bill, which was principally concerned with investor protection. The commentators said that the importation of provisions specifically to try to put a lever on a foreign country or Government to allow reciprocal investment or banking facilities had nothing directly to do with investor or depositor protection. For that reason, I voted against that provision during the passage of the Financial Services Bill. Similarly, in Committee I expressed reservations about this Bill and about whether this new clause and the idea behind it are relevant to the basic purpose of this legislation, which is to provide an enhanced degree of depositor protection.
      This is essentially a protectionist measure about which we ought to be circumspect. We should be reluctant to leap into legislation too soon because Britain has little to gain from erecting even contingent protective barriers. The prosperity, growth and vibrancy of the City of London rests as much as anything on the freedom of access that many foreign companies and countries have to it. The fact that the City has achieved such excellence is a reflection of the special skills and the freedom of integrity maintained in the City up to now.
      I admit that new clause 2 is compatible and follows logically from what is already law in the Financial Services Act. If it is perceived to be of value, perhaps as a bargaining tool for Ministers in the context of the former Bill, it could reasonably be argued that it should be imported into this Bill as well. We must question whether it will genuinely be a spur to Japan or to other countries with strong financial services or banking industries to open their gates to us, or whether it will be a futile gesture and a bit of huffing and puffing to give the impression that we are doing something.
      In my judgment, the plans of the Japanese financial and banking institutions will continue unchanged whether or not this clause is imported. The influence and financial muscle power that they deploy and the quality of many of the services that they offer, especially in international banking, are likely to make the growth of Japanese banks a secular trend. While I have some reservations, it is not my intention to resist new clause 2. New clause 3 fulfils an undertaking given in Committee by the Economic Secretary.
      I should like to speak about new clause 4 in the context of what was said about it by my hon. Friend the Member for Stafford (Mr. Cash) because there seems to be some misunderstanding. Basically, notification of acquisition of a significant shareholding comes into effect when somebody acquires or maintains a 5 per cent. shareholding. As I understand it, my hon. Friend the Economic Secretary undertook in Committee to bring forward this new clause because of pressure from many hon. Members on both sides of the Committee. He said that a threshold of 15 per cent. would be retained, at which point the bank would have a right to decide whether a
      1096
      person was fit and proper to have such shareholding and, if not, certain sanctions should be imposed. Some Committee Members said that 15 per cent. was too high.
      My hon. Friend the Economic Secretary said—it was a reasonable and sensible compromise—"I share some of the sentiments behind that representation. I take the view that perhaps some requirements ought to exist when someone acquires more than 5 per cent., and the fact that he has to register and notify his shareholding at that stage will be taken into account if he increases his shareholding to 15 per cent., when different provisions come into effect."
      That seemed to me to be wholly reasonable, given the impossible administrative burden of taking sanctions against someone who is deemed arbitrarily to be unfit and improper when his shareholding is over 5 per cent. If we went the whole way on this provision, I believe that it would undermine to some extent the 15 per cent. provision.
      My hon. Friend the Economic Secretary has kept faith with the Standing Committee. He has taken account of the views expressed on both sides of the Committee about notification at a lower level, and we should not impede the progress of the new clause.
      Amendment No. 13, in the name of the hon. Member for Thurrock (Dr. McDonald), prompts the thought that one has to be careful to define exactly what situations will or should trigger an assessment by the Government or even the Bank of England of a takeover. When someone becomes a 5 per cent. shareholder in a company—especially a bank—there are requirements for notifying that shareholding. Although 5 per cent. is a significant shareholding, it is not an effective or controlling shareholding, although it may buy the person concerned a seat on the board. When the shareholding rises to 30 per cent. it will not only effectively control the organisation or bank concerned but trigger a requirement to the effect that an offer must be made to the rest of the shareholders, in the case of a public company, to acquire it.
      What happens now, without amendment No. 13? If a domestic or foreign organisation or bank acquires such a holding and seeks to use it as a springboard to acquire the whole of the bank, the case may be referred to the Monopolies and Mergers Commission. So we must ask whether the competition and public interests requirement in the Fair Trading Act, about whether a takeover should or should not be allowed, necessitates a rather novel and very specialised amendment such as this.
      Admittedly, the Industry Act 1975 provides for a comparable right to prevent in the last resort a foreign takeover of a manufacturing company in this country when the national interest is involved. However, that legislation was not of the Conservative Government's making. It was a Labour Government's Act and it is not surprising that the hon. Member for Thurrock now seeks to introduce a clause that is compatible with it.
      That is not in itself a compelling reason to accept the amendment. The Fair Trading Act provides wide enough discretionary powers to refer cases to the Monopolies and Mergers Commission so that a foreign predator can be questioned by it and, if necessary, a political decision can be made. That was what happened in the case of the Hong Kong and Shanghai Banking Corporation, the decision about which I thought was wrong. The report on that matter was one of the worst that the Monopolies and Mergers Commission has ever produced. The decision was

      1097
      political. It concerned a so-called attempted foreign takeover and the Secretary of State of the day had no difficulty in referring it to the Monopolies and Mergers Commission.
      Mr. Austin Mitchell: What about the House of Fraser?
      Mr. Nelson: I should love to talk about the House of Fraser.
      Mr. Jim Craigen: As the hon. Gentleman reminds us, the Hong Kong decision was a political one. In the light of what he has said, it is as well that he was not the Minister responsible for taking it. Is not the hon. Gentleman reading too much into the amendment? We are not trying to establish a ring fence. We are simply seeking to take out an insurance policy that may or may not be used.
      Mr. Nelson: I accept the hon. Gentleman's remarks. Equally, he should concede that he and the hon. Member for Thurrock must show that the existing provisions are inadequate. Moreover, they have to argue that there are special compelling reasons applying to banking that do not apply and would not be allowed to apply to the rest of industry. This is a special and more restrictive insurance provision, to use the hon. Gentleman's phrase.
      Of course the banking sector is important, but it is by no means unique. I believe that the amendment would imperil the freedom of the City and, more importantly, the principle that matters such as this should not be dealt with on a sectoral basis. If we want changes in the rules of competition or in the way in which a proposed merger is referred or politically decided, we should grasp the nettle and consider the matter in the context of the whole of industry.
      Mr. Ian Gow: Does my hon. Friend agree that, although the hon. Member for Ipswich (Mr. Weetch) referred to a foreign takeover, amendment No. 13 mentions no foreign entity? If the amendment were included in the Bill, would it not be possible for discrimination to take place at the suggestion of the Bank of England and on the decision of the Treasury, not on the ground that the person was a foreigner but on quite different grounds?
      Mr. Nelson: My hon. Friend does the House a service by drawing attention to that fact. The ambit of the amendment certainly goes wide. However, much of the debate has surrounded the possible threat from offshore predators and that is the most obvious kind of circumstance in which the amendment might be used.
      As my hon. Friend has said, it could be put to a different purpose. We should be suspicious of this kind of planning and control. I support the new clause.
      Mr. Ian Wrigglesworth: I rise briefly to support the broad sweep of the new clause and amendments that the Government have introduced and the amendment in the name of the hon. Member for Thurrock (Dr. McDonald). I must begin by declaring an interest. I am an adviser to Barclays Bank.
      I should like to refer to what the hon. Member for Harwich (Sir J. Ridsdale) said. He spoke of getting the balance right, and that is what we are trying to do in the Bill.
      The hon. Member for Chichester (Mr. Nelson) exaggerates the impact of the amendment. I prefer the belt-and-braces approach proposed by the hon. Member for
      1098
      Thurrock and her hon. Friends to leaving things as they are. We need as much freedom as possible, and to that extent I agree with the hon. Gentleman. It is vital that British banks have the right to operate abroad.
      The Midland bank takeover has been mentioned, and there are other examples of British banks operating overseas successfully — more successfully than on that occasion. We do not want to stop that happening. Neither should we stop the enormous contribution which overseas banks make to this country.
      There is no doubt—here I part company with the hon. Member for Chichester—that other financial centres of the world, not least Tokyo, have proved tough nuts to crack. All the evidence suggests that the only way to crack such nuts is by being tough oneself. I think that the reciprocal arrangement is entirely justified. It is necessary to ensure that we have the right sort of arrangements to obtain the freedom that we want.
      6 pm
      Mr. Edward Leigh: The hon. Member for Glasgow, Maryhill (Mr. Craigen) said that the purpose of amendment No. 13 was not to erect a ring fence, but the hon. Member for Stockton, South (Mr. Wrigglesworth) spoke of the necessity for British banks to be able to operate abroad. Will that not be perceived as a ring fence and as a protectionist measure by foreign banks?
      Mr. Wrigglesworth: The proposers of the amendment can speak for themselves, but I do not see it in that way, and would regret it if it were seen in that way. It seems to me to provide a degree of flexibility to ensure that there is no ring fence. It also provides the opportunity for direct action to be taken in this important sphere. Again, I disagree with the hon. Member for Chichester, because I consider that to be necessary.
      Banking is different from industry. The banking institutions can have such a profound impact on the national economy—not only on individual firms and sectors of industry, but on the economy as a whole and on individual parts of it according to regional or other distinctions — that the national interest must be expressed in the way that it is. That is why I support what the Government are doing, hut with the addition of our amendment.
      Mr. Alan Howarth: My purpose in speaking is to seek some additional elucidation about the Government's purposes, and to find out my hon. Friend the Economic Secretary's views on what powers the Government would have were the Bill to be enacted with the addition of the Government's new clauses.
      It is well within the bounds of possibility that a Japanese or German bank would try to take over a significant British bank. My concern is not with the merchant banks or with the smaller banks—and I should declare my interest as public affairs adviser to a merchant bank. The merchant banks would expect to fend for themselves in the rough and tumble of the international financial world, and would be well able to do so. The process of mergers and the joining of financial forces within the City of London is already well under way. M y concern is with the position that would arise if a takeover bid were mounted for one of our clearing banks.

      1099
      The clearing banks are unquestionably vulnerable to such an attempt. Even the American money centre banks are vulnerable to possible takeovers by the large Japanese banks.
      An academic economist could mount a powerful case in favour of allowing such an event. There are good arguments against protectionism. It can be argued that Britain, as a relatively small economy with an exceptional stake in international trade, stands to lose more than other economies by resorting to protectionism. It could also be argued that it is never good for a business not to feel vulnerable either to competition or to the ultimate threat of takeover. It could be argued that essentially banks are no different from other businesses.
      On the other hand, it can be and has been argued this afternoon that banks are different—that they are crucial to the financing of British industry, and that they have an indispensable part to play in the implementation of the policies of the Government of the day — monetary policy, credit policy, and so forth.
      The economic arguments are quite finely balanced, but I favour the case against protectionism. I believe that the internationalisation and liberalisation of the financial markets will bring great benefits to this country and to the world economy. I welcome the contribution of the Japanese in the City of London, and I am very apprehensive about the predilection of the Labour party for the direction of investment, of which there was more than a hint in the speech of the hon. Member for Thurrock (Dr. McDonald).
      However, the political arguments point rather powerfully in the other direction. I do not believe that the public would accept a proposed takeover of one of our clearing banks by a foreign bank. We in this country have an amiable idiosyncrasy: we like bankers. In the United States, the bank robbers — Jesse James, Bonnie and Clyde—are the goodies; the bankers are the baddies. But we in Britain rather like bankers, and tend to say, "Please don't shoot the banker." Any political trouble that might arise from, for instance, a proposal that parts of British Leyland should be taken over by General Motors or DAF would be a vicarage tea party compared with the force of public anxiety and disapproval over an attempt by a foreign bank to take over one of our clearing banks.
      The Government of the day would be rather hapless politically if their powers were not clear-cut to resolve such a situation. I should therefore be grateful if my hon. Friend the Economic Secretary would elucidate the position following the enactment of the legislation.
      Will a notice of objection such as is adumbrated in new clause 2 amount to a veto by the Government, or by the Bank of England acting on the Government's behalf? Is it inconceivable that the Government's view might differ from that of the Bank of England? If a notice of objection is not a veto, what other powers have the Government? Are their powers under the Fair Trading Act and the possibility of reference to the Monopolies and Mergers Commission adequate to enable the Government, if they felt that it was in the public interest, to prevent an outright takeover? Would the competent Minister be entitled to refer a bid to the MMC if the Director-General of Fair Trading had not advised him to do so? Is he certain that the director-general would advise him to do so?
      1100
      The question of monopoly might arise. One could imagine — there is a touch of fantasy in this — the Industrial Bank of Japan, with a capitalisation of £29 billion, or the Sumitomo bank, with a capitalisation of £32 billion, deciding that it would have the Midland bank for breakfast at a capitalisation of £1·5 billion, Lloyds bank for elevenses at £2·6 billion, the National Westminster bank for a slightly heavier lunch at £4·5 billion, and Barclays bank for a relatively light supper at £3·7 billion. The total capitalisation of the four British clearing banks is £12·3 billion, only just over one third of the capitalisation of the Sumitomo bank.
      That is a fantastic situation. The monopoly question would fairly and squarely arise and we could deal with it, but the question of monopoly would not so definitely arise if piecemeal attempts were made to take over British banks. For example, Deutschebank, Dresdnerbank, Mitsubishi bank and Fuji bank might each decide to help itself to a clearer. What does my hon. Friend think the position would be in relation to the Monopolies and Mergers Commission if such a development started to unfold?
      If a bid were referred to the commission, the process of scrutiny would be lengthy and subjective. There have been phases when the criteria by which the MMC has to work have been less than perfectly clear and we cannot be absolutely sure that the result of a reference would be rejection. One imagines that that would be the result, but we cannot be sure.
      Let me also ask my hon. Friend about the reciprocity provision in new clause 2. It seems to me that, as other hon. Members have suggested, that factor would not be sufficient in every foreseeable case to enable the Government to prevent a takeover. One can imagine a takeover bid occurring at a time when the markets in other countries, such as Japan and Germany, had been made more effectively open. I am happy to say that, thanks to the strenuous and skilful efforts of my right hon. and hon. Friends at the Department of Trade and Industry and my hon. Friend the Economic Secretary, we are making good progress towards that liberalisation. Therefore, the reciprocity factor might be irrelevant. It seems to me that the "fit and proper" consideration might also be irrelevant. How can we realistically say that the Deutschebank and the Sumitomo bank are not fit and proper to run banking businesses in this country? If we consider their financial capacity and the general standards by which they run their business, they are.
      My hon. Friend the Member for Chichester (Mr. Nelson) referred to the Industry Act that was passed by the previous Labour Government. There is a view that that Act provides powers to enable the Government to prevent or veto a takeover without reference to the MMC. However, there is another view — that, since those powers have never in fact been used in more than 10 years, they have effectively ceased to be current and valid. What is my hon. Friend's appreciation of the Government's powers under the Industry Act?
      My questions in sum are these. Will the Government have the power to act directly to prevent a takeover that they do not consider to be in the national interest? If not, why are they content to rest on the existing legislation, plus this new legislation?
      Mr. Eric Forth: I come to this stage of the debate with all the trepidation and diffidence

      1101
      of someone who has not participated in the Committee stage of such a Bill, with all its technicalities. I want to express a view along the lines expressed by my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth), but in a slightly different direction. I have always believed, as he does, in free trade as having been the base for the wealth that has been developed by the free world, this country and our friends and partners throughout the world. I recognise also the increasing role that the financial sector is playing in the wealth-creating process, and not just in this country or in the European Community where we are trying to persuade our partners of the virtues of the free movement of capital, as well as of goods and people. We have persistently tried to preach to them how openness in capital markets will be of the greatest benefit to all members of the Community, and also the world's financial markets.
      It is against that background that we must look at the basic questions raised during the debate about the balance to be struck — as mentioned by my hon. Friend the Member for Harwich (Sir J. Ridsdale) — between the national interest and the benefits of the free movements as we have perceived them in the past and as we hope to enjoy even more in the future.
      Like my hon. Friend the Member for Stratford-onAvon, I ask the Economic Secretary to explain the role that he envisages that the Financial Services Act 1986 might play through some parts of its provisions, or alternatively the Fair Trading Act, both of which may have a role to play in any assessment either in reciprocity or public interest provision, especially when we are discussing an overseas bid or an attempted takeover of a crucial part of our banking sector. That could equally apply to one that is strictly domestic.
      Therefore, the question arises whether, in view of the measures available under the present legislation, we want to go yet further in a Bill that is as important as this, with its role in the financial sector, in signalling yet a further move in a more protective or inward-looking direction. That must be a crucial consideration. While we look to the City and the financial sector to play an increasingly important role in the development of a worldwide financial sector, would it be wise or make sense for us to signal in this Bill that we want to start looking ever more inwardly, and that somehow we are afraid of what it involved in the financial sector in terms of give and take?
      Much has been said about the Japanese, but we should also bear in mind the Americans whose role is every bit as crucial as that of the Japanese. We are all aware of the increasing tendency for protectionist arguments to develop in the USA. Great strides have been made in opening our financial and economic markets in the past and the benefits that we have gained from them show us how important it is not to allow even our friends in the USA to use anything that we do here to develop their protectionist arguments and potentially to damage the development of the financial sector in this country, the United States, and beyond. From all the speeches made so far in the debate, that appears to be the key consideration.
      6.15 pm
      We look to the Economic Secretary to reassure us about what is already on the statute book to help us to take the necessary steps for the future. My predilection is for a free market and a free and open approach rather than to introduce unnecessary additional measures that involve
      1102
      vague concepts of the national interest, and that could be brought in unnecessarily to counter the markets. I hope that my hon. Friend can give us those reassurances because I do not want to support amendment No. 13. I am sure that he will find it easy to reassure the House on those points so that we do not find it necessary to support amendment No. 13.
      Mr. Leigh: I wish to speak briefly in support of new clauses 2, 3 and 4. As my hon. Friend the Member for Chichester (Mr. Nelson) said, reciprocity is of great interest and importance. However, as my hon. Friend the Member for Harwich (Sir J. Ridsdale) said, it is also important that we should consider it in a balanced way. My hon. Friend the Economic Secretary has proposed a compromise. I do not think that the blunt instrument of the Financial Services Act 1986 will make much sense in banking terms. The provision that my hon. Friend outlined of blocking a freeze on voting rights should deal with the problem.
      As my hon. Friend the Member for Harwich said, the new clause is a compromise that we should accept. The fact that notice must be given at a 5 per cent. shareholding will ensure that a shadow will be cast back from the 15 per cent. limit. That will give my hon. Friend the Economic Secretary a chance to step in in the case of unsavoury shareholders. Therefore, in terms of reciprocity and unsavoury shareholders, we are striking the right balance.
      I am concerned about amendment No. 13. The hon. Member for Ipswich (Mr. Weetch) has put forward an attractive argument. He always argues his case moderately and sensibly. He suggested that, as clearing banks were important to the economy, there should be a fallback clause. Indeed, one Opposition Member said that it was simply a ring fence.
      As I said in my intervention in the speech of the hon. Member for Stockton, South (Mr. Wrigglesworth), who did not answer my point, perceptions are important. My hon. Friend the Member for Mid-Worcestershire (Mr. Forth) said that the City of London relies on perceptions and on its history as a centre of free trade and financial institutions. If we were to accept amendment No. 13, we would damage those perceptions. Again, as my hon. Friend the Member for Mid-Worcestershire said, we should be worried about the protectionist instincts in the United States of America. Our banks have as much access to the American financial market as the American banks, but we should always be wary of the spectre of American protectionism. We should consider it in terms of balance and accept that what happened with the proposed takeover of the Royal Bank of Scotland, where the Monopolies and Mergers Commission stepped in under the Financial Services Act, is a sufficient safeguard.
      The Opposition argue that banks are crucial to the economy. It is precisely because they are so crucial that there is no way that the Secretary of State for Trade and Industry would not refer such matters to the Monopolies and Mergers Commission. I have no doubt that there would be a similar result if there were a proposal from a Japanese bank. All in all, this is a fair compromise and we should accept my hon. Friend's case.
      Mr. Tim Yeo: I join in the general welcome given to new clause 2. Reciprocity is an important principle for financial markets, particularly when we discuss the markets in this country that have had open

      1103
      access to participants not only from this country, but from abroad. There is nothing protectionist about enshrining the principle of reciprocity in our legislation. We seek to break down barriers put up in other markets. When the Japanese and Americans give British players in these markets the same rights as we give them, by all means let us look at the Bill and the Financial Services Act 1986 and ask whether we need to amend or open them further. At the moment, by putting reciprocity in it, we are going a long way to removing protectionism. It is quite the reverse to suggest that there is anything protectionist about the principle of reciprocity in our financial markets and the legislation that governs them. I welcome new clause 2.
      How does my hon. Friend see this legislation working in practice? I have some anxiety about how the principle of reciprocity will be tested. My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) produced some striking figures. He quoted the total capitalisation of the four British clearing banks as being little over one third of that of the Japanese bank, the Sumitomo bank. That is the position at present. With fluctuations in exchange rates, volatility in exchange markets and the fact that exchange rate movements tend to be overdone, at some time—particularly in the unlikely event of there being the whiff of a threat of a change of Government — the pound might fall dramatically, and this might open up an opportunity for an opportunist approach by a Japanese bank. Far from costing one third of their capitalisation to swallow up all four of the British clearing banks, it might cost a fifth, a tenth or a twentieth. Because of currency movements as well as other factors, British banks might be vulnerable.
      In those circumstances, who can conceive of a British institution being able to take over a Japanese bank that is quoted at a price 10 or 20 times greater than the size of the British institution? How could it do it?
      Mr. Christopher Hawkins (High Peak): As someone who did not serve on the Committee, I share my hon. Friend's great concern about what reciprocity means in practice. America might say, "Yes, you can buy some banks in America," but it has 14,000 banks. I do not believe for one moment that the Americans would let us buy one third of their banking system. An American bank could buy NatWest, and that would be one third of our banking system gone in one hit. The Monopolies and Mergers Commission would not help. It would argue that another bank buying a British bank might ginger up competition, not reduce it, because it would not be a reduction in the number of banks in Britain.
      Mr. Yeo: The differences between our banking system and the American banking system are far-reaching and fundamental. Not only could a British bank not buy up one third of the American banking system, but an American bank could not do so, either, under their present legislation. They have problems in reaching any comparability with us.
      I ask the Minister to address the matter of reciprocity. It looks fine to me in theory, but, in practice, will it mean anything? If a British institution genuinely wanted to buy a Japanese bank, if it were ever in a position to do so, would it be able to do so? There is a danger that reciprocity is still a one-way access for foreign institutions to use their
      1104
      hard currency assets to acquire British institutions at perhaps moments that are favourable to them but are unfavourable to us.
      My hon. Friend the Member for Eastbourne (Mr. Gow) made an important point. We must be fair to Opposition Members. After all, politically they are in such a parlous condition at the moment that it is incumbent upon us to be fair to them. Amendment No. 13 does not mention foreign takeovers. It is designed to block any takeover that we regard as being against the national interest.
      I put to my hon. Friend the Minister a hypothetical but not totally inconceivable situation. Under the existing legislation, the Monopolies and Mergers Commission, the other powers in the Bill and so on, will it be possible to deal with the situation that I am about to describe? Let us suppose that Mr. Ivan Boesky, with all the substantial assets that he acquired by one means or another over the past few years, decides to go into the British banking business by acquiring a major British bank. To do so, he does not wish to become the chairman or a director of the bank, but he produces a few experienced bankers who will operate through a new business form for the purpose of acquiring, say, Barclays bank. Let us suppose that there is enough equity base in the new company so that there is no question of any prudential factor arising and that the whole operation is adequately financed.
      With existing powers, whether under this Bill or under some other legislation, will the Government be able to block a takeover of that sort which they regard as undersirable, not because it involves any unnecessary financial risk on the part of the institution, not because there is inadequate management—the Barclays management will still be there, backed by additional management perhaps from the United States—but merely because the ultimate shareholder is someone whom we may think is not wholly suitable to control a British institution? Would the powers in amendment No. 13 help in that respect? I should be grateful if my hon. Friend would address that point. I shall listen with great interest to his reply.
      Mr. John Butterfill: Many hon. Members who served on the Standing Committee will no doubt remember the arguments that were deployed in relation to a matter similar to that raised by amendment No. 13. We should reflect on the arguments that were deployed then. One of my objections to amendment No. 13 is that it imports the general and rather vague notion of the national interest. The problem with that general and rather vague notion is that the definition of "national interest" can vary from time to time, according to the political complexion of the Government of the time. My hon. Friend the Member for Eastbourne (Mr. Gow) did us a great service by pointing out that, under the terms of amendment No. 13, this could apply equally to British and overseas companies. The vague notion, which can be used to block all sorts of proposed mergers or takeovers in the vague concept of the national interest, is a dangerous road for us to go down.
      I support the concept of reciprocity. I supported it when I was a member of the Standing Committee that considered the Bill that became the Financial Services Act 1986 and again when the Standing Committee considered this Bill. I pointed out that we did not need to go any further than invoking clause 183 of the Financial Services Act to achieve our objectives. I am interested to see that

      1105
      my hon. Friend, in drafting clause 2, has provided specific machinery for the use of the Financial Services Act. That will be helpful. Had we relied on the Act as it stood, it would have required the Treasury to give notice directly to a potential acquirer, whereas, through this Bill, we propose to enable the Bank of England to give directions. It is therefore helpful that the amendment quite clearly sets out the procedure to be followed in such circumstances.
      My hon. Friend will no doubt remember that, in Committee, I asked him whether he considered that somebody who financed a series of acquisitions by separate people might be caught under this clause. He was kind enough to write to me to say that he considered that, if a number of people acted in concert, that circumstance would be caught. Will the Minister confirm that the word "associates" in subsection (2) of new clause 4 includes somebody who financed a series of transactions and that, therefore, it will have the effect of preventing such transactions?
      Sir Brandon Rhys Williams: I support my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) who drew attention to the embarrassment of the Bank of England in the event of a deposit-taking institution being invaded by someone whom the bank did not consider fit and proper acquiring shares. I hope that my hon. Friend the Economic Secretary to the Treasury will have been impressed by my hon. Friend's remarks, which I felt were convincing. It would be wrong that the bank should be frustrated until such a person had actually acquired a 15 per cent. holding. I hope that, at a later stage of the Bill, the Economic Secretary will do something to it which makes it possible for the bank to act more strongly in such a case.
      Mr. Ian Stewart: A very large number of questions have been asked during the debate. Rather than go through them individually, I think that it would be better if I were to group them into three subjects: substantial and controlling shareholders, reciprocity, and the national interest powers. By doing so, I shall be able to answer all the points of substance that have been raised. I say that with one exception. My hon. Friend the Member for Stafford (Mr. Cash) referred to amendment No. 12 and suggested that there should be a reference to "depositors or potential depositors" instead of "depositors and potential depositors". I am grateful to him for mentioning that point.
      6.30 pm
      Although elsewhere in the Bill the correct expression is indeed "depositors or potential depositors", the context here requires "depositors and potential depositors", for this reason. The provision is saying that the bank may issue a notice of objection, unless it is satisfied that both existing and potential depositors are safe. If the amendment were accepted, the provision might prevent the Bank of England from acting in cases where only one class of depositor was threatened. This particular case is the other way round; it is a kind of double negative. I hope that I have answered my hon. Friend's point.
      The first of the three main subjects to which I referred was substantial and controlling shareholders: substantial shareholders with 5 per cent. or more of the shareholding of a bank and controlling shareholders with 15 per cent. or more of its capital. The new clauses provide two points at which the supervisor becomes interested in such
      1106
      holdings. First, at 5 per cent. the shareholder has to give notice to the supervisor that he has such a holding and thereafter he has to provide information to the supervisor and respond to his inquiries. At the 15 per cent. level he has to satisfy the supervisor that he is fit and proper in the context of a holding of that amount, which can be described as a controlling shareholding in a bank.
      My hon. Friend the Member for Stafford, supported by my hon. Friend the Member for Kensington (Sir B. Rhys Williams), expressed anxiety about the position of those who hold shareholdings of 5 per cent. or more but who do not hold shareholdings of 15 per cent. or more. The hon. Member for Great Grimsby (Mr. Mitchell) referred me to amendment No. 59, which suggests the substitution of 10 per cent. for 15 per cent., and asked me whether it was relevant to these provisions. The hon. Gentleman is quite right.
      I suggested in Committee, and I am now bringing forward on Report, provisions that do not change the 15 per cent. test — the original provision in the Bill — by setting it at 10 per cent., but I meet the point that was raised in Committee, that anxiety could arise about holdings of less than 15 per cent., by two means. First, I have introduced the new 5 per cent. test. Secondly, I have strengthened the 15 per cent. test so that it is not just a single hurdle to be safely negotiated and then forgotten but a continuing requirement for responsible behaviour by existing shareholders. Taken together, I believe that the two provisions amount to adequate protection against undesirable shareholders.
      My hon. Friend the Member for Stafford said that there are no sanctions against someone who does not seem to be suitable. However, the problem is that 5 per cent. —and perhaps a figure above 5 per cent.—is not a level at which a very great deal of influence can be exercised over the conduct of a bank. In fact, 5 per cent. is a common level of institutional shareholding in a bank, and it carries with it no implication of involvement in the management of the bank.
      However, the combination of the 5 per cent. and 15 per cent. triggers makes accountable to the Bank of England anyone who has acquired 5 per cent. If anybody takes his shareholding up to 15 per cent., he will have had to establish in the meanwhile that he has behaved satisfactorily and is able to pass the 15 per cent. test. If he had not behaved in such a way while he was a 5 per cent. or 10 per cent. shareholder, if he did not responsibly answer questions and inquiries put to him by the Bank of England and if, in other ways, he did not show that he was suitable to be a controlling shareholder, he would find it extremely difficult and probably impossible to surmount the 15 per cent. test. That is why the combination of the 15 per cent. and the 5 per cent. tests will be effective.
      After I had announced in Committee the two new provisions, there was a case in the market. A substantial shareholding had been built up in a British bank and the reaction of the market was to make a very significant adjustment in the price of the shares in that bank, which suggested that the market regarded these proposals as of significance.
      My hon. Friend the Member for Suffolk, South (Mr. Yeo) asked what would happen if a particularly unsavoury character came along, and I think that he quoted the name of a person whom he might put into that category. He asked whether the provisions of the Bill, including the Government's new clauses, would enable his control to be

      1107
      frustrated. The answer is yes. If he were a wide boy, on a grand scale, he would never pass the fit and proper test. Only narrow boys would be able to pass the fit and proper test. Even if they appear to be narrow boys at the time they acquire their 15 per cent. but subsequently are shown to be wide boys, under the new provisions that I am introducing they would be subject to the blocking provisions. On all those counts, my hon. Friend can be satisfied that his concern will be met.
      During the last hour or two the House has been considerably occupied with the question of reciprocity. I agree with the sentiments of a number of my hon. Friends that the reputation and success of the London financial markets have been based on open trading and that we do not want to introduce protectionist sentiments into our legislation, if they are unnecessary.
      In a brief but, I thought, telling intervention my hon. Friend the Member for Harwich (Sir J. Ridsdale) said that he felt that in the case of Japan there is insufficient reciprocity and that it is very difficult for British or other foreign companies to gain adequate access to Japanese markets. Should the reciprocity provisions of the Bill or of the Financial Services Act 1986 be called into play if there were an approach by a Japanese company, it would be very difficult for me to disagree with his analysis. I shall resist the temptation to make a world tour and say, country by country, where I think that such problems might arise, but there has been anxiety about Japan and the point is very well taken.
      The fundamental point about reciprocity that I should like to emphasise is that the provisions of the Financial Services Act and of this Bill are designed to open up markets overseas, not to put up the shutters around London. It is not only in the circumstances where a United Kingdom bank could not buy a Japanese bank that the provisions might be triggered; it is a much more general question of access to the provision of financial services. That applies to banking, insurance, investment and other matters. If hon. Members study the way in which new clause 2 is phrased they will see that it states:
      "overseas countries which do not afford reciprocal facilities for financial business".
      Therefore, we have gone far beyond the question of takeovers.
      I felt it necessary to strengthen, or rather adapt, the reciprocity provisions contained in the Financial Services Act 1986 because, whereas the threat of withdrawal of authorisation may be an appropriate sanction in the case of an investment or insurance business, in the case of banks that rely on taking deposits in the market from day to day, the withdrawal of authorisation may cause great difficulties for depositors. Therefore, the threat of that withdrawal of authorisation would not be a credible deterrent.
      The reciprocity powers, should they ever be put into practice, must be workable. I hope that they will not be brought into play. I hope that other countries, encouraged by our example, will open up their markets to our banks and other foreign banks and financial companies. Other countries may discover, in the same way as we have discovered, that that action will create a thriving market, which is of great advantage, as indeed it has been for the City of London.
      1108
      I do not believe that others should be entitled to become predators of our banking system and at the same time fail to offer us equivalent access to their markets. That is the essence of the case on reciprocity.
      Amendment No. 13, moved by the hon. Member for Thurrock (Dr. McDonald) raised an important question about national interest. The Bill does not contain general powers to object to bank shareholdings on the grounds of national interest. That matter is the responsibility of the Monopolies and Mergers Commission. The Government's policy in applying the powers contained in the Fair Trading Act 1973 takes full account of the public interest. Any projected foreign takeover of a British bank will continue to be subject to that policy.
      I was asked what would happen as a result of the review of the Monopolies and Mergers Commission, carried out in the general review of competition policy, which is being conducted by the Department of Trade and Industry. I expressed the Committee's concern to my right hon. Friend the Secretary of State and he has confirmed that there is no reason why that review will result in any weakening of the broad public interest criterion contained in the Fair Trading Act.
      I believe that we have an effective system contained in the Monopolies and Mergers Commission and that that system is the best way to deal with the question of public interest or national interest in the case of banks or any other sector. One of my hon. Friends said that if banking is a crucial sector—as Opposition Members and others have said—by definition, if an approach was made to one of our major banks, it would be referred to the Monopolies and Mergers Commission. I believe that it is inevitable that, if an approach was made to one of the high street banks, it would be referred to the Commission. I have no doubt that similar factors would be adduced in such a review as in the case of the Royal Bank of Scotland.
      I believe that the anxieties that have been expressed on that score are not well-founded. Therefore, I hope that the House will accept the Government new clauses and the related amendments, but will object to amendment No. 13.
      Question put and agreed to.
      Clause read a Second time, and added to the Bill.

    New Clause 3

      OBJECTION TO EXISTING SHAREHOLDER CONTROLLER
      '(1) Where it appears to the Bank that a person who is a shareholder controller of any description of an authorised institution incorporated in the United Kingdom is not or is no longer a fit and proper person to be such a controller of the institution it may serve him with a written notice of objection to his being such a controller of the institution.

      (2) Before serving a notice of objection under this section the Bank shall serve the person concerned with a preliminary written notice stating that the Bank is considering the service on that person of a notice of objection; and that notice shall—

      (a) subject to subsection (5) below, specify the reasons for which it appears to the Bank that the person in question is not or is no longer a fit and proper person as mentioned in subsection (1); and

      (b) give particulars of the rights conferred by subsection (3) below.

      (3) A person served with a notice under subsection (2) above may, within the period of one month beginning with the day on which the notice is served, make written representations to the Bank; and where such representations are made the Bank shall take them into account in deciding whether to serve a notice of objection.

      (4) A notice of objection under this section shall—

      1109

      (a) subject to subsection (5) below, specify the reasons for which it appears to the Bank that the person in question is not or is no longer a fit and proper person as mentioned in subsection (1) above; and

      (b) give particulars of the rights conferred by section 25 below.

      (5) Subsection (2)(a) and (4)(a) above shall not require the Bank to specify any reason which would in its opinion involve the disclosure of confidential information the disclosure of which would be prejudicial to a third party.'. —[Mr. Ian Stewart.]

      Brought up, read the First and Second time, and added to the Bill.

    New Clause 4

      NOTIFICATION OF ACQUISITION OF SIGNIFICANT SHAREHOLDING
      '(1) A person who becomes a significant shareholder in relation to an authorised institution shall within seven days give written notice of that fact to the Bank.

      (2) For the purposes of this section "a significant shareholder", in relation to an institution, means a person who, either alone or with any associate or associates, is entitled to exercise, or control the excise of, 5 per cent. or more but less than 15 per cent. of the voting power at any general meeting of the institution or of another institution of which it is a subsidiary.

      (3) Subject to subsection (4) below, any person who contravenes subsection (1) above shall be guilty of an offence.

      (4) A person shall not be guilty of an offence under subsection (3) above if he shows that he did not know of the acts or circumstances by virtue of which he became a significant shareholder in relation to the institution; but where any person becomes such a shareholder without such knowledge and subsequently becomes aware of the fact that he has become such a shareholder he shall be guilty of an offence unless he gives the Bank written notice of the fact that he has become such a shareholder within fourteen days of becoming aware of that fact.

      (5) A person guilty of an offence under this section shall be liable on summary conviction to a fine not exceeding the fifth level on the standard scale.'.—[Mr. Ian Stewart.]

      Brought up, read the First and Second time, and added to the Bill.
      6.45 pm
      Mr. Norman Hogg: On a point of order, Mr. Deputy Speaker. I appreciate that the hon. Member for Chichester (Mr. Nelson) may wish to get on to Government amendment No. 4, but the Opposition had the clear understanding that we had an agreement that amendment No. 13 would be taken at this point in the proceedings. We understood that we would not proceed to Government amendments Nos. 4, 5 and so on until such time as the Division had taken place and the Question on amendent No. 13 determined.
      Apparently, something has gone wrong and I do not understand. [Interruption.] I am sorry that Conservative Members find it amusing that, when we reach agreement on how to get on with business somehow or other, it does not matter and that the Opposition's rights in such a case are a laughing matter. If that is the case, Conservative Members can laugh all night because that is how long it will take to get through the rest of the Bill.
      I hope that you, Mr. Deputy Speaker, can facilitate us in achieving a vote now so that a Division on amendment No. 13 may take place and we can therefore proceed to complete consideration of the Bill.
      Mr. Deputy Speaker: I am sorry that I cannot help the hon. Gentleman. It is possible to take things in a different
      1110
      order only if an Order of the House to that effect is taken at the beginning of proceedings. There is no such Order of the House so I am afraid that I am bound by the rules.
      I understand that the Opposition wish to vote on amendment No. 13. They can certainly do so, but it must be taken in the order in which it appears on the Amendment Paper. In other words, we must now dispose of Government amendment No. 4 and Opposition amendment No. 5 and consequential amendments. We shall then come to amendment No. 13.

    Clause 2

      THE BOARD OF BANKING SUPERVISION
      Amendment proposed: No. 4, in page 2, line 15, leave out from '(b)' to 'being' in Hine 17 and insert
      'six independent members, that is to say, members appointed jointly by the Chancellor of the Exchequer and the Governor,'.—[Mr. Ian Stewart.]
      Mr. Deputy Speaker: With Government amendment No. 4 it will be convenient to take Government amendment No. 6.
      Mr. Nelson: This is the only opportunity that we shall have to discuss the amendments relating to the establishment of the Board or Banking Supervision under clause 2. I make no apology to the House for taking the opportunity to do so because it is at the absolute heart of the Bill.
      One of the major reasons for introducing the Bill were the problems that resulted from the Johnson Matthey Bank collapse. At the time it was suggested that some of the shortcomings of the Bank of England could have been avoided if there had been some impartial, objective advice and a proper supervisory board — or, as Opposition Members would have it, a commission—established that would be more incisive about some of those problems.
      The amendments are the result of discussion during Committee and deserve to be discussed on Report. As regards amendment No. 4 I welcome the fact that my hon. Friend the Economic Secretary has decided to bring forward proposals to increase the number of independent members. That will further enhance the weight and power of the independent element of the Board of Banking Supervision as against the ex officio membership of the Governor, the Deputy Governor and the director responsible for banking supervision.
      It is important that we take this opportunity to seek assurances from my hon. Friend that when the Bill is enacted, the banking sector will not return to the initial system and business as usual. The Board of Banking Supervision is a grand title but it is little more than an advisory body because it has few teeth. Will my hon. Friend assure us that it will be, not a cosy luncheon club, but an effective watchdog body over executive decisions and policy judgments of the Governor and the Bank of England?
      I should also welcome a brief comment on the sort of relationships that the board will have with the Governor and the division within the bank responsible for banking supervision.
      Amendment No. 6 gives the independent members certain powers to place before the Chancellor of the Exchequer their views, presumably, about the broad range of matters that they may consider. Will my hon. Friend

      1111
      give some idea of the circumstances in which he envisages such a report being made to the Chancellor of the Exchequer? That is clearly a welcome departure because it introduces some political influence. Would it, for example, enable the independent element of banking supervision to report to the Chancellor of the Exchequer if it felt that a matter of political significance in banking supervision should be drawn to his attention? Or would matters of reference of a more technical nature be exclusively for the Governor of the Bank? If it were felt, for example, that the amount of credit extended through credit card transactions was becoming excessive and that certain action needed to be taken, which if not taken would threaten the banking sector, could the independent element of the Board of Banking Supervision draw that to the attention of the Chancellor and, thereby, raise the political profile?
      Does this measure mark a shift of power from the Bank to the Chancellor? I suspect that it in no way undermines what the Economic Secretary wishes to see as the firm control and executive power of the Governor. However, clearly circumstances are envisaged in which such a reference will be made. As the powers of the board, particularly of the independent element, are matters on which the House sought reassurance on Second Reading and in Committee, I would be grateful for my hon. Friend's comments.
      Mr. Stewart: The amendments to clause 2, which are embodied in amendments Nos. 4 and 6, have three purposes. First, the number of independent members is increased to six, so that in future there will be a total membership of nine and twice as many independent members as ex officio members. Secondly, the independent members are to be appointed, not by the Governor with the approval of the Chancellor, but by the Chancellor and the Governor jointly. Thirdly, there will be a specific statutory entitlement of the independent members to place before the Chancellor their reasons for holding a different view from the ex officio members, if such comes about.
      I have no reason to think that this will be a cosy system. It seems that the advisory functions of the independent members will greatly strengthen the system and will be of great value to the Bank of England. I am sure that the Bank will not lightly disregard the comments of the independent members either about specific matters of supervision or more general questions, such as those which my hon. Friend the Member for Chichester (Mr. Nelson) mentioned. The independent members would need to pass on their opinion to the Chancellor only if there were a difference of view. Otherwise, if there was general anxiety in supervisory terms about, for example, the extension of credit, it would be dealt with in supervisory policy, about which the Governor would be in communicaton with my right hon. Friend the Chancellor.
      The amendments respond to points made in Committee and they strengthen the role of the independent members. I hope that the House will welcome them on that basis.
      Amendment agreed to.
      Dr. McDonald: I beg to move amendment No. 5, in page 2, line 25, at end insert
      'and to resign from the Board immediately on the commencement of an investigation by the Bank of England into a bank in which the independent member has a position of responsibility'.
      1112
      In his reply to the hon. Member for Chichester (Mr. Nelson) the Minister said that he did not regard the Board of Banking Supervision as a club. In his reply to me I hope that he will accept the amendment because it will ensure that the Board of Banking Supervision is not a club.
      The Minister will know that on 4 February the Standard Chartered bank asked the Bank of England to appoint inspectors into its affairs, one assumes as a result of the continued press rumours about what happened when the Lloyds bid was first made in April 1986,. Between April 1986 and July 1986 the Lloyds bid failed. Hon. Members will know that during that period several so-called white squires, including Mr. Khoo, assisted the Standard Chartered bank to fight the bid from Lloyds. The Minister will also know that the press recorded many allegations about loans that were offered to the National Bank of Brunei and to Mr. Khoo, who at that time owned 70 per cent. of that bank, before and shortly after the Lloyds bid failed. Obviously, we shall not know whether those allegations are true until the investigation is completed.
      Mr. Gerald Howarth: I hope that the hon. Lady will tell the House that Standard Chartered invited the Bank of England to appoint inspectors from a position of strength and because it repudiates scurrilous reports in the press, some of which are now the subject of libel proceedings.
      Dr. McDonald: I entirely understand the hon. Gentleman's anxieties because, as he states in the Register of Members' Interests, he is an employee of Standard Chartered. If he were listening carefully to what I said, he would have noted that I said that on 4 February Standard Chartered asked the Bank of England to appoint inspectors. I do not propose to assess the truth or falsity of those allegations; that is for the inspectors whom the Bank of England has now appointed. It would be useful to have the full report of that investigation made public, but we do not know whether that will be the case.
      I tabled the amendment because I am disturbed to note that Mr. Peter Graham, deputy chairman of Standard Chartered bank, is also a member of the Board of Banking Supervision. I am in no way making personal allegations against him. I do not know what part he played during the Lloyds takeover bid, which is presumably another matter which, I hope, the inspectors will investigate. My point is simply that if the Board of Banking Supervision is not to be regarded as a cosy club the suggestion that is implied in my amendment should be followed. I understand that Mr. Graham has resigned, but that his resignation is due to take effect from May when he takes over from Lord Barber as chairman of Standard Chartered. It seems that he is still a member of the Board of Banking Supervision and was when Standard Chartered asked the Bank of England to appoint inspectors.
      7 pm
      In the interests of justice being seen to be done, in those circumstances it is important that a member of the Board of Banking Supervision should resign immediately. If that were the expected step for anyone in that position to take, it would not carry any implications that the allegations under investigation were either true or false. It would simply be an automatic step. It is an entirely proper step. The function of the Board of Banking Supervision is to advise the Bank of England on supervisory matters. It is

      1113
      quite wrong that someone who has an interest in the outcome of a current investigation should remain on the board. I am not making any judgment about Mr. Graham; it is simply a procedural point in the interests of justice being seen to be done. If the Minister does not feel able to accept that amendment now, I hope that he will give an assurance that he will consider this matter and perhaps accpt it at a later stage.
      Mr. Hugh Dykes: I need not cause alarm to anybody, not least the Minister or other collegues or Opposition Members. My intervention will be brief.
      I am tempted by the argument of the hon. Member for Thurrock (Dr. McDonald) on this point. None the less, I have reluctantly come to the conclusion that it would be wrong to write a specific provision of this kind into a legislative instrument. Perhaps I am saying that at some risk, because it may be that the Minister will be tempted to accept the amendment. If he does not, I shall be interested in. and supportive of, his reasons. It would be difficult and unwelcome, in terms of any specific incidents in the future—we are all in favour of proper supervision — were a requirement to resign immediately to be specifically written into the legislation. That may seem to be at variance with other requirements in other parts of the Bill for specific legislation.
      The act of resignation is difficult to write into a text of this kind. I shall be, as others may be, interested in the Minister's views. It might be that this could be encapsulated more appropriately not merely in the written convention of the behaviour of such a body, but in the standing orders or rules of procedure of the board in its career and constitution.
      Mr. Ian Stewart: The point which the hon. Member for Thurrock (Dr. McDonald) has raised is a serious one. I agree with my hon. Friend the Member for Harrow, East (Mr. Dykes) that to build compulsory resignation powers into statute is a dangerous course to follow. The circumstances under which the amendment might operate could vary considerably and might include cases where the resignation of such a person would be wholly inappropriate. I shall elaborate on that briefly. An investigation does not establish any wrongdoing. Only if the investigation uncovered any wrongdoing would that difficulty apply. Indeed, an investigation into institution A might be undertaken in relation to a suspicion of wrongdoing in a different institution, institution B. It might be that, purely to obtain information, such steps would have to be taken.
      The more important point is that it is standard practice in any body of this kind — I understand that it is intended that the board will operate in this way—that if there is any possibility of a conflict of interest the member concerned declares that interest and stands aside from the decision in that case. The board is not yet operating, so those rules are not in place. If a person were improperly to remain part of the discussion and process, it would be likely that that would be highly unsatisfactory in the view of the bank — a reasonable stance to take — and that person would then be removed from the Board of Banking Supervision under paragraph 2 of schedule 1, under which an independent member may be removed if he is unfit to discharge his functions as a member of the board. That description would fit anybody in a case of a conflict
      1114
      interest where a member did not stand aside. On those grounds, it would not be right to accept the Opposition amendment.
      Dr. McDonald: I was disappointed by the Minister's reply. He will have done nothing to allay the fears of the public, who will find it quite extraordinary that someone should remain as a member of the Board of Banking Supervision in an advisory capacity, and will obviously see the investigation papers. It is quite wrong that the powers that the Minister mentioned should not be used in those circumstances. The Minister knows full well that the Standard Chartered bank case is causing considerable anxiety with the public and the press. To allow the deputy chairman to remain in that position is quite wrong. It flies in the face of seeing justice being done.
      I am surprised that the Minister did not give a more conciliatory reply and say that if automatic resignation were not the best way of dealing with the matter he would look into other ways of dealing with it.
      Amendment agreed to.
      Amendment made: No. 6, in page 2, line 32, at end insert
      'and the independent members shall be entitled to place before the Chancellor the reasons for their advice.'.—[Mr. Ian Stewart.]

    Clause 11

      REVOCATION OF AUTHORISATION
      Amendment made: No. 7, in page 7, line 44, after '22', insert
      ', (Objection by direction of the Treasury) or (Objection to existing shareholder controller).'—[Mr. Ian Stewart.]

    Clause 21

      NOTIFICATION
      Amendments made: No. 8, in page 15, line 28, leave out
      'shareholder controller or' and insert
      'minority, majority or principal shareholder controller or an'.
      No. 9, in page 15, line 30, leave out from 'Kingdom' to 'unless' in line 34.
      No. 10, in page 15, line 41, leave out
      'a written notice of objection under section 22 below'
      and insert
      'under section 22 or section (Objection by direction of the Treasury) below a written notice of objection to his becoming such a controller of the institution'.—[Mr. Ian Stewart.]

    Clause 22

      OBJECTION NOTICES
      Amendment made: No. 11, in page 16, line 19, after 'objection', insert 'under this section'. — [Mr. Ian Stewart.]
      Amendment proposed: No. 12, in page 16, line 23, leave out 'and' and insert 'or'.—[Dr. McDonald.]
      Question put, That the amendment be made: —
      The House divided: Ayes 86, Noes 246.

      Division No. 97]

      [7.10 pm

      AYES

      Ashdown, Paddy

      Bidwell, Sydney

      Atkinson, N. (Tottenham)

      Blair, Anthony

      Banks, Tony (Newham NW)

      Boyes, Roland

      Beckett, Mrs Margaret

      Bray, Dr Jeremy

      Benn, Rt Hon Tony

      Brown, Hugh D. (Provan)

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

      Buchan, Norman

      Bermingham, Gerald

      Campbell-Savours, Dale

      1115

      Carlile, Alexander (Montg'y)

      McNamara, Kevin

      Carter-Jones, Lewis

      McTaggart, Robert

      Clay, Robert

      McWilliam, John

      Clelland, David Gordon

      Marek, Dr John

      Clwyd, Mrs Ann

      Maxton, John

      Cocks, Rt Hon M. (Bristol S)

      Millan, Rt Hon Bruce

      Cohen, Harry

      Miller, Dr M. S. (E Kilbride)

      Cox, Thomas (Tooting)

      Mitchell, Austin (G't Grimsby)

      Crowther, Stan

      Morris, Rt Hon A. (W'shawe)

      Deakins, Eric

      Morris, Rt Hon J. (Aberavon)

      Dewar, Donald

      Nellist, David

      Dixon, Donald

      Park, George

      Dormand, Jack

      Pendry, Tom

      Eadie, Alex

      Pike, Peter

      Fatchett, Derek

      Prescott, John

      Fields, T. (L'pool Broad Gn)

      Radice, Giles

      Fisher, Mark

      Randall, Stuart

      Flannery, Martin

      Rees, Rt Hon M. (Leeds S)

      Foster, Derek

      Richardson, Ms Jo

      Freeson, Rt Hon Reginald

      Robinson, G. (Coventry NW)

      Garrett, W. E.

      Ross, Ernest (Dundee W)

      Golding, Mrs Llin

      Rowlands, Ted

      Gould, Bryan

      Shore, Rt Hon Peter

      Hamilton, W. W. (Fife Central)

      Skinner, Dennis

      Hardy, Peter

      Smith, C. (lsl'ton S & F'bury)

      Harrison, Rt Hon Walter

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

      Hattersley, Rt Hon Roy

      Snape, Peter

      Hogg, N. (C'nauld & Kilsyth)

      Soley, Clive

      Home Robertson, John

      Spearing, Nigel

      Howells, Geraint

      Wainwright, R.

      Hoyle, Douglas

      Wallace, James

      Kirkwood, Archy

      Wareing, Robert

      Leighton, Ronald

      Weetch, Ken

      Livsey, Richard

      Wrigglesworth, Ian

      Lloyd, Tony (Stretford)

      McDonald, Dr Oonagh

      Tellers for the Ayes:

      McKay, Allen (Penistone)

      Mr. Frank Haynes and

      MacKenzie, Rt Hon Gregor

      Mr. Lawrence Cunliffe.

      NOES

      Alexander, Richard

      Carttiss, Michael

      Amess, David

      Cash, William

      Ancram, Michael

      Channon, Rt Hon Paul

      Arnold, Tom

      Chope, Christopher

      Ashby, David

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

      Atkins, Rt Hon Sir H.

      Clarke, Rt Hon K. (Rushcliffe)

      Atkinson, David (B'm'th E)

      Cockeram, Eric

      Baker, Rt Hon K. (Mole Vall'y)

      Colvin, Michael

      Baker, Nicholas (Dorset N)

      Conway, Derek

      Baldry, Tony

      Coombs, Simon

      Banks, Robert (Harrogate)

      Cope, John

      Batiste, Spencer

      Cormack, Patrick

      Bellingham, Henry

      Corrie, John

      Benyon, William

      Cranborne, Viscount

      Best, Keith

      Critchley, Julian

      Bitten, Rt Hon John

      Currie, Mrs Edwina

      Biggs-Davison, Sir John

      Dickens, Geoffrey

      Blackburn, John

      Dorrell, Stephen

      Blaker, Rt Hon Sir Peter

      Douglas-Hamilton, Lord J.

      Body, Sir Richard

      Dykes, Hugh

      Bottomley, Peter

      Edwards, Rt Hon N. (P'broke)

      Bottomley, Mrs Virginia

      Eggar, Tim

      Bowden, Gerald (Dulwich)

      Evennett, David

      Braine, Rt Hon Sir Bernard

      Fallon, Michael

      Brandon-Bravo, Martin

      Favell, Anthony

      Bright, Graham

      Fenner, Dame Peggy

      Brinton, Tim

      Forman, Nigel

      Brittan, Rt Hon Leon

      Forsyth, Michael (Stirling)

      Brooke, Hon Peter

      Forth, Eric

      Brown, M. (Brigg & Cl'thpes)

      Fowler, Rt Hon Norman

      Browne, John

      Franks, Cecil

      Bruinvels, Peter

      Fraser, Peter (Angus East)

      Bryan, Sir Paul

      Freeman, Roger

      Buck, Sir Antony

      Galley, Roy

      Bulmer, Esmond

      Gardiner, George (Reigate)

      Burt, Alistair

      Gardner, Sir Edward (Fylde)

      Butler, Rt Hon Sir Adam

      Garel-Jones, Tristan

      Butterfill, John

      Gilmour, Rt Hon Sir Ian

      Carlisle, John (Luton N)

      Glyn, Dr Alan

      Carlisle, Kenneth (Lincoln)

      Goodhart, Sir Philip

      1116

      Gorst, John

      Neale, Gerrard

      Gow, Ian

      Nelson, Anthony

      Gower, Sir Raymond

      Neubert, Michael

      Greenway, Harry

      Nicholls, Patrick

      Gregory, Conal

      Norris, Steven

      Griffiths, Sir Eldon

      Onslow, Cranley

      Griffiths, Peter (Portsm'th N)

      Osborn, Sir John

      Ground, Patrick

      Ottaway, Richard

      Hamilton, Hon A. (Epsom)

      Page, Sir John (Harrow W)

      Hamilton, Neil (Tatton)

      Page, Richard (Herts SW)

      Hampson, Dr Keith

      Pattie, Rt Hon Geoffrey

      Hanley, Jeremy

      Pawsey, James

      Hargreaves, Kenneth

      Pollock, Alexander

      Harvey, Robert

      Porter, Barry

      Hawkins, C. (High Peak)

      Portillo, Michael

      Hawkins, Sir Paul (N'folk SW)

      Powell, William (Corby)

      Hawksley, Warren

      Powley, John

      Hayes, J.

      Prentice, Rt Hon Reg

      Hayward, Robert

      Price, Sir David

      Heathcoat-Amory, David

      Raffan, Keith

      Heddle, John

      Rathbone, Tim

      Henderson, Barry

      Rees, Rt Hon Peter (Dover)

      Heseltine, Rt Hon Michael

      Rhodes James, Robert

      Hickmet, Richard

      Rhys Williams, Sir Brandon

      Hill, James

      Ridley, Rt Hon Nicholas

      Hind, Kenneth

      Ridsdale, Sir Julian

      Hirst, Michael

      Rippon, Rt Hon Geoffrey

      Hogg, Hon Douglas (Gr'th'm)

      Roe, Mrs Marion

      Holt, Richard

      Rossi, Sir Hugh

      Hordern, Sir Peter

      Rowe, Andrew

      Howard, Michael

      Ryder, Richard

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

      Sackville, Hon Thomas

      Howarth, Gerald (Cannock)

      Sainsbury, Hon Timothy

      Howell, Ralph (Norfolk, N)

      Shaw, Giles(Pudsey)

      Hubbard-Miles, Peter

      Shaw, Sir Michael (Scarb')

      Hunt, David (Wirral W)

      Shelton, William (Streatham)

      Hunt, John (Ravensbourne)

      Shepherd, Colin (Hereford)

      Hunter, Andrew

      Shepherd, Richard (Aldridge)

      Irving, Charles

      Sims, Roger

      Jessel, Toby

      Smith, Tim (Beaconsfield)

      Jones, Gwilym (Cardiff N)

      Soames, Hon Nicholas

      Jones, Robert (Herts W)

      Speller, Tony

      Key, Robert

      Spencer, Derek

      King, Rt Hon Tom

      Spicer, Michael (S Worcs)

      Knight, Greg (Derby N)

      Stanbrook, Ivor

      Lamont, Rt Hon Norman

      Stanley, Rt Hon John

      Latham, Michael

      Steen, Anthony

      Lawrence, Ivan

      Stern, Michael

      Lawson, Rt Hon Nigel

      Stevens, Lewis (Nuneaton)

      Leigh, Edward (Gainsbor'gh)

      Stewart, Allan (Eastwood)

      Lennox-Boyd, Hon Mark

      Stewart, Andrew (Sherwood)

      Lewis, Sir Kenneth (Stamf'd)

      Stewart, Ian (Hertf'dshire N)

      Lightbown, David

      Stradling Thomas, Sir John

      Lloyd, Peter (Fareham)

      Sumberg, David

      Lord, Michael

      Tapsell, Sir Peter

      Luce, Rt Hon Richard

      Taylor, John (Solihull)

      Lyell, Nicholas

      Taylor, Teddy (S'end E)

      McCrindle, Robert

      Temple-Morris, Peter

      Macfarlane, Neil

      Terlezki, Stefan

      MacGregor, Rt Hon John

      Thomas, Rt Hon Peter

      MacKay, Andrew (Berkshire)

      Thompson, Donald (Calder V)

      MacKay, John (Argyll & Bute)

      Thompson, Patrick (N'ich N)

      Maclean, David John

      Thurnham, Peter

      McLoughlin, Patrick

      Townend, John (Bridlington)

      McNair-Wilson, M. (N'bury)

      Tracey, Richard

      McQuarrie, Albert

      Trippier, David

      Major, John

      Trotter, Neville

      Malins, Humfrey

      van Straubenzee, Sir W.

      Malone, Gerald

      Waddington, Rt Hon David

      Maples, John

      Wakeham, Rt Hon John

      Marland, Paul

      Walden, George

      Maude, Hon Francis

      Walker, Bill (T'side N)

      Maxwell-Hyslop, Robin

      Waller, Gary

      Merchant, Piers

      Wardle, C. (Bexhill)

      Meyer, Sir Anthony

      Warren, Kenneth

      Mills, Sir Peter (West Devon)

      Watson, John

      Miscampbell, Norman

      Wells, Bowen (Hertford)

      Moore, Rt Hon John

      Wheeler, John

      Morrison, Hon C. (Devizes)

      Whitfield, John

      Murphy, Christopher

      Wiggin, Jerry

      1117

      Wilkinson, John

      Younger, Rt Hon George

      Winterton, Mrs Ann

      Winterton, Nicholas

      Tellers for the Noes:

      Woodcock, Michael

      Mr. Robert Boscawen and

      Yeo, Tim

      Mr. Tony Durant.

      Young, Sir George (Acton)

      Question accordingly negatived.
      Amendments made: No. 14 in page 16, line 33, after 'objection', insert 'under this section'.
      No. 16, in page 17 line 6, after 'objection', insert 'under this section'.—[Mr. Ian Stewart.]

    Clause 23

      CONTRAVENTIONS: OFFENCES
      Amendments made: No. 17A, in page 17, line 43, after 'objection', insert—
      'to his becoming a controller of that description'.
      No. 18, in page 17, line 45, after 'with', insert 'such'.—[Mr. Ian Stewart.]

    Clause 24

      CONTRAVENTIONS: RESTRICTIONS ON AND SALE OF SHARES
      Amendments made: No. 19 in page 18, line 17, after 'objection', insert —
      'to his becoming a controller of that description'.
      No. 20 in page 18, line 20, at end insert—
      '; or (c) continues to be a shareholder controller of any description after being served under section (Objection to existing shareholder controller) above with a notice of objection to his being a controller of that description.'.
      No. 21, in page 19, line 8, leave out 'has become' and insert 'is'.
      No. 22, in page 19, line 10, after 'became', insert 'such'.
      No. 23, in page 19, line 12, leave out 'has become' and insert 'became'.—[Mr. Ian Stewart.]

    Clause 25

      RIGHTS OF APPEAL
      Amendment made: No. 24, in page 19, line 43, after '22', insert—
      'or (Objection to existing shareholder controller).—[Mr. Ian Stewart.]

    Clause 36

      POWER TO OBTAIN INFORMATION AND REQUIRE PRODUCTION OF DOCUMENTS
      Mr. Jeremy Hanley: I beg to move amendment No. 26, in page 29, line 44, at end insert 'or related company of either or both of these'.
      Mr. Deputy Speaker (Mr. Ernest Armstrong): With this it will be convenient to take the following amendments: No. 27 in page 29, line 45, at end insert 'or its related company'.
      No. 28, in line 46, at end insert 'or its related company'.
      No. 29, in line 50, leave out '50' and insert '20'.
      No. 30, in line 50, at end insert—
      '(e) a related company of that institution'.
      No. 33, in clause 38, page 31, line 24, at end insert
      'or related company of other or both of these'.
      No. 34, in line 25, at end insert 'or its related company'.
      No. 35, in line 26, at end insert 'or its related company'.
      1118
      No. 36, in line 30, leave out '50' and insert '20'.
      No. 37, in line 30 at end insert—
      '(e) a related company of that institution'.
      No. 60, in clause 103, at end insert
      '"related company" has the same meaning as in Schedule 4 to the Companies Act 1985;'.
      Mr. Hanley: I am grateful for the fact that all the amendments in my name have been grouped together.
      Clause 36 grants the Bank of England power to obtain information and to require the production of documents from authorised institutions. Subsection (6) extends that power to enable the Bank of England to investigate holding companies or subsidiaries of authorised institutions and subsidiaries of holding companies. Paragraph (d) refers to bodies corporate in which a shareholder controller can exercise more than 50 per cent. of the voting power at a general meeting.
      I should like to declare an interest as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. The institute strongly believes that it would be a great help to the Bank of England to extend its right to obtain information so that it covers related companies as defined in schedule 4 to the Companies Act 1985. In clause 36 this would be of help to the Bank of England, and in clause 38 to the person whom the Bank of England appoints as being
      "one or more competent persons to investigate and report to the Bank".
      The matter was discussed in Committee by the hon. Member for Thurrock (Dr. McDonald) and by my hon. Friend the Member for Chichester (Mr. Nelson), and I pay tribute to my hon. Friend the Member for Chichester for moving, on my behalf, other amendments that were helpful in Committee.
      The Institute of Chartered Accountants in England and Wales feels that this clause would be of benefit because a related company, which is defined in the Companies Act 1985 as
      "any body corporate … in which that company holds on a long-term basis a qualifying capital interest"—
      that is, 20 per cent.—
      "for the purpose of securing a contribution to that company's own activities by the exercise of any control or influence arising from that interest".
      would then be brought into account. Therefore the hank or the investigators could take into account a body which has an element of control over the authorised institution itself.
      It seems strange to me and to the Institute of Chartered Accountants that, in granting this power to the Bank of England to obtain information, and in clause 38 granting the power to a qualified person to investigate on their behalf, the power is limited effectively to subsidiaries for holding companies. If, for instance, the investigation that was taking place revealed many transactions with a related company that would warrant further investigation, that could not be undertaken. Furthermore, as the investigators have to report back to the bank on
      "the nature, conduct or state of the institution's business or any particular aspect of it"
      and on matters of control, those companies in which there is an element of control—and this has been defined in the Companies Act 1985 as 20 per cent. — should be investigated.
      I ask my hon. Friend the Economic Secretary to tell us why, in the Bill as drafted, the limit of 50 per cent. was put into clauses 36 and 38, and why a recognised organisation

      1119
      such as a related company has been excluded. As it has an element of control over the bank that is being investigated, surely it should be available to the investigators for their detailed attention.
      Mr. Ian Stewart: I understand the thinking behind the amendment of my hon. Friend the Member for Richmond and Barnes (Mr. Hanley). The powers in clauses 36 and 38 already cast a fairly wide net. It is inevitable that powers of that sort will have some limit. At present the provisions follow the basic relationship of parent company and subsidiary. On occasion, it might be necessary for the supervisor to obtain information concerning other related companies. That is usually achieved through the authorised institution itself. In principle, I am reluctant to over-extend the statutory powers in these provisions. However, without commitment, I will reflect further on this question in the light of what my hon. Friend has said, because it is a complicated and rather technical area.
      Mr. Hanley: I am grateful for my hon. Friend's statement that he will continue to look at the matter. I repeat that in clause 38(1)(b) the competent person called upon to investigate and report to the bank must report on "the ownership or control of the institution".
      As I have already said, a related company is defined as one that has a control or influence arising from the size of the shareholding and the activities of members of the board. Therefore, although I read with interest in the report of the Standing Committee that my hon. Friend the Minister said:
      "The amendment takes into account other bodies connected with him and extends the information-gathering power a bit too wide." — [Official Report, Standing Committee E, 22 January 1987; c. 221.]
      I should have thought that "a bit too wide" would have been less than 20 per cent. However, between 20 and 50 per cent., as the hon. Member for Thurrock (Dr. McDonald) mentioned, would not perhaps be taking it too wide, but would be taking it down to the minimum level of effective control. Therefore, having heard what my hon. Friend has said, I hope that he will consider the matter again before the Bill proceeds to another place. In the meantime, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Amendments made: No. 32, in page 30, line 27, at end insert—
      '(9A) The Bank may exercise the powers conferred by subsections (1) and (3) above in relation to any person who is a significant shareholder of an authorised institution within the meaning of section (Notification of acquisition of significant shareholding) above if the Bank considers that the exercise of those powers is desirable in the interests of the depositors or potential depositors of that institution.'.—[Mr. Ian Stewart.]

    Clause 38

      INVESTIGATIONS ON BEHALF OF THE BANK
      Amendment made: No. 38, in page 32, line 6, at end insert
      'and anyone who is a significant shareholder in relation to that body within the meaning of section (Notification of acquisition of significant shareholding) above'.—[Mr. Ian Stewart.]

    Clause 41

      OBSTRUCTION OF INVESTIGATIONS
      Mr. Ian Stewart: I beg to move amendment No. 39, in page 34, line 46, leave out subsection (2).
      Mr. Deputy Speaker: With this, it will be convenient to take Government amendment No. 40.
      Mr. Stewart: These amendments make an alteration to the maximum penalties under clause 41 to bring them into line with comparable penalties involving inherent dishonesty in other legislation.
      Amendment agreed to.
      Amendment made: No. 40, in page 34, line 50, leave out from 'section' to 'shall' in line 51.—[Mr. Ian Stewart.]

    Clause 43

      NOTIFICATION IN RESPECT OF AUDITORS
      Mr. Ian Stewart: I beg to move amendment No. 41, in page 35, leave out lines 21 and 22 and insert—
      '(b) gives notice to its shareholders of an ordinary resolution replacing an auditor at the expiration of his term of office with a different auditor;
      or if a person ceases to be an auditor of the institution otherwise than in consequence of such a resolution.'.
      This is a technical drafting improvement of an amendment moved by the hon. Member for Thurrock (Dr. McDonald) in Committee on 22 January, which I accepted on advice from parliamentary counsel. On advice from parliamentary counsel, it is felt better that paragraph (b) should be replaced by this amendment as it is not necessary for a company to give notice that an auditor will not be reappointed; rather, the company simply gives notice of the appointment of a different auditor.
      The amendment clarifies the drafting and ensures that the intention of the hon. Lady's amendment is fully met.
      Amendment agreed to.

    Clause 44

      COMMUNICATION BY AUDITOR ETC. WITH THE BANK
      Dr. McDonald: I beg to move amendment No. 42, in page 36, line 29, leave out
      'annulment in pursuance of a resolution of
      and insert 'affirmative resolution in'.
      The clause deals with communications by the auditor with the bank and in subsection (6) makes it clear that the Government will lay down regulations to make various provisions for the kind of information that auditors may be expected to give to the Bank of England. My purpose in tabling the amendment is to provide for these regulations to be scrutinised by both Houses and to allow for them to be voted down by either House of Parliament. The reason for this is that this issue needs examination. As the Minister knows, I have expressed doubts about the change in the role of auditors and the possible conflict of interest that they may have in reporting on the institution for which they act as auditors and in also being auditors and possibly fulfilling other functions in relation to that institution. Any regulations should be examined in that way by both Houses.
      Mr. Cash: The amendment is very interesting, because it would change the procedure that is operated with regard

      1121
      to the class of accountant referred to in subsection (5). The auditors are persons who would be qualified and referred to under section 389 of the Companies Act 1985, and who used to be recognised by the Department of Trade and Industry under sections 161(1)(a) and 161(1)(b) of the Companies Act 1948. Therein lies a tale. The classification of auditors under the 1948 Act raises the whole issue of the regulation of accountants in respect of which the eighth directive has been generated by the Commission and is open now for further consideration and consultation.
      I am bound to say that the definition of an auditor is really left to the Secretary of State for Trade and Industry and there is no way in which I—argued this on the Financial Services Act 1986 and in relation to other matters—one can say with any degree of assurance that merely because a person is an auditor who has prescribed functions with regard to the audit of companies, it necessarily follows that he would be competent to have anything to say with any certainty about, for example, financial services. Those who are interested in following what I am saying — I am attempting to truncate the argument to some extent — may wish to refer to the proceedings in Committee on the Financial Services Bill. An important issue lies at the root of this matter.
      7.30 pm
      I hesitate to mention this, but my great-grandfather, William Cash, was a founding member of the Institute of Chartered Accountants and his son was president. Therefore, what I am about to say is with no disrespect to the institute, but I say it with feeling. I should declare an interest, because for many years I have been the legal adviser to the Society of Company and Commercial Accountants. The members of this society are accountants who would fall within the class of clause 44 (5). They have
      "satisfactory rules made or guidance issued by a professional body".
      Therefore, I would be deeply concerned if there was any circumstance in which the members of a body which was not chartered—in other words not regarded as being on the inside track — would in any way be discriminated against simply because they were accountants from what some might incorrectly regard as the wrong stable.
      The whole question of audit and auditors, of who is competent to be an accountant and who should give advice on tax questions, is very important to those who are giving the advice and to their clients. The Society of Company and Commercial Accountants has, I understand, through its membership, about 100,000 clients. The members of the society are small businesses and they advise small business men. There is nothing of which I am aware that has ever been raised to demonstrate to me that the society has anything but the highest standing, although it is not, at this juncture, a chartered body. Therefore, it is important that this provision is in the Bill and I congratulate the Government on the fact that it does appear in it; in other words, that it is not a provision confined to auditors, but applies to accountants. However, I have to issue the caveat that if any attempt were made to discriminate against the members of the Society of Company and Commercial Accountants in favour of chartered bodies in the way in which it has been done in the past with regard to the Companies Act legislation, it would be necessary to take appropriate action in relation to the regulations.
      The question whether the regulations may be hybrid could arise out of whether they were subject to the
      1122
      affirmative procedure or annulment. It so happens that this provision is currently cast on the basis of its being subject to the annulment procedure. 1 believe that there is a strong case—I would be interested to hear what my hon. Friend has to say about this—for saying that they should be subject to the affirmative procedure so that, if the issue of discrimination went to the House of Lords, which is where such questions are sorted out, there would be no doubt that the society would be in a position to petition on the ground that it was being discriminated against. Having been involved in the defence of the ship repairers in the Aircraft and Shipbuilding Industries Act 1977—I was the adviser on that case and appeared in the House of Lords in a professional capacity before I was elected to the House—I am well aware that there can be circumstances in which people may need to have a defence made available to them and the procedure that follows as a result of this being made subject to the affirmative procedure.
      I ask my hon. Friend to consider, not only because justice should be seen to be done, but in anticipation of the Society of Company and Commercial Accountants being in a position to have available to it the procedures I have described, that this matter should be made subject to the affirmative procedure. I would be surprised if he were to say that he was not prepared to do that.
      The credentials of the society are well known, and I have explained them. Discussions are taking place with Sir Kenneth Berrill over the position under the Securities and Investments Board and the documentation that he has just submitted to the Department of Trade and Industry. Indeed, I can inform my hon. Friend that the matter is also being raised with the Office of Fair Trading. It would be wrong for a society, which is perhaps small in number but none the less important in relation to its clients and its standing, to be given rough justice and unfair treatment simply because it does not fit neatly and conveniently into the packages provided through the auspices of the chartered bodies.
      I know a little about this subject because I have been involved in advising on matters relating to audit and accountancy for nearly 15 years. I hope that my hon. Friend will listen carefully to what I have said and be good enough, in all justice, to enable the Society of Company and Commercial Accountants to have an assurance that there will be no discrimination against it or, alternatively, to have available to it the affirmative procedure so that it can petition in the House of Lords if it were to be a hybrid instrument.
      Mr. Ian Stewart: The hon. Member for Thurrock (Dr. McDonald) has suggested that regulations under clause 44(6) should be subject to affirmative resolution instead of the negative resolution procedure. My hon. Friend the Member for Stafford (Mr. Cash) has given rather different grounds for suggesting the same thing. The regulations under clause 44(6) are reserve powers, only to be introduced if the conditions specified in clause 44(5) are not fulfilled; that is if satisfactory rules or guidance are not issued by the professional bodies concerned. However, the more I think about it, the more I am persuaded that there is merit in making such a change. Therefore, I am inclined to accept what the hon. Lady proposed in principle. Unfortunately, when the wording of the amendment was checked it was found to be technically deficient. Therefore, I am not able to accept it in substance as opposed to in

      1123
      principle. However, in a fit of energy, I asked if it would be possible for parliamentary counsel to produce an amendment which would be satisfactory. I do not know whether the Chair would be willing to accept a manuscript amendment in substitution for amendment No. 42. which achieves precisely the effect wished for by hon. Members. If you were willing to accept that, Mr. Deputy Speaker, I have a copy in my hand and it might be for the convenience of the House if we were able to consider it.
      Mr. Deputy Speaker: I cannot accept the amendment because Mr. Speaker accepts amendments. It has been submitted too late. I am sorry about that.
      Mr. Stewart: I regret that my efforts to assist the House have not been successful, even on those practical grounds which I understand. I had decided that this change should be made and therefore the drafting of the amendment would have to occur at some stage. I will ensure that it is tabled in another place.
      Dr. McDonald: In view of what the Minister said—and I thank him for his acceptance of the principle of this amendment — I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.

    Clause 57

      PROTECTED DEPOSITS
      Mr. Ian Stewart: I beg to move Government amendment No. 43, in page 44, line 17, leave out '£10,000' and insert '£20,000'.
      Mr. Deputy Speaker: With this it will be convenient to take the following:
      Amendment No. 44, in page 44, line 17, leave out '£10,000' and insert
      'in full of £30,000, and then 90 per cent. of the balance between £30,000 and £50,000'.
      Government amendment No. 45.
      Mr. Stewart: These amendments increase the amounts of a protected deposit under banking legislation from £10,000 to £20,000. The figure for deposit protection under the Banking Act should be reviewed from time to time. Although such a change can be made at any time by statutory instrument, I am persuaded by the debate in Committee and by consideration of the case that the passage of a new Banking Bill offers a convenient occasion to do it. The change will give increased protection to depositors with banks. I hope that in that sense it will be welcomed by the House. I am also proposing to increase the limits on protective deposits with building societies to £20,000 at the same time.
      Amendment agreed to.
      Amendment made: No. 45, in page 44, line 29, leave out '£10,000. and insert '£20,000'.—[Mr. Ian Stewart.]

    Clause 64

      RESTRICTION ON USE OF BANKING NAMES
      7.45 pm
      Mr. Ian Stewart: I beg to move amendment No. 46, in page 51, line 13, after 'denominated', insert 'wholly or partly'.
      Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 47 and 65.
      Mr. Stewart: Clause 64(2) refers to issued share capital which is denominated otherwise than in sterling. Clause 64(5) and paragraph 5 of schedule 3 contain similar references to capital being denominated otherwise than in sterling. As drafted, the Bill does not take account of the possibility that capital might be denominated partly or wholly in a foreign currency. These amendments are designed to remedy that.
      Amendment agreed to.
      Amendment made: No. 47, in page 51, line 43, after 'denominated', insert 'wholly or partly'. — [Mr. Ian Stewart.]

    Clause 65

      EXEMPTIONS FROM S. 64
      Mr. Ian Stewart: I beg to move Government amendment No. 48, in page 52, line 4, leave out subsection (1).
      Mr. Deputy Speaker: With this it will be convenient to take Government amendment No. 49.
      Mr. Stewart: These two amendments deal with a point which my hon. Friend the Member for Stafford (Mr. Cash) raised in Committee. I then undertook, in consideration or his not pressing his amendments at that stage, to bring forward amendments to the same end, and that is what I am now doing. They are technical amendments which extend to subsidiaries and parents or authorised institutions incorporated overseas the right to use the name of their parent or subsidiary for the purpose of indicating the connection between the two companies. It is a minor but important improvement, and I am grateful to my hon. Friend for having brought it to light.
      Amendment agreed to.
      Amendment made: No. 49, in page 52, line 27, at end
      insert—
      '(4A) Section 64 does not prohibit the use by—

      (a) an authorised institution which is a wholly-owned subsidiary of an authorised institution to which that section or subsection (4) above applies; or

      (b) a company which has a wholly-owned subsidiary which is an authorised institution to which that section or subsection applies,

      of a name which includes the name of the authorised institution to which that section or subsection applies for the purpose of indicating the connection between the two companies.'.—[Mr. Ian Stewart.]

    Clause 66

      RESTRICTION ON USE OF BANKING DESCRIPTIONS
      Mr. Ian Stewart: I beg to move Government
      amendment No. 50, in page 54, line 9, at end insert'—
      (dd) the International Finance Corporation'.
      Subsection (6) already exempts various international organisations of which the United Kingdom is a member, including the World Bank, from the prohibition on the use of banking descriptions. The International Finance Corporation is an affiliate of the World Bank, and the United Kingdom is a member of it, so it should be included in the exemption.
      Amendment agreed to.

    Clause 67

      DUTY TO PROVIDE INFORMATION AND DOCUMENTS
      Mr. Ian Stewart: 1 beg to move Government amendment No. 51, in page 59, line 32, at end insert—
      '(2A) An overseas institution to which a notice is given under subsection (1) or (2) above shall comply with the notice—

      (a) in the case of an institution which has established a representative office in the United Kingdom, before the end of such period as is specified in the notice: and

      (b) in the case of an institution which has been given notice under section 72(l) above of its intention to establish such an office, before it establishes the office.'.

      Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 52 to 54.
      Mr. Stewart: These amendments remedy a technical defect in Clause 76 which at present does not make it clear when information requested from institutions with representative offices must be provided.
      Amendment agreed to.
      Amendments made: No. 52, in page 59.1ine 37, leave out 'also' and insert
      'no later than the time by which it must have complied with that requirement'.
      No. 53, in page 59, line 43, after 'shall' insert
      'no later than the time by which it must have complied with that requirement'.
      No. 54, in page 59, line 46, at end insert
      'no later than one month after the amendment or withdrawal'.—[Mr. Ian Stewart.]

    Clause 89

      FALSE AND MISLEADING INFORMATION
      Mr. Ian Stewart: I beg to move Government amendment No. 55, in page 66, line 49, at end insert 'or any other person'.
      Mr. Deputy Speaker: With this it will be convenient to take Government amendment No. 56.
      Mr. Stewart: As it stands, subsection (1) is defective because it does not include, within the offence of providing materially false or misleading information to the Bank of England, cases where that information is provided indirectly, but when the provider knows the information would be used by the bank for supervisory purposes. An example would be a subsidiary providing false information to a parent bank for the purposes of the parent's consolidated reporting to the bank.
      Amendment agreed to.
      Amendment made: No. 56, in page 67, line 4, leave out 'that person' and insert 'the person providing the information'.—[Mr. Ian Stewart.]

    Clause 91

      NON-EXECUTIVE DIRECTORS
      Mr. Nelson: I beg to move amendment No. 57, in page 68, line 36, leave out clause 91.
      Mr. Deputy Speaker: With this it will be convenient to take the following amendments: No. 58, in page 69, line 5, leave out clause 92.
      No. 61, in schedule 3, page 80, line 31, at end insert—
      'Composition of hoard of directors
      2A. In the case of an institution incorporated in the United Kingdom the directors include such number (if any) of directors without executive responsibility for the management of its business as the Bank considers appropriate having regard to the circumstances of the institution and the nature and scale of its operations'.
      No. 62, in page 81, line 19, leave out second 'and' insert '(7A)'.
      No. 62A, in page 81, line 22, at end insert
      'and in determining whether those systems are adequate the Bank shall have regard to the functions and responsibilities in respect of them of any such directors of the institution as are mentioned in paragraph 2A above.'.
      No. 63, in page 81, line 22, at end insert
      'and in determining whether those systems are adequate the Bank shall have regard to the functions and responsibilities in respect of them of any such directors of the instil ution as are mentioned in paragraph 2A above and the formal working relationships established between such directors and the auditor or auditors'.
      Mr. Nelson: Amendments Nos. 57 and 58 seek to take out of the Bill those amendments which were passed during the Committee stage which provided for the statutory requirement that there should be a minimum number of non-executive directors on the board of the United Kingdom registered banks and that they should form themselves into a majority composition of audit committees with specific remits of considering the financial control structures, the scope of remuneration of auditors, and the compliance of the bank concerned with the probative provisions of this legislation.
      In Committee the Economic Secretary expressed some support for the sentiments behind the representations that were made at that time and, indeed, for much of the intention of those amendments. At the same time the Bank of England itself issued a circular to banks, seeking their comments on its proposals for audit committees, involving inevitably a substantial representation of non-executive directors. Ernst and Whinney, in its interesting guide to directors entitled "Bank Audit Committees — A Guide for Directors", said:
      "A recent study of quoted companies by the Bank of England has shown that on average one in three directors is now non-executive and of 60 per cent. of the companies examined, the board included three or more non-executive directors."
      It was always recognised that the best practices of many joint stock banks would not be affected by the amendments. We were seeking to ensure that, in the medium-sized and smaller banks, and in some more questionable banking concerns, there was a genuine independent and non-executive element which would act as a check not just on the credit analysis and policies arid on the audit and accounting requirements but also on the extent to which the bank complied with the probing provisions of the legislation.
      With the background of the Johnson Matthey bank collapse, it is fair to point out that if that representation had been there, and if the right questions had been asked at the time, we might not have had the problems which subsequently arose. As we are in the business of depositor protection with this legislation, I believe — I am delighted that the Committee concurred at the time—that there was and remains a strong case to be made for non-executive directors in the banking sector, apart from the arguments that could be strongly adduced for their election elsewhere in the commercial sector.

      1127
      I should like to pay tribute to my hon. Friends the Members for Harrow, East (Mr. Dykes) and for Suffolk, South (Mr. Yeo) for their support in drafting the amendments and also for their resolute support in Committees. Standing Committee can play a useful role on non-party matters, admittedly at the margins, in tightening up the provisions of the legislation and enhancing them as we have done.
      My hon. Friend the Economic Secretary was good enough to point out in Committee that, while he was unable to accept the amendments as tabled, he would try to import the concept of non-executive directors and seek on Report to go beyond that in regard to their responsibilities. He pointed out—and I accepted then and subsequently—that clauses 91 and 92 would be an improper and impracticable burden to place on the banking sector, and particularly on small banks where it might not be appropriate to have such a large minimum number of non-executive directors. He referred to subsidiary banks where the holding banks might already have non-executive director representation.
      For some small, authorised institutions, which, although banks, are largely inactive, and are not trading substantially, it would be a costly and not very effective means of securing a check on the audit activities and the directorial responsibilities of the boards. For that reason I discussed with my hon. Friend the Economic Secretary ways in which his supportive sentiments and the intention of the Committee might be satisfied. The result of those discussions is the amendments which have been tabled.
      The amendments seek to provide a presumption that there shall be non-executive directors on the boards of banks but that the Governor of the Bank of England shall retain the discretion to waive that requirement, or vary it, according to the circumstances of individual banks. Amendment No. 61 will meet that need and add to schedule 3 a specific provision on the composition of boards of directors which can mean nothing other than that they shall have non-executive directors. I think I am right in saying that it will for the first time import into company law the concept of non-executive directors. While it is not a departure from the unitary board system and the individual and collective responsibility of all directors for the operations of the company, it will for the first time recognise and identify in law non-executive directors in the banking system. To that extent, it will be a useful paving amendment which may be built on in other parts of company law.
      Many people may reasonably say that it is not sufficient to have non-executive directors and to let them organically determine in each bank or collectively what function they will have. Hon. Members will be aware that the character and the role of non-executive directors can vary enormously between companies or between banks. There is little one can do about non-executive directorships being appointments of patronage of the chairman, the chief executive or a controlling shareholder. Inevitably there will be an element of jobs for the boys in the appointment of non-executive directors of banks, or former employees may stay on in a sinecure capacity. However, they will have a non-executive function in that they will not be involved in the day-to-day business of the company.
      An inevitable problem is that non-executive directors will go along to a large extent with the views, policies and
      1128
      practices of the rest of the executive board. On the other hand, hon. Members will be aware of many companies, particularly public companies, where the non-executive directors guard their independence and their objectivity zealously and where the executive members of the board and members of the company have a keen interest in maintaining the objectivity, independence and impartiality of the non-executive directors. Executive directors benefit from the non-executive directors asking the right questions at the right time, and indeed asking difficult questions at a difficult time. In that way one can perhaps stave off problems that might otherwise arise. Most companies which use the practice have done so to their advantage.
      To try to answer the question as to how the role of non-executive directors of banks should evolve, amendment No. 62A was tabled. It attaches to a later part of schedule 3 additional words which will ensure that non-executive directors have specific responsibility for the accounting activities of boards of directors. While they may involve different means of fulfilling that responsibility in each bank, the significant point about amendment No. 62A is that it refers back to paragraph 2A in amendment No. 61, which directly links the responsibilities of the non-executive directors for audit and accounting to their identity and to the presumption that they must be on the boards referred to in paragraph 2A of schedule 3.
      That linkage is a very important adjunct to the initial amendment. The result is that amendment No. 62A can mean nothing other than that the non-executive directors are expected to form themselves into an audit committee. I understand that it is difficult and impractical to import audit committees into law at the moment. My hon. Friend the Member for Kensington (Sir B. Rhys Williams), who has been such a champion of this cause over many years, and I have sought to do this—he through his Bills and I in the amendments moved in Committee. To the extent that it is practical in law, I think it is provided in amendment 62A.
      8 pm
      However, there is a problem with this. Much will depend on how the banks, and the Bank of England in particular, respond to the rather wide phraseology of the two amendments, particularly No. 62A. The amendments would have the effect of taking out the advances already made in Committee and substituting these changes, but first I want to be satisfied—and I sincerely hope that my hon. Friend the Economic Secretary may be able to satisfy me—that the Bank of England itself accepts an obligation, apart from the circular which it has already issued, to follow through on the content of these amendments and to insist that where there are non-executive directors, and in many boards where there are not, there will be audit committees and they will have defined minimum remits to fulfil and a certain degree of accountability, as well as some penalty that they can impose if what they recommend is not followed. Some discussions may already have taken place, and I hope that my hon. Friend will be able to give us as full an assurance as possible concerning the intentions of the Bank of England in this respect.
      If that can be done, and if I and other hon. Members can be satisfied that the Bank of England really intends to use the provisions to ensure a much wider representation of non-executive directors and that they do a job of work

      1129
      within the banks, the House and our Committee will have achieved something and it will be an important landmark and an important marker for the future.
      Mr. Dykes: I wish to be as brief as possible in following my hon. Friend the Member for Chichester (Mr. Nelson) with a few remarks about this cluster of amendments in his name and the names of my hon. Friend the Member for Suffolk, South (Mr. Yeo) and myself. I fully endorse what my hon. Friend said. He was remarkably skilful in keeping his speech slightly shorter than it might have been, bearing in mind that he is the principal sponsor, and quite a number of other points could have been made. I understand the reason for that and, perhaps rather agreeably for Thursday night, we have reached these important amendments somewhat earlier than might have been expected when the Committee stage began.
      What has resulted from the discussions in Committee, from subsequent discussions that may have taken place informally and from the amendments on the Amendment Paper, represents what we as sponsors would suggest is the best balance of all the complex considerations in a very important piece of reform. Without getting too carried away, and with no disrespect to the Government's other changes in the Bill, which have commanded widespread support, we suggest that this is perhaps the most important part of the Bill in terms of additions to it.
      The history of the Bill, as was explained on Second Reading and in Committee, stemmed from a series of unfortunate accidents in respect of one institution. It was therefore very much a repitition of the 1979 Act, but with the abolition of the two entities, which were banks or quasi-banks, making them into one in terms of any supervision or surveillance that was being constructed or repeated from the previous statute. This and the other three or four significant changes made by the Government, are the important changes to the Bill.
      In putting forward these amendments tonight, we very much hope that the Government and my hon. Friend the Minister will be able to accept what has been suggested by way of a compromise. As my hon. Friend the Member for Chichester said, we do this without in any way yielding or ceding the basic elements of the strategy that was being constructed all the way through my hon. Friend's speech in Committee when the then new clauses 10 and 11 were being promoted by him and others, including myself, because of the current circumstances and difficulties and the need to increase the supervision of institutions where the public's wealth, welfare, financial interest and, indeed, moral interest to some extent, are involved.
      This is also carrying out an essential reform, whatever way it may work out in detail, depending on the decision of the House tonight and the Government's reaction to these amendments, which represent something of a compromise on our part. It is a significant reform, going back to what my hon. Friend the Member for Kensington (Sir B. Rhys Williams) has been trying to do over many years, earning the plaudits and the tributes of Members of the House and people outside in so doing, in respect of companies in general. For the moment I think that we can with justification concede that there is a significant difference with financial institutions and banks and other corporate entities may be left for another day, depending on the experience of this legislation if these amendments are accepted by the House.
      1130
      During the debates on these issues in Committee I was struck by the fact that my hon. Friend the Minister was in difficulties. We recognised that and could understand and sympathise with him, but unless I misrepresent him —it is always easy to do this when one is guessing—he was nevertheless anxious to try to help if possible. However, we have to admit to ourselves as well as to the House that the dropping of what are now clauses 91 and 92, as amended in Committee in favour of what we now deem to be something that might have a better chance of getting through the House, is a major step for us as sponsors of the amendments.
      We hope that this will be an inducement to the House to look favourably upon our compromise suggestions and also that it will generate the support of the Government. We are attempting to meet my hon. Friend the Minister's objections and worries in Committee that we were perhaps in phraseological terms trying to overdo things and construct too tight a legislative provision, but none the less to achieve our objectives in this legislative attempt to get non-executive directors inserted for the first time into bank boards.
      My hon. Friend the Member for Chichester referred to the lapsing of the specific reference to audit committees. I agree strongly with him that our substitute suggestion, amendment No. 62A, is a helpful way of our putting this forward to the House and trying to meet the Minister's worry that, textually, we were overdoing it, exaggerating and perhaps creating difficulties. Perhaps we can all agree —I say this tentatively—that the essential requirements and objectives of the original amendments in Committee can be met without too tight a legislative and textual end result in the actual words.
      This would fit in very well with what was said in the Bank of England's consultative paper, which appeared perhaps somewhat miraculously, and certainly very interestingly in terms of its timing, when the Committee stage was drawing to an end. In its document the Bank of England endorsed in strong terms the idea, referred to indirectly and perhaps somewhat vaguely, for obvious reasons, in amendment No. 62A, but none the less with great emphasis, that the audit committee should have specific and clear duties, and that even if these duties were not put into legislation at this stage — although by implication the Bank of England's presenting letter had legislation in mind as a background possibility —depending on how these were to function first in a non-legislative form, perhaps later they would come into the legislation. I see that as the implication of this whole exercise even if, for obvious reasons, certain people, including the Bank of England, will wish to deny that now.
      I refer very quickly to page 10 of the consultative paper and the references to what the members of audit committees should do. I hope that, under our suggested compromise amendments, my hon. Friend the Minister can react to these ideas yet again to reassure us that that is the whole direction of the Government's thinking and policy in line with the Bank of England's ideas and suggestions, even if there is no specific legislative reference now, and I say that with great emphasis.
      Page 10, paragraph 5.5, of the document relates to the functions of committee members. With heavy emphasis, the Bank of England document states:
      "The directors appointed to the audit committee should be able and willing to accept the related responsibilitis and should have relevant experience and skills. All members of the

      1131
      committee, including its chairman, should be independent of financial management and of any responsibility for the accounting, internal control and auditing functions in the bank and be free from any relationship that could interfere, or be seen to interfere, with their objectivity and the exercise of their individual independent judgment."
      I shall not continue to quote from paragraphs 5.6 and 5.7 because I do not want to weary the House. However, if hon. Members read those paragraphs they will acquaint themselves with the Bank of England's suggestions. The Bank of England's suggestions felicitously fit in with our "compromise" amendments and the suggestions to which my hon. Friend the Member for Chichester referred, which are revealed in the booklet circulated by Ernst and Whinney. Unless I have overlooked something in my mail recently, I believe that that booklet is the only publication that hon. Members have received from any firm of accountants. I hope that I shall not be regarded as vulgarly promoting one particular firm. I do not know that firm personally, although I believe that it is famous.
      My hon. Friend the Member for Richmond and Barnes (Mr. Hanley) is familiar with, and I believe is a distinguished member of, the accounting profession. I believe that he has declared his interest in this matter, although not of course meaning in Ernst and Whinney. My hon. Friend will agree that Ernst and Whinney's document "Bank Audit Committees—A Guide for Directors" implies that there is ground for legislation on these matters. Although the debate is still raging, Ernst and Whinney sets out in helpful, precise, elaborate detail those functions which the firm believes audit committees and their members should perform. I refer to the helpful suggestions made in the Ernst and Whinney document on pages 11, 12 and 13. On pages 14 and 15 Ernst and Whinney describe the comprehensive management functions that should be found in any corporate organisation, including banks. Within that list of functions, reference is made to audit committee functions.
      Progress is thus being made. The suggestions made by the Bank of England and Ernst and Whinney are encapsulated in the amendments. However, as my hon. Friend the Member for Chichester said, giving up the purposes of clauses 91 and 92 is a big step. I do not know whether we will have the agreement of the House in this matter, and the amendments do not have the effect of the amendments that were originally proposed in Committee. It is incumbent upon the Government—I shall be interested to learn the reaction of the Opposition if they choose to intervene in the debate—to tell us their views on these matters and the way in which they can accommodate the amendments.
      I want to make a point that relates to the atmospherics that were evident in Committee. I want also to echo what was said by my hon. Friend the Member for Chichester and pay tribute to the way in which my hon. Friend the Economic Secretary has tried to be helpful. This has been appreciated. None the less, in Committee we were struck by the paradoxes that we have to face. On occasions when there is no party political implication and we are debating legislation that does not raise a party battle, but arises from a consensus in that an emergency has produced a need to update legislation, to tighten supervision and to abolish the distinction between licensed deposit takers and banks—without the conventional political dog fighting that sometimes prevails—there is none the less a
      1132
      reluctance by civil servants to accept changes in legislation. Civil servants, rather than Ministers, are reluctant to make changes that will reinforce and improve legislation. I believe that these changes would not cause any intrinsic difficulty for the Government, and that point transcends the political nature of the party in government.
      8.15 pm
      I do not believe that other European legislatures have the built-in automatic difficulties that face any Government here. I hope that I shall not annoy any of my colleagues by making that point. However, it is a pity that a macho stance must be adopted in Committee. I trust that I shall not annoy my hon. Friend the Economic Secretary when I say that there is an idea that if a concession is made, that will produce a tearful reaction. I do not mean that literally, but metaphorically. That reaction is often unnecessary. If a general feeling wells up in Committee or on Second Reading that an addition, a reinforcement, a piece of legislative material or an amendment can be brought in significantly to improve a measure, or a marginal part of a measure, there is an over-reaction.
      Why is that so? We could have a great deal of philosophical discussion about that, but not tonight. However, it is a pity that that repetitive over-reaction element in legislative debate occurs in Committee. That is less important as a consideration and as a point of hesitation about the meaningfulness of our debates on the Floor of the House. It is much more obvious then that party political dog fights will occur. However, that is not necessary in Committee, particularly when we are discussing banking measures.
      I hope that I have not been too long-winded. I have made that point deliberately at some length and have probably risked the wrath of hon. Members in so doing. I hold this institution very dear and believe that by and large it does a good job in promoting legislation, but all too often in debate there is a reluctance to change legislation. Perhaps, to make ourselves feel better, we can point the finger for that reluctance at the civil servants rather than at Ministers.
      Mr. Tim Yeo: My hon. Friend the Member for Harrow, East (Mr. Dykes) raised an interesting point at the end of his speech. If time permitted I would like to pursue that, but as it does not I will merely say that, broadly speaking, I concur with him.
      I pay tribute to my hon. Friend the Member for Chichester (Mr. Nelson) and to my hon. Friend the Member for Harrow, East. They tabled amendments on this matter in Committee and voted for them. That action distinguished them from other hon. Members. My hon. Friend the Member for Chichester has led with great skill and determination the campaign to make the changes in the Bill. I am glad that since the Committee stage was concluded he has been able to negotiate an acceptable compromise, although naturally I am disappointed that we do not have in the Bill the specific clauses that were agreed in Committee. Nevertheless, we have taken a considerable step forward.
      It is especially appropriate at a time when self-regulation is under a certain amount of criticism that we should be strengthening and making specific reference to the role on non-executive directors. Only recently in the banking world self-regulation has shown that it can operate successfully and swiftly. In the aftermath of the Guinness affair, top management has been replaced in

      1133
      what was considered to be one of the most powerful merchant banks. That occurred with a swiftness which could not have been achieved under a different system. Perhaps that will lead in due course to the consideration of non-executive directors in stockbroking firms. Again, recent events may suggest that that would be a desirable innovation.
      It is very important, in consideration of the amendments, that we should not overstate the implications of the amendments or the Bill. Nothing that we can do through legislation will eliminate incompetence, imprudence and fraud. Those are facts of life. They are regrettable, but they exist. However, we can establish a good supervisory system and regulatory framework that will detect those abuses quickly.
      The innovative nature of today's financial markets is such that new instruments will always be devised, the use of which will test the technical skill of the regulators by seeing that banking in particular is conducted in a proper fashion. We only have to note the enormous growth in the swaps market and the acknowledgment in the document produced jointly by the Bank of England and the federal authorities in America that they are so far unable to produce an acceptable definition of the weight to attach to certain instruments, including some of the new swaps, to see the truth of that. That is an example of a difficulty that will always exist about trying to regulate the banking business.
      It comes back to the probity, integrity and independence of the board of directors. The provisions in this group of amendments greatly strengthen both the independence and, I hope, the probity of those directors. The role of good non-executive directors will be crucial in ensuring that banks will conduct their business properly. The establishment of audit committees would also make a substantial contribution.
      When the matter of non-executive directors was raised in Standing Committee, the Minister said that there might be some problem about definition because we were introducing into law a concept that was not previously recognised. To illustrate that, I shall cite a conversation that I had with the chairman of one of the big four clearing banks. It was a private conversation, so I shall not identify him. I asked him how he saw his role and he said he regarded it as being that of a full-time non-executive. On initial reflection, that concept presents a paradox. He went on to explain that he believed his job was to represent the outside interests of the bank—the interests of the depositors and the shareholders as opposed, perhaps, to the interests of the management.
      When someone in a prominent position in banking describes himself as a full-time non-executive, one is forcefully reminded of the problems of definition, because I rather suspect that those of us who have put our name to these amendments look upon a non-executive as someone who, by definition, is not full-time. Of course he may be paid for his non-executive duties and it is proper that he should be, but his full-time work or most of his work is done away from the institution in which he is a non-executive director. I should be interested to hear whether my hon. Friend the Minister has had any more thoughts about a definition in the period since the Committee concluded its debates.
      I echo a good point made by my hon. Friend the Member for Chichester (Mr. Nelson). I hope that, since we have had to give up a specific reference to a minimum
      1134
      number of non-executive directors being appointed and a specific reference to audit committees—because neither of those will now appear in the Bill—the Minister and the Bank of England will make clear publicly that they regard the inclusion of such directors as a matter of the greatest importance for informing their judgment about the suitability of an authorised or potentially authorised institution to be a bank. A public statement of the bank's policy and of the Government's policy about those points would be of immense value. I hope that the statement will refer not only to the matter about the number of non-executive directors, but that it will also make specific reference to the role that they could play in relation to audit committees.
      Mr. Cash: I congratulate my hon. Friends on their speeches. Those congratulations are more than justified, given the circumstances in which the amendments were moved in Committee and the way in which my hon. Friends have persevered to achieve as much as they have. As my hon. Friend the Member for Suffolk, South (Mr. Yeo) said, they have not got everything that they wanted. However, that in no way diminishes the importance of the step that has been taken.
      I have and will continue to have some reservations about creating what could turn out to be a rather top-heavy audit provision in relation to either banking legislation or companies legislation generally, of which banking is a part. The boards of directors of banks are governed by the Companies Acts every bit as much as directors in other companies. In the field of the non-executive director, our minds are drawn to the question of independence. That goes back to the matter that we discussed during the passage of the Financial Services Act 1986, the importance of which has become a feature of discussions in Parliament over the last few years.
      Against the background of the scandals and the misfeasance that have occurred recently, some of which were serious and some of which must not be exaggerated, the notion of independence, of a watchdog, a non-executive director, is increasingly becoming a matter of policy. However, at the moment it has not been explained as such by or on behalf of the Government. The notion is becoming increasingly accepted and those of us who serve on committees and who have maintained an active interest in financial services, in banking and in the troubles that have occurred in the field of company law, are increasingly driven to the view that the independent watchdog, the non-executive director, has the function of maintaining a fiduciary relationship with the members of the company. That role is of paramount importance.
      I think that section 235 of the Companies Act 1985 has provisions which require that employees should be fully informed and involved in the policy making of a company. In banks and in other companies there are also people who are called shareholders, and they have a vast interest in what is done in their name. The object of the audit committee proposal and the idea of a non-executive director are to enhance the role of fiduciary relationship which, I regret to say—I know that hon. Members will agree—has been under a considerable strain recently in certain quarters.
      It seems to me that we need not merely a total and thorough investigation of the financial aspects of banking or of companies. That is well exemplified in this interesting paper produced by Ernst and Whinney and entitled "Bank

      1135
      Audit Committees—A Guide for Directors". We also need an opportunity to look at the role of the board and the manner in which it exercises its fiduciary relationship. In addition to the provisions in the Bill, I should like to see provisions that are more explicitly defined and aimed at directing shareholders.
      There should be a shareholders' committee to complement the role of the non-executive director. That would enable a balance to be struck between institutional investors and the small shareholder. It is a fact of present day life that in wider share ownership, the explosion in the ownership of shares throughout Britain—whether in banking or in other fields such as British Telecom or British Gas—a gap has emerged which needs to be filled. It could be filled by a shareholders' committee along the lines suggested in my Protection of Shareholders Bill and some redefinition of the role of auditor, accountant, solicitor and company secretary. That is a perfectly reasonable proposition and would provide a means whereby non-executive directors and the audit committee, which I hope will eventually come into being, will be supplemented so that they know that when things go wrong they will have an opportunity, either individually or jointly, to turn to that committee. After all, the committee would represent the members of a company, whether they be institutional investors or small shareholders, and they have an absolute right to know what is going on. If there are breaches of criminal law, fiduciary relationship, companies or banking legislation, they have the right to be informed about what is happening. I make no apology if that is regarded as a novel idea; it complements the arrangements that my hon. Friends have introduced, and on which I congratulate them. They have taken a great step forward.
      Mr. Dykes: I am sorry to come back to a point that puzzled me earlier. I am not clear why my hon. Friend was so adamantly against the new clauses that we introduced in Committee and which, I am glad to see, he is now supporting. Perhaps he could explain that to the House.
      8.30 pm
      Mr. Cash: Yes, I can do so easily, although adamant is not the word that I would have used. I was not persuaded at that time of their value. However, having heard the brilliant speech of my hon. Friend the Member for Harrow, East (Mr. Dykes), who could fail to be converted by the logic and emotion with which he addressed the House for about 20 minutes? Therefore, in the light of what has been discussed, I hope that what has been put forward is accepted. I want to take this opportunity to congratulate my hon. Friend the Member for Kensington (Sir B. Rhys Williams) on his determined campaign since 1969, and thank him for all that he has done in this area.
      Mr. Hanley: I, too, congratulate my hon. Friend the Member for Kensington (Sir B. Rhys Williams) on his almost unique campaign. It is 17 years since he first introduced his Bill on audit committees. He has introduced such a Bill every year in this House, and when he was in the European Parliament he took every opportunity to try to introduce it there also. Few people have such determination for a cause that seems unattractive at first sight, at least on voting intentions, but
      1136
      which is nevertheless right. I have spoken to his Bills and been a supporter of them since I came to Parliament. Therefore, when my hon. Friend the Member for Chichester (Mr. Nelson) sought to table new clauses 10 and 11 for the Committee stage, I leapt up to support them. It was with great frustration that I found that I was not a member of the Committee. However, I added my name to those amendments because I believed that they were the right way forward.
      I was surprised when, through the courage of those who stuck to their convictions, those clauses became part of the Bill on Report. I was not only surprised but, in a way, I was awed because, for the first time in a substantive statute, my hon. Friend the Member for Kensington had seen the birth of the child that he had gestated 17 long years ago. I believe that that is longer than whales, elephants, human beings or any known living creature.
      However, there was no doubt that my hon. Friend the Economic Secretary had to take advice and to suggest, perhaps in a mood of compromise, clauses that would go some way towards meeting the national mood of greater control over corporate institutions, while seeking a successful and practical method of achieving that.
      I have already declared my interest as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. On behalf of all accountants, I thank the many members of the Committee who have paid the most marvellous advertising service to the firm of Ernst and Whinney for its excellent booklet. If any firm has been rewarded for its skill and effort in producing such information, Ernst and Whinney has tonight.
      I should mention my hon. Friend the Member for Stafford (Mr. Cash). I may be wrong in this detail, but I believe that his grandfather was a founding father of the Institute of Chartered Accountants, and must have known the founding father of Ernst and Whinney. One can imagine those two august gentleman, in Victorian days, meeting at the origins of the institute. Little would they have realised that the grandson of one—
      Mr. Cash: The great grandson.
      Mr. Hanley: Little would they have realised that the great grandson of one would advertise the eventual product of the other in this House.
      The Institute of Chartered Accountants believes that, although those clauses were supportive of the underlying philosophy of the initiatives, they were not practical and would not achieve their objectives. The issues raised by both clauses were considered widely by member firms in the institute and also by the committees of the institute that deal with such matters. In the light of the recently issued Bank of England consultative paper on the role of audit committees, which has already been referred to, and in the light of the response of the Department of Trade and Industry's consultative documents on the implementation of the eighth directive, these matters were given a fair airing.
      It was thought that the institute should submit its advice to the Treasury. It did so in October 1985 and in February of this year when it sent a letter to the Treasury stating that the mandatory requirement for three directors could be over-onerous on certain banks, for the simple reason that the size of the bank was in no way taken into consideration in the drafting of the original clause. One could possibly agree to a mandatory requirement for

      1137
      banks above a certain size, but one should allow banks under a certain size to appoint just one non-executive director to the board. The requirements created by the original new clause 10, that all authorised institutions had to retain at least three non- executive directors who would be wholly independent, took no account not only of the size, but of other factors and of the special situations of groups in which there might he a number of authorised institutions.
      The institute considered that the appointment of non-executive directors should take account of the size of the bank. It also considered that the Bank of England should establish with the prospective authorised institutions, when authorisation was sought, the development and size of that authorised institution at that time. For those reasons, the imposition of the statutory minimum of three non-executive directors appeared inappropriate. There has been some discussion in the City as to where one could find the appropriate individuals to fill the places that would he created by the statute.
      In any event, the institute pointed out to the Treasury that it saw good reason for the retention of a least one non-executive director in all authorised institutions. Indeed, that is the essence of the amendments that have been moved by my hon. Friend the Member for Chichester (Mr. Nelson).
      The institute felt that the function and the role of the non-executive director required careful definition. The criteria expressed in the clauses appeared to restrict it, and the Bill already gave the Bank of England the right to establish that the directors of the institutions were fit and proper persons before granting authorisation. Therefore, the institute felt that it would probably be appropriate to leave with the Bank of England the responsibility for determining the suitability, or otherwise, of the proposed non-executive directors. That is what the institute recommended earlier this month, and I am glad that the compromise amendments have been tailored accordingly. I am also glad that the institute's advice was properly taken into account.
      Although the original amendments will not see the light of day in the Bill as it passes to another place, this is a momentous occasion. My hon. Friend the Member for Kensington should regard this as a red letter day, not only in his life but in the life of regulation over institutions—in this case over banks, hut perhaps, in future, over companies. However, it is a shame—I am sure that my hon. Friend did not expect this—that the first gleam of light in the history of audit committees and statutes should be at the hands of the Treasury and not those of the Department of Trade and Industry.
      It is remarkable that the Treasury should be so understanding of the need for this type of supervisory body. Perhaps the Department of Trade and Industry, which often prides itself as the Department of innovation, will look to the Treasury, which it often regards as a body of people who do not have the vision of technical innovation and advance which it sponsors, and learn from this Treasury legislation. I hope that the Treasury, in its rules and guidance, will set out the detailed provisions that my hon. Friend the Member for Kensington has mentioned on many occasions.
      Audit committees are required by companies quoted on the New York stock exchange. Therefore, over many years, they have served not only the institutions that they have helped hut, more important, the shareholders in
      1138
      them. The practicalities of audit committees are proven. In the United States, they have lasted for many years. The fact that these new clauses will lead to this type of audit committee is an important moment in the life of the House.
      Mr. Nelson: My hon. Friend made an interesting and important point—it was referred to in Committee—about listing requirements on the New York stock exchange. I shall be interested in his views, not only as an hon. Member but in his advisory capacity to the institute—this matter goes slightly beyond the remit of the Bill—about whether he and the institute would favour such a requirement here. If, in the near future, this provision is not extended in company law more generally, many people will consider that there is an urgent and compelling case for the stock exchange to provide a similar listing requirement.
      Mr. Hanley: My hon. Friend spoke forcefully in Committee about the advantages and, indeed, the disadvantages of audit committees. The point that he raised is relevant to these amendments. What will be the influence of the amendments upon other financial institutions? The Institute of Chartered Accountants in England and Wales has not this year stated an official view on the point, but in the past it has issued documentation setting out the role of audit committees, their advantages and disadvantages, and how major companies can set them up.
      It is interesting that, in the thousandth edition of the official journal of the Institute of Chartered Accountants, named Accountancy, the editorial should be a cry for audit committees for major companies. Indeed, not long after, my hon. Friend the Member for Kensington introduced his annual Bill, to the general acclaim of those who arc fully conversant with the need for accountability in the City, and it was welcomed by many chartered accountants. It will be difficult for some authorised institutions to find an audit committee of, let us say, three, four or five people.
      8.45 pm
      The amendments are practical. Because the Bank of England is obliged to satisfy itself that an institution's board has sufficient non-executive representation according to its size, with suitably defined roles, before it can be authorised, the right compromise has been reached. I am certain that the Institute of Chartered Accountants is happy with the final result and would offer its congratulations not only to the founding father of the audit committee, my hon. Friend the Member for Kensington, but to my hon. Friend the Economic Secretary. With his usual wisdom, my hon. Friend the Economic Secretary has found a compromise that will be practical, helpful and, ultimately, of benefit to those who invest in banks, and surely that must be the vast majority of the nation.
      Sir Brandon Rhys Williams: The clauses may prove to be an important aspect of the Bill. Therefore, the House is justified in giving the matter a few more minutes. I take the opportunity of thanking my hon. Friends, in particular my hon. Friend the Member for Richmond and Barnes (Mr. Hanley), for their kind references to my long-standing campaign to improve the ways in which the executives of companies can be supervised in the course of their work.

      1139
      I must correct one point that my hon. Friend the Member for Richmond and Barnes mentioned. I do not think that I introduced the expression "audit committee" into my series of proposals until as recently as 1976. With my first Bill I tried to bring into statute the expression "management audit". The management audit was to be instituted by a shareholders' committee, as I envisaged it, very much along the lines of the Bill that my hon. Friend the Member for Stafford (Mr. Cash) has just brought in, which certainly deserves consideration by the House.
      Self-regulation is part of Government policy. We must look to the Government to come forward with specific measures to enhance the way in which self-regulation works in banks and in public companies generally. Obviously, self-regulation is a matter for shareholders' natural prudence; but there is a special reason why it goes a little wider than simply protecting the shareholders' interests, and that is the enormous privilege of limited liability. If shareholders are able to rely on that serious concession, they have a duty to see that companies, or banks, as in this case, are managed in a competent and efficient manner. It is a matter of public interest and shareholders' duty.
      How do shareholders exercise supervision? Over the past century or more, businesses have become so complex and so large that it is not possible for shareholders to get an accurate concept of what is being done by the executives who are appointed to make use of their assets. Different solutions have been found in various countries over the course of time. The German solution of setting up a separate supervisory board to watch, on a permanent basis, what the executive board is doing, obviously has many advantages, but that is not the way in which this country has developed its company law. While the Germans were evolving a concept of the supervisory board, we were placing more reliance on auditors. In the 19th century, it first became obligatory for companies to have an independent audit.
      We have retained the concept of the unitary board, but, for some reason, in British company practice, it does not seem to be operating as well as we should like. In the United States and Canada, the concept of the unitary board has been retained, but there has been a significant development there that we have not yet followed. Of course, American banks are closely controlled by all kinds of provisions that have not been introduced here—I do not for one moment suggest that they should be—but the practice in America has been to develop the audit committee. It is a pity that we have not moved much faster in that direction. I blame the DTI for its immobilism in respect of the concept of the audit committee. Year upon year, it comes to the House to amend our company law and to add enormously to the scope of it, to add to the power of inspectors, panels, boards, the police and whoever else can bring pressure to bear on companies from outside. That is not self-regulation—one may call it what one will—but outside pressures on companies are not proving to be effective. Thus, we find ourselves in a highly unsatisfactory situation. It is not possible to open the newspapers without reading about some new, unwelcome or unsavoury development in companies and banks.
      This is the Department of Trade and Industry's silly triumph. It has resisted the concept of self-regulation,
      1140
      although that is the direction in which we ought to go. I am extremely glad that hon. Members on both sides of the House share my opinion about that. British practice in the supervision of the executives of major companies is too loose and, as one would expect, the executive elements become either too enthusiastic and go much too far or they become sluggish, inefficient and resistant to change and fail to take advantage of new opportunities.
      In the case of the scandals that have upset us with regard to the banks—in particular Johnson Matthey, Morgan Grenfell and others, very fine and reputable institutions where things went rapidly wrong—one has to ask what the auditors and the directors were doing by allowing those situations to develop and become so disastrously out of hand. In those cases, I do not believe that the auditors or the directors were necessarily to blame. What is wrong is the system, and that is what we are dealing with in these clauses.
      We must freshen up our ideas about the responsibilities of auditors and the way that we call upon them to work, and we must also freshen up our ideas about the responsibilities of directors.
      I strongly recommend anybody who is interested in the subject to take the trouble to read the speeches that were made on the last morning in Standing Committee when my hon. Friends—in particular my hon. Friend the Member for Chichester (Mr. Nelson)—forced the Committee to take note of their views on the way in which the Banking Bill should be amended. The debate contained many important comments that well deserve study, and I hope that they will indeed be widely studied. My hon. Friends deserve well of their House for the courage and persistence in insisting that the Committee should take note of their views.
      Over the last 100 years there has been a change in the concept of the director in British company law. If one goes back to the 1856 Act—one of the first really important measures that this House introduced in regard to company law—it was then axiomatic that the directors were all independent. The idea of their taking executive responsibilities is virtually excluded by the terms of that Act, because that was not the practice in those days. It is only in the Board of Trade Order 1906 that one finds the concept of the managing director beginning to be accepted. The managing director is really a one-man committee of the supervisory board that is running the business.
      From there we have moved on and have now reached the stage where hon. Members say that to introduce into company law the idea of the non-executive director, or the independent director, would be an innovation. But the independent director is not an innovation; he is a relic, who is gradually disappearing. When one examines what those who claim to be non-executive directors are doing, one finds that they may be full-time officers of the company, or that they are serving the executives or the business in various functions and are not acting in a supervisory capacity at all. Because they are so involved in the management of the business they are unable to exercise supervisory functions. Therefore, the supervisory role of the directors is going by default.
      I do not accept the idea—which I am afraid emanates from the Department of Trade and industry—that if we refer to non-executive directors or independent directors this will be a catastrophic change and a great new

      1141
      intrusion into company law. It is quite the reverse. It is simply holding from further decline the status of the supervisory director.
      How are we, then, to proceed, and in particular how should we proceed with regard to banks? I pay a considerable and warm tribute to the Bank of England for producing its consultative paper last month on the role of audit committees in banks. It is an excellent document. It does not mention my 1985 Bill; it refers only to my 1983 Bill, which shows just how little effect Back Benchers can have, even on those who are most supposed to know the views of this House. But never mind. I pay tribute to this excellent paper. However, it is simply a matter of exhortation.
      The bank is asking the various institutions in the City to do what they think is right and to appoint an audit committee. I am afraid that if we rely on exhortation, the consequence normally is that all right-minded people who are efficient and run decently managed companies will do what they have been asked to—if they are not doing it already, while those whom one most wishes to correct, because their conduct is open to question, will find ways to use the audit committee in a manner that is perfunctory — or they may even refuse to appoint an audit committee at all. Therefore, my hon. Friend the Members for Chichester, for Harrow, East (Mr. Dykes) and for Suffolk, South were right when they suggested that the appointment of an audit committee should be mandatory.
      I recognise, however, that it is difficult to legislate when there is such a wide variety of institutions, some of which are outside the scope of British company law. Even if we want changes to the law that will catch companies as a whole on a very wide scale, the House has to recognise that banks are a special case and that it is advisable to let the Bank of England exert the pressure which, in another kind of institution, it would perhaps have been better for shareholders to exert on their own behalf.
      I believe that independent directors are very important and necessary in banks and that audit committees are appropriate. We must hope that they will become a regular and established feature of the management of banks. Therefore, I accept the compromise amendments that have been worked out and that have been moved by my hon. Friend the Member for Chichester and others. They barely meet the case, but they do meet it for the present, and I am willing to support them. However, I should like to make two comments.
      First, the method of conducting the business of an audit committee ought to be spelt out somewhere. There is a wealth of literature on the subject that is based on American and Canadian examples. The way in which audit committees have matured in the last 10 or 15 years in the United States provides us with an example of how audit committees should be operated. If we do not give clear guidance about what the audit committees should be doing, there will be perfunctory or inadequate performance that amounts to nothing, and it will waste the time of the people involved. The Bank of England should issue a further code of practice on what constitutes model rules for the functioning of an audit committee.
      Secondly, I am concerned that amendment No. 62A as it stands does not place sufficient, or indeed any, emphasis on the appoinment of an audit committee as a desirable practice. We know what the Bank of England has in mind, but if the clause stands as it does at present it will not place emphasis on the appointment of an audit committee—
      1142
      hence my amendment No. 63, which I beg to move. If, therefore, an institution were aggrieved by a bank decision that it did not meet the minimum criteria — in which case it is permitted under clause 25 to appeal to a tribunal—there would be no reason for the tribunal to support the bank's opinion. Surely it would be best to allude to the relationship formally established with the auditors by the independent directors in the relevant schedule to the Bill.
      I ask my hon. Friend the Economic Secretary whether he will at least agree to say specifically that the Bank of England will be acting properly if it follows up the consultation paper on the role of the audit committees in banks by insisting, where it sees fit, that the appointment of a properly constituted audit committee should be part of the minimum criteria.
      I would be satisfied if the Economic Secretary agreed to that, because I believe that it would give sufficient guidance to people who might be appointed to an appeal tribunal some time in the future, to show that that was what the House intended, even though it did not appear in the actual text. Better still, I should like my hon. Friend to accept my amendment No. 63, which I believe is fully in line with the Government's policy.
      Mr. Ian Stewart: I greatly respect the efforts of my hon. Friend the Member for Kensington (Sir. B. Rhys Williams) who, over the years, has advanced the virtues of non-executive directors and audit committees. I believe that he has undoubtedly played a significant part in encouraging the use of audit committees and in drawing attention to the importance of having non-executive directors in companies and, in this context, in banks.
      Before I deal with the points of substance, I should like to reply to my hon. Friend the Member for Harrow, East (Mr. Dykes) and other hon. Friends who have suggested that they have not got what they wanted, but that the Bill is not a bad compromise. It is not a compromise as it would not be practicable — I repeat what I said in Committee — to introduce the type of measures in the new clauses introduced in Committee, because they have wider implications for company law. In the absence of a clear definition of the responsibilities and functions of non-executive directors and audit committees, there are areas of doubt and dispute that could cause significant problems.
      9 pm
      I do not wish to labour the point, but if definitions of the specific responsibilities were attached to nonexcecutive directors they would cut across the general legal position of companies and their boards. Therefore, that would have implications for other areas of company law. Directors could evade performance of their duties by claiming to be non-executive directors. A whole range of issues germane to company law make it impossible to introduce workable provisions of the type that my hon. Friend's clauses seek to provide.
      There is no resistance on the part of officials or myself to such changes, but Ministers have a responsibility to ensure that legislation that is passed by this House is workable. It was on that basis alone that I differed with my hon. Friends in Committee when I said that, rather than introduce my hon. Friend's specific proposals, I thought it would be better to introduce provisions on Report that would have the same effect.
      I say that by way of explanation because I am glad that my hon. Friend the Member for Chichester (Mr. Nelson)

      1143
      said that he is willing, provided he is given a number of assurances, to withdraw the clauses and substitute the provisions that we have discussed and which I believe meet his needs.
      I strongly support the general purpose of the original clauses and the purpose of the amendments now put forward. In Committee there was unanimity in the belief that it was desirable to move in that direction. The only difference between my hon. Friends and myself was a difference of method. In Committee I gave an undertaking to introduce measures, if they could be properly defined, along the lines which are now introduced in the Bill. Therefore, my suggestions in Committee about what should be done have not changed.
      I wish to draw particular attention to the significance of the Bank of England paper on audit committees. That paper has been referred to by a number of my hon. Friends. I regard it as a positive statement and that view is shared by the Bank of England. I am aware that it was circulated to members of the Committee and I have placed a copy in the Library so that it is more widely available.
      I asked the Bank of England to take account of the comments made in Committee when this subject was debated because I thought that it should be aware of the specific points made and I hoped that it would endorse the proposals. I have a response from the Deputy Governor of the Bank of England in which he states:
      "The Governor and I have been following with interest the debate in Standing Committee on the role of non-executive directors and audit committees. While welcoming the principles which lie behind the new clauses which the Committee added to the Bill, we entirely share the reservations about their practical effect which you expressed; and I am pleased to learn that it is intended to introduce alternative provisions on Report which will emphasise the importance of non-executive directors, whilst giving the Bank discretion as to the requirement for them in individual cases."
      As my hon. Friends will recall, that discretion was on several grounds: the matter of size is relevant, but there is also a question of company structure, such as subsidiaries and parent companies. The Bank of England must take those matters into account.
      The Deputy Governor then referred to the consultative paper and continued:
      "As you will have noticed, the tone of the paper is direct. The Bank is committed to seeing that all major banking groups establish an audit committee and that in all cases, unless there are sound reasons to the contrary, at least one non-executive director is appointed who can undertake some of the audit committee functions."
      The Deputy Governor asked me to draw that to the attention of the House in this debate and I am glad to do
      so. It reinforces the provisions now being proposed to be introduced into the Bill. They will be the peg on which the bank can hang its requirements, as part of its prudential supervision, that non-executive directors should be the presumption and that wherever practicable they should be involved in audit committees.
      On page 80, the third heading under schedule 3 reads:
      "Business to be conducted in prudent manner."
      Under that heading, the bank has power to apply to individual institutions the requirements which it deems to be necessary for the prudent management of business of a bank or institution of that kind. If we couple that with the clear firm statement of the Deputy Governor, I can assure my hon. Friends that that means that banks of a
      1144
      certain size will be required, as part of what they need to do to satisfy the supervisor, to have audit committees and non-executive directors.
      The importance of that is considerable. It will greatly strengthen the stability of financial institutions. I noted what my hon. Friends said about the implications for going wider into the company sector at large. Obviously, that goes beyond my responsibilities. I can ensure only that the Bill for which I am responsible has the appropriate provisions. Therefore, I hope that the amendments of my hon. Friend the Member for Chichester will be accepted.
      My hon. Friend the Member for Kensington said he thought that it would be helpful if model rules were produced by the Bank of England, and I shall draw that to the attention of the Bank of England. The consultative paper is designed to answer several specific questions—for example, questions of size. I would not expect such rules to be available now, but after that consultative process is completed, the Bank, in that area as in all other areas where it requires certain criteria to be met for prudential purposes, will undoubtedly make it clear generally to the institutions what it expects.
      My hon. Friend went on to say that, because there was no specific reference to audit committees, the bank could be disregarded in trying to impose non-executive directors and audit committees. Given that it is the intention of the bank to have such provisions, it could not be overruled. It is the Bank of England, as the supervisory authority under this legislation, which will determine, after consultation, the basis of prudent management financial institutions which take deposits. Subject to reservations on the grounds of size or structure, it will require these provisions, and would not regard the requirement that business should be conducted in a prudent manner as being satisfied unless such conditions were met.
      My hon. Friend the Member for Kensington asked whether that could be set aside, for example, by the tribunal. The Bank of England certainly would be acting reasonably in insisting on that. It is not the job of the tribunal to second-guess the bank in its judgment on general supervisory requirements. I can give my hon. Friend a full assurance on those points.
      I welcome the introduction into statute for the first time of a reference to non-executive directors, as defined in the amendment. This is an important development. It is not necessarily the most important matter that has arisen during consideration of the Bill. Whether or not these provisions were inserted into the Bill, that would have been the requirement in practice as a result of the supervisor's actions. Nevertheless, I welcome the amendment, because it emphasises an important development which is particularly relevant to financial institutions. I shall not try to go wider than that and say what relevance it may have to companies more generally. I note in passing that there are many companies, even quoted companies. The difficulty of recruiting suitable non-executive directors of the right calibre in setting up equivalent provisions for non-deposit-taking companies throughout the economy is a pretty daunting task. Nevertheless, in the case of deposit-taking institutions, this development will be important. Therefore, I hope that the amendments of my hon. Friend the Member for Chichester will commend themselves to the House.
      Amendment agreed to.

      Clause 92
        AUDIT COMMITTEES
        Amendment made: No. 58, in page 69, line 5, leave out clause 92.—[Mr. Nelson.]
      Schedule 3

        MINIMUM CRITERIA FOR AUTHORISATION
        Amendments made: No. 61, in page 80, line 31, at end insert—
        'Composition of board of directors
        2A. In the case of an institution incorporated in the United Kingdom the directors include such number (if any) of directors without executive responsibility for the management of its business as the Bank considers appropriate having regard to the circumstances of the institution and the nature and scale of its operations.'.
        No. 62, in page 81, line 19, leave out second 'and' and insert (7A)'.
        No. 62A, in page 81, line 22, at end insert
        'and in determining whether those systems are adequate the Bank shall have regard to the functions and responsibilities in respect of them of any such directors of the institution as are mentioned in paragraph 2A above.'.—[Mr. Nelson.]
        No. 65, in page 81, line 34, after 'denominated', insert 'wholly or partly'.—[Mr. Ian Stewart.]
        Mr. Ian Stewart: I beg to move amendment No. 66, in page 85, line 30, at end insert—
        'Use of banking names
        12A.—(1) Subject to sub-paragraph (2) below, section 64 of this Act does not prohibit the use by an institution which is incorporated in or is a partnership formed under the law of any part of the United Kingdom and is deemed to be an authorised institution by virtue of paragraph 2 above of a name which was its registered business or company name immediately before the coming into force of Part HI of this Act or of section 36 of the former Act.
        (2) Sub-paragraph (1) above shall cease to apply—

        (a) in the case of an incorporated institution, if the total value in sterling of its issued share capital and undistributable reserves falls below their total value at the coming into force of Part III of this Act; or

        (b) in the case of a partnership in respect of which one or more designated fixed capital accounts are maintained, if the total value in sterling of those accounts falls below their value at that time.

        (3) Section 64 of this Act does not prohibit the use by—

        (a) an authorised institution which is a wholly-owned subsidiary of an institution to which sub-paragraph (1) applies; or

        (b) a company which has a wholly-owned subsidiary which is an institution to which that sub-paragraph applies,

        of a name which includes the name of the institution to which that sub-paragraph applies for the purpose of indicating the connection between the two companies.
        (4) In sub-paragraph (2) above "share capital" and "designated fixed capital account" have the same meaning as in subsection (2) of section 64 of this Act and "undistributable reserves" means such reserves as mentioned in paragraph (a) (ii) of that subsection.'.
        This is an important addition to the Bill. In Committee, I undertook to introduce amendments to this effect so that the use by authorised institutions of banking names just prior to the Act coming into force would be grandfathered — they would be carried forward—after the enactment of the legislation. I said that we would do what I described as great-grandfathering with the banking names which were in use by authorised institutions prior to the Banking Act 1979.
        I have great pleasure in moving this amendment because it was one of those aspects of the 1979 legislation
        1146
        which I remember opposing. Therefore, it is a privilege, eight years later, to be able to remedy what I considered to be an injustice at that time.
        9.15 pm
        Sir Eldon Griffiths: As my hon. Friend the Economic Secretary has said, the essence of the amendment is that the damage done by the 1979 Act to a number of small but highly reputable banks — among them the Manchester Exchange Trust and Reliance Trust, the Salvation Army bank — is to be undone. The 1979 Act took away from these highly reputable institutions the right which they have exercised for a century or more to describe themselves, quite accurately, as banks. When the Bill was introduced, it would effectively have continued that prohibition by adding another criterion which needed to be met before the name "bank" could be used—an equity capital of not less than £5 million.
        On behalf of the Reliance Trust and Manex—I have no interest in either—I made some detailed submissions to my hon. Friend the Economic Secretary. He received them courteously. He listened to those representations, but quite properly he gave no commitments. Subsequently, as I understand it, he had wide consultations. In Standing Committee, in response to amendments moved elegantly by my hon. Friend the M ember for Chichester (Mr. Nelson), my hon. Friend the Economic Secretary gave us the good news—he would move amendments to allow those small institutions to return to the pre-1979 situation of being able to call themselves banks.
        This new grandfathering, and indeed great-grandfathering, amendment gives full effect to my hon. Friend's undertaking to the Committee. On behalf of the Salvation Army and of the directors and shareholders of the Manchester Exchange Trust, I express my thanks—first, to my hon. Friend the Member for Chichester who moved those amendments in Committee, secondly, to all members of the Committee for the support which they gave at once to those amendments and, most of all, to my hon. Friend the Economic Secretary who moved this amendment.
        There is just one rather curious consequence of the amendment for the Manchester Exchange Trust. In recent years, it has become widely known in the City and among its customers and shareholders by the shorthand title of Manex. As a result of the amendment, it will have to revert to its pre-1979 title, the whole works—Manchester Exchange Trust, which is not quite so punchy a name. I very much hope that, when the Bank of England considers any request by this institution to call itself the Manex bank, it will not be given too difficult a passage. But, of course, that is a matter for the Bank of England, not for the House.
        I should like to conclude by quoting some words that I used on Second Reading when I said of my hon. Friend the Economic Secretary that he was an "astute" and "civilised" Minister. I should like to repeat those adjectives but add another word which has found common currency in banking circles in recent years—my hon. Friend is a "listening" Minister. Ministers who listen learn, and they serve the Government and the House well. I am very grateful to my hon. Friend.
        Mr. Nelson: I should like to add briefly to the elegant words of my hon. Friend the Member for Bury St. Edmunds (Sir E. Griffiths) and express my thanks and

        1147
        tribute to my hon. Friend the Economic Secretary for keeping faith with the Committee and bringing forward the amendment. It was a great joy to my hon. Friend the Member for Bury St. Edmunds, to other members of the Standing Committee and to me to meet, subsequent to the passage of the amendments in Committee, the representatives of the Manchester Exchange Trust and of the Salvation Army. That was a small step but one that gave them great pleasure. It certainly enhanced their views as to how representation to Members of Parliament can translate itself into changes in the law. I should like to add to the tributes that have been made and say how grateful I am to my hon. Friend for making the changes that he has proposed tonight.
        Amendment agreed to.

      Schedule 6

        MINOR AND CONSEQUENTIAL AMENDMENTS
        Amendment made: No. 67, in page 87, line 4, at end insert
        'and paragraph (f) shall be omitted'.—[Mr. Ian Stewart.]

      Schedule 7

        REPEALS AND REVOCATIONS
        Amendment made: No. 68, in page 92, line 20, at end insert—

        ' 1980 c. 46.

        The Solicitors (Scotland) Act 1980.

        In section 35 (2), paragraph (f) and the word "and" immediately preceding it.'. — [Mr. Ian Stewart,]

        Order for Third Reading read.
        Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Ian Stewart.]
        9.22 pm
        Mr. Hanley: There has been no opportunity for me to raise one small point. I shall hold the House back for about one minute. I welcome the Bill wholeheartedly. However, may I ask my hon. Friend the Minister whether, under clause 79—which deals with information that is passed by the Bank of England on to other people and the restrictions that are imposed on the disclosure of that information—information that is passed by the Bank to an auditor will stop the auditor from qualifying his audit report as a result of that information, unless he has previously obtained permission from the Bank of England? I understand that this is not the most sensible time to raise this matter, but it is the only time. I should be happy if my hon. Friend would write to me on that matter.
        9.23 pm
        Mr. Cash: I take this opportunity to thank my hon. Friend the Economic Secretary to the Treasury for the patient and skilful way in which he has helped us to conduct our way through the Bill. The Bill may not have attracted all the attention in the world, but it is a vital measure, in that confidence in the City of London will depend on the stability of the banking system. The skill with which my hon. Friend has steered the Bill through, and the way in which he has reacted to proposals that we
        1148
        have put forward, such as reciprocity, audit committees, non-executive directors and the like, is indeed very welcome and we are most grateful to him.
        9.24 pm
        Mr. Ian Stewart: I do not wish to detain the House for long at this stage. I shall write to my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) about the point that he made.
        I should like to take this opportunity to thank those officials who have assisted me with the preparation of this legislation and who have looked after my requirements and the requirements of the Committee and the House during the Bill's passage through those stages. I include in those thanks representatives of the Bank of England, who made themselves available to help on a number of matters that were of interest to hon. Members in the Committee and in the House.
        I should also like to thank my hon. Friends, the other Conservative Members, the hon. Member for Thurrock (Dr. McDonald) and other Labour Members who participated in the Committee proceedings and who have contributed this evening for the generally constructive way in which the Bill has been handled. I appreciate the way in which the hon. Member for Thurrock has looked after the Bill on behalf of the Opposition.
        The Bill completes a trilogy of substantial Bills that we have dealt with over the past three years. Although this Bill is not one of the most dramatic or politically contentious of this Session or of this Parliament, it is nevertheless important. It represents a significant improvement and strengthening of the system of banking supervision. The City of London and its banking systems are very important to the United Kingdom's economy and it is important, with the widening of markets and the internationalisation of business, that the City of London should be properly supervised and regulated. The Bill will take its place alongside the Financial Services Act 1986 and the Building Societies Act 1986 as part of a trio of legislation that will give a better regulatory and supervisory system in this country then in any other financial centre in the world.
        The Bill's passage through the House has led to a number of changes on the Board of Banking Supervision, on the question of significant and controlling shareholders, on reciprocity, on deposit protection, on banking names, on non-executive directors and on a number of other matters. During its passage the Bill has been considerably improved, but it leaves the House in good order. I hope that it will not be too long before it is on the statute book.
        9.25 pm
        Dr. McDonald: I do not intend to detain the House but I should like to express our gratitude to those officials and draftsmen who have been responsible for the Bill. It was a great pleasure not to have to consider a large number of drafting amendments during the passage of the Bill through Committee. I should like to thank the Economic Secretary for having responded to several of the points raised in Committee, sometimes by the Opposition and sometimes raised, shall we say, by one and a half sides of the Committee acting in concert. It has improved the Bill.
        It is important that the banking sector functions well. Therefore, having been given new powers of supervision in the Bill, I hope that the Bank of England will use to the

        1149
        full to supervise the banks and to ensure that we do everything possible to avoid the sort of scandals that have emerged over the past year.
        Question put and agreed to.
        Bill accordingly read the Third time, and passed.

      PETITION

        Mr. Alexander Ogorodnikov
        9.26 pm
        Sir Philip Goodhart: I beg to ask leave to present a petition on behalf of 335 constituents and their neighbours. It is a short petition, which states:
        "To the Honourable the Commons of the United Kingdom of Great Britain and Northern Ireland, in Parliament assembled.
        The Humble Petition of residents of Bromley, Kent area, showeth that the Soviet Christian, Alexander Ogorodnikov, is in abject conditions in a Soviet labour camp on a charge arising from his leadership of a Christian discussion group.
        Wherefore your Petitioners pray that your honourable House encourage the Foreign Secretary in his representations to the Soviet Government with the purpose of obtaining Mr. Ogorodnikov's release and reunion with his wife and son.
        And your Petitioners, as in duty bound will ever pray, etc."
        I had hoped that it would not be necessary to introduce this petition, but I spoke to a Foreign Office Minister late this afternoon and he told me that Mr. Ogorodnikov, like so many thousands of his fellow citizens, still seems to be imprisoned because of his religious beliefs.
        To lie upon the Table.

St. Christopher's Hospice
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peter Lloyd.]
9.27 pm
Sir Philip Goodhart: I am privileged to have St. Christopher's hospice in my constituency. For the last 20 years St. Christopher's has given comfort and care to many thousands of patients who have been terminally ill with cancer. It has also provided support for the families of those terminally ill patients. Last year the hospice staff and the home care team, which is an important part of St. Christopher's, provided help for about 1,400 terminally ill patients. That is about 1 per cent. of those who die from cancer in the whole country.
St. Christopher's has been a blessing to many of my constituents and to many who live in the neighbourhood, but it has also been an inspiration and example to the rest of the hospice movement in this country and the rest of the world.
When I went to St. Christopher's last week it was holding a three-day conference for 70 people, doctors, nurses, priests and pharmacists, from Scandinavia, on the care of the terminally ill. Last year there were 24 study conferences at St. Christopher's, mainly, of course, for doctors and nurses from this country.
The inspiration for all this is Dame Cicely Saunders, the chairman and principal founder of St. Chistopher's. She has been described by one of my constituents as a jolly saint. Certainly this remarkable woman has a warm and vigorous personality, and many people can testify to the power of her faith. It she is a saint, she is probably the first old girl of Roedean and the first holder of the DBE to qualify for this unusual distinction. On a slightly less high-flown level, it would be fair to say that she provides the same charismatic inspiration for the hospice movement as Florence Nightingale did for the whole nursing profession 100 years ago.
St. Christopher's is not just a one-woman movement. It has a caring staff of 127, of whom 105 are nurses. They are supported by an administrative and domestic staff of 100. They, in their turn, rely upon the assistance of 200 volunteers, many of whom come from my constituency.
The nurses tend to serve 18 months to two years and then take their experience back into the National Health Service. All this costs money. In 1986 St. Christopher's spent about £2·5 million and received just under £1 million from the NHS. The NHS has done rather well out of St. Christopher's. The estimated current cost of an in-patient at a London teaching hospital is £150 per night. The comparable cost at St. Christopher's is £110 per night, of which the cost to public funds is £46 per in-patient night.
The way in which the NHS contribution to St. Christopher's is calculated has grown in a haphazard way. Support levels for the hospice, for training and home care were set at different times by different people and authorities, being kept more or less in line with inflation. I suggest that the level of governmental support for St. Christopher's, which now stands at rather more than 35 per cent., should be recalculated and that the NHS should aim to meet 50 per cent. of St. Christopher's costs.
It would be reasonable if the National Health Service were to meet the ascertained cost of 30 of the 60 hospice beds, or £950,000 at current costs. It would be reasonable if the Government had met half of the home care team

1151
costs, amounting to a further £100,000. Finally, I believe that the National Health Service should meet the whole cost of the study centre, which would be a contribution of £200,000 a year.
In other words, I am asking that the NHS contribution, which now stands at almost £1 million, should be raised to £1·25 million. I think that this is reasonable, and I am astonished by my own moderation. Many people in the hospice movement would accept that a 50:50 partnership between the National Health Service and the voluntary sector in this extremely difficult field was appropriate.
It is right that St. Christopher's should be supported by the local community, but it should not have to devote excessive energies and thought to fund raising. It should not have to worry about cutting the work of the home care team because there is a shortage of vehicles. That seemed likely only a few weeks ago. I am glad to say that the generosity of a local firm, Ancaster Garages, has recently solved this mini-problem, but such a problem should not be allowed to arise in future.
The role of the hospice movement in the care of the dying has been brought to the attention of the public forcefully in recent months because of the AIDS problem in general and because of the recent trip of the Secretary of State for Social Services, to the United States, where he looked at the care of AIDS patients. After my right hon. Friend returned from America, Dame Cicely Saunders wrote to him:
"At St. Christopher's, we have for some time been debating the ways in which we could properly contribute towards the care of patients suffering from AIDS … We believe that our home care services could be developed to provide symptom control, counselling and support, possibly throughout our catchment area of south east London, providing close liaison could be arranged with local hospitals or specialist units. Such a service would lend itself particularly well to evaluation of the medical and social needs of patients and their families in the community, study of the appropriateness of community care, and definition of the type of in-patient support that is required. I should explain that we have strong reservations about the use of our existing inpatient facilities for AIDS patients. We have difficulty in meeting the present demand of those suffering from terminal malignant disease and motor neurone disease in our wards".
In a separate memorandum to the Select Committee on Social Services, Dame Cicely said:
"Another concern is the fact that we have little expertise in handling young demented patients who are still active and likely to wander. Moreover, a hospice ward is a very personal place, welcoming families, with their children, to be with the dying family member. Among them, I believe, there would be many who would be extremely fearful of doing this if they knew AIDS patients were being admitted. However irrational, this fear is a very real matter, and would be an added burden on those facing the loss of loved ones."
I agree with Dame Cicely's views and I am sure that the Government will provide the people and the money to take up Dame Cicely's offer of help with the training of home care teams who would in their turn look after AIDS patients and those who were terminally ill with cancer.
So far, I believe that the National Health Service decision to set up special AIDS wards in certain hospitals is correct. Clearly a few special wards will not be adequate if pessimistic projections of the spread of AIDS are proved right. No one, whatever his medical expertise, can say for certain what will happen. Some predict that 600,000 people will die of AIDS in this country before the end of the century. We must all hope that this turns out to be a
1152
huge over-estimate, but it could be an under-estimate. After all, the words "mutating virus", the description of the AIDS virus, can provoke a flicker of apprehension within the most celibate bosom.
As there is so much uncertainty, it would clearly be sensible for the Government to start making contingency plans for the establishment of AIDS hospices in the Greater London area, where the incidence of AIDS is likely to continue to be higher than elsewhere in the country. Here I note that the Bromley health authority, for example, has just handed over to the South-East Thames region the Lennard hospital site, which was a centre for geriatric care, and it is proposed that the South East Thames region should dispose of this site in the near future. But it has been estimated that if £1 million were spent on refurbishing the existing buildings the site could support 80 hospice beds. The Lennard site is accessible, but it was once an isolation hospital. I note that it is also reasonably close to the Wellcome research laboratory, which is also in my constituency. Wellcome has, of course, played a leading role in the development of drugs that have some impact on the control of AIDS symptoms.
Meanwhile, I note that AIDS is a disease that has come to this country from abroad, and we should clearly be wise to try to limit any increase in the pool of infection in this country. My hon. Friend who will be replying to this debate has recently reminded us in characteristically colourful terms that Britons travelling overseas can become infected and bring the virus back to to this country, and she has suggested a pleasantly acceptable way of limiting that risk.
Following recent reports in the newspapers, I am uncertain about the Government's attitude to potential foreign carriers who want to enter the country. Clearly, it would be wholly impractical to try to screen every visitor from overseas, as many foreign visitors pay only fleeting visits to this country. I note, however, that foreign students are necessarily going to stay in this country for some time and that many of them come from Africa, America and the middle east, where there is a high level of AIDS infection.
I know that there is a powerful body of opinion within and outside the Government which believes that all foreign students, except perhaps those coming from EC countries, should be screened before they come or as soon as they arrive in this country. It ought not to be too difficult to ensure that foreign students do not start their courses here until they produce a valid AIDS clearance certificate. The British Council — hardly an illiberal body — has supported the idea of an AIDS test for foreign students and I hope that the Government will make up their mind well before the next academic year begins.
Finally, having made a number of suggestions that would inevitably lead to increased expenditure on behalf of the taxpayer, I suggest that the Government should make some economies in the AIDS publicity programme.
Of course, any information campaign on the subject faces the twin dangers that it will be meaninglessly bland or offensively explicit. I have seen lots of posters and I have seen the AIDS cinema advertisement, all of which seem to me to be wastefully bland. On the other hand, some of my constituents think it offensive and ridiculous that taxpayers' money should be used to warn their 89-year-old grandmothers of the dangers of anal sex.
The Health Education Council, in a new form, is to take over responsibility for the AIDS information campaign. I do not know what budget has been earmarked for general

1153
propaganda about AIDS. However, if money is tight, and if future campaigns are not better based, I suggest that that budget is squeezed and the money diverted to fund the sensible projects to which I have referred.
9.45 pm
The Parliamentary Under-Secretary of State for Health and Social Security (Mrs. Edwina Currie): I am very pleased that my hon. Friend the Member for Beckenham (Sir P. Goodhart) has taken up the question of the way in which we are to care for AIDS victims, especially in the context of the excellent work carried out by the hospice movement in his constituency and by his constituents.
I want to place on record how much I value this opportunity to pay tribute to all those who give selflessly to the care of others throughout our services in the Health Service and elsewhere. However, the hospices are rather special. They bring not only a skill in controlling pain and other symptoms and a deep understanding of the sense of impending loss among patients and their relatives, but a compassion and friendship. They enable people to feel in control of their lives once again and to die with dignity. I am certain that we all hope that when our end comes, we have that opportunity.
The hospice movement has been developing that approach to terminal care since the 1960s. There are now about 100 hospices, 38 of which are run by the Health Service. I am patron of the Nightingale hospice run by the Macmillan Continuing Care appeal in Derby on behalf of the health authority. I also had a small part to play when St. Mary's hospice was established in Selly Oak in Birmingham. Many of the other hospices, like St. Christopher's, are entirely run by voluntary bodies. Altogether, they provide about 2,000 beds, 90 per cent. of which are currently used by cancer patients.
St. Christopher's hospice was opened in 1967 on a capital cost of £500,000 which, 20 years ago, was a far larger sum than it is now. That money was raised entirely by voluntary subscription. During the past 14 years, St. Christopher's hospice has achieved a worldwide reputation as a centre of excellence in the care of the dying. I am not entirely sure why my brief states 14 years. I suspect that the hospice has been a centre of excellence since it was opened.
Under the medical directorship of Dame Cicely Saunders, who is now recognised as an international authority on the subject, the hospice has pioneered methods of care based on a comprehensive approach to the needs of each patient as a total individual and, where appropriate, as a member of a family. Treatment has been directed towards the effective relief of pain without the destruction of personality in the terminally ill.
St. Christopher's is an independent hospital and a Christian foundation. Its catchment area is restricted to a 10-mile radius from Sydenham for in-patients, to facilitate visiting by friends and relatives, and a six-mile radius for home care. Most of the catchment area therefore falls within the boundaries of the South East Thames regional health authority and the remainder within the South West Thames regional health authority.
My hon. Friend the Member for Beckenham referred to the cost per patient day. 1 agree that the service at St. Christopher's, in that respect as well as in many others, is worthy of considerable attention. I understand that there are about 200 full-time and a number of part-time staff at St. Christopher's. The full-time staff include two
1154
consultants, a senior registrar and two junior registrars, nursing staff, social workers, ward orderlies, domestics, clerks, catering assistants and a full-time chaplain. The running of the hospice is assisted by 200 volunteers who offer their services in a variety of capacities under the supervision of a voluntary health organiser. They all do excellent work. However, I suspect that in the Health Service, where our costs are somewhat higher per patient day, we could not expect to run such a service on the basis of half paid staff and half volunteers as occurs at St. Christopher's. I am not saying whether or not I wish it were so: I merely point out that the Health Service substantially relies on our excellent paid staff.
St. Christopher's hospice is independent of the Health Service and is administered by a council of management chaired by Dame Albertine Winner. The council members include Dame Cicely Saunders, Dr. West and Dr. Gillian Ford. All the capital costs of the hospice come from private sources. I mentioned earlier the £500,000 raised by voluntary subscription. Revenue costs are borne mainly by contractual arrangements, chiefly with the regional health authorities that I mentioned. Some patients contribute to the cost of their own care, either from their own money or through one of the provident associations.
It is the firm policy of the hospice not to exclude patients on financial grounds. Apart from the National Health Service, which my hon. Friend mentioned as a source of direct funding, there are several other public sources of funding, which assist or might assist the hospice and the hospice movement. For example, Drapers wing is funded by the local authority social services department, from which the residents are drawn, in combination with personal payments by some of those patients.
The out-patients' department is funded by grants from the DHSS through the South East Thames regional health authority. Supplementary benefit of up to £230 a week is available for terminal care patients who qualify and is paid for many such patients in nursing homes which make a charge. That benefit is payable only if a charge is regularly made.
Sir Philip Goodhart: Many people in the hospice movement think that this form of financing is not entirely appropriate. There are problems in trying to get hold of that money. The nearly £1 million about which I spoke covered the generality of Government support.
Mrs. Currie: I understand the point that my hon. Friend makes. I merely make the point that the additional needs of terminally ill patients in such establishments as nursing homes are already being recognised by the payment of £230—should the nursing home be set up in such a way that a claim can be made. I also take my hon. Friend's point about how the system functions.
I understand that the hospice needs to find about £55,000 each month in order to pay its running costs. This amount comes chiefly from bequests, open days and appeals. The hospice is supported to an extraordinary extent by local people. I am sure that they derive great satisfaction from the opportunity to show their gratitude for the work of this marvellous place. Despite the tightness of the running costs, I understand that the hospice is planning a modest expansion, which will include a patient day centre. I am sure that that will be most welcome in the area.
In general we do not make central finance available to voluntary hospices as such, but the local health authorities

1155
can assist them and the level of support around the country varies from nought to 80 per cent. of revenue costs. We estimate that the average is about 35 per cent. and that is about the level of funding which St. Christopher's attracts at the moment from that source.
Where a hospice plays an essential part in a health authority's overall plan, we expect that authority to make an appropriate financial contribution. We take rather a firm view on that. As well as making a grant, a health authority can contract for beds and can donate or let surplus land or buildings. I understand that in Birmingham in the very early days we were also able to assist in one or two quiet ways with secretarial assistance, office accommodation and the like. There are various ways in which such help can be given.
The precise level of spending on specific services and support for individual local hospices should be left for health authorities to determine. Health authorities will have a lot more money to spend in the coming year. Our plans for the year starting in April provide for an increase in overall allocation to health authorities in England alone of £626 million. That is 2·2 per cent. above forecast inflation. We shall, in addition, allow them to retain benefits of cash released through cost improvement programmes that are planned to achieve £150 million in the current year. We have made an allocation of £4·4 million for 1987–88 to the three Thames regions that together care for 75 per cent. of the AIDS cases that my hon. Friend the Member for Beckenham has mentioned.
My hon. Friend the Member for Beckenham has rightly drawn attention to the tragic and growing need for terminal care for this new group of patients suffering from AIDS, many of whom are young people who would otherwise have had the greatest part of their lives to which to look forward. By 31 January 1987 AIDS had already claimed the lives of 355 people in the United Kingdom. This year we expect 1,300 cases and next year 3,000 new cases. We expect that the cumulative total of deaths by the end of next year will be nearly 10 times the present number.
Most of us prefer to be treated in our own homes among family and friends and in familiar surroundings, whatever our illness. A hospice may be the choice for some and it may be the solution in their circumstances. Inpatient care may be appropriate for active treatment of certain phases of illness, but towards the end a different approach may be needed. I hope that my hon. Friend will agree that we need a full and varied spectrum of care facilities.
We are about to ask all health authorities to examine their current services for the terminally ill, including AIDS patients, and to plan to fill any gaps, if possible by collaboration with the voluntary sector. On 3 March a circular on terminal illness will be sent to all regional general managers, district general managers, special health authorities, family practitioner committees and community health services — in other words, to all the appropriate bodies. I shall arrange for a copy to be placed in the Library of the House of Commons and for another to be sent to my hon. Friend, who has shown such a caring interest in this subject.
In addition, my right hon. Friend the Secretary of State for Social Services intends to hold a conference before Easter on the provision of care for AIDS sufferers outside
1156
hospital. It will bring together the experience of those in the relevant professions, the statutory and voluntary services and the churches. The intention is to indentify more clearly the priorities and responses for the years ahead. As my hon. Friend knows, the Secretary of State recently visited the United States of America and was impressed by the innovative approach to community care there, especially in San Francisco, where the average length of in-patient stay during the progress of the disease is 12 days, compared with 31 in the United States of America as a whole, and at least 50 in England. My right hon. Friend will report to the conference on what he learned on his American visit.
There is clearly scope in this country for the community-based patient care of AIDS sufferers. In the United States, care is provided at the patient's home to supplement or replace hospital care, according to individual circumstances. That can include the administration of medicines with nursing supervision and the use of infusion fluids and antibiotics. In other words, there are possibly no limits to what can be done outside hospital.
My right hon. Friend told me that in San Francisco the volunteer community agency, SHANTI, works with the city to provide small-group housing for patients with AIDS who would otherwise be unable to be independent. Patients may share an apartment and be regularly monitored by volunteers, who alter the services as the condition of the residents changes. Residents also help to care for each other. Obviously, there is a great deal to learn from all those developments. I have no doubt that those who are experienced at caring for the terminally ill, for example those working at St. Christopher's, will have much to offer us in their contributions on this subject.
The hospice movement in the United Kingdom has traditionally offered care to cancer patients. There has been some concern about whether it can offer an appropriate service to people who suffer from AIDS. I know that in the past the council of management at St. Christopher's has found that the hospice was not the right place to care for those patients. There are 130,000 deaths from cancer each year, 20,000 of whom are patients who will spend some time in a hospital bed, and the hospices have therefore felt unable to admit patients from other specialties. However, I am glad to know that Dame Cicely Saunders and others from St. Christopher's will shortly visit the chief medical officer, Professor Sir Donald Acheson, to discuss how the hospice might become involved in the care of AIDS patients. I understand that some other hospices will admit AIDS patients by agreement with the local health authority. One hospice specifically for AIDS patients, known as the London Lighthouse, is being planned. We are presently considering what financial assistance we can offer.
As well as 100 United Kingdom hospices ranging from two beds upwards, there are about 125 home care teams involving over 300 nurses. Much of this is funded through the Health Service direct. We also have about 25 hospital support teams in NHS hospitals, providing help and advice to dying patients in the hospital—
It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peter Lloyd.]
Mrs. Currie: Many hospices are developing day care units which patients living at home can attend. There is

1157
clearly scope for a hospice-in-the-home approach, rather similar to the San Fransico movement, involving widespread support from volunteers in the community. Perhaps as much as anything, the experience of St. Christopher's in motivating and organising volunteers to help and work with people in the direst straits at the end of their lives might be one on which we can draw. To put the matter in context, about 35 per cent. of cancer patients die at home, 60 per cent. die in hospital and 5 per cent. die in hospices.
If the existing hospices choose to take AIDS patients—the choice is theirs—they will need help and support on education and training for staff. In the coming financial year, we have allocated £200,000 to our two AIDS counselling training units at Paddington and Bolton so that they can double the present training capacity and offer courses to community health staff, personal social services staff, hospice staff, and anybody else who requires it. As well as counselling training, the units offer valuable advice and support to care staff on the many issues that arise in the care of AIDS patients. We hope, too, that the educational resources of hospices will be available to staff who undertake the care of AIDS patients. In other words, we see that as a two-way process. We look forward to close co-operation on education and training.
I heard what my hon. Friend said about the advertisements. We have come a long way in six months. Last year, most people did not even know what AIDS was. This year, in our recent independent survey of people's reactions to the current campaign, we have established that about 95 per cent. of people have seen one of the advertisements. That is a remarkable achievement already. Around the same number of people — 95 per cent. —think that we are right to have this campaign. Around 80 per cent. now feel confident that they know enough to avoid catching AIDS. I remind my hon. Friend that that was one of the objectives of the campaign. There is clearly still some hestitation about what does not cause AIDS and what processes in normal life are perfectly acceptable and will not cause the passing of AIDS, but at the moment public education is our only vaccine.
I take my hon. Friend's point about the good lady aged 89. I merely suggest that, to have read about any kind of sex, she must have picked up a sealed envelope that clearly had a message printed on it in large type about what was inside. She must have read the message. She must then, nevertheless, have opened the envelope and, no doubt, sat down somewhere to read it.
1158
We have thought long arid hard about what should be in the leaflets. We needed to get them out as quickly as possible. I am sure that my hon. Friend will agree that, to try accurately to extract the names of, say, elderly people from what might have been out-of-date censuses or electoral registers would have been an almost impossible task and widely open to error. Indeed, there might have been some older people who would have been offended at being left out. We should recognise that there is a risk to the whole population and that the whole population needs to be included in a campaign of this kind.
The most serious counter-argument that I offer my hon. Friend was made by the Secretary of State in the debate on AIDS late last year, which is that we may have to risk offending some people in order to promote the greater good of the country as a whole. I hope that my hon. Friend can accept that.
Suggestions about the screening of students and visitors are due to be considered by the Cabinet Committee that is now so ably chaired by my right hon. Friend the Lord President of the Council, to whom I am sure my hon. Friend would like to add his words of thanks for the excellent work that the Committee is doing. I share my hon. Friend's misgivings about the practicality and the expense of screening everybody who comes to the United Kingdom, or who may be returning to the United Kingdom after a visit abroad. Whether it is practical and in the interests of the British people to screen particular groups will be for the committee to decide.
I began by paying tribute to the hospice movement in general and I shall close by saying a few words in particular about St. Christopher's. The sympathetic and honest relationships that have developed at St. Christopher's between patients, relatives, nursing and medical staff are a shining example in a dark world. Death has been recognised as a part of life and as a family affair. The bereaved are not only counselled, advised and assisted; they are uplifted and helped towards a better understanding of our lives and souls as human beings.
AIDS is a growing problem. This year we expect a further 1,300 cases. If St. Christopher's can help — by advice, training, counselling and support — it will help AIDS patients and their families and, in the end, perhaps it will help all of us to come to terms with this terrible scourge.

National Health Service (West Midlands)
10.6 pm
Mr. Iain Mills: I am most grateful to be called so late to raise a number of matters concerning the National Health Service in the west midlands and their effect upon my constituents and others.
Expenditure on the National Health Service rose by over 20 per cent. in real terms between 1978–79 and 1985–86, and it will continue to rise. It accounts for £18 billion or £19 billion now, compared with £7 billion or £8 billion in 1978–79. That is a considerable increase in expenditure, and I wish to say a few words about the way in which this vastly increased expenditure is affecting the west midlands.
I wish to make some helpful, good and buoyant points on behalf of normally silent colleagues like my hon. Friend the Member for Staffordshire, South-East (Mr. Lightbown), who tells me that the establishment of the first part of the new district general hospital in Tamworth is extremely welcome to his constituents. As I live three or four miles away from that hospital and almost adjoin my hon. Friend's constituency, I, too, welcome it.
My good friend, the normally silent Member of Parliament for Warwickshire, North (Mr. Maude) —an area that I used to represent before the boundary changes — is as pleased as I was, when I represented that constituency, about the extension of facilities at the George Eliot hospital. As a resident of the area, I suppose that it would be the hospital to which I should be taken if I were taken ill. Therefore, I feel even more strongly that the extension of those facilities is most appropriate.
Having represented the area until the boundary changes, l am sure my hon. Friend will not mind my saying how strongly he and I feel that that expansion is extremely good news. It is of direct consequence to my constituents and to those of my hon. Friend the Member for Solihull (Mr. Taylor), as Meriden and Solihull represent the two parts of the borough of Solihull. I ask my hon. Friend the Minister to refer to the splendid news a few months ago about the establishment at last of a district general hospital for Solihull. That news has been received with joy in the villages of Meriden, Hampton-in-Arden, Berkswell, Knowle and Dorridge, who will use that hospital, as well as by the people who live in the urban parts of Solihull who are represented so ably by my hon. Friend the Member for Solihull. The cost involved is more than £20 million. I do not wish to appear mean to my hon. Friend the Minister, but the sooner we get that hospital the better. It is extremely good news.
I wish to pay tribute to those who served in the inadequate facilities of the elderly, existing hospital in Solihull. I am sure that nurses, doctors, patients and those who represent their interests will keenly look forward with much joy to witnessing my hon. Friend the Minister cutting the tape and opening the first of the new wards when the new hospital is established.
The resource allocation — the RAWP formula—has caused some difficulties. In the north of my constituency there is an area known collectively as Chelmsley Wood. It encompasses the council estate area of Chelmsley Wood, the Kingshurst constituency and parts of Castle Bromwich. We have a large population of elderly, socially
1160
deprived and disabled people. Inevitably, their medical needs are large and they must look to east Birmingham as well as Solihull for their treatment.
In the past, I have been critical of the RAWP formula and the way it has coped with cross-boundary flows. I welcome the working party's report and I wonder whether my hon. Friend has any comments on the presentation of cross-boundary flow and the adjustments that may be allowed to cope with an area like Chelmsley Wood. Chelmsley Wood is in the Solihull district health authority to which I pay tribute. The chairman and chief executive of that authority, Mr. Black and Mr. Jackson, do an excellent job.
In the past I have felt that the RAWP calculation did not sufficiently allow for the large number of people who have specialist needs and who must cross to the east Birmingham hospital for treatment. I hasten to add that Birmingham is a friendly area—we are all Birmingham people in the Chamber tonight.
I wish that RAWP could cope with the extra allocation that is needed. That would help east Birmingham hospital which, as the Minister will be aware, has faced great difficulty because of the temporary closure of a number of wards. I was pleased to hear from the Minister that that temporary closure had resulted, not in a turnover of fewer patients per bed, but in the treatment of more patients per bed. That was due to the adjustments that the hospital made in answer to the demands made upon it. The hospital's approach was excellent.
It is important to pay tribute to the regional health authority that has had great difficulties during this period. I congratulate the Government on their allocation of funds, both capital funds and the recently announced increase that will give the west midlands a 6·7 per cent. revenue increase in the resource distribution.
I also pay tribute to Mr. Jim Ackers, the chairman of that authority, and the officials for the way in which they have transformed that authority to the benefit of my constituents who travel to that authority for treatment. The establishment of the Solihull district general hospital is welcome. My hon. Friend the Member for Staffordshire, South-East welcomes the establishment of the first stage of Tamworth hospital. I only hope that the Minister can give us further good news tonight.
I hope that the Minister tikes note of the fact that, in this debate, I have welcomed the establishment of better hospital facilities and pressed for a recalculation of the RAWP and to take account of its effect upon the Chelmsley Wood cross-boundary flow to east Birmingham hospital, but I also ask her carefully to consider the needs of the elderly and disabled who live in Hockley Heath, and their desire for a general practice in that village. Ideally, a pharmacist should also be part of that practice.
How will the RAWP announcement and the recent announcement of extra moneys for the National Health Service in the west midlands affect waiting lists throughout the region? If there is anything that my hon. Friend the Minister can say about that or the capital plan, I should be most grateful.
10.14 pm
The Parliamentary Under-Secretary of State for Health and Social Security (Mrs. Edwina Currie): I am delighted to have this opportunity to speak a little about the good work of the West Midlands regional health authority and to congratulate my hon. Friend the Member for Meriden

1161
(Mr. Mills) on seizing his opportunity this evening with such alacrity. It is good to see my hon. Friend the Member for Staffordshire, South-East (Mr. Lightbown) present. I know that my hon. Friend the Member for Warwickshire, North (Mr. Maude) wishes to be associated with my hon. Friend's remarks.
I always think it is a great pity that elevation to the Whips Office means that excellent speakers cannot speak in the House as they previously did with such determination on behalf of their constituents. I assure the House, as one who must sign many hundreds of letters to colleagues every week, that they are among the most assiduous. They are undoubtedly looking after their constituents with the greatest determination.
I should like to thank my hon. Friend for his compliment that all hon. Members present were made in Birmingham. Although I am not Birmingham born and bred, I spent 11 years there as a councillor and as a member of various health authorities. I have always been delighted to be known as Brummagemware — a bit brassy, a bit hard, but jolly useful. Whether I have "Made in Birmingham" stamped on me, and where, is another matter.
This morning I had the opportunity to open and was pleased to open in the west midlands the Scott Atkinson centre for the Bromsgrove and Redditch health authority. We all had a thoroughly enjoyable time. The new centre cost more than £200,000 to build and was paid for with money that the health authority had generated from the disposal of surplus land. I congratulate all concerned in the west midlands and in the individual district health authorities for the vigorous way in which they have converted property which is no longer required for service into cash and then into further services for patients.
The centre I visited today is for pre-school children with developmental difficulties and its excellent work will ensure that when those children attend school they will have every chance of progressing normally and not of developing problems in later life. I thought it was excellent. I also had the opportunity to visit a joint funded community home for the mentally handicapped where I had lunch with the residents. That, too, was a delightful experience.
To return to the source of the money for the Scott Atkinson centre, so far land sales in the west midlands have realised £10·5 million and we expect further sales totalling £4·5 million. That is a valuable supplement to the £800 million which the West Midlands regional health authority plans to spend on new capital schemes over the next 10 years, some of which have already been briefly mentioned.
The health services in the west midlands, since I have lived in the region, have improved dramatically and I am sure that my hon. Friends would want to be associated with that remark. Historically the region received substantially less than a fair share of the national cake, taking account of the population and the needs and health requirements of its people. Many local people had to trek to London for health care or, indeed, to do without. As a Member of Parliament who represents a Trent constituency, I put it to my hon. Friends that it was even worse where I now live. However, the west midlands had considerable difficulties.
The Government are committed to redistributing resources to where the patients are. This year, 1986–87, the west midlands has received a cash increase of 8·5 per cent,
1162
which is well above the level of inflation. That has taken its budget to more than £1 billion. Next year—which starts in April—there will be a further cash increase of 6·7 per cent. In addition, many health authorities are releasing additional resources through greater efficiency which they can then spend on priority areas. The growth money is now funding a considerable improvement in services.
I mentioned the capital programme. New hospitals are being built, not only in Solihull and Telford but in Tamworth, Bromsgrove and Redditch. There is also a major rebuilding programme in Birmingham as the old single specialty hospitals close and are replaced with new facilities on district general hospital sites. We shall be sad to see the old accident hospital go. The facilities that we are building for the next century, which we hope our sons and grandchildren will see standing, are being planned and built right now with the money that the Government are providing.
The Health Service in the west midlands is expanding rapidly. The total number of staff employed by health authorities in the region increased by 11 per cent. between 1978 and 1985. The number of direct care staff — doctors, nurses and professional and technical staff — increased by 21 per cent., which included an 18 per cent. increase in the number of doctors and dentists and a 19 per cent. increase in the number of nurses and midwives. The west midlands now employs 4,000 more nurses than it did in 1979. Let it not be said that that was simply because we cut the hours. We did cut the hours, but we funded that with extra hours provided by paid staff. Over and above that, we have also funded growth considerably.
All the categories of hospital activity in the region show significant increases in the number of patients treated. For day cases—patients who until a few years ago may have had to undergo a spell of in-patient care—the increase between 1978 and 1984 was more than 50 per cent. In parallel, the number of in-patients treated increased by 19 per cent. and the number of out-patients increased by 11 per cent.
Solihull health authority covers the constituency of my hon. Friend the Member for Meriden. He is right: some exciting developments are taking place. There has already been considerable growth. The number of in-patient cases treated rose between 1982 and 1985 from just under 17,000 to nearly 21,000. The number of out-patient cases has gone up from 83,000 to 87,000. However many satisfied customers we have in Solihull, there are many more now than there were in 1982 and when the Government took office in 1979. The amount of revenue money allocated to the authority has risen from £21·5 million in 1982–83 to £26·5 million now. That is a considerable increase.
My hon. Friend asked for more details of what is planned in Solihull for the new hospital. Phase 1, which will cost £1·1 million and is due for completion in 1988, will be for diagnostic services, particularly for the district pathology service. The laboratories of our health authorities are assuming a bigger and bigger part in the planning that we have to make. As we increase the importance of prevention and diagnostic and screening services, the laboratory is an essential part of what is happening. We must ensure that our staff are able to work in good, clean and safe facilities. I am glad to see that this is the first stage of that movement.
The main phase, phase 2, which will cost £23·6 million, is due to open in 1993. It will comprise 155 acute beds. 96

1163
geriatric beds, 72 mental illness beds, four theatres and, I understand, seven X-ray and other suites for diagnostic services, as well as the full support services. It will be a showpiece in the west midlands. I suspect that, knowing the calibre of people who will work there, it will be a showplace for the whole country. I am delighted that that development has been announced. We look forward to seeing it go ahead at full speed and providing services to my hon. Friend's constituents.
Many of those services are currently being provided in east Birmingham, the neighbouring district health authority. One of the results has been a build-up of waiting lists in east Birmingham. The long-term solution is to build the new hospital in Solihull. Many patients cannot wait that long. My right hon. Friend the Secretary of State made a major announcement this week about waiting lists and the money to be allocated to them in the two years starting April. The announcements which we have heard this week refer to the year starting in April, and we expect people to get cracking right away. In the West Midlands regional health authority, in March 1986, a year ago, 78,000 people were on the waiting list. The total number waiting over a year was 22,000 people, or about 28 per cent. In our view that was unacceptable, even though the number had been at its peak during the strikes that had been supported by various hon. Members who normally sit on the Opposition Benches, but who are not in attendance tonight.
An allocation of £2·88 million has been made to the west midlands. We understand that this will mean that 12,300 extra in-patients will be treated, which will include, for example, 266 extra joint replacements and 860 extra cataract operations. Discussions are still continuing on the exact allocations in east Birmingham, but I understand that we can expect allocations of about £41,000 for ear,
1164
nose and throat waiting lists and about £70,000 for ophthalmology waiting lists which, of course, will be particularly helpful for elderly people waiting for cataract and other operations. I understand that the authority also gives a high priority to trauma and orthopaedics. It has requested a substantial sum, but the exact allocation is being discussed. Trauma and orthopaedics are major elements in waiting lists all over the country. The excellent facilities throughout the west midlands need to be coordinated to ensure that the best service is given.
As my hon. Friend knows, I am constrained in making any comment about the primary care services in Hockley Heath because of the ways in which the system is functioning and the appellate function of my right hon. Friend the Secretary of State. I was deeply impressed when my hon. Friend the Member for Meriden came with a constituent to talk about these services and discuss his concern that people in villages in his constituency should get the very best service. My hon. Friend is right. I represent a rural area, which is not all that dissimilar from his, and I must say that the people in our villages deserve the best service that we can get for them. The problem is that the Health Service has to pay for all this. Our obligation is to ensure that that money is allocated as efficiently as possible. We therefore take into account everything that has been said by my hon. Friend on behalf of his constituents.
In these ways, therefore, we are ensuring that the west midlands is getting its share of the cake. We expect that the west midlands people will do as they always do and spend that money as efficiently as possible. We look forward to improved health care for all the people of the region.
Question put and agreed to.
Adjourned accordingly at twenty-seven minutes past Ten o'clock.

THE ARTS
  Items in lieu of Tax
  Items in lieu of Tax
TRANSPORT
  Prometheus Project
  Prometheus Project
  Bedford Bypass
  Bedford Bypass
  A22 (Improvements)
  A22 (Improvements)
  Level Crossing (Eastbourne)
  Level Crossing (Eastbourne)
  "Highway Code"
  "Highway Code"
ENVIRONMENT
  Planning Inquiries
  Planning Inquiries
  Urban Development Grant
  Urban Development Grant
  Trafalgar Square
  Trafalgar Square
  Derelict Land Grant
  Derelict Land Grant
  Rate Payments (Default)
  Rate Payments (Default)
  Loft Insulation
  Loft Insulation
  New Towns Commission (Asset Disposal)
  New Towns Commission (Asset Disposal)
  Local Authority Debt
  Local Authority Debt
  Council Housing
  Council Housing
  Homes (Radon Levels)
  Homes (Radon Levels)
  Greenwich Royal Observatory
  Greenwich Royal Observatory
EDUCATION AND SCIENCE
  Education Expenditure
  Education Expenditure
  Student Grants
  Student Grants
  Student Grants
  Student Grants
  School Closures
  School Closures
  University Grants Committee
  University Grants Committee
  Primary Schools (Expenditure)
  Primary Schools (Expenditure)
TRADE AND INDUSTRY
  Postal Services
  Postal Services
  House of Fraser
  House of Fraser
  Airbus
  Airbus
  Takeovers (Share Purchase)
  Takeovers (Share Purchase)
  Insider Trading
  Insider Trading
  Trade Statistics
  Trade Statistics
  National Girobank
  National Girobank
  United States (Distribution Licensing)
  United States (Distribution Licensing)
WALES
  Hospital Charges
  Hospital Charges
  Cereals
  Cereals
  Annual Review of Agriculture
  Annual Review of Agriculture
ATTORNEY-GENERAL
  County Courts
  County Courts
  Crown Prosecution Service
  Crown Prosecution Service
  "Warfare as a Whole"
  "Warfare as a Whole"
  Industrial Tribunals
  Industrial Tribunals
EMPLOYMENT
  Community Programme
  Community Programme
  Labour Statistics
  Labour Statistics
  Project Proposals
  Project Proposals
  Portsmouth Jobcentre (Leaflets)
  Portsmouth Jobcentre (Leaflets)
  Literacy and Numeracy
  Literacy and Numeracy
  Community Schemes and YTS
  Community Schemes and YTS
  Restart
  Restart
HOME DEPARTMENT
  Fresh Start
  Fresh Start
  Lincoln Prison (Hepatitis)
  Lincoln Prison (Hepatitis)
  Forensic Pathology
  Forensic Pathology
  Prison Population
  Prison Population
  Vincent Jones Hickey
  Vincent Jones Hickey
  Police Car Chases
  Police Car Chases
  "The Secret Society"
  "The Secret Society"
  Mr. Nguyen Von Hai
  Mr. Nguyen Von Hai
  Metropolitan Police
  Metropolitan Police
SOLICITOR-GENERAL FOR SCOTLAND
  BBC Scotland (Police Raid)
  BBC Scotland (Police Raid)
  National Security
  National Security
  Publications (Official Secrets Act)
  Publications (Official Secrets Act)
ENERGY
  Coal Imports
  Coal Imports
NORTHERN IRELAND
  Emergency Provisions
  Emergency Provisions
  Prison Population
  Prison Population
DEFENCE
  United Kingdom-USA (Trade Ratios)
  United Kingdom-USA (Trade Ratios)
  Royal Navy (Drugs)
  Royal Navy (Drugs)
  Haslar Hospital
  Haslar Hospital
  RAF Binbrook
  RAF Binbrook
  "Warfare as a Whole"
  "Warfare as a Whole"
  Zircon Project
  Zircon Project
  Overseas Accommodation
  Overseas Accommodation
AGRICULTURE, FISHERIES AND FOOD
  Alternative Land Use
  Alternative Land Use
  Farm Land (Taxation)
  Farm Land (Taxation)
  Livestock Farms
  Livestock Farms
  Cereals
  Cereals
  Fishing Industry (Light Dues)
  Fishing Industry (Light Dues)
  Fishing Fleet
  Fishing Fleet
  EC (Two-tier Pricing)
  EC (Two-tier Pricing)
  Milk Quotas
  Milk Quotas
  Fertilisers
  Fertilisers
  Food Aid
  Food Aid
  Food Additives
  Food Additives
  Common Agricultural Policy
  Common Agricultural Policy
  Horticulture
  Horticulture
  Fishing Industry
  Fishing Industry
  Sheep
  Sheep
  North Sea Fishing
  North Sea Fishing
  Agricultural Support
  Agricultural Support
  Set-aside Policies
  Set-aside Policies
  Food Prices
  Food Prices
  Pesticides and Herbicides
  Pesticides and Herbicides
  Agricultural Holdings (Rates)
  Agricultural Holdings (Rates)
  Farmers (Marketing Aid)
  Farmers (Marketing Aid)
  Farmers (Capital Grants)
  Farmers (Capital Grants)
  Agricultural Policy
  Agricultural Policy
  Fishing Industry (Policy)
  Fishing Industry (Policy)
  EC (Food Sales)
  EC (Food Sales)
  Green Pound
  Green Pound
  Animals (Exports)
  Animals (Exports)
  Environmentally Sensitive Areas
  Environmentally Sensitive Areas
  Farm Animal Welfare Visits
  Farm Animal Welfare Visits
  Farm Animal Council (Animal Husbandry)
  Farm Animal Council (Animal Husbandry)
  Fishing Industry (Catch)
  Fishing Industry (Catch)
  Farm Products (Prices)
  Farm Products (Prices)
  Toxic Residues
  Toxic Residues
  Rhubarb
  Rhubarb
  Soft Fruit
  Soft Fruit
  Hormone Legislation
  Hormone Legislation
SCOTLAND
  Regional Aid
  Regional Aid
  Job Clubs
  Job Clubs
  BBC Scotland (Police Raid)
  BBC Scotland (Police Raid)
  Manpower Services Commission Schemes
  Manpower Services Commission Schemes
  Radiation (Dundee)
  Radiation (Dundee)
  Archaeological Heritage
  Archaeological Heritage
  Chiropodists
  Chiropodists
  Kestrel Marine Life, Dundee
  Kestrel Marine Life, Dundee
  Rape
  Rape
  Dog Wardens
  Dog Wardens
PRIME MINISTER
  EC Commission (Meeting)
  EC Commission (Meeting)
  Light Dues
  Light Dues
  Government Achievements
  Government Achievements
  Government Objectives
  Government Objectives
  European Community
  European Community
  10 Downing Street (Television Sets)
  10 Downing Street (Television Sets)
  Law Officers
  Law Officers
  European Investment Bank
  European Investment Bank
  Engagements
  Engagements
SOCIAL SERVICES
  Perivale Hospital
  Perivale Hospital
  Maternity Payments
  Maternity Payments
  Local Office (Camberwell)
  Local Office (Camberwell)
  Organ Donors
  Organ Donors
  Breast Cancer Screening
  Breast Cancer Screening
  Prescription Charges
  Prescription Charges
  Severe Weather Payments
  Severe Weather Payments
  Limited List Prescribing
  Limited List Prescribing
  Benefits
  Benefits
  Claims (Stretford)
  Claims (Stretford)
  Hospital (Eastbourne)
  Hospital (Eastbourne)
  GPs (Patient Lists)
  GPs (Patient Lists)
  Psittacosis
  Psittacosis
  Free Food for the Needy
  Free Food for the Needy
  Meningitis
  Meningitis
  Cervical Cancer
  Cervical Cancer
NATIONAL FINANCE
  Personal Incomes
  Personal Incomes
  Committee of Public Accounts (Recommendations)
  Committee of Public Accounts (Recommendations)
  Privatised Industries (Value)
  Privatised Industries (Value)
  Industrial Buildings Allowance
  Industrial Buildings Allowance
  Public Expenditure
  Public Expenditure
  Taxation
  Taxation
  Public Sector Expenditure
  Public Sector Expenditure
  Earnings (Reductions)
  Earnings (Reductions)
  Imports
  Imports
  EC Rebate
  EC Rebate
  European Investment Bank
  European Investment Bank
  Maintenance Payments
  Maintenance Payments
  Government Trading Fund
  Government Trading Fund
FOREIGN AND COMMONWEALTH AFFAIRS
  Ulyana Germanyuk
  Ulyana Germanyuk
  Non-Self-governing Territories
  Non-Self-governing Territories
  Palestine Refugees (Lebanon)
  Palestine Refugees (Lebanon)
  Hawk Aircraft
  Hawk Aircraft
  Diplomatic Immunity
  Diplomatic Immunity
  Hong Kong
  Hong Kong
  Overseas Students
  Overseas Students
  Strategic Defence Initiative
  Strategic Defence Initiative
  United Nations
  United Nations
Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Manchester): The LORD CHANCELLOR on the Woolsack.

Gibraltar
Lord Boyd-Carpenter: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether the conversations in January between the Foreign and Commonwealth Secretary and the Spanish Foreign Minister resulted in decisions by Spain to withdraw the Spanish military guard on the Gibraltar frontier and to withdraw the ban on the use of Spanish airspace by British military aircraft approaching or leaving Gibraltar airport.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): My Lords, no, although both issues were raised by my right honourable and learned friend. We shall continue to pursue these matters with the Spanish authorities.
Lord Boyd-Carpenter: My Lords, I thank my noble friend for that reply. Will she say whether the Spanish Foreign Minister during the discussions when this matter was raised gave any explanation whatever of the unfriendly conduct which both these matters represent by a fellow member of NATO and the EC?
Baroness Young: My Lords, these matters were discussed with the Spanish authorities. We entirely take the point made by my noble friend, but we no longer think it appropriate to have a military guard at the frontier between two Community partners and NATO allies. We very much hope that the Spanish authorities will take the same view.
Lord Cledwyn of Penrhos: My Lords, it has been reported that some measure of agreement was reached between the Foreign and Commonwealth Secretary and the Spanish Foreign Minister on the use of Gibraltar airport by Spanish citizens. Will the Minister say to what extent that is true? Perhaps I may take the supplementary question of the noble Lord a step further and ask whether it is possible that Her Majesty's Government might discuss with our partners in the European Community their participation and co-operation in order to achieve a settlement as regards Gibraltar?
Baroness Young: My Lords, the use of the airport is one of the matters which is currently being discussed between ourselves and the Spanish Government. We have not yet come to any conclusions, although we should like to make progress on this, as we should on other matters.
Lord Mellish: My Lords, is the Minister aware of the fact, and does she take it into account, that the vast majority of the people who live in Gibraltar express the desire to remain under British control? Is that to be completely ignored?
Baroness Young: My Lords, on the contrary, we have made our position absolutely plain. We stand by the preamble to the 1969 constitution.
Lord Kennet: My Lords, will the Government agree that this difference between two members of the European Community poses a certain historical political difficulty on one side, and that the governments are animated by the maximum good will towards each other? Therefore it behoves the parliaments of both countries to play it very cool.
Baroness Young: My Lords, I am sure that it is valuable that parliamentarians from both the British and Spanish Parliaments should meet to discuss these matters. They may come to a greater understanding of each other's viewpoints.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that, uncharacteristically, she did not answer the question I asked as to what explanation the Spanish Foreign Minister gave for his country's attitude to this matter, other than perhaps that it was in breach of the Tenth Commandment?
Baroness Young: My Lords, it is always difficult for a British Minister to speak on behalf of another government as regards their views. However, I am quite sure that if my noble friend, who is so wise on so many matters, reflects upon this he will no doubt see that the Spanish authorities also have their political difficulties over the matter.
Lord Caccia: My Lords, will the noble Baroness also agree that it is rather sad to see a once proud, and rightly proud, nation behaving in what can only appear as such a petty manner?
Baroness Young: My Lords, yes. We very much hope that these matters of the ceremonial guard and the use of the air space will be resolved. That would create an atmosphere of greater confidence, which would be helpful.

Trident: Number of Warheads
3.4 p.m.
Lord Mayhew: 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 with how many independently targeted warheads they propose to equip the Trident fleet.
The Minister of State for Defence Procurement (Lord Trefgarne): My Lords, as the noble Lord well knows, the information sought is highly classified and cannot therefore be given.
Lord Mayhew: My Lords, is the noble Lord aware of the statements of Ministers that, since the Trident fleet will carry not more than two and a half times the number of warheads carried by Polaris, the level of nuclear escalation is two and a half times? That ignores the greater size of the Trident warhead, its greater accuracy, its greater range and its ability to be independently targeted. Will the Minister look into this matter more carefully, including ministerial statements, and try to give the House a more objective and less political assessment?
Lord Trefgarne: My Lords, the noble Lord may be assured that Ministers have examined this matter. Indeed, I have given the noble Lord some of the answers to which he has referred. However, I am not prepared to give information which would be of value to our potential enemies, and I hope that the noble Lord is not prepared to do that either.
Lord Morris: My Lords, is my noble friend aware that, if any member of the Alliance had had experience in office, he would never have asked that question?
Noble Lords: Oh!
Lord Trefgarne: My Lords, it is the fact that the noble Lord, Lord Mayhew, once served in the Ministry of Defence that makes this question so puzzling.
Lord Mayhew: My Lords, is the noble Lord aware that the Government are fully entitled to withhold information on security grounds? As a Minister I have done that myself. However, the Government are not entitled to replace that information with propaganda statements.
Lord Trefgarne: My Lords, I do not believe that answering the noble Lord in the way that I did was propaganda.
Lord Paget of Northampton: My Lords, is the Minister aware that all of us know enough to realise that if the warheads we are getting were unfortunately to blow up in these islands, the explosion would be sufficient to incinerate every particle of carbon in the whole country? As we are built up as to about one-third of particles of carbon, it would definitely be awkward for us.
Lord Trefgarne: My Lords, that is why it is so important to ensure that that never happens.
Lord Jenkins of Putney: My Lords, is the noble Lord aware that the purpose of this question is to ascertain whether or not Trident is to be acceptable to the Alliance? It would seem that if the Minister can give the noble Lord a satisfactory answer, the Alliance will be able to support him on Trident. Therefore, he will possibly try a little harder. Is the Minister also aware that on the question of Trident, there is no halfway house: one is either for it or against it?
Lord Trefgarne: My Lords, as I understand the matter, and I confess to some confusion here, the
1204
policy of the noble Lord, Lord Mayhew, and his colleagues as regards our nuclear deterrent is a policy of "rust away" while the policy of noble Lords opposite is one of "give away".
Lord Kennet: My Lords, if a man ordered a two-litre car, then cancelled the order and replaced it with an order for a four-and-a-half litre car promising the world that he would somehow reduce its capacity to two litres, would the Government regard that as a wise purchasing policy?
Lord Trefgarne: My Lords, the purpose of Trident is to replace an independent deterrent which, by the mid-1990s, will be becoming rapidly less credible. That is why we have ordered the system which we have ordered and, as a matter of fact, the number of warheads available to Trident at the time of its introduction will be substantially fewer than the opposition will have at that time.
Lord Diamond: My Lords, is the noble Lord aware of the principle, which I believe lawyers generally accept, that if something untruthful is said and you do not object at the time, you may be held to be accepting that untruthfulness? In those circumstances can the Leader of the House advise me how I am to deal with the extraordinary statement made by one of his supporters that no member of the Alliance has ministerial experience?
The Lord President of the Council (Viscount Whitelaw): My Lords, perhaps this would be a suitable moment for me to say that I do not think that the noble Lord needs advice from me, and I doubt whether he would take it if I gave it to him. I think the only advice I should give him at the moment is that possibly we are getting a little wide of the orginal Question and should pass on to the next one.

OAU: Chairman's Visit
3.11 p.m.
Lord Merrivale: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will make a statement on the visit this week of the chairman of the Organisation of African Unity, H E Colonel Denis Sassou-Nguesso, President of the People's Republic of Congo.
Baroness Young: My Lords, President SassouNguesso paid a working visit to the United Kingdom from 16th to 18th February in his capacity as chairman of the Organisation of African Unity. The president was received by Her Majesty the Queen and met my right honourable friend the Prime Minister. Talks were also held with senior Government Ministers and with leaders of the Opposition parties.
Lord Merrivale: My Lords, I thank the noble Baroness for that brief statement. In view of the elaborate arrangements made for the success of the president's visit, can one take it that there is a

1205
welcome, increasing interest on the part of Her Majesty's Government in francophone Africa? Secondly, was there any discussion on the rescheduling of repayments by the Congo? Was any assistance suggested to enable a British firm to continue and complete the halted, important Brazzaville to Kindamba road project?
Baroness Young: My Lords, I can assure my noble friend that we welcome the visit by President SassouNguesso and his party. Very useful and friendly discussions were held both on African issues and on matters of bilateral concern. On the question of the road that my noble friend mentioned, I can only say to him that projects cannot be looked at in isolation from broader aspects of the IMF programme agreed with the Government of the Congo, and Congo's overall external debt.
Lord Cledwyn of Penrhos: My Lords, when the Prime Minister met President Sassou-Nguesso, can the noble Baroness confirm that her right honourable friend raised with him the possibility of a constitutional conference on the problems of southern Africa? If that be the case, could the noble Baroness say what were the terms of reference of that proposal and whether it was discussed with our partners in the European Community?
Baroness Young: My Lords, as the noble Lord will understand, details of my right honourable friend the Prime Minister's conversation must remain confidential, but I understand that my right honourable friend said that while it is of course for the people of South Africa to work out their own future those wanting progress in South Africa should focus their attention on practical steps to bring about a dialogue. Such steps might include, for example, laying groundwork for a constitutional conference attended by all political and racial groups in South Africa. The noble Lord will therefore see that there was no question of discussing this with our Community partners.
Lord Cledwyn of Penrhos: My Lords, I am grateful to the noble Baroness for that full and interesting reply. In fact the Prime Minister did go as far as proposing a form of conference which we, on this side, I think, would, subject to detail, be prepared to support. Could she say what the reaction of the president was to that proposal and whether it has been possible to take it a stage further?
Baroness Young: My Lords, I, of course, note with interest the point that the noble Lord makes about his party's support for such a conference. I have explained the position, and this was one of the matters that President Sassou-Nguesso noted in the course of his talks. But I ought to make it clear that from the point of view of the Government there is no United Kingdom initiative to propose such a conference.
Lord Hatch of Lusby: My Lords, while congratulating the noble Baroness on her welcome for this visit, may I ask whether she would agree that it is a remarkable feat for the OAU to have existed despite
1206
all its problems—similar problems to those of the EC and the Organisation of African States—for nearly 30 years? Would she agree that the closest association and communication between Her Majesty's Government and the OAU can only bring benefit to the people of Africa, and indeed to the people of this country?
Would the noble Baroness agree that when the Prime Minister is prepared to meet the chairman of the OAU it shows a welcome sympathy between the British Government and British people and the people of Africa?
Baroness Young: My Lords, I am glad that the noble Lord, Lord Hatch, should recognise what my right honourable friend the Prime Minister has done in regard to these friendly and useful meetings on this occasion.

High Technology: Work Permits for US Citizens
3.16 p.m.
Lord Orr-Ewing: 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 temporary work permits are granted annually for USA citizens coming to the United Kingdom to work in the high technology industry, and what is the average delay between the application for and the issue of such permits.
The Secretary of State for Employment (Lord Young of Graffham): My Lords, in 1986, 303 work permits were issued to United States citizens for work in the high technology industry. Of these, 60 were for employment of less than 11 months. The average time taken to process such permits is not recorded but 83·5 per cent. of all work permit applications received in 1986 were decided within eight weeks.
Lord Orr-Ewing: My Lords, I thank my noble friend for that satisfactory Answer. Has he seen the report in The Times that 471 electronic companies were asked in which EC country they wanted to invest, and the great majority said that Britain was the best and that they intended to create 9,000 new jobs here in that industry in the next two years? Bearing that in mind, will he see whether in special circumstances the average time can be speeded up, since it would appear that one skilled electronic engineer may create as many as a hundred jobs in this country?
Lord Young of Graffham: My Lords, I am grateful to my noble friend for his question. I am even more glad that many companies throughout the world are now beginning to recognise the great benefits of living in a country where the economy has seen such satisfactory and steady progress. Sixty two per cent. of all applications received in 1986 were replied to and permits issued within four weeks. We shall always respond urgently to applications.
Lord Beswick: My Lords, leaving aside the nonsense with which the noble Lord prefaced his remarks, can

1207
he say why the decision takes eight weeks? If there is an application from an American, ought not the response to be almost automatic? What criteria keep the application eight weeks on the stocks before permission is given?
Lord Young of Graffham: My Lords, I shall refuse to leave aside the nonsense, as the noble Lord describes it, because it happens to be the reason why we receive so many work applications from high technology companies. They realise and recognise the benefits of working here. Putting aside that statement, we must ensure, whatever happens, that those who come into this country have skills and talents that are not readily available today among those living here. That is why we take eight weeks. It is not a very long time on average. As I said, 62 per cent. of applications are dealt with within four weeks. We shall always have regard first, to the skills of those looking for work in this country, and then we allow these applications.
Lord Hatch of Lusby: My Lords, is it not more important for Her Majesty's Government to pay greater attention to the training of British people in high technology, where we have failed lamentably to keep up with many other countries of the world, than to import Americans to do the work which could be done by British people if there were sufficient training facilities for them?
Lord Young of Graffham: My Lords, the Manpower Services Commission spends £30 million a year in training expenditure for high technology as part of a total budget of£½ billion for training. We are seeing that we are making up for many years of neglect in training. I think that the facts speak for themselves.
Lord Tordoff: My Lords, would the noble Lord care to read the leader which appeared in The Times this morning?
Lord Young of Graffham: My Lords, I shall certainly read the leader in The Times this morning. I even read the leaders in other newspapers.

Business
3.20 p.m.
Lord Denham: My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Lucas of Chilworth will, with the leave of the House, repeat a Statement that is to be made in another place on the Rover Group.

Keble College Oxford Bill [H.L.]
Read a second time, and committed to an Unopposed Bill Committee.
Selwyn College Cambridge Bill [H.L.]
Read a second time, and committed to an Unopposed Bill Committee.
University College London Bill [H.L.]
Read a second time, and referred to the Examiners.

Channel Tunnel Bill: Select Committee
3.22 p.m.
The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara): My Lords, I beg to move the Motion standing in my name on the Order Paper.
I do not propose to detain the House by explaining all the provisions of the Motion, which is mainly routine; but it is appropriate that I comment on the fifth and sixth paragraphs which are unusual. Many of your Lordships will know that during the earlier stages of the Bill there was a great deal of discussion about the access arrangements to the Folkestone terminal site. The Select Committee in another place decided against amending the Bill in that respect, since the amendments proposed at that time would have had operational disadvantages and were strongly opposed by Eurotunnel.
There is now an alternative proposal called "joint southern access" which is acceptable both to the local authorities and to Eurotunnel which involves some, but not all, of the scheduled works in the earlier alternative proposals. The Government have said in Standing Committee in another place that they will give the proposals a fair wind in your Lordships' Select Committee and this provision follows through that commitment. It is also obviously sensible to establish a deadline for petitions against such authorisations which is later than the closing date set for petitions against the Bill, including those calling for alterations.
Moved, That, as proposed by the Committee of Selection, the Lords following be named of the Select Committee on the Channel Tunnel Bill:

Ampthill L. (Chairman)

Elliott of Morpeth, L.

Galpern, L.

Gray of Contin, L.

Harris of Greenwich, L.

Holderness, L.

Shepherd, L.

That four be the quorum of the Committee;
That, notwithstanding the practice of the House that appearances on Petitions shall be entered at the first meeting of the Committee, appearances on Petitions against the Bill shall be required to be entered as and when the Committee direct;
That the evidence taken before the Committee shall be printed and delivered out from day to day;
That it be an Instruction to the Committee that they have power to consider and, if they think fit, to make any amendment to the Bill with respect to the access to or egress from the terminal area by road which was included among the amendments proposed before the Select Committee on the Bill in the House of Commons in connection with which plans, sections and a book of reference were deposited in the Office of the Clerk of the Parliaments on 31st July last year;
That any Petitions against any such amendment shall be deposited not later than 27th February 1987; and
That the Committee do meet at 4 o'clock on Wednesday next.—(Lord Brabazon of Tara.)
On Question, Motion agreed to.

Channel Tunnel Bill: Instruction
Lord Taylor of Blackburn Lord Taylor of Blackburn rose to move, That it be an Instruction to the Select Committee on the Bill that they consider whether there will be any adverse consequences in any region of Great Britain arising from the construction and maintenance of the Channel Tunnel and that they report to the House any recommendations they may have to alleviate such adverse consequences.
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper.
The reason I do this—I do not want to detain your Lordships long—it is simply because many of us felt after listening to the debate on Second Reading that very little was said about the effect of the tunnel on the various regions throughout Great Britain. Therefore, as the committee has now been set up, we feel that this is an appropriate time to move the Motion in my name.
Moved, That it be an Instruction to the Select Committee on the Bill that they consider whether there will be any adverse consequences in any region of Great Britain arising from the construction and maintenance of the Channel Tunnel and that they report to the House any recommendations they may have to alleviate such adverse consequences—(Lord Taylor of Blackburn.)
Lord Brabazon of Tara: My Lords, I wish to make it clear that the considerations which I believe underlie the Motion of the noble Lord are some that the Government believe to be of the greatest importance. The Government are convinced that the Channel Tunnel project is capable of bringing great benefit to all the regions in the United Kingdom, both while it is being constructed and when it is operating. During the construction period orders for equipment and materials will need to be placed both by Eurotunnel and by British Rail totalling in the region of £1 billion. By far the greater part of this expenditure will take place outside the South-East, mainly in the Midlands, the North and Scotland.
Once the tunnel is working the Government believe that the whole of the British economy will benefit from improved and more reliable links with Europe, including and in particular through running freight trains. Nevertheless we recognise that action is needed to maximise those regional benefits. That is why the Government have accepted, subject to improvements in both drafting and substance, a new clause put forward by the Opposition in another place requiring British Railways to draw up a plan for the dispersal of rail traffic, including their proposals for regional distribution centres and depots.
1210
That is why the Government also strongly support the joint Eurotunnel-British Rail regional survey of the opportunities that the tunnel will offer to industry. It is also why the Government believe that it is of great importance that the potential effects of the Channel Tunnel are taken fully into account in the continual process of monitoring the economic situation in the regions, for which my right honourable friend the Secretary of State for Trade and Industry is responsible.
Nevertheless the Government believe that there would be considerable dangers in imposing a further burden on the Select Committee, which this Motion, if accepted by the House, would imply. First, it would mean that the House would be instructing the committee to look at a major area of public policy which should properly be dealt with on the Floor of the House. The function of a Select Committee on a hybrid Bill is to look into those matters which cause the Bill to be hybrid in the first place; that is, to consider the effects of the Bill upon private rights and interests.
It is of course the case that Private Bill Committees sometimes need to consider matters which impinge upon areas of public policy, and this is well-established. But a hybrid Bill is not a private Bill; it is a public Bill and the matters of public policy which it contains are, according to the established practices of the House, dealt with by a Committee of the Whole House in the usual way. To instruct the Select Committee to consider this matter would be to confuse the functions of the two committees and set an unfortunate precedent.
Secondly, it is already clear that the Select Committee faces a formidable task even to discharge its appropriate responsibilities. I understand that by the closing date yesterday some 1,460 petitions had been received. I think it would he imprudent to add further to this burden and we should not underestimate what might be involved. To comply with the proposed Instruction the committee might well conclude that it needed to return to the House for a further Instruction authorising it to hear specialist evidence and even to appoint specialist advisers. I think the nature and the purpose of the committee would be radically changed in a wholly inappropriate way.
I hope, therefore, that the noble Lord will take note not only of the difficulties that the Motion would impose on the committee which has now been appointed, but also of the Government's commitment to maximising the benefits of the tunnel when it is built for all parts of the country. In view of these considerations I hope the noble Lord will judge that he should not pursue this Motion.
Lord Taylor of Blackburn: My Lords, although I do not accept everything that the Minister said in the earlier part of his statement, and I do not accept that there has been sufficient study within the regions, I certainly see the administrative worries of going to a Select Committee, with all the questions that one would like to put, all the evidence to be taken and all the research that will have to be done. I realise that the Select Committee has a terrific task on its hands to do what it has to do now. Therefore I feel that I should

1211
withdraw this Motion. Nevertheless I hope that at a later stage we shall have an opportunity to put our views from the regions to some committee or to the whole House later. I beg leave to withdraw the Motion.
Motion, by leave, withdrawn.

Local Government Finance Bill
3.28 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Skelmersdale): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That it be an instruction to the Committee of the Whole House to whom the Local Government Finance Bill has been committed that they consider the Bill in the following order:

Clause 1,

Schedule 1,

Clauses 2 to 7,

Schedule 2,

Clauses 8 to 10,

Schedule 3,

Clause 11,

Schedules 4 and 5,

Clauses 12 to 16.

—(Lord Skelmersdale.)
On Question, Motion agreed to.

Criminal Justice (Scotland) Bill [H.L.]
The Minister of State, Scottish Office (Lord Glenarthur)The Minister of State, Scottish Office (Lord Glenarthur) rose to move, That the Bill be recommitted to a Committee of the Whole House in respect of Clauses 48 to 51; and that Standing Order 44 (No two stages of a bill to be taken on one day) be dispensed with to enable the remaining stages of the Bill to be taken on the same day as the Committee (on recommitment).
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Your Lordships will recall that on Tuesday last I explained to the House that at the request of the noble Lord, Lord Morton of Shuna, certain amendments to the Bill relating to serious fraud would be recommitted to a Committee of the Whole House on Thursday, 26th February. The Motion standing in my name enables this to be done. It also enables us then to proceed to receiving the Report in respect of those clauses and to take the Third Reading of the whole Bill as had originally been intended. I beg to move.
Moved, That the Bill be recommitted to a Committee of the Whole House in respect of Clauses 48 to 51; and that Standing Order 44 (No two stages of a bill to be taken on one day) be dispensed with to enable the remaining stages of the Bill to be taken on the same day as the Committee (on recommitment).—( Lord Glenarthur.)
On Question, Motion agreed to.

Territorial Sea Bill [H.L.]
3.30 p.m.
Baroness Young: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Baroness Young.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ABERDARE in the Chair.]
Clause 1 agreed to.
Lord Denning Lord Denning moved Amendment No. 1:
After Clause 1, insert the following new clause:
("Sovereignty over air space and sea bed.
.( ) The rightful sovereignty of Her Majesty, her heirs and successors, in right of the United Kingdom extends not only to the territorial sea as above defined but also to the air space above it and the sea bed and subsoil below it.
( ) The provisions of the Territorial Waters Act 1878 relating to the trial of offences shall extend to the whole of the sea, air space, seabed and subsoil over which Her Majesty has sovereignty as aforesaid.")
The noble and learned Lord said: This is an important Bill, one much to be welcomed. It extends the historial three-mile limit to 12 miles around the coast of the United Kingdom. The three-mile limit has existed for hundreds of years. It was supposed to be the limit over which we could command obedience by reason of three miles being the length of a cannon shot. That three-mile limit has continued over the years and is still maintained by some great countries, notably the United States of America. But now, by this Bill—and, as I say, it is much to be welcomed—the breadth of our territorial seas is to be extended to 12 miles. But the Bill says nothing about the air space above or the sea bed or the subsoil below it.
In my submission—it is my reason for putting down amendments—our sovereignty and jurisdiction should extend not only over the sea itself but also the air space and the sea bed and below. That desirability is exemplified by the incident reported in today's newspapers. I have analysed the reports as best I can. A trawler, the "Summer Moon", registered in County Down in Northern Ireland, was fishing in the Irish Sea off the Isle of Man. A United States submarine was cruising below the surface, although, as I see international law, it had no right to do so. It could only proceed on the surface flying its flag.
Cruising below the surface, the submarine caught up the nets of the trawler and dragged her backwards for 2½ hours over a distance of 10 miles. Helicopters were called out on a rescue operation but eventually the trawlermen managed to cut themselves free. In so doing, pieces of the submarine's equipment marked as being of United States origin came up in the nets.
The submarine could have, and perhaps did have, equipment and devices by which it could and should have detected the position of the trawler. Her commander could be said, in not using that equipment, to have been negligent and perhaps criminally negligent. If it had taken place within the jurisdiction of this country, then he would be liable to prosecution under our own law for criminal damage.

1213
If any of those on the trawler had been drowned he might even have been subject to a charge of manslaughter.
The question is: was that United States submarine subject to our law? At the moment, it is not, because it was not within three miles. It was probably 10 miles off the coast of the Isle of Man. But if this Bill is passed the limit would refer to 12 miles off the Isle of Man.
What would be the position? This goes back to one of the greatest cases in our law, filling nearly 200 pages in the law reports of 1876. The case concerned a German ship, "The Franconia", which set sail from Hamburg for the West Indies. In the Channel, twoand-a-half miles off Dover she ran into an English ship, "The Strathclyde", which was on its way from London to Bombay. The German ship sank "The Strathclyde". Passengers were drowned and killed, including Jesse Young. For that, the commander of "The Franconia" was brought before our courts and charged with manslaughter.
Had our courts jurisdiction? Even though it happened only two-and-a-half miles off Dover, had our courts jurisdiction? A special court of 14 judges was brought together and the minority—and I would have been in that minority—going back to Hale and Coke, our great authors, said that the territorial waters were part of the realm of England and that we had jurisdiction over them. But the majority, I am sorry to say, held the contrary: that we had no jurisdiction over a foreign ship passing within our own territorial waters.
The result of the case is stated in one of the leading books on international law by Mr. O'Connell. It says at page 470:
"The English jurists of the seventeenth and eighteenth centuries attributed to the King not only a jurisdiction over the seas adjoining the coast of England but also a property right in the waters and the seabed beneath. The latter was taken to be as much a part of the realm as the dry land itself".
Then he goes on to the case of R. v. Keyn, which I have just mentioned to your Lordships, in 1876. This is the next page:
"R. v. keyn thus clearly decided that the territory of England ends at the low-water mark and that the jurisdiction of the Admiral which begins at that point did not, historically, embrace foreign nationals".
There follows a description of what happened subsequently:
"To avoid the embarrassment of not being able to exercise police control over foreigners in British territorial waters, Parliament intervened and in 1878 enacted the Territorial Waters Jurisdiction Act".
By that statute, the ruling of the majority in R. v. Keyn was overruled and it was held that the territorial waters around England, within the prescribed limits, were under the sovereignty of England.
That is why I suggest that we should make it clear that this Bill deals only with the sea itself. It does not deal with the waters underneath or where the submarines go. It does not deal with the air space where the helicopters go. If the case of the Northern Irish trawler I have mentioned came before our courts, there would be a great deal of argument about our courts having no jurisdiction over this United States vessel. Even if our own people had been killed, we
1214
would have had no jurisdiction. It would be the same if it was a helicopter. In the case of a helicopter from a United States ship going through our territorial waters, crashing and injuring people in boats below there is no jurisdiction. I submit that this ought to be put right by Parliament itself.
In framing my amendments I have gone by the very words of the convention in 1958, which was ratified and signed by this country and by the Russians, the United States and so on. I have taken the very words of the articles of the convention. For instance, in regard to the first amendment I have taken the words of Article 1 of the 1958 convention:
"The sovereignty of a State extends, beyond its land territory and its internal waters, to a belt of sea adjacent to its coast, described as the territorial sea".
That convention did not deal with the 12 miles or the three miles, because they had not been settled at that time. Article 2 goes to to say:
"The sovereignty of a coastal State extends to the air space over the territorial sea as well as to its bed and subsoil".
That is all I have put into my first amendment.
I then deal with the Territorial Waters Jurisdiction Act, which as it stands applies only to the sea but which should also apply to the seabed and the air space above it. My purpose is simply to deal with that in order to cover the case which I have been describing of the trawler in the North Sea.
I now come to the last amendment and here I go by the Geneva Convention of 1958, which has been approved by all and which I have mentioned. That states in Article 14 that ships of all states enjoy the right of innocent passage through the territorial seas. Paragraph 6 states:
"Submarines arc required to navigate on the surface and to show their flag".
Is it not very important that that should be part of the law of England? Does not the incident in the Irish Sea show that? Apparently the United States submarine was under the water and could not be seen or detected. She was not going on the surface or showing a flag. In framing these amendments all I have done is to go by a convention to which this country is a party and to which it subscribed. As we have sovereignty over the seas it ought to be included.
During the Second Reading debate my noble friend Lord Cledwyn raised these points and my noble friend Lady Young replied. She said (at col. 398 of the Official Report of 5th February):
"The limit applies generally to the water, the sea bed and the air space".
Then in regard to submarines she said (at col. 400):
"I can confirm that ships of foreign states enjoy innocent passage, but submarines would not be able to pass through the area except on the surface, and aircraft could not overfly".
I welcome and agree with every word that the noble Baroness said, and I have put them in these amendments. But what I have to tell your Lordships is that what my noble friend Lady Young says in this House, which is recorded in Hansard, forms no part of the law of England. The judges are not even allowed to read Hansard to see what she has said. If she should say that it is in the treaty, I must reply that the treaty is no part at all of the law of England until it is embodied in a statute of the law of England.
Although I welcome the noble Baroness's statement, and agree entirely with every word of it, I suggest nevertheless that in this important development in our law we should declare not only that the territorial waters are 12 miles wide—differing from the United States on that—but that our sovereignty extends to the air space above, to the sea below, to the sea bed and to the subsoil, whatever may happen there. We should have jurisdiction. Submarines should travel on the surface showing their flag and they are not to go below the surface in our territorial waters.
That is all I want to say on my amendments. They all stand or fall together. I expect that the noble Baroness will say that it is international law already. I doubt it. Is it international law in the case of the whole 12 miles when that has never been agreed and the United States says differently? International law does not say that at the moment the limit is 12 miles; we say that by our own statute.
All I am suggesting is that we embody the sovereignty of this country over the seas around our shores and have jurisdiction over not only ships but submarines that travel underneath and helicopters and other aircraft that fly above. We should have laws for them. We should legislate for them over what is our own territory and we should not debate points of international law which are not part of the law of England. I beg to move.
3.45 p.m.
The Chairman of Committees (Lord Aberdare): Amendment proposed, after Clause 1, insert the new clause as printed. There is a printing error in the second line of the new clause. After the words "not only", the word "to" has been omitted.
Lord Cledwyn of Penrhos: The Committee will be extremely grateful to the noble and learned Lord for raising points of great importance and for his interesting speech. He was right to remind us of the case of the Irish trawler and the United States submarine which has highlighted our debate today. He also referred to the famous case of the "Franconia", with which I also dealt in some detail on Second Reading when he was unfortunately unable to be here.
Let me refer very briefly to the two matters under discussion: first, the question of air space and, secondly, the question of the sea bed. Sovereignty over super-adjacent air space has been firmly entrenched in international law since the year 1919. It was later embodied in the 1944 Convention on International Civil Aviation, the Territorial Sea Convention and the Law of the Sea Convention. The question of the status of air space had been triggered off, as I have read, following the use of balloons during the Franco-Prussian war of 1870.
Secondly, on the question of the sea bed and subsoil, this became a matter of discussion and debate at a later stage. As the noble and learned Lord has said, the matter was not properly dealt with until the 1930 Hague Convention, when it was agreed that there should be an article—and I shall read it because I think
1216
it is relevant to what we are now debating—stating that:
"The territory of a coastal state includes also air space above the territorial sea as well as the bed of the sea and the subsoil".
The question which arises is whether additional national legislation is needed over and above the international law which exists. Given international law, are the amendments of the noble and learned Lord necessary? I should be grateful to the noble Baroness if she can tell us how those amendments would change the present functioning of the law governing the territorial sea and whether or not there is significant violation of the sovereignty of air space and the sea bed. If so, will the new clause proposed by the noble and learned Lord remedy that? Lastly, do other countries have such legislation on their statute books at present?
Perhaps I may ask whether the noble and learned Lord was moving both his amendments at the same time. If that is the case, I should like to deal with the matter of innocent passage now. If that is not the case, I shall speak to it later.
Lord Denning: I was only moving Amendment No. 1. However, I was speaking to the other amendment as well, because they go together.
Lord Cledwyn of Penrhos: In that case, perhaps I may say a word about innocent passage at this stage. I shall try to be as brief as possible. As I understand it, the right to innocent passage is the only right which foreign ships have in a territorial sea. Therefore, one must ask whether the new clause is absolutely necessary. Can the noble Baroness say whether there is evidence of abuse of the right of innocent passage and, if so, whether such a new clause will assist in preventing further abuse?
The question of the rights of warships and of nuclear-powered ships is notoriously controversial, as we know. That much was evident when New Zealand made her declaration against giving facility to American nuclear-powered ships. Other countries have qualified the right of innocent passage with respect to nuclear-powered ships. In 1964, for example, both Spain and the United Kingdom took action to regulate the passage of nuclear-powered vessels.
Can the noble Baroness say whether Her Majesty's Government still exercise any regulatory control over the passage of nuclear-powered ships and, if so, would this amendment moved by the noble and learned Lord create difficulties with respect to such regulations?
As regards the question of submarines to which the noble and learned Lord has referred, it is already a principle of international law that they travel on the surface. At times it has been demonstrated that that rule is not always observed. There was the case in 1981 of a Soviet submarine which was discovered in Swedish waters. Can the noble Baroness say whether such a violation of international law occurs frequently and whether there are grounds for believing that firmer and further action should be taken to deal with such matters?
Lord Campbell of Croy: I was going to inquire when I rose to speak whether we should be taking

1217
Amendment No. 2 for discussion at the same time as Amendment No. 1, which has been moved by the noble and learned Lord, Lord Denning. As that is the case, I shall also speak to Amendment No. 2; I think that that course will be for the convenience of the House, particularly as the noble Lord, Lord Cledwyn, has just done so.
I have read and studied the amendments tabled by the noble and learned Lord and I have listened to what he has said. I agree in principle with everything he has said. However, I hope that when my noble friend Lady Young replies, she will be able to tell us that it is not necessary to add these new clauses to the Bill, that the Bill will have the effect when enacted of extending to 12 miles the present three-mile territorial sea and that everything which applies to the territorial sea now will apply within the new 12-mile territorial sea.
Furthermore, I hope that my noble friend will tell us that the Bill as drafted implies that the rules and conventions accepted by the principal maritime nations for the territorial seas of the world will continue, but that they will in future obtain over the much broader band of 12 miles.
The noble and learned Lord referred to the submarine incident reported in the press today. The important point seems to me to be whether that submarine was submerged within the territorial sea of either the United Kingdom or the Irish Republic. Provided it was outside three miles, which is the territorial sea for both the United Kingdom and the Irish Republic at present, then it has not committed an offence by being submerged if it was 10 miles from land, as was reported.
The noble Lord said that the incident had been reported by the press to have occurred 10 miles from the Isle of Man. I should point out that the Bill does not in fact automatically include the Isle of Man. In Clause 4 it states that the territorial sea may be extended in due course to the Isle of Man. However, I agree with everything that the noble and learned Lord has said, in that if the territorial sea had been extended to 12 miles by this Act a year or two before the present time, then that submarine should not have been submerged. Nevertheless, from all the reports in the press it appears that under the present circumstances no offence was committed.
The noble and learned Lord referred in his speech to the law of England. I absolutely understand that because he has been working in his very distinguished judicial career in that jurisdiction. However, I am concerned about the fact that the Bill will extend the territorial sea and therefore the jurisdiction of Scotland and Wales under English law and Northern Ireland, which is also covered by this Bill.
As regards the question of the seabed, I should like to ask my noble friend to confirm that the territorial rights to the seabed apply under the territorial sea, so that we shall possess sovereignty over the seabed up to 12 miles which we have enjoyed up to now to a limit of three miles. However, we have rights beyond that limit. We have rights to hydrocarbons below the seabed on the Continental Shelf. We are drilling for oil and gas, and producing them, because we have rights under international agreements well beyond the
1218
territorial sea, but we do not claim ownership of the seabed there. We have rights to the hydrocarbons and minerals in the seabed, although we do not claim ownership of the seabed.
If I may turn now to the second amendment containing the other new clause, I understand the situation as it exists now in the three-mile territorial sea is very much what the noble and learned Lord has referred to in his drafting. I should perhaps have a small argument about the word "ships" because nowadays there are fishing boats, mobile drilling rigs and other things which ought also to have the right of innocent passage. Therefore, perhaps "vessels" or some such word should be used. Here again I hope that my noble friend will say that this amendment is not necessary because the purpose of this clause is already understood all over the world among the maritime nations as applying within territorial seas.
I should like to go a bit further on that matter. Sometimes there is confusion between the right of innocent passage, which is within the territorial seas, and the right of navigation through international straits. During the Conference on the United Nations Convention on the Law of the Sea, Britain and other countries tried to get arrangements for transit passage regimes through straits such as Gibraltar, Malacca and, in our own case, Dover and the Fair Isle gap. There are different rules applying under those regimes provided they are reciprocal. For example, it is possible for submarines to go through such straits submerged, and there are also various other differences of that kind. Therefore, I hope that my noble friend will be able to tell us something concerning that matter. Are we prepared to give those additional navigational transit rights through the Straits of Dover once the 12-mile limit is extended, and are we sure that we shall be able to get the same rights in straits which are not only important to our commerce but also to our defence? France already has a 12-mile limit, so the Dover Straits would be covered by territorial seas. That is perhaps more important than the right of innocent passage which is already accepted pretty well worldwide.
I conclude by saying that I agree in principle with what the noble and learned Lord, Lord Denning, has suggested but I cannot see that the amendments are necessary. If they were put into the Bill it might even be confusing to those who thought that this already existed.
4 p.m.
Baroness Young: In moving Amendment No. 1, the noble and learned Lord, Lord Denning, said that he would speak to both his amendments. With the leave of the Committee, I shall take advantage of this opportunity and reply to both amendments at the same time. I was very glad to hear from the noble and learned Lord that he supports the purpose of the Bill. I have studied with great care the amendments that he has put down and I hope I can show that we can cover the points he has raised. Perhaps I may also say that I am grateful for what my noble friend Lord Campbell of Croy has just said because I agree with his interpretation of the Bill.
On the first amendment, the sovereignty of the United Kingdom has been clearly established in the

1219
international practice of this country by its ratification of the Territorial Sea Convention 1958, a point referred to by my noble friend. That convention confirms that sovereignty extends to the seabed and air space. This position is reflected in our national law where this country has exercised its sovereignty by legislation on many questions on territorial waters and also on the seabed, such as for the protection of wrecks, the protection of ancient monuments, the protection of pipelines and the protection of the coast from erosion. Indeed the Court of Appeal has also recognised it in the case of the Post Office v. Estuary Radio. In the same way our legislation on air navigation and the use of air space has been extended where appropriate to cover the air space over the territorial sea as well as over our land territory.
The noble and learned Lord quoted the case of a United States submarine. The submarine was not as far as we know in territorial waters. It is therefore not the case that the submarine did not have the right to travel submerged.
The noble Lord, Lord Cledwyn, raised a number of points. The amendments would not affect the position in international or national law. The law which we have established in the Territorial Sea Bill will apply in the extended area of air space without the amendments. I hope that I have made this fact clear.
The second subsection of the first amendment refers to the Territorial Waters Jurisdiction Act 1878. I do not see that it is either necessary or desirable to alter in substance the wording of the Bill. Criminal offences have been created by law in the air space or on the sea bed when the need for them has arisen. A general alteration or reform in the criminal law of the territorial sea would require further consideration of air space unconnected with the extension of limits which is the sole purpose of this Bill. This is a very important point which the noble and learned Lord made himself early in his remarks. To broaden a single provision of the Bill on the lines of the amendment would not produce a satisfactory result. Its effect on other criminal law would certainly have to be further considered. We should not and need not delay this Bill while such consideration is undertaken.
I note that this clarification was not thought necessary with a three-mile limit, and I do not therefore see that it is any more necessary with an extension to 12 miles. With that explanation, which I trust meets the noble and learned Lord's concerns, I hope that he will withdraw his first amendment.
His second amendment is concerned with the right of innocent passage. This country has already recognised the right of innocent passage in the territorial sea. It has done so on many occasions. The clearest example lies in its ratification of the Geneva Convention on the Territorial Sea 1958. Article 14 says that,
"ships of all states, whether coastal or not, shall enjoy the right of innocent passage through the territorial sea".
It is evident that it was not thought necessary to adopt legislation on this point at that time.
On the particular point raised by the noble and learned Lord and indeed by the noble Lord, Lord Cledwyn, about submarines, I can assure both noble Lords that we already have the right to require
1220
submarines to travel on the surface. With those explanations, I hope that the noble and learned Lord will feel able to withdraw his amendment.
Lord Denning: Perhaps I may make this observation. If it is said that this is already part of international law, I would respond that at the moment international law does not say how wide the territorial waters are. If there was an incident in an area between three miles and 12 miles, what does international law say? Is there jurisdiction over those intervening nine miles? International law can say nothing about it because international law does not say that the limit is 12 miles. At the moment, international law extends to three miles. Other countries have not agreed to 12 miles. International law as at present understood does not cover it. It does not cover the position between three miles and 12 miles. I have drafted these clauses absolutely word for word from the conventions. No one can really challenge them. I spoke of the submarine incident. That is right. At the moment the territorial waters are only three miles. This incident took place 10 miles out. If this Bill is passed and the limit is extended to 12 miles, what will be the position? I wish it to be said—and that is why I tabled the amendments—that this country will have jurisdiction and sovereignty to deal with an American submarine of this kind, will be able to say that it should go on the surface flying its flag and that it should not go underneath the water, submerged and able to go hitting trawlers.
In answer to the arguments, I say that it is not to the point to argue that this is already covered by international law. At the moment international law covers only the three-mile limit. It does not cover the 12 miles to which we are extending it. That is my submission. I do not feel inclined to withdraw the amendment at the moment. I should like to know whether other Members of the Committee have any views on the matter.
Baroness Young: I hope that the noble and learned Lord will consider very carefully before he decides to press this amendment. I hope that I have explained the position. I should like to make clear my firm advice on this point that international law covers the new limits. It does not lay down the extent of this limit in each case. As I said at Second Reading, almost all countries have recognised a 12-mile limit. If we were to go down the path that the noble and learned Lord is suggesting, we would be doing something which we have not felt it necessary to do under the three-mile limit. We do not therefore see any reason for doing this on a 12-mile limit because the same arguments that apply to the three mile limit will apply to the l2-mile limit. We should therefore be creating other complications within the Bill. Perhaps I may remind the Committee that the Bill was welcomed on all sides of the House. It has been a matter on which we have wished to legislate for some considerable time and its purpose is to extend the territorial limits. It is not concerned with the regime within those limits.
Lord Campbell of Croy: As we are in Committee, it may be helpful to the noble and learned Lord if I speak as briefly as possible once on both amendments.

1221
The noble and learned Lord was talking about a 12-mile limit not being enshrined in international law. He will not have had the time to follow, as I and other noble Lords did at the time, the conference that went on for six or seven years on the United Nations Law of the Sea Convention. Had that convention been accepted by everybody, as the 12-mile territorial sea was enshrined in it, it would have been international law.
It was a quite different matter that caused the breakdown and the fact that the Americans were not prepared to sign that convention—all to do with deep sea mining a long way from anybody's shores. The fact that the limit is not technically international law does not mean as much as the noble and learned Lord suggested, because virtually the whole world agreed to the 12-mile territorial sea. If it had not been for that accident, it would now be in a convention agreed by virtually the whole world.
Lord Denning: I thank everyone for their comments. In view of what has been said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 2 not moved.]
Lord Beaverbrook: This may be a convenient moment to take the Statement. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Rover Group
4.11 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, with the leave of the House, I shall now repeat a Statement being made in another place in connection with the Rover Group. The Statement is as follows.
"With permission, Mr. Speaker, I should like to make a Statement concerning the Rover Group.
"I am pleased to be able to announce today the Government's approval of the Rover Group's 1987 corporate plan. The plan is reviewed annually to cover a rolling period of five years ahead; the strategy in this plan, which relates to the period 1987 to 1991, will evolve in that period to meet market developments. In accordance with usual practice I am today placing in the Library of the House a summary of the plan, excluding commercially sensitive details.
"The plan sets out a positive course for the continuation of Austin Rover as a major producer and luading exporter of cars made in Britain. The prowramme of model collaboration with Honda will be taken forward with a new medium-sized car, AR8, for which a manufacturing agreement should shortly be concluded. The future relationship between the companies will of course continue to develop in the light of experience, but it is the intention of both companies that the relationship should be a long-term one and should endure beyond the life of existing design and production contracts. The Government very much welcome
1222
this joint intention to continue to strengthen links in the future.
"The corporate plan provides for the new K series engine to be taken forward to full production and used in Austin Rover's smaller engined cars. This engine will equip the company for the next decade with a new high economy engine designed to meet new emission controls and will also make a major contribution to Austin Rover's strong presence in the small car sector which, with the planned further development of the model range, is a vital element in the company's marketing plan.
"Turning to Land-Rover, the plan takes account of the launch of Range Rover in the United States this year which will be a major step in diversifying Land-Rover's market base.
"On the commercial vehicle businesses my honourable friend, the Minister of State for Industry, told the House on 13th January that the sale of Leyland Bus to a management buy-out had been completed. I told the House on 2nd December that Rover Group was also holding commercial discussions with DAF in relation to Leyland Trucks and Freight Rover, and separately with Paccar in relation to the trucks company. Following these negotiations, Rover Group and DAF have proposed that Leyland Trucks, DAF Trucks and Freight Rover shall combine to form a new Anglo-Dutch joint venture.
"As recommended by the Rover Group board, the Government have accepted these proposals which create a company with the capability to achieve a major presence in the European commercial vehicle market. The agreement will also include the associated parts operations and certain overseas operations. These proposals build upon important existing distribution links between companies. Rover Group will take a 40 per cent. shareholding in the new grouping based on the value of the assets they bring to the merged operations and will have board representation. DAF will hold the remaining 60 per cent. Market conditions permitting, it is the firm intention of Rover Group and DAF to float the company within two to three years.
"Within the joint company Freight Rover, which is planning to invest in a major model replacement programme, will continue to manufacture vans at its Common Lane site in Birmingham. Leyland will continue as the focal point for truck manufacture in the United Kingdom, and I expect the Albion plant to have a continuing role in the joint operation as a producer of axles.
"These decisions take place in the context of severe overcapacity in Europe. As I made plain in my Statement in December, all the commercial options open to Rover Group in relation to the trucks business would involve significant rationalisation and restructuring, with inevitable job losses. I regret these. The Scammell plant at Watford will be closed and its production transferred to Leyland. The engine and foundry plant at Leyland will not be part of the new company and activities will be gradually run down for closure by the end of 1988. Some 1,700 jobs will

1223
be lost through these closures and a further 560 through slimming of the Leyland and Albion operations. Employment levels at Freight Rover are expected to be maintained.
"I believe that this agreement offers the best prospect of building a secure long-term future for Leyland Trucks and Freight Rover, and the House will be pleased to know that the plan developed by the two companies envisages significant expansion of truck production at Leyland, including for export, and an important expansion of the export of Freight Rover vans.
"As part of this restructuring the Government intend to write off the accumulated debts from Leyland Bus and Leyland Trucks left in Rover Group and the restructuring costs resulting from their sale. The Government have notified the European Community Commission of this intention and the normal procedures are in train. The Government intend to provide up to £750 million for this purpose. I am laying an order today under the Industry Act 1980 and Rover Group will hold a general meeting in March.
"The proposals which I have announced today will strengthen both Rover Group and the vehicle industry in this country. Success now depends on achievements in the market place. Mr. Day has focused sharply on the need for commercial success in recent months and I am encouraged by news that Austin Rover's market share so far this year is sharply up on that of recent months. With new marketing initiatives increasing sales, recent successes in the fleet market, such as the orders by major car rental companies, and the launch of the Sterling and Range Rover in the United States this year, Rover has the opportunities and skills to succeed.
"In short these proposals will give the go ahead to Rover Group's corporate plan, safeguard the manufacture of trucks within the UK in the context of a new European joint venture, and free Rover Group from the accumulated debt of the truck and bus businesses."
That concludes the Statement, my Lords.
Lord Williams of Elve:: My Lords, the House will be most grateful to the Minister for repeating the Statement made by his right honourable friend in another place. The Statement leaves certain questions unanswered and announces what we on this side of the House would regard as sad news. Perhaps I may ask the noble Lord certain questions that seem to be unanswered.
Are we to take it from the corporate plan that the Government have now approved that Rover will continue as a volume car producer with a full range? In asking that question, I very much hope that the reply will not be that the Rover corporate plan is just to slim down the operation in the short term for reasons of privatisation. Are the Government ready for the long haul?
We are pleased that the Government have abandoned their plans to sell Land-Rover abroad. Are those plans now buried for good? Or is it still possibly
1224
on the agenda that Land-Rover might be part of some other deal which this Statement does not mention?
I turn now to the commercial vehicle business. This, indeed, is a major shake-up and there is, as the Statement says, bad news for the communities in the North-West and probably in the West Midlands, too. Why was Freight Rover included in the DAF deal when it was not included in the deal with Paccar? Was it put in as a sweetener, or was there some commercial justification that we do not know about?
Is the noble Lord the Minister aware that the proposals outlined in the Statement do not, in fact, constitute a joint venture? It is a 40–60 company where control remains with DAF. What assurances can the noble Lord give, first, about the powers of the Rover directors on the new board and, secondly, about the shareholding of the company after it is floated, as is the firm intention according to the Statement? Will the noble Lord also tell the House what will be the effect on component manufacturers, other than Albion which is to be included in this particular transaction?
The worst news comes, of course, in the destruction of the engine and foundry plant at Leyland. Will the noble Lord tell the House what the Government feel will be the effects on the community in the North-West arising from the loss of some 1,700 jobs immediately and a further 560 jobs through the slimming of various operations? Does the noble Lord really believe that the Leyland workforce, which has been a dedicated workforce and has soldiered on throughout the years, will accept those losses happily and conveniently?
I turn now to the last part of the Statement. What guarantees can the noble Lord give the House that the manufacture of trucks within the United Kingdom will be safeguarded? Is there any provision in the agreement with DAF to safeguard that? It will not surprise the noble Lord to know that we on this side of the House feel that it is another example of industrial retreat. It will have a serious effect on the communities involved and a serious effect on the morale of the workforce and those who have served loyally in this industry. Will the noble Lord please take on board the fact that these are areas where we must have a proper sense of industrial renewal and purpose and not simply sell our businesses out to the nearest bidder?
Lord Diamond: My Lords, on behalf of these Benches, I offer our thanks to the noble Lord the Minister for repeating the Statement. May I say immediately that we welcome those parts of the Statement which broadly we can call good news and we do not need, therefore, to ask further questions on those matters. We must concentrate on the proposed merger which has very unhappy possibilities attached to it.
Before I come to the major difficulty, I have one or two minor questions to put to the Minister. These relate, first, to the share of directors. We are told that it is a merger based on the respective value of the assets. We understand that very well. As a result, there will be a shareholding of 40 per cent. and 60 per cent. and there will be board representation for Leyland. Can we be told what that board representation amounts to in the first place? What will be our share on

1225
the board? How many directors will Leyland have? It is the board which makes the decisions and runs the business, and we are therefore very interested in that angle.
The estimate is that some 2,260 jobs will be lost. That is bad enough, but much larger figures have been suggested. Therefore, I want to know whether the Government consider that this figure covers not only the immediate losses but also losses, say, over the next five years resulting from this decision. Does the figure include not only losses of those directly employed but also the indirect losses relating to the component and other manufacturers who serve Leyland and who will be affected by this?
If it is a merger where both sides are putting in their assets, how many job losses are contemplated in Holland? Surely it is not the case that there will be sacrifice on only one side. One side is composed of two companies and the other side of one company, but there are simply two sides. Surely it is not the case that each side should put its assets into this merger and as a result there will be an immediate loss of 2,260 jobs in the United Kingdom and no loss of jobs in Holland. That cannot be a merger, can it? That is a one-sided sacrifice. We want to be absolutely clear on that point.
Going beyond that, the Statement, which is set out in very clear terms, states that discussions have been going on with DAF—that is, the Dutch company—in relation to two groups: Leyland Trucks and Freight Rover. There have been separate discussions with Paccar, the American company, relating only to the trucks group. Therefore, these discussions are not comparable. The bids which have been put in for one cannot be compared with the bids which have been put in for the other. We are talking about two separate sets of negotiations.
We are told which set of negotiations it is proposed to accept. I ask, why? What has happened to the negotiations with Paccar? That is a large, profitable American company which already owns Foden in the United Kingdom. I am told that Paccar states that there will be no job losses if it takes over. It has also held out the prospect of selling more than 3,000 Leyland trucks in the United States—the seven-and-ahalf-tonne truck which I believe is called the Road Runner. Therefore, on the face of it the Government have very good reasons for negotiating with the American company for the same deal that they have negotiated with the Dutch company. Why have the Government offered one deal to the Dutch company and something else to the American company and then proposed to come to terms with the Dutch company only? On the face of it, there are very good reasons for negotiating to a conclusion with the American company.
I do not know the answers to those questions and it is for the Government to give them to us. It is for the Government to tell us why they have not proceeded with negotiations with both parties for selling the same two things. If for some reason they have not done so, perhaps I may suggest very strongly to them that they should not finalise the negotiations with the Dutch company until they have pursued negotiations to a conclusion on the same basis with the American
1226
company. We should then know which was the better deal. Until that has been done I think that the Government should completely postpone coming to a final conclusion on this deal.
4.30 p.m.
Lord Lucas of Chilworth: My Lords, I am most grateful to both noble Lords for their reception of this Statement. I shall certainly do my best to answer the main questions that have been put to me.
Let me say straight away that as regards the Rover Group corporate plan, the Rover Group and Austin Rover will continue with a full range, commensurate of course with the market place and the commercial decisions of the company. I think that it is a little mischievous of the noble Lord, Lord Williams, to suggest that the acceptance of the corporate plan by the Government, as I set out when repeating the Statement, is in any way related to other events that may come to pass over the next few months.
I turn to the point that was raised by both the noble Lords, Lord Williams and Lord Diamond, concerning the two transactions and the relationship with Paccar. It is true that Paccar is a substantial company with whom the Rover group negotiated, but it was Paccar which decided that it did not wish to negotiate on the basis of the truck business and Freight Rover, whereas, on the other hand, DAF wished to do so.
Perhaps if I may answer the question from personal experience in that highly competitive business, van and truck go together neatly. Van on its own would not be acceptable, so there is no question of not comparing like with like. One was looking—as indeed the Rover Group was looking—at the best possible deal that could be made for the truck and the Freight Rover van business. Undoubtedly the new joint company will open up great opportunities for Leyland, particularly in the light truck area and more particularly in that of van, in that it will be able to move into a very much larger market place, where DAF is already established and where Leyland Trucks and Freight Rover do not have an established distribution.
I cannot possibly accept from the noble Lord, Lord Diamond, that there should be any postponement of this decision. We have been talking about the decision for many years now. That brings me rather naturally to the last question that was asked by the noble Lord, Lord Williams, as to why we are doing this and his suggestion that it is absolutely an industrial retreat. It is not an industrial retreat at all. It is a structural solution to a structural problem that has been with the commercial vehicle market for many years, and it has to be set against a world overcapacity as well as a European overcapacity. This joint company will strengthen both the Dutch company and our own in meeting the competition that lies ahead.
As regards the question of the 40:60 relationship, I think that the noble Lord, Lord Williams, suggested that those two figures showed an imbalance. It is a joint company. Let there be no mistake about that. The Rover Group will be represented on the board of the new joint company by the Rover Group chairman and the finance director. They are there representing a major shareholder with 40 per cent.

1227
Some component manufacturers may be affected in the short term. However, we believe, as does the Rover Group board, that the new joint company will offer greater opportunities. There is already evidence that Freight Rover production will be increased. We believe that there will be greater opportunities and that in the longer term there may well be further job opportunities.
The noble Lord asked me about security in the long term. I believe that the sacrifice that is being made today, the inevitability of which has for some years been evident to all who have studied this market, will secure in the long term a viable commercial vehicle operation based in the United Kingdom and employing a lot of United Kingdom people. As noble Lords will recall from when this matter was discussed in 1985 and last year, it is the long-term viability of this section of the automotive industry that we have been seeking to secure. We believe that this joint company will do that. DAF has made it clear that it intends to continue with production in this country and I have no reason to suppose that it will not do so.
I think that I have answered the question on job losses from the noble Lord, Lord Diamond, and his questions on Paccar.
Lord Tordoff: My Lords, I do not think the Minister has quite answered the question put by my noble friend about how many job losses there will be in Holland.
Lord Lucas of Chilworth: My Lords, I do not know the answer to that question. I do not think that there is any relationship whatsoever. The interest that the Rover Group and the Government have kept to the forefront is the interest of our commercial vehicle industry. We know that there will be some job losses. Let me say quite bluntly that whatever may be the position in Holland, had we not concluded the negotiations (which had been going on for a long time), inevitably there would have been very many more job losses in the United Kingdom, because the truck industry, as represented by Leyland, could not have been sustained in the face of the competition in view of the overcapacity in the market place. I believe that there is a net gain for the work people in the truck industry in that there is a secure and viable future for them. I have suggested—and I believe—that the expanded market and the greater opportunities that are offered will in their turn give further job opportunities in the industry.
Lord Williams of Elvel: My Lords, I must press the Minister on two questions. He accused me of being mischievous about the privatisation plans which may lie behind the Rover corporate plan. Is not he himself being less than frank? Is he now saying that the corporate plan has been devised not for the purposes of privatisation but for the purposes of ensuring that this company will remain in the public sector?
Secondly, the Minister commented on the question put by the noble Lord, Lord Diamond, about job losses in Holland and so forth. He has accepted that control of the joint venture—I repeat, control—will be with DAF. As any commercial animal will know—and the Minister is a commercial animal—it is
1228
the controlling shareholder who makes the commercial decisions at the end of the day. Any assurances that may be given now or any ideas that the Minister may put forward to this House, failing proper guarantees, can be overruled by the controlling shareholder. That is the fact of the matter.
Lord Lucas of Chilworth: My Lords, with regard to the privatisation of British Leyland, the Government have never made any secret of the fact that it is their intention to return that company to the private sector as soon as practicable. That remains the Government's stance.
I said that the noble Lord, Lord Williams, was being a little mischievous; I think that he was drawing a red herring when he referred to the control of the new joint company. I have said how it is to be set up. I have said that it is the firm intention of both partners in this joint venture company to float it within the next two or three years. I do not know, and nor can I tell, how the shareholding will then fall. Notwithstanding what the noble Lord says, it must be in the long-term interest of those employed in the truck and van industry in this country to have an arrangement such as this, and so relieve British taxpayers of the necessity to pour ever more money into a loss-making company, an operation that loses about £1·5 million a day. We and the Rover Group board believe that this arrangement will lead to the best opportunity for the continuance of a truck-and van-building business in the United Kingdom.
Lord Hatch of Lusby: My Lords, the noble Lord has spoken of wider markets, jobs and over-production. Does this new merger have any plans to re-open the Bathgate British Leyland works which were shut two years ago because the Nigerians were unable to purchase the lorry kits that were being manufactured at that plant? He talked about over-production. Is he aware that there is gross under-production of the trucks which are needed in many parts of the third world, particularly in Africa, to transport food to those who are dying from starvation? Can he give the House any assurance that the work British Leyland was doing to provide Nigeria with the trucks it needed to save those lives will be resumed under this new arrangement?
Lord Lucas of Chilworth: My Lords, there are no plans, or none that I know of, to re-open the Bathgate plant. With regard to wider markets, it is for this new Anglo-Dutch company to decide in which markets it wants to engage. I understand the concern of the noble Lord, Lord Hatch of Lusby, about the humanitarian aspects and the inability of some countries to transport food aid because of the lack of trucks. I suggest that that is well outside the area of the Statement and the setting up of a joint company. It is for that joint company to make its commercial decisions about the world markets that it will tackle.
Lord Diamond: My Lords, I thank the noble Lord for some of the answers that he has given me which go some way, but not the whole way, towards answering the questions that I have asked. We are anxious to know whether this is a merger or a takeover. Let me be precise. The noble Lord said that we will have two

1229
directors and 40 per cent. of the shares. Can the noble Lord say whether DAF will have three directors in proportion to the shareholding, 2:3? That will confirm that it will have a majority on the board and a majority of the shareholding, and so what the noble Lord, Lord Williams of Elvel, has suggested is therefore right.
We also want to know the position with regard to job losses in Holland. If there were a proportionate sacrifice as well as proportionate assets, there would be over 3,300 job losses in Holland. Surely the Minister knows whether the Dutch company has said that it is prepared to adjust production proportionate to the assets (as takes place in a normal merger) and will therefore allow production to fall in Holland to the extent of 3,300 jobs. We want to know whether it is a merger or whether once more the Government are hauling down the Union Jack.
The noble Lord said that Paccar was not prepared to make an offer for the two groups for which DAF was prepared to make an offer. With all respect, I ask the noble Lord to check his Statement. He will be embarrassed if Paccar puts out a statement that it is prepared, and has been prepared ever since it knew that two groups were on offer, to enter into negotiations to purchase on better terms the same articles as DAF is purchasing.
Lord Lucas of Chilworth: My Lords, I thought that had made it clear that this is neither a takeover nor a merger. This is a new company; 40 per cent. of that company will be United Kingdom owned and 60 per cent. will be Dutch owned. We shall have representation on the board. It is a new joint Anglo-Dutch company. I should have thought that the noble Lord would be pleased that we have been able to secure an agreement for the reasons that I have described with one of our European partners. It will help us enormously to secure our share of the European truck and van market. The other matters that he raised are commercial decisions for the board of the new company. It is not for Her Majesty's Government to tell it in which areas it should engage. That is precisely the point of encouraging the new company.
I have answered the point about Paccar. At the time of the negotiations, Paccar was not interested in the van business. What was being negotiated and the assurances that Paccar gave, set against what the new joint company was offering, caused the Rover Group board to believe that the new joint company was in the best interests of those engaged in the business. That was a decision with which Her Majesty's Government agreed.

Territorial Sea Bill [H.L.]
4.48 p.m.
House again in Committee.
Clauses 2 and 3 agreed to.
Clause 4 [Short title, commencement and extent]:
Lord Campbell of Croy Lord Campbell of Croy moved Amendment No. 3:
Page 3, line 37, leave out from ("on") to end of line 39 and insert ("1st January 1988").
The noble Lord said: This is a probing amendment. The Committee will recall that I mentioned this point on Second Reading. In the comprehensive reply that my noble friend Lady Young gave to that debate she did not have time, in response, to say when the Government intend that the Bill, if enacted, should come into force.
As far as I can see, the Bill should pass through Parliament without delay. I should be surprised if it is not enacted before the Summer Recess. Under Clause 4 the Bill can be brought into effect at any time after that on the advice of Ministers. I understand—and my noble friend mentioned this in her Second Reading speeches—that there is some urgency with regard to the Channel Tunnel and that the Government think it would be convenient that the territorial sea should be extended to 12 miles in good time. However, should there be some unforeseen delay over the Channel Tunnel—I shall not raise all those points—will the Government nonetheless still be wanting to bring the Act into force at an early date? I should be grateful to hear from my noble friend what the Government's intentions are.
If one looks at Clause 4, it is drafted so that different parts of the Bill can be brought into force on different dates, again on the advice of Ministers. I should be grateful if my noble friend, when she replies, could also indicate why that should be necessary and what parts of the Bill the Government think would need to be brought in at different times. This is a probing amendment to enable the Government, having been given notice of some days, to tell us what their intentions are about bringing the Bill into force after it has been enacted.
Lord Cledwyn of Penrhos: I have a little sympathy with the purposes of the amendment moved by the noble Lord. I would be interested to hear from the noble Baroness why a date for the initial Order in Council putting the Bill into effect cannot be included in the Bill itself.
I wonder whether the noble Baroness can also clarify another point in connection with Clause 4(2). Does it mean that orders under Clause 3(2) do not have to be made at the same time as the initial order putting the Bill into effect? If that is the case, then it is understandable that flexibility in making orders is necessary.
Baroness Young: May I say at once to my noble friend Lord Campbell of Croy that I share entirely the aim which lies behind the amendment that he has moved. I should like to give him, and indeed the noble Lord, Lord Cledwyn, the assurance that our intention is to bring the whole Act into force at the same time subject to the making of any necessary secondary legislation to deal with technical matters. In practice, I am advised that this is likely to take place some two months after Royal Assent. I would therefore hope that it would be well before January 1988. That is the point that both my noble friend Lord Campbell and the noble Lord, Lord Cledwyn, wanted to hear. I hope very much that that will be the case. It is not in any event dependent upon what might happen over the Channel Tunnel. The Bill stands on its own. I can give that assurance.

1231
On the other specific point that the noble Lord, Lord Cledwyn, raised—I shall write to him if I am not correct on this point—flexibility is often written into a Bill because it may be affected by the subordinate legislation. However, our intention is that the whole of this will come in as soon as possible after Royal Assent.
Lord Campbell of Croy: I am grateful for the interest and support of the noble Lord, Lord Cledwyn and also for the very clear reply which my noble friend has given. She and other members of the Government will know that I have been urging the Government over several years to introduce a Bill of this kind. It is very good news to know that despite what may happen to the Channel Tunnel or other matters, it is their firm intention to make sure that the Bill comes into force as soon as is reasonably practical after it has been enacted. With that, I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Clause 4 agreed to.
Schedule 1 [Minor and consequential amendments]:
Baroness White Baroness White moved Amendment No. 4:
Page 5, line 23, leave out ("three") and insert ("twelve").
The noble Baroness said: This is a very modest little amendment. It is simply to extend to designated nature reserves the possibility, without having to go through an Order in Council, of being within the 12-mile limit instead of within the three-mile limit.
As I explained on Second Reading and as I have had confirmed in correspondence with the Nature Conservancy Council, there is no immediate prospect of designating nature reserves outside the existing three-mile limit. On the other hand, I hope that we are legislating for some time to come, and if there are innovations, as I have suggested, in diving techniques and so forth, there is at least a possibility that later it might be desirable for designations to take place beyond the three-mile but within a 12-mile nautical limit.
I should perhaps explain to any Member of the Committee who is not aware of it that a marine nature reserve is not simply constituted by a decision of the Nature Conservancy Council. Any such reserve has to be designated by the appropriate Secretary of State—for the Environment, for Wales or for Scotland, as the case may be. There is therefore no risk of some unsuitable area being designated. It is perfectly adequately controlled.
The Nature Conservancy Council itself says that it is not aware of the Government's reasons for this provision and that in its view, while nothing immediate is likely to impede any designation, the Order in Council route "seems to be a complication". I am asking the noble Baroness to agree that we bring this matter within the ambit of the Bill as a whole and do not place an unnecessary restriction, as it appears to me, in legislation if we do not need it. I beg to move.
Lord Cledwyn of Penrhos: The question of why marine reserves were not to extend to 12 miles along
1232
with the extension of the territorial sea limit raised a number of comments during the Second Reading of the Bill. My noble friend Lady White, the noble Earl, Lord Cranbrook, and myself mentioned this issue when we spoke at that time. The noble Baroness, Lady Young, was sympathetic in her response. She explained that there was not sufficient data to say whether a 12-mile limit would be necessary and that if it were found to be so, then an Order in Council could be used to extend the limit. Clearly, not all Members of the Committee were entirely satisfied by the answer of the noble Baroness. Indeed, while there is some apparent merit in the argument, it is still not absolutely clear why there should not be such an extension.
In order not to detain the Committee I shall put the following short questions to the noble Baroness. First, what would be the effect of extending the limit in this context? Secondly, when does the noble Baroness envisage there being sufficient scientific data if it is possible to make a calculation of that kind at this stage? Thirdly, what programmes exist to allow the acquisition of all this necessary data? Finally, if the noble Baroness is to delay the extension of the limit, then the Committee must be assured that every effort is being made to see that the delay will be no longer than is absolutely necessary.
5 p.m.
Baroness Young: May I say in response to the amendment that has been moved by the noble Baroness, Lady White, that I am very glad of the opportunity to make clear that the proposed power by Order in Council to extend the area for marine nature reserves is not intended to be restrictive. Of course in preparation for this Committee stage I did look again at what the noble Baroness, Lady White, had said at Second Reading, as well as my noble friend Lord Cranbrook and the noble Lord, Lord Cledwyn, and I understand their concern. What I believe the noble Baroness said in moving her amendment—I did make a note of her words—is that she did not think that at the present time there was any immediate prospect of designating nature reserves outside the three-mile limit. Indeed, my understanding is that the Nature Conservancy Council itself is not pressing for the immediate extension proposed in the amendment. The fact is that, as she herself said, an extension may be needed later on, and we share the noble Baroness's quite justifiable concern for conservation, But we believe that it is prudent to await more information on the three-to 12-mile area before extending the limits.
The noble Lord, Lord Cledwyn, asked me a number of detailed questions about what may be happening. I believe—and I trespass here in a world that I am conscious many are much more familiar with than I am—that there is still, as I said at Second Reading, considerable discussion about the nature reserves within the three-mile limit. I believe one has been designated at Lundy, and others are under discussion. The reason why they are under discussion is not that there is unwillingness about this, but because, as is so often the case in these matters, there are various views which have to be taken into account before a decision can be reached. As far as I know, there is not a set date by which there will be sufficient scientific data

1233
concerning the extension from three to 12 miles, nor is there any particular programme in existence. My understanding of the position is that a number of nature reserves within the three-mile limit are currently being considered. When those are agreed, or not, as the case may be—and more need to be considered—then the way the Bill would operate is that there would be an Order in Council to extend the territorial sea in order to meet this consideration.
So I hope very much—for we are all agreed about the importance of this, and we believe that we have the necessary mechanism—that the noble Baroness, Lady White, will see that there is no difference in principle; it is really a question of timing. The fact is that the Nature Conservancy Council has not been able to make a great deal of progress on its marine conservation review, and it will be some years yet before we can determine the nature and characteristics of arrangements for deeper waters.
If I may sum up, we do not rule out an extension, and certainly intend to look at any proposals. The Bill in its present form makes prudent provision for action at the appropriate time. I hope therefore that with that explanation the noble Baroness will feel able to withdraw her amendment.
The Earl of Cranbrook: Before she sits down, may I ask my noble friend whether she knows of any real scientific objections to allowing full freedom to establish marine nature reserves within the 12-mile limit?
Baroness Young: The noble Earl, Lord Cranbrook, will know I am sure far better than I do myself, because he is very familiar with the detail of this, that there has been much discussion on the nature reserves within the three-mile limit. There are many matters that need to be considered. I do not in any way wish to make some excruciating pun about going into difficult waters, but I believe fishing is one of the issues that need to be considered in relation to this. One therefore has to get agreement from a number of people before a nature reserve can be established. We have not yet got agreement within the three-mile limit. When it is thought suitable—when at least an area is identified for a nature reserve in the three- to 12-mile limit —then of course we can look at that but we have not yet reached that position.
Baroness White: All I can say is that I am deeply disappointed in the noble Baroness; I thought she had more common sense. What conceivable harm could be done by accepting this amendment? I fail entirely to see why she needs to resist it. As I tried briefly to explain, there is no possibility of any nature reserve, at whatever distance legitimately from the shore, being designated without the full consultation by the appropriate Secretary of State and the various interests which the noble Baroness has very properly referred to. Therefore what conceivable harm would be done to anyone by allowing this extension, forthwith to the legislation which is before us?
The use of the permission to move a little further out in consonance with the general purposes of this Bill is very carefully guarded by the necessary consensus
1234
which the Nature Conservancy Council would have to obtain. The noble Baroness must know as well as I do what happens in the Civil Service if somebody who does not particularly like what is being proposed is able to say: "Ah, yes, but that would involve an Order in Council". It would act as a possible deterrent to somebody who was perhaps eager to suggest an exercise of conservation in an area which had not been attempted before because we did not have adequate scientific or technological expertise. I cannot see—and I am sure this is an unintentional insult to our intelligence—why the noble Baroness cannot accept in this legislation the suggestion that we add to the Bill, whose purpose as a whole is to extend the 12-mile limit, the possibility—no more than that—that at some time a nature reserve may be established within the 12-mile limit instead of the three-mile limit.
I quite agree with the noble Baroness that consultations have to take place. It was rightly mentioned that within the shallow littoral areas that we are working in now these consultations take an interminable time. But that in itself is no reason why we should not exercise good sense and not discriminate unnecessarily in a restrictive way in the legislation which is before us and which we hope will be effective for many years to come. I am afraid I do not feel disposed to withdraw my amendment.
Baroness Young: Perhaps I may add further to what I said earlier on. The fact is that the Wildlife and Countryside Act of 1981 was drafted with inshore and coastal waters in mind. The machinery which was developed to consider the proposals for marine nature reserves may not be appropriate for areas lying in the wider limit. I hope that the noble Baroness will understand that there may be serious complications, both in shipping and in fishing, to resolve in administering reserves in the more distant areas—issues which we have not really considered fully. As she will know, in consideration of marine nature reserves, it is necessary to balance all the interests—the needs of conservation, but also the rights of access of Community fishermen between six and 12 miles, and the right of unimpeded innocent passage of foreign vessels, which are more likely to make use of deeper waters.
None of these matters is insuperable, but each does need to be considered a step at a time. As we have not already completed our negotiations up to the three-mile limit, it seems better to leave the legislation as it stands with the quite proper provision that, if we want to extend, the machinery is there to do so.
Baroness White: The machinery is there in any case. All that is needed is for the Secretary of State concerned to inform the Nature Conservancy Council —being sensible enough no doubt to consult in advance—and say, "I am very sorry, but you will appreciate that this is not a situation in which I feel able to designate."
Lord Campbell of Croy: Before the noble Baroness concludes her remarks, I should point out that over the years, she and I have been trying to get a Bill such as this introduced into Parliament. Now we have it. As regards the last amendment my noble friend gave us the excellent news that it is the Government's

1235
intention that the Bill, which will go through Parliament quite quickly, will be brought into effect as soon as possible after its passage. The noble Baroness and I, and many others in your Lordships' Committee, are extremely pleased that that is happening.
I understand the point that the noble Baroness makes. I heard her speak about it at Second Reading and she has done so again today. However, if there are problems which the Government think should be looked into—for example, problems associated with fisheries, shipping and so on—I ask the noble Baroness to accept the great bonus of the Bill and the fact that it will be enacted soon rather than cause the Bill to be held up through the Government having to consider problems which they have put aside to deal with later.
Lord Monkswell: It appears to me that the constraints under which a marine nature reserve would be set up under the three-mile limit must include provision for shipping and fisheries. Shipping does not suddenly occur outside three miles; it occurs inside that distance. Therefore, provision must exist already for shipping and fisheries to be taken into account when determining the area of a marine nature reserve. Surely the same constraints as apply within three miles would automatically apply within 12 miles.
Our concern on the subject is that effectively a great deal of civil service, administrative and government time will be consumed in trying to determine at some later stage whether to go from three miles to 12 miles with regard to marine nature reserves, whereas if we were to accept the amendment, the criterion for judging whether a marine nature reserve should extend between three and 12 miles could be considered under the Wildlife and Countryside Act.
Baroness Young: I very much hope that I have made the position plain. I am most grateful once again for the intervention by my noble friend Lord Campbell of Croy. The fact is that the arrangements in the schedule apply within the three miles, but the position is not quite the same between three miles and 12 miles. For example, the water is deeper, there are more ships and there are more fishermen. The situation is different outside and, therefore, there would be different machinery. Other pieces of legislation come into play. At the risk of being thought not to have any common sense and bearing in mind that we all want the Bill, perhaps I may suggest that what the noble Baroness, Lady White, would like is possible. I hope that she will accept that.
Baroness White: I certainly do not want to hold up a Bill for which, as the noble Lord, Lord Campbell, has rightly said, both of us have been waiting for quite some time. I am still unhappy about the reply which I have received, but I do not wish to press the amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 1 agreed to.
Remaining schedule agreed to.
House resumed: Bill reported without amendment.

Prevention of Terrorism (Temporary Provisions) Act 1984 (Continuance) Order 1987
5.15 p.m.
The Minister of State, Home Office (The Earl of Caithness)The Minister of State, Home Office (The Earl of Caithness) rose to move, That the draft order laid before the House on 27th January be approved.[9th Report from the Joint Committee.]
The noble Earl said: My Lords, the draft order has been considered by the Joint Committee on Statutory Instruments which did not comment on it. The provisions of the Prevention of Terrorism Act are temporary in two ways: first, because the Act will not remain in the statute book for more than five years, and secondly, to remain in force during that period, it has to be renewed, in whole or in part, every 12 months. The effect of the order would be to keep the whole Act in force for another year from 22nd March.
Terrorism, which lies at the heart of our debate tonight, is the use of violence for political purposes. That violence may be directed against the forces of law and order, leaders or representatives of the state to which the terrorist is opposed, or ordinary members of the public who happen to be standing by when a bomb goes off. Whatever his targets, the terrorist's primary aim is to bring about political change. But one of his secondary aims is to provoke a government into reacting savagely to his activities so that he can claim that it is oppressive and undemocratic. It is vital, therefore, that in their fight against terrorism, democratic societies use only right and necessary forces and powers, and use them justly and fairly. One of those powers in our own society is the Prevention of Terrorism Act, the renewal of which we are to debate now.
I need hardly remind your Lordships that prevention of terrorism legislation was introduced in 1974 in response to atrocities committed by Northern Irish terrorists on the mainland. Some of the powers available to the Secretary of State under the Act only apply to acts of terrorism designed to influence public opinion of government policy with respect to affairs in Northern Ireland. One of these is the power to proscribe terrorist organisations. Another, about which I shall have more to say later, is the power to exclude from Great Britain, Northern Ireland, or the United Kingdom a person who the Secretary of State is satisfied is or intends to be concerned with acts of terrorism related to Northern Ireland.
In Northern Ireland, the number of deaths from terrorist incidents mercifully declined between the mid-1970s and the beginning of this decade, but it has remained tragically constant for the last four years. The 61 people who died in terrorist incidents in the Province last year testified to the necessity of continuing the campaign against terrorism there. The Prevention of Terrorism legislation continued to play its part in that campaign.
In Northern Ireland in 1986, 1,309 people were detained under the Act; that is, on suspicion of involvement in terrorism. In 483 of these cases my right honourable friend the Secretary of State for Northern Ireland used the power given by the Act to extend the period of detention beyond the 48 hours

1237
allowed on the authority of the police by between one and five days. On the mainland, 147 people were detained under the Act in connection with Northern Irish terrorism, 37 of them for more than 48 hours.
We are all aware, however, that it is not only terrorists whose objectives centre on Northern Ireland that threaten innocent lives on the mainland. We also have to face the menace of international terrorism. Thus, since 1984, the powers of detention under the Prevention of Terrorism Act have applied to those suspected of involvement in international as well as Northern Irish terrorism. In 1986, 55 people were detained in England and Wales on suspicion of being international terrorists, 20 of them for more than two days.
Your Lordships will understand that I cannot tell the story behind many of these detentions under the Act, either with respect to Northern Irish or to international terrorism. Some of them led to those detained being charged, and the cases are still sub judice. But I should like to refer, as my right honourable friend the Home Secretary did in another place, to one particular instance of action taken against international terrorists under the Act which could not—and I wish to emphasise this point—have been taken against them under any other legislative powers.
Six people of various nationalities were detained in late September and early October of last year on suspicion of membership of Abu Nidhal, an international terrrorist group. Of these, three have now been deported; my right honourable friend the Home Secretary agreed that two should be allowed to make a supervised departure from the United Kingdom; and the sixth is currently detained awaiting the outcome of an outstanding appeal against deportation. It has been suggested by those who believe the Prevention of Terrorism Act is unnecessary in the fight against terrorism that the Immigration Act 1971 provides sufficient powers for the authorities to proceed against international terrorists. I can assure the House that the case of these six demonstrates how mistaken that view is. Five of them had been in the UK for several years, arriving between 1978 and 1984. All were given leave to enter and all of them had valid leave to remain in the UK at the time they were detained: four as students, one as a visitor, and one by virtue of marriage to a British citizen. With one possible exception, they had not contravened our immigration law.
It is true that once the Secretary of State has decided to deport someone, as he did in four of these cases, and they have been served with notice of that intention, the Immigration Act provides a power to detain that person. However, this detention can only be in order to proceed with the deportation, (allowing for any appeal rights); it cannot be used to investigate suspicions about the person detained to allow my right honourable friend the Home Secretary to decide whether or not that person should be deported. Nor, when informaton was received that indicated the six might be members of Abu Nidhal, was it possible to arrest them under the Police and Criminal Evidence Act on suspicion of a particular offence. Thus the police had no alternative but to detain them under the Prevention of Terrorism Act, and indeed it proved
1238
necessary to do so for the full seven days. We can only speculate on the possible consequences if these six had not been stopped in their tracks. I submit to your Lordships that this case amply illustrates the necessity that the Prevention of Terrorism Act detention power should continue to be available to the police.
No one denies however that this and other powers available under the Act are some of the most serious that can be exercised by the executive in this country. They should only be available to it if Parliament is convinced that there is still a need for such measures in order to combat terrorism, that they are being used properly and that the curtailment of individual liberties is the minimum necessary. This is why the Act has a limited life and is subject to annual renewal. Furthermore, in accordance with an undertaking which the Government gave to your Lordships at the Bill's Report stage, the operation of the Act is subject to annual scrutiny by a person appointed by right honourable friend the Home Secretary, but independent of him.
I am sure that your Lordships would want me to express the gratitude of this House to Sir Cyril Philips, who carried out this scrutiny for 1984 and 1985. He felt unable to continue this task after his appointment as chairman of the Council on Tribunals. The Government are grateful that my noble friend Lord Colville of Culross accepted my right honourable friend the Home Secretary's invitation to succeed Sir Cyril. He brings to this important work not only all the necessary abilities but also a wealth of relevant experience as a practising barrister, a former Minister of State at the Home Office, and a former UK representative on the UN Human Rights Commission.
The report prepared by my noble friend was placed in our Library on 29th January. In preparing his report, my noble friend has visited police forces, especially at air and seaports. He has had discussions with officials in London, Belfast and Edinburgh and there examined files relating to exclusion orders, and to extension of detention under Section 12 of the Act or Article 9 of the Prevention of Terrorism (Supplemental Temporary Provisions) Order 1984. Last but not least, my noble friend has welcomed representations from interested parties, in writing or face to face. These representations were invited by means of a parliamentary Answer last October and when my noble friend visited Belfast last month by means of newspaper advertisements, which, as he says, the BBC chose to augment by a radio interview. I believe the House will agree that my noble friend's report is detailed and perceptive. I am sure that his work will focus and inform Parliament's consideration of the operation of the Act last year.
In general, my noble friend's report shows that the operation of the Act gives no cause for concern. He does, however, make one suggestion in particular that I know the House will expect me to respond to today.
My noble friend suggests that tighter security at the ports (and presumably inland) might make it possible to dispense with the power of exclusion—if not this year then by the time the Act is next due for renewal in 1988. I need hardly remind your Lordships that Sir Cyril Philips made a similar suggestion last year: namely, that for several reasons, the time was right for

1239
Parliament to consider afresh the need for Sections 4 and 5 of the Act (under which people can be excluded from Great Britain or Northern Ireland respectively) and that, if these sections were to be kept in force, the Government might undertake not to make any exclusion order under them against people who had not previously been subject to such an order. I know that during your Lordships' debate on the continuance order last year several noble Lords urged the Government to adopt Sir Cyril's suggestion, if not immediately, at least within the coming year. However, my noble friend Lord Glenarthur told the House that, while the Government would not quarrel with the view of Sir Cyril Philips that the power of exclusion was objectionable in principle, it did not believe the time had yet come to jettison it.
Before explaining the Government's reaction to the proposal this year by my noble friend Lord Colville, I should say something about the operation of the exclusion power, particularly during 1986. My right honourable friend the Home Secretary gives personal consideration to every application by the police for an indivdual to be excluded from Great Britain (or from the UK if he is currently in Great Britain). Under the Act, the Secretary of State needs to be satisfied that the person in question has been concerned in the commission, preparation or instigation of acts of terrorism (or might attempt to enter Great Britain with a view to being so concerned) before making an exclusion order against him or her.
Thus exclusion is not justified if the person merely associates with terrorists or belongs to a certain political organisation. My right honourable friend looks for evidence that he or she has been personally and actively involved in terrorism (though not necessarily by planting a bomb or pulling a trigger) usually within the past three years. Moreover, the Act allows someone who has been excluded to make representations against the order, and their case must then be referred to one of the advisers appointed by my right honourable friend the Home Secretary, with whom the person excluded is entitled to an interview in most circumstances.
Thirteen cases were referred to an adviser in 1986, and 10 of the people concerned were interviewed. My right honourable friend accepted his adviser's recommendation in each of these cases, and revoked three exclusion orders.
Under the 1974 and 1976 Prevention of Terrorism Acts, exclusion orders remained in force unless and until they were revoked. The present Act gives new orders a limited life of three years, and provides that all orders made under the earlier legislation will expire on 21st March this year unless they have already been revoked. Consequently, almost all those earlier orders have now been reviewed, the majority of them, 157, last year. My right honourable friend the Home Secretary decided not to renew 103 of those 157 orders (even though in about half of those cases the police had applied for a new order), but in the other 54 cases he made new orders, because he was satisfied that those individuals still constitute a threat to the safety of Great Britain. He also made nine new orders excluding people from Great Britain, one of which was revoked on the recommendation of an adviser two months
1240
later. Thus, while 211 exclusion orders made in Great Britain were extant at the end of 1985, only 114 were in force at the end of 1986. In Northern Ireland, where my right honourable friend the Secretary of State for Northern Ireland exercises the power, there were 26 orders in force at the end of last year.
The exclusion provisions of the Prevention of Terrorism Act still serve to restrict the freedom of operation of over 100 individuals who my right honourable friends are satisfied are implicated in terrorism. My noble friend Lord Colville of Culross, says in his report that such usage is not sufficient to stem the tide of protest against what he calls a system of internal exile. The Government do not accept that, because a power is—quite rightly—used sparingly, it follows that it can be done away with. Moreover, my noble friend says that the deterrent effect of the exclusion power is not to be underestimated even if it cannot be quantified.
The crux of my noble friend's argument against the continuation of the exclusion power is, as I understand it, that this would be less acceptable to public opinion than a marginally more intrusive use of the powers which the order gives to the police to interview, and if necessary detain, travellers at ports and airports. This may be so, though my right honourable friend the Home Secretary receives complaints that the use of these powers is already too intrusive. However, what the Government must also judge is whether a more stringent use of port powers, or any other measures that might be put in the place of the exclusion power, would be equally effective in frustrating terrorist activity. We are not at present convinced that they would be. If those who might otherwise be subject to exclusion orders had free movement throughout the United Kingdom, it seems to us that the police would need both a capacity to detect that movement and to be able to keep the person under surveillance in order to make sure that he did not fulfil the terrorist objectives which could be prevented by exclusion. Having said all this, my right honourable friend the Home Secretary made clear in another place that we will look seriously and thoroughly at the possibility of replacing the exclusion power before the Act is next due for renewal.
I should now like to turn to the other major power available under the Act: that of detention on suspicion of involvement with terrorism. I have already indicated to your Lordships the extent to which this power was used last year in respect of Northern Irish and of international terrorism, and given you one example of how vital it was in one of the latter cases. In his report, my noble friend discusses the criticism that, because such a small proportion of those detained are charged with offences under the Act this legislation is ineffective. He points out that the Prevention of Terrorism Act itself creates few offences, of a not particularly serious nature, and that charges under other legislation following detention under the Act should also be taken into account.
Last year, in Great Britain 18 per cent. of people detained under the legislation were charged with a criminal offence. In Northern Ireland, the figure was 28 per cent. Furthermore, nine people, as I have said, were excluded from Great Britain, and eight had deportation orders signed against them, following

1241
detention under the Act. The essential point which is made by my noble friend but so often missed by critics of the Act is that these are pre-emptive powers. If the police use them to prevent a terrorist crime being committed, then obviously no one can be charged with that crime. We surely should not have to wait for the bomb to explode before the police can take action.
My noble friend refers to another criticism of detention—and port examinations—under the Act; namely, that these, "are often 'fishing trips' to gather information rather than an exercise directed at people who might themselves be terrorists" (paragraph 7.3). As my noble friend says, to detain a person under Section 12 of the Act merely in order to collect information would clearly be an abuse of the section. The power of arrest and detention under Section 12 arises where there are reasonable grounds for suspecting a person to be guilty of certain specific offences or that he is or has been concerned in the commission, preparation or instigation of acts of terrorism.
The power of arrest under Section 12 is therefore available in cases where the police do not, at the time of arrest, have evidence which would justify criminal charges, but where they have reasonable grounds to suspect the person arrested of involvement in acts of terrorism. The police may expect to develop their suspicions to the point where they have evidence to justify charges or to consider applying to the Secretary of State for the exclusion of the person concerned under Sections 4, 5 and 6 of the Act, or, if appropriate, for their deportation.
The detention of that person under Section 12 is the process by which the arresting officer's suspicion can be clarified. The person concerned may be questioned, forensic evidence may be sought. The obtaining of information is an important and inevitable feature of the exercise of the powers but is not the purpose of the section. Even if the person concerned is not charged, excluded or deported, the process of questioning and investigation may nevertheless provide the police with information, of a variety of different kinds, which may be of value in the prevention of terrorism. That is quite inevitable. How could and should the police erase from their memory, and reject from all subsequent consideration, something which they may learn in such a case? But information gained in that way is essentially a by-product of the powers in Section 12.
The Government welcome the opportunity provided by the annual review, and by the debates on the continuance order in this House and in another place, for a thorough scrutiny of this legislation. The Government believe it should only remain on the statute book if Parliament is satisfied both that the powers it gives continue to be necessary, and that they are being properly used. I have described the continuing threat from terrorism, be its origins far from us or nearer to home. My Lords, I know we are all agreed that this threat must be combated and contained. The Government's contention is that this legislation must remain in force to assist in that task. Therefore I commend this order to your Lordships.
Moved, That the draft order laid before the House on 27th January be approved.[9th Report from the Joint Committee.]—(The Earl of Caithness.)
5.34 p.m.
Lord Mishcon: My Lords, the House will want to thank the noble Earl for the way in which he has introduced this order which comes before us year by year with, as he has rightly said, a heavy responsibility upon this House. I believe I am quoting his very words: he said that Parliament should permit powers under this Act to continue only if it considers that those powers are necessary.
It would help so much in my view—and I have respectfully submitted this before—if year by year in exercising these rights which we have and which are so important we were allowed to look separately at the various parts of the original Act that we are called upon to continue. There are various parts to that Act, as your Lordships will remember, and Part II, for example, deals only with exclusion orders, a matter to which the Minister referred in the course of his speech.
Despite the fact that the Minister says—and his right honourable friend also says it in another place year by year—that these powers must not be continued if Parliament does not think they are necessary, we cannot say that certain powers are not necessary, such as exclusion powers, because we either say that the order shall not be passed, in which case nothing passes at all by way of continuance, or we have to say that we are in favour of the order, in which case everything continues.
Again on this occasion especially I ask the noble Earl to consult his right honourable friend and say whether, in their joint view, it is consistent with what is repeatedly said year by year, that we should consider these powers and pass them only if necessary, if we have no opportunity whatever of dealing with the powers separately.
It is a great difficulty. Speaking from these Benches—and I make this absolutely clear—we know, as do the Government, that to go outside the normal boundaries of our criminal law hits at our great fountain of justice—if I may mix my metaphor—which all of us hallow and which has been hallowed over the centuries. But we are all prepared to do it if there are exceptional circumstances; and indeed they exist when we have to meet this ghastly plague of terrorism with which our century has been afflicted.
Having said that, one goes on to the next thought that the Government must consider. The noble Earl said, and said quite rightly, that an annual scrutiny takes place in order to help the Secretary of State and Parliament as a whole to do their job in considering whether there should be a renewal. The noble Earl was absolutely correct when he paid a well deserved compliment to his noble friend Lord Colville of Culross, who is held in such respect in your Lordships' House.
What is the situation for Parliament, if the annual scrutiny is to be there in order to guide the Secretary of State and Parliament, if the Secretary of State, certainly for the last two years if not before, adopts the recommendations which say that the powers should continue but ignores, or certainly does not favour, the result of a detailed scrutiny when doubt is cast upon the continuance of certain powers?

1243
Your Lordships may well wish to know the background against which I am speaking today in regard to the serious responsibilities that rest upon every one of us. I can do no better than quote from the report on the operation in 1986 of this Act by the noble Viscount, Lord Colville of Culross, of his scrutiny. I quote from page 36, paragraph 7.2:
"The PTA is extremely unpopular with the Irish community in Great Britain, and, as with all the emergency legislation, in Northern Ireland too. I heard from one staunch Republican who denies the right of Westminster to legislate for the Province at all. Others denounce terrorism whether domestic or international but say that the legislation has cast a blight over the Irish population in Great Britain and is counterproductive in Northern Ireland, because, among other things, it alienates the population and discourages the public from any attempt to help in rooting out terrorism. It creates martyrs and tends to cause misplaced sympathy for people who on any rational view have committed terrible crimes. It is not for me to advise whether it would be possible to abolish all emergency legislation in Northern Ireland, and rely on the ordinary criminal law; but it is a suggestion seriously made to me. The EPA has just been renewed in January 1987 with all party support".
I reflect with your Lordships on the background of the effect in Northern Ireland that has been summarised in the paragraph I have just read and on Irish people in our own country. That does not mean that an order carrying out certain parts of the Act should not meet with the favour of all your Lordships. But I repeat, what is the point of scrutiny when Sir Cyril Philips last year said that the exclusion orders should be among the first powers to go and recommended that no new exclusion orders should be made? The Home Secretary said that he did not accept the recommendation that no exclusion orders should be made.
We then come to this year's report from the noble Earl's noble friend, Lord Colville of Culross. What has he to say about exclusion orders? I shall not read a large portion of what he said to lead up to his conclusion, but if the Minister thinks that I am being unfair in the part that I select, I invite him to stop me immediately and I shall read any other portion that he wants me to read. I am reading from paragraph 2.3.6 on page 10 of the report:
"Vigilance against terrorist inroads would have to be ensured as well from Northern Ireland as from the rest of the world … In my view this would be more acceptable than a system of internal exile; any resultant criticisms would have to be considered sympathetically but in the light of the abolition of a power which the public may have seen as necessary to restrict the movement of Northern Ireland terrorists and contain their activities, but which now is not sufficiently used to stem the tide of protest. The deterrent effect is not to be underestimated, even if it cannot be quantified; but the police have other powers to prevent outbursts of Northern Irish terrorism in Great Britain".
The Secretary of State in another place a year ago said clearly that the term "internal exile" was quite inappropriate and misleading in regard to the exclusion order. How strange that the very words are used by the noble Viscount, Lord Colville of Culross, in his scrutiny this year. Does it not mean that the Secretary of State is ignoring the advice which he is supposed to be seeking? Ought not your Lordships draw his attention to the matter by what is said in this debate?
There will be no vote against this order so far as I am concerned on behalf of my noble friends, but we ask the Secretary of State to take another look at the way
1244
he is behaving in the face of the reports he is receiving from quite independent and very responsible sources.
I move on to Section 11 of the Act which has been drawn to the attention of your Lordships year by year. I remind your Lordships that it is most extraordinary so far as our criminal law is concerned. It provides that if a person has information which he knows or believes might be of material assistance and he does not give it to the authorities, he commits a crime if that be proved and if he has no reasonable excuse for not giving it. He is liable to a quite substantial term of imprisonment on conviction.
From time to time and from all parts of the House doubt has been cast upon the wisdom of including this power in the continuance order. But we have no right at all, unless we throw out the whole order, to say that this power ought to be removed. The only reference made to it in the report of the noble Viscount is on page 6, where he draws attention to the fact that there were:
"a few charges under s. 11 (withholding information about acts of terrorism). There have only been 25 charges under the latter section or its equivalent since 1974, leading to 13 convictions".
Ought we not year by year, until this Act ceases in a couple of years' time to have the right to debate these separate powers and to agree to continue with certain of them but not to continue with others? However, we are helpless in view of the way this has been presented to us.
I now pass to what may seem to be a very small matter, though it is not small to the people concerned. The noble Viscount in regard to exclusion orders pointed out that what now happens is that if somebody is sent back by way of removal of an exclusion order—it may be from England to Ireland or from Ireland back to England—he is handed the grand sum of £2·50 to find his way. I drew the attention of the House last time to this mealy-mouthed behaviour which can cause so much distress to somebody who wants to join his family. After all, the exclusion order has been released and presumably that means that there is no more danger for the community. He has £2·50 in his pocket to travel to wherever he has to travel and to have some subsistence meanwhile. Is that what your Lordships would want to happen?
The reply given last time was that this is a practice that exists and it will be looked into; but I know of no way in which this has been altered in the meantime and no further explanation has been given. Perhaps the noble Earl will give an explanation when he replies.
One of the most important parts of the recommendations made by the noble Viscount was not referred to, unless I missed it, in the noble Earl's speech to the House recommending the continuance order to your Lordships. That was the feeling that he had, and he expresses it very cogently. It is illogical, untidy and not very good legislative practice to have a temporary Act which has a lifetime of another two years and which deals with both international terrorism and the troubles that we unfortunately endure in regard to Ireland and the terrorism arising from that country.
He rightly points out by inference that in regard to international terrorism there are arrangements which are to be made internationally; that we wish to tell other nations, especially in Europe, what our

1245
legislation is and to suggest, I have no doubt, that there should be co-operation in regard to that legislation so that it is European-wide, if not worldwide, among civilised powers.
Unfortunately that would seem to be a matter which is not of a temporary nature at all and so there ought to be permanent legislation, it may be he says, to deal with international terrorism. But it is a separate issue to deal with the political problems of Ireland and what arises out of them, with a prayer which I suppose all of us would utter that it is a temporary matter and a matter upon which we legislate year by year, especially as we are dealing with our own United Kingdom in that regard. I was surprised that the noble Earl did not refer to this at all. If he did, and I did not hear him, I apologise at once. But I hope that in his reply he will say that that matter is being given very careful consideration by his right honourable friend and himself.
I repeat: this House is united in its abhorrence of terrorism. This House is united—if it is not, it should be—in its decision to obey the duty of Parliament to secure the safety of innocent citizens in our land. We realise that in these troublous times extraordinary rights may have to be taken; but if Parliament is to exercise its proper duty it ought to have those powers dealt with separately, as I indicated. I hope that will be the position next year.
All of us must experience regret, and must have the reservations I have mentioned. There is no point in having a scrutiny in this thorough way year by year by an independent person without Parliament not only listening carefully but, unless there is very good reason to the contrary, carrying out the recommendations. Subject to those reservations, there will be no vote from these Benches—and I talk with responsibility in regard to my own Front Bench—against this order, upon which a vote has already taken place in another place.
5.54 p.m.
Lord Meston: My Lords, in the unavoidable absence of my noble friend Lord Wigoder, I should like to join in thanking the noble Earl for his detailed introduction of this important order. I would also wish to join in paying tribute to the noble Viscount, Lord Colville of Culross, for his report on the operation of the Act during 1986. As one would expect—from the brief opportunity I have had to study it—the report is a lucid and stimulating document which provides clear guidance to this House and also, perhaps more importantly in this context, to the Government. I would certainly join in asking that the Government pay particular attention to the call for rationalisation in the final paragraphs of the report under the heading "Broader considerations."
It seems entirely right that we should have an annual opportunity to consider this legislation. It is peculiarly an area where the law has to strike a balance between civil liberties and the protection of the community from the horrors of terrorism. From these Benches, we say that the balance must come down in favour of the protection of the community. It is on that basis that we support the order, subject, of course, to the annual process of scrutiny by Parliament and to the report of the noble Viscount. This is quite properly a temporary
1246
statute—a concept with which the House is peculiarly familiar as a result of recent debates on other legislation. We must see how it works in the coming year and we must look carefully at it again after the expiry of the period of one year when it has to be reconsidered for renewal.
I join in questioning the effectiveness of Section 11. As the noble Lord, Lord Mishcon, has told your Lordships, that section creates the offence of a failure to disclose information. I would ask how many prosecutions there have been. I see from page 6 of the report, to which the noble Lord, Lord Mishcon, referred, that there have been only 25 charges. I do not know whether that means 25 actual prosecutions. I would also like to know what has been the heaviest penalty imposed following any successful conviction under that particular section. With those comments, I would join in welcoming the order.
5.58 p.m.
Lord Monkswell: My Lords, I too would like to thank the noble Earl, the previous speakers and also the noble Viscount, Lord Colville of Culross, for his very illuminating report. I do not want unduly to prolong the debate; so I shall not elaborate on the horrendous damage that the Prevention of Terrorism Act does to our constitution and to the civil liberties of the citizen. I shall highlight some aspects of the report by the noble Viscount and then explain the positive effect of doing away with the Act.
Detention under the Act should be based on reasonable grounds for suspicion of terrorist involvement. In practice, as the noble Viscount recalls, it is probably based on the instincts of a police officer. I ask: is it right that instinct should replace reasonable grounds? In practice, detention is being used for general intelligence gathering, for intimidation of particular political groups and for the prevention of political demonstrations of opposition. Also in practice, the way detention operates causes real hardship and anxiety for those detained and for their friends and relatives. To have a situation where people can literally disappear and the police present a blank face to inquiries is very chilling, reminiscent, as it is, of the dirty war in Argentina and the current scene in some central American countries and in South Africa.
When we consider exclusion orders, I am sure we are all grateful at last for the official recognition that this means a sentence of internal exile with political Ministers as judge, jury and executioner. The report makes clear that the Act and the way in which it is implemented actually supports the arguments that may be used by some people to justify acts of violence for political purposes. By having this Act and using it, we deny the validity of our argument that all acts of violence committed for whatever reasons are criminal acts and that their perpetrators are criminals.
I should like now to look at the effect of doing away with the Act or, more accurately, letting it lapse by not renewing it. To start with, we must make clear—and I am sure the whole House will join me in this—that we do not condone violent acts for any purpose whatsoever. The first practical effect of refusing renewal will be to free police manpower from their effective political role under the Act and enable them

1247
to concentrate on the prevention of crime and the taking and bringing before the courts of criminals who conspire to commit criminal acts or who have perpetrated criminal acts. We shall also release government Ministers from their role as directors of police operations and their role as judge, jury and executioner of internal exile.
Let us rely on our courts—not politicians—to deal with criminals. We can then make a clear distinction between politics and crime. We consider that crime is for the police and the courts, and that politics is for the people and their elected representatives. Let us in this House say to all the elected representatives of the people, "It is your job to listen to the arguments of your opponents and if you disagree to argue your case. But do not try to use the law or a position of political power to silence your opponents, because that way will only provide the seedbed in which violence for political ends can flourish."
I conclude with this quotation from the noble Viscount's report:
"it is never possible to prove a negative, so nobody can tell how well [the Act] works".
I believe that the Act encourages violence for political ends. I believe that such violence is criminal and should be treated as such. At the end of this debate, I will seek to divide the House and I invite noble Lords who share my beliefs on this issue to join me in opposing the renewal order.
6.3 p.m.
Lord Hylton: My Lords, this order is short and unamendable and, as the noble Lord, Lord Mishcon, has already said, it is a question of all or nothing; either we accept it or we reject it. For those reasons, I should like to look at the report recently made by the noble Viscount, Lord Colville of Culross, who is gathering ever-increasing experience in human rights matters. He was, I thought, particularly thorough on the police aspects of this question. I am very glad that he mentioned the conditions of suspects held for examination or interrogation, and that he further went on to discuss for how long and in what circumstances persons should be held incommunicado. My only regret about the report is that it contains no list of those persons and organisations who gave written or oral evidence, and I should like to ask the Government whether they would consider printing the names of those people in the Official Report.
I come now to exclusion orders and I am glad that the noble Viscount did not shrink from using the words "internal exile" to describe exclusion either from Great Britain or from Northern Ireland. It is perhaps ironic that we should be debating the continuance of these orders so soon after the release of Dr. Sakharov from internal exile in the Soviet Union. I am very glad that the noble Viscount said,
"there is no doubt that hardship can occur in these cases",
and I very much hope that the Government will look most carefully at his paragraph 2.38, which deals with the human treatment of excluded persons.
I should like to ask—and just one sentence of the noble Earl's introductory speech gives grounds for, I think, a little hope—will the Government abolish the
1248
power to exclude in 1988? Can they give us that assurance? I ask for that assurance even if orders which will then be in force have to remain in force for those persons affected. It has, after all, been the unanimous view of Sir Cyril Philips and the noble Viscount, as well as of the Standing Advisory Commission on Human Rights in Northern Ireland, that these orders should no longer be allowed to continue. I refer the Government to the 12th Report of the standing advisory commission and in particular to pages 13 and 14.
That brings me to port powers, and on page 31 of the report we find mention of some loopholes to which I have tried to draw attention in your Lordships' House in previous debates on this subject. The existence of these loopholes throws some doubt over the whole of the rest of the elaborate and expensive powers and checking procedures.
Finally, I was very pleased indeed to read the final chapter of the noble Viscount's report which is headed "Broader Considerations". This takes the long-term view and does not hesitate to mention such things as "fishing trips" and plain intelligence gathering. I agree with the noble Viscount that we need minimum permanent powers to guard against and combat international terrorism, as well as separate and distinct temporary powers for dealing with terrorism arising from Northern Ireland wherever that may appear, as was pointed out by the noble Lord, Lord Mishcon.
I should like to ask the Goverment: can they make any comment on this section of the report today? If not, will they at least start preparing for new legislation on a better footing than this Act, which, as we know, emerged from one particularly horrific incident in 1974? Will the Government also examine and take into consideration comparable legal systems in other European countries?
6.8 p.m.
The Earl of Caithness: My Lords, I am grateful to all those who have taken part in the interesting debate on this subject that we debate annually, and particularly for the measured tones in which the noble Lords, Lord Mishcon, Lord Meston and Lord Hylton, made their remarks.
If we are to continue to fight against terrorism in connection with the affairs of Northern Ireland, and on the wider international scale, we must have the powers that Parliament has granted us in the Prevention of Terrorism Act. The fact that there have been no Irish Republican terrorist incidents on the mainland during the last year or so does not signal any change of heart or lack of commitment on the part of those terrorist organisations which have made such murderous attacks in the past. Anyone following events in Northern Ireland will know that there has been no decrease in terrorist violence over there.
It was only in 1984 that some of the powers in the prevention of terrorism legislation were extended to cover international terrorism. The fact that for the past two years about a quarter of those detained under the Prevention of Terrorism Act or the supplemental order were detained in connection with international terrorism shows, sadly, how right Parliament was to take that course of action.

1249
The Act is not used selectively in respect of any one group of people or to harass any section of the community. Its function is to prevent acts of terrorism occurring in this country, and the Government firmly believe it achieves its purpose.
The noble Lord, Lord Mishcon, asked whether we could have separate debates on each part of the Act. The Government take the view that the Act should be renewed as a whole. In those circumstances, he will understand that it is difficult to debate each section of the Act individually.
Lord Mishcon: I wonder if the noble Earl will admit that we cannot carry on a debate on this subject now. However, there is little point in introducing an order, as the noble Earl did so eloquently, by saying that Parliament has to be satisfied that each power is necessary if Parliament cannot debate each power.
The Earl of Caithness: The noble Lord underestimates his powers of persuasion. The noble Lord has referred to a number of powers under the Act and his words will be studied very carefully by my right honourable friend. I am sure that he will welcome any constructive suggestion on this piece of legislation, as with any other legislation. We have discussed the provisions of this Act with the Irish. They are aware of, and they understand, the problems we face. In fact, Irish governments have themselves introduced special measures to deal with the scourge of terrorism.
The noble Lord, Lord Mishcon, mentioned exclusion orders. The Government have always recognised that the power of exclusion is an exceptional power and one which infringes normal civil liberties. We do not take issue with the view that it is objectionable in principle. That is why I said that my right honourable friend is prepared to look seriously at whether or not the time has come to abandon the power. But I must make it clear that the Government would not be prepared to abandon the power if there were any question in so doing of putting lives at risk or putting the safety of our country into jeopardy.
I understand the strength of feeling on this subject. However, I must point out that people who are excluded are excluded for a very good reason—to prevent acts of terrorism. The people excluded from Great Britain are not, by virtue of the 1984 Act, people who have lived here all their lives. If they have lived here more than three years, they will not be excluded. I hope that that answers one of the points raised by the noble Lord, Lord Hylton.
I was surprised by the noble Lord, Lord Monkswell, who said that he was glad that we had officially accepted the words "internal exile". If he had listened to what I said, he would know jolly well that I had not accepted that, and nor have the Government.
The noble Lord, Lord Mishcon, drew attention to the sum of £2·50. Any released prisoner who is travelling to a destination within the United Kingdom, including one excluded by order from Great Britain to Northern Ireland, receives a discharge grant. This is an advance payment in lieu of social security benefit to which the released prisoner would be entitled in any
1250
case. For this reason, discharge grants are never payable to released prisoners whose destination is outside the United Kingdom.
On the rare occasions when a prisoner is to be excluded from the United Kingdom on discharge, his fare will be paid and he will receive a subsistence allowance. The amounts involved are small. However, I must stress to your Lordships that these allowances are intended solely for the period of the journey. It is for such a person's own government to pay his expenses in that country. Also, that person will have on him the money that was in his possession when he was detained. My noble friend, in his report, did mention a second case.
Turning to the queries raised concerning Section 11 by the noble Lords, Lord Mishcon and Lord Meston, the noble Lord, Lord Mishcon, again raised the criticism of not being able to debate individual parts of the Act. This is an exceptional piece of legislation because it deals with exceptionally serious problems. Section 11 covers one of those problems. Perhaps I may write in detail to the noble Lord, Lord Meston, on the point which he raised. However, I can say to him, in answer to part of that point, that the published statistics show that the heaviest penalty imposed following conviction under Section 11 was a term of imprisonment between one and five years.
The noble Lord, Lord Hylton, asked me three questions. I am grateful to him for giving me advance notice of them. He asked, first, whether the Government would publish a list of those who made representations to my noble friend in the course of his report. As I said earlier, my noble friend received quite a number of representations from individuals and organisations. I cannot list them in full because some of the representations were given in confidence, and it would be wrong for me to do so. However, there were representations from the Irish Embassy, the National Council for Civil Liberties, the Irish in Britain Representation Group, the Irish Commission for Prisoners Overseas and West Midlands Prevention of Terrorism Research, among others.
The noble Lord also asked about the exclusion power. However, I dealt with that in answering an earlier question by the noble Lord, Lord Mishcon.
Finally, the noble Lord asked whether we had any comment on the final section of my noble friend's report entitled "Broader Considerations". That was a point also raised by the noble Lord, Lord Mishcon. My right honourable friend the Home Secretary referred to that section in his written response to my noble friend dated 5th February. He said that it was too soon to formulate any proposals for legislation to replace the present Act. However, he accepted my noble friend's view that we need to consider the structure of controls against terrorism, both Northern Irish and international. Therefore, the views of my noble friend will be important in the Government's consideration of the future of counter-terrorism legislation.
The noble Lord, Lord Monkswell, asked whether we were aware of the horrendous effects of the Act. I would say, "We are aware of the effects of the Act; is the noble Lord aware of the horrendous effects of terrorism?" Had it not been for the Prevention of

1251
Terrorism Act, we would have not been able to deal with the six members of the Abu Nidhal group to which I referred earlier.
It is a paradox that in order to ensure our freedom against the scourge of terrorism the Government have had to seek powers which are in themselves severe. But I believe the House has seen today that the powers given to the authorities under the PTA are used sparingly and reasonably. The Government believe that the continuing threat from terrorism means a continuing and regrettable necessity for the Act. That is why I ask the House to approve the renewal of the Act for another year.
The Deputy Speaker (Lord Wells-Pestell): The Question is that this Motion shall be agreed to. As many of that opinion will say, "Content". To the contrary, "Not-Content". I think the Contents have it. Clear the Bar.
Tellers for the Not-Contents have not been appointed, pursuant to Standing Order No. 51. A Division therefore cannot take place, and I declare that the "Contents" have it.
On Question, Motion agreed to.

Civil Research and Development
6.21 p.m.
Lord Sherfield Lord Sherfield rose to move, That this House takes note of the report of the Select Committee on Science and Technology on Civil Research and Development.(1st Report, 1986–87, H.L. 20.)
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper.
When the Select Committee on Science and Technology was set up in 1980, its first report, after a short trial trip on Electric Vehicles, was entitled Science and Government. This drew attention to the fragmented nature of policy-making on research and development at all levels, and recommended a clearer recognition of the scientific and technoligical dimension now present in every field of national endeavour. It proposed the setting up of an advisory council chaired by a senior Minister to oversee the whole of science and technology activity, divided as it was between the Department of Education and Science, the Department of Trade and Industry, the Ministry of Defence and other individual departments. These recommendations were rejected by the Government. But two significant steps were taken as a result of the committee's report.
The first was the strengthening of the position and authority of the Chief Scientific Adviser and his staff in the Cabinet Office, and the second was the inauguration of the Annual Review of Research and Development issued by the Cabinet Office. This review, which has been improved and extended year by year, has given to Parliament and the public, for the first time, a view of the Government's activity and the expenditure on research and development across the board. Without it the committee's inquiry would have been much more arduous.
Since 1980 your Lordships' Select Committee has submitted a number of reports to the House on the
1252
state of several disciplines and areas of science and technology, and in every case the same fragmentation, the same lack of coherence, has been identified. So the present report and its conclusions reflect experience gained in these previous inquiries.
While the committee cannot claim that all its recommendations have been successful, a good number have been accepted, directly or indirectly. We have tried to make public policy in research and development more coherent, and to give science and technology a higher profile in the public eye. Next week the Select Committee will publish another report, on Innovation in Surface Transport. In a fairly narrow field, it will, like its predecessors, illuminate and support most of the general conclusions of the present report. I commend it to your Lordships.
Over the past five years the policy of cutting back on higher education, combined with a squeeze on the research councils, has crippled the dual support system on which the health of the research community depends, and, though the research budget has been kept more or less level in real terms, for a number of well-known reasons the amount of research that it can support has declined year by year.
The storm and distress signals flying from every part of the scientific community and the signs of a revival of the brain-drain led your Lordships' Select Committee to inquire into The Policy, and Practice of Public Support for Civil Science and Technology in the United Kingdom, the full title of the report. But since this subject is a very wide one the Select Committee identified and addressed four main topics: first, the organisation of civil research and development; secondly, the sources of funds for basic, strategic and applied research and development; thirdly, the working of the customer/contractor principle, established by the report of the noble Lord, Lord Rothschild, in 1971; and fourthly, the civil implications of defence research. On the second topic, funding, the Select Committee soon saw the importance of the interface between the public and private sectors, and realised that the report would be misleadingly incomplete without consideration of the contribution made to the national research and development effort by the private sector.
The Select Committee appointed two specialist advisers, Sir John Charnley, late of the Defence Procurement Executive, and Professor Roger Williams of Manchester University. Their services were invaluable. The inquiry generated a huge volume of evidence contained in two fat volumes accompanying the report, which itself contains a balanced review of this evidence. All this placed a heavy burden upon the shoulders of the committee clerk, to whom our thanks are due.
The sections of the report dealing with organisation covered more or less the same ground as Science and Government but were buttressed by fresh evidence. It is perhaps not surprising that with some amendments and refinements the Select Committee came to the same broad conclusions in 1985 as in 1980. Once more it recommends a much more public and explicit recognition by the Government of the essential importance of the advance of science and technology to the economic recovery of the country and the

1253
creation of wealth. Once more it rejects proposals for a Ministry of or for Science. It repeats its previous recommendation for a Council for Science and Technology at the highest levels of government, presided over by a Minister, to oversee the whole of the national scientific and technological endeavour and the distribution of resources covering the academic community and the research councils, the public sector including defence, and industry.
Advanced science and technology are vital to the country's economic recovery. The committee therefore recommends—and this is new—that the council should be chaired by the Prime Minister at least once a year. In effect the Select Committee proposes not a new organisation but rather an evolution of what already exists. While the Advisory Council for Applied Research and Development—ACARD—would be subsumed in the superior council, its important function would continue. As regards the research councils, the Select Committee encouraged the Advisory Board for the Research Councils to assume a more executive role without at this stage proposing the creation of a single council.
Reading between the lines of the evidence, the Select Committee infers that in the existing Cabinet structure a committee has now been set up to oversee the national endeavour in science and technology. We are not of course supposed to know about the existence of the committee, but most of our members regard this particular bit of security as smacking of bureaucratic mumbo jumbo. It is a good move, but it should be acknowledged publicly. Without threatening collective responsibility, this could help to demonstrate to the nation at large the strategic importance that the Government attach to science and technology for industrial recovery and for wealth creation.
On the issue of the funding of civil research and development, I can be brief. The overwhelming weight of the evidence was that in most areas British research and development was underfunded absolutely and in relation to what our main industrial competitors are doing. Making every allowance for the fact that many of our witnesses had a strong interest, the Committee concluded that the case was made out. In countries where the budget squeeze is also on, for example, in the United States and Australia, the research and development budget is being increased while other departmental budgets are being cut—in other words, there is a reassessment of priorities in favour of research and development.
The Committee, only too well aware of the competing claims on the public purse, considers that a similar assessment of priorities should urgently be undertaken in this country—not just priorities within the research and development budget, but the place of research and development in relation to other areas of public expenditure.
It is not just the Government who are responsible for the present situation; it is also industry and the institutions that finance it. Again, both absolutely and in relation to the industrial contributions of our main international competitors, the contribution of British
1254
industry to research and development—with of course some honourable exceptions—is inadequate. The committee considered what steps, in addition to exhortation, could be taken to remedy this inadequacy. Its suggestions are set out in paragraphs 6.80 to 6.96 of the report. Perhaps I should mention one in particular, since it is controversial and is disliked—perhaps feared—by many industrial firms. It is that legislation should be introduced to require companies to disclose their research and development expenditure in their public accounts. But the other suggestions—for example, more tax incentives—if they were followed up, would also help.
Thirdly, the committee inquired into the working of what is known as the customer/contractor principle, first adumbrated and elaborated by the noble Lord, Lord Rothschild, in his report, Cmnd. Paper 4814 of 1971. This principle was to apply to the arrangements for commissioning research by government departments. The committee recognised the validity of the principle, but found that it had never been applied in the manner that the Rothschild Report had recommended. In particular, the report had proposed that a general research surcharge be added to each contract to provide for underlying research support, for orderly transfer of staff between projects and the like. The 10 per cent. surcharge has in practice seldom, if ever, been included in the departmental contracts, and our report recommends that in future it should be added to all government contracts for commissioned research.
I should now inform your Lordships that the noble Lord, Lord Rothschild, has written to me to say that his report has been misinterpreted in one important respect. His recommendation was that the 10 per cent. should be an average surcharge. He illustrated this by referring to two Shell laboratories, of which of course he was once the research co-ordinator, one of which was exclusively concerned with general research while the other was concerned with technical services and did no research so that one would receive much more than the average, and the other, little or nothing. I am most grateful to the noble Lord, Lord Rothschild, for what in diplomatic circles is known as a mise an point; but I was at the same time reminded of the old story about the porter on an American Pullman coach who was asked by a passenger what the average tip was. "The average, Sir", he replied, "is $5 but most gentlemen, Sir, give me the average." Government departments, please note!
Here I should draw your Lordships' attention to what the report says about research in general. In the previous inquiries the Select Committee has found that in a climate of reduced funding the main casualty is not basic and applied but strategic research, that is, research undertaken with eventual product applications in mind, although these cannot at that stage be clearly specified. While basic research is protected to a large extent, and quite rightly so, increasing emphasis is being placed both by government departments and industry on short-term contracts. The committee therefore proposes that strategic research should be explicitly recognised and funded. We are specially concerned to ensure that that strategic research leading to wealth creation should be adequately financed and that industry and academic research should be drawn

1255
together into work with long-term benefits for the country.
Fourthly, defence: here the main point is that over 50 per cent. of the research and development expenditure of the country is devoted to defence, with consequences to which the Committee draws attention, but which raise major policy questions outside its terms of reference. In particular, we must be aware how large a part of our scarce manpower resources is taken up by defence research and development; otherwise, the main issue is the level of spin-off for civil purposes achieved by this high expenditure, which is generally considered to be far too low. Steps have already been taken by the Government to try to remedy the deficiency. The committee, while welcoming these moves, urges that more should be done in this direction.
The world does not stand still while Select Committees are deliberating. A number of steps were taken by the Government and other bodies while our inquiry was in progress, and we admit to feeling at times that we were operating on a moving staircase.
The Government initiatives were generally welcomed by the committee. Thus, during our inquiry, an important document was published by ACARD entitled Exploitable Areas of Science, which recommended that a process should be evolved with the object of identifying those areas of scientific research most likely to lead to economic benefit. The committee, and I believe the Government, favour this initiative; but the manner by which this process should be controlled is still under consideration by the Government with the assistance of consultants.
Then there is the so-called Link initiative, launched in December by the Government to promote collaboration between universities and industry in research and development on the basis of shared funding. This is also welcomed by the committee, which had advance notice of it. Perhaps the Minister can tell us this evening how these initiatives are progressing, and in particular how they relate to one another.
The important difference between the committee and the Government in regard to these initiatives appears to be that the Government think that they can be launched without the injection of new government money while the committee does not consider that this is realistic if the proposals are to achieve anything significant. I ask the Minister what action the Government propose to take on Sir Austin Bide's report, IT 86, entitled Information Technology: a Plan for Concerted Action which came out at the very end of the committee's inquiry and which is referred to in paragraph 6.88 of the report.
Before I sum up I wish to draw your Lordships' attention to a rather fundamental issue; namely, whether there is a link between expenditure on research and development and a country's economic and industrial performance. The Government, through the mouth of the Treasury, told the committee there was not. The committee recognised that this link is difficult to substantiate: nevertheless, the committee finds it hard to accept such a negative view when all our industrial competitors take the opposite one and are still increasing their expenditure
1256
while the United Kingdom is contracting its expenditure and planning to continue to do so.
We cite the Australian position in the report. In the United States of America there is now powerful bipartisan agreement that a strong science base is essential for industrial success. The President recently advocated increased Federal investment in science to foster industrial competitiveness and has proposed that the National Science Foundation budget should be doubled in five years and that there should be increases in research both for NASA and the Department of Energy.
It is often said, and it was reported to have been said again yesterday by one of Her Majesty's Ministers, that the United Kingdom spent a lot of money on research and development in the 1950s and 1960s and yet went into industrial decline; but I suggest that that result is due, at least in great measure, to the failure of British industry to apply the information available, while our overseas competitors not only took it away and developed it but took some of our best scientific and engineering brains with it. To use that as an argument for not giving maximum support to research and development today is surely a counsel of despair for it implies that British industry is incapable of learning from experience and so we might as well give up.
The committee's report is a substantial one and I cannot cover it all in a speech that is already over-long. I hope that subsequent speakers will develop and illuminate other aspects of it and that the debate in general will assist the Government in formulating their views on the committee's conclusions and recommendations. I do not expect a substantive reply from the Ministers this evening. I appreciate that because the report is a heavy one, more time is needed to frame replies to the committee's recommendations, but I hope that the Government's reaction this evening will be a positive one and that Ministers will assure the House that the Government are taking the report very seriously and urgently and will give the House their considered views before the Summer Recess. I remind the Government that, as we said in the report,
"Cosmetic adjustments to the status quo will not be enough."
The report may be critical in places but it is firmly based on an impressive weight of testimony. It is intended to be helpful and constructive, to point the way to a reversal of a downward trend in our performance in research and development which has already gone too far, and to revive the morale of the scientific community which is much too depressed.
The committee have recommended a high profile for science and technology, dynamic leadership at the centre and a new approach to funding research and development. These all matter greatly; but what matters most is the determination of both the public and private sectors to create a new confidence and to restore the United Kingdom's prosperity and its international position in science and in industry.
Moved, That this House takes note of the Report of the Select Committee on Science and Technology on Civil Research and Development.(1st Report, 1986–87, H.L. 20)—(Lord Sherfield.)
6.45 p.m.
Baroness Hooper: My Lords, this is a vital and challenging topic, but before I give an overview of major developments by the Government in this important area I should like to thank the noble Lord, Lord Sherfield, who introduced the Motion and who chaired the Select Committee which has produced the valuable report that we are now discussing. Perhaps I can also say how much we welcome the opportunity that the debate gives us to hear for the first time in this House from the noble Lord, Lord Dainton. We look forward to his contribution with considerable interest.
Five years ago the noble Lord, Lord Sherfield, chaired the Select Committee which produced another most important report entitled Science and Government. It was government acceptance of the main thrust of his earlier report in July 1982 which has largely determined scientific and technological input to policy-making during the past five years. In outlining the Government's position and in referring to significant developments since July 1982 I should perhaps mention that I am dealing more with the science-based aspects, while my noble friend Lord Lucas of Chilworth will largely concentrate on the industrial side. I hope that your Lordships will readily appreciate, from what in the time available can only be a brief overview of some government initiatives, that we are very much aware of how important civil research and development is to the growth of new technology-based industries, to the creation of jobs and to the continued prosperity of the country.
In 1982 the Government concurred with the Select Committee's outline of departments' need for advice and its view that what was needed was a strengthening of the centre rather than wholesale re-organisation. The Government also agreed with the committee that the machinery by which advice is to be tendered is less important than the ability, will and perserverance to seek and use such a device.
The major changes introduced in 1982, already referred to by the noble Lord, Lord Sherfield, provided an expanded remit for the Advisory Council for Applied Research and Development—commonly known as ACARD—and improved resources in the Cabinet Office for supporting the Government in their responsibility to secure an adequate scientific and technological input to decision-making. Better interdepartmental co-ordination was introduced through the establishment of the Committee of Chief Scientists and through the awareness afforded by the Annual Review of Government Funded Research and Development, which was first published in 1983. Stronger links were initiated between ACARD and the Advisory Board for the Research Councils (ABRC) to strengthen the interaction between basic and applied science and between science and industry.
I should like to highlight significant developments which have occurred since 1982 in some of these areas. Turning first to the role of what was in 1982 the Chief Scientist, Central Policy Review Staff, and is now the Chief Scientific Adviser in the Cabinet Office, your Lordships will be aware that the Chief Scientific Adviser is now formally located in the Cabinet Office. Since 1982 this central scientific advisory role has been enlarged to include responsibility for advising and
1258
representing the United Kingdom in international science and technology. This has led to a particularly heavy involvement of the Chief Scientific Adviser with European Community research and development programmes and policies.
This reflects the growing importance that the Government attach to European collaboration especially on industrial science and technology. The United Kingdom played a major role in setting up EUREKA, for example, with United Kingdom firms participating in 39 of the 109 market-led projects already launched, worth in total some £2·5 billion. The Government are also giving priority to industrial collaboration within the proposed new Community research and development framework programme.
A more recent enlargement to the Chief Scientific Adviser's responsibilities, which I was pleased to see is welcomed by your Lordships, is the establishment under his authority of the Science and Technology Assessment Office. This office has a responsibility to make comparative assessments of the contribution of all government-financed research and development programmes to industrial performance and wider economic benefits. The Government are grateful to the Select Committee for its welcome of this new body. The Assessment Office is not yet fully staffed but is beginning its work, much of which will be done jointly with departments in evaluating their programmes. The aim is to help develop stronger evaluation procedures within departments and provide more information on indicators of relative effectiveness to help those taking decisions at various levels of government on R&D priorities.
The work of the Advisory Council for Applied Research and Development in advising government on scientific and technological issues has resulted in an increased awareness, both within government and the scientific community, of the need to ensure that research and development contributes to the creation of wealth and to the competitiveness of British industry. Those are both points that the noble Lord, Lord Sherfield, emphasised. ACARD's comments since 1984, which have been confidential to government, on the Annual Review of Government funded Research and Development have been particularly valuable in this respect. In addition ACARD has continued to publish reports. An early one in 1982 entitled Facing International Competition: the Impact on Product Design of Standards, Regulations, Certification and Approvals led to the quality assurance advisory scheme and to a government White Paper in July 1982 from which a major government quality initiative has developed. More recently, reports were published last year on Software: a vital key to UK competitiveness and on Medical Equipment, and the Government are considering their response to these two reports.
The second joint report by the chairmen of the Advisory Council for Applied Research and Development and the Advisory Board for the Research Councils was published on 12th December 1986. This report, The Science Base and Industry, recognises that industry and the nation depend on the maintenance of a strong and innovative science base able to contribute to the development of new

1259
technologies and advanced skills. They describe promising initiatives which are bringing the academic world, industry and government closer together to harness the science base for the economic benefit of the nation. These valuable initiatives include the special directorates of the Science and Engineering Research Council; the Teaching Company, cooperative research grants, and co-operative awards schemes of a number of research councils; programmes through which large companies directly support university research; arrangements to give individual researchers and their universities incentives to exploit their research; and, most recently, as the noble Lord, Lord Sherfield, has welcomed, the development of a national process to identify the most promising exploitable areas of science. However, the chairmen of ACARD and the ABRC also say in their joint report:
"In the final analysis it is industry operating in the competitive environment of the market place that must recognise it has the ultimate responsibility to see the potential of research performed under the aegis of the science base and use it to enhance its own innovative capacity. Firms that do not have a commitment to innovation and a healthy R&D base, with staff at all levels capable of recognising the opportunities afforded by the results of their own and others' research and able to formulate what research is necessary to meet future needs, will not flourish. We would urge industry generally to give a higher priority to R&D and to recognise the sometimes irreversible damage that low levels of R&D investment can have on their competitiveness in market places that are increasingly assailed by innovative products".
In recent years the Advisory Board for the Research Councils has exerted increasing influence over the deployment of the science budget. It has promoted a redistribution of funds between the research councils in relation to its assessment of national priorities; it has sought to increase research councils' ability to respond flexibly to urgent needs and has created a flexibility margin at board level to assist in this; it has encouraged research councils to shift emphasis toward areas of economic benefit and directed programmes; it has emphasised the need for research councils to manage their resources more effectively, including the need to rationalise and concentrate resources; it has encouraged research councils to prepare corporate plans which bring together scientific, financial and management considerations; and it is itself preparing a strategy document which will be ready in the spring.
One of the important responsibilities of the Committee of Chief Scientists, under the chairmanship of the Chief Scientific Adviser in the Cabinet Office, has been to provide guidance on the preparation of the annual reviews of government funded research and development. The fourth such review was published in December. Although the content of the reviews has followed much the same pattern since their introduction, there has been substantial development and evolution within this overall pattern. The latest review has nearly 200 pages, compared with 52 in the first review. The statistical data used to describe government funded research and development have been collected in a survey of all government departments and research councils conducted by the Department of Trade and Industry. This survey, which has been in operation for many years, has been developed and extended to fulfil the objectives described in the Government's response to
1260
the Select Committee five years ago. The 1986 review also contains information on research and development by nationalised industries as well as on research and development expenditure in industry funded by government. The 1987 review will contain information on research and development by companies in the private sector.
As a result of the Select Committee's recommendations five years ago we now have in the annual review a most comprehensive series of data on research and development which enable Ministers to take an across the board view of research and development expenditure and to consider both the present and planned levels and distribution.
In outlining major developments since July 1982 I have largely concentrated on structural changes. However, I should like to close by reminding your Lordships of the progress which is being made in fostering a community of interest between the academic world and industry. I know that that is of considerable interest to many of your Lordships. Important in this is the new LINK initiative. My noble friend Lord Lucas will address LINK's benefits from its contribution to industrial success. I am particularly aware of the benefits to the academic world and am pleased to reply to the noble Lord, Lord Sherfield, at least in part by saying that it is expected that the first LINK programmes will be announced shortly and that they will be funded jointly by government and industry.
I look forward to hearing the debate which will I know be a valuable and timely contribution to the Government's response. I should again like to say that we are considerably indebted to the noble Lord, Lord Sherfield, and to all the members of his Select Committee for their analysis and recommendations. The Government will continue to accord civil research and development the necessary high priority in policy decisions to ensure the United Kingdom's prosperity and international position in the scientific and industrial worlds.
6.58 p.m.
Lord Williams of Elvel: My Lords, your Lordships' House will be most grateful to the noble Lord, Lord Sherfield, for his clear exposition of the contents of the report. I should like to join the noble Baroness, Lady Hooper, in thanking him for his contribution as well as thanking other noble Lords who served on his committee.
The report is the result of hard and meticulous work and anybody who has read through it must be impressed by the diligence with which the Select Committee of your Lordships' House performed its task. I should like to join with the noble Baroness also in welcoming the noble Lord, Lord Dainton, who is a maiden speaker today. This is a subject on which he is a great authority and we all look forward to hearing him speak. Having read the report, I must say at the outset that it makes pretty depressing reading. As the noble Lord, Lord Sherfield, said, the message from the committee is almost exactly the same as the message that was conveyed in 1981; namely, that success in science and technology is essential to our future as an industrial nation. It is a very simple and straightforward message. As the noble Lord said, that message

1261
went pretty well unheeded in 1981. Today having listened to the noble Baroness I have to say that it seems to me to have gone unheeded again.
As the noble Lord, Lord Sherfield, pointed out, it is not as though the rest of the world is standing still. Other competitor countries have forged ahead. For instance, in proportion the gross domestic product spent on research and development, including defence research and development, in the United Kingdom was at 2·27 per cent. in 1983. In Japan, the United States and West Germany it was at about 2·55 per cent. or 2·65 per cent., with much larger gross domestic products than ours. They are now probably over the 3 per cent. level whereas between 1981 and 1983, when the original message was put forward, our proposition of gross domestic product spent on research and development declined.
Some of your Lordships may ask, "Does it all matter? Why should we be worried if the total R&D spend by our competitors is well in excess of ours?" As the noble Lord, Lord Sherfield, said, the issue is no more and no less whether we are to survive as an industrial nation of the front rank and not sink into a nation that makes other people's products, invites tourists, sells services, lives off the proceeds of certain pockets of activities and cannot keep up with the first rank. That is the issue.
Noble Lords opposite may not believe me. There is no reason why they should. Let me quote in support the Assistant Secretary for Productivity, Technology and Innovation in the United States Department of Commerce, Dr. Merrifield, who said:
"There is no question that manufacturing is undergoing profound change and we are on the threshold of a new industrial revolution.… It is already here; it is going to accelerate; it is going to happen with us or without us.…… If a country does not realise this is going to happen, your manufacturing will be done by somebody else for you".
He goes on to say that research and development is by far the most important industrial priority.
"It's absolutely essential for survival. It is the single most important thing. In any nation, R&D in excess of 3 per cent. of the national product is now required for survival and growth".
He concludes:
"A nation that does not accord the utmost importance to R&D has made a decision not to be in business in five to ten years".
That is what this debate is about. I do not intend to, and I could not even if I did, cover all aspects of what is a comprehensive document. My task will be draw out one or two themes, set out the Opposition's attitude to the report's major conclusions and address myself to the problem of funding in particular.
The report, as the noble Lord, Lord Sherfield, said, is of an inquiry into the policy and practice of public support for civil science and technology in the United Kingdom. It would be wrong, as he pointed out, not to see the findings as part of a larger picture. The committee did so by commenting at some length on the division of responsibility between the public sector and the private sector in research and development.
I thought the committee quoted rather wryly ICI's evidence that unless something is done soon, the research funding problem will solve itself in a disastrous way: there will be so few good young
1262
scientists coming forward that even with limited funding we shall be able to support them all. That seemed to be one of the report's most depressing points.
If training is part of the larger picture, then so is capital investment. Because it is not sensible or useful to increase research and development unless we have proper investment and training programmes to make use of the R&D input; in other words, the "D" can convert the results into commercially viable products, and capital investment and trained manpower are there to produce, package and market the products. We see—and I emphasise this—this increased R&D effort not as an end in itself but as part of a comprehensive programme for industrial renewal which embraces investment and training across the whole of manufacturing, conversion and extraction. If any one of those components is missing, the programme has no chance of being successful.
Secondly, any future effort in support of R&D must—and I stress the word "must"—take account of regional disparities in the United Kingdom. It would not be right or sensible for the regional problem to be ignored in this whole debate. If it is ignored, the North-South divide, the comparative depression outside the South-East and South-West, would be aggravated instead of ameliorated.
By an intense effort and by the change in attitude for which the Select Committee calls, we could revitalise our industrial base, not only in the prosperous areas of the South but in Scotland, the North-East, the North-West, many parts of Wales and the Midlands. That is a national imperative alongside the general imperative to increase our R&D effort.
Thirdly, there are the obligations which the Select Committee did not mention and I shall mention briefly. They are obligations that we have as a civilised community towards the poorer parts of the world. If we are to succeed properly in industrial renewal, based on an enhanced R&D effort, we must be prepared to export that technology to those countries of the third world which are in desperate need of the means of development.
By that I do not mean subcontracting manufacturing to Hong Kong, Singapore, Taiwan or whichever country happens at that time to enjoy the lowest manufacturing costs. I mean much more than that. We must be prepared to share the results of our effort with the poorer countries of Africa, Latin America and the Indian sub-continent. We owe it to them and to ourselves to do so. Those are my general comments on the Select Committee's report.
To be more specific, there are two recommendations of the committee's report that can be accepted without incurring any great expense. The first is in the central structure for R&D, and the second is the use of central government purchasing power. We accept the view, and the next Labour Government will implement the proposal, that there should be a Minister who carries responsibility and answers for science and technology across the range. Although, as the noble Lord, Lord Sherfield, said, we are not allowed to speak in public about Cabinet committees, it would also seem sensible that that responsibility should be at the highest level but should be carried out

1263
in close liaison with the Department of Trade and Industry, which must in our view be the main motor behind the new effort in civil R&D.
We also accept the view, and will implement the recommendations of your Lordships' committee, that there should be a Council for Science and Technology, absorbing ACARD and charged with overseeing the whole range of scientific endeavour. We accept without hesitation the Select Committee's arguments that only the Prime Minister's close involvement and a clear horizontal view across the full range will produce the necessary political impulse.
We also accept the Select Committee's view on the role of public purchasing in encouraging the private sector to undertake more R&D and to become more internationally competitive. We recognise, as the committee recognised, the dangers of a cosy relationship being built up between government and private industry. But we are as impressed as the committee was by the finding of a report made by the US Office of Technology Assessment, which is quoted in the report, that federal government have a far greater and more positive effect in their purchasing on private R&D expenditures than does federal R&D itself. There is a lesson here which should not escape us.
One last and short point on the theme of public purchasing which spills over into international and community collaboration which the noble Baroness, Lady Hooper, stressed in her speech bothers me a little. It concerns the Joint European Torus project near Oxford. This and other projects of a joint nature have to be encouraged but they need caution in their implementation. I have been astonished to receive advice that UK staff on the project are paid approximately half their Euratom counterparts—leaving aside expatriation allowances and other benefits that Euratom staff receive. I also understand that this matter has been the subject of litigation against the European Commission without success. I obviously do not expect a reply from the Minister this evening but I should be most grateful if the noble Lord will look into the matter and write to me about it. If what I am told is true it shows how sensitive we have to be in implementing these joint collaborative projects with Europe and internationally.
Up to now I have discussed matters which require no serious financial outlay. Reorganising the central structure of government and re-orientating public purchasing will not cost a great deal. But, as the noble Lord, Lord Sherfield, said, we have to address the problem of money since the whole tenor of the Select Committee's report is towards higher expenditure, and in particular higher public expenditure. Its view is most clearly set out at the beginning of Chapter 6 of the report and has been reiterated very clearly by the noble Lord in his excellent introduction to the report.
There are two questions to consider. First, granted that the present R&D effort in British industry is wholly inadequate, what is the best way to improve it? Secondly, in those areas for which the Government are directly responsible—such as basic research and strategic research—how much should the Government spend and where is the money coming from? I believe
1264
that there is a political difference between the Government and the Opposition on the first question. The Secretary of State for Trade and Industry is quoted in the report as seeing it as,
"central to the Government's philosophy that the motivation for spending more on R&D must come from industry itself".
Our view is rather different. We believe that British industry has to be induced to step up its R&D effort by incentives. There has to be a kind of kick-start to get the engine going properly in the expectation that when the engine is going properly it will continue of its own accord, and indeed move into higher and higher gear as the change in the attitude with the Select Committee is looking for actually starts to seep through. If there is no kick-start of that kind then we are afraid that there will be no change and the engine will continue to tick over. There will be no great progress, and it will come to the point where the engine will simply peter out.
The committee considered a variety of ways to give that kick-start to the system. I believe that in doing so it accepted our view that it required positive action from the Government. As the noble Lord said, there are a number of ways in which this can be done. The United States and Japan—to take only two examples—have a very elaborate system of fiscal incentives for R&D. The French and Germans have a slightly different system which mixes fiscal incentives with outright grants and cheap rate financing, particularly risk capital. But I think the committee was right to focus on the Australian solution which did two things. First, it concentrates benefits for R&D carried out in Australia rather than carried out anywhere else. Secondly, by putting a time limit on the scheme it made sure that everybody would start now in order to benefit from the six years that they had in fiscal incentives. We have only one problem with the Australian scheme which might be aggravated if it were transferred to the United Kingdom. I have the greatest respect for the Inland Revenue and for Inland Revenue inspectors, but I am not entirely convinced that they would make the best judges of what would be a qualifying scheme for the purpose of tax relief. Furthermore, tax relief helps only those companies which are making a profit. There are certain to be occasions when companies which are not making a profit and not able to benefit from tax relief will need to have some form of support. I therefore think that we should be looking more along the lines of a grant system rather than a tax incentive system such as the Australian one.
As far as direct public expenditure is concerned, in funding R&D through departmental programmes in basic and strategic research we really must reverse the trend of cuts to which the noble Lord referred in the real value of the science budget. It is immensely depressing I am afraid to read the advice that has only this month been tendered by the Advisory Board for the Research Councils to the Secretary of State on the allocations of the science budget among research councils and which was published only last week. After noting their dismay and restating the increased demands made on the UK science base, not least in the AIDS emergency, the ABRC produce this paragraph:
"It would appear that the Government have set aside these arguments. The Government's declared policy, nonetheless, is to maintain and enhance the strength and quality of the science base.

1265
Our advice has to be that this policy and the cumulative tenor of the Government's financial decisions can be reconciled only by reducing significantly the scale of the science base in terms of the numbers of fields in which world class effort is maintained; the numbers of researchers employed and the numbers of laboratories. This kind of contraction will require substantial restructuring funds. We shall be addressing the implications of a major contraction in the strategy paper which we hope to have ready as a basis for consultation in the first quarter of next year. But our strategy paper will also restate our firm view that it cannot be sensible to reduce (whether by default or by overt policy) the research capability of an advanced industrial economy at a time of rapid scientific and technological development".
That is from the ABRC and does not augur very well for the future. The Government will no doubt argue that they do not have the money and that in a period of financial stringency every programme, including civil R&D, has to be vigorously controlled. Let me put to the Government one very simple proposition. We are now told on all sides that the Chancellor of the Exchequer has some £4 billion to give away next month. Coincidentally, give or take a few hundred million, £4 billion or so has been raised by the Government in this financial year through its privatisation progamme. We must remember that privatisation proceeds are once-for-all proceeds. One cannot sell British Gas twice. Would it not make sense, and would it not be logical, to reinvest the proceeds of the sale of assets in the industrial future of our country instead of cutting the standard rate of income tax as is apparently proposed? Would it not be a course of action which is wholly consistent with good business practice as well as fiscal prudence and integrity? Is this not, by the Government's own logic, where the money should come from?
Even at this late stage, the Government may repent. The Select Committee has called for a fresh start and a sense of urgency. The Opposition accept that both are needed. The challenge is now to the Government. I repeat the words of Dr. Merrifield:
"A nation that does not accord the utmost importance to R&D has made a decision not to be in business in five to ten years".
I only hope that the Government realise what is at stake.
7.20 p.m.
Lord Flowers: My Lords, we on these Benches thank the noble Lord, Lord Sherfield, for initiating this debate, and for so effectively leading the inquiry that gave rise to it, of which I was so honoured to be a member.
I unreservedly echo what he has said, and I broadly agree too with what the noble Lord, Lord Williams, has said. The crux of the matter, as the Save British Science Society has recently emphasised, is that it would take at least an additional £2½ billion annually, taking government and industry together, to bring our civil research and development funding to the levels that pertain in comparable countries. That shortfall is the single most important consideration. I shall try to avoid histrionics, however, and speak instead about strategic research, mentioned briefly by the noble Lord, Lord Sherfield, because in my view that is a central issue in the consideration of policy for science and technology.
1266
However, science policy is often confused by the use of ambiguous words like "pure" and "applied". Lord Rothschild showed that it is more a matter of who pays for the research and with what motivation, than of what happens in the laboratories. I apologise for seeming pedantic, but I want to avoid that confusion. Pure research is research in any subject—chemistry, sociology, engineering—undertaken primarily in order to expand the frontiers of knowledge. We are still rather good at pure research in this country, but we are finding it increasingly difficult to hold our own with the funds at our disposal. Applied research is research, whatever the content, undertaken because someone considers that there might result to their advantage some benefit commensurate with the cost, and is prepared to pay for it. "Pure" of course is not synonomous with "useless", as some seem to think. As Sir George Porter said only yesterday, there are really only two kinds of research: applied and not yet applied, although it is not always applied as at first imagined.
For example, secure message encoding depends on the properties of very large prime numbers; a subject foundly thought by mathematicians not so very long ago to the utterly useless. The commercial value of this discovery would surely cover the cost of all mathematical research since Euclid initiated the theory of numbers.
What then is strategic research? You can call it pure or applied as you wish; that is in the eye of the beholder. It is research undertaken in order to expand the frontiers of knowledge, and therefore, by our definition, pure. But it is undertaken in fields deliberately selected because they seem likely to contribute significantly to some desired applications. To that extent it is applied.
The most quoted examples today concern the enabling technology, so-called: research into fields like information technology, biotechnology, and the technology of materials, which underly, and study of which should therefore ideally precede, almost everything else that we want to do. Not applications in themselves necessarily, but enabling a wide range of applications to be made. That is clearly a very important matter.
Unfortunately the ambiguity of classification of strategic research so often proves its undoing. Those responsible for the support of pure research regard it as applied, while those responsible for applied research regard it as pure. At times when money is short—and money for research has been getting shorter and shorter, whatever the Government may say—strategic research becomes nobody's prime concern. Insufficiently speculative for the academic, too far from profitable application for the industrialist, it is so easily squeezed out in an economy drive.
The principal responsibility for funding pure research lies with the research councils and the University Grants Committee, both working within the budget of the Department of Education and Science, as befits the prime purpose of pure research, which is to expand the frontiers of knowledge. The responsibility for funding applied research lies with the interested customer and the proxy customer: principally, that is to say, with the industry and with

1267
departments or agents of government who deem it in their interest, or in the national interest, to sponsor it.
In pressing the case for strategic research, your committee does not suggest that there should be a third source of funds, a third responsibility. Perhaps it is especially important that I make that clear speaking from these Benches. It is not that there is a dichotomy between the practitioners of pure and applied research and sensible people who are sick of them both. On the contrary, we should all feel responsible for the definition and furtherance of the strategic elements of research, because that is how new products and processes and other innovations of economic value are most likely to be discovered, developed and sold.
It is for that reason that we were enthusiastic about the concept of "exploitable areas of science" offered by the Advisory Council on Applied Research and development—ACARD. Their aim is to draw together the two perceptions of what is possible in scientific and technological terms and what is commercially desirable. Research in the exploitable areas of science is synonymous with what I have called strategic research. What seems new about it is that ACARD has suggested that there may be some systematic process by which exploitable areas may be identified. Whether or not something systematic results—and I am sceptical about that because other countries have tried and failed—the essence of the process must be to obtain a consensus among those responsible for pure and applied research about what areas of basic research seem most likely, after objective analysis, to become applicable within a reasonable time if additional effort and funds can be devoted to them. The consensus must be between industry, research councils, universities and government. That requires political will, and it is for that reason, among others, that we need the Council for Science and Technology proposed in our report, able from the centre to exert powerful influence upon all parties.
Many noble Lords will realise that I am doing little more than spelling out the notion of selectivity and concentration which figured large in the policies of the research councils some 20 years ago. By and large it failed to generate significant application. It failed not because the exploitable areas were ill-chosen, but because the potential users were bystanders rather than participators in the strategic research programme. There was no contribution and no commitment on the part of industry, and therefore precious little real interest. They were spending the Government's money, so it did not matter. Report after report has shown that the same has still to be said today. It is the genuine participation of the potential user that is the vital element in a truly strategic research programme. That should be the prime consideration of the Council for Science and Technology.
Of course there are exceptions, but the only one to offer real encouragement is the Alvey programme in the highly exploitable area of information technology, because it was conceived from the outset as a genuine partnership between industry, research council, university and government in which everyone participates. There have been deficiencies even here—for example, the failure to cover university
1268
overheads, a matter about which government departments are rather bad in general. However, the Government, and especially Mr. Kenneth Baker in an earlier incarnation, nevertheless deserve our warm congratulation for the vigorous way in which the Alvey programme was mounted. Of course it will be some time yet before we know whether it has improved our commercial performance. That can only be assessed in the longer term. What Alvey has shown is that research scientists normally engaged in pure research are perfectly willing and able to turn their attention to strategic research, given the leadership of government and the participation of industry.
Therefore, what I find quite incomprehensible is that the Government have not yet seen fit to build on their own success by mounting Alvey-like programmes of strategic research in other exploitable areas.
Responsibility for selecting and funding strategic research in the exploitable areas of science is at present too widely distributed. On the one hand, we have the research councils, the prime responsibility of which is the support of pure research selected on the basis of merit, but nowadays, as the noble Baroness has said, increasing their effort in the exploitable areas. They are loosely supervised by the Advisory Board for the Research Councils, which advises the Secretary of State about his reponsibilities for science. As the noble Lord, Lord Sherfield, has said, your committee hopes that the ABRC, and none too soon in my opinion, will gradually assume greater executive control over the research councils.
The University Grants Committee also has responsibilities for the funding of research under the dual funding system and is nowadays trying to be more selective about it. Although the UGC will obviously take into account subjects selected by the research councils in coming to their own decisions, too close a degree of detailed co-ordination, and too restrictive a view of selectivity, would be undesirable because the UGC provides the seed corn.
However, the UGC is also responsible for teaching, which is the other half of what the universities do. That responsibility is shared with nobody else. In the desire to be selective about research the UGC already pays scant attention to the requirements of good teaching, which are not identical with those of good research. I should not want to encourage that trend at present by proposing that the policies of the UGC should be too closely co-ordinated with those of the ABRC. No doubt we shall develop our views on that when we debate, as I suppose we shall, the recent Croham Report.
The responsibilities for applied research, on the other hand, are even more widely distributed among many government departments and agencies, and among that extremely inhomogeneous collection of institutions known as "industry". From the centre ACARD keeps a watching brief over some of them and offers the occasional nudge. However, it is confined to applied research and development, and over much, especially the defence programme and the associated industries, it has no say. We need a body similar to ACARD, but of higher profile and

1269
empowered to oversee the whole of science and technology—pure and applied, civil and defence—whether in university, industry or government.
The Council for Science and Technology, under the leadership of the Prime Minister, no less, should be charged especially with responsibility for identifying the exploitable areas of science in which strategic research can most effectively be mounted, and for winning the participation of all concerned. That is how new products and processes are most likely to emerge from the nation's research expenditure, and how research can most readily be harnessed to meet economic objectives.
I must not keep the House any longer. We are all looking forward to the maiden speech of the noble Lord, Lord Dainton. I have known him for many years. He is one of the wisest men in England.
Many of the recommendations of this report were made or implied in the earlier report entitled Science and Government of five years ago. That report was largely ignored by government. Let us hope that they heed your Lordships' committee this time. Competition in research, and in the technologies that are so dependent on research, is nowadays so fierce that there is not likely to be another opportunity.
7.35 p.m.
Lord Dainton: My Lords, alone among the list of speakers my name carries parenthetically the letter "M". I feel as if I were a learner driver, and it induces in me a proper degree of respect for the conventions of your Lordships' House and also a proper degree of trepidation. I suspect that I am also alone in the fact that over 42 years ago, when I gave my first lecture in Cambridge, I was criticised for my presumed defects, not directly but indirectly. It was a lecture theatre which the students entered from the rear and I entered from the front. Not unnaturally, the first few rows of the lecture theatre were unoccupied, which I did not consider to be a personal affront to me. However, I felt it necessary, in view of the fact that I had prepared my lecture with such loving care and wanted all the words to fall on the ears of my audience, to say—foolishly as it turned out—"Can you all hear me"? There was a slight pause and then a student in the first occupied row said "Yes, sir, I can hear you, but I am prepared to exchange places with someone else!"
As I looked at this report, my mind went back to Francis Bacon and his famous remark: "Knowledge itself is power." That, of course, is only a half truth. If knowledge is to be translated into action, human and material resources must be allocated, first, to exploit existing knowledge—that is really the "D" in R&D—and, secondly, by research, to extend and expand the knowledge that we have.
As I read rough the report, there seemed to be a kind of leitmotiv of the two perennial problems which have faced governments ever since science came of age and enjoyed state patronage. The first question was: how much should government and industry spend on research and development in science and technology? The second question was: how can one manage government investment in research and development
1270
to ensure that one gets the best value for money and the best outcome for the country?
Your Lordships will know that just about 70 years ago two remarkable men who were to become members of your Lordships' House—Viscounts Addison and Haldane—made what I still believe to be the most profound remarks about the second problem. I do not wish to go into them now, but I do not doubt that 70 years hence our successors will still be debating this question. However, because I believe that progress in this difficult field of science and government can only be made if past decisions are carefully scrutinised and monitored and the lessons learned from them applied, I merely wish at the outset to welcome the recommendation in paragraph 116 of Chapter 6 which says that some proportion of the money—about 1 per cent.—which government spend should be used to evaluate the results of past decisions. By the same token, I welcome the already established Assessment Office.
The report repays careful study. I cannot deal with the details, especially as I am aware of the convention about maiden speakers. However, I have formed a very clear impression that the analysis and the conclusions are broadly correct; they are certainly consonant with my own experience. It is undeniable that the percentage of the gross domestic product which has been applied to civil research and development has declined and, to a newcomer like myself, it appears that this decline cannot be right in a competitive world in which science and technology now offer, and will increasingly offer in the future, beneficial opportunities for the prosperity of the nation through industrial and commercial activities.
I believe that it is also self-evident that to gain the maximum benefit from the world's store of knowledge, to which every country has access, the United Kingdom must have enough people with the requisite skills, imagination and initiative to maintain an across-the-board capability from basic research to application, to manufacture and indeed to marketing. It must also have good machinery for making wise choices in the public sector. It must induce in the private sector a greater willingness to invest in and to exploit research and development. By and large, there must be a public willingness to accept that, as a result of the information revolution through which we are now going, change will be the norm and not the unusual, and that research and development in science and technology will from now on be the engine of that change.
Our record with respect to people has been touched upon, and in recent years it has not been good. In the last quarter of a century there has been a significant swing away from science in our schools. It is almost 20 years since the committee under my chairmanship reported on that and I find it sad to relate that the recommendations about a broad span of studies up to school leaving, which that report advocated, are only now somewhat tardily and, may I say, slightly timidly being tackled by governments.
As has already been commented upon, we allow some of our very best talent to leave our shores. I was dismayed when, last March, I received the list of candidates to be elected Fellows of the Royal Society,

1271
to note with some interest that 20 per cent. of those Fellows who had been educated in this country, and trained here in research, were now permanently resident abroad. They are indeed the best gifts that we could make to our rivals.
Much of the report is concerned with the machinery of government. The Select Committee recommends that the advancement of science and technology should be adopted as a central government objective and I wholeheartedly endorse that. It also recommends that there should be a Minister of Cabinet rank to preside over the new central council which is to oversee the whole of government science and technological effort. There are obvious difficulties associated with this idea which have been faced before in this country. They include how much consideration of, and due deference to, any central strategy a hard-pressed departmental Minister can give when faced with immediate problems which demand the full utilisation of all the resources at his disposal? On the other hand, how can the Cabinet Minister at the centre ensure that departmental policies conform with the central strategy if control of the purse strings lies in hands other than his own?
Nevertheless, I believe that the balance of argument has now shifted and points in the direction which the recommendations of the report indicate. If for no other reason than that our future is so closely linked with our competence in science and technology, this aspect of our national life should have a much enhanced visibility in the political arena, no less than in education and in the media.
However, on the question of the organisation of the research councils, I would beg to differ somewhat from the report. It has always seemed to me that science is a seamless robe; that the divisions within it called "subjects" are there for the convenience of the division of labour, and their existence, when they are institutionalised into separate research councils, are more harmful than beneficial. Moreover, science changes rapidly. Increasingly both the advancement and the exploitation of science require milti-disciplinary approaches.
When I was chairman of the Council for Scientific Policy, and later of the Advisory Board of the Research Councils in its first days, I was clear then that the research councils' interfaces—that is to say between the research councils—needed to be made more permeable and more fluid. I now believe that I would go further, and even further than the report. I think that we need a more effective instrument than the five research councils. We need a unified body—call it a national research council or national science foundation, if you wish—simply because there is much greater ease and speed of redeployment of human and financial resources, necessary if the obstacles to the implementation of policy change are to be reduced.
A second reason is that such a body could take a view right across the whole of science, engineering and technology and be better able to identify what the broad priorities should be where they transcend subject boundaries. I sense that some Members of the Select Committee share this view. I wonder whether
1272
they also feel that we should not delay. I quote Bacon again:
"He that will not apply new remedies must expect new evils; for time is the greatest innovator".
I should like to refer momentarily to the question of pay-offs for scientific and technological research and development. In advanced countries one finds universally that there are three loci for this work: institutions of higher education, national laboratories and sometimes international laboratories, and industry itself. It is beyond question that the best place for basic scientific work is within the universities and institutions of higher education. As the noble Lord, Lord Flowers, has commented, that is probably also the best place for some strategic research. That arrangement yields very many pay-offs. First, we have the cadres of well trained researchers coming from institutions where teaching and research are kept up to date. It helps to cultivate an awareness over the whole field so that we do not miss those opportunities based on work which is done outside this country and which is part of the international harvest of knowledge.
Furthermore, we must never forget that the mainspring of some of those most radical innovations which have blessed this country and other countries have had their roots and origins in basic research. I need only mention names like penicillin, cephalosporins, the cavity magnetron and lasers to make the point, because there are many others.
In these Houses of Parliament I suspect that we are more interested in the economic pay-off of scientific research and development, where the ultimate result must be the sale of the process or product at a profit in the world's markets. Increasingly, it seems to me that the salability of what we have to offer will, to a very large degree, depend on its technical superiority over the products and processes of our rivals. If British industry is to succeed, it must learn from its competitors in the USA, Japan, Germany and so forth, that it must invest more in R&D and follow it through.
Twenty-eight years ago I was the Arthur D. Little Professor of Chemistry at the Massachusetts Institute of Technology. Arthur D. Little was a chemistry graduate of that institution who founded a consulting firm about 100 years ago. He was very fond of writing and saying that research is the mother of industry. Significantly, when he died he bequeathed the whole of that great consulting firm to an academic institution—to MIT itself.
I have worked a fair amount of my life, one way or another, in the United States of America. Among the contacts I have met have been Dr. Guy Suits of the General Electric Company who, for 20 years, was in charge of its distinguished research laboratory at Schenectady. One lunchtime I remember him telling me never to forget that an industry cannot be successful without research because,
"research is the best form of industrial insurance".
For all these reasons, therefore, I heartily endorse the recommendations of the Select Committee which refer to the need to stimulate industry to invest more in research and development. I think that the two measures proposed—tax incentives, well known in the United States, and also requiring annual accounts to

1273
show how much has been spent on that in individual firms—are measures which I would wish to commend to your Lordships.
Perhaps, too, as a last thought, I could put it this way. It has often seemed to me, in my public life concerned with scientific research and development in the public sector and in my academic life, that we have been constantly asking over the years—and quite properly too—what is the cost of doing this or that piece of research or development. I would suggest that perhaps our decisions might be a little better, and certainly would be better in industry, if we also asked and tried to answer the question: what is the cost in the form of a penalty in the future of not doing this or that kind of research? I thank your Lordships for your indulgence.
7.51 p.m.
The Earl of Cranbrook: My Lords, if it were not for the fact that I feel I speak for the whole House it would be almost presumptuous of me to congratulate the noble Lord, Lord Dainton, on the calibre of his maiden speech. In a way what the Select Committee did has sprung from work that he initiated. He was of course chairman of the Council for Scientific Policy working group, on which the noble Lord, Lord Flowers, and I believe the noble Lord, Lord Kearton, also sat, which in 1971 reported on the future of the research council system and which was effective in setting up the ABRC that we now have.
It is a pity in a way that the second half of Cmnd. 4814 is sandwiched behind Lord Rothschild's report because it has at least as much weight and at least as much importance. We are very glad indeed to have heard the noble Lord tonight, and we look forward to hearing a great deal more from him in the future.
I was particularly interested in his views on the Unified Research Council, which is referred to in the Select Committee's report. At present, as a result of another report from the Select Committee on Science and Technology, I am sitting on what can perhaps be referred to as an interface sub-committee which is attempting to co-ordinate research from three research councils. It is an odd role. With this experience, I am very much inclined to put a great deal of weight on the advice that the noble Lord has just now given us.
I should also like to take this opportunity of elaborating briefly on two aspects of the report of the Select Committee on which I had the honour to sit under the chairmanship of the noble Lord, Lord Sherfield. I want to speak briefly about manpower resources and also about criteria for the public support of research.
Those of your Lordships who managed to read the large volumes of evidence will have found them well worth reading. They are large in both senses. I must register a slight protest at the change in size of these books. It means that I have to reorganise my library completely if I want to keep them. It is an annoying feature that they have suddenly doubled in size.
In this evidence your Lordships will find one strain constantly repeated. I take, for instance, from page 44, the words of the British Microcirculation Society,
1274
which expressed their anxiety over young research workers who leave research or go abroad; in simple terms, the brain drain. The Engineering Council referred to the difficulties experienced in recruiting and retaining skilled staff. It said:
"The salaries of academic staff need to be competitive with industry if research establishments and academia are to attract and retain graduates of the highest quality".
The Engineering Council was afraid that graduates would leave academia and go to industry, but if we read the words of industry in the person of ICI, one of our largest and most research-oriented public companies, it finds:
"barely enough good people … for our own recruitment".
There is no contention that salaries in research and in universities in general are low by comparison with the rewards offered to exceptional young graduates in almost any other career. These bright people are therefore lost to research. The world abounds with anecdotal stories. Some of the salaries paid by financial institutions to their star performers still in their early twenties are three, four or five times as much as what a young man could expect if he were to enter a research career. I heard yesterday of a young London journalist who, good luck to her, was earning a lot more than a professor before she had reached 25. This is the brain drain.
The direction of the brain drain though nowadays is almost exclusively to the United States. When I was beginning my professional career almost the whole world was available to us. There was a university expansion going on in every quarter of the globe, and we could, and did, find places in many different countries. But now the brain drain is almost exclusively to the United States of America. If Australia is about to found two new universities, there will perhaps be a slight addition in that direction if they recruit internationally. But otherwise that is the direction in which we are looking.
I believe that the Royal Society is shortly to publish new statistics on this point. I believe that it will be found that, although perhaps in quantitative terms the loss is not great, in qualitative terms it is frightening. Quite recently we learnt of a 24 per cent. pay rise negotiated by university teachers. This may serve to ameliorate their circumstances to some extent, but on the other hand it simply intensifies some of the problems faced by the research councils and other grant-giving bodies.
If salary costs are increased in this way within budgets that are fixed on level funding terms, projects that are already under way and budgeted for require increased allocations. These projects run for up to three years ahead in general. The extra costs can only be met either by reducing the number of projects which are funded or by cutting research funds elsewhere. Therefore, it is a double-edged knife.
Let us look at the United States system; let us look at the United States mechanisms for university education and research. We are struck immediately by its diversity; the existence of state, federal and independent institutions. There are some colleges where the primary duty of the staff is simply to teach. Little research is expected from them, and in fact they achieve rather little research. But on the other hand

1275
there are famous names among the universities with a high percentage of staff whose whole career is devoted to research, and again there are some research institutes of superb calibre.
If we look at the terms on which the staff are engaged we also find that these are variable. The nine-month contract is quite a frequent form of engagement, leaving the employee free to spend the remaining three months earning money much as he will. There is a great variety of short-term contracts and even tenure within the American system. It does not give the security for life that we find among the less flexible system that exists in our universities. It is true that within our universities, out of necessity, ways and means have been devised, particularly let us say in faculties of medicine or engineering, to allow staff members to earn more by working outside their contract terms.
I recognise clearly the strength of some of the initiatives that Her Majesty's Government have taken in the last two years, as listed for us by the noble Baroness, Lady Hooper. I have felt the impact of them, as I sit on the Natural Environment Research Council. There have been considerable changes, I judge, in the operation of research councils. Is it now time to look at our universities and to undertake a radical review of our university systems to try to create opportunities for high salaries for high performance? A challenge lies before the universities and the Government to examine the systems in other countries, particularly the United States, and to see what structural reforms could be adopted to the service of our scientific and research community.
The second point I want to speak on briefly concerns the criteria for public support of research. The report of your Lordships' Select Committee recognises that within basic science the peer group assessment system is the best available method for determining what research is supported. This involves a judgment by leading practitioners in the relevant fields of research and it includes two considerations. The first is the expectation that results will lead either to new concepts or to new explanations of known phenomena. The second point for evaluation is the worth of the research for training and for the strengthening of the research capacity of the people involved.
The academics who are involved in making peer assessments in the case of basic research would probably agree that they are not necessarily the right people also to judge the commercial potential of strategic research. There have been moves to adjust the composition of research councils and to bring in more people who have experience of the world of commerce and industry as it impinges upon the world of science. But some other method which is not yet clear to us is envisaged in what have been called the exploitable areas of the science process.
Both reports—the report by ACARD and that from your Lordships' Select Committee—emphasise, on the other hand, that not all strategic research is amenable to, or even is desirably evaluated in terms of, commercial exploitation. The report in paragraph 6.66 identifies the Department of the Environment especially as one government department in what is called a non-commercial field, where the research is
1276
concerned to benefit sections of the public at large. But this can be expressed in much stronger terms.
There is now evidence that our natural environment is stressed in three main areas. It is stressed in the atmosphere. We see phenomena such as ozone depletion, carbon dioxide accumulation and acid precipitation. The natural environment is distressed in the marine area. For example, any noble Lord who tries to sail across the Kattegat in the Danish North Sea in summer will find it stinks; it is rotting. Our local inshore coastal waters are also too rich—too foul perhaps I should say—in their burden of contaminants. Land is a problem. There are wide complaints about the degradation of our natural environment by agriculture in this country under what is seen as the stimulus of the common agricultural policy. More widely in the world there is serious degradation in terms of erosion and depletion of land quality.
Research in these areas leads to something which is much more than merely the words "public benefit", as used in our committee's report. Reseach is essential to develop policies that will safeguard the natural resources. I reiterate the question asked by the noble Lord, Lord Dainton, just now. We must examine research in these spheres in terms of the penalty for not doing it. That in my view is a full economic justification. It is not in terms of cash, but it is in terms of damage limitation and resource conservation. These extra funds cannot come from the DES Vote. They must come from a government who take proper care of their people, their nation and their environment.
The noble Lord, Lord Williams, referred briefly to AIDS. This is an even more critical problem. It faces the whole of mankind and it again requires a response which I think is outwith the science Vote of the DES. I should not expect the MRC to seek funds from the ABRC flexibility margin but rather to obtain funds from the Government to promote research into this medical problem.
This leads to the final question. We agree that resources are limited. I think that no one—although I felt that noble Lord, Lord Williams, was getting dangerously near—feels that our problems can be solved by splashing out money on a large scale in an indiscriminate fashion. More money is needed, but some research may have to be stopped. The criteria I suggest for supporting research have to be turned on their heads to find some rational basis, some grounds for policy decisions, to say that there are fields of research which need not continue in the national interest; something where exploitability is not clear, where the training value is not apparent and where the protection of the environment is not of obvious significance. That is something which has to be considered with as much care and scrutiny as do the grounds for strengthening our support for research in other fields.
8.7 p.m.
Lord Gregson: My Lords, I first add my congratulations to the noble Lord, Lord Dainton, for what I should describe, as an engineer, as a Class 1A maiden speech. It is indeed a measure of the value of this

1277
House that a man of the stature of Lord Dainton can add to the debate of the Parliaments. We should be conscious of that.
I pay tribute to the chairman of the Select Committee, the noble Lord, Lord Sherfield, who chaired this inquiry. His wisdom, his expertise and long experience, arising from distinguished service to the country over many years, was tested to the full by the importance and complexity of the subject dealt with in his report. He came through with flying colours, as the House might expect. We were grateful to the noble Lord, to our clerk, to our many advisers and other people who helped to produce what I consider to be a very important report for the future wellbeing of this nation.
Over many years in connection with a number of organisations with which I have been associated I have had a unique opportunity to study at close hand the activities of most of our world competitors and potential competitors—in Europe, North America and especially the Far East and the Eastern bloc, particularly Russia. I must admit my deep concern that we in the United Kingdom are failing and failing badly to keep up with the rapid pace of the development of technology that is taking place all round the world. Since we in this country have to earn our living in international trade, I believe this situation is untenable.
I have no doubt that your Lordships are all aware that over the last three years this country has had a negative balance in manufactured goods for the first time since what is known as the Industrial Revolution around the end of the 18th century. But I wonder how many are aware of the alarming rate of change there has been from a positive to a negative balance. In 1981 we had a positive balance of £5 billion; in 1986 we had a negative balance of £6 billion, and I would suggest that for a trading nation which depends on its overseas trade to maintain the standard of living of its people, this must give rise to considerable concern. In normal circumstances we should be in an extremely serious balance-of-payments crisis—more serious in fact than anything we have experienced previously. The reason we are not in crisis, or apparently not in crisis, is of course North Sea oil.
May I at this stage correct once and for all the misguided conception held by some Members of Parliament and many newspaper editors that we in this country, by some miraculous means, could earn our living and maintain our standard from our net earnings from services? The GDP of the United Kingdom is roughly a little more than £350 billion. The output from manufacturing is nearly £200 billion: over half our wealth. Most of the rest comes from the extractive industries and from farming. That is the internal account, the housekeeping money.
We import nearly £80 billion-worth of goods from abroad and we pay for them by exporting £60 billion of manufactured goods and a net £7 billion of services. The difference is presently made up by exporting North Sea oil. The manufacturing industry is absolutely vital to the economic wellbeing of the United Kingdom. In recent years the decline in our manufacturing earnings abroad has been almost
1278
exactly the reciprocal of the build-up of the sale abroad of the surplus of North Sea oil, over and above our own needs. In other words, the total balance was slightly positive.
I fully recognise the contribution which services and overseas investment make in earning our living, but they really do not come anywhere near substituting for the £60 billion that we earn from manufacturing exports. It is the erosion of that manufacturing base, without the prop of excessive North Sea oil earnings, that is the root of my concern for our economic future.
Since the United Kingdom is not rich in physical resources other than energy in the short term, our ability to compete in the world markets with our goods and services is entirely dependent on adding value to the materials and resources which we import from abroad. That means we must rely primarily on the quality of our human resources, their skill, their enterprise and their versatility—in other words, technical knowledge and the intellectual capability to apply it.
A most important feature of the 20th century is the rapid emergence of new technologies, and the pace is accelerating. The Office of Technology Assessment of the United States Congress recently did an assessment of the development of computer science. Their conclusion was that knowledge in this subject has a half-life of 2·7 years: in other words, in the time of the average first degree a graduate is already out of date. This exponential increase in technology appears to be a factor which we in this country have failed to realise. It takes more and more effort to keep up with the front runners: you cannot rest on your laurels or assume that the provisions we made yesterday to compete are sufficient for today; and they are certainly not sufficient for tomorrow.
Another feature of new technology is that it is all-pervasive. There is hardly an area of man's endeavour that is not affected today and will not be more and more affected as we follow technology up the exponential scale. To remain competitive in the world markets we must be at the forefront of a good many of the developing technologies, if we cannot be at the forefront of them all.
Unfortunately, as I said at the beginning, we are falling behind our competitors in the rest of the developed Western world. In general we are not keeping at the forefront of science and technology. In general we are not applying innovation to our endeavours in manufacturing industry, and, since this will drastically affect our ability to earn our standard of living, it simply must not be allowed to continue. For our sakes, but more particularly for the sake of our children, we have got to climb back by hook or by crook to being a leading manufacturing nation on a world scale. It concerns every one of us, and every one of us has a part to play.
There is no doubt of this country's competence in science: the whole world acknowledges it. The regrettable fact that over the past few years we have failed to provide the resources to maintain that capability I am sure will be dealt with by other speakers in this debate. But the great failure of this nation over many, many years is the failure to exploit the scientific discoveries which have come from our

1279
universities and research laboratories. I believe that that failure lies equally at the door of government and of industry.
We have heard a great deal over the past few months of the disastrous effects on industry of the short-term outlook of the institutions of the City of London, which are now by a very substantial amount the majority shareholders of British industry. There is no doubt in my mind that, coupled with poor management and interest rates that border on usury, the short-term approach is a fundamental cause of British industry retreating into technological obsolescence, which is so damaging to this country's potential in world trade. In these days of universal and rapid communication, you can no longer sell yesterday's technology anywhere in the world. The days of selling pig iron to India and rice bowls to China have long since disappeared. If we are to remain a major trading nation it is a nonsense to rely on a low exchange rate as a sole basis for improving competitiveness. Prices are no longer the all-dominant factor. Technology content and quality are becoming fundamental and unless we want to enter into competition with the third world, flogging native artefacts and shoddy goods, we have to improve the input of technology to industry.
This was very apparent in the period when the dollar was very strong in the exchange markets. If your Lordships remember, last year the pound nearly reached parity with the dollar, and it was quite frightening to realise that during that period although we increased our exports for such things as fine china, fine worsted and a semi-antique car, there were very few technological goods that America wanted to import from the United Kingdom. But the American markets were flooded with technological imports from Germany and Japan: by comparison with those countries, our trade balance with America hardly moved.
We should be very stupid indeed to ignore the warning signs of that experience. The essential weakness of British industry is that it has got out of the habit of spending money on R&D, particularly on the expensive phase—development—which costs maybe a hundred times as much as the original research. Industry has got to be led back to the understanding that it is morally wrong for the future of UK Ltd. to increase dividends in the short term at the expense of developing the products and processes which are essential for the long-term wellbeing of the company and the country.
Industry must not be allowed to hide its failure. It is not in the public interest for it to do so. Companies must be required to publish their spending on R&D. Those who underspend must be shamed into spending more. Those City analysts who want to spot companies with a good future in high technology should be given the figures to do so. Those who only look for short-term profit should be reminded about the long-term future that is necessary for the continued well-being of the country. The mood of the City ought to be moving fast towards greater disclosure, in the light of recent scandals, and disclosure certainly needs to include R&D spending.
1280
Make no mistake, my Lords, industry will need a great deal of help to recover from the bad habits it has been forced to adopt, and this help is simply the role of government. Pump priming is the key and the Department of Trade and Industry has a most crucial role to play in this. I only hope it will heed the gipsy's warning!
May I now turn briefly to the other component of our disastrous decline, the failure to exploit the intellectual capability of our people to earn our living. There can be no question that our educational system at all levels is devoted to teaching people to spend money or to shove it around the City, but certainly not to earn it. We have the smallest percentage of our children proceeding to higher education. We have the smallest graduate community compared with our competing nations. Within that small graduate community we have the lowest percentage of technologists, and that tiny fragment of our population that we are training to be technologists in order to earn our living in the world has the poorest level of qualifications.
Your Lordships might say at this stage: "How stupid can you get? How could we possibly contrive to get ourselves into that position?" But the situation is even worse than that, because as yet I have only mentioned this tiny community of technologists as they leave our universities and out polytechnics. They then go into industry, and here we have the lowest level of expenditure on training among our competitors, 0.015 per cent. of turnover compared with an average 1 per cent.—eight times less.
Then, unbelievably, despite the fact that technology is expanding on an exponential scale, we do not systematically up-date this tiny minority of technologists, who are charged with the awe-inspiring burden of earning a living for all of us in the 40 years of their working life, in spite of the fact that the half-life of the underlying technologies is less than three years. I consider that to be unbelievable.
I readily admit that there are exceptions that prove the rule, but what I have said is substantially correct. And the net result that does prove the rule is that industry is desperately short of the skills of the technologist in the midst of 3½ million unemployed. That is unforgiveable. Fact is indeed stranger than fiction! So what can we do about it?
We must, of course, in the longer term change the whole attitude of the nation—Sir Keith Joseph's famous cultural shift; we must convince our children of the need to earn money before we spend it or even shift it around; we must improve the teaching of maths and physics in our schools; we must motivate our children to qualify for science and technology courses in the universities and polytechnics and we must provide more places to accommodate them.
We must realise that a first degree is no longer a qualification in technology. We must strengthen the provision for postgraduate education as Japan, Germany and America have already done, so that the first degree becomes a general degree and specialisation does not take place until the second degree. We must provide for a continuing education throughout the whole career of our technologists and scientists. I realise that we in the United Kingdom now face an

1281
enormous task if we are to restore our place as a major trading nation in the world, but even before we attempt to do that we have to climb out of the abyss of technological obsolescence.
I believe that, taken with our report, the two steps I suggest would at least initiate the process of the long recovery. Implementation of the report will cost money both from government and from industry, but I must say that not to spend this money now could be the greatest error of omission ever committed in the economic history of this nation.
8.25 p.m.
Lord Ezra: My Lords, in his remarkable maiden speech, the noble Lord, Lord Dainton, reminisced about his experiences some 40-odd years ago as a university lecturer. I, too, should like to go back some 40 years, because that was the first time I met the noble Lord, Lord Sherfield. He was then, as Sir Roger Makins, a powerful figure in the Treasury and he was chairman of a committee which co-ordinated our overseas trade. I had to appear before that committee to beg them to let us export some coal which was then in very strong demand. I always used to prepare for those meetings with great care because of his logical and probing approach, which of course we have seen in full measure today in the speech with which he introduced this report.
I should like to concentrate on R&D in relation to manufacturing industry and I know that the noble Lord, Lord Lucas of Chilworth, will be dealing with this issue when he replies. Of course, the importance of the problem of R&D in relation to manufacturing industry comes out very clearly in the report and has been referred to already in speeches by many noble Lords. It was underlined in the report produced by the Overseas Trade Select Committee, whose chairman, the noble Lord, Lord Aldington, will, I am glad to see, be speaking later in this debate.
There is not the slightest doubt that R&D is an essential ingredient in industrial recovery and growth. I find it very hard, as the noble Lord, Lord Sherfield, found it hard, to follow the reasoning of the Treasury in this respect. I tried to understand its language in the evidence it gave. But that language was so convoluted and complex that I gave up and simply concluded that the Treasury was, on balance, rather against R&D.
Of course, it is difficult to tell what the level of the R&D effort should be, as the noble Lord, Lord Dainton, emphasised. It is also important to recognise that civil R&D, particularly industrial R&D, is primarily the responsibility of enterprise, but government none the less have a powerful role to play in stimulating the necessary level of effort.
As to whether the effort of civil R&D in this country is adequate, I think this is conclusively shown in a quotation from pages 24 and 25 of the report which reads as follows:
"Of the five leading industrial nations, the United Kingdom now devotes the smallest share of its gross domestic product to civil R&D. This disadvantage in quantity is not offset by any generally greater effectiveness of R&D in Britain".
That is not what the committee said. That is what the DTI said in its Science and Technology Report for
1282
1984–85. So I think we can take it as read that we are deficient in our R&D compared with other countries.
Reference has been made to the undue proportion of R&D which goes on defence expenditure in this country, matched only by the United States. But, in the United States, it looks as if the spin-off for civil uses of its massive defence R&D effort is relatively greater than ours. So we suffer by comparison with others and the forward estimates of expenditure put out by the Government suggest that this difference between the defence expenditure on R&D, on the one hand, and public civil expenditure on R&D on the other, will, if anything, widen in the years ahead. That appears to be the forecast. So what we now regard as serious will become even more serious in the next two to three years if government plans materialise.
There are two ways of remedying the situation so far as industrial R&D is concerned. The first and main initiative must be taken by industry itself. However, that initiative must have a full measure of support from government. How should that be brought about? The report is clear in this respect and I believe that there are four measures, some already referred to by other noble Lords, which should be taken to remedy the situation.
The first measure is that enterprises should publish their expenditure on R&D in their annual reports. This is of vital importance, in my opinion, because we are all suffering in industry today from a short-term attitude. One way of reminding ourselves that there is a long term is to be told what the effort is in research and development in terms of expenditure. We do not know what that expenditure is. I am glad to note that in the next annual review that the Government will produce on government-funded R&D they will have a shot at indicating what the level of private R&D is. I think this is of great importance and I think the lack of information on R&D expenditure in most annual reports of private enterprise companies contrasts unfavourably with the reports of nationalised industries, on which I speak with some experience.
So far as the National Coal Board, as it was then known, is concerned, we produced a whole chapter on R&D and indicated fully what we were doing, as well as setting out what the expenditure was and how that compared with the previous year. We took a pride in that, and I believe that that sort of pride should be taken by all companies in this country in their R&D effort. In my opinion, that would be a very good move.
Looking to the longer term, we have to recognise, as British Aerospace said in its evidence, that a 10 to 15-year planning horizon is required for the introduction of a new technology. One starts research today and, if one is lucky, one gets the results in 10 to 15 years' time. It is essential that the long-term view be introduced into the thinking of companies and into their annual reports.
Secondly, there is the question of the role for the DTI, which is already very important. It is, after all, the key ministry in the whole industrial sector. It is doing a good deal of funding already. However, as the report indicates, the totality of its funding could well be concentrated on the single Alvey project on advanced information technology. If that were done properly, there would be nothing left over for anything

1283
else. This is an area which certainly merits substantial additional funding on selective projects, on targets and in such a way as to supplement, support and stimulate investment in R&D by the firms themselves.
Thirdly tax incentives have been referred to. Many countries, as the noble Lord, Lord Williams, emphasised in his important speech, have devised ways in which R&D expenditure can be stimulated by fiscal measures, by grants and in other ways. We are at such a difficult and indeed critical stage in this matter that I should have thought it essential that some way of stimulating R&D fiscally or by appropriate grants should be undertaken.
Finally, I refer to public purchasing, which was also mentioned in the report. Public purchasing is a very potent weapon for stimulating effective R&D activity among suppliers. I was saddened to read in the report that the enlightened public purchasing policy, which seemed to be part of the approach of the Government to the problem a few years ago, now has a low profile. I hope that that is not true. However, it was said in the report, based on the evidence received.
That would be a regrettable situation. I found in my experience with the coal industry—we were big purchasers, buying in those days about £1 billion-worth of supplies—that we could achieve very competitive quotes from British firms if we worked hard at it and joined with them in the R&D and in testing and marketing. We knew that those products were competitive because they were being sold throughout the world. When I used to visit the stockyards of pits, the bulk of equipment which I saw on the surface, waiting to go down the mines, was made in Britain. When I visit the shop floors of factories, the bulk of machine tools that I see on shop floors is made abroad—in Switzerland, Germany, America and elsewhere. Very few of those pieces of equipment are made in this country and they are usually of the older type.
If there is a determined approach to this problem, particularly through the purchasing route, that situation can be altered. We need to bring to bear on the issue all the pressures we can to change the situation.
As to the morale of people in the research and development sector, I, like the noble Lord, Lord Williams, was approached by the people employed on the JET project at Culham. I was amazed to learn of the discrepancy in the salaries which are paid to British personnel, compared with almost twice as much paid to the other Community personnel. That is leaving out of account the expatriation grants which are also very substantial. I should be happy to receive a copy of the letter which I hope the noble Lord, Lord Lucas, will be able to send to the noble Lord, Lord Williams, on that subject, if he is not able give a response when he speaks. I am very much with the noble Lord, Lord Williams, in saying that we have to see the whole question of reactivation of R&D as part of the reactivation of industry generally. There are three ways in which that has to be done.
First, we have to make sure that we have an adequate level of investment in industry. I regret to say that I do not think we have. Just a few minutes ago,
1284
over the tapes, information was made available by the DTI to the effect that in the fourth quarter of 1986 investment in manufacturing industry was 10 per cent. below the fourth quarter of 1985. During the whole of 1986, it was 4½ per cent. below 1985. We know that in 1986 we had a bigger than ever deficiency in our balance of payments on manufacturing products. I therefore fear that on one of the three legs of this regeneration effort—investment—we are not yet there. We need to get that aspect right.
We also need to get our training right. Much has been done to increase the level of training in this country. The noble Lord, Lord Gregson, remarked upon the fact that in the midst of all our unemployment we are increasingly short of skilled personnel. Surely, we can get that right after all these years. I have been much involved in industrial endeavours and export endeavours, and I have not known a time of economic recovery since the war when we have not been desperately short of skilled personnel. Surely the day must come when we can avoid that difficulty. After all, when we are short of products made by skilled personnel, we find no difficulty in importing such products from abroad. Evidently, other countries can meet their increased needs because their economies are rising in concert and still have enough over to supply us. This is an area to which we must devote a great deal of attention.
The third leg is R&D. We must do the research for the longer term future and development for the medium term so that investment can be put in and trained personnel can operate the processes and equipment. It all makes a whole; it is the firm basis for industrial regeneration which has been fully recognised in Germany, in Japan, in the United States and in France—all our major competitors. We cannot afford much longer to ignore such a strategy.
I should like to conclude by quoting once again from this excellent report. It refers to the fact that in 1903 the Royal Society said in its yearbook:
"Expenditure by the Government in scientific research and science institutions, on which its industrial prosperity so largely depend, is wholly inadequate in view of the present state of international competition".
The hope I express is that the Royal Society yearbook for the year 2003 does not contain those same words. Whether or not it does depends entirely on what we decide to do today.
8.40 p.m.
The Earl of Bessborough: My Lords, with other noble Lords, I welcome this report and congratulate the noble Lord, Lord Sherfield, on his presentation of it. It certainly has had a very good reception in the media, and it must be giving us all cause for grave concern. Incidentally, I was very glad to learn recently that, like my right honourable friend the Prime Minister, the noble Lord, Lord Sherfield, had become a Fellow of the Royal Society. He is to be congratulated on that. I also congratulate the noble Lord, Lord Dainton, on his quite delightful and very wise remarks in his maiden speech. We certainly all hope that we shall be hearing him frequently.
At the outset I must apologise to the House, and in particular to the noble Lord, Lord Lucas, who understands my predicament, and to the noble Lord,

1285
Lord Sherfield, that due to a prior engagement I shall not be able to remain to hear the winding up speeches. I hate having to do this but in this case I have no option.
I fully appreciate that because of the importance and breadth of the recommendations involving several departments the Government response to the committee may not be completed until well after this debate. I appreciate therefore that my noble friend Lord Lucas may not be able to anticipate the Government's reply to specific recommendations. I appreciate, too, that the Government response must be co-ordinated through the Cabinet Office and that this may not be completed much before the Summer Recess. I hope, however, that a White Paper will be produced before then and we look forward to my right honourable friend the Prime Minister presenting it to Parliament.
Although I was not a member of the sub-committee of the noble Lord, Lord Sherfield, in this case, I was a member of the committee when it produced its report on Science and Government which led to the Government response in Cmnd, 8591, which, as I understand it, still provides the basis of arrangements for scientific advice to government. Although the Government accepted, as the noble Lord, Lord Sherfield, has said, most of the recommendations of the committee in that earlier report, they did not accept the proposal for a Cabinet Minister to speak for science and technology; nor for a council for science and technology. I am glad, however, that as a result of that report stronger central machinery at official levels and the broadening of the field of study have been introduced.
I was also interested to note that my right honourable friend the Prime Minister said in a Written Answer in another place already in October 1979 that since issues may arise which straddle the responsibility of several Ministers, it would not be sensible to ask one of them alone to take the lead, and that in such a case my right honourable friend would herself play the co-ordinating role.
I quite understand that my noble friend Lord Lucas may not perhaps be able to go much further than that this evening. However, my main message is that I wish that science and technology could be given a larger profile. I think that this did happen to a certain extent in the early 1960s when my noble and learned friend the Lord Chancellor was Lord President of the Council and Minister for Science and I was his humble number two. My noble and learned friend spoke often of the seamless role in exactly the same way as the noble Lord, Lord Dainton, did in his maiden speech. That took me back a few years.
We all seem to know, even if we may not be supposed to know that there is a Cabinet Committee dealing with science and technology generally. This more or less emerges from Chapter 6, paragraph 5, of the Select Committee's opinion. Having been a member of more than one Cabinet Committee in the past, I agree with the Select Committee that conventions of secrecy about Cabinet Committees are not helpful when there is a need to project the public image of science and technology and no one is allowed
1286
to admit that any ministerial machinery exists to draw up priorities. The Select Committee is rightly convinced that more than this is required. Recognition of the vital, primordial role of science and technology in the life of the nation, which has been mentioned by so many noble Lords this evening, should certainly be public and visible.
The economic future of this country must depend to a large extent on government support and promotion of new technologies in the world as a whole, although I agree that industry and the City might well do more for themselves when one considers that 50 per cent. of R&D funding is already paid for by Her Majesty's Government and that this is, as I understand it, high compared with some of our competitors. I recognise that some friends in the City sometimes expect returns on a short-term basis and that this discourages companies where R&D programmes must run over a longer period.
This is certainly a problem when one has to consider the interests of shareholders. In my view shareholders should nonetheless be asking companies what their R&D programmes are and obtaining more information about them, recognising that research may well be more of an asset than a liability. The well known firm of Plessey, which I know quite well, is a very good example of a firm which declares its R&D expenditure—£81 million in the past year, more than 5 per cent. of its turnover, plus £237 million jointly with customers such as the Ministry of Defence. Despite this we cannot ignore what its head of research, Professor Gosling, said in The Times today about the need for government intervention. Above all we must recognise that under the leadership of my right honourable friend the Prime Minister, the Government have defeated inflation as well as reactionary trade unionism and feather-bedded management. In the words of Mr. Peregrine Worsthorne in the Sunday Telegraph last Sunday,
"industry and commerce are now leaner, fitter and more competitive".
Now therefore seems to be the time to promote more effectively our undoubted capabilities in science and new technologies. The rest of the world wants to know what we have to offer to our mutual benefit. I know this from my many travels abroad promoting our abilities in these fields. In my view we must give our scientific and technological capacity a higher profile. I know it is common knowledge that there is a new science adviser to the Government in Dr. John Fairclough. I cannot help feeling that it might help him if our policies in science and technology were given more public and international prominence.
As Sir George Porter, the President of the Royal Society, suggested in his speech to the Parliamentary and Scientific Committee yesterday, it will be a good thing to follow the recommendation of the Royal Society that a high level national science council, under the chairmanship of the Prime Minister, be set up to raise the profile and assist the science adviser in the task of co-ordination, promotion and exploitation of the efforts of our very well qualified scientists and engineers, who should, I believe, be as well rewarded in Britain as they are in other parts of the world if we are to reduce the brain drain. With other noble Lords including the noble Lord, Lord Ezra, I also was briefed

1287
on this point by our laboratories at Culham. I also consider that there should be no shortfall in the funding of education, teaching, research and training. I noted the vice-chancellors' call for urgent action in this respect.
Although the recommendations in the present report are somewhat similar to those in the Committee's earlier report on science and government, there are, I note, certain subtle differences, and in particular in regard to the Japanese experience. I hope that the Government have been looking at the Japanese model, which I have studied in some detail.
Finally, as my noble friend Lady Hooper has done, I stress the importance of European technological co-operation. I apologise to your Lordships for having been doing this so often over the past 25 years, and most recently last summer and autumn in our debates, on Second Reading and in Committee, of the European Communities (Amendment) Bill, ratifying the Single European Act, which includes a substantial package on technological co-operation. As I said more than once then, it is only through such co-operation that we can hope to compete effectively with the United States and Japan. I only hope—I trust that my noble friend Lord Lucas may be able to comment on this—that the budget of the European research and development framework programme of 7.7 billion European currency units will not be too drastically curtailed by Britain, France and Germany. I think that I have told my noble friend about this, and arranged for him to be further briefed on the subject.
As usual, the noble Lord, Lord Sherfield, and his committee have produced a most important report and they must be given full credit for it. I feel sure that the Government have been giving it, and will continue to give it, very serious thought.
8.45 p.m.
Lord Swann: My Lords, although he has had to leave, I want to add my tribute to the noble Lord, Lord Dainton, a very old friend of mine, for his characteristically perceptive maiden speech. I want also to congratulate the noble Lord, Lord Sherfield, and his colleagues on an extremely valuable report. I can only hope that the Government will not merely welcome it, as so often happens with such reports, but will actually do something about it, and especially the first three recommendatons.
Much has already been said with which I agree. I want only to comment quite briefly on one or two aspects of the report that might have been emphasised more than they were or where I have some reservations—but that in amplification rather than criticism.
We are fortunate in Britain in having a mulitiplicity of sources for the funding of research and development of every sort. There is no single source of far-sighted wisdom in this world, and everyone involved in making decisions about the funding of research ought to heed the well-known academic aphorism; namely, that peer review is a splendid method of eliminating bad research and, along with it, the very best.
The most famous example, of course, is Mendel, who laid the foundation of genetics and molecular
1288
biology, and hence most modern medicine, and with that, for example, the possibility of finding a cure for AIDS. But despite the fact that he sent his classic paper to every distinguished biologist in the world in his day, it was totally and utterly ignored for 40 years; so one could rate his chances of getting a research grant from a research council or a government department as anything but pretty depressing. Fortunately for him, however, and still more so of course for us, he did not need research grants. He was the abbot of a monastery in Czechoslavakia.
It is for this reason that I have reservations about the suggestion in the report, stemming, it would seem, from the Advisory Council for Applied Research and Development, ACARD, that strategic research and its close relative, now known as exploitable areas research—those areas, in short, that lie midway between pure basic research and straightforward applied research—should be funded by a new process and presumably, although the report is not wholly clear on this, by a new body.
I do not believe that a unitary process with a unitary body is the best way to go about encouraging these important but neglected areas. I am sure that the research councils should regard such research as part of their responsibility, as should government departments, one hopes with their chief scientist and customer/contractor mechanisms strengthened. Indeed, the committee so recommends. But to impose a new central mechanism on top of this seems to me unwise.
For similar reasons, I have suspicions about the idea of a unified research council. Central decision-making in the area of research, like peer review, is liable to eliminate not just the bad but the very good along with it, and with no possibility of the right decisions being made somewhere else in a decentralised system. Research is simply too incalculable to be left safely to central decision-making. This may be irritating to politicians and civil servants, who like tidy structures, but it is an inescapable fact of life.
Turning elsewhere, the report has a lot that is valuable to say about industrial research and development. Here again, I have a reservation. Research and development is not an end in itself, like basic research. It is a central part of the mechanism of innovation and the subsequent introduction of new products and new processes through the market. It is only this that generates wealth for society.
The report, I think, tends to overemphasise R&D at the expense of the other aspects of innovation. Unless R&D, and particularly the "D" part, on which the report rightly lays much stress, actually produces saleable goods and services at a price that enables the producer to thrive, it is likely to be money wasted. R&D effort, in short, has to be matched by good management, marketing effort, training and much else if successful sales are to be achieved.
Does the volume of R&D expenditure by a company predict its commercial success? By no means necessarily, it would seem. Moreover, it has to be remembered—and this is a point made by the noble Lord, Lord Sherfield—that around 30 years ago the United Kingdom was one of the heaviest spenders on R&D. But the lesson learnt then, and since apparently

1289
forgotten, is that it is the use made of R&D, deriving from the quality of management of the business, that determines success and not just the number of pounds actually spent on R&D.
It follows that simply exhorting companies to spend more on R&D will not necessarily produce results; and bribing them to spend more by tax concessions may only produce creative accounting. The emphasis must surely be placed on encouraging the whole managerial process of innovation. Once performance improves R&D growth will follow automatically. Industrial R&D without the will, understanding and ability to exploit it may help our competitors but it will not help us. The plain and depressing fact is that the crucial gap in United Kingdom performance is the lack of confidence on the part of all too many British managers and entrepreneurs that R&D can be turned into profitable innovation. It is an intractable problem that the report goes only part of the way to grasp.
I have touched on two of the problems that beset us in the support of research and development with a view to the ultimate benefit of society. They are the problems of choosing what R&D to do in the first place and of how to cope with the whole managerial process of innovation so that R&D is translated into commercial success. There remains a further difficult area; namely, that not only are managers suspicious of and resistant to technological change but so also is the workforce for fear of losing jobs.
This trio of areas—the choice, management and acceptability of technological change—lies at the heart of Britain's industrial problems and they too demand investigation and research. The report has some comments to make on that score. There are, for example, recommendations for more evaluation and in particular—a point raised by the noble Lord, Lord Dainton—for a small percentage of government-funded research money to be spent on various forms of evaluation. There is, too, a call for more information to be made available on the pattern of R&D and the amount of money spent on it.
Fortunately, some research on these problems goes on. There are one or two private institutions and a few units and individuals in universities involved in it. The Economic and Social Research Council has realised the importance of this trio of problems and is funding work on them. I should tell the House that I have a particular interest in this myself as chairman of a body called the Technical Change Centre; a small research organisation that the council funded. It is devoted specifically to a study of the choice, management and acceptability of technical change, and directed by a former industrialist, himself responsible for a number of highly significant technological innovations.
The various organisations and individuals involved—all, it has to be said, financed on a small scale—have a range of deeply intractable problems to wrestle with but they are doing valuable work. If we do not use the methods of research to guide us in how best to choose and manage R&D and how best to overcome the many obstacles to getting innovation accepted I fear that industrial progress will continue to be very slow.
1290
Market forces having failed all too often to do the trick, this is a crucial area of practical research. I hope the Minister can assure us that it will have every support and encouragement from the Government.
9.4 p.m.
Baroness White: My Lords, before turning to the main subject of this debate, I, too, wish to proffer my congratulations to the noble Lord, Lord Dainton, on a maiden speech of outstanding quality. I do so with particular pleasure as I sat under his chairmanship some time ago when I was a member of the University Grants Committee, over which at that time he presided.
Delighted as we are to have the noble Lord, Lord Dainton, with us, I am sure he will understand if I point out that one scientific swallow, however distinguished, does not make a summer. As a lay member of the Science and Technology Select Committee, and a former chairman of the European Communities Committee, with its seven subcommittees, I echo the opinion expressed yesterday by the President of the Royal Society, Sir George Porter, at the function referred to by the noble Earl, Lord Bessborough, and presided over by my noble friend Lord Gregson. Sir George said that in the Upper House,
"the country is fortunate to have a few highly qualified scientists and technologists as well as some others who are well informed about science. If ever the Upper House were to disappear or be substantially changed, many of us would wish to know how this important source of independent scientific opinion was to be replaced at parliamentary level."
I give your Lordships that quotation because with the recent public discussion as to whether or not the Prime Minister should advise Her Majesty to take account of the needs, rights or expectations of minority parties, little attention has been paid to the unique value to the British body politic of the particular specialist knowledge and experience which some Members of this House can contribute; knowledge and experience mostly acquired by persons of considerable achievement who would never dream of taking on the quite different responsibilities which are inherent in being elected to the other place and with which some of the rest of us were engaged before coming here.
While we have lawyers a-plenty, a good many financiers, a sprinkling of busy industrialists and some excellent Bishops when they can spare the time to be with us, we are in real danger of running short of Members who have the knowledge of science in its very rapidly changing modern manifestations—knowledge which is needed to enable this revising and advisory Chamber to do its work as effectively as we all wish.
Of course we are deeply indebted to those of our company who do spend a great deal of time with us, often at great inconvenience or expense to themselves. It must be within our knowledge and experience that some of our most respected and knowledgeable scientists, through advancing years, find it difficult to play as full a part as heretofor. It would be invidious to list individuals, though the names of the noble Lords, Lord Ashby and Lord Zuckerman, must surely come to mind.

1291
Those of us who have some experience of trying to formulate scientific policy—a subject with which this debate is partly concerned—recognise how essential it is to strengthen our lay committees not only with our admirable specialist advisers but also with at least a dependable minority of colleagues who have the experience and standing in the scientific and engineering worlds to help guide our deliberations. In this field, which is of increasingly urgent and indeed vital national importance, generalists and highly experienced scientists or technologists are not entirely interchangeable. So I strongly support the concern that was expressed yesterday by Sir George Porter that this House should remain an "important source of independent scientific opinion" and I hope that his sentiments may secure in high quarters the attention that they undoubtedly deserve.
Having made that point and as there are many speakers in the debate, I shall try to concentrate on two other topics only. One concerns the attitude of the Treasury, the City of London and manufacturing industry to the true importance to be accorded to the main subject of our report; namely, civil research and development. Do they share our view that unless there is an urgent and profound change of attitude in these all-important sectors of our society, Britain will face the possibility of such a rapid decline that we could indeed be transformed into what has been called the industrial peasantry of the 21st century?
That may sound like an exaggeration. However, let me give your Lordships one recent illustration of this process. Anyone who listened to the news on the radio this morning must have been severely shaken by the announcement of the Japanese exploitation of a novel method for recording music and sound. It could displace the newest type of compact disc that is being manufactured in Britain and they are hoping to bring it to this part of the world before we in Britain have had time to get our product fully established, let alone to have reaped the full commercial benefit from it. That is just one example, but to my mind a rather frightening one, of the speed with which modern technology is developing.
Several speakers have already referred to the rate of obsolescence with which we are faced, not only in products but also in skills, and which means that the labour force will have to be retrained not just once or twice in a lifetime but every five or 10 years at a minimum. I am sure that other noble Lords will have been as interested as I was in the series of articles on technology that has been appearing in The Times this week. Those who have read those articles must be full of well founded apprehension that as a country we may not be able to keep up. That was the inference that I felt obliged to draw from some of the information contained in that extremely interesting series.
Some of us have tried to come to terms with CAD. CAL and CAM, to which we must now add CIM (Computer Integrated Manufacture). It is not just computer "aided" design, learning or manufacture; it is "integrated" manufacture. There is a new spectrum of exploitation which is only just starting but which in a few years in certain areas may carry all before it using multi-purpose machines with a fantastic range of operation in manufacturing heterogeneous products.
1292
We need managers who can keep pace with such a speed of change. Do we have them? I doubt it. Obviously there are some, but not on the scale that we need if we are to maintain the kind of standards and position in the world which I am sure we all hope to achieve.
The noble Lord, Lord Gregson, has dealt eloquently with some of those considerations. I do not wish to traverse the ground which he has covered with far greater knowledge and experience than I could command. I am sure that the recommendations made in our report should be taken seriously not only by government and industry but by our financial institutions, which should heed the emphasis that we lay on the point that they should regard it as part of their normal procedure to tell the world what they are doing and what importance they lay upon their investment and effort in research and development.
We need to try to change the whole ethos and emphasis of our financial institutions and the investing public. I hope that such influence as this report may command will help in that necessary process. It is not only in those institutions that change is needed. I felt, and I think that at least some of my colleagues felt much the same, that the evidence which we received from Her Majesty's Treasury was the most depressing contribution to our inquiry. We commented on it in the report in paragraphs 6.8 and 6.30, with, I think, considerable restraint.
In paragraph 6.30 we come to the other topic that I wish briefly to touch upon. It is the appointment of a new Minister. In that paragraph we suggest that one possibility would be to place that responsibility not merely on No. 10, Downing Street, but in the Treasury itself. Of course, the Prime Minister is First Lord thereof. In the paragraph we explain how disturbing it is:
"that a department as powerful as the British Treasury has … as a consequence of its particular evolution, a definite blind spot in science and technology. Requiring a Treasury Minister to speak to the science and technology brief in Cabinet would eventually upgrade the Treasury's own understanding and appreciation of science and technology, a development which could only be to the general benefit".
I expect that there will be some sceptism about our recommendation for the appointment of a Minister for Science and Technology without the back up of a major department and a large budget over which he, or conceivably she, might have control. It is not the first time that we have experimented with a Minister for Science and Technology. The noble Earl, Lord Bessborough, reminded us that way back in the period 1959 to 1964 that position was held by the noble and learned Lord on the Woolsack, the Lord Chancellor, Lord Hailsham.
It was rather a chequered experience because at that time he combined the offices of Lord Privy Seal and Lord President of the Council (he alternated between the two) and Leader of the House of Lords. In 1962, he also took on responsibility for sport. In 1963, he added to that the further responsibility for employment in the North-East, which even at that time was causing deep concern. In November, 1963, he disclaimed his hereditary peerage and reverted temporarily to the House of Commons, where he became Secretary of State for Education and Science, a position which has persisted since then. He seemed to have lost

1293
technology on the way, but that was later picked up by Mr. Tony Benn in the 1960s.
We need not necessarily judge the requirements of the present day by the experience of what is now, after all, nearly 30 years ago. Times have changed. At that time we had overcome the worst of the difficulties of the immediate postwar world. We then still thought that we could muddle through. Nowadays, surely even those of us who are least concerned with science and technology must appreciate that we can no longer muddle through and that we must therefore take the most serious and intelligent decisions that we possibly can.
I have spoken for long enough and I must go no further. I emphasise only what I believe to be the great importance of the recommendations in this report. I repeat that primarily the report is addressed to the Government, but it is also addressed to the other industrial and financial institutions and not only to the scientists and technologists themselves.
9.20 p.m.
Lord Aldington: My Lords, it is a long time since I have spoken immediately after the noble Baroness. However, I am glad to be able to assure her one point. Although the comments of the committee on Her Majesty's Treasury were made with restraint, I do not think that my comments will be quite so restrained. Perhaps therefore the noble Baroness will wait to hear them.
This has been a fascinating debate. However, I feel that some noble Lords will agree with my belated protest that it is outrageous that in a debate as important as this the 12th speaker out of 26—for that is what I am—rises at twenty-past nine in the evening. I hope that my noble friend Lady Hooper will pass on that comment to her noble friends.
We are enormously indebted to my noble friend Lord Sherfield for introducing this debate and for being responsible for what I consider to be a masterly report. It has taught me an enormous amount. I am, in the terms of the noble Baroness, a lay person in these matters. However, I listened with great interest today to many noble Lords who have great distinction in the scientific world. I felt in particular privileged to be able to listen to the elegant maiden speech of the noble Lord, Lord Dainton, which was full of wisdom and experience. Perhaps I may add my tribute to his very attractive delivery. I am glad to welcome the noble Lord back into the Chamber.
I say that I am a layman and I feel rather an unworthy participator in this debate. But I do not think it can be surprising to many noble Lords that one who shares with the committee a concern and anxiety about Britain's manufacturing industry in the increasingly competitive world should wish tonight to add his small voice to the warnings and wise advice offered to us in the report. The report covers the whole of the chosen area and has valuable points to make. I cannot attempt to tackle more than a few of them.
However, I start by emphasising the gravity of the situation as reported to us. I venture to suggest to your Lordships—as another Select Committee tried to make clear in its report—that the reason for the gravity
1294
of the situation, and the answer to such questions as why we are underspending on R&D and why the morale of the scientific community in industry needs raising urgently, cannot be found simply by looking at policies and events in the last seven years or even in the six years which preceded them.
Rather than spend time and argument on looking backwards, we should follow the committee's lead and consider what has to be done today. We have in this field to look first—as we did in the overseas trade report—at the attitudes in the nation as a whole, and that includes attitudes in the Government. I quote from the report, paragraph 1.11,
"The key issue is one of attitudes: the determination to make the United Kingdom industrially successful, combined with new hope for those engaged in science and technology".
It goes on,
"Cosmetic adjustments to the status quo will not be enough".
I have heard the noble Lord, Lord Sherfield, comment on cosmetic adjustments before, and I would guess that his pen wrote those words.
The simple fact is that industry cannot succeed except by applyng to its products the best scientific and technological knowledge, both in the selection and design of the product, and in the making of it. There is nothing new about that. What is new is that the speed of change is accelerating every day, and the time taken to explore science and then to develop from that exploration for industrial use is growing longer every day, and with it the cost both in person terms and in the machines and instruments needed. The market dictates the speed of change in its requirements.
The importance of change to industry was stressed by Dr. Merrifield, whom the noble Lord, Lord Williams of Elvel, quoted. It is no surprise to some of us, but I think it is a surprise to some people in the Treasury, judging by the answers they gave to your Lordships and the Select Committee, and the memorandum which they put in and which I shall come to. It is this speed of change which forces greater attention to R&D in any industrial country.
One Minister has been reported as saying that the report is a bit apocalyptic. I hope that that kind of smothering of the important things which it says will not detract from the importance of the report to the public opinion as a whole. It looks from the excellent and impressive leader in The Times today that at least our principal daily newspaper has got the point of the report. I have to say that The Times has so disappointed me recently that I was just about to give it up, but if the editor minds what a person like myself thinks about him, I promise him, following that leader, that I will continue to buy The Times every day as I have done for the past 50 years.
Of course we shall hear defensive arguments from within the Government. The committee heard something. I am sure we all have in mind the points that my noble friend, Baroness Hooper, and other noble Lords have made, about the good things that have been done and the improvements that have been made by the Government and their predecessor in recent years. Alvey is a good example, as the noble Lord, Lord Flowers, said. But as I have said before to your Lordships, one of Britain's weaknesses, so it seems to me, is to concentrate on comparisons of

1295
present performance with past performance in Britain, rather than to compare our performance and policies today with the performance and policies of other leading industrial countries. This weakness is to be found inside governments as well as outside governments. It is even to be found among your Lordships. That insular approach is rather comfortable sometimes, but it is unrealistic in a world where competition in industrial matters is global and not national.
Chapter 4 of this report is headed "International Comparisons". It is very important, as is the warning in paragraph 6 that conditions and classifications differ greatly, and that it may not be sensible:
"to copy systems appropriate to different political and social environments and cultures".
However, what does the evidence show? It shows that the level of public funding of civil R&D in Britain is woefully below that of our European competitors and that the total funding of civil R&D as a percentage of gross domestic product is the smallest of the five leading industrial nations.
The Times on its Spectrum page on Monday last had a chart showing in a most graphic way how our relative expenditure as a percentage of GDP had fallen behind what the United States, Germany and Japan have been doing, and what a tremendous spurt France has been making while we have held steady. Some of us have been preached to by economists and the Treasury for not understanding about market forces. However, when looking at R&D, surely one of the most relevant of the forces in the market place is the level of effort on R&D thought right by our competitors. They think it essential to spend more on R&D and to increase that spending faster than we do. How can Britain be so arrogant and so stupid as to assume that they are wrong, especially when we look at their rather better economic success?
I was appalled to read in paragraph 6.8 of the report that the Treasury think that there is no:
"direct relationship between the health of the economy, or sections of it, and the levels of expenditure on R&D".
No wonder the noble Lord, Lord Ezra, formed the impression that the Treasury was rather against R&D. However, surely even the Treasury must know that there cannot be industrial growth without R&D and that there cannot be faster growth without more R&D. I take on board all that the noble Lord, Lord Swann, said about the importance of management. The importance of training and the importance of capital investment—points which were also made by other noble Lords.
However, today we are talking about R&D, and there seems to be no doubt at all that the more R&D, the faster growth can be, but the less R&D, the less likely we are to have fast growth. I simply do not understand why these excellent men in the Treasury—for so they are—try so hard to defend the indefensible with such fervour as they show in the supplementary memorandum which is appended to the end of their evidence on page 311 of Volume II of this massive work. There is no sign of any urgency. There is an apparent contentment that while every other leading industrial country is increasing its
1296
support for science and techology we should move at a slower rate and actually—to use their words—contemplate a reduction. I am sure that they are right in saying that industry ought to do more. However, we shall not get things better if government shelter behind that argument and do nothing themselves, any more than we shall get things better if industry shelters behind that argument and does nothing itself.
There is the constant refrain that all government have to do is to ensure the right climate for industry to increase its effort in R&D. However, that does not seem to have worked so far, does it? Even it it were working better, surely British industry is entitled to be supported by its government on research and development as much as its competitors are supported by their governments.
There is another shortcoming in our current attitudes that has been mentioned in the debate, and that is the concentration on the short term rather than the long term. That of course can cause more damage to science and research and development than anything else—even more than investment. I hope that within the Treasury they do not suffer from "short termitis".
The point has been made that there are signs of "short-termitis" in the City and among financiers. There are signs that "short-termitis" has found its way into managing directors' offices. The problem of "short-termitis" in the funding of manufacturing industry goes wider than R&D. I very much agree with what the report has to say, and with the Bank of England that much can be done to improve the understanding of the financiers by a fuller disclosure of R&D spendings and an explanation of them. However, in the short-term I do not think that that will be enough if we are really intent upon getting bigger expenditure on R&D inside industry. Government simply cannot wash their hands of underspending on R&D wherever it is. They can exhort; they can and should increase the DTI's support for innovation in the ways suggested; they can and should help through public purchasing, as has been mentioned by some of your Lordships. However, I think that they would be wise to consider carefully the evidence given to the committee about the need for incentives, including tax incentives.
The committee has stressed the urgency of tackling the underfunded R&D in Britain, and I do not apologise to your Lordships for concentrating my remarks on that matter. There is no way of securing the necessarily quick results without a lead from the Government, which means more money. One Minister has described such a process as "spraying cash". He says that spraying cash will not work. However, without more cash we shall not solve the problem. As the noble Lord, Lord Williams, has said, happily every day we read of the large harvest of surplus revenues which is accruing to the prudent Chancellor. I cannot believe that he will pass by the opportunity of using some of this harvest for the very best form of seed-corn: greater support of civil research and development.
In the Chancellor's colleague's elegant phrase, as the Chancellor sprays cash among either departments or taxpayers, the cash he sprays at R&D will work even

1297
better at securing the economic growth that he requires than any other way of spraying the cash.
Thus I think that the report under debate is even more timely than might have been expected. I very much hope that the Chancellor will bear in mind the closing conclusion of the Committee's most valuable report. The paragraph begins as follows:
"The Committee's enquiry has revealed the gravity of the United Kingdom's prospects in R&D".
I shall not read the rest of the paragraph but I hope that the Chancellor will have in mind the whole of it when he makes his Budget decisions.
9.38 p.m.
The Earl of Selborne: My Lords, I read the report with a great sense of relief and I have listened to the debate with an equal sense of relief. When in the fullness of time the Government give their response—and we quite understand that we shall not have a full response tonight—it may not necessarily be all that we seek. However, at least there will be a feeling abroad, particularly among the scientific population, that the problems are now well understood.
If ever there was demonstrated a need for making a strong case, it is the astonishing evidence given by the Treasury officials, which has been referred to by a number of speakers tonight, not least my noble friend Lord Aldington. In that evidence there is set out clearly the problem against which the science Vote has had to fight: the illiteracy of the Treasury—perhaps I should say the innumeracy of the Treasury—in trying to determine what can be expected of publicly-funded research. Many speakers tonight have clearly and demonstrably pointed out the failures of government and the failures of industry to recognise the contribution which can, and will, be made by science if only it is correctly funded towards the long-term growth of the country's economy.
Just to complete the story—and this may be a little uncharitable of me—I must also say that I think that scientists themselves have perhaps fallen short of what might be expected of them in this respect. I am a layman, as are so many other speakers, though I am chairman of the Agriculture and Food Research Council, so I at least get involved in part of the administration of research funding. Scientists could have done more over the last few years to demonstrate the value and the worth of assessments and evaluations of research projects.
The Select Committee's report makes a recommendation—and Professor Ashworth in his evidence suggested—that about 1 per cent. of the value of any research project could often usefully be spent on an economic evaluation. It is clearly the case that much basic research does not lend itself to economic evaluation. Some research, such as that which my noble friend Lord Cranbrook referred to, is going to be much harder than other work to assess. If it is research work on damage limitation, in giving government options or formulating policy, clearly it is an indefinite science.
That is why scientists have been so cautious about trying to give an economic assessment or evaluation of their research findings. But this has led directly to the
1298
view held in the Treasury—which the committee suggests charitably has a blind spot so far as science is concerned—that, because it is very often so difficult to make an economic assessment, therefore it cannot be done, and therefore it follows that there is probably no such correlation in the economy as that between the value of science conducted and the value of the research done.
Having said that evaluation is essential, I believe that research councils, universities and other research contractors using public funds have an absolute duty, first of all, to refine rather better the science of evaluation, and then to put it over in a much more assessable form. I know that there will always be criticisms of this evaluation, but it does not mean to say that it should not be attempted.
To demonstrate the need that there is to make such assessments available within government, let me quote the case of agricultural research, with which I have been directly involved. As it happens—and this is just of historical interest—agricultural research in the last three or four years has been quite heavily cut back. It has been cut back for reasons which probably largely lie in the cost of the common agricultural policy. It is widely perceived that the CAP has got badly out of control. There is concern in the Treasury that this amount of support was not intended for farmers, or perhaps even for the food industry, and that something must be done to cut costs.
What has happened is that overall costs right through the Ministry of Agriculture and the other agriculture departments in grant aid of one form or another have included the cost of research and development. This was done in isolation from the overall strategic look at the research requirements not just of those agriculture departments and the industries to which they relate but also the research requirements of other departments and industries which go well beyond agriculture and food.
This short-sighted approach is now quickly being shown to have damaging implications for an area which goes way beyond that which was ever suspected when in January 1985 the public expenditure White Paper was published. This demonstrates the need for the Council on Science and Technology. I am certain that the Select Committee is right when it says that there must be a forum in which the overall strategic considerations for research in the Ministry departments, research within the research councils and indeed research in industry (publicly funded, as some of it is) should all be considered together.
The problems in agriculture became rather more severe as a result of Rothschild, when the agriculture departments were given responsibility for commissioning research. When that happened the amount of the science funds which were put at risk by departmental cuts increased.
If there had been a council for science and technology sitting four or five years ago—when quite sensibly the government of the day would have pointed out that their requirements for agriculture were changing, that the cost of agricultural support was getting out of hand—there would have been consultation with the Department of Employment about the consequences for rural employment and

1299
with the Department of Education and Science on the consequences for other sources of funding on the science vote. There would have been consultation with the Welsh Office, which always takes a great interest in employment in Wales; with the Department of the Environment, which, as my noble friend Lord Cranbrook pointed out, has a great interest in matters concerned with conservation and the countryside; and with the Department of Trade and Industry, with its concern for the biotechnology programmes.
If we put that altogether and at the same time work out what is needed for an agricultural industry—which is required to be very much more competitive in the market place and will have to live in a position which it has not been used to; that is, exposed to market forces such as it has never experienced before—I suspect, though I may be wrong, that the conclusion of such a council would have been, "Yes, by all means reduce the support for the agricultural departments, but, having reduced it, make sure at least that the research which is there to support that industry and areas much wider than the agricultural industry is protected or even increased to ensure that the industry, which has been so responsive in the past to science and research and development, is given a fighting chance of surviving in this harsh climate".
That did not happen, because the way we operate in this country is that we cut funds to departments when they are seen to be out of line, without consideration for the interlocking interests of other departments. I say again that I do not believe this would have happened had some body been responsible for taking the overall view.
As a final commentary on this sad episode of these cuts, one of the laudable proposals was that the agricultural industry should be encouraged to pay more for its own research. It is quite correct that it should and it is a sad reflection on agriculture that it has contributed little to its own research in the past. To achieve this funding it was necessary to put a Bill through Parliament, the Agriculture Act 1986, which allowed the Home-Grown Cereals Authority, the Horticultural Development Council and other statutory bodies to raise money for research if the growers and farmers so wished, which in the event, they have.
However, because there was no strategic oversight because the cuts were enforced within months of that White Paper, the infrastructure to conduct the research on behalf of these industries was already in the process of being dismantled by the time the Government, wearing their other hat, had put together on the statute book the legislation that allowed such funding to take place. That again is a farcical, but nevertheless true, commentary on the disorganisation from which so much of our research seems to suffer.
Scientists are disillusioned, not necessarily because of cuts—though that certainly is disillusioning enough—but because when cuts are proposed they are proposed in such a disjointed way. There must be a view determined, if one is to fund research from public funds, as we clearly must, which takes a longer-term look than the three-year public expenditure reviews. If one is funding research in basic, strategic or even applied areas, one often will be funding work for five
1300
or 10 years. It is totally impossible for research contractors to respond within months, as in the case of the Agriculture and Food Research Council, when the funding is suddenly removed—and that in isolation from advice which is probably coming from the Advisory Board for Research Councils and others. I say firmly that if ever a need for a council of science and technology has been demonstrated with hindsight, it is in the sad story of the last few years of the funding of agriculture and food research.
9.50 p.m.
Lord Tedder: My Lords, I should like to begin with a personal welcome to the noble Lord, Lord Dainton, whose lectures I had the good fortune to attend as an undergraduate at Cambridge. I had better not say how many years ago that was. Quite a number. Also, I must crave your Lordships' indulgence in that I hope to catch a train back to Scotland tonight. I shall remain in the House for as long as I can, but I hope that your Lordships will forgive me if I do leave.
I welcome the report of the Select Committee. I do not wish to take up your Lordships' time in discussing details covered in the report. I shall not therefore discuss the need for adequate funding of research and development. I am going to assume that better funding of civil research will be provided, and I want to consider how it will be allocated.
I am mainly concerned with the allocation of funds to the universities. In particular, I am worried by the concept of centres of excellence which, if incorrectly applied, could be absolutely disastrous. If active research was to be restricted to the largest universities I am prepared to predict that within a decade the quality of research in the universities would deteriorate, and in 20 years it would become moribund. Topics of scientific research are like living organisms which start with a burst of activity, attain maturity and then quite rapidly wither away, to be replaced by new topics.
A wide variety of research is essential. Obviously, not every university should promote research in every field, but every university should have specific areas of research which would be funded by the UGC. The number of chosen research areas would depend on the size of the university or, more particularly, on the size of the chosen department. Thus a very large university might have five or six areas each in chemistry and in physics while a small university might have only one area of sponsored research in physics and another in chemistry.
A member of staff at a university or polytechnic could choose to join a UGC-supported team or opt to work on his own. I never know whether to say "he" or "she"—perhaps I should use the words alternately. If he/she chose not to work in an established team, he/she would only get the most basic facilities from his/her university.
Baroness Seear: Perhaps I may advise my noble friend simply to say "he".
Lord Tedder: I am grateful to my noble friend. If he chose not to work in the established team, he would only get the most basic funding from his own university and would have to raise money for his

1301
research either from the Research Council or from industry. In contrast, a member of staff who elected to work as part of the established team would have access to funds provided as part of the university's annual grant.
The areas of UGC's chosen research must be under continuous review, and a staff member working by himself who proved to be a successful researcher could become the nucleus of a new team. Support for university research must depend on its scientific quality and the competence of its research workers and not on the size or antiquity of the university involved.
9.55 p.m.
Lord Mottistone: My Lords, I hope that the noble Lord, Lord Tedder, will forgive me if I do not immediately follow him in his contribution which was too specialised for me. This debate has already been conducted for the past four days in The Times and it is pretty well exhausted there. I have to say to your Lordships that I prepared my speech yesterday and the similarity of my views to several of those of my right honourable friend Mr. Geoffrey Pattie is purely coincidental.
One point which was particularly made by Mr. Pattie is worth repeating: the market approach does not mean leaving everything to market forces. Some government direct investment in R&D is of course necessary and my noble friend Lady Hooper has shown us some of the things that the Government are doing. However I believe that a great deal more should be left to industry than is currently the case, is recommended by the Select Committee or appears to be wanted by the noble Lord, Lord Williams.
The summary of conclusions opens with the words:
"The advance of science and technology, which is essential to the economic recovery of the country, must be a central objective of government policy.
Yes, my Lords, but how to do it? Successive governments for far too long have been seeking to direct matters from the centre with all too little success. For example, there is some evidence that the best engineering systems are produced commercially rather than in response to closely controlled government contracts. Certainly that was an impression that I formed when closely concerned with the development of naval radio equipment in the 1950s and early 1960s, and I have had no reason substantially to modify that view since.
So maybe government should stand back from close involvement with civil R&D and use their "money" as tax incentives to commercial firms for identified R&D, rather than as grants for specific projects. Many noble Lords have touched upon that as being necessary and indeed the report itself makes mention of it, but it does not make mention of it as a principal way of encouraging R&D in industry. This view has indeed recently been recommended to my right honourable friend Mr. Norman Lamont, the Financial Secretary to the Treasury, by the Conference of Electronics Industry which is an association of most of the electronics manufacturing trade associations.
This same approach might indeed be more widely adopted for much more defence R&D than has
1302
hitherto been the practice. With a massive change of attitude that such a new approach would need, defence could seek out all possible opportunites for decentralisation of R&D, excluding only the few really secret or genuinely specialised matters that really need special treatment. If this could be achieved there could be a massive saving in defence in-house R&D expenditure, a substantial reduction in security problems, a better chance of defence inspired R&D having a civil application, as has been called for in part J of paragraph 6 of the report, and almost certainly the possibility of better engineered products.
On the last point, there is evidence to show that a lot of American manufactured defence equipment has over the past 50 years been better engineered than British equivalents. There seem to be at least three reasons for this. First, engineering and engineers have been accorded greater importance in the USA than has been the case here; secondly, central government control of defence projects has not been so technically detailed as in this country; and, thirdly, British firms that tried in the 1960s and 1970s to take a long-term view of investment in R&D, as was called for by my noble friend Lord Aldington, turned out all too often to be the companies that were particularly stricken by industrial relations strife. This malady did not, on the whole, apply in the United States.
Extending this suggestion that our problems may be better solved by less government intervention rather than tidying up the present system, one wonders whether the Select Committee might not have accepted the recommendation of a single research council and examined ways of making it work, rather than dismissing that option and seeking to justify the retention of the present research council setup.
I was delighted that, in his excellent maiden speech, the noble Lord, Lord Dainton, who I should very much like to congratulate on his speech and who really knows about these things, suggested the same approach.
To take another point, what about the funding of basic research? I commend to your Lordships a most interesting article on page 25 of last Friday's Economist. Among other interesting points, the article commends the University of Surrey for selling on a long lease 11 acres of prime greenbelt land with planning permission as a science park to BOC for £4 million. Not only did that bring extra money into the university and hence less reliance on state funds; it also puts a science park alongside the university so that an easy exchange of ideas between the industrial and basic research scientists is possible.
At a lunch of the Parliamentary Scientific Committee yesterday I happened to sit next to a geologist. I said to him: "What do you think can be done to improve the situation?" He said: "Put science parks alongside universities". That is what we are told that the University of Surrey did. They also made money in the process; is that not splendid?
The University of Salford is also commended by the Economist for bringing in extra income by attracting overseas students who pay more to them and by winning more research funding from Government and from private industry. It seems to me that self help is

1303
the keynote of those actions. Perhaps this is a welcome sign of a change of attitude.
Indeed, it is a change of many attitudes that I believe is required. The basic pessimism of the report that we are debating seems to me to be based on a disappointment that the present system does not work and perhaps on an unexpressed assumption that it would work if only the Government would put more money into this part of the bottomless pit.
I suggest that we have tried that particular approach of centrally controlled science and technology for far too long. It does not work in peacetime and some of what the noble Lord, Lord Swann, said seemed to me to confirm that he had views slightly in the same direction—although I would not accuse him of having views totally in the same direction!
The more we encourage the advance of science and technology through private industry, the more likely we are to succeed. Tax incentives and dependable industrial relations legislation are the way forward for encouraging British industry to invest more in R&D for the long term. I hope that that is the line that the Government will continue to follow.
10.4 p.m.
The Earl of Halsbury: My Lords, I rise to express three points of agreement with the noble Lord, Lord Aldington, who I am sorry is no longer in his place to hear me give him a measure of agreement.
First, I wish to thank the noble Lord, Lord Sherfield, and his colleagues for this long, painstaking and detailed report. Secondly, I wish to protest, along with the noble Lord, Lord Aldington, and to the usual channels, that a report of a Select Committee of our House should have been so maladroitly launched at half-past six. It is now around 10 o'clock and I do not suppose that I shall get home until midnight. The noble Lord, Lord Aldington, protested at that, and I protest in exactly the same way.
Thirdly, I wish to say of my noble friend, Lord Dainton, whom I have been privileged to know for many years, that his maiden speech is exactly what I would have expected. It was a pleasure to listen to, and we hope to hear from him on many occasions in the future.
I very much agree with my noble friend Lord Swann and equally with the noble Lord, Lord Mottistone, about the dangers of centralism. It is a will o' the wisp to suppose that one could draw up an organisation chart for science in the country. It is far too delicate and ramifying a network. One can understand it only by getting into it and finding one's way around it from the inside.
For the rest, I want to deal with what I think are the proper functions of government in research; first, executive control of everything connected with standards. I refer to physical standards—the standard weight, the standard yard and the standard metre. Then there are health and safety standards—safety on roads, safety in the air, safety in the environment and industrial safety. These should be the responsibilities, in so far as they have a research element attached, of the Ministries which are answerable through Parliament to the nation for these standards of safety
1304
and so on. The terms of reference to the Permanent Secretary of each Ministry should be, "Do it or get it done on contract, but you are answerable either way for it being done." Do not tell me that a Permanent Secretary could not take a directive on those lines. Of course he could.
Then there are the proper functions of government on the lines of services—the Meteorological Office, the Geological Survey, the Ordnance Survey. All these involve research problems. These are properly the problems of government research. There are the problems of coastal defence, the problems of water pollution, the problems of flood control and so on.
In one sense, responsibility should be taken for the universities. I want to define for my own purposes a university as a self-governing body of scholars dedicated to the conservation, dissemination and expansion of knowledge, regarded as a good in itself. The conservation of knowledge is its library function. A university without a library would be unthinkable. The dissemination of knowledge is its teaching function. A university that did not teach would not be serving a useful function. Finally, there is the expansion of knowledge, its research function.
Just because universities are communities they tend to be equalitarian in their sharing out of the loaves and the fishes. Therefore, if you want to have selective encouragement of the high flyers in particular universities, you need selective bodies to do that. That is what the research councils are for. We have five. I do not need to run over the course. They carry out the selective non-egalitarian research based on quality only by peer selection. The first priority is that the high flyers in our universities should be given 100 per cent. support for what they need, because the high flyers are not necessarily the most expensive ones.
I turn from the universities to another big demand for money made by "big" science and the international projects on which we are engaged and obliged to continue by treaties solemnly entered into between the high contracting parties. There is the fusion project of JET to design something that will produce nuclear fusion. It involves a training ground for the most advanced engineering of its kind in the world. There is the work on nuclear physics and particle physics at CERN. Why should we do it at all because nobody can think of any use to which we shall put Quarks or Higgs particles even if they exist? Again, it involves a training ground for the most advanced control engineering in the world. The same is true with radio astronomy at Jodrell Bank and space research and rocketry.
All these are international projects. We are by treaty obligation bound to meet the cost escalation. We must not do that by cutting the science budget. There must be no fudging in this respect. There must be no cutting of the high flyers at our universities merely in order to comply with treaty obligations undertaken solemnly with the high contracting parties who are our partners.
Between those, I want to deal with a very great body of research that is carried out under government auspices and where I believe my line is very much that of the noble Lord, Lord Mottistone. I would transfer an enormous block of government research out of government control altogether into industry on

1305
contract for a five-year term to let it keep itself. Let industry take it over and be paid for doing so for a limited period. And then, at the end of that period, if it had something to sell, perhaps the Government would buy it or someone else would buy it. But we cannot keep armies of people doing research ending up with no product, nothing to sell.
When we talk about research, one can end up in one of two ways only—being able to do something or being able to make something. If people who think they are doing applied research do neither the one nor the other, they should be redeployed in as painless a way as possible.
I know very well that in this field I am a total iconoclast, and my noble friend Lord Sherfield gave me an opportunity to attend the committee and tell him this. I do not think that the committee agreed—the fact was not included in its report—but my iconoclasm needs further examination in this respect.
There are one or two other points that I should like to mention. I believe that a central committee presided over once a year by the Prime Minister quite literally is a fudge. I do not believe it. I do not think that anything would ever come of it. What matters is that the chief scientist in the Cabinet Office should have the confidence of the Prime Minister and the confidence of all the people to whom his influence radiates as the result of decisions taken centrally.
The noble Baroness, Lady White, was discussing the career in science of the noble and learned Lord upon the Woolsack. But, my Lords, with the Development of Inventions Act 1954, I got into this up to my neck, and I have been there ever since. If I had been at Harrow instead of at Eton, I should be singing "Forty years on" at this point because mutatis mutandis I have seen a Labour Government sitting on the Front Bench and Lord Cherwell making the kind of speech that I have heard from the noble Lord, Lord Mottistone, this evening. Viscount Samuel led a debate exactly like this evening's when I made my maiden speech. This is about the fortieth edition of my maiden speech, which I publish every year.
In the old Department of Scientific and Industrial Research, before the split was made between the Department of Trade and Industry on the one hand and the research councils on the other, the two best Ministers we ever had in my opinion were the late Lord Salisbury, who was not a scientist at all, and the noble and learned Lord now upon the Woolsack, because they were patient and dedicated to their clients. They were senior Cabinet Ministers; they could pull a lot of weight if they wanted to; they could listen patiently to the exposition of a case and say, "The Treasury will never wear that, so go back and do some more homework". Then they would get it through for us.
I beg everybody: do not have the illusion that one can have a central Minister for Science. I will tell your Lordships exactly what would happen. Set up a new Ministry, and every Permanent Secretary in the land will say, "We are not going to be junior to him." So he goes right to the bottom of the pecking order from the word "go". Is that the way your Lordships want to
1306
encourage science, by having such a single Ministry? That is not the way to do it.
I have been at this so long that I feel I could almost say with the poet, "here I go round the prickly pear". I have been listening to these speeches for nearly 40 years. That is why I am an iconoclast. As Bernard Shaw said in one of his prefaces, old men should become more revolutionary as they get older because they ought to be more disillusioned with things as they are.
10.15 p.m.
Lord Beloff: My Lords, I must begin by craving the indulgence of the Minister and of the noble Lord, Lord Sherfield, that I may not be here for their winding up speeches for the reasons already given, I very much hope that the authorities who conduct our affairs will look into the question of having our business unnecessarily interrupted earlier in the day and making this debate even later than it would have been in the normal course of events.
It is also a pity that the remarkable maiden speech of the noble Lord, Lord Dainton, should have been made on an occasion when the House is clearly worried about the nature of its own procedures in a matter of this importance. It is a matter of great importance and I share the view expressed by the noble Lord, Lord Gregson, and others, that this is a critical situation for this country. In fact, looking not so much at the report but at the evidence on which this report was produced I wonder that the noble Lord, Lord Sherfield, and his colleagues are not, like Robert Clive, astonished at their own moderation. I think that if I had been writing that report the punches would not have been pulled to quite the same extent in some respects.
There is a difficulty and one must not go in the other direction and believe that scientists are infallible and that all we need is to find ways of channelling resources to them. Scientists, like administrators, make mistakes and those mistakes can be costly. What happened to Nimrod? If we take civil research, who now remembers British Rail's high-speed train, which spilt soup all the way from Glasgow to Euston and was never heard of again? There is the failure to prevent, on a 125 which has been in service for years, the smell of the brakes coming into the carriages every time it pulls up. There are a great many reasons for thinking that our scientists, and particularly our engineers, have not achieved the degree of infallibility which would make us consider ourselves merely their servants.
However, when that has been said it still remains a fact that, by any reckoning on the international comparisons which have been adduced by a number of noble Lords, we are doing very badly and are likely to do worse. However, I think that some of us feel—I certainly do—that because the situation is so grave the positive proposals made in the report, though themselves unexceptionable, are hardly likely to make the difference that is required. A Council on Science and Technology with the annual appearance of the Prime Minister at its head would attract, no doubt, a headline or two in the next day's papers, but it is difficult to believe that the proposals would have on society as a whole—and this is a social problem, not an

1307
administrative problem—the kind of effect that we believe is needed.
What seems to me to come out from these volumes of evidence is that we live in what can perhaps best be described as a sclerotic society—a society in which the effort needed to bring about any considerable change is obstructed by many forces and many institutions. The Treasury has been mentioned. People are surprised that the Treasury cannot see, in spite of the statistics, the relationship between research and development and the prosperity of our industry in export markets. Since a few years ago the Treasury could not see any connection between studies of engineering in this country by students from overseas and the place from which they were likely to buy their equipment in the future. I have given up hoping even for the modicum of common sense that a government department might be expected to have. Indeed, the whole of my historical studies, going back long before the present Government and before the war, suggests to me that on the whole the Treasury has been a greater damping force on the energies of British society than almost any other single institution.
However, it would be unfair to blame the Treasury alone. We have trade unions, and I think that the noble Lord, Lord Mottistone, referred to them. It is true that an enterprise that is considering innovation on a great scale is not likely to find its trade union representatives jumping for joy. They did not, for instance, jump for joy at the Channel Tunnel, which is likely to bring massive advantages to the working population in many parts of the country. Incidentally, I see in the report that the TUC gave written evidence but that it has not been reproduced. I find it difficult to understand the reason for that and perhaps the noble Lord, Lord Sherfield, will inform the House about what happened in the interval between drawing up the list and printing the evidence. Even at my most malicious, I can hardly believe that the evidence was not printed because it was not thought worth printing.
Let us consider just one branch of the trade union movement—for example, the AUT (the Association of University Teachers). The noble Earl, Lord Cranbrook, called our attention to the situation in the United States, where a great many financial and other differentials are made in order that institutions may attract and retain the best staff. The slightest hint of differentials given on national or any other grounds will be resisted to the nth degree by the Association of University Teachers.
Of course sacred cows exist not only at that level. They also exist in the sphere of education. I think it is very important to remember that, because the human resources part of our problem is very great. If the energies that have been devoted to social engineering had been devoted to engineering, the schools might have been able to fill some of the skills vacancies to which many speakers have called attention.
I do not think that anyone has mentioned specifically one very important gap in our supply of skills; namely, girls trained in science and engineering. What is the reason for that gap? It is the passion for co-education. Everyone knows that the record in science and engineering of girls coming from single sex schools is a great deal better. That is true for both the
1308
maintained and the independent sector. Those who take seriously the notion that this is an untapped reservoir of national talent ought to be prepared to review their educational assumptions in order to bring about such desirable recruitment.
As I have said, it seems that in our society and as individuals—for whatever reason it may be, and historians may trace it back over many decades—we have lost the capacity to enthuse people with risk-taking. We have lost the capacity to find a way in which society can make people feel that taking risks, whether in research or industry or in discovering or producing things, is something infinitely worth while. That is at least a partial if not a total explanation of the brain-drain, the evidence for which is now, I think, conclusive.
On that subject I should like to make another remark, which is that by singling out science and technology we may overlook the fact that universities and other institutions of higher education have to be viewed as a whole. It is only in an institution which is throughout full of innovation, dedicated to research and concerned with teaching that the right atmosphere will be created. Although much less fuss is made about it (I agree that the immediate economic effects are harder to measure) the fact that we are now losing scholars in the humanities to the United States at an increasing rate is a course of worry to me.
I hope that at some time your Lordships' House will not be satisfied with having a Select Committee on Science and Technology, useful though its deliberations and reports are to all of us. I should like to see a committee, perhaps permanent, perhaps ad hoc, on this country's human resources. Earlier in the debate someone said (it may have been the noble Lord, Lord Gregson) that the human resources are roughly what we have. I do not think that we make the best of them. It is our business, going beyond these desirable administrative improvements, to take a serious look at why it is that we do not.
10.26 p.m.
Lord Carver: My Lords, I must also apologise to the House, to the noble Lord who will wind up and to the noble Lord, Lord Sherfield, for the fact that I am unable to be here at the end of the debate. I have an important engagement in the country first thing in the morning and I must catch the last train home. I am most grateful to the noble Lord, Lord Nelson of Stafford, for agreeing that we should change places in the speaking order so that I may do so.
I wish to draw your Lordships' attention to that part of the report which discusses and makes recommendations on the relationship between civil and defence research and development. I must make it clear that, although I am a member of your Lordship's Select Committee on Science and Technology, I was not a member of the sub-committee which produced this report and I made no contribution to it. My excuse for commenting on it is that I have direct experience of that relationship.
I made some comments on this subject when last year your Lordships discussed the report on marine science from the sub-committee on which I served. As on that occasion, I find that there is a considerable

1309
degree of confused thinking on the subject, leading to recommendations which tend to conflict with one another. In this report the committee has tried to clarify the issue, but I am afraid that in an attempt to reconcile conflicting opinions it has supported some views which are in conflict and at variance with one another.
What do the critics say? They can be divided into three categories. The first comprises those who deplore the fact that the Ministry of Defence spends so much on research and development. Secondly, there are those who suggest that the Ministry does not spend enough on research, whatever it may spend on development. Finally there are those who do not dispute the amount spent but suggest that it should be spent differently.
If I may, I shall take them in turn. First, there are those who deplore the disproportion between what the Government spend on defence R&D and that which, through other government departments and via the Department of Education and Science (through the research councils), they spend on civil R&D. In addition to the latter, there is the considerable sum handed out through the UGC to support research in new universities.
The report effectively dismisses the simplistic view that if the government finance devoted by the Ministry of Defence to R&D were reduced, it would be reallocated to the civil science budget. But it supports the criticism that defence R&D, both in-house and in the defence industry absorbs a high proportion of what are called QSEs (qualified scientists and engineers), of whom there is a national shortage, to the detriment of their employment in civil work, which would enable us to compete more effectively in world markets and so become richer, and thus be able to afford more and better defence. That is linked to another basis of criticism: that the major defence firms have been feather-bedded with cost-plus contracts so that they have been able to employ large numbers of QSEs in a wasteful way, paying them high salaries but making no effort to see that their work had a spin-off in the civil field.
I think that much of the criticism on that general score is exaggerated, if not actually false. However, I believe that there is some substance in the criticism that the major firms in the defence industry have been less cost conscious than they should have been and have expected the Ministry of Defence to foot the bill for many extravagances, including all the research and development which lay behind the product, whether finished or unfinished—sadly, often the latter, of which Nimrod is only the latest in a long line. I recognise that the Government have made efforts to remedy this disease and I shall comment on the whole vexed question of spin-off later.
There is one simple solution to the criticism that the Ministry of Defence spends too much on R&D both in proportion to civil R&D and to its own equipment programme as a whole; that is, to buy equipment that has been developed by somebody else. That would also often assist standardisation either within NATO as a whole, if it were American in origin, or in Europe, if it were French, German, Italian, Dutch or Belgian.
1310
It could either be bought outright or manufactured under licence, as many items of service equipment already are. All those QSEs, technicians and skilled workers who are now involved in the development and production of defence equipment would then be free to concentrate on meeting the needs of civilians, boosting exports and replacing the imports which every surge in personal income attracts.
But would that be the result? I beg leave to doubt it. I think that a large proportion would become unemployed, or seek work overseas, as would many scientists and research workers in firms, universities, polytechnics and Government civil research institutes, as well as in defence R&D establishments. A great many firms would protest, as they often have, that, far from releasing resources for them to compete more effectively in world markets, it would gravely prejudice that, and I am inclined to support that view.
What then of the criticism that the MoD should spend more on research? Those that take this line make unfavourable comparisons with the Pentagon, which is prepared to place research contracts in industry, in universities or with research contractors for the type of basic or strategic research which in this country we expect the research councils to foster. The Ministry of Defence's answer is that the money it extracts from Parliament must be spent on R&D directly related to the provision of equipment for the armed forces, and that it is not its job—and in any case it is not given the money for it and cannot afford to spend it—to go in for speculative research which might or might not have a significant defence application. Nevertheless it funds some research in this field jointly with the Science and Engineering Research Council. But I get the impression from scientists who are working on such contracts that they would prefer them to come directly from the Ministry of Defence, SERC's involvement merely in their view adding an unnecessary bureaucratic interference.
My experience and impression is that the Ministry of Defence has become significantly more parochial in this respect over the last 20 years as the cost of equipment has escalated, leading to reductions in the number of equipments and therefore of combat forces and to constant pressure for economies. The Government's decision to make severe cuts in the ministry's R&D establishments, farming out R&D in theory to industry, has aggravated the situation. The R&D establishments maintain a much closer link with academic research staffs and laboratories working in the civil field than the defence industries have ever done, with a cross-fertilization that has benefited both.
The criticism that the MoD's obsession with secrecy, which has been compared unfavourably with that of the Pentagon, is one of the principal obstacles to a more enlightened attitude to research, may have some validity in a few cases. However, it is seldom as restrictive as the secrecy practiced by industry for fear that a rival firm may profit from the research and development that it has initiated or undertaken
The ministry's critics on this score tend to overlook this cross-fertilisation between scientists working in the Ministry of Defence's establishments and those working elsewhere, including those on extra-mural research contracts placed by those establishments in

1311
universities. There is a tendency on the part of industry to wait for academic scientists to come along and suggest that they might have something to contribute, rather than to go out looking for ideas. And the Ministry of Defence, I suggest, has a better record in that respect. No doubt it could be improved, and perhaps we need to get back to that fruitful relation between military staff and scientists that was created in the Air Ministry half a century ago, of which radar was one of the outstanding results.
Finally, what about the suggestion that the Ministry of Defence should maintain its level of R&D funding but spend it in a different way? I have already discussed one aspect of that, but one which would involve more expenditure on research. This other criticism concentrates more on the development aspect, suggesting that more should be done to see a greater spin-off in the civil field from the development of defence equipment.
There are widely differing views about spin-off. The Ministry of Defence itself wavers between claims that there is a considerable spin-off, particularly in the electronic and aerospace fields, and a cautious warning that, on account both of the wide divergence between defence and civil requirements and of security considerations, too much should not be expected. In general, the firms which are engaged in defence contracts on a large scale claim that there is an appreciable spin-off in both directions; defence profiting from developments initiated with the civil market primarily in mind and vice versa, while those who are not engaged in defence work, or only on a minor scale, protest that much more could be achieved in both directions.
The research councils paint a picture of almost total separation, but that is because Ministry of Defence research contracts placed in universities or with the research councils' own laboratories, unless they are joint ones with the research council in question, do not pass through the hands of those councils.
Surely nobody can doubt that in general terms research and development to meet defence needs has had very significant spin-offs both in the academic and in the commercial fields. There are valuable spin-offs in the creation and maintenance of a body of highly qualified scientists and engineers whose knowledge and skill is available in non-defence fields, and a very important one in materials research, which is stimulated by the demanding criteria of meeting defence needs. It is materials research which is at the bottom of an enormous amount of development: in actual hardware, aircraft, the whole field of sensors, computers, radio communications up to and including the use of satellites, both for communications and for remote sensing, optical instruments of all kinds, lasers, launchers to place objects in space—all those have originated in military requirements. However, when they have reached an advanced stage of development, effort devoted to their further improvement for military purposes may contribute little spin-off in the civil field, which by then will have developed its own specialised requirements. It is at that stage that we should look carefully to see whether a considerable effort on defence R&D in that particular field is bearing fruit, or whether it might not be better to adapt
1312
for defence purposes what has been developed to meet a civil need. That is what has largely happened in the military vehicle field.
Of the recommendations on this subject, which are summarised on page 66 of the report, I fully support paragraph 37; that civil and defence R&D budgets should normally be recorded separately and that a thorough examination of defence R&D should be an early task of the Science and Technology Assessment Office, and the proposed Council for Science and Technology. I also support paragraph 739, which suggests that a more detailed annual report on defence R&D should be published. I am afraid that for the reasons that I have explained at some length I have reservations about the other recommendations in those paragraphs and in 738. That said, however, I fully support the general theme of the report and its principal recommendations. I consider it to be an extremely valuable one, to which I hope the Government will respond positively.
10.40 p.m.
Lord Butterworth: My Lords, I should like to add my congratulations to the noble Lord, Lord Dainton, upon his excellent maiden speech which was as authoritative as it was graceful. I am delighted that he has been able to join one of the committees of the Select Committee on Science and Technology.
Undoubtedly the main theme which has emerged this evening is the serious under-funding of science. However, I should like to spend a little time upon a factor which lies behind it and to which somewhat less attention has been paid this evening. I am referring to the need for selectivity which will continue even if the funding for science is much improved.
Research is becoming so expensive; equipment and apparatus are becoming so costly; and too frequently manpower is in short supply that we have with us, as a permanent factor, the need to select the projects to be funded. No longer can we assume that we can afford all worthwhile projects. As a result of the need for selectivity, we begin to need a co-ordinated programme of priorities continually updated over what is necessarily a wide, complex area. That is one of the reasons why the council was put forward.
There are three complex areas: first, the science base represented by the work in universities and research council laboratories; secondly, the research and development undertaken by government departments themselves; and, thirdly, the research and development undertaken by industry. Your Lordships will be aware that this process of selectivity has already gone a long way in each of those three wide areas.
The UGC has undertaken its selectivity exercise in relation to the grading of science departments in universities. That exercise is important, because it contains a very important shift of policy. It has inevitable long term consequences which may well bring fundamental changes to the whole university system.
While the universities are themselves in favour of selectivity, they are concerned about the problems that have arisen for them because of the decay of the dual support system. There is a fundamental dilemma here which will require a great deal of thought and

1313
planning. On the one hand, selectivity among departments is becoming increasingly necessary. There are distinguished chemists who point out that the cost of equipping chemistry laboratories to international standards are now so great that this country will soon be able to afford no more than 10 or 12 departments equipped to that standard.
On the other hand, the UGC's contribution to the dual support system ensures that young researchers are enabled to develop during that crucial period before their work becomes so mature as to enable them to apply to the research councils for full research grants. If universities can no longer make provision for those young scientists, the next generation of young scientists will simply not be developed. The need for selectivity in industry has already been commented upon this evening. I would not wish to express a concluded view about ACARD's recent report on a process for identifying exploitable areas of science. It is too early yet to tell. However, recently an interesting report published in America showed that even there, with their enormous wealth, what a hit and miss business commercial breakthroughs are from a scientific base. The report quotes how Sir James Black took the idea of Tagamet to Smith Kline, an American chemical firm, after ICI had turned it down. Eventually Tagamet was the world's first drug to achieve sales of over 1 billion dollars.
It is interesting that in Smith Kline the eventual success of the drug is alleged to have been due to a bunch of stubborn British employees who refused to stop working on it. I believe that behind this there lies a very important lesson: inventors and scientists alone do not make commercial breakthroughs. Success needs teams of people and co-operative managers working in industry. Breakthroughs often occur when the product is pushed through by technology and not market-led.
I turn to government funded research and development. This causes particular problems for selectivity because each department determines its own research programme to support its own policy objectives in the light of its own priorities and in relation to its other costs. It is therefore particularly difficult to arrange priorities between different research programmes of different government departments. I understand that it is for that reason that the Cabinet has set up the committee, which was referred to earlier, so that priorities can be accorded to government research.
There are therefore two major problems: first, to raise the whole significance of science and technology to a higher power in national consciousness and at the same time to be more selective and concentrate our effort in research and development whether it is funded as part of the science base, or is funded by government or industry.
It was for those reasons that the Committee made its recommendations that the Prime Minister should be identified with the science and technology dimensions and that in Cabinet a specific Minister should be responsible for science and technology issues.
1314
Perhaps I may spend a few moments speaking about the Council for Science and Technology. The committee did not give great detail about how it might work. I believe that some of us were inclined to think that this would be a new British model which would, to some extent, follow part of the Japanese experience. What is needed is almost a new type of body. It is quite an interesting constitutional problem. It simply cannot be an advisory body working at a distance and independently of government, for such a body would not discharge the tasks that we had in mind.
On the other hand, it is quite clear that the Government must take the decisions alone. The problem is that neither industry on the one hand nor government on the other can themselves determine the priorities and complex programmes over these very wide fields. Such complexity requires a great amount of detailed work, and if on the council there come together members from government, industry, if scientists are included, academics and others, those members must be willing to work within government guidelines and policy, and they need to be serviced by a strong team probably drawn from the Cabinet Office. An expanded ACARD could not meet this need, for ACARD is a simple advisory body, although, as the report suggests, the ACARD function could be absorbed into the council if it were to be established.
One extra point I wish to add about the council: I do not think it would be effective if it dealt only with research. I think it would have to have within its terms of reference not only research but training too for the reasons that have been given earlier. Research and training in this field must be considered together. Training is quite fundamental.
I wonder whether I might be allowed to give just one specific example which has occurred recently. There are a significant number of school-leavers who would like to become engineers or mathematicians but who have wrecked their chances of so doing because they took the wrong A levels. Indeed, the output of higher education is often thought to fall short of the national need in respect of the numbers who become mathematics and physics teachers, and of course those who become engineers.
The number of physics and mathematics teachers and engineers could be increased if courses were provided which assumed that entrants did not have the correct A levels. Such courses would obviously take longer. They would take four years. The real obstruction to putting such courses on is the difficulty of getting mandatory awards for each student for the full length of four years. If my noble friend the Minister could prevail upon her right honourable friend the Secretary of State for Education to help in this matter, he might be asked to ensure that a more positive attitude should be adopted to this problem by the awards branch of his department.
The new council then could help to create new national attitudes towards science and technology, research and development; land from a recruitment point of view research and technology have to be fun and they have to be financially rewarding, otherwise the brains will flee, like the hearts, to where they are best loved. It must be a matter of great concern today

1315
that Britain's most assured export seems to be our well-trained technical people.
I have only one last point to make, and I do not need labour it. But listening to the evidence from some quarters, I too formed the view that too many were unaware of the real nature of our problem. Indeed, listening to some, I formed the view that today maybe our greatest danger is ignorance of ignorance.
10.55 p.m.
Lord Nelson of Stafford: My Lords, I add my warm congratulations to the noble Lord, Lord Dainton, on his excellent maiden speech, which reflected, as one would expect, his depth of experience and characteristic wisdom. I also pay tribute to the noble Lord, Lord Sherfield, for the excellent report which we have reviewed this evening and which I fully support.
At this late hour, having listened to the very good speeches we have heard, I shall not dwell on the problems. They have been well aired and it has been made clear in the report that they are serious. I concentrate my remarks on some thoughts on what might be done in the short term to improve the situation.
My first thought stems from my experience and privilege of being a member of your Lordships' Committee on Science and Technology. All the reports we have had in recent years, particularly the one which the noble Lord, Lord Sherfield, presented to us, bring out one thing in my mind, and that is the extreme danger when, quite rightly, the Government are attacking public expenditure of the very blunt tools that are available to them.
I have in mind particularly the so-called cash limits. We have seen on many occasions the application of those cash limits, good as they are and good as the objective is, reflecting more than proportionately on the research and development spend in the areas affected, possibly because that is easier, possibly because it is not so publicly obvious.
But there is another danger—that what is cut out is the more expensive element in the research and development programme; the "D", the development. It is the development that ultimately makes the research into an end product, as was explained by the noble Earl, Lord Halsbury. It is the "D" that finally produces the results. The equipment which is provided for the scientists to enable them to do their work is also in danger of being cut. It is no good spending the money on research—it is no good spending it on development for that matter—if the right equipment is not available. These are the two things which tend to be cut out. I commend to my noble friend the Minister that in attacking this grave problem of public expenditure that special steps are taken to ensure that research and development is not damaged in those areas where it is of vital importance to the country.
My next thought relates to an area in which I have spent a lifetime; namely, manufacturing industry. I have always been in an industry which has had a very high research and development activity, the electrical industry. The company with which I have long been
1316
associated has a vast research and development programme. It is currently running at £285 million per annum in the civil field to its own private account. This is a massive programme.
Two things strike me. The first is that it is not in the end the amount of money that is spent—one has to spend it—but how it is spent. This is something we have to keep our eye on all the time. It is no good saying, "Spend more money. Throw money at it", as has been said earlier in a number of speeches, but how will it be spent. Are we getting value for money?
Secondly, looking back over my experience where there have been failures—there are failures; we have had failures and other people have had failures—it has nearly always been for lack of development. It has not been for the lack of research; it has not been for the lack of ideas. But the development has been starved and the product has not been seen through to completion. This is the matter to which we have to address ourselves.
With that background, your Lordships will appreciate that I do not dissent from the report's recommendations that industry should do more. I agree with that: so it should. But there is a role for government as well and I should like to emphasise two points which are made in the report, and quite rightly too.
First, the Government have to maintain the fundamental research base. That has been touched on by a number of speakers and I do not think it needs further emphasis. It is vital. The second point is that government have to create the right climate whereby industry is stimulated and encouraged to invest in its own research and development.
Here there are two specific areas, both of which are vital and both of which, I am glad to say, are touched on in the report. First of all there is the role of public purchasing. That has been touched upon already but I am going to spend a little more time on it because I think it is one of the most important matters of all. Public purchasing in a number of areas means that it is the sole British customer; it is the sole home market. It determines the R&D programme of the companies which are supplying those industries.
People will say this is already being done and that public purchasing supports British industry. So it does in some areas, and I would quote one of them. When the noble Lord, Lord Ezra, was chairman of the National Coal Board it had an excellent programme in supporting British industry and developing mining equipment. The result was that the British mining equipment industry sold its equipment all over the world, and it was developed during his period as chairman. That is a perfect example to my mind. But it is not happening everywhere. There are large areas of public purchasing where it is not happening and people cannot see that they are setting the standards for British industry. I was reading the other day an ACARD report on medical equipment. Here it is. It makes the point that that is not happening in the medical equipment field. I could quote other examples.

1317
But if we are to have the equipment necessary to do the job at home and to sell overseas, we must have a fully co-operative approach on the part of both user and supplier. We have heard on many occasions of the success of Marks and Spencer in just that. The same holds, to my mind, inthe public sector. Perhaps I may say to my noble friend the Minister, "Please see that all public sector purchasing activities are directed to this end, and also those which are being privatised but are still monopoly services".
The second thing I should like to do—and this comes right back to my noble friend's department—is to reinforce the suggestion made in the report that there should be more DTI support for industry. I am not asking for more money to be thrown at industry. What I am going to draw your Lordships' attention to is what our competitors do, particularly those on the Continent. They go in for many more demonstration projects, jointly funded by industry, by the user and by government. That is very, very effective because it attracts money from industry and gives stability to the programme. It gives the home customer an opportunity to introduce innovation into his service and at the same time proves to the overseas customer that the project is being properly developed, is being demonstrated in service and has the full backing of industry, user and government.
That is an extremely effective way of ensuring our success in a new technological field, particularly where innovations are involved. I commend this most strongly to the Government. More could and should be done in this field, and it would attract a lot more money and a lot more business from outside in the process.
The report recommends the publication of R&D expenditure in company accounts. The company with which I have been long associated has been publishing its R&D figures for years now. I fully support the proposal, or at least I have no objection to it. But one has to be aware of the problems. If this is to have the effect of discouraging "short-termism", or whatever is the latest phrase for a short-term outlook in the financial world, I am all for it. That is very good. It is exactly what we want to have. But is it? Is it going to be clear to the analyst what these R&D figures really mean
If you ask somebody what they are, the standard answer of the department and elsewhere is "Ah, the FRASCATI formula". But look at the FRASCATI formula. It defines basic research. It defines strategic research. But when you come to development, it is as long as a piece of string. Is a new process plant development or is it production investment? Is a new productive process development? The noble Baroness, Lady White, referred to computer integrated manufacturing systems. Is that development or is it production investment? If someone is introducing a novel new product under a contract, is that development or is it contract work? There is a wide range of definitions of what is research and development.
What I am afraid of is that unless you are very careful, unless there are clear definitions of what R&D
1318
means, the analysts will make what they like of it and it will not necessarily be helpful to the cause we have in mind. So I ask if this is followed up, and if legislation is introduced on this matter, please let us have clear-cut definitions of exactly what is to be included.
There is one final point that I would make to the Government. I think that they should go more public in emphasising their support for civil R&D. It can be talked about around Whitehall and so on, but you must put it across to industry as a whole. It must be seen that the Government are receptive to ideas for research and development. If they are to encourage industry to do its own thing, let it be seen that it has the encouragement of the Government. The Government must go much more public in putting this across. Equally, they must demonstrate their willingness to come in with industry in key areas where our research and development will bring us real benefits in the future.
11.7 p.m.
Viscount Blakenham: My Lords, I believe that the structural recommendations made in the report are very important and they do not cost money. A compact Council for Science and Technology, absorbing ACARD and chaired by the Prime Minister or a senior Minister, a streamlined and more executive ABRC working closely with the research councils and the councils themselves working more closely together, should produce more direction and better results.
It is late and I shall be brief, but as a business man I should like to address a few further remarks to your Lordships' House in the hope that the Department of Trade and Industry is also listening. None of these remarks will be expensive. First, the general disclosure of R&D expenditure in company accounts, to which my noble friend Lord Nelson referred, the importance of which has been pointed out by many noble Lords, just will not happen unless it is made compulsory. It happens in a few cases but, on the whole, it will have to be made compulsory, and the sooner it is made compulsory the better. Of course there will be problems, but I think that the analysts will appreciate it, because it will give them the ammunition to ask the right questions if they do not get the picture straight away.
Secondly (and I am thinking here of merger policy) the DTI should do what it can in this and other ways to encourage investors to take a longer-term view than many take at the moment. Thirdly, tax incentives would be encouraging in the short term, and in the long run would prove to be cheap. I should risk the danger of creative accounting.
Fourthly, I should like to draw attention to two private enterprise initiatives designed to get more "D" our of R&D. With both I am pleased to declare a commercial connection. The first is Defence Technology Enterprises, which is mentioned in the report. I quote from page 21:
"DTE has privileged access to MoD scientists for the specific purpose of identifying and exploiting spin-off opportunities in the defence research establishments. DTE has a 'ferret' in each of the main establishments with access to both classified and unclassified

1319
work to spot potential civil applications… In the first twelve months 450 items have been identified for circulation to its 150 associate members, many of them small companies. When an item is selected by a company DTE is prepared to assist, if necessary, with the raising of finance for exploitation".
The second initiative is a national on-line database named BEST—British Expertise in Science and Technology—which enables subscribing companies to know who is doing what research in which British university, polytechnic or government research establishment and how to get in touch with them.
I hope that these two initiatives will establish themselves commercially without needing financial backing from the Government. But because the sums, in Government terms, are small and in spin-off and multiplier terms could be extremely large, I believe these are the sort of projects on which the DTI should keep a close eye, with a view to helping in whatever way it can.
The point I wish to make is that the resources for research and development are scarce and as a result, I think both Government and industry must combine closely to make the most of what is being spent.
Finally, as a member of the committee that produced the report, I should like to thank the noble Lord, Lord Sherfield, for the brilliant way in which he chaired our meetings.
Baroness Seear: My Lords, the hour is late and I shall be extremely brief. Your Lordships have had a quite outstanding debate this evening and I can only echo other noble Lords who have said what a pity it is that we were not able to have it at an hour in which it would have been heard by a far greater number of people, as it undoubtedly deserves to have been.
Of the remarkable contributions which we have had this evening, I think that all your Lordships will agree with me that perhaps the most outstanding came from the noble Lord, Lord Dainton, in a maiden speech which I think few of us have heard paralleled at any time. If I may humbly echo the noble Lord, I was particularly impressed by his suggestion for a single research council. It would be a means of breaking down barriers between different faculties and subjects at a time when what we surely need is a great deal more multi-disciplinary research in order to approach many of the problems confronting us which require research at the present time.
The noble Lord did not make it quite clear whether he intended this, but I hope that in that single research council could be included the social sciences as well as the natural and physical sciences. I think that it is the joint working together of all the sciences which will be most likely to help us solve the problems with which we are confronted by advancing knowledge in the whole area.
That said, I wish to spend a very few minutes on one aspect which I think has not been discussed tonight, though one or two noble Lords have touched upon it. We have talked a great deal about research and about development. This is what the report is about. But it is also about the application to the problems of the economy of research and development, and unless
1320
they are used to improve the position of the economy, of industry and of manufacturing industry particularly, although not exclusively, the future for this country is extremely bleak. This is a matter of the greatest urgency.
We have spent six hours talking about the subject but time is running out, not only in your Lordships' House. Time is running out for dealing with the problems that we are discussing today. Other noble Lords have referred to the articles in The Times this week—and very alarming they are—about our position in comparison with other countries. Research and development are essential but it is no use having research and development unless we have the people in the country at all levels capable of making use of the research and development. This means not only the scientists and the technologists but the technicians and the great mass of people. They must join in the application of the newly discovered and developed ideas and apply them up and down the country in new industries and in old industries if we are to have the recovery which we are seeking and which is the focus of the discussion tonight.
That means education. We have talked a good deal about education in one way or another in your Lordships' House over the past two or three weeks, but the fact remains that unless there is a quantum leap in education we can spend money on research and development and it will have precious little effect on the economy, on rebuilding industry—the manufacturing sector and elsewhere—and on recovering our place in the world economy. It is not something over which we can afford to delay or with which we can tinker.
We are woefully behind in comparison with our competitors in the level and type of education that we give to our school-leavers; we are woefully behind in the proportion of our young people who go to polytechnics and universities. This is a most extraordinary moment to be cutting down on government support for universities both on the teaching and on the research side, as is going on at the present time. We need to be improving and increasing, not cutting down. Unless we do this the money that is being put into research and development will be of no use because it will not be applied. This is where we have failed so lamentably in the past. We have had great ideas and great scientists but we do not follow through in application and development because we have a totally inadequately educated and trained labour force.
It is no use the Government saying that 20 colleges of technology is the answer to the problem. What is needed is a general lift throughout the whole education scene; at the school level, at the university level and, above all, at the retraining and the re-educating level.
The burden of the report—this point has been echoed in many of the speeches today—is that the rate of change is now so fast that people have to learn and relearn. As one noble Lord said, they are out of date by the time they have finished their first degrees. This requires an investment, and I use the word "investment" deliberately. So often we talk about education as if it were purely a consumer good. It is

1321
indeed a consumer good; it is also and essentially an investment. Without the money put into that investment the aims behind the speeches of noble Lords this evening will be lost.
I do so hope that the Government will at last recognise—and I know that with the difficulties there have been in the schools it is hard to take the overall view that is required—that this is a matter of the greatest urgency. Unless they do so the present decline will continue. It is no use the Government pointing to some increase in the GNP and to some improvements in productivity. The general trend has been downwards. I hope that the Minister will not insult the intelligence of the House by telling us that everything will come well if we leave it to market forces. This is a matter of great urgency and this is the area on which we desperately need to concentrate.
11.20 p.m.
Lord McIntosh of Haringey: My Lords, the House and the country owe the noble Lord, Lord Sherfield, and his colleagues a great deal for the signal service that they have performed. They must feel, as I do, that it cannot simply be an accident that the business managers have chosen that the debate should take place so late and that so much of it should take place without the benefit of television cameras. I make no apology for saying that it is a debate that ought to be at the forefront of political discussion—politics in the widest sense. I do not believe that this is a technical matter. I believe that it is a matter on which the survival of our society depends. That is what I take politics in the best sense to be about.
There cannot be any doubt about the state in which we find ourselves. It needs only two sets of figures to be quoted, and all the excuses drop away. The first figures that have to be quoted are those showing the proportion of our gross domestic product that goes in civil research and development in comparison with our major competitors in world markets. I will not go back into history. There is no point in saying that this is what happened under this or that Administration in the past. The fact is that we now spend 1.6 per cent. of our GNP on civil R&D, the French spend 1.7 per cent., the United States, which has a vastly higher defence research and development expenditure, spends 1.9 per cent., and Japan and Germany both spend 2.5 per cent.
I said now, but, of course, the figures stop at 1983, a fact that The Times describes as putting our heads in a paper bag. We do not have adequate data since 1983 on the total of our research and development expenditure. I was encouraged to hear that it is intended that the annual review will this year make an attempt to cover all the figures.
I will not bore the House with the second set of figures. It is well known that our industrial production, our manufacturing, is lower now than it was in 1980. It has been creeping up again in the last couple of years, but it is still lower than it was seven years ago. This is in contrast to the performance of our rivals in world markets. We cannot draw a causal connection
1322
between the two sets of figures, but we cannot deny the coincidence of them, and the fact that they both work in the same direction gives us some cause for concern.
It is against that backdrop that I find the attitude of the Treasury, brilliantly exposed by the noble Lord, Lord Beloff, to be so inadequate and so pathetic—the idea that it is not possible to identify a link between industrial success and research and development expenditure. It was not just the noble Lord, Lord Beloff. The noble Lord, Lord Aldington, made the same point, as did the noble Lord, Lord Ezra, to quote only those who are still present. It is simply not adequate for government or the executive to make that sort of feeble excuse to try to get away from the responsibility for changes in policy.
The words used by the Minister of State in The Times today—that government policy should be to act as a catalyst—are simply nowhere near adequate to meet the gravity of the problems that we face. We must spend a moment or two looking at the causes of the problem.
My noble friend Lord Gregson set out the problem of our intellectual capability very clearly. It starts, as many noble Lords have said, at school with a school system where there are large numbers of unfilled posts in mathematics and science; where, even when the posts are filled, they are filled by people who are unqualified, or inadequately qualified, in the disciplines; and, even where the posts are filled by people who are adequately qualified in the disciplines, there is a concealed deficiency because there is not enough time-tabling going on in the schools for science and technology. That can hardly be an adequate basis for producing a higher education system which in turn will do the job which the country requires of it.
However, when we come to the higher education system the situation gets progressively worse. We have, as my noble friend Lord Gregson said, one of the lowest participation rates in higher education in the developed world. Within that low participation rate we have one of the lowest percentages of technologists in the total number of students. Even among those technologists who do graduate from higher and further education in this country a higher percentage do not go into industry or do not stay in this country. So in every way the whole process of our educational system militates against a large and adequate number of trained people in our industries.
Again as my noble friend Lord Gregson said, even if we accept that the entry qualifications are adequate, the amount of adult training available in technological subjects is simply not enough to maintain the capability of our workforce to deal with the changes in technology which take place throughout our working lives.
The failings of our industrial organisation were exposed in a devastating way by my noble friend Lord Gregson. The fact is that not only do we not have an adequate level of research and development—that has already been said—but there is no real incentive for large parts of our industry to have adequate research and development. I make obvious exceptions. The noble Lord, Lord Nelson of Stafford, quoted the figures from his own company. I think he will agree

1323
that there are comparable figures from Plessey which were quoted in The Times only today. There are other shining examples of adequate research and development.
However, it goes against the whole grain of our industrial strategy with pressures on our industrialists, who are all the time being forced to make short-term decisions, to push up dividends, to push up share prices and to resist all the pressures for take-over and merger which are considered far more important than the longer-term issues of industrial development. We do not have an adequate industrial society to encourage the research and development which we need for our survival.
Is the cure in the organisation of civil research and development? I do not in any way devalue the proposals made by the committee. My noble friend Lord Williams stated his support for many of the recommendations of the committee. Personally, I do not think that a Ministry for Science and Technology would be particularly effective. I agree with the noble Earl, Lord Halsbury, on that; though I think a Minister in a powerful position with that responsibility certainly would be valuable. I agree with the suggestion for a Council of Science and Technology. There is a great deal of difficulty in some of the suggestions as to what the UGC might do. Certainly it has improved its selectivity, and that means, inevitably, that it is moving towards centres of excellence; but there are doubts about the analysis method which is used by the UGC in producing that selectivity.
The noble Lord, Lord Dainton, in an excellent maiden speech, made a strong case for a national science foundation. I know that it works well in the United States and I know that it includes both the physical and the social sciences. There may be some mileage in that. Certainly there appears to be general agreement that disclosure of research and development expenditure by companies would be a valuable addition to public awareness and would put pressure on companies not to skimp on research and development. There are also other valuable suggestions such as the use of public purchasing power.
But, when it comes down to it, what must lie behind all this is the question of how we are to get the level of effective expenditure closer to that of our industrial rivals. How shall we go from 1·6 per cent. to, let us say, 2·5 per cent., as in Germany and Japan? It is not just Mr. Gosling of Plessey and the noble Lord, Lord Nelson. Sir Peter Swynnerton-Dyer said that it is not a question of the balance between the channels of funding, but a matter of there not being enough money going into any of the channels, and that is the problem.
The preference of my party on this matter and the policy that I urge on your Lordships mean fundamentally that increased and more effective expenditure must be pulled by demand for the products of research and development rather than pushed by technological possibilities. It must be very closely associated with industry rather than thought of as an extension of academic subjects. Of course, we could increase the science Vote. We could almost certainly add another £400 million or so to the science Vote by approving all the alpha projects instead of
1324
only 75 per cent. of them. We could certainly do better by providing competitive salaries in international terms to those working in research and development. There are some things that we could do in government research and development in energy, the environment and so on, and we could perhaps spend another £200 million in those fields, but I do not see them as being of central importance.
In order to achieve 2·5 per cent., we must talk about an additional £4 billion spent by industry on research and development that is encouraged and partly financed by government. I do not understand the distinction made by the noble Lord, Lord Mottistone, between fiscal measures and grants, because in effect both of them involve public expenditure, whether foregone or made directly. In order to spend that amount of money it is quite clear that there will have to be very great controls over the effectiveness of the expenditure. It is also quite clear that there will have to be improvements in manpower, and that in order for the expenditure on research and development to be of any value, there will have to be the possibility of investment in the results of research and development, and that must represent a very much larger amount than the amount spent on research and development itself. The gearing is absolutely critical.
We are not talking about something that is outlandish or outrageous; merely an additional £600 per employee in manufacturing industry possibly. That is a far smaller increase in expenditure per employee than there is already in the more advanced of our industrial sectors.
If we have learned one lesson from Dr. Bruce Merrifield, President Reagan's adviser on this matter, it is that the need for technological advance and change will apply increasingly in all industrial sectors and not simply in those that are thought of as high technology sectors. In terms of the achievement that is needed in order to bring us up to international standards, we are not considering something outrageous but something which is manageable and which ought to be within the sights of government.
At this time of night I shall not go into the economic arguments about where the money might come from or what other expenditure or tax cuts might be used to finance it. I come back again simply as a last point to Dr. Merrifield. Unless we are making a decision to make technological research and development the highest priority, we are making a decision, Dr. Merrifield says,
"not to be in business in five to ten years".
That is what it comes down to, my Lords.
11.34 p.m.
Lord Lucas of Chilworth: My Lords, I have found the past few hours to be one of the most interesting and exciting experiences that I have had the pleasure of in your Lordships' House. It has been that kind of debate. Perhaps I should say straight away that, in common with other noble Lords, I am sorry that the events of the day's proceedings meant that we started a good deal later than we should have wished. I shall certainly ask my noble friend Lady Hooper to convey the feelings of your Lordships to those who are normally described as the usual channels.

1325
In the preparation of the Government's response, we shall want to consider most carefully everything that has been said today. I take note of the general tenor of the remarks of the noble Baroness, Lady Seear, in that context, although we believe that our education policies are moving in the direction that she would like, as indeed are some of our other policies.
It is difficult to answer the noble Lord, Lord McIntosh, with his broad sweep of the issues that the debate has covered. Were this 4.30 p.m. or 5 p.m., I should have liked to have followed him down the path along which he tempted me when he set out his party's views, but I do not think that your Lordships would like me to spend what little time we have today on that.
Let me say straight away that the Government are aware of the value of civil R&D in wealth creation and the generation of benefits to the economy and to the social environment in which we live. My noble friend Lady Hooper outlined the major developments initiated by the Government in the five years since the Select Committee's Report on Science and Government. These actions reflect this awareness. We cannot, however, agree (I say this to the noble Lord, Lord Sherfield) with the committee's conclusion that:
"The overall picture conveys an impression of turmoil and frustration".
On the contrary, government policy has scored some notable successes. Universities continue to be world leaders in many areas of science. I note, for example, that we must congratulate Sir David Phillips, who while being chairman of the Advisory Board for the Research Councils continues to be a working scientist. He, together with Professor David Blow, has been awarded the prestigious Wolf prize in chemistry for work on protein X-ray crystallography.
British industry, although still having a great deal of ground to make up, is becoming increasingly involved in Europe and other parts of the world in high technology developments with major commercial potential, such as that on high definition television. There are a number of sure signs of success.
The House will probably accept from me and recognise that with 40 recommendations in the report, all of which address fundamental issues involving several departments, careful consideration is required. Such consideration necessarily takes time. The noble Lord, Lord Sherfield, acknowledged that we hope to be able to reply fully before the Summer Recess. Noble Lords will understand if I do not anticipate our response to specific recommendations in the report but try to concentrate on the general issues which the report raises and some of the points which have been raised this afternoon.
One of the major questions to which the Select Committee addressed itself and to which many noble Lords have spoken is how the Government should organise themselves to support and promote civil R&D to the national benefit.
The committee's proposals for a Cabinet Minister to be responsible for science and technology and the promotion of R&D and for a council on science and technology need careful analysis. I rather enjoyed the comments of the noble Earl, Lord Halsbury, on that.
1326
I suspect that my sympathies lie somewhere alongside his.
The Government fully recognise the importance of ensuring that science and technology receive proper weight in all our deliberations. As my noble friend Lady Hooper described, there has been considerable evolution in the role of the exisiting advisory bodies such as ACARD and in the role and office of the Chief Scientific Adviser in the Cabinet Office.
I listened carefully to what my noble friends Lord Mottistone and Lord Butterworth had to say in that direction. I see no sense in demolishing what we have because there may be gaps in its effectiveness. What we have to do, and what we shall do—I give this assurance—is to consider whether further changes in that structure would be advantageous and if so what form such changes should take.
Another major issue addressed by the Select Committee is the functioning of the research councils and the ABRC in supporting the science base of the country. Again, we recognise the importance of strong management, clear decisions about priorities between the councils and for the science budget as a whole. Significant steps have been taken. In recent years, despite the science budget growing by more than average inflation, the increasing real costs of undertaking research and the growth of scientific opportunities have meant that difficult choices have to be made. Selectivity between areas of science, building up centres of excellence, giving proper weight to the economic contribution which advances in science and technology can make, are essential. I know that my right honourable friend the Secretary of State for Education and Science welcomes the strong guidance given by ABRC in this direction.
As Minister in the Department of Trade and Industry I welcome the emphasis that the Select Committee have placed on the industrial research and development contribution. I felt that the remarks of my noble friend Lord Nelson of Stafford in this direction were pertinent. Indeed, the committee pointed out that within R&D the main responsibility for D—the development—rests with industry. They also rightly emphasise the major role which must be played by the financial institutions in the City if there is to be sufficient investment for our future technological advance and growth. There has been support for this aspect of the committee's report from the noble Lord, Lord Gregson, and my noble friends Lord Bessborough, Lord Nelson and Lord Blakenham.
The Government accept that they also have a role to play but I believe that the committee—indeed, perhaps noble Lords here—have under-estimated the significance of the measures that the Government have taken. We have indeed given strong signals to industry and to shareholders of the importance of research and development in a number of ways of which I shall mention two. I mention these two because the noble Lord, Lord Williams, made this point. The scientific research allowance has been retained when other capital allowances against corporation tax were cut. Research and development has been included as a qualifying activity for the business expansion scheme. Those are just two of a number of measures.

1327
LINK, which has been mentioned, will be a major force in further increasing collaboration between science, industry and commerce. This will generate a constant stream of new industrial technologies, products and services. I should perhaps say that through LINK the Government will support up to half the cost of collaborative programmes between the scientific community, industry and government laboratories with the Government's contribution planned to reach £210 million over the next five years. Overall, this initiative will, we expect, generate a total expenditure of some £420 million over five years.
Perhaps at this point I may respond to some of the points that were raised. On the exploitable areas of science, and its relationship with LINK, I notice that the noble Lord, Lord Sherfield, nodded his approval when my noble friend referred to this in her opening speech. I should like to say no more than that, but welcome the support that the noble Lord, Lord Swann, gave for this process. Perhaps I could write to the noble Lord further. I should quickly say—since he asked me specifically about the Bide report, IT 86—that we have just received this document. As the noble Lord, Lord Sherfield, said, it was published at the end of last year. We are currently canvassing views and we shall issue the Government's response once this consultation is completed. I suppose that will be in a few months' time.
A number of noble Lords, including the noble Lord, Lord Sherfield himself, my noble friends Lord Aldington, Lord Mottistone and Lord Nelson, and indeed the noble Lord, Lord Gregson, all referred to the level of spending on research and development. The Government share the Select Committee's concern at the overall level of civil R&D expenditure in the United Kingdom. We do consider that the way the sourcing of funding is carried out and the extent to which the private sector's commitment is engaged are as important as the level of funding itself. In particular, public support of civil R&D for economic growth and productivity is unlikely to be effective if industry is not adequately engaged.
Government funding of civil R&D expenditure is comparable with other technologically advanced countries. It is higher as a proportion of GDP than the civil R&D spending of the USA and Japan. Despite the fact that the Government support R&D in industry to a substantial degree, it is in the performance of the private sector that the United Kingdom compares poorly with international competitors. I make no secret of that. In 1983, only 63 per cent. of R&D expenditure by industry was funded from industry's own resources in the United Kingdom. This compares with 73 per cent. in France, 82 per cent. in West Germany, and 98 per cent. in Japan.
I should like to refer to the reports recently published by the ABRC on spending on British science compared with major competitors. The reports, I accept, leave no room for complacency. However, the picture painted by them is not as black as suggested. Again I say that United Kingdom government spending on the science base is in fact higher as a proportion of GDP than that of Japan and the USA. The Royal Society study for the ABRC shows that in
1328
1982 the number of scientific papers published by United Kingdom scientists exceeded those of other countries.
The noble and gallant Lord, Lord Carver, raised the matter of skill shortages resulting from defence R&D. It is difficult to quantify an issue such as this, but we do accept that defence R&D is competing for skills, particularly in terms of numbers and quality of manpower. This is a major reason why it is government policy to seek to obtain economic benefit from defence R&D. In fact the Ministry of Defence is a partner in a LINK programme.
Turning to public purchasing, I broadly agree with what the noble Lord, Lord Williams, was saying on the question of public purchasing. I should like to assure my noble friend Lord Nelson of Stafford and the noble Lord, Lord Ezra, who emphasised the importance of exploiting public purchasing as an instrument for stimulating R&D in the private sector, that I agree with this view. It has always been this Government's policy that public purchasing should continue to enjoy a high profile as a means of stimulating innovation. Indeed it should be used to improve the competiveness of British industry. I believe that this does not necessarily mean always going for the cheapest price. Cheapest is not always best in the long term. There are the longer term considerations to take into account; I believe these were points made by noble Lords. We have to ensure that we get the best value for the taxpayers' money. That is why the central unit on purchasing, set up 18 months or so ago, is looking at this sort of issue and I have little doubt will be spurred in its work by what has been said in your Lordships' House.
We have spoken quite a lot about strategic research. The Government accept that support for such research is of crucial significance. The Government spending on this sort of civil research was £488 million in 1984–1985 and nearly a quarter of that—just over £2 billion in total—the Government spend on civil R&D. In part, that relates to what the noble Lord, Lord Sherfield, had to say. I noticed that the noble Baroness, Lady White, referred to Sir George Porter. The noble Lord, Lord Ezra, quoted the Royal Society's report as did my noble friend Lord Bessborough. Oddly enough, no one quoted Sir George Porter when he told the Parliamentary and Scientific Committee yesterday:
"We cannot blame the Government, because British firms received a much higher proportion of their R and D funds from government: 30 per cent. here compared with 16 per cent. in Germany and 2 per cent. in Japan".
That is perhaps a rather telling remark.
I turn to tax incentives which were raised by my noble friend Lord Mottistone, in part by the noble Lord, Lord Ezra, and by the noble Lord, Lord Dainton, in his remarkable maiden speech when he spoke about personal taxation and the brain drain. I noted carefully what the noble Lord, Lord Williams of Elvel, had to say on this matter, because it bears a little on his own party's policy in this area. Therefore, I say to the noble Lord that I note what he had to say.
The issue of stimulating private research and development through the tax system must be seen in a wider context. After all, substantial tax relief is already available on research and development expenditure. I have mentioned the 100 per cent. first year scientific

1329
research allowances for plant, buildings and other capital expenditure. In addition, for development, there are allowances for capital spending on plant and buildings and most current spending on R&D is allowable as a deduction in calculating profits. It is not clear whether further tax relief would be effective in stimulating additional research and development.
It may not be necessary, but I remind noble Lords of the Government's achievements in lowering coporation tax. I also remind the House of what Sir Robin Nicholson said in his evidence to the Select Committee. I paraphrase: "How much of the £3 billion reduction in taxation resulting from the removal of the national insurance surcharge did industry invest in research and development? The answer is, depressingly little". Nevertheless, we keep options for tax relief on research and development under review as, indeed, we keep matters of tax generally under review. It is in that context that one has to see the reduction in personal taxation that has occurred over the last two or three years.
The noble Lord, Lord Sherfield, mentioned the 10 per cent. surcharge for Government contracts. For the record, I was very glad to have the views of the noble Lord, Lord Rothschild, relayed to your Lordships by the noble Lord. However, I think it would be best if I wrote further on that subject.
The noble Lord, Lord Swann, asked me a specific question about evaluation. My noble friend Lord Selborne also made some comments in this area. It concerns the Select Committee's recommendation that approximately 1 per cent. of all government R&D expenditure should be devoted to evaluation. It is helpful to have the committee's views on this matter. It is difficult to say what is the right figure. It depends, in part, on how much the administrative and decision-making process is classified as "evaluation". The new Science and Technology Assessment Office has the job of developing best practice among departments. It will most certainly be considering how much effort to put into the various stages of the evaluation process.
I do not think that I can add much on the subject of international collaboration, to which my noble friend Lady Hooper referred in her opening remarks. However, in connection with Euratom and the pay scales, I shall write to the noble Lord, Lord Williams.
I make one short comment to the noble and gallant Lord, Lord Carver, and to my noble friend Lord Blakenham with regard to the spin-off from defence research and development to the civil sector. The Select Committee's report rightly emphasises the importance of encouraging spin-off of this expenditure to the civil sector. While the primary role of the defence research establishments' programme is to support the procurement of equipment for the armed forces, the Government accept that they have an important contribution to make to the broader national economy. A number of initiatives have been taken in recent years, and in particular Defence Technology Enterprises Ltd. has rapidly established itself as an important channel between the work of the MoD scientists and engineers and civil industry.
Selectivity in university research, which was mentioned by both the noble Lord, Lord Flowers, and my noble friend Lord Butterworth, is perhaps worth
1330
mentioning further tonight. The challenge of allocating selectively the resources provided to the universities in support of their research is one which we have taken up. The grants committee has, for the first time, explicitly identified those university departments with particular research strengths and its new method of funding favours universities with good research records. The new method of distribution is an important step towards the more rational allocation of public funds to the universities, and its introduction within a relatively 'short time-scale is an important achievement on the part of the UGC.
While talking about universities, perhaps I may refer to one particular point of interest raised by my noble friend Lord Cranbrook. There has been criticism of the pay of our university scientists as compared with the salaries which they can achieve overseas. I believe that our policy of selectivity and concentration will increasingly improve the facilities available to our best scientists. Indeed the Government have also offered to make additional sums available to finance higher pay in return for a flexible salary structure. That will enable higher awards to be made available for appointments in shortage subjects and for those whose performance merits them. We believe that this is a positive step towards improving morale in the scientific community.
I took note of the point raised by the noble Baroness, Lady Seear, my noble friend Lord Beloff, the noble Lords, Lord Ezra, Lord Gregson and Lord Dainton, on the shortage of skilled personnel as regards earlier education and training. I believe that they know that we have this matter in mind.
Lastly, I turn to the comments of the noble Lord, Lord Williams. He asked for a kick start. We believe that we have done just that. We have done more. We have given industry the fuel on which to run by providing a stable climate with low inflation, low interest rates and low taxes. With inflation brought down and significant improvements achieved in company profitability, liquidity and capacity utilisation, companies should be prepared to plough back more of their gains from these substantial benefits into investment in future commercial success, including innovation and the exploitation of research and development. I have already indicated that the City can also be a major influence in creating the right climate for research and development. The Government agree with the Select Committee that disclosure of research and development expenditure in company accounts would encourage a valuable change of attitude to research and development.
I noticed that a great number of noble Lords—the noble Earl, Lord Bessborough, the noble Viscount, Lord Blakenham, and the noble Lords, Lord Nelson and Lord Gregson—urged this. I welcome the progress being made by the Accountancy Standards Committee in drafting a standard on disclosure. I hope that support from noble Lords in this debate will encourage early implementation of the work.
I am conscious that I have rattled through a great number of important points. I appreciate that perhaps I have not dealt totally adequately with some points that noble Lords have raised. If the noble Lord, Lord

1331
Sherfield, and others will allow me, may I read carefully what has been said and identify those areas where I have not been able to make a comment, or where perhaps I should make a comment before the official Government response. If that is so, I shall write to noble Lords, placing, as is the custom, copies of my letters in the Library.
To conclude, I should like to thank the noble Lord, Lord Sherfield, his committee, and indeed the secretariat, for their valuable work, and thank noble Lords who have taken part in today's debate. Perhaps I may leave noble Lords with the assurance that the Government will give the closest attention to everything that has been written and said, and we shall hope to respond before the Summer Recess.
Lord Sherfield: My Lords, at this very late hour I shall be brief. I must express my regret that the debate was shovelled down to the end of the day's Order Paper. I realise that this may not be the responsibility of the noble Lord and the noble Baroness on the Front Bench, and I appreciate what the noble Lord had to say on the subject. Nevertheless the Government must have realised that this was an important debate which would attract an impressive list of speakers. I just hope
1332
that the impression will not get abroad that the priority that they have given to the debate reflects the priority that they give to the subject matter.
I have three points. First, I want to express my thanks to the noble Lord, Lord Dainton, for his interesting and attractive maiden speech. His experience will be invaluable to the House and in particular to the Select Committee. Secondly, I should like to thank all noble Lords who have taken part and supported me in the debate and particularly those who have managed to stay the course. Thirdly, I should like to thank the Ministers for their speeches without at this stage commenting on them. We shall scrutinise their remarks and also their figures with the greatest care.
Let me make just one last point. At the end of the day—and I think this came out in the speeches of several noble Lords—the crucial issue in my view is the priority to be given to research and development in relation to other areas of government expenditure. My Lords, I commend the Motion to the House.
On Question, Motion agreed to.
House adjourned at four minutes past midnight.

  HONG KONG ANNUAL REPORT
  HONG KONG ANNUAL REPORT
  OVERSEAS STUDENTS TRUST REPORT
  OVERSEAS STUDENTS TRUST REPORT
  HARINGEY BOROUGH COUNCIL: POLICY ON HOMOSEXUALITY
  HARINGEY BOROUGH COUNCIL: POLICY ON HOMOSEXUALITY
  FRIGATE REPAIR SYSTEM
  FRIGATE REPAIR SYSTEM
  LATE ABORTIONS: CONTROL ARRANGEMENTS
  LATE ABORTIONS: CONTROL ARRANGEMENTS
  METROPOLITAN POLICE:1987–88 EXPENDITURE ESTIMATES
  METROPOLITAN POLICE:1987–88 EXPENDITURE ESTIMATES
  LOCAL AUTHORITIES: CREDITORS' SECURITY
  LOCAL AUTHORITIES: CREDITORS' SECURITY
  LORD CHANCELLOR'S DEPARTMENT: ACCOMMODATION AT WESTMINSTER
  LORD CHANCELLOR'S DEPARTMENT: ACCOMMODATION AT WESTMINSTER
  NCC/FORESTRY COMMISSION CONSULTATION ARRANGEMENTS
  NCC/FORESTRY COMMISSION CONSULTATION ARRANGEMENTS
  BT: PLANNING CONTROL EXEMPTIONS
  BT: PLANNING CONTROL EXEMPTIONS
  NI: PRISONERS DETAINED DURING SECRETARY OF STATE'S PLEASURE
  NI: PRISONERS DETAINED DURING SECRETARY OF STATE'S PLEASURE
  SALMON DEALER LICENSING
  SALMON DEALER LICENSING